<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-07643
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PATIENT INFOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8090 16-1476509
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
46 PRINCE STREET
ROCHESTER, NEW YORK 14607
(716) 242-7200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MR. DONALD A. CARLBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
46 PRINCE STREET
ROCHESTER, NEW YORK 14607
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Jeffrey A. Baumel, Esq. Frederick W. Kanner, Esq.
Crummy, Del Deo, Dolan, Dewey Ballantine
Griffinger & Vecchione 1301 Avenue of the Americas
One Riverfront Plaza New York, New York 10019-6092
Newark, New Jersey 07102 (212) 259-8000
(201) 596-4500
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
- -------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
---------
All of the shares of Common Stock offered hereby are being sold by Patient
Infosystems, Inc. (the "Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for listing on the
Nasdaq National Market under the symbol "PATI."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise such option in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
--------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------------
SMITH BARNEY INC. NEEDHAM & COMPANY, INC.
, 1996
<PAGE>
[GRAPHICS TO COME]
--------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as it determines.
This Prospectus includes trade names and trademarks of companies other than the
Company.
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE COMPANY
Patient Infosystems, Inc. (the "Company") provides patient-centered health
care information systems that proactively collect and analyze information to
improve patient compliance with prescribed treatments. The Company's technology
platform integrates treatment compliance algorithms with an advanced voice
recognition telephone system, high speed data processing and analysis capability
and demand publishing and information distribution capabilities. The system
communicates directly with the patient at home in order to elicit relevant
patient-specific data, evaluate the data and automatically transmit computer
generated reports to health care payors, providers and patients tailored to the
specific needs of each recipient.
The Company markets its services to pharmaceutical manufacturers, pharmacy
benefit managers and health care payors and providers to collect data not
obtained in a clinic setting and enhance compliance by patients with prescribed
treatments. The Company's disease state management programs are designed to
provide the following benefits: (i) for patients, improved communication with
health care resources, enhanced self-care skills, increased treatment adherence
resulting in improved quality of care and reduced inconvenience, risk and
expense associated with unscheduled physician interventions; (ii) for health
care providers, more information on patient progress, quicker identification of
hard-to-manage patients, enhanced ability to make timely treatment
modifications, triage capability and expanded information for development of
improved treatment protocols; and (iii) for payors and program sponsors,
cost-effective management of the disease risk, improved patient compliance and
outcomes and enhanced patient and provider satisfaction.
According to the Federal government, national health expenditures have
increased from $540 billion in 1988 (11.1% of gross national product ("GNP")) to
a projected $1 trillion in 1995 (15.7% of projected GNP). One way to achieve
significant savings in health care costs is to change the way that health care
is delivered to patients by focusing on quality and cost efficient clinical
outcomes. Since a substantial portion of most treatment regimens is
self-administered, patient compliance is critical to achieving quality outcomes.
Estimates vary from disease to disease, but generally indicate that between 30%
and 60% of all patients fail to take medications as prescribed. The consequences
of patient non-compliance with prescribed treatment plans represent a
significant portion of health care expenditures. One third-party study indicated
that patient non-compliance results in $100 billion in health care and lost
productivity costs annually. Costs associated with treating patients with
chronic diseases who fail to adhere to prescribed regimens have been
particularly difficult to control. When long-term treatments for chronic disease
have been prescribed, as many as 80% of all patients fail to carry out correctly
at least one element of the disease treatment regimen. Most health care
information systems in use today gather information in the hospital or at the
clinician's office and do not monitor adequately patient condition away from the
point of care. The Company believes that by coupling effective treatment
protocols with the ability to monitor patient condition and treatment regimen
compliance between physician interventions, health care providers and payors can
significantly enhance clinical outcomes while reducing costs.
The Company's strategy is to capitalize on its information technology
platform to become the leading provider of patient-centered health care
information programs. The key elements of this strategy are to: (i) introduce
information system programs for specific diseases on a customized basis for
client-specified disease targets and on a standardized basis for diseases
selected by the Company and marketed to multiple clients; (ii) implement
marketing and awareness programs to establish and demonstrate the expected
clinical benefits and cost-effectiveness of the Company's systems through
clinical studies, protocol development and research publications; (iii) analyze
collected outcomes data with advanced computational intelligence, including
neural networks, fuzzy logic and genetic algorithms, to develop improved
clinical protocols; (iv) develop or acquire additional technologies that enhance
its ability to gather information and interact with patients while the patient
is away from the health care provider; and (v) leverage the Company's technology
platform to develop additional applications, such as clinical trial data
compilation and analysis, patient surveys, clinical outcomes evaluation, demand
management and case management.
The Company was founded in February 1995, signed its first customer contract
in September 1995 and enrolled its first patients in a disease state management
program in October 1996. Bristol-Myers Squibb Company, U.S. Pharmaceuticals
Division and Oncology/Immunology Division (collectively, "Bristol-Myers") has
retained the Company to provide customized disease state management systems for
congestive heart failure, cardiovascular disease, chronic pain and weight
management. The Bristol-Myers agreements call for development fees and per
patient operational fees. The Company has also entered into services agreements
for standardized programs with American HomePatient, Inc. ("American
HomePatient"), Harris Methodist Health Plan ("Harris Methodist"), Equifax
Healthcare Administrative Services, a division of Equifax, Inc. ("Equifax"), and
Health Resources, Inc. ("Health Resources") for patients suffering from asthma
and with Equifax and Health Resources for patients suffering from diabetes. Each
of the Company's agreements for its standardized programs provides for the
Company to receive a per patient fee for services provided to enrolled patients
over the duration of the program.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered..................................... 2,500,000 shares (1)
Common Stock outstanding after the offering.................... 9,904,000 shares (1)(2)
Use of proceeds................................................ For expansion of systems capabilities, for sales and
marketing activities and for working capital and
other general corporate purposes
Proposed Nasdaq National Market symbol......................... "PATI"
</TABLE>
RISK FACTORS
There are a number of risks that must be overcome for the Company's
integrated disease state management system to succeed, including achieving
market acceptance. See "Risk Factors."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
FROM
FEBRUARY 22,
FROM 1995
FEBRUARY 22, 1995 (DATE OF
(DATE OF INCORPORATION) FROM FEBRUARY 22,
INCORPORATION) TO 1995 (DATE OF
TO DECEMBER 31, JUNE 30, SIX MONTH PERIOD ENDED INCORPORATION) TO
1995 1995 JUNE 30, 1996 JUNE 30, 1996
----------------- ---------------- ----------------------- -------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 113,000 $ -- $ 465,416 $ 578,416
Total operating expenses....................... 1,255,661 271,662 1,765,992 3,021,653
----------------- ---------------- ----------- -------------------
Operating loss................................. (1,142,661) (271,662) (1,300,576) (2,443,237)
Interest income................................ 26,009 -- 20,669 46,678
----------------- ---------------- ----------- -------------------
Net loss....................................... $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
----------------- ---------------- ----------- -------------------
----------------- ---------------- ----------- -------------------
Net loss per common and
common share equivalents(3)................... $ (.14) $ (.03) $ (.15) $ (.29)
----------------- ---------------- ----------- -------------------
----------------- ---------------- ----------- -------------------
Weighted average common and common share
equivalents................................... 8,186,740 8,114,740 8,344,740 8,344,740
----------------- ---------------- ----------- -------------------
----------------- ---------------- ----------- -------------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
ACTUAL AS ADJUSTED (4)
----------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................ $2,181,890 $24,931,890
Total assets............................................................... 3,792,485 26,542,485
Total liabilities.......................................................... 900,344 900,344
Deficit accumulated during the development stage........................... (2,396,559) (2,396,559)
Total stockholders' equity................................................. 2,892,141 25,642,141
</TABLE>
- ---------------
(1) Does not include 375,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of September
30, 1996. Includes 2,400,000 shares of Common Stock issuable upon conversion
in connection with this offering of all outstanding shares of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Stock") and
Series B Convertible Preferred Stock (the "Series B Preferred Stock" and,
collectively with the Series A Preferred Stock, the "Convertible Preferred
Stock"). Excludes (i) 1,104,000 shares of Common Stock issuable upon the
exercise of outstanding options under the Company's stock option plan (the
"Plan") at a weighted average exercise price of $.55 per share (and up to
396,000 shares of Common Stock issuable pursuant to additional options that
may be granted under the Plan), (ii) 155,503 shares of Common Stock issuable
upon the exercise of outstanding stock purchase warrants at a weighted
average exercise price of $.56 per share and (iii) the issuance of
additional shares of Common Stock upon an adjustment of the conversion ratio
for the Series B Preferred Stock if the shares of Common Stock sold in this
offering are sold at a price less than $10.00 per share. See
"Management--Stock Option Plan," "Description of Capital Stock" and Note 5
of Notes to Financial Statements.
(3) See Note 1 of Notes to Financial Statements for a description of the
calculation of net loss per share.
(4) Gives effect to the conversion of all outstanding shares of Convertible
Preferred Stock into 2,400,000 shares of Common Stock in connection with
this offering and the sale of the shares of Common Stock offered hereby (at
an assumed public offering price of $10.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses) and
receipt of the estimated net proceeds therefrom.
------------------
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OPTION TO PURCHASE FROM THE COMPANY UP TO 375,000
ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS, IF ANY, (II)
REFLECTS, UPON THE CLOSING OF THIS OFFERING, THE AUTOMATIC CONVERSION OF ALL
OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF 2,400,000
SHARES OF COMMON STOCK AND (III) DOES NOT GIVE EFFECT TO THE ISSUANCE OF
1,259,503 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF OUTSTANDING
OPTIONS AND WARRANTS (AND UP TO 396,000 SHARES OF COMMON STOCK ISSUABLE PURSUANT
TO ADDITIONAL OPTIONS THAT MAY BE GRANTED UNDER THE PLAN), OR THE ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK UPON AN ADJUSTMENT OF THE CONVERSION RATIO FOR
THE SERIES B PREFERRED STOCK IF THE SHARES OF COMMON STOCK SOLD IN THIS OFFERING
ARE SOLD AT A PRICE LESS THAN $10.00 PER SHARE. BECAUSE THE CONVERSION RATE OF
THE SERIES B PREFERRED STOCK WOULD BE ADJUSTED IF THE OFFERING PRICE OF THE
SHARES OF COMMON STOCK IN THIS OFFERING IS BELOW $10.00 PER SHARE, ALL
CALCULATIONS INCLUDED IN THIS PROSPECTUS BASED ON THE CONVERSION OF THE SERIES B
PREFERRED STOCK ASSUME A PUBLIC OFFERING PRICE OF $10.00 PER SHARE. IF THE
PUBLIC OFFERING PRICE IS LOWER, A LARGER NUMBER OF SHARES OF COMMON STOCK WOULD
BE ISSUABLE UPON THE CONVERSION OF THE SERIES B PREFERRED STOCK. SEE
"CAPITALIZATION," "DILUTION," "MANAGEMENT-- STOCK OPTION PLAN," "DESCRIPTION OF
CAPITAL STOCK," "UNDERWRITING" AND NOTES 4 AND 5 OF NOTES TO FINANCIAL
STATEMENTS.
4
<PAGE>
THE COMPANY
The Company was incorporated in the State of Delaware on February 22, 1995
under the name DSMI Corp., changed its name to Disease State Management, Inc. on
October 13, 1995 and then changed its name to Patient Infosystems, Inc. on June
28, 1996. The Company's principal executive offices are located at 46 Prince
Street, Rochester, New York 14607, and its telephone number is 716-242-7200.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In evaluating the Company and its business, prospective
investors should carefully consider the following risk factors. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below as well as those discussed elsewhere in this
Prospectus.
DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY; OPERATING LOSSES IN
EACH PERIOD OF OPERATION
The Company was formed on February 22, 1995, is in the development stage and
has a limited operating history from which to evaluate its performance. To date,
the Company has generated limited revenues and through June 30, 1996 had
incurred cumulative losses of $2,396,559, which losses are continuing. Although
the Company has completed the development of its integrated information capture
and delivery system, and the Company is developing several disease state
management programs for specific diseases, further development activities may be
necessary to implement these programs. No patients had been enrolled in any
disease state management program of the Company until October 1996, when a
limited number of patients were enrolled in the Company's secondary
cardiovascular disease program. The Company anticipates that its losses will
continue at least until it has completed the development of programs for several
customers and has begun providing services to a substantial number of patients
for such customers. The Company may encounter problems and delays in its
research and development or sales and marketing efforts, and the failure to
address these problems and delays successfully could have a material adverse
effect on the Company's business prospects. The Company's prospects must be
considered in light of the numerous risks, expenses, delays and difficulties
frequently encountered in the establishment of a new business in an industry
characterized by intense competition, as well as the risks inherent in the
development of new programs and the commercialization of new services. There can
be no assurance that the Company's development efforts will result in an ability
to provide any services that can be marketed or operated in a commercially
successful manner, or that any such services will be able to compete with other
services that might be in the market at the time that the Company's services are
made available. There can be no assurance that the Company will achieve
recurring revenue or profitability on a consistent basis or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements.
RELIANCE ON COMMERCIALLY UNTESTED TECHNOLOGY; UNCERTAINTY OF SYSTEM DEVELOPMENT
AND COMMERCIALIZATION
The Company has only engaged in limited use of its integrated information
capture and delivery system, and no assurance can be given that substantial
additional programming and development efforts will not be necessary to allow
the Company to contact patients and to publish and process information with the
required speed and accuracy for commercial use. The Company may be required to
devote considerable additional efforts and resources to enhance and refine its
software and hardware, and such efforts will remain subject to all of the risks
inherent in the development and commercialization of new products and services,
including unanticipated delays, expenses, additional technical problems or
difficulties, changes in customer preferences or needs, as well as the possible
insufficiency of funds which could result in abandonment or substantial change
in the development or commercialization of the Company's services. There can be
no assurance that the
5
<PAGE>
Company will be able to complete the development of its disease management
programs or that it will be able to develop the additional program enhancements
needed to keep pace with anticipated changes in customer preferences and needs.
See "Business--Information Capture, Delivery and Analysis Technologies."
TERMINABILITY OF AGREEMENTS; EXCLUSIVITY PROVISIONS
The Company's current services agreements with its customers generally may
be terminated by those customers without cause upon notice of between 30 and 180
days. In addition, the Company has agreed not to engage or participate in any
project other than those under development for Bristol-Myers that involve the
development or implementation of a program similar to those developed for
Bristol-Myers for specified time periods (the "Exclusivity Periods"). In
general, at the completion of the Exclusivity Periods, Bristol-Myers has the
right to negotiate an exclusive arrangement for these disease state management
programs provided that a specified minimum number of patients have enrolled in
the programs or that it agrees to pay an exclusivity fee. Bristol-Myers has the
further right, in the event exclusive arrangements cannot be negotiated, to
match any bona fide offers made to the Company for disease state management
programs for these categories of patients for a period of time from the
conclusion of the Exclusivity Periods. These exclusivity provisions could
restrict the Company's ability to market its services to other customers. The
Company will charge its customers a per patient program fee; however, while
Bristol-Myers is required to enroll a minimum number of patients in the
congestive heart failure and weight enhancement programs, there are no such
requirements for any of the Company's other programs. In general, customer
contracts may include significant performance criteria and implementation
schedules for the Company. Failure to satisfy such criteria or meet such
schedules could result in termination of the agreements. See "Business--
Customer Agreements."
SIGNIFICANT CUSTOMER CONCENTRATION
The Company's current contracts are concentrated in a small number of
customers, with five of the Company's 11 contracts being with Bristol-Myers. The
Company expects that its sales of services will be concentrated in a small
number of customers for the foreseeable future. Consequently, the loss of any
one of its customers could have a material adverse effect on the Company and its
operations. There can be no assurance that customers will enroll a sufficient
number of patients in the programs developed by the Company for the Company to
achieve or maintain profitability, or that customers will renew their contracts
upon expiration or on terms favorable to the Company. See "Business--Customer
Agreements."
NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE; LIMITATIONS OF COMMERCIALIZATION
STRATEGY
In connection with the commercialization of the Company's health information
system, the Company is marketing a new service designed to link patients, health
care providers and payors in order to provide specialized disease state
management for targeted chronic diseases. This is a new business concept in an
industry characterized by an increasing number of market entrants who have
introduced or are developing an array of new services. As is typical in the case
of a new business concept, demand and market acceptance for newly introduced
services are subject to a high level of uncertainty, and there can be no
assurance as to the ultimate level of market acceptance for the Company's
system, especially in the health care industry, in which the containment of
costs is emphasized. The Company has entered into contracts with a very limited
number of customers and has just recently enrolled a limited number of patients
in only one disease state management program. No conclusions can be made with
respect to market acceptance of the Company's services based on this customer
base. Because of the subjective nature of patient compliance, the Company may be
unable, for an extensive period of time, to develop a significant amount of data
to demonstrate to potential customers the effectiveness of its services. Even
after such time, no assurance can be given that the Company's data and results
will be convincing or determinative as to the success of its system. There can
be no assurance that increased marketing efforts and the implementation of the
Company's strategies will result in market acceptance for its services or that a
market for the Company's services will develop or not be limited. See
"Business--Sales and Marketing."
6
<PAGE>
DEPENDENCE ON CUSTOMERS FOR MARKETING AND PATIENT ENROLLMENT
The Company has limited marketing experience and limited financial,
personnel and other resources to undertake extensive marketing activities. One
element of the Company's marketing strategy involves marketing specialized
disease state management programs to pharmaceutical companies and health care
providers, with the intent that those customers will market the program to
parties responsible for the payment of health care costs, who will enroll
patients in the programs. Accordingly, the Company will to a degree be dependent
upon its customers, over whom it has no control, for the marketing and
implementation of its initial programs. The timing and extent of patient
enrollment is completely within the control of the Company's customers. To the
extent that an adequate number of patients are not enrolled in the program, or
enrollment of initial patients by a customer is delayed for any reason, the
Company's revenue may be insufficient to support its activities. See
"Business--Customer Agreements."
UNPREDICTABILITY OF PATIENT BEHAVIOR MAY AFFECT SUCCESS OF PROGRAMS
The ability of the Company to monitor and modify patient behavior and to
provide information to health care providers and payors, and consequently the
success of the Company's disease state management system, will be dependent upon
the accuracy of information received from patients. The Company does not expect
that it will take specific measures to determine the accuracy of information
provided to the Company by patients regarding their medical histories. No
assurance can be given that the information provided to the Company by patients
will be accurate. To the extent that patients have chosen not to comply with
prescribed treatments, such patients might provide inaccurate information to
avoid detection. Because of the subjective nature of medical treatment, it will
be difficult for the Company to validate or confirm any such information. In the
event that patients enrolled in the Company's programs provide inaccurate
information to a significant degree, the Company would be materially and
adversely affected. Furthermore, there can be no assurance that patient
interventions by the Company will be successful in modifying patient behavior,
improving patient health or reducing costs. Many potential customers may seek
data from the Company with respect to the results of its programs prior to
retaining it to develop new disease state management or other health information
programs. The Company's ability to market its system to new customers may be
limited if it is unable to demonstrate successful results for its programs. See
"Business--Sales and Marketing."
UNCERTAINTIES REGARDING ABILITY TO MANAGE RAPID GROWTH AND EXPANSION
The Company is retaining a program development and operating staff
sufficient to handle its current and anticipated business commitments, and
consequently is experiencing a period of rapid growth and expansion. Such growth
and expansion has placed and will continue to place a significant strain on the
Company's development, administrative personnel and other resources. The
Company's ability to manage such growth effectively will require the Company to
continue improving its operational, management and financial systems and
controls and to train, motivate and manage its employees. As a result, the
Company is subject to certain risks of expansion, including the risk that it
will be unable to retain the necessary personnel and acquire other resources
necessary to manage such growth adequately. In addition, to the extent that the
Company commences its expansion activities in anticipation of growth, it may
undertake significant financial commitments for which it will have
responsibility whether or not it enters into any additional services agreements
and regardless of the timing of payment for services. Accordingly, the Company
will likely have significant financial commitments without necessarily having
the revenues to offset such expenses. See "Use of Proceeds."
SIGNIFICANT AND EXTENSIVE CHANGES IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of health care industry participants. Several lawmakers have announced that they
intend to propose programs to reform the U.S. health care system. These programs
may contain proposals to increase governmental involvement in health care, lower
reimbursement rates and otherwise change the operating environment for the
Company and its targeted customers. Health care industry participants may react
to these proposals and the uncertainty surrounding such proposals by
7
<PAGE>
curtailing or deferring certain expenditures, including those for the Company's
programs. The Company cannot predict what impact, if any, such changes in the
health care industry might have on its business, financial condition and results
of operations. In addition, many health care providers are consolidating to
create larger health care delivery enterprises with greater regional market
power. As a result, the remaining enterprises could have greater bargaining
power, which may lead to price erosion of the Company's programs. The failure of
the Company to maintain adequate price levels could have a material adverse
effect on the Company. See "Business--Industry Overview."
RAPID TECHNOLOGICAL CHANGE AND OBSOLESCENCE
The development and maintenance of the telecommunications and computer
publishing systems through which the Company operates its integrated information
capture and delivery system is a major component of its business. The
communications and information technology industries are subject to rapid and
significant technological change, and the ability of the Company to operate and
compete is dependent in significant part on its ability to update and enhance
its system continuously. In order to do so, the Company must be able to utilize
effectively its research and development capabilities and implement new
technology in order to enhance its systems. At the same time, the Company must
not jeopardize its ability to contact patients and to process and publish
patient information or adapt to customer preferences or needs. There can be no
assurance that the Company will be able to develop and implement technological
changes to its system. In addition, following this offering the Company will
maintain a significant investment in its technology, and therefore is subject to
the risk of technological obsolescence. If the Company's technology were
rendered obsolete, the Company's business and operating results would be
materially adversely affected. See "Business--Information Capture, Delivery and
Analysis Technologies."
EXTENSIVE GOVERNMENT REGULATION
The health care industry, including the current and proposed business of the
Company, is subject to extensive regulation by both the Federal and state
governments. A number of states have extensive licensing and other regulatory
requirements applicable to companies that provide health care services.
Additionally, services provided to health benefit plans in certain cases are
subject to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and may be affected by other state and Federal statutes.
Generally, state laws prohibit the practice of medicine and nursing without
a license. Many states interpret the practice of nursing to include health
teaching, health counseling, the provision of care supportive to or restorative
of life and well being and the execution of medical regimens prescribed by a
physician. Accordingly, to the extent that the Company assists providers in
improving patient compliance by publishing educational materials or providing
behavior modification training to patients, such activities could be deemed by a
state to be the practice of medicine or nursing. Although the Company has not
conducted a survey of the applicable law in all 50 states, it believes that it
is not engaged in the practice of medicine or nursing. There can be no
assurance, however, that the Company's operations will not be challenged as
constituting the unlicensed practice of medicine or nursing. If such a challenge
were made successfully in any state, the Company could be subject to civil and
criminal penalties under such state's law and could be required to restructure
its contractual arrangements in that state. Such results or the inability to
successfully restructure its contractual arrangements could have a material
adverse effect on the Company.
The Company is subject to Federal and state laws governing the
confidentiality of patient information. In addition, recent Federal legislation
will result in new national standards for the protection of patient information
in electronic health information transactions. Although the Company intends to
comply with all applicable laws and regulations regarding medical information
privacy, failure to do so could have an adverse effect on the Company's
business.
The Company and its customers may be subject to Federal and state laws and
regulations which govern financial and other arrangements between health care
providers. These laws prohibit certain fee splitting arrangements between health
care providers, as well as direct and indirect payments, referrals or other
8
<PAGE>
financial arrangements that are designed to induce or encourage the referral of
patients to, or the recommendation of a particular provider for, medical
products and services. Possible sanctions for violation of these restrictions
include civil and criminal penalties. Further, criminal violations may result in
mandatory exclusions of up to five years and additional permissive exclusions
from participation in Medicare and Medicaid programs. See "Business--Government
Regulation."
Regulation in the health care field is constantly evolving. The Company is
unable to predict what government regulations, if any, affecting its business
may be promulgated in the future. The Company's business could be adversely
affected by the failure to obtain required licenses and governmental approvals,
comply with applicable regulations or comply with existing or future laws, rules
or regulations or their interpretations.
POTENTIAL LIABILITY AND INSURANCE
The Company will provide information to health care providers and payors
upon which determinations affecting medical care will be made, and it could
share in potential liabilities for resulting adverse medical consequences to
patients. In addition, the Company could have potential legal liability in the
event it fails to record or disseminate correctly patient information. The
Company maintains an errors and omissions insurance policy with coverage of $3
million in the aggregate and per occurrence. Although the Company does not
believe that it will directly engage in the practice of medicine or direct
delivery of medical services and has not been a party to any such litigation, it
maintains a medical liability policy with coverage of $3 million in the
aggregate and per occurrence. There can be no assurance that the Company's
procedures for limiting liability have been or will be effective, that the
Company will not be subject to litigation that may adversely affect the
Company's results of operations, that appropriate insurance will be available to
it in the future at acceptable cost or at all or that any insurance maintained
by the Company will cover, as to scope or amount, any claims that may be made
against the Company.
DEPENDENCE ON DATA PROCESSING AND TELEPHONE EQUIPMENT
The business of the Company is dependent upon its ability to store,
retrieve, process and manage data and to maintain and upgrade its data
processing capabilities. In addition, as the Company expands its commercial
activities and patient contacts increase, an increased burden will be placed
upon the Company's telecommunications equipment to process the large number of
incoming and outgoing telephone calls that will be placed every day.
Interruption of data processing capabilities for any extended length of time,
loss of stored data, programming errors, other computer problems or
interruptions of telephone service could have a material adverse effect on the
business of the Company. See "Business--Information Capture, Delivery and
Analysis Technologies."
SUBSTANTIAL FLUCTUATION IN QUARTERLY OPERATING RESULTS
The Company's results of operations may fluctuate significantly from quarter
to quarter as a result of a number of factors, including the volume and timing
of sales and the rate at which customers implement disease state management and
other health information programs within their patient populations. Accordingly,
the Company's future operating results are likely to be subject to variability
from quarter to quarter and could be adversely affected in any particular
quarter. Due to the foregoing factors, it is possible that the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company has been substantially dependent upon private placements of its
equity securities, through which the Company has raised $5.3 million to date, to
fund its research and development activities and working capital requirements.
In order to implement programs using the Company's integrated information
capture and delivery system, the Company will be required to devote substantial
additional assets to the development of technology, the construction of physical
facilities and the acquisition of telephone and computer equipment. The Company
will also be required to retain the services of employees in advance of
9
<PAGE>
obtaining contracts to provide services. The Company anticipates, based on
currently proposed plans and assumptions relating to its operations (including
with respect to the timing of research and product development and the costs
associated with marketing and promotion of its system), that the proceeds of
this offering, together with available resources, will be sufficient to satisfy
the Company's contemplated cash requirements for at least 24 months following
the consummation of this offering. In the event that the Company's plans change,
or its assumptions change or prove to be inaccurate, the Company could be
required to seek additional financing or curtail its activities. The Company has
no current arrangements with respect to, or sources of, additional financing.
Any additional equity financing may involve substantial dilution to the interest
of the Company's stockholders, and any debt financing could result in
operational or financial restrictions on the Company. There can be no assurance
that any additional financing will be available to the Company on acceptable
terms or at all. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
INTENSE COMPETITION
The market for health care information products and services is intensely
competitive. Competitors vary in size and in scope and breadth of products and
services offered. Many of the Company's competitors have significantly greater
financial, technical, product development and marketing resources than the
Company. Furthermore, other major information, pharmaceutical and health care
companies not presently offering disease state management or other health
information services may enter into the market in which the Company intends to
compete. With sufficient financial and other resources, many of these
competitors may provide services similar to those of the Company without
substantial barriers. The Company's potential competitors include specialty
health care information companies, health care information system and software
vendors, health care management organizations, pharmaceutical companies and
other service companies within the health care industry that have publicly
stated that they intend to be involved in providing comprehensive disease state
management or other health information services. The Company will also compete
against other companies that provide statistical and data management services,
including clinical trial services to pharmaceutical companies. Many potential
competitors have substantial installed customer bases in the health care
industry and the ability to fund significant product development and acquisition
efforts. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend upon its ability to retain
Donald A. Carlberg, its President and Chief Executive Officer, and a core group
of key officers and employees. The Company has entered into an employment
contract with Mr. Carlberg, expiring on March 1, 1997, but does not have
employment agreements or non-competition agreements with any other employees.
The Company maintains key man life insurance in the amount of $2 million on the
life of Mr. Carlberg and in the amount of $1 million on the life of Gregory D.
Brown, its Senior Vice President and Chief Financial Officer. The loss of
certain key employees or the Company's inability to attract and retain other
qualified employees could have an adverse impact on the Company's business.
Also, the Company's ability to transition from development stage to commercial
operations will depend upon, among other things, the successful recruiting of
highly skilled managerial and marketing personnel with experience in business
activities such as those contemplated by the Company. Competition for the type
of highly skilled individuals sought by the Company is intense. There can be no
assurance that the Company will be able to retain existing employees or that it
will be able to find, attract and retain skilled personnel on acceptable terms.
See "Management."
CONTROL OF THE COMPANY
Following this offering, the Company will be controlled by the executive
officers, directors and certain stockholders of the Company who will
beneficially own in the aggregate approximately 45% of the outstanding Common
Stock. As a result of such ownership, these stockholders, in the event they act
in concert, will have control over the management policies of the Company and
all matters requiring approval by the stockholders of the Company, including the
election of directors. See "Principal Stockholders."
10
<PAGE>
MANAGEMENT'S DISCRETION WITH RESPECT TO USE OF PROCEEDS
The Company intends to use approximately $12 million of the net proceeds of
this offering for capital improvements and to expand telephone and computer
capabilities and approximately $5 million of the net proceeds for sales and
marketing. The balance of the net proceeds have not been designated for any
specific use. Rather, the Company intends to use the net proceeds primarily for
general corporate purposes, including working capital and potential acquisitions
of companies or technologies that complement or expand the Company's business.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering or that the market price of the Common Stock
will not decline below the public offering price. The initial public offering
price of the Common Stock has been determined by negotiations between the
Company and the Representatives of the Underwriters. For a description of the
factors considered in determining the initial public offering price, see
"Underwriting." The market price of the Common Stock following this offering may
be highly volatile, as has been the case with the securities of other start-up
companies. In recent years, the stock market has experienced a high level of
price and volume volatility, and market prices for the stock of many companies
(particularly of small and emerging growth companies) have experienced wide
price fluctuations which have not necessarily been related to the operating
performance of such companies. These broad market fluctuations could have a
material adverse effect on the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price per share of the Common Stock will exceed
the net tangible book value per share of the Common Stock. Accordingly, the
purchasers of shares of Common Stock in this offering will experience immediate
dilution in net tangible book value per share of $7.41 (assuming a public
offering price of $10.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses). The Company has not paid any
dividends on its Common Stock and does not anticipate paying any dividends on
such stock in the foreseeable future. See "Dividend Policy" and "Dilution."
EFFECT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,904,000 shares of Common Stock (based on the number of shares of Common Stock
outstanding as of September 30, 1996). Of these shares, the 2,500,000 shares
offered hereby (2,875,000 shares if the Underwriters' over-allotment option is
exercised in full) will be eligible for immediate sale in the public market
without restriction unless they are held by affiliates of the Company. The
7,404,000 outstanding shares not sold in this offering will be "restricted
securities" within the meaning of Rule 144 ("Rule 144") promulgated under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Under current
law, none of these shares will be eligible for sale under Rule 144 until at
least February 22, 1997, when 5,000,000 of these shares will be eligible for
sale pursuant to Rule 144, subject to the volume, manner of sale and other
limitations thereof and to the lock-up agreements with the Underwriters
described below. The holders of the 2,400,000 shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock have demand and piggy-back
registration rights with respect to their shares commencing one year after the
completion of this offering. The holders of substantially all of the 7,404,000
shares of Common Stock outstanding prior to this offering have agreed not to
sell or otherwise dispose of any such shares for at least 180 days after the
date of this Prospectus without the prior written consent of Smith Barney Inc.
No predictions can be made as to the effect, if any, that public sale of shares
of Common Stock, or the availability for sale of such shares, will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market, particularly
11
<PAGE>
by directors and officers of the Company, or the perception that such sales
could occur, could have an adverse impact on the market price of the Common
Stock and the Company's ability to raise additional capital in the future. See
"Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's certificate of incorporation and bylaws
may inhibit changes in control of the Company not approved by the Company's
board of directors. The Company will also be afforded the protection of Section
203 of the Delaware General Corporation Law ("Delaware Law"), which could have
similar effects. These provisions could limit the price that investors might be
willing to pay in the future for shares of Common Stock, and consequently could
adversely affect the market for the Common Stock. See "Description of Capital
Stock."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated expenses payable by the Company in connection with this offering, are
estimated to be approximately $22.75 million ($26.23 million if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $10.00 per share.
The Company intends to use approximately $12 million of the net proceeds of
this offering for capital improvements necessary for expansion of telephone and
computer capabilities, approximately $5 million of the net proceeds for sales
and marketing and the balance of the net proceeds for working capital and
general corporate purposes, potentially including acquisition of companies or
technologies that complement or expand the Company's business. The Company is
not a party to any purchase agreement or letter of intent with respect to any
acquisitions.
The actual amount of the net proceeds of this offering expended for each
purpose may vary significantly depending upon many factors, including the
progress of the Company's commercialization efforts, the success of the
Company's marketing efforts and the timing of the development of specific
programs for potential customers. Pending application of the net proceeds as
described above, the Company intends to invest the net proceeds of the offering
in short-term, interest bearing securities of investment grade or in short-term
bank deposits. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain all future earnings, if any, to fund the
development, commercialization and growth of its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements from time to time and such other factors as
the Board of Directors deems relevant. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect to the conversion of the Convertible
Preferred Stock into 2,400,000 shares of Common Stock in connection with this
offering, the sale of the shares of Common Stock offered hereby (assuming a
public offering price of $10.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses) and receipt of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Stockholders' equity:
Series A Convertible Preferred Stock, $0.01 par value; 1,800,000 shares
authorized, issued and outstanding, actual; and none issued or outstanding,
as adjusted................................................................ $ 18,000 $ --
Series B Convertible Preferred Stock, $0.01 par value, 600,000 shares
authorized, issued and outstanding, actual; and none issued or outstanding,
as adjusted................................................................ 6,000 --
Common Stock, $0.01 par value; 20,000,000 shares authorized; 5,004,000
shares issued and outstanding, actual; and 9,904,000 shares issued and
outstanding, as adjusted(1)................................................ 50,040 99,040
Additional paid-in capital.................................................. 5,214,660 27,939,660
Deficit accumulated during the development stage............................ (2,396,559) (2,396,559)
------------- -------------
Total stockholders' equity................................................ $ 2,892,141 $ 25,642,141
------------- -------------
------------- -------------
</TABLE>
- ------------
(1) Excludes (i) 1,104,000 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's stock option plan at a weighted
average exercise price of $.55 per share (and up to 396,000 shares of Common
Stock issuable pursuant to additional options that may be granted under such
Plan), (ii) 155,503 shares of Common Stock issuable upon the exercise of
outstanding stock purchase warrants at a weighted average exercise price of
$.56 per share and (iii) the issuance of additional shares of Common Stock
upon an adjustment of the conversion ratio for the Series B Preferred Stock
if the shares of Common Stock sold in this offering are offered at a price
less than $10.00 per share. See "Management--Stock Option Plan,"
"Description of Capital Stock" and Note 5 of Notes to Financial Statements."
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
$2,892,141, or $.39 per share. Pro forma net tangible book value per share is
determined by dividing the net tangible book value of the Company (total assets
less intangible assets and total liabilities) by the number of shares
outstanding, after giving effect to the conversion of all outstanding shares of
Convertible Preferred Stock into 2,400,000 shares of Common Stock. Without
taking into account any changes in pro forma net tangible book value after June
30, 1996, other than to give effect to the sale of the shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $10.00 per
share and after deducting underwriting discounts and commissions and estimated
offering expenses), the net tangible book value of the Company as of June 30,
1996 would have been approximately $25,642,141, or $2.59 per share. This
represents an immediate increase in net tangible book value of $2.20 per share
to existing stockholders and an immediate dilution of $7.41 per share to new
stockholders. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 10.00
Pro forma net tangible book value per share
before the offering.............................................. $ .39
Increase per share attributable to the offering................... 2.20
---------
Pro forma net tangible book value per share
after the offering................................................. 2.59
---------
Dilution per share to new investors................................. $ 7.41
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996
(giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock), the number of shares purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and new investors (based upon, in the case of new investors, an assumed public
offering price of $10.00 per share and before deduction of estimated
underwriting discounts and commissions and offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 7,404,000 74.8% $ 5,300,400 17.5% $ 0.72
New investors................................... 2,500,000 25.2 25,000,000 82.5 10.00
------------ ----- ------------- -----
Total....................................... 9,904,000 100.0% $ 30,300,400 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The foregoing tables assume no exercise of options or warrants outstanding
as of June 30, 1996. At such date, there were outstanding (i) options to
purchase 1,104,000 shares of Common Stock at a weighted average exercise price
of $.55 per share and (ii) warrants to purchase 155,503 shares of Common Stock
at a weighted average exercise price of $.56 per share. Had the exercise of
options and warrants outstanding at June 30, 1996 been reflected in the
computation, the pro forma net tangible book value per share before the offering
would have been $.41, the net tangible book value per share after the offering
would have been $2.36, and the dilution per share to new investors would have
been $7.64. In addition, the conversion rate of the Series B Preferred Stock
will be adjusted if the offering price of the shares of Common Stock is less
than $10.00. The computations above assume that the public offering price is
$10.00 per share. If the public offering price is lower, the number of shares of
Common Stock outstanding after the offering would be higher than 9,904,000. See
"Management--Stock Option Plan," "Description of Capital Stock" and Note 5 of
Notes to Financial Statements.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1995 and June
30, 1996, and for the period from February 22, 1995 (date of incorporation) to
December 31, 1995, for the six month period ended June 30, 1996 and from the
date of incorporation to June 30, 1996 have been derived from the Company's
financial statements, which have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this Prospectus. The
selected financial data set forth below for the period from the date of
incorporation to June 30, 1995 has been derived from the Company's unaudited
financial statements, has been prepared by the Company on a basis consistent
with the Company's audited financial statements and in the opinion of management
of the Company reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information. The results
of operations for the six month period ended June 30, 1996 and for the period
from the date of incorporation to June 30, 1995 are not necessarily indicative
of results that may be expected for the full fiscal year or any future period.
The financial data for the Company should be read in conjunction with the
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FROM FROM
FEBRUARY 22, FEBRUARY 22,
1995 1995
(DATE OF (DATE OF FROM FEBRUARY
INCORPORATION) INCORPORATION) 22, 1995 (DATE
TO TO SIX MONTH OF
DECEMBER 31, JUNE 30, PERIOD ENDED INCORPORATION)
1995 1995 JUNE 30, 1996 TO JUNE 30, 1996
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 113,000 $ -- $ 465,416 $ 578,416
Operating expenses:
Cost of sales........................ 111,870 -- 447,312 559,182
Sales and marketing.................. 375,384 100,374 389,756 765,140
General and administrative........... 678,498 128,383 902,188 1,580,686
Research and development expenses.... 89,909 42,905 26,736 116,645
---------------- ---------------- ----------------- ----------------
Total operating expenses........... 1,255,661 271,662 1,765,992 3,021,653
---------------- ---------------- ----------------- ----------------
Operating loss......................... (1,142,661) (271,662) (1,300,576) (2,443,237)
Interest income........................ 26,009 -- 20,669 46,678
---------------- ---------------- ----------------- ----------------
Net loss............................... $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
Net loss per common and common share
equivalents(1)........................ $ (.14) $ (.03) $ (.15) $ (.29)
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
Weighted average common and common
share equivalents(1).................. 8,186,740 8,114,740 8,344,740 8,344,740
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
------------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 611,655 $ 2,181,890
Total assets.............................................................. 1,763,629 3,792,485
Total liabilities......................................................... 598,464 900,344
Deficit accumulated during the development stage.......................... (1,116,652) (2,396,559)
Total stockholders' equity................................................ 1,165,165 2,892,141
</TABLE>
- ------------
(1) See Note 1 of Notes to Financial Statements for a description of the
calculation of net loss per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements of the Company and Notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
The Company was formed on February 22, 1995, is in the development stage and
has a limited operating history from which to evaluate its performance. Although
the Company has completed the development of its integrated information capture
and delivery system and is developing several disease state management programs
for specific diseases, further development activities may be necessary to
implement these programs. In October 1996, the Company began enrolling patients
in its first disease state management program. This program was developed for
the treatment of patients suffering from secondary cardiovascular disease.
The Company has generated limited revenues to date and has recorded losses
since inception, totalling $2,396,559 through June 30, 1996, which losses are
continuing to date. The Company anticipates that its losses will continue at
least until it has completed the development of programs for several customers
and has begun providing services to a substantial number of patients for such
customers.
The Company has entered into services agreements with Bristol-Myers to
develop, implement and operate programs for (i) patients who have recently
experienced certain cardiovascular events, (ii) patients who have been diagnosed
with primary congestive heart failure, (iii) patients suffering from anorexia or
cachexia secondary to diagnosis of cancer or AIDS and (iv) patients suffering
from high levels of chronic pain. In addition, the Company has entered into
services agreements with American HomePatient, Equifax, Health Resources and
Harris Methodist to operate a program for patients suffering from asthma and
with Equifax and Health Resources to operate a program for patients suffering
from diabetes. These contracts provide for, and the Company anticipates future
contracts will provide for, fees paid by its customers based upon the number of
patients participating in each of its programs, as well as initial program
development fees from customers for the development of a disease-specific
program. The Company's program development contracts typically require payment
from the customer at the time that the contract is executed, with additional
payments made as certain development milestones are met. Development contract
revenue is recognized on a percentage of completion basis, in accordance with
the ratio of total development cost incurred to the estimated total development
costs for the entire project. Losses, if any, related to program development
will be recognized in full as identified. The Company's program operation
contracts call for a fixed fee to be paid by the customer for each patient
enrolled for a series of program services as defined in the contract. The timing
of customer payments varies by contract, but will typically occur in advance of
the Company providing associated services. Revenues from program operations will
be recognized ratably as the program services are delivered. The amount of the
per patient fee is expected to vary from program to program depending upon the
number of patient contacts required, the complexity of the interventions and the
detail of the reports generated.
The Company expects that a substantial number of patients must participate
in its programs in order to generate revenues sufficient to support its
operations. The Company will be dependent upon the activities of its customers
in marketing the programs to their patients and the patients of payors.
The Company has not to date capitalized any costs related to the development
of software for use in its disease state management programs since all of such
software has been developed for internal use.
The sales cycle for the Company's programs is expected to extend for periods
of six to nine months from initial contact to contract execution. During these
periods, the Company may expend substantial time, effort and funds to prepare a
contract proposal and negotiate the contract. The Company may be unable to
consummate a commercial relationship after the expenditure of such time, effort
and financial resources.
17
<PAGE>
RESULTS OF OPERATIONS
The Company generated revenue of $113,000 during the period from inception
on February 22, 1995 to December 31, 1995, and $465,416 during the six months
ended June 30, 1996. During the period from inception to December 31, 1995,
$84,000 of revenue was derived from development fees with respect to disease
state management programs and $29,000 of revenue was derived from fees with
respect to the development and conduct of a patient satisfaction survey and a
patient focus group. During the six months ended June 30, 1996, $461,023 of
revenue was derived from development fees with respect to disease state
management programs and $4,393 of revenue was derived from fees with respect to
the development and conduct of a patient satisfaction survey and a patient focus
group. The increase in program development fees reflects the increase in the
level of development activities for the Company's customized programs. The
decrease in revenues from the development and conduct of a patient satisfaction
survey and a patient focus group is a result of the completion of that project.
Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the development of disease
state management programs and a patient satisfaction survey and assembly of a
patient focus group. Cost of sales was $111,870 from inception to December 31,
1995, and $447,312 for the six months ended June 30, 1996. The increase in these
costs reflects an increased level of program development activities.
Sales and marketing expenses from inception to December 31, 1995 were
$375,384, and were $389,756 for the six months ended June 30, 1996. These costs
consisted primarily of salaries, related benefits costs and travel costs. These
expenditures allowed the Company to undertake initial marketing efforts to
pharmaceutical companies, payors and other health care services organizations.
The increase in these costs from 1995 to 1996 reflects an increase in the size
of the Company's sales and marketing staff from two at December 31, 1995 to four
at June 30, 1996.
General and administrative expenses include the costs of corporate
operations, finance and accounting, human resources and other general operating
expenses of the Company. General and administrative expenses from inception to
December 31, 1995 were $678,498, and were $902,188 for the six months ended June
30, 1996. These expenditures allowed the Company to create a corporate
infrastructure to support anticipated program development and operating
activity. The increase in these costs from 1995 to 1996 was caused by an
increase in the Company's general level of business activity, and the addition
of required administrative support staff and services.
Research and development expenses consist primarily of salaries and related
benefits and administrative costs allocated to the Company's research and
development personnel for development of certain components of the integrated
information capture and delivery system and its integrated disease state
management system. Research and development expenses from inception to December
31, 1995 were $89,909, and were $26,736 for the six months ended June 30, 1996.
The decrease in these costs from 1995 to 1996 reflects the completion of
development of certain of the Company's communication and information systems
and technologies.
The Company had a net loss of $1,116,652 from inception to December 31,
1995, representing a loss of $.14 per share, and a net loss of $1,279,907 for
the six months ended June 30, 1996, representing a loss of $.15 per share. See
Note 1 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $2,181,890. Since its
inception the Company has funded its operations, working capital needs and
capital expenditures from private placements of its equity securities. The
initial capitalization of $500,000 took place in February 1995. The Company
received $1.8 million from the sale of additional equity securities in a private
placement during the third quarter of 1995, $1.6 million of which was received
in August 1995, and $200,000 of which was received in September 1995,
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<PAGE>
and $3.0 million from the sale of additional equity securities in a private
placement during the second quarter of 1996, $2,825,000 of which was received in
May 1996 and $175,000 of which was received in June 1996.
The Company's development contracts require generally that payments be made
by the customer at the time of contract execution and at the achievment of
certain milestones in the development process. These payments are normally
received in advance of the Company's recognition of the associated revenue. The
timing of customer payments for program operation services varies by contract,
but typically occurs prior to the associated services being provided. The
Company recognizes deferred revenue for amounts billed for these services in
advance of the rendering of the services. The advance payments have been a
source of liquidity for the Company. The Company anticipates that its billing
practices are likely to continue in this manner.
The Company has been substantially dependent upon private placements of its
equity securities to fund its research and development activities and working
capital requirements. In order to implement programs using the Company's
integrated information capture and delivery system, the Company will be required
to devote substantial additional assets to the development of technology, the
construction of physical facilities and the acquisition of telephone and
computer equipment. The Company will also be required to retain the services of
employees in advance of obtaining contracts to provide services. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations (including with respect to the timing of research and product
development and the costs associated with marketing and promotion of its
system), that the proceeds of this offering, together with available resources,
will be sufficient to satisfy the Company's contemplated cash requirements for
at least twenty-four months following the consummation of this offering. In the
event that the Company's plans change or its assumptions change or prove to be
inaccurate, the Company could be required to seek additional financing or
curtail its activities. The Company has no current arrangements with respect to,
or sources of, additional financing. The Company may also deem it desirable to
acquire assets, technologies or other entities in complementary or related
fields, or for other projects which management believes to be in the Company's
best interest, and therefore may reapportion proceeds of this offering to such
acquisition or project.
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BUSINESS
GENERAL
Patient Infosystems, Inc. provides patient-centered health care information
systems that proactively collect and analyze information to improve patient
compliance with prescribed treatments. The Company's technology platform
integrates treatment compliance algorithms with an advanced voice recognition
telephone system, high speed data processing and analysis capability and demand
publishing and information distribution capabilities. The system communicates
directly with the patient at home in order to elicit relevant patient-specific
data, evaluate the data and automatically transmit computer generated reports to
health care payors, providers and patients tailored to the specific needs of
each recipient.
The Company markets its services to pharmaceutical manufacturers, pharmacy
benefit managers and health care payors and providers to collect data not
obtained in a clinic setting and enhance compliance by patients with prescribed
treatments. The Company's disease state management programs are designed to
provide the following benefits: (i) for patients, improved communication with
health care resources, enhanced self-care skills, increased treatment adherence
resulting in improved quality of care and reduced inconvenience, risk and
expense associated with unscheduled physician interventions; (ii) for health
care providers, more information on patient progress, quicker identification of
hard-to-manage patients, enhanced ability to make timely treatment
modifications, triage capability and expanded information for development of
improved treatment protocols; and (iii) for payors and program sponsors,
cost-effective management of the disease risk, improved patient compliance and
outcomes and enhanced patient and provider satisfaction.
INDUSTRY OVERVIEW
Health care costs have increased significantly in the United States in
recent years despite substantial attempts to control costs by the government and
private payors. According to the Federal government, national health
expenditures have increased from $540 billion in 1988 (11.1% of gross national
product ("GNP")) to a projected $1 trillion in 1995 (15.7% of projected GNP).
Faced with rapidly rising health benefit costs, employers are aggressively
seeking methods through managed care techniques to reduce the volume and unit
cost of health care services. By 1992, approximately 55% of Americans with
employer-sponsored health insurance were enrolled in some type of managed care
plan. The Company believes that payors have achieved substantial health care
cost savings to date through reducing the unit pricing for and utilization of
products and services. One way to achieve significant additional savings is to
change the way that health care is delivered to patients by focusing on quality
and cost efficient clinical outcomes. In an effort to lower costs, payors and
providers have encouraged the shifting of the treatment of patients from the
institutional setting to the home. As a result, more and more patients
administer their own medications away from the provider's scrutiny. However, the
Company believes that to date only limited progress has been made in
implementing cost-effective methods to monitor patient compliance with their
prescribed treatments. Yet the failure to comply with treatment regimens results
in significant unnecessary costs to the health care system. The Company believes
that as cost containment strategies move the point of care out of an
institutional setting, payors will require information systems that gather data
and facilitate behavior modification in the home.
Once effective clinical treatment decisions are made, patients must comply
with the prescribed treatment regimen to achieve the desired outcome. Estimates
vary from disease to disease, but generally indicate that between 30% and 60% of
all patients fail to take medications as prescribed. The consequences of patient
non-compliance with prescribed treatment plans represent a significant portion
of health care expenditures. One third-party study indicated that patient
non-compliance results in $100 billion in health care and lost productivity
costs annually. Costs associated with treating patients with chronic diseases
who fail to adhere to prescribed treatment regimens have been particularly
difficult to control. When long-term treatments for chronic disease have been
prescribed, as many as 80% of all patients fail to carry out correctly at least
one element of the disease treatment regimen. In addition, a 1990 study
indicated that over 5% of hospital admissions are caused by outpatient
noncompliance. The Company believes that by coupling
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effective treatment protocols with the ability to monitor patient condition and
treatment regimen compliance between physician interventions, health care
providers and payors can significantly enhance clinical outcomes while reducing
costs.
Monitoring patients by telephone can be a cost effective strategy for
improving the treatment of chronic diseases. One third-party study, which
involved patient contact by nurses to determine treatment compliance and disease
progress, indicated that the use of telephone follow-up saved an estimated 28%
in health care delivery costs for elderly, ambulatory patients with chronic
diseases. In addition, patients who received follow-up telephone care had 20%
fewer clinic visits, 14% overall less medication utilization, 20% fewer hospital
days and 41% fewer intensive care unit days. Telephone patient monitoring
systems may be used with a broad range of chronic patient treatment programs for
disease state management and outcome evaluation and other health care
applications.
STRATEGY
The Company's strategy is to capitalize on its advanced information
technology platform to become the leading provider of patient-centered health
care information programs. The key elements of this strategy are to:
INTRODUCE INFORMATION SYSTEM PROGRAMS FOR SPECIFIC DISEASES. The
Company develops software systems and identifies treatment protocols to
assist in the management of specific chronic diseases. The Company designs
and markets these systems either on a customized basis, in which a client
targets a specific disease and funds development and implementation of the
system, or on a standardized basis, in which the Company selects the target
disease, develops the system internally and then markets the system to
multiple end-users. The Company markets its customized systems to
pharmaceutical and pharmacy benefits management companies interested in
sponsoring disease state management programs to provide their managed care
customers with a value-added service. The Company typically markets its
standardized systems to payors and health care providers interested in
reducing the overall cost of health care delivery. These programs are
designed to modify patient behavior in order to improve treatment and
outcomes and reduce costs associated with non-compliance.
IMPLEMENT PROGRAMS THAT DEMONSTRATE CLINICAL BENEFITS AND
COST-EFFECTIVENESS. The Company markets its services based on the expected
reduction of overall health care costs that it believes will result from
improved treatment compliance by a given patient population. The Company
intends to complement its marketing efforts by conducting or sponsoring
clinical studies and implementing other measures designed to establish and
document the clinical and cost benefits it believes will result from the
application of its integrated information capture and delivery system. The
Company intends to promote the benefits of its system through publication in
clinical journals and presentations at scientific conferences of the results
of these studies.
ANALYZE COLLECTED OUTCOMES DATA WITH ARTIFICIAL INTELLIGENCE SYSTEMS TO
DEVELOP IMPROVED CLINICAL PROTOCOLS. As the Company's network of patients
expands, so will its database of relevant information with respect to
patient behavior, treatment efficacy and disease progression. The Company
has designed its system to enable analysis of captured data through a
variety of computer technologies, including neural networks, fuzzy logic and
genetic algorithms, for use by providers, payors and pharmaceutical
companies. The Company intends to use this information to improve treatment
algorithms and compliance behavior in an effort to improve treatment, and
thereby maximize positive patient outcomes and reduce costs.
DEVELOP OR ACQUIRE ADDITIONAL INFORMATION CAPTURE AND DELIVERY
TECHNOLOGIES. The Company plans to develop or acquire additional
technologies that enhance its ability to gather information and interact
with patients while the patient is away from the health care provider. The
Company has developed a wireless two-way communication system to provide
constant, uninterrupted information, and is developing a CD-ROM-based
educational information system for patient use and a means of using the
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Internet to interact directly with particular patients. The Company believes
that these additional technologies will allow the Company to provide and
obtain more detailed information both as a supplement to or as a substitute
for telephone interactions and printed materials.
LEVERAGE TECHNOLOGY PLATFORM TO DEVELOP ADDITIONAL APPLICATIONS. The
Company intends to use its expertise in information management and database
technologies to develop additional programs and services, such as clinical
trial data compilation and analysis, patient surveys, clinical outcomes
evaluation, demand management and case management. By gaining access to
certain customers through the provision of one type of information service,
the Company will be well positioned to provide additional services. For
example, the Company believes that as it provides clinical trial information
for pharmaceutical companies in connection with specific products, it will
also be in a position to provide disease state management services in
connection with the use of such drugs.
INFORMATION CAPTURE, DELIVERY AND ANALYSIS TECHNOLOGIES
The Company's technology platform integrates treatment algorithms with an
advanced voice recognition telephone system, high speed data processing and
analysis capability and demand publishing and information distribution
capabilities. The system utilizes trained telephone operators and a computerized
interactive voice response to communicate via telephone directly with the
patient at home in order to elicit patient-specific and relevant data. To
minimize costly live operator interaction, the computer initiates each call,
which when answered is automatically transferred to a live operator and then
manually switched to a recorded speech application. Patients respond to the
recorded speech application by using their normal speaking voice, which is
designed to ensure a more accurate and reliable response than is achievable via
telephone key pad. Depending on the patient's response, situation-specific
algorithms are applied to modify future questions and thus help customize the
collection of data.
The Company's system analyzes and prepares the captured data for automatic
delivery to the payor, provider and patient using demand publishing. Demand
publishing technology enables the creation of highly individualized reports by
inserting stored graphic images customized for race, gender and age. These
reports are also customized to the individual patient's specific situation, and
the system utilizes the information received during contacts with the patient to
further customize the content of the report. The data relevant to the separate
report for health care providers is formatted in a customized report to be
automatically transmitted via mail, fax or on-line.
Each contact with a patient contributes to the establishment of a
longitudinal data base which can be analyzed to provide insights to treatment
modalities for patients, providers and payors. The Company's system is designed
to analyze patient compliance to prescribed treatment regimens and gather
additional clinical information so that improvements in such regimens can be
developed.
THE INTEGRATED DISEASE STATE MANAGEMENT SYSTEM
INTRODUCTION. The Company's first application of its integrated information
capture and delivery system is its integrated disease state management system.
This system is designed to provide care givers with the ability to monitor, on a
cost-effective basis, patient condition and behavior while the patient is
between physician consultations. The Company believes that this will permit care
givers to improve patient compliance and, as a consequence, improve patient
outcomes.
Each of the Company's integrated disease state management programs is
designed to provide one or more of the following benefits:
FOR PATIENTS:
-Improved access to and communication with health care resources beyond
existing hospital care and office and in-home provider visits
-Enhanced self-care skills and knowledge in the area of the disease
covered by the program
-Increased treatment adherence, motivation and confidence in disease
self-management resulting in improved quality of life
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-Reduced inconvenience, risk and expense associated with unscheduled
office visits, emergency room interventions and hospitalizations
FOR HEALTH CARE PROVIDERS:
-More comprehensive information on patient progress
-Quicker identification of hard-to-manage patients
-Enhanced ability to make timely treatment modifications
-Better utilization of health care resources appropriate to patient needs
-Expanded information for development of improved treatment methods
FOR PAYORS AND PROGRAM SPONSORS:
-Cost-effective management of the disease risk
-Improved patient compliance
-Improved treatment outcomes
-Enhanced patient and provider satisfaction
The Company only recently enrolled its first patients in a disease state
management program, and there can be no assurance that the benefits described
above will be attained. See "Risk Factors."
The system has three primary components. First, using a panel of recognized
medical and clinical experts, the Company develops a disease-specific patient
intervention/compliance program that includes a template for the integration of
each patient's history, current medical status and treatment protocol. If the
program is being developed on a custom basis for a particular customer, the
program is developed in consultation with the customer's clinical staff and
consultants. Second, the Company establishes periodic telephone contacts with
each patient to monitor the patient's adherence to prescribed therapies as well
as the patient's treatment progress. Third, using the information obtained from
patient contacts and other available information regarding the patient and his
or her treatment, such as physician records and pharmacy information,
personalized reports are prepared, typically following each patient contact, for
evaluation by the patient, the patient's health care provider and, on a periodic
basis, payors.
DEVELOPMENT OF DISEASE SPECIFIC PROTOCOLS. The Company's disease-specific
compliance programs are developed for targeted diseases either on a customized
basis to meet the needs of particular customers or on a standardized basis for
broader use by a variety of users. The Company retains an internal clinical
staff and panels of independent medical and clinical experts to identify
guidelines with respect to the spectrum of generally accepted treatment
protocols and diagnostic factors for particular diseases. These guidelines serve
as a template for the information to be obtained from each patient. If the
program is being developed on a custom basis for a particular customer, the
program is developed in consultation with the customer's clinical staff and
consultants. In addition, the Company's internal clinical staff conducts
research of available databases and gathers information provided by medical
experts, insurance providers, governmental agencies, Medicare and Medicaid and
other medical research sources to develop with the medical experts the
disease-specific program structure. The resulting compliance protocols are
designed to enable the Company to gather the necessary patient information to
determine the extent of a patient's compliance with his or her prescribed
treatment, the effectiveness of treatment and the progress of the patient's
disease. As the Company's database of patient experience relating to
disease-specific treatments expands, it intends to use that data to modify,
update and enhance its own disease state management compliance programs and
assist health care providers in improving treatment protocols.
PATIENT ENROLLMENT. When a patient is enrolled in one of the Company's
disease state management programs a patient history is obtained, including the
histories of the chronic illness, medications, and surgical
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procedures as well as other information deemed relevant by the disease-specific
compliance program. This information is included in the Company's database for
each patient and distinct customized reports will be printed for distribution to
each of the patient's health care provider and payor as well as the patient. The
patient report can include information on the prescribed treatment of the
patient's disease as well as the use of the program and other social support
services to improve compliance with the patient's treatment regimen. In
addition, the Company's on-demand publishing technology provides personalized
behavior modification and educational materials for the patient. The health care
provider report contains the relevant clinical and behavioral information
gathered from the patient.
PATIENT CONTACTS. In accordance with a designated patient contact schedule,
a patient will periodically receive telephone calls from a live operator who,
after confirming the identity of the patient, will transfer the patient to an
automated system that will ask specific questions determined in accordance with
the disease-specific compliance program and provide information and motivational
feedback. Patient contact schedules are established for each disease state
management program, with the frequency of patient contact varying with the
disease state under management and the goal of the applicable treatment and
occurring as often as daily or as infrequently as on a quarterly basis. The data
gathered from the patient during each contact will be processed and stored in
the Company's database.
The compliance program takes into account patient responses to treatment
follow-up questions and initiates specific courses of action which can include
positive reinforcement messages, confirmation of prescription instructions and
scheduled callbacks to remind the patient of the need to take prescribed
medication. In addition, the questions to be asked in future calls are modified
based upon the patient's responses during current and previous calls.
The Company's system captures and processes the information obtained from
the patient during the contact and integrates it with the other data maintained
by the Company relating to the patient's prior responses, history, treatment
regimen and the mandated treatment protocols for the disease. The system then
automatically prepares distinct reports using the Company's demand publishing
technologies for the patient and for the physician or other care-giver. Each
report is tailored for the particular requirements of each recipient. The
patient's report, for example, may include pictures, diagrams and informative
discussions relating to the treatment course intended to modify or reinforce
certain behaviors. The physician's report would likely be more factual and
direct and summarize the clinical and behavioral information that has been
gathered.
On a periodic basis, the Company will provide data to the patient's health
care payor with respect to that patient's progress. The Company will also be
able to include information from various data sources in these reports for the
purpose of providing additional information with respect to a patient. For
example, the Company may be able to interact with the pharmacy services division
of a payor to determine the renewal frequency of prescriptions, which provides
an indication of whether a patient is taking his or her medication. In addition,
the system provides the flexibility to allow other information from physicians'
reports and hospital tests to be included in the periodic reports.
COMPLIANCE ASSISTANCE. The Company assists payors and health care providers
in monitoring patient compliance and works with health care providers to develop
compliance and education programs that can be implemented through the Company's
system. Through the Company's customized publishing technology, specific patient
compliance and education literature that is customized to an individual patient,
his or her condition and his or her compliance problems can be prepared and
delivered to a patient by mail, facsimile or on-line. In addition, the Company
can implement a variety of procedures including medication reminders via
wireless two-way communication and more frequent telephone communications for
non-compliant patients or patients with more difficult treatment regimens. The
Company can provide additional support services, such as an 800 number that will
provide recorded information with respect to a variety of patient education
topics or other support messages.
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PATIENT INFOSYSTEMS PROGRAMS. The following table lists certain of the
disease state management programs currently under development by the Company, as
well as other diseases identified as good candidates for disease state
management programs:
<TABLE>
<CAPTION>
ANNUAL DIRECT PROGRAM
COSTS AVAILABILITY
AFFECTED U.S. ASSOCIATED WITH FOR PATIENT
DISEASE CATEGORY POPULATION (1) TREATMENT (1) CUSTOMERS (2) ENROLLMENT (3)
- ------------------------------------------- ------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
PROGRAMS UNDER DEVELOPMENT:
Secondary Cardiovascular Disease (4) (5) Bristol-Myers 4th Qtr. 1996
Congestive Heart Failure 4,700,000 $18 billion Bristol-Myers 4th Qtr. 1996
Diabetes 16,000,000 $45 billion Equifax; Health 4th Qtr. 1996
Resources
Asthma 12,000,000 $3 billion American 4th Qtr. 1996
HomePatient;
Equifax; Health
Resources; Harris
Methodist
Chronic Pain Management Not available Not available Bristol-Myers 4th Qtr. 1996
Weight Management--Cancer and AIDS Not available Not available Bristol-Myers 4th Qtr. 1996
Patients
ADDITIONAL IDENTIFIED DISEASE TARGETS:
Cancer 8,000,000 $35 billion
Depression 11,000,000 $15 billion
AIDS 330,000 $33 billion
Chronic Obstructive Pulmonary Disease 14,000,000 Not available
Hypertension 50,000,000 $43 billion
Osteoporosis 24,000,000 $10 billion
Arthritis 37,000,000 $15 billion
</TABLE>
- ------------
(1) This information is estimated and based upon published industry data.
(2) See "Business--Customer Agreements" for a description of the agreements with
customers.
(3) Patient enrollment is dependent upon the identification and referral by the
Company's customers of patients to the Company's system. As a result,
initial patient enrollment dates may differ from the date that the program
is available for enrollment.
(4) The patient population falling within this program's guidelines is a subset
of the population with cardiovascular disease, which exceeds 60 million
individuals.
(5) The associated direct costs are a portion of the $129 billion of total
annual direct cost of cardiovascular disease.
SECONDARY CARDIOVASCULAR DISEASE. It is estimated by the American Heart
Association that in 1994, $151 billion was spent in the United States for the
treatment of cardiovascular disease. Cardiovascular disease is treated with a
combination of medications, as well as dietary, lifestyle and behavior
modifications. The treatment is on-going and requires a high level of patient
discipline. The Company has entered into a services agreement with Bristol-Myers
to develop, implement and operate a disease state management program relating to
the prevention of cardiovascular sequelae in patients who have recently
experienced
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certain cardiovascular illnesses or treatments such as angina, cardiac bypass
surgery or heart attack. A limited number of patients were enrolled in the
Company's secondary cardiovascular disease program in October 1996.
CONGESTIVE HEART FAILURE. Elderly patients with heart failure are at
increased risk for rehospitalization after discharge. Behavioral factors such as
noncompliance with medications and poor diet as well as social isolation may
contribute to the hospital admissions. The Company has entered into a services
agreement with Bristol-Myers to develop, implement and operate a disease state
management program to aid in the treatment of patients suffering from congestive
heart failure. The Company expects that its disease state management program for
congestive heart failure patients will be available for enrollment during the
fourth quarter of 1996.
DIABETES. Diabetes is an incurable disease characterized by elevated blood
glucose levels. The American Diabetes Association estimates that there are over
16 million diabetics in the United States, at least 700,000 of whom are
undergoing insulin therapy. Insulin therapy involves daily sampling of blood
and, in many cases, regular injections of insulin. Currently, the direct medical
expense for treatment of all diabetics and diabetes-related conditions within
the United States is estimated to be over $10 billion annually. With proper
treatment, diabetes should not be life threatening; however, untreated or
improperly treated diabetes can lead to such complications as blindness, kidney
disease, nervous disorders, vascular disease and death. The Company is
developing a disease state management program for diabetic patients that it is
marketing to payors and other participants in the health care industry. Equifax
and Health Resources have retained the Company to provide this disease state
management program for patients who are suffering from diabetes and are enrolled
in health care programs for which they provide services. The Company expects
that its disease state management programs for diabetes patients will be
available for patient enrollment during the fourth quarter of 1996.
ASTHMA. Asthma affects 12 million people in the United States, with direct
costs related to the disease estimated at $3 billion annually and noncompliance
with pharmacological therapy being the leading cause of hospitalization among
asthmatics. With proper treatment, patient understanding of the treatment plan
and a high level of patient compliance, most asthmatics may control their
disease effectively, which should result in a decrease in the number of asthma
episodes and the cost of care. The Company is developing a disease state
management program for asthmatic patients that it is marketing to payors and
other participants in the health care industry. American HomePatient, Equifax,
Health Resources and Harris Methodist have retained the Company to provide these
disease state management programs for patients who are suffering from asthma and
are enrolled in health care programs for which they provide services. The
Company expects that its disease state management program for asthmatic patients
will be available for patient enrollment during the fourth quarter of 1996.
CHRONIC PAIN MANAGEMENT. Persons suffering from cancer are often treated
with medication to alleviate constant, severe pain. Bristol-Myers has retained
the Company to develop, implement and update a program to manage patients who
are experiencing intense levels of chronic pain. The Company is developing a
disease state management program for chronic pain management and expects the
program to be available for patient enrollment during the fourth quarter of
1996.
WEIGHT MANAGEMENT--CANCER AND AIDS PATIENTS. The inability to maintain
adequate weight levels is a serious problem for individuals afflicted with
cancer or AIDS. Bristol-Myers has retained the Company to develop and implement
a program to mange patients suffering from anorexia or cachexia secondary to a
diagnosis of cancer or AIDS. The Company is developing a disease state
management program for weight management and expects the program to be available
for patient enrollment during the fourth quarter of 1996.
OTHER APPLICATIONS OF THE INTEGRATED INFORMATION CAPTURE AND DELIVERY SYSTEM
OUTCOMES ANALYSIS. The Company intends to utilize information gathered from
patients enrolled in its programs to serve two purposes. First, the information
as to treatment results, success of the compliance
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<PAGE>
program and patient reaction to differing treatments or compliance protocols may
be used by the Company to further improve each disease-specific compliance
program. Second, the information may be used by payors, pharmaceutical companies
and health care providers to assist in the development of improved treatment
modalities. The Company has developed methodologies for analyzing the data using
database management and information technologies, including neural network
systems, fuzzy logic and genetic algorithms. The Company intends to use these
data analysis technologies to predict the best treatment methodologies for
specific patients.
CLINICAL STUDIES. Many pharmaceutical companies and clinical research
organizations are seeking more economical, efficient and reliable methods for
compiling and analyzing clinical data in conducting Phase III and Phase IV
clinical studies. Furthermore, many drug development protocols, particularly as
they relate to efficacy, have begun to place emphasis upon subjective criteria
and outcomes information. The Company believes that its system will allow it to
develop programs tailored to the measurement of outcomes data relating to the
conduct of Phase III and Phase IV clinical studies. The Company believes that
its system can also assist pharmaceutical companies in studying and documenting
the efficacy of products that are already developed in order to provide ongoing
information to the FDA or for internal marketing use.
PATIENT SURVEYS. Organizations in many different areas of the health care
industry survey users regarding their products and services for a variety of
reasons including regulatory, marketing and research purposes. The Company's
information systems, with their ability to proactively contact patients in a
cost-efficient manner, may be used for this type of application.
DEMAND MANAGEMENT. Demand management involves assisting providers in
evaluating patient treatment needs to identify those patients who may not
require immediate or intensive services. The goal of demand management is to
reduce the need for and use of costly, often clinically unnecessary, medical
services and arbitrary managed-care interventions while improving the overall
quality of life of patients undergoing various treatment regimens. The Company
believes that its system can be used to provide automated or semi-automated
demand management services.
CASE MANAGEMENT. Patients who are prescribed complex or high cost treatment
regimens may require a higher level of monitoring, interaction, care planning
and reassessment than patients with less complicated treatment regimens. The
Company believes that its system is capable of providing these enhanced services
to such patients to eliminate or minimize the unnecessary costs and medical
attention that result from a patient's lack of compliance with a prescribed
treatment regimen.
SALES AND MARKETING
The Company markets its integrated disease state management system to those
organizations within the health care industry that are involved in the treatment
of disease or payment of medical services to patients who require complex or
long-term medical therapies. These include five distinct groups: pharmaceutical
companies, medical service companies, pharmacy benefits managers, health care
payors, such as managed care organizations and insurance companies, and employer
groups. The Company employs a sales and marketing staff of seven persons to
market the Company's systems and has entered into a consulting agreement for
sales and marketing services with one additional person not employed by the
Company. In addition, the senior members of the Company's management are
actively engaged in marketing the Company's programs.
The Company intends to complement its marketing efforts by conducting
clinical studies and implementing other measures designed to document the
clinical and cost benefits it believes will result from the application of its
integrated information capture and delivery system. In collaboration with the
members of its expert panels who are retained to develop program protocols and
other research and clinical technicians, the Company intends to promote the
benefits of its system through publication in clinical journals and
presentations at scientific conferences of the results of these studies. The
Company is pursuing opportunities to develop programs specifically designed to
produce significant short-term data, such as its chronic pain management
program.
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<PAGE>
CUSTOMER AGREEMENTS
The Company is developing disease state management programs in conjunction
with the following customers for the indicated disease states:
BRISTOL-MYERS
The Company has entered into four services agreements (the "Service
Agreements") with Bristol-Myers relating to the development, implementation and
operation by the Company of disease state management programs for certain
specified diseases. The Service Agreements provide for development fees to be
paid by Bristol-Myers to the Company upon the achievement of certain milestones
related to the disease state management programs. Bristol-Myers has also agreed
to pay the Company operational fees per enrolled patient, which fees for certain
programs vary with the length, complexity and frequency of patient contact
dictated by the respective program protocols.
Each of the Service Agreements provides for an exclusivity period (the
"Exclusivity Period"), during which time the Company is prohibited from engaging
or participating in any other projects involving the specific disease target
that is the subject of the Service Agreement. The Exclusivity Periods extend
from the effective dates of the Service Agreements until, in general, a certain
date or a certain period (ranging from eight to 12 months) following the
achievement of a specified milestone in the development or implementation of the
program (such as the completion of the pilot program). Three of the four Service
Agreements provide that upon conclusion of the Exclusivity Period, Bristol-Myers
has the right to negotiate with the Company for an exclusive arrangement for the
administration of the disease state management program, provided that
Bristol-Myers has enrolled a certain number of patients in the disease state
management program to date. In the event that such negotiations prove
unsuccessful, Bristol-Myers retains a right of first refusal with respect to any
other offers made to the Company for such arrangements for a period of nine or
12 months following the Exclusivity Period.
The Service Agreements generally provide that Bristol-Myers retains
ownership rights to certain materials and other work product created by the
Company pursuant to the Service Agreements and that the Company is entitled to
use other materials and data. The extent of these rights varies by agreement.
The Company and Bristol-Myers have agreed to indemnify each other with respect
to losses arising from willful or negligent acts or omissions or breaches of the
Service Agreements by the indemnifying party pursuant to the Service Agreement.
The Service Agreements are terminable without cause by either party with either
30 or 90 days' notice. The Company has entered into Service Agreements with
Bristol-Myers in the following disease areas:
CONGESTIVE HEART FAILURE. The Company is a party to a Service Agreement
with Bristol-Myers dated February 1, 1996, to develop, implement and update a
program for patients suffering from congestive heart failure.
SECONDARY CARDIOVASCULAR DISEASE. The Company is party to a Service
Agreement dated September 18, 1995 with Bristol-Myers to develop, implement and
update a program for patients with cardiovascular disease who have recently
experienced moderate to severe angina, cardiac bypass surgery, percutaneous
transluminal coronary angioplasty or myocardial infarction. The Company began
enrolling patients in this program during October 1996.
CHRONIC PAIN. The Company is a party to a Service Agreement dated March 30,
1996 with Bristol-Myers to develop, implement and update a program for patients
who are experiencing intense levels of chronic pain. The initial phase of this
program is expected to be a thirty day trial monitoring cancer patients. A
second phase of this program is expected to consist of a twelve week trial
monitoring cancer patients at numerous sites. The final phase of this program
will be the implementation of a program for use in conjunction with products
that Bristol-Myers may market in this area. Upon the earlier of the commencement
of the development of the final phase of the program or December 31, 1996,
Bristol-Myers may extend
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<PAGE>
the Exclusivity Period relating to the chronic pain management program for
successive one-year periods by agreeing to pay the Company a fee in the event
that the program operational fees paid to the Company by Bristol-Myers during
the year fall below certain levels.
WEIGHT MANAGEMENT. The ability to prevent loss of body weight in certain
diseases is a significant quality of life concern. The Company is a party to a
Service Agreement, dated April 24, 1996, with Bristol-Myers to develop,
implement and update a program for patients suffering from anorexia or cachexia
secondary to a diagnosis of cancer or AIDS.
PATIENT SATISFACTION SURVEY. The Company is also developing a patient
satisfaction survey and a general medication compliance program pursuant to a
services agreement with Bristol-Myers dated October 16, 1995. The patient
satisfaction survey is designed to measure a patient's satisfaction with the
services provided by their payor, and the general medication compliance
program's goal is to improve compliance with guidelines for using prescribed
pharmaceutical products. The services agreement calls for the payment to the
Company of program development fees as well as fees related to its providing
services to enrolled patients throughout the terms of the program protocols set
forth in the agreement. The Company and Bristol-Myers have agreed to indemnify
each other for losses arising from willful or negligent acts, omissions or
breaches of the services agreement by the indemnifying party. The services
agreement is terminable without cause by either party with 30 days' notice.
EQUIFAX
The Company is a party to a services agreement dated June 21, 1996 with
Equifax to implement and update a program for patients suffering from asthma.
The agreement provides for the Company to receive a per patient fee for services
provided to enrolled patients over the duration of the program. The agreement
may be terminated by either party with 30 days' notice.
The Company is also a party to a services agreement dated July 28, 1996 with
Equifax to implement and update a program for patients suffering from diabetes.
The agreement provides for the Company to receive a per patient fee for services
provided to enrolled patients over the duration of the program. The agreement
may be terminated by either party upon 30 days' notice.
AMERICAN HOMEPATIENT
The Company is a party to a services agreement dated June 24, 1996 with
American HomePatient to implement and update a program for patients suffering
from asthma. The agreement provides for the Company to receive a per patient fee
for services provided to enrolled patients over the duration of the program. In
addition, the Company is entitled to receive a joint marketing fee from American
HomePatient payable in stages over a 24 month period if American HomePatient is
successful in marketing the program with three health care payors. The agreement
may be terminated by either party upon 30 days' prior written notice.
HEALTH RESOURCES, INC.
The Company is a party to a services agreement dated September 13, 1996 with
Health Resources to implement and update a program for patients suffering from
asthma. The agreement provides for the Company to receive a per patient fee for
services provided to enrolled patients over the duration of the program. This
agreement may be terminated by either party upon 180 days' notice.
The Company is also a party to a services agreement dated September 13, 1996
with Health Resources to implement and update a program for patients suffering
from diabetes. The agreement provides for the Company to receive a per patient
fee for services provided to enrolled patients during the duration of the
program. This agreement may be terminated by either party upon 180 days' notice.
HARRIS METHODIST
The Company is a party to a services agreement dated September 24, 1996 with
Harris Methodist Health Plan to implement and update a program for patients
suffering from asthma. The agreement provides for the Company to receive a per
patient fee for services provided to enrolled patients over the duration of the
program. The contract has a term of one year.
29
<PAGE>
COMPETITION
The market for health care information products and services is intensely
competitive. Competitors vary in size and in scope and breadth of products and
services offered, and the Company will compete with various companies in each of
its disease target markets. Many of the Company's competitors have significantly
greater financial, technical, product development and marketing resources than
the Company. Furthermore, other major information, pharmaceutical and health
care companies not presently offering disease state management or other health
care information services may enter the markets in which the Company intends to
compete. In addition, with sufficient financial and other resources, many of
these competitors may provide services similar to those of the Company without
substantial barriers. The Company does not possess any patents with respect to
its integrated information capture and delivery system, and although it has
filed a provisional patent application with respect to certain aspects of its
integrated information capture and delivery system and its integrated disease
state management system, there can be no assurance that this application will
result in the issuance of a patent, or if issued, that a patent would provide
the Company with any competitive advantage.
The Company's potential competitors include specialty health care companies,
health care information system and software vendors, health care management
organizations, pharmaceutical companies and other service companies within the
health care industry. Many of these competitors have substantial installed
customer bases in the health care industry and the ability to fund significant
product development and acquisition efforts. The Company will also compete
against other companies that provide statistical and data management services,
including clinical trial services to pharmaceutical companies.
The Company is aware of several large pharmaceutical and medical service
companies that have publicly stated that they intend to be involved in providing
comprehensive disease state management services. The Company believes that the
principal competitive factors in its market are the ability to link patients,
health care providers and payors, and provide the relevant health care
information at an acceptable cost. In addition, the Company believes that the
ability to anticipate changes in the health care industry and identify current
needs are important competitive factors.
QUALITY CONTROL AND SECURITY
The Company has developed quality control measures designed to insure that
information obtained from patients is accurately transcribed, that reports
covering each patient contact are delivered to health care providers and
patients and that the Company's personnel and technologies are interacting
appropriately with patients and health care providers. Quality control systems
will include random monitoring of telephone calls, patient surveys to confirm
patient participation and effectiveness of the particular program, and
supervisory reviews of telephone agents.
GOVERNMENT REGULATION
The health care industry, including the current and proposed business of the
Company, is subject to extensive regulation by both the Federal and state
governments. A number of states have extensive licensing and other regulatory
requirements applicable to companies that provide health care services.
Additionally, services provided to health benefit plans in certain cases are
subject to the provisions of the Employee Retirement Income Security Act
("ERISA") and may be affected by other state and Federal statutes. Generally,
state laws prohibit the practice of medicine and nursing without a license. Many
states interpret the practice of nursing to include health teaching, health
counseling, the provision of care supportive to or restorative of life and well
being and the execution of medical regimens prescribed by a physician.
Accordingly, to the extent that the Company assists providers in improving
patient compliance by publishing educational materials or providing behavior
modification training to patients, such activities could be deemed by a state to
be the practice of medicine or nursing. Although the Company has not conducted a
survey of the applicable law in all 50 states, it believes that it is not
engaged in the practice of medicine or nursing. There can be no assurance,
however, that the Company's operations will not be challenged as constituting
the unlicensed practice of medicine or nursing. If such a challenge were made
successfully in any
30
<PAGE>
state, the Company could be subject to civil and criminal penalties under such
state's law and could be required to restructure its contractual arrangements in
that state. Such results or the inability to successfully restructure its
contractual arrangements could have a material adverse effect on the Company.
The confidentiality of patient information is subject to regulation by state
law. A variety of statutes and regulations exist safeguarding privacy and
regulating the disclosure and use of medical information. State constitutions
may provide privacy rights and states may provide private causes of action for
violations of an individual's "expectation of privacy." Tort liability may
result from unauthorized access and breaches of patient confidence. The Company
intends to comply with state law and regulations governing medical information
privacy.
In addition, on August 21, 1996, Congress passed the Health Insurance
Portability and Accountability Act of 1996, P.L. 104-191. This legislation
requires the Secretary of Health and Human Services to adopt national standards
for electronic health transactions and the data elements used in such
transactions. The Secretary is required to adopt safeguards to ensure the
integrity and confidentiality of such health information. Violation of the
standards is punishable by fines and, in the case of wrongful disclosure of
individually identifiable health information, imprisonment. The Secretary is
required to issue the standards not later than February 21, 1998. The Company
cannot predict what requirements will ultimately be adopted by the Secretary,
however, such requirements could have an adverse effect on the Company's
business.
The Company and its customers may be subject to Federal and state laws and
regulations which govern financial and other arrangements between health care
providers. These laws prohibit certain fee splitting arrangements between health
care providers, as well as direct and indirect payments, referrals or other
financial arrangements that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. Possible sanctions for violation of these restrictions
include civil and criminal penalties. Further, criminal violations may result in
mandatory exclusions of up to five years and additional permissive exclusions
from participation in Medicare and Medicaid programs.
Regulation in the health care field is constantly evolving. The Company is
unable to predict what government regulations, if any, affecting its business
may be promulgated in the future. The Company's business could be adversely
affected by the failure to obtain required licenses and governmental approvals,
comply with applicable regulations or comply with existing or future laws, rules
or regulations or their interpretations.
INTELLECTUAL PROPERTY
The Company considers its methodologies, processes and know-how to be
proprietary. The Company seeks to protect its proprietary information through
confidentiality agreements with its employees. The Company's policy is to have
employees enter into confidentiality agreements containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company, requiring employees to acknowledge, and, if requested, assist in
confirming the Company's ownership of any new ideas, developments, discoveries
or inventions conceived during employment, and requiring assignment to the
Company of proprietary rights to such matters that are related to the Company's
business.
The Company has filed a provisional patent application with respect to
certain aspects of its integrated information capture and delivery and
integrated disease state management systems. No assurance can be given that a
patent will issue or that if issued such patent will provide the Company with a
competitive advantage.
EMPLOYEES
As of September 30, 1996, the Company had 35 employees.
PROPERTIES
The Company's executive and corporate offices are located in Rochester, New
York in approximately 7,200 square feet of leased office space, under a lease
that expires on September 30, 1999.
LEGAL MATTERS
The Company is not a party to any material pending legal proceedings.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Dr. Derace Schaffer.................................. 48 Chairman of the Board
Donald A. Carlberg................................... 44 Director, President and Chief Executive Officer
Gregory D. Brown..................................... 34 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
James D. Turner...................................... 36 Senior Vice President, Sales and Marketing
Kent A. Tapper....................................... 40 Vice President, Systems Engineering
Giancarla C. Miele................................... 52 Vice President, Operations
Dr. David B. Nash.................................... 40 Executive Vice President, Medical Affairs
Dr. Alvin I. Mushlin................................. 54 Senior Medical Advisor
John Pappajohn....................................... 68 Director
Dr. Barbara J. McNeil................................ 53 Director
Dr. Carl F. Kohrt.................................... 53 Director
</TABLE>
Dr. Derace Schaffer has been Chairman of the Board and a Director of the
Company since its inception in February 1995. Since 1980, Dr. Schaffer has been
the President of The Ide Group, P.C., a group of physicians providing
radiological services at multiple locations in New York State, and since 1990 he
has also been President of The Lan Group, a venture capital firm specializing in
health care investments. He also serves as a Clinical Professor at the
University of Rochester School of Medicine and a Director of NeuralTech, Inc.,
NeuralMed, Inc., Preferred Oncology Networks of America, Inc., The Care Group,
Inc., and Medifax, Inc. as well as several not-for-profit corporations.
Donald A. Carlberg has been President, Chief Executive Officer and a
Director of the Company since its inception. From February 1993 to December
1994, Mr. Carlberg served as Chief Executive Officer of Patient Management
Technologies, Inc., a medical services consulting company, which he founded.
From 1992 to 1994, Mr. Carlberg served as Senior Vice President--Sales and
Marketing for Neurocare, Inc./ Paradigm Health Corp. From 1990 to 1992, Mr.
Carlberg served as Director of Managed Care for Baxter Healthcare International
where he started managed care initiatives for its Caremark Division. From 1985
to 1990, Mr. Carlberg held several senior level positions in managed care at
Blue Cross/Blue Shield of Rochester, New York and Independence Blue Cross in
Philadelphia, Pennsylvania.
Gregory D. Brown has been Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since May 1995. From 1989 to 1995, Mr.
Brown was Chief Financial Officer of Pappajohn Capital Resources, a venture
capital firm specializing in health care investments, and Equity Dynamics, Inc.,
a financial consulting firm, both located in Des Moines, Iowa. From 1984 to
1989, Mr. Brown was a Senior Accountant with Vroman, McGowen, Hurst, Clark &
Smith, P.C., a certified public accounting firm.
James D. Turner was elected Senior Vice President, Sales and Marketing of
the Company in September 1996. Mr. Turner served as Director of Business
Development for Preferred Oncology Networks of America, Inc. from January 1996
to September 1996. From 1987 to 1995, Mr. Turner held various sales, marketing
and business development positions with divisions of Coram Healthcare, Inc. and
Baxter Healthcare International, most recently as Director of Business
Development.
Kent A. Tapper has been Vice President, Systems Engineering of the Company
since July 1995. Prior to joining the Company and since 1992, Mr. Tapper was
Product Manager, Audio Response and Call Center Platforms for Northern Telecom,
Inc. From 1983 to 1992, Mr. Tapper held Product Manager, Systems Engineering
Manager and various engineering management positions with Northern Telecom.
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<PAGE>
Giancarla C. Miele has been Vice President, Operations, of the Company since
October 1995. From 1994 to 1995, Ms. Miele was Director of Operations for
Integrated Medical Delivery Corporation, a medical management firm. From 1992 to
1994, Ms. Miele was the Administrator of Cancer Care, Inc., an MSO in the
metropolitan Washington, D.C. region. From 1989 to 1992, Ms. Miele served as
Senior Consultant to CMA, a medical services consulting firm.
Dr. David B. Nash has been Executive Vice President, Medical Affairs of the
Company since April 1996. Dr. Nash is Director of Health Policy and Clinical
Outcomes at Thomas Jefferson University Hospital and Associate Professor of
Medicine at Jefferson Medical College. Dr. Nash is the recipient of the 1995
Clifton Latiolias Prize in Managed Care from the American Managed Care Pharmacy
Association. He also serves as a scientific advisory board member of iSTAT Corp.
Dr. Nash provides his services to the Company on a part-time consulting basis.
Dr. Alvin I. Mushlin has been Senior Medical Advisor of the Company since
April 1996. Dr. Mushlin is a Professor of Community and Preventative Medicine at
the University of Rochester, where he has served in various capacities since
1976. He is a member of the National Councils of the Society for General
Internal Medicine and the Society for Medical Decision Making and has served on
the Health Care Technology Study Section of the Agency for Health Care Policy
and Research. Dr. Mushlin provides his services to the Company on a part-time
consulting basis.
John Pappajohn has been a Director of the Company since its inception, and
served as its Secretary and Treasurer from inception through May 1995. Since
1969, Mr. Pappajohn has been the sole owner of Pappajohn Capital Resources, a
venture capital firm specializing in health care investments, and President of
Equity Dynamics, Inc., a financial consulting firm, both located in Des Moines,
Iowa. He serves as a Director for the following public companies: CORE, Inc.,
Drug Screening Systems, Inc., Fuisz Technologies, Ltd., GalaGen, Inc., OncorMed,
Inc., The Care Group, Inc. and Pace Health Management Systems, Inc.
Dr. Barbara J. McNeil has been a Director of the Company since May 1995. Dr.
McNeil is Head of the Department of Health Care Policy and a Professor of
Radiology at Harvard Medical School where she has served in various capacities
since 1971. For four years she has served as Chair of the Blue Cross--
Massachusetts Hospital Association Fund for Cooperative Innovation and currently
she is a member of the National Council on Radiation Protection, the American
College of Radiology and its Board of Chancellors, the Society of Nuclear
Medicine, the Advisory Council for the Agency for Health Care Policy and
Research, and the National Academy of Sciences' Institute of Medicine where she
is a Council member. She also serves as a Director of CV Therapeutics, Inc.
Dr. Carl F. Kohrt has been a Director of the Company since April 1996. Dr.
Kohrt is Executive Vice President and Assistant Chief Operating Officer of the
Eastman Kodak Company, where he has served in various capacities since 1971. Dr.
Kohrt is a recipient of a Sloan Fellowship for study at Massachusetts Institute
of Technology. Dr. Kohrt also serves on the board of governors of The Genesee
Hospital.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee are John Pappajohn, Dr. Barbara McNeil and Dr. Carl Kohrt. The Audit
Committee periodically reviews the Company's auditing practices and procedures,
makes recommendations to management or to the Board of Directors as to any
changes to such practices and procedures deemed necessary from time to time to
comply with applicable auditing rules, regulations and practices, and recommends
independent auditors for the Company to be elected by the stockholders. The
members of the Compensation Committee are Dr. Derace Schaffer, Dr. McNeil and
Dr. Kohrt. The Compensation Committee meets periodically to make recommendations
to the Board of Directors concerning the compensation and benefits payable to
the Company's executive officers and other senior executives. The Company
reimburses directors for their out-of-pocket expenses incurred in attending
Board and Committee meetings.
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<PAGE>
DIRECTOR COMPENSATION
At present no separate cash compensation or fees are payable to directors of
the Company, other than reimbursement of expenses incurred in connection with
attending meetings. The Company expects, however, that new non-employee
directors not otherwise affiliated with the Company or its stockholders will be
paid in a manner and at a level consistent with industry practice.
On May 20, 1995, the Company granted options to acquire 50,000 shares of
Common Stock at an exercise price of $0.10 per share to Dr. Barbara McNeil, a
director of the Company. On August 25, 1995, the Company granted options to
acquire 50,000 shares of Common Stock to John Pappajohn, a director of the
Company, and options to acquire 50,000 shares of Common Stock to Dr. Derace
Schaffer, Chairman of the Board of Directors of the Company, with both of these
issuances having an exercise price of $0.50 per share. On April 8, 1996, the
Company granted options to acquire 50,000 shares of Common Stock at an exercise
price of $1.50 per share to Dr. Carl Kohrt, a director of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities for executive officers of the
Company who received compensation in excess of $100,000 during the period from
inception on February 22, 1995 to December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------ AWARDS SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) UNDERLYING OPTIONS (#)
- -------------------------------------------------------- --------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
Donald A. Carlberg, President and Chief Executive
Officer................................................ 1995(1) $ 96,417 $ 15,000 300,000
</TABLE>
- ------------
(1) Reflects compensation paid from February 22, 1995 (inception) through
December 31, 1995.
Messrs. Carlberg, Brown, Turner, Tapper and Ms. Miele are currently
compensated at annual rates of $150,000, $110,000, $110,000, $100,000 and
$100,000, respectively.
The following table sets forth certain information regarding options granted
to the Chief Executive Officer and other executive officers of the Company
during the period from inception on February 22, 1995 through December 31, 1995.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL YEAR $/SHARE DATE 5% ($) 10% ($)
- -------------------------------------- -------------- ---------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Carlberg.................... 250,000 27.3% $ .10 3/1/05 $ 15,722 $ 39,844
Donald A. Carlberg.................... 50,000 5.5 .50 8/25/05 15,722 39,844
Gregory D. Brown...................... 100,000 10.9 .10 5/1/05 6,289 15,937
Gregory D. Brown...................... 25,000 2.7 .50 8/25/05 7,861 19,922
Kent A. Tapper........................ 50,000 5.5 .10 7/24/05 3,144 7,969
Giancarla C. Miele.................... 50,000 5.5 .75 10/9/05 23,583 59,766
</TABLE>
- ------------
(1) 50,000 of Mr. Carlberg's options vested as of the date of the option grant.
The remainder of his options and all other options will become exercisable
at the rate of 20% per year from the date of grant and have
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<PAGE>
ten- year terms as long as the optionee's employment with the Company
continues. The exercise price of each option is equal to the fair market
value of the underlying Common Stock on the date of the grant, as determined
by the Board of Directors.
(2) Future value of current year grants assumes appreciation in the market value
of the Common Stock of 5% and 10% per year over the ten-year option period
as required by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of actual values. The
actual value realized may be greater than or less than the potential
realizable values set forth in the table.
No stock options were exercised by the Chief Executive Officer or other
executive officers of the Company during the period from inception on February
22, 1995 through December 31, 1995. The following table sets forth certain
information regarding unexercised options held by the Chief Executive Officer
and other executive officers of the Company at December 31, 1995.
AGGREGATED OPTION EXERCISES THROUGH DECEMBER 31, 1995 AND
DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995
AT DECEMBER 31, 1995 (#) ($)(1)
----------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Donald A. Carlberg..................................... 50,000/250,000 $57,500/$267,500
Gregory D. Brown....................................... 0/125,000 0/133,750
Kent A. Tapper......................................... 0/50,000 0/57,500
Giancarla C. Miele..................................... 0/50,000 0/25,000
</TABLE>
- ------------
(1) Calculated based upon $1.25 estimated fair market value of the underlying
securities as of December 31, 1995.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") was originally adopted by the
Board of Directors and stockholders in June 1995. Up to 1,500,000 shares of
Common Stock have been authorized and reserved for issuance under the Plan.
Under the Plan, options may be granted in the form of incentive stock options
("ISOs") or non-qualified stock options ("NQOs") from time to time to salaried
employees, officers, directors and consultants of the Company, as determined by
the Compensation Committee of the Board of Directors. The Compensation Committee
determines the terms and conditions of options granted under the Plan, including
the exercise price. The Plan provides that the Committee must establish an
exercise price for ISOs that is not less than the fair market value per share at
the date of the grant. However, if ISOs are granted to persons owning more than
10% of the voting stock of the Company, the Plan provides that the exercise
price must not be less than 110% of the fair market value per share at the date
of the grant. The Plan also provides for a non-employee director to be entitled
to receive a one-time grant of a NQO to purchase 50,000 shares at an exercise
price equal to fair market value per share on the date of their initial election
to the Company's Board of Directors. Such NQO is exercisable only during the
non-employee director's term and automatically expires on the date such
director's service terminates. Each option, whether an ISO or NQO, must expire
within ten years of the date of the grant.
There are currently outstanding 1,104,000 options outstanding which have
been granted under the Plan, 580,000 of which have an exercise price of $0.10
per share, 175,000 of which have an exercise price of $.50 per share, 65,000 of
which have an exercise price of $.75 per share, 79,500 of which have an exercise
price of $1.25 per share and 204,500 of which have an exercise price of $1.50
per share. Of these options, 50,000 were
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<PAGE>
granted as of March 1, 1995 to Mr. Carlberg and vested immediately. The
remainder of Mr. Carlberg's options and all other options granted under the plan
vest as to 20% of the option grant on the first anniversary of the grant, and
20% on each subsequent anniversary.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with Mr. Carlberg as
its President and Chief Executive Officer dated March 1, 1995, which has a term
of one year and is automatically renewed for successive one-year periods unless
either party receives written notice from the other party of such party's
intention not to renew within 60 days of the agreement's expiration date. The
agreement calls for Mr. Carlberg to receive a base salary of $125,000 per year,
which was increased to $150,000 per year in September 1996. Upon execution of
the agreement, Mr. Carlberg received a $15,000 signing bonus and an option to
purchase up to 250,000 shares of Common Stock of the Company at an exercise
price of $.10 per share, and on March 1, 1996, he received a $25,000 bonus. The
option has a ten-year term, vests over five years and was 20% vested upon grant.
The remainder of the option vests at a rate of 20% per year, and the option is
therefore fully exercisable after the first five years of employment. Mr.
Carlberg is eligible for any discretionary bonuses and additional option grants
in amounts to be determined by the Company's Board of Directors based upon the
performance of the Company and Mr. Carlberg. The agreement prohibits Mr.
Carlberg from engaging in any business activity involving the measurement of
clinical outcomes for patients with acute or chronic diseases, or the
measurement of patient compliance with prescribed treatments for acute or
chronic diseases within one year of the termination of his employment with the
Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws provide for mandatory indemnification rights, subject
to limited exceptions, to any officer or director of the Company who, by reason
of the fact that he or she is or was an officer or director of the Company, is
involved in a legal proceeding of any nature. In addition, the Restated
Certificate of Incorporation contains provisions limiting the personal liability
of directors to the Company or its shareholders for monetary damages arising
from certain acts or omissions in the director's capacity as a director.
CERTAIN TRANSACTIONS
The Company was initially capitalized on February 22, 1995 through the sale
of 5,000,000 shares of its Common Stock for $.10 per share. Included among the
participants in that transaction were Dr. Derace Schaffer, Chairman of the
Board, who purchased 2,300,000 shares, Dr. Schaffer's spouse who purchased
200,000 shares, John Pappajohn, a director, who purchased 752,500 shares, a sole
proprietorship owned by Mr. Pappajohn which purchased 500,000 shares. Mr.
Pappajohn's spouse, who purchased 500,000 shares, and a sole proprietorship
owned by Mr. Pappajohn's spouse which purchased 500,000 shares.
In August and September of 1995 the Company sold 1,800,000 shares of its
Series A Preferred Stock in a private placement for $1.00 per share. Included
among the participants in that transaction were Gregory D. Brown, Sr. Vice
President, Chief Financial Officer, Secretary and Treasurer, who purchased
10,000 shares, and Mr. Pappajohn who purchased 10,000 shares.
In May and June of 1996, the Company sold 600,000 shares of its Series B
Preferred Stock in a private placement for $5.00 per share. Included among the
participants in that transaction were Dr. Schaffer, who purchased 20,000 shares,
and Mr. Pappajohn, who purchased 40,000 shares.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1996 (giving effect to the
conversion of all outstanding shares of Convertible Preferred Stock into
2,400,000 shares of Common Stock) and as adjusted to reflect the sale of the
shares offered hereby (i) by each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) by each of the Company's
directors and its chief executive officer and (iii) by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
SHARES -----------------------------
BENEFICIALLY BEFORE THE AFTER
NAME (1) OWNED OFFERING THE OFFERING
- ---------------------------------------------------------------------------- ----------- ------------- --------------
<S> <C> <C> <C>
Derace L. Schaffer (2)...................................................... 2,370,000 32.0% 23.9%
John Pappajohn (3).......................................................... 1,984,000 26.8 20.0
Edgewater Private Equity Fund II, L.P. ..................................... 1,200,000 16.2 12.1
666 Grand Avenue, Suite 200
Des Moines, IA 50309
Donald A. Carlberg (4)...................................................... 100,000 1.3 1.0
Gregory D. Brown (5)........................................................ 33,000 * *
James D. Turner............................................................. -- -- --
Kent A. Tapper (6).......................................................... 10,000 * *
Giancarla C. Miele (7)...................................................... 10,000 * *
David B. Nash (8)........................................................... -- -- --
Alvin I. Mushlin (9)........................................................ -- -- --
Barbara J. McNeil (6)....................................................... 10,000 * *
Carl F. Kohrt (10).......................................................... -- -- --
All directors and executive officers as a
group (11 persons) (11).................................................... 4,517,000 59.6 44.8
</TABLE>
- ------------
* Less than one percent.
(1) Unless otherwise noted, the address of each of the listed persons is c/o
the Company at 46 Prince Street, Rochester, New York 14607.
(2) Includes 400,000 shares held by Dr. Schaffer's minor children. Includes
options to purchase 10,000 shares which are either currently exercisable or
which become exercisable within 60 days of the date of this Prospectus.
Does not include 40,000 shares subject to outstanding options which are not
exercisable within 60 days of the date of this Prospectus.
(3) Includes 500,000 shares held by Halkis, Ltd., a sole proprietorship owned
by Mr. Pappajohn, 500,000 shares held by Thebes, Ltd., a sole
proprietorship owned by Mr. Pappajohn's spouse, and 500,000 shares held
directly by Mr. Pappajohn's spouse. Mr. Pappajohn disclaims beneficial
ownership of the shares owned by Thebes, Ltd. and by his spouse. Includes
options to purchase 10,000 shares which are either currently exercisable or
which become exercisable within 60 days of the date of this Prospectus.
Does not include 40,000 shares subject to outstanding options which are not
exercisable within 60 days of the date of this Prospectus.
(4) Represents options to purchase 100,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 225,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
37
<PAGE>
(5) Includes options to purchase 25,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 115,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
(6) Includes options to purchase 10,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 40,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
(7) Includes options to purchase 10,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 90,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.
(8) Does not include 20,000 shares subject to outstanding warrants which are
not exercisable within 60 days of the date of this Prospectus.
(9) Does not include 10,000 shares subject to outstanding warrants which are
not exercisable within 60 days of the date of this Prospectus.
(10) Does not include 50,000 shares subject to outstanding options which are
not exercisable within 60 days of the date of this Prospectus.
(11) Includes options to purchase 175,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 670,000 shares subject to outstanding options
and warrants which are not exercisable within 60 days of the date of this
Prospectus.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
25,000,000 shares of capital stock, divided into 20,000,000 shares of Common
Stock, $0.01 par value per share, and 5,000,000 shares of Preferred Stock, $0.01
par value per share, in one or more series with such terms as the Board of
Directors may determine. As of the date hereof, there are 5,004,000 shares of
outstanding Common Stock held by fifty-nine record holders, 1,800,000 shares of
Series A Preferred Stock outstanding held by twenty record holders and 600,000
shares of Series B Preferred Stock outstanding held by twenty-six record
holders. Pursuant to the Company's Certificate of Incorporation, all outstanding
shares of Convertible Preferred Stock will automatically convert into 2,400,000
shares of Common Stock as of the closing of this offering assuming an initial
public offering price of at least $10.00 per share. The terms of the Series B
Preferred Stock provide for a conversion rate adjustment that depends upon the
pricing of this offering. If the initial public offering price is lower than
$10.00 per share, the Conversion Rate shall be adjusted so that at the time of
conversion the aggregate market value of the Common Stock into which the Series
B Preferred Stock is converted will equal $10.00 multiplied by the number of
shares of Series B Preferred Stock converted. Such adjustment would result in a
larger number of shares of Common Stock being issuable upon conversion of the
Series B Preferred Stock. For example, if the initial public offering price were
$9.00 per share, an additional 66,666 shares of Common Stock will be issuable
upon the conversion of the Series B Preferred Stock.
The following is a brief summary of the terms of the various classifications
of capital stock giving pro forma effect to the automatic conversion of Series A
Preferred Stock and Series B Preferred Stock into shares of Common Stock at the
closing of this offering.
COMMON STOCK
No shares of Common Stock are entitled to preference over any other share,
and each share is equal to any other share in all respects. Holders of Common
Stock are entitled to one vote per share held of record at each meeting of
stockholders. Subject to the preferences that may be applicable to any
outstanding Preferred Stock, the holders of the Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See
38
<PAGE>
"Dividend Policy." In any distribution of capital assets, whether voluntary or
involuntary, holders of Common Stock are entitled to receive pro rata the assets
remaining after creditors have been paid in full and holders of Preferred Stock
have received their preferential distribution. Holders of the Common Stock have
no pre-emptive or conversion rights or other subscription rights. The
outstanding shares of Common Stock and those issuable upon conversion of the
Series A Preferred Stock and the Series B Preferred Stock will be, when issued,
duly authorized, validly issued, fully paid and non assessable.
PREFERRED STOCK
The Board of Directors is authorized to issue without stockholder approval
5,000,000 shares of Preferred Stock in one or more series and to determine and
alter all rights, preferences and privileges and qualifications, limitations and
restrictions thereof, including with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of stock, voting rights and other terms.
REGISTRATION RIGHTS
Holders owning fifty percent or more of the aggregate of the shares of
Common Stock into which any shares of the Series A Preferred Stock have been or
can be converted or the Series B Preferred Stock have been or can be converted
have the right on one occasion at any time commencing twelve months from the
date of the initial public offering of the Common Stock of the Company, but not
later than October 31, 2000 or May 31, 2001, respectively, to require the
Company to prepare and file a Registration Statement under the Securities Act
covering such shares of Common Stock, and the Company, at its expense, will use
its best efforts to cause such registration statement to become effective as
soon as possible.
In addition, the holders of Series A Preferred Stock and Series B Preferred
Stock are each entitled, subject to the approval of the underwriter, to two
"piggyback" registrations at the Company's expense as part of a registration by
the Company of its shares of Common Stock at any time commencing twelve months
from the date of the Initial Public Stock Offering, but not later than October
31, 2000 and May 31, 2001, respectively. Holders of Series A Preferred Stock and
Series B Preferred Stock are each granted the right on up to two occasions at
the participating holder's expense, and prior to October 31, 2000 and May 31,
2001, respectively, to have their shares registered on Form S-3 if such is
available for use by the Company and such holder or holders. The registration
rights are subject to a number of terms and conditions, including but not
limited to requirements as to minimum offering size and reaching satisfactory
underwriting terms.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability for (i) any
breach of their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the director derived an
improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its officers,
directors, employees and other agents to the extent permitted by Delaware law.
The Company's Bylaws also permit it to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the Bylaws would permit
indemnification.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Continental Stock Transfer and Trust Company as
its transfer agent and registrar for the Company's Common Stock.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 9,904,000 shares of
Common Stock outstanding (based upon the number of shares outstanding as of
September 30, 1996 and without taking into account the additional shares of
Common Stock that would be issuable upon conversion of the Series B Preferred
Stock if the initial public offering price is lower than $10.00 per share). The
2,500,000 shares sold in this offering (2,875,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction under the Securities Act, except for any such shares held at any
time by an "affiliate" of the Company, as such term is defined under Rule 144
promulgated under the Securities Act.
The remaining 7,404,000 shares (the "Restricted Shares") were issued and
sold by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. In general, under Rule 144, as
currently in effect, a person, including an "affiliate" as that term is defined
in Rule 144, who has held "restricted" shares for a period of at least two years
from the later of the date such shares were acquired from the Company or the
date such shares were acquired from an affiliate, is entitled to sell, within
any three-month period, a number of restricted shares that does not exceed the
greater of one percent (1%) of the then outstanding shares of Common Stock or
the average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are subject to certain manner of sale limitations,
notice requirements and the availability of current public information about the
Company. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has held restricted shares for a period of at least three years from the
later of the date such shares were acquired from the Company and the date they
were acquired from an affiliate is entitled to sell such shares at any time
under Rule 144 without regard to the limitations described above.
The holders of substantially all of the outstanding shares of Common Stock
have agreed pursuant to certain agreements (the "Lock-up Agreements") that they
will not sell or otherwise dispose of any shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Smith Barney Inc.
Of the 7,404,000 Restricted Shares, 5,000,000 Restricted Shares will become
eligible for sale in February 1997, subject to compliance with the volume and
other limitations of Rule 144. In addition, 1,800,000 Restricted Shares will
become eligible for sale in August and September 1997 and 600,000 Restricted
Shares will become eligible for sale during May and June 1998, all subject to
compliance with the volume and other limitations of Rule 144.
Rule 701 ("Rule 701") under the Securities Act provides an exemption from
the registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans or written
contracts of a company not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act (the "Exchange Act"). Securities issued
pursuant to Rule 701 are defined as restricted securities for purposes of Rule
144. However, 90 days after the issuer becomes subject to the reporting
provisions of the Exchange Act, the Rule 144 resale restrictions, except for the
broker's transaction requirement, do not apply to shares acquired pursuant to
Rule 701 by non-Affiliates. Affiliates are subject to all Rule 144 restrictions
after this 90-day period, but without the Rule 144 holding period requirement.
If all the requirements of Rule 701 are met, upon expiration of the Lock-up
Agreements, an aggregate of 319,300 shares of Common Stock issued upon the
exercise of options granted and issuable on exercise of currently outstanding
options will become eligible for sale pursuant to such rule (subject to
applicable Rule 144 restrictions), substantially all of which shares are subject
to the Lock-up Agreements.
The Securities and Exchange Commission has proposed amendments to Rule 144
and Rule 144(k) that would permit resales of Restricted Shares under Rule 144
after a one-year, rather than a two-year holding period, subject to compliance
with the other provisions of Rule 144, and would permit resale of Restricted
Shares by non-Affiliates under Rule 144(k) after a two-year, rather than a
three-year, holding period. Assuming adoption of such amendments, approximately
6,800,000 of the Restricted Shares will be eligible
40
<PAGE>
for sale in the public market immediately after this offering pursuant to Rule
144 (subject to compliance with the volume and other limitations of Rule 144),
substantially all of which shares are subject to the Lock-up Agreements.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices and the
Company's ability to raise additional capital in the future.
41
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc.....................................................................................
Needham & Company, Inc...............................................................................
----------
Total............................................................................................ 2,500,000
----------
----------
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Needham & Company, Inc. are
acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed by the Underwriters. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
42
<PAGE>
The Company, its officers and directors and certain other stockholders,
holding in the aggregate substantially all of the Company's currently
outstanding equity securities, have agreed that, for a period of 180 days after
the date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock except, in the case of the Company, in certain
limited circumstances.
At the Company's request, the Representatives have agreed to reserve up to
125,000 shares of Common Stock for sale at the public offering price to Company
employees and other persons having certain business relationships with the
Company. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase such reserved shares. Any reserved
shares not purchased will be offered by the Underwriters to the general public
on the same basis as the other shares offered hereby.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. The factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present earnings and
the trend of such earnings, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the offering and the market prices and earnings
of similar securities of comparable companies at the time of the offering.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Crummy, Del Deo, Dolan, Griffinger &
Vecchione, Newark, New Jersey. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1995 and June 30,
1996 and for the period from February 22, 1995 (date of incorporation) to
December 31, 1995, the six month period ended June 30, 1996, and the period from
February 22, 1995 (date of incorporation) to June 30, 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act a Registration Statement with respect to
the Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference, but such statements are complete in all material
respects for the purposes herein made. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and at its New York Regional Office, Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.
43
<PAGE>
PATIENT INFOSYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report.............................................................................. F-2
Balance Sheets as of December 31, 1995, June 30, 1996 and June 30, 1996 pro forma (unaudited)............ F-3
Statements of Operations for the period from February 22, 1995 (date of incorporation) to December 31,
1995, for the period from February 22, 1995 (date of incorporation) to June 30, 1995 (unaudited), for
the six month period ended June 30, 1996 and for the period from February 22, 1995 (date of
incorporation) to June 30, 1996......................................................................... F-4
Statements of Stockholders' Equity for the period from February 22, 1995 (date of incorporation) to June
30, 1996................................................................................................ F-5
Statements of Cash Flows for the period from February 22, 1995 (date of incorporation) to December 31,
1995, for the period from February 22, 1995 (date of incorporation) to June 30, 1995 (unaudited), for
the six month period ended June 30, 1996 and for the period from February 22, 1995 (date of
incorporation) to June 30, 1996......................................................................... F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Patient Infosystems, Inc.:
We have audited the accompanying balance sheets of Patient Infosystems, Inc.
(formerly Disease State Management, Inc.) (a development stage enterprise) as of
December 31, 1995 and June 30, 1996 and the related statements of operations,
stockholders' equity, and cash flows for the period from February 22, 1995 (date
of incorporation) to December 31, 1995, for the six month period ended June 30,
1996 and for the period from February 22, 1995 (date of incorporation) to June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Patient Infosystems, Inc. as of December 31,
1995 and June 30, 1996, and the results of its operations and its cash flows for
the period from February 22, 1995 (date of incorporation) to December 31, 1995,
for the six month period ended June 30, 1996 and for the period from February
22, 1995 (date of incorporation) to June 30, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Rochester, New York
July 16, 1996
F-2
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, 1996
DECEMBER 31, 1995 JUNE 30, 1996 PRO FORMA
----------------- -------------- --------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 1,182,080 $ 2,904,799 $ 2,904,799
Accounts receivable............................. 4,055 72,262 72,262
Prepaid expenses and other current assets....... 23,984 105,173 105,173
----------------- -------------- --------------
Total current assets........................ 1,210,119 3,082,234 3,082,234
Property and Equipment, net....................... 553,510 710,251 710,251
----------------- -------------- --------------
Total Assets...................................... $ 1,763,629 $ 3,792,485 $ 3,792,485
----------------- -------------- --------------
----------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................ $ 362,769 $ 148,668 $ 148,668
Accrued salaries and wages...................... 48,259 176,157 176,157
Accrued expenses................................ 19,381 74,170 74,170
Accrued loss on development contract............ -- 46,923 46,923
Deferred revenue................................ 168,055 454,426 454,426
----------------- -------------- --------------
Total current liabilities................... 598,464 900,344 900,344
----------------- -------------- --------------
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Preferred stock--$.01 par value; authorized
5,000,000 shares:
Series A Convertible Preferred Stock;
1,800,000 shares authorized, issued and
outstanding (liquidation preference
$1,800,000).................................. 18,000 18,000 --
Series B Convertible Preferred Stock; 600,000
shares authorized, issued and outstanding
(liquidation preference $3,000,000).......... -- 6,000 --
Common stock--$.01 par value; authorized
20,000,000 shares; 5,004,000 shares issued and
outstanding (7,404,000 shares pro forma)....... 50,040 50,040 74,040
Additional paid-in capital...................... 2,213,777 5,214,660 5,214,660
Deficit accumulated during the development
stage.......................................... (1,116,652) (2,396,559) (2,396,559)
----------------- -------------- --------------
Total stockholders' equity.................. 1,165,165 2,892,141 2,892,141
----------------- -------------- --------------
Total Liabilities and Stockholders' Equity........ $ 1,763,629 $ 3,792,485 $ 3,792,485
----------------- -------------- --------------
----------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995 SIX MONTH
(DATE OF INCORPORATION) PERIOD ENDED
TO DECEMBER 31, 1995 JUNE 30, 1996
------------------------------ -------------------
PERIOD FROM
FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1995
------------------------------
(UNAUDITED)
Revenues................................ $ 113,000 $ -- $ 465,416
<S> <C> <C> <C>
----------- ----------- -------------------
Costs and Expenses:
Cost of sales......................... 111,870 -- 447,312
Sales and marketing................... 375,384 100,374 389,756
General and administrative............ 678,498 128,383 902,188
Research and development.............. 89,909 42,905 26,736
----------- ----------- -------------------
Total costs and expenses............ 1,255,661 271,662 1,765,992
----------- ----------- -------------------
Operating Loss.......................... (1,142,661) (271,662) (1,300,576)
Interest Income......................... 26,009 -- 20,669
----------- ----------- -------------------
Net Loss................................ $(1,116,652) $ (271,662) $ (1,279,907)
----------- ----------- -------------------
----------- ----------- -------------------
Net Loss Per Common and Common Share
Equivalents............................ $ (.14) $ (.03) $ )(.15
----------- ----------- -------------------
----------- ----------- -------------------
Weighted Average Common and Common Share
Equivalents............................ 8,186,740 8,114,740 8,344,740
----------- ----------- -------------------
----------- ----------- -------------------
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1996
------------------------------
Revenues................................ $ 578,416
<S> <C>
-----------
Costs and Expenses:
Cost of sales......................... 559,182
Sales and marketing................... 765,140
General and administrative............ 1,580,686
Research and development.............. 116,645
-----------
Total costs and expenses............ 3,021,653
-----------
Operating Loss.......................... (2,443,237)
Interest Income......................... 46,678
-----------
Net Loss................................ $(2,396,559)
-----------
-----------
Net Loss Per Common and Common Share
Equivalents............................ $ (.29)
-----------
-----------
Weighted Average Common and Common Share
Equivalents............................ 8,344,740
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 22, 1995 (DATE OF INCORPORATION)
TO JUNE 30, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
--------- -------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock, substantially all of
which was issued on February 22, 1995 at
$0.10 per share............................. -- $ -- 5,004,000 $50,040 $ 450,360 $ --
Sale of Series A convertible preferred stock
at $1.00 per share in August and September
1995 (net of issuance costs of $18,583)..... 1,800,000 18,000 -- -- 1,763,417 --
Net loss for the period from date of
incorporation to December 31, 1995.......... -- -- -- -- -- (1,116,652)
--------- -------- --------- -------- ----------- ------------
Balances, December 31, 1995.................. 1,800,000 18,000 5,004,000 50,040 2,213,777 (1,116,652)
Sale of Series B convertible preferred stock
at $5.00 per share in May and June 1996 (net
of issuance costs of $3,250)................ 600,000 6,000 -- -- 2,990,750 --
Issuance of stock warrants................... -- -- -- -- 10,133 --
Net loss for the period January 1, 1996 to
June 30, 1996............................... -- -- -- -- -- (1,279,907)
--------- -------- --------- -------- ----------- ------------
Balances, June 30, 1996...................... 2,400,000 24,000 5,004,000 50,040 5,214,660 (2,396,559)
Conversion of Series A and B convertible
preferred stock to common stock -- pro forma
(unaudited)................................. (2,400,000) (24,000) 2,400,000 24,000 -- --
Balances, June 30, 1996 -- pro forma
(unaudited)................................. -- $ -- 7,404,000 $74,040 $5,214,660 $(2,396,559)
--------- -------- --------- -------- ----------- ------------
--------- -------- --------- -------- ----------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Sale of common stock, substantially all of
which was issued on February 22, 1995 at
$0.10 per share............................. $ 500,400
Sale of Series A convertible preferred stock
at $1.00 per share in August and September
1995 (net of issuance costs of $18,583)..... 1,781,417
Net loss for the period from date of
incorporation to December 31, 1995.......... (1,116,652)
-------------
Balances, December 31, 1995.................. 1,165,165
Sale of Series B convertible preferred stock
at $5.00 per share in May and June 1996 (net
of issuance costs of $3,250)................ 2,996,750
Issuance of stock warrants................... 10,133
Net loss for the period January 1, 1996 to
June 30, 1996............................... (1,279,907)
-------------
Balances, June 30, 1996...................... 2,892,141
Conversion of Series A and B convertible
preferred stock to common stock -- pro forma
(unaudited)................................. --
Balances, June 30, 1996 -- pro forma
(unaudited)................................. $ 2,892,141
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995 SIX MONTH
(DATE OF INCORPORATION) PERIOD ENDED
TO DECEMBER 31, 1995 JUNE 30, 1996
------------------------------ -------------------
PERIOD FROM
FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1995
------------------------------
(UNAUDITED)
Operating Activities:
<S> <C> <C> <C>
Net loss.............................. $(1,116,652) $ (271,662) $(1,279,907)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 26,473 3,781 82,437
Compensation expense related to
issuance of stock warrants......... -- -- 10,133
Increase in accounts receivable..... (4,055) -- (68,207)
Increase in prepaid expenses and
other current assets............... (23,984) (7,030) (81,189)
Increase (decrease) in accounts
payable............................ 362,769 13,449 (214,101)
Increase in accrued salaries and
wages.............................. 48,259 -- 127,898
Increase in accrued expenses........ 19,381 20,647 54,789
Increase in deferred revenue........ 168,055 -- 286,371
Increase in accrued loss on
development contract............... -- -- 46,923
--------------- ------------ -------------------
Net cash used in operating
activities....................... (519,754) (240,815) (1,034,853)
--------------- ------------ -------------------
Investing Activity:
Property and equipment additions...... (579,983) (75,627) (239,178)
--------------- ------------ -------------------
Financing Activity:
Proceeds from issuance of common and
preferred stock, net................. 2,281,817 500,000 2,996,750
--------------- ------------ -------------------
Increase in Cash and Cash Equivalents... 1,182,080 183,558 1,722,719
Cash and Cash Equivalents at Beginning
of Period.............................. -- -- 1,182,080
--------------- ------------ -------------------
Cash and Cash Equivalents at End of
Period................................. $ 1,182,080 $ 183,558 $2,904,799
--------------- ------------ -------------------
--------------- ------------ -------------------
<CAPTION>
PERIOD FROM FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1996
------------------------------
Operating Activities:
<S> <C>
Net loss.............................. $(2,396,559)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 108,910
Compensation expense related to
issuance of stock warrants......... 10,133
Increase in accounts receivable..... (72,262)
Increase in prepaid expenses and
other current assets............... (105,173)
Increase (decrease) in accounts
payable............................ 148,668
Increase in accrued salaries and
wages.............................. 176,157
Increase in accrued expenses........ 74,170
Increase in deferred revenue........ 454,426
Increase in accrued loss on
development contract............... 46,923
---------------
Net cash used in operating
activities....................... (1,554,607)
---------------
Investing Activity:
Property and equipment additions...... (819,161)
---------------
Financing Activity:
Proceeds from issuance of common and
preferred stock, net................. 5,278,567
---------------
Increase in Cash and Cash Equivalents... 2,904,799
Cash and Cash Equivalents at Beginning
of Period.............................. --
---------------
Cash and Cash Equivalents at End of
Period................................. $ 2,904,799
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995 AND FOR
THE SIX MONTH PERIOD ENDED JUNE 30, 1996
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE ACTIVITIES
The Company was incorporated in Delaware on February 22, 1995 under the name
DSMI Corp., changed its name to Disease State Management, Inc. on October 13,
1995, and on June 28, 1996 changed its name to Patient Infosystems, Inc. The
Company has selected December 31 as the close of its fiscal year.
Through June 30, 1996 the Company's development activities have consisted
primarily of efforts to raise funds, develop the first application of its
information capture and delivery system (which is a system that proactively
collects and analyzes information relevant to patients in specific disease
categories to improve patient compliance with prescribed regimens), and market
its disease management programs for specific diseases. Successful completion of
the Company's program development, and ultimately the attainment of profitable
operations, is dependent upon future events, including obtaining adequate
financing to fund its research and development activities and achieving market
acceptance of its products.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to fairly present the results of
operations and cash flows for the period from February 22, 1995 (date of
incorporation) to June 30, 1995. All such adjustments are of a normal recurring
nature.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of current assets and current
liabilities which are carried at cost, which approximates fair market value.
REVENUE RECOGNITION AND DEFERRED REVENUE
The Company's principal source of revenue to date has been from contracts
with a pharmaceutical company for the development and operation of disease
management programs for chronic diseases. Deferred revenue represents amounts
billed in advance under these contracts. Future revenue sources are expected to
include disease management programs and other health care information system
applications.
Development Contracts
The Company's program development contracts typically require payment from
the customer at the time that the contract is executed, with additional payments
made as certain development milestones are met. Development contract revenue is
recognized on a percentage of completion basis, in accordance with the ratio of
total development cost incurred to the estimated total development costs for the
entire project. Losses, if any, will be recognized in full as identified.
F-7
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Program Operations
The Company's program operation contracts call for a per enrolled patient
fee to be paid by the customer for a series of program services as defined in
the contract. The timing of customer payments varies by contract, but typically
occurs in advance of the associated services being provided. Revenues from
program operations are recognized ratably as the program services are delivered.
CASH EQUIVALENTS
Cash equivalents include all highly liquid debt instruments with original
maturities of three months or less.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and accounts receivable. The Company
places its cash with high credit-quality institutions. At times such amounts may
be in excess of FDIC insurance limits.
The Company's current contracts are concentrated in a small number of
customers, with five of the Company's ten contracts being with one customer.
During the six month period ended June 30, 1996 and the period from February 22,
1995 (date of inception) to December 31, 1995, approximately $455,000 (98%) and
$84,000 (74%), respectively, of the Company's revenues arose from contracts with
one customer. At June 30, 1996 and December 31, 1995, accounts receivable
included balances of $52,000 and $-0-, respectively, from contracts with that
customer. The loss of any one of its customers could have a material adverse
effect on the Company and its operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from 3 to 10 years.
RESEARCH AND DEVELOPMENT
Research and development costs consist principally of compensation and
benefits paid to Company employees. All research and development costs are
expensed as incurred.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes". Under the asset and liability method, deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and tax credit carryforwards.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and
common share equivalents outstanding during the period using the Treasury Stock
method. Common share equivalents include Series A and B Convertible Preferred
Stock, common stock options and common stock warrants. For purposes of this
calculation, all common shares issued and stock options and warrants granted by
the Company at a price less than the estimated initial public offering price
during the twelve months preceding the offering date (using the treasury stock
method until shares are issued and an assumed public offering price of $10 per
share) have been included in the calculation of common and common share
equivalents outstanding.
F-8
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED PRO FORMA INFORMATION
The Company is preparing for an initial public offering of its common stock
which, upon completion, would result in the conversion of the outstanding shares
of the Company's preferred stock into shares of its common stock (see Note 4).
The unaudited pro forma balance sheet information is presented as if such
conversion had occurred as of June 30, 1996.
NEW ACCOUNTING STANDARD
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that long-lived
assets and certain indentifiable intangibles to be held and used be reported at
the lower of carrying amount or fair value. Assets to be disposed of and assets
not expected to provide any future service potential to the Company are recorded
at the lower of carrying amount or fair value less cost to sell. The adoption of
SFAS No. 121 did not have a material effect on the Company's financial position
or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Computer software................................. $137,153 $181,927
Computer equipment................................ 242,393 371,240
Telephone equipment............................... 120,233 124,996
Leasehold improvements............................ 12,200 23,454
Office furniture and equipment.................... 68,004 117,544
----------- -----------
579,983 819,161
Less accumulated depreciation and amortization.... 26,473 108,910
----------- -----------
Property and equipment, net....................... $553,510 $710,251
----------- -----------
----------- -----------
</TABLE>
3. INCOME TAXES
The Company has not recorded any income tax expense during the period from
incorporation to June 30, 1996 because of operating losses incurred since
incorporation.
As of June 30, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $2,400,000 which are available to
offset future Federal taxable income. These carryforwards expire in 2010. No tax
benefit relating to the net operating loss carryforwards has been reflected in
the financial statements due to the uncertainty regarding the utilization of any
such benefit, and a valuation allowance has been recognized to offset any
deferred tax asset related to this item. Future benefit may occur to the extent
taxable income is earned prior to the expiration of the carryforward period.
Section 382 of the Internal Revenue Code imposes certain limitations on the
use of net operating loss carryforwards in cases of a change in ownership of a
corporation, as defined in the Code. These provisions place an annual limitation
on the amount of pre-change losses that can be used to offset post-change
taxable income, with any unused limitation amounts and losses carrying forward.
The limitation is computed by
F-9
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
3. INCOME TAXES (CONTINUED)
multiplying the Federal long-term tax exempt rate (currently approximately 5.8%)
by the fair value of the corporation immediately prior to the change in control.
It is not anticipated that a change in control, as defined, will occur as a
result of the current proposed offering.
4. PREFERRED STOCK
The Company has 5,000,000 shares of authorized preferred stock and has the
ability to issue different series with different rights and preferences. A
summary of the rights and preferences related to the Series A and B Convertible
Preferred Stock is as follows:
The holders of Series A and B Convertible Preferred Stock have the right to
convert their shares into shares of Common Stock at the rate of one share of
Common Stock for each share of Series A and B Convertible Preferred Stock.
The conversion ratio for the holders of Series A Convertible Preferred Stock
will be adjusted in the event that the Company, in the future, sells shares
of its Common Stock for less than $1.00 per share. In addition, the
conversion ratio for the holders of Series B Convertible Preferred Stock
will be adjusted in the event that the Company sells shares of its common
stock for less than $10.00 per share in an initial public offering.
Each share of Series A and B Convertible Preferred Stock will be
automatically converted into shares of Common Stock at the then effective
conversion rate immediately upon the closing of an underwritten public stock
offering which meets certain requirements. It is anticipated that at the
mid-range ($10.00) of the current proposed offering these requirements will
be met and the automatic conversion will occur at the above ratio.
The holders of Series A and B Convertible Preferred Stock and the holders of
Common Stock vote together as a single class, with each share of Series A
and B Convertible Preferred Stock entitled to the number of votes equal to
the number of shares of Common Stock into which it is convertible. They also
have certain liquidation preferences in the event of a liquidation,
dissolution or winding up of the Company, and the right to participate in
dividends to the extent that they are declared on the Company's Common
Stock.
5. STOCK OPTIONS AND WARRANTS
The Company has an Employee Stock Option Plan (the "Stock Option Plan") for
the benefit of certain employees, non-employee directors, and key advisors. The
Company has adopted the disclosures-only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option plan,
as it relates to employees. Had compensation cost for the Company's stock option
plan been determined based on the fair
F-10
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
value at the date of grant for awards consistent with the provisions of SFAS
123, the Company's net loss and net loss per common and common share equivalent
would have been increased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995 PERIOD FROM
(DATE OF FEBRUARY 22, 1995
INCORPORATION) SIX MONTH (DATE OF
TO DECEMBER 31, PERIOD ENDED INCORPORATION)
1995 JUNE 30, 1996 TO JUNE 30, 1996
--------------------- PERIOD FROM ------------- ---------------------
FEBRUARY 22, 1995
(DATE OF
INCORPORATION)
TO JUNE 30, 1995
---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss--as reported......... $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
Net loss--pro forma........... $ (1,125,428) $ (274,584) $ (1,296,878) $ (2,422,306)
Net loss per common and common
share equivalent--as
reported..................... $ (.14) $ (.03) $ (.15) $ (.29)
Net loss per common and common
share equivalent--pro
forma........................ $ (.14) $ (.03) $ (.15) $ (.29)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using an assumed risk-free interest rate
of 7% and expected lives of 7 years. The Stock Option Plan provides for
1,500,000 shares of common stock to be reserved for future issuance.
Stock options granted under the Stock Option Plan may be of two types: (1)
incentive stock options and (2) nonqualified stock options. The option price of
such grants shall be determined by a Committee of the Board of Directors (the
"Committee"), but shall be not less than the estimated fair market value of the
common stock at the date the option is granted. The terms of the grants shall be
fixed by the Committee, with no term lasting longer than ten years. The ability
to exercise such options shall be determined by the Committee as the options are
granted. All of the outstanding options vest at the rate of 20% per year with
the exception of 50,000 options which were vested as of the date of grant.
F-11
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OPTION
OUTSTANDING PRICE PER
OPTIONS SHARE
------------ ---------------
<S> <C> <C>
Options granted during the period from incorporation to December 31, 1995
(weighted average fair value of $.09)................................... 915,000 $.10 - .75
Non-vested options forfeited by holders during the period from
incorporation to December 31, 1995...................................... (91,000) $.10 - .75
Options exercised during the period from incorporation to December 31,
1995.................................................................... (4,000) $.10
------------
Options outstanding at December 31, 1995................................. 820,000 $.10 - .75
Options granted during the six month period ended June 30, 1996 (weighted
average fair value of $.54)............................................. 296,000 $1.25 - $1.50
Non-vested options forfeited by holders during the six month period ended
June 30, 1996........................................................... (12,000) $1.25 - $1.50
------------
Options outstanding at June 30, 1996..................................... 1,104,000 $.10 - 1.50
------------
------------
Options exercisable at June 30, 1996..................................... 145,500
------------
------------
Options available for grant at June 30, 1996............................. 396,000
------------
------------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ---------------------------------------------------- ----------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$.10 - $.50......................................... 755,000 8.84 $ .19 145,500 .10
$.51 - $1.00........................................ 65,000 9.24 .75 -- --
$1.01 - $1.50....................................... 284,000 9.68 1.43 -- --
----------- -----------
1,104,000 145,500
----------- -----------
----------- -----------
</TABLE>
The Company also has outstanding stock purchase warrants entitling the
holders to purchase a total of 155,503 shares of common stock at $.10 - 1.50 per
share (weighted average exercise price of $.56). 42,003 of these warrants are
currently vested, with the remaining 113,500 warrants vesting at 20% per year.
The Company has recorded compensation cost of $10,133 for the six month period
ended June 30, 1996 in connection with the issuance of these warrants.
F-12
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space for its main operating facility under an
operating lease agreement expiring in September 1999, which is cancelable in
September 1998 at the option of the Company. Rental expense from this lease for
the six month period ended June 30, 1996 and the period from incorporation to
December 31, 1995 was $30,119 and $40,375, respectively.
Future minimum lease payments under this lease, assuming the cancellation
option is exercised, are summarized as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 46,096
1997.............................................................. 95,202
1998.............................................................. 84,460
---------
$ 225,758
---------
---------
</TABLE>
F-13
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 5
Risk Factors................................... 5
Use of Proceeds................................ 12
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 19
Management..................................... 31
Certain Transactions........................... 35
Principal Stockholders......................... 36
Description of Capital Stock................... 37
Shares Eligible for Future Sale................ 39
Underwriting................................... 41
Legal Matters.................................. 42
Experts........................................ 42
Additional Information......................... 42
Index to Financial Statements.................. F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTION.
2,500,000 SHARES
[LOGO]
COMMON STOCK
------
PROSPECTUS
, 1996
---------
SMITH BARNEY INC.
NEEDHAM & COMPANY, INC.
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock, par
value $.01 per share, offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 13,087
NASD Filing Fee........................................................... $ 4,295
NASDAQ Listing Fee........................................................ $
Blue Sky Fees and Expenses................................................ $ 50,000
Legal Fees and Expenses................................................... $ 38,000
Accounting Fees........................................................... $ 145,000
Printing and Engraving Costs.............................................. $ 100,000
Transfer Agent Fees....................................................... $ 145,000
Miscellaneous Expenses.................................................... $ 4,618
---------
TOTAL................................................................. $ 500,000
---------
---------
</TABLE>
- ------------
* To be included by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation contains a provision
eliminating or limiting director liability to the Registrant and its
stockholders for monetary damages arising from acts or omissions in the
director's capacity as director. The provision does not, however, eliminate or
limit the personal liability of a director (i) for any breach of such director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) under the Delaware statutory provision making
directors personally liable, under a negligence standard, for unlawful dividends
or unlawful stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the Registrant protection against
awards of monetary damages resulting from breaches of their duty of care (except
as indicated above). As a result of this provision, the ability of the
Registrant or a stockholder thereof to successfully prosecute an action against
a director for breach of his duty of care is limited. However, the provision
does not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Securities
and Exchange Commission has taken the position that the provision will have no
effect on claims arising under the Federal securities laws.
In addition, the Registrant's Certificate of Incorporation and Bylaws
provide for mandatory indemnification rights, subject to limited exceptions, to
any director or officer of the Registrant who by reason of the fact that he or
she is a director or officer of the Registrant, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee or agent in advance of the
final deposition of such proceeding in accordance with the applicable provisions
of Delaware General Corporation Law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.
<TABLE>
<CAPTION>
AGGREGATE
NATURE OF TRANSACTION OFFERING PRICE PER
AND DATE CLASS OF PURCHASERS SECURITIES SOLD PRICE SHARE
- ------------------------ -------------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Initial Capitalization Three Accredited 5,000,000 Common $ 500,000 $0.10
February 1995 Investors Stock
Private Placement August Nineteen Accredited 1,800,000 Series $1,800,000 $1.00
and September 1995 Investors A Preferred Stock
Warrant Issuances 1995 Two Consultants 108,000 Common (No sale) $0.10 - $0.50
Stock Exercise
price
Option grants 1995 Sixteen Key 915,000 Common (No sale) $0.10 - $0.75
Employees Stock Exercise
price
Exercise of Stock One Key Employee 4,000 Common $ 400,000 $0.10
Options December 1995 Stock
Option grants 1996 Twenty-Four Key 296,000 Common (No sale) $1.25-$1.50
Employees Stock Exercise
price
Warrant Issuances April Four Consultants 49,500 Common (No sale) $1.50
1996 Stock Exercise
Price
Private Placement May Twenty-five 600,000 Series B $3,000,000 $5.00
and June 1996 Accredited Investors Preferred Stock
</TABLE>
The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation, as amended
3.2+ Certificates of Designation
3.3+ By-Laws
5.1 Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1+ Employment Agreement with Donald A. Carlberg
10.2+ Stock Option Plan
10.3+ Forms of Stock Option Agreement
10.4**+ Services Agreement dated September 18, 1995 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.5**+ Services Agreement dated February 1, 1996 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.6**+ Services Agreement dated March 30, 1996 between the Company and Bristol-Myers
Squibb Oncology, a division of Bristol-Myers Squibb Company
10.7**+ Services Agreement dated April 23, 1996 between the Company and Bristol-Myers
Squibb Oncology/Immunology, a division of Bristol-Myers Squibb Company
10.8**+ Services Agreement dated October 16, 1995 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.9**+ Services Agreement dated June 24, 1996 between the Company and American
HomePatient, Inc.
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
10.10**+ Services Agreement dated June 21, 1996 between the Company and Equifax Healthcare
Administrative Services, a division of Equifax, Inc.
10.11** Services Agreement dated July 28, 1996 between the Company and Equifax Healthcare
Administrative Services, a division of Equifax, Inc.
10.12** Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Asthma)
10.13** Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Diabetes)
10.14** Services Agreement dated September 24, 1996 between the Company and Harris
Methodist Health Plan
11.1 Statement Re: Computation of Per Share Earnings
23.1 Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1+ Power of Attorney (Page II-5)
</TABLE>
- ------------
** Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Rochester, State of New York, on October 11,
1996.
PATIENT INFOSYSTEMS, INC.
By: /s/ DONALD A. CARLBERG
________________________________________
Donald A. Carlberg,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ------------------------------------ ------------------------------------
<C> <S> <C>
/s/ DONALD A. CARLBERG President, Chief Executive Officer
---------------------------- and Director (Principal Executive October 11, 1996
Donald A. Carlberg Officer)
* Senior Vice President and Chief
---------------------------- Financial Officer (Principal October 11, 1996
Gregory D. Brown Financial and Accounting Officer)
*
---------------------------- Chairman of the Board and Director October 11, 1996
Derace L. Schaffer
*
---------------------------- Director October 11, 1996
John Pappajohn
*
---------------------------- Director October 11, 1996
Barbara J. McNeil
*
---------------------------- Director October 11, 1996
Carl F. Kohrt
*/s/ DONALD A. CARLBERG
- ----------------------------
Donald A. Carlberg
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation, as amended
3.2+ Certificates of Designation
3.3+ By-Laws
5.1 Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1+ Employment Agreement with Donald A. Carlberg
10.2+ Stock Option Plan
10.3+ Forms of Stock Option Agreement
10.4**+ Services Agreement dated September 18, 1995 between the Company and Bristol-
Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb
Company
10.5**+ Services Agreement dated February 1, 1996 between the Company and
Bristol-Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers
Squibb Company
10.6**+ Services Agreement dated March 30, 1996 between the Company and Bristol-Myers
Squibb Oncology, a division of Bristol-Myers Squibb Company
10.7**+ Services Agreement dated April 23, 1996 between the Company and Bristol-Myers
Squibb Oncology/Immunology, a division of Bristol-Myers Squibb Company
10.8**+ Services Agreement dated October 16, 1995 between the Company and
Bristol-Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers
Squibb Company
10.9**+ Services Agreement dated June 24, 1996 between the Company and American
HomePatient, Inc.
10.10**+ Services Agreement dated June 21, 1996 between the Company and Equifax
Healthcare Administrative Services, a division of Equifax, Inc.
10.11** Services Agreement dated July 28, 1996 between the Company and Equifax
Healthcare Administrative Services, a division of Equifax, Inc.
10.12** Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Asthma)
10.13** Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Diabetes)
10.14** Services Agreement dated September 24, 1996 between the Company and Harris
Methodist Health Plan
11.1 Statement Re: Computation of Per Share Earnings
23.1 Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1+ Power of Attorney (Page II-5)
</TABLE>
- ------------
** Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.
+ Previously filed.
<PAGE>
DRAFT OF JULY 30, 1996
2,500,000 Shares
PATIENT INFOSYSTEMS, INC.
Common Stock
UNDERWRITING AGREEMENT
, 1996
SMITH BARNEY INC.
NEEDHAM & COMPANY, INC.
AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Patient Infosystems, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 2,500,000 shares (the "Firm Shares")
of its common stock, par value $0.01 per share (the "Common Stock"), to the
several Underwriters named in Schedule I hereto (the "Underwriters"). In
addition, solely for the purpose of covering over-allotments, the Company
proposes to sell to the Underwriters, upon the terms and conditions set forth in
Section 2 hereof, up to an additional 375,000 shares (the "Additional Shares")
of Common Stock. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (the "Registration
Statement"), including a prospectus subject to completion, relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
Registration Statement (including all financial schedules and exhibits) as
amended at the time it becomes effective or, if the Registration Statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this
<PAGE>
Agreement. If it is contemplated, at the time this Agreement is executed, that
a post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement relating to the offering of the Shares is prepared and
filed with the Commission in accordance with Rule 462(b) under the Act (an
"Abbreviated Registration Statement"), the term "Registration Statement" as used
in this Agreement includes the Abbreviated Registration Statement. The term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission and as such
prospectus shall have been amended from time to time prior to the date of the
Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $ per share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 p.m., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 375,000
Additional Shares from the Company. Additional Shares may be purchased solely
to cover over-allotments made in connection with the offering of the Shares.
Upon any exercise of the over-allotment option, each Underwriter, severally and
not jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments as you may determine in order to avoid fractional
shares) which bears the same proportion to the number of Additional Shares to be
purchased by the Underwriters as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof) bears to the aggregate number of
Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on , 1996 (the "Closing
2
<PAGE>
Date"). The place of closing for the Firm Shares and the Closing Date may be
varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement between you and
the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice, it being understood that a facsimile
transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be delivered to
you on the Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or any Abbreviated Registration Statement to be declared or, in the case of an
Abbreviated Registration Statement, to become effective before the offering of
the Shares may commence, the Company will endeavor to cause the Registration
Statement or such post-effective amendment to become effective as soon as
possible and will advise you promptly and, if requested by you, will confirm
such advice in writing, when the Registration Statement or such post-effective
amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading in any material respect, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall
3
<PAGE>
issue any stop order suspending the effectiveness of the Registration Statement,
the Company will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible time.
(c) The Company will furnish to you, without charge, three signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the registration statement and will also furnish to you, without charge, such
number of conformed copies of the registration statement as originally filed and
of each amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall object after being
so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a
prospectus is required to be delivered in connection with sales by any
Underwriter or dealer, file any information, documents or reports pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without
delivering a copy of such information, documents or reports to you, as
Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have requested or may hereafter request, copies of each form of the
Prepricing Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto and will
expeditiously furnish copies thereof to the Underwriters and dealers in such
quantities as you shall request. In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should be
amended or supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may
4
<PAGE>
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
PROVIDED, HOWEVER, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof), or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) The Company will not offer to sell, contract to sell, sell or
otherwise transfer or dispose of, or grant any option or warrant to purchase,
any shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) for a period of 180 days after the date of the
Prospectus (the "Lock-up Period") without the prior written consent of Smith
Barney Inc. except for (i) the sale of the Shares to the Underwriters pursuant
to this Agreement, (ii) the issuance of shares of Common Stock upon exercise of
options or warrants disclosed to be outstanding in the Prospectus and (iii) the
grant pursuant to stock option plans described in the Prospectus of stock
options not exercisable during the Lock-up Period.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
5
<PAGE>
(p) The Company will use its best efforts to have the Common Stock
approved for quotation on the Nasdaq Stock Market's National Market prior to or
concurrently with the effectiveness of the Registration Statement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) The registration statement in the form in which it became or
becomes effective, and also in such form as it may be when any post-effective
amendment thereto or any Abbreviated Registration Statement shall become
effective, and the Prospectus and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act, complied or will comply in
all material respects with the provisions of the Act and did not or will not at
any such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of such
Underwriter through you expressly for use therein.
(c) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable, are
free of any preemptive or similar rights (other than such rights as shall
terminate upon completion of, and be inapplicable to, the offering contemplated
hereby) and have been issued and sold in compliance with all Federal and state
securities laws. The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive or similar rights. The capital stock of the Company conforms in
all material respects to the description thereof in the Registration Statement
and the Prospectus.
(d) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify would not have a material adverse effect on
the condition (financial or other), business, prospects, properties, net worth
or results of operations of the Company (a "Material Adverse Effect"). The
Company has no subsidiaries (as defined in the Act).
(e) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company, or to which the
Company or any of its properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required. There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act. The Company is not involved
in any strike, job action or labor dispute, and to the Company's best knowledge
no such action or dispute is threatened.
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(f) The Company is not (i) in violation of its certificate of
incorporation or by-laws or other organizational documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or of any decree of any court or governmental agency or body having
jurisdiction over the Company, or (ii) in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company is a party
or by which it or any of its properties may be bound.
(g) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of, or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act, all of which have been or will be effected
in accordance with this Agreement, and compliance with the securities or Blue
Sky laws of various jurisdictions) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
of incorporation or bylaws, or other organizational documents, of the Company or
(ii) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, any indenture, bond, note, lease or other agreement or
instrument to which the Company is a party or by which the Company or any of its
properties may be bound, or violates or will violate any statute, law,
regulation or filing or judgment, injunction, order or decree applicable to the
Company or any of its properties, or will result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company
pursuant to the terms of any agreement or instrument to which it is a party or
by which it may be bound or to which any of the property or assets of it is
subject.
(h) The accountants, Deloitte & Touche LLP, who have certified or
shall certify the financial statements filed or to be filed as part of the
Registration Statement or the Prospectus (or any amendment or supplement
thereto), are independent public accountants as required by the Act.
(i) The financial statements, together with the related schedules and
notes forming part of the Registration Statement and the Prospectus (and any
amendment or supplement thereto), comply in all material respects with the
requirements of the Act and present fairly the financial position, results of
operations and changes in stockholders' equity and cash flows of the Company on
the basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical information
and data set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) are accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(j) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement. The execution and
delivery of, and the performance by the Company of its obligations under, this
Agreement have been duly and validly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency,
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reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles.
(k) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), the
Company has not incurred any liability or obligation, direct or contingent, or
entered into any transaction that is material to the Company, and there has not
been any material change in the capital stock, or material increase in the
short-term or long-term debt, of the Company, or any material adverse change, or
any development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company.
(l) The Company has good and marketable title to all property (real
and personal) described in the Prospectus as being owned by it, free and clear
of all liens, claims, security interests or other encumbrances except such as
are described in the Registration Statement and the Prospectus. All the
property described in the Prospectus as being held under lease by the Company is
held by it under valid, subsisting and enforceable leases.
(m) The Company has not distributed and, prior to the later to occur
of the Closing Date and completion of the distribution of the Shares, will not
distribute any offering material in connection with the offering and sale of the
Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act and state securities
or Blue Sky laws.
(n) The Company has such permits, licenses, franchises,
authorizations and clearances ("Permits") of governmental or regulatory
authorities as are necessary to own, lease and operate its properties and to
conduct its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; subject to such
qualifications as may be set forth in the Prospectus, the Company has fulfilled
and performed all its material obligations with respect to the Permits, and no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any Permit, subject in each case to such
qualification as may be set forth in the Prospectus. Except as described in the
Prospectus, none of the Permits contains any restriction that is materially
burdensome to the Company.
(o) The Company has not received nor is it aware of any communication
(written or oral) relating to the termination or modification or threatened
termination or modification of the agreements described or referred to in the
Prospectus under the caption "Risk Factors--Terminability of Agreements;
Exclusivity Provisions" and "Business--Customer Agreements" nor is it aware of
any communication (written or oral) relating to any determination or threatened
determination not to renew or extend any agreement described or referred to
under such caption at the end of the current term of any such agreement.
(p) The property, assets and operations of the Company comply in all
material respects with all applicable federal, state and local laws, rules,
orders, decrees, judgments, injunctions, licenses, permits or regulations
relating to environmental matters (the "Environmental Laws"). To the Company's
best knowledge, none of the Company's property, assets or operations is the
subject of any federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any substance regulated by
or form the basis of liability under any Environmental Laws (a "Hazardous
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Material") into the environment or is in contravention of any federal, state,
local or foreign law, order or regulation. The Company has not received any
notice or claim, nor are there any pending or, to the Company's best knowledge,
threatened or reasonably anticipated lawsuits or other proceedings against it
with respect to violations of an Environmental Law or in connection with the
release of any Hazardous Material into the environment. The Company has no
material contingent liability in connection with any release of Hazardous
Material into the environment.
(q) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amount as are customary
in the business in which it is engaged. All policies of insurance insuring the
Company or its business, assets, employees, officers and directors are in full
force and effect, and the Company is in compliance with the terms of such
policies in all material respects. There are no claims by the Company under any
such policy or instrument as to which any insurance company is denying liability
or defending under a reservation of rights clause.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) Neither the Company nor, to the Company's best knowledge, any
employee or agent of the Company has made any payment of funds of the Company or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
(t) The Company has filed all federal, state, local and foreign tax
returns and tax forms required to be filed, such returns and forms are complete
and correct in all material respects, and all taxes shown by such returns or
otherwise assessed that are due or payable have been paid, except such taxes as
are being contested in good faith and as to which adequate reserves have been
provided. All payroll withholdings required to be made by the Company with
respect to employees have been made. The charges, accruals and reserves on the
books of the Company in respect of any tax liability for any year not finally
determined are adequate to meet any assessments or reassessments for additional
taxes. There have been no tax deficiencies asserted and, to the best knowledge
of the Company, no tax deficiency might be reasonably asserted or threatened
against the Company that could, individually or in the aggregate, have a
Material Adverse Effect.
(u) No holder of any security of the Company has any right (other
than rights that have been validly waived) to require registration of shares of
Common Stock or any other security of the Company because of the filing of the
Registration Statement or the consummation of the transactions contemplated by
this Agreement and, except as disclosed in the Prospectus, no person has the
right to require registration under the Act of any shares of Common Stock or
other securities of the Company. No person has the right, contractual or
otherwise, to cause the Company to permit such person to underwrite the sale of
any of the Shares. Except as described in or contemplated by the Prospectus,
there are no outstanding options, warrants or other rights calling for the
issuance of, and there are no commitments, plans or arrangements to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company.
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(v) The Company owns or possesses all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade
names, copyrights, licenses, inventions, trade secrets and rights described
in the Prospectus as being owned by any of them or necessary for the conduct
of their respective businesses, and the Company is not infringing upon the
rights of any other person with respect to the foregoing.
(w) The Company is not, and, upon the sale of the Shares to be issued
and sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds," will not be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 and the regulations thereunder, relating to issuers
doing business with Cuba.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each of you and each other Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission which has been made therein
or omitted therefrom in reliance upon and in conformity with the information
relating to such Underwriter furnished in writing to the Company by or on behalf
of such Underwriter through you expressly for use in connection therewith;
PROVIDED, HOWEVER, that the indemnification contained in this paragraph (a) with
respect to any Prepricing Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) on
account of any such loss, claim, damage, liability or expense arising from the
sale of Shares by such Underwriter to any person if (i) a copy of the Prospectus
shall not have been delivered or sent to such person within the time required by
the Act and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus and (ii) the Company delivered the Prospectus to the
several Underwriters in requisite quantity on a timely basis to permit such
delivery or sending. The foregoing indemnity agreement shall be in addition to
any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses,
(ii) the Company has failed to assume the defense and employ counsel or
(iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable
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standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the Company shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Company shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action, suit or proceeding effected without its written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the Company
agrees to indemnify and hold harmless any Underwriter and any such controlling
person, to the extent provided in the preceding paragraph, from and against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing to
the Company by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above.
The foregoing indemnity agreement shall be in addition to any liability which
the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; PROVIDED THAT, in the event that
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the Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by a
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule I hereto (or such numbers of Firm Shares increased as set forth in
Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
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8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or an Abbreviated Registration Statement to be declared effective before the
offering of the Shares may commence, the registration statement or such
post-effective amendment or Abbreviated Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business, prospects,
properties, net worth, or results of operations of the Company not contemplated
by the Prospectus, which in your opinion, as Representatives of the several
Underwriters, would materially, adversely affect the market for the Shares, or
(ii) any event or development relating to or involving the Company, or any
officer or director of the Company, which makes any statement made in the
Prospectus untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectus in order to state a material fact required by the Act or any
other law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your opinion, as Representatives of the
several Underwriters, materially, adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion of Crummy,
Del Deo, Dolan, Griffinger & Vecchione, counsel for the Company, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the
conduct of its business requires such registration or qualification, except
where the failure so to register or qualify would not have a Material
Adverse Effect;
(ii) The authorized capital stock of the Company is as set forth
under the caption "Capitalization" in the Prospectus, and the authorized
capital stock of the Company conforms in all material respects as to legal
matters to the description contained in the Prospectus under the caption
"Description of Capital Stock";
(iii) All the shares of capital stock of the Company outstanding
prior to the issuance of the Shares have been duly authorized and validly
issued, are fully paid and nonassessable and were issued and sold in
compliance with all applicable federal and state securities laws;
(iv) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with
the terms hereof, will be validly
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issued, fully paid and nonassessable and free of (A) any preemptive rights
arising under the Company's certificate of incorporation or the Delaware
General Corporation Law or (B) to the knowledge of such counsel, similar
rights that entitle or will entitle any person to acquire any shares of
capital stock of the Company upon the issuance and sale of the Shares by
the Company;
(v) The form of certificate for the Shares conforms to the
requirements of the Delaware General Corporation Law;
(vi) Such counsel has received oral confirmation from the staff
of the Commission that the Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement of rights to indemnity and
contribution hereunder may be limited by federal or state securities laws
or principles of public policy and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and by
general equitable principles;
(viii) To the knowledge of such counsel, the Company is not in
violation of its certificate of incorporation or bylaws, or other
organizational documents, or in default in the performance of any material
obligation, agreement or condition contained in any bond, debenture, note
or other evidence of indebtedness, or in any agreement, indenture, lease or
other instrument to which the Company is a party or by which it or any of
its properties may be bound, in each case that is made an exhibit to the
Registration Statement;
(ix) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by the
Company with the provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
certificate of incorporation or bylaws, or other organizational documents,
of the Company or any, indenture, bond, note, lease or other agreement or
instrument to which the Company is a party or by which the Company or any
of its properties is bound that is made an exhibit to the Registration
Statement, or to the knowledge of such counsel will result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company, nor will any such action result in any violation of
any existing law, regulation, ruling (assuming compliance with all
applicable state securities or Blue Sky laws), judgment, injunction, order
or decree known to such counsel and applicable to the Company or any of its
properties;
(x) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the
part of the Company (except as have been obtained under the Act and the
Exchange Act or such as may be required under state securities or Blue Sky
laws
14
<PAGE>
governing the purchase and distribution of the Shares) for the valid
issuance and sale of the Shares to the Underwriters as contemplated by this
Agreement;
(xi) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements and
the notes thereto and the schedules and other financial and statistical
data included therein, as to which such counsel need not express any
opinion) comply as to form in all material respects with the requirements
of the Act;
(xii) To the knowledge of such counsel, (A) there are no legal or
governmental proceedings pending or threatened against the Company, or to
which the Company or any of its properties is subject, which are required
to be described in the Registration Statement or Prospectus (or any
amendment or supplement thereto) that are not described as required and (B)
there are no agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;
(xiii) To the knowledge of such counsel, the Company is not in
violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company the violation of which would have a
Material Adverse Effect, or of any decree of any court or governmental
agency or body having jurisdiction over the Company;
(xiv) To the knowledge of such counsel, the Company has all
necessary Permits (except where the failure to so have any such Permits,
individually or in the aggregate, would not have a Material Adverse Effect)
to own its properties and to conduct its business as now being conducted as
described in the Prospectus;
(xv) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of contracts, agreements or other legal
documents, or refer to statements of law or legal conclusions, are accurate
in all material respects and present fairly the information required to be
shown;
(xvi) Except as described in the Prospectus, such counsel does not
know of any holder of any securities of the Company or any other person who
has the right, contractual or otherwise, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any
of the Shares or the right to have any Common Stock or other securities of
the Company included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to require the Company
to register under the Act any shares of Common Stock or other securities of
the Company, and any registration rights in connection with the offering
contemplated hereby have been validly waived; and
(xvii) The Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In addition, such counsel shall state that although such counsel has
not undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement, such
counsel has participated in the preparation of the Registration Statement and
the Prospectus,
15
<PAGE>
including review and discussion of the contents thereof, and nothing has come to
the attention of such counsel that has caused it to believe that the
Registration Statement, at the time the Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus, as of its date and as of the Closing
Date or the Option Closing Date, as the case may be, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or that any amendment
or supplement to the Prospectus, as of its date, and as of the Closing Date or
the Option Closing Date, as the case may be, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and the
notes thereto and the schedules and other financial and statistical data
included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the federal laws
of the United States or the State of New York or the corporation law of the
State of Delaware, PROVIDED, HOWEVER that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance, satisfactory to them and counsel
for the Underwriters and (3) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of
Dewey Ballantine, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (iv) (other than subclause (B) thereof),
(vi), (vii), (xi) and the penultimate paragraph of Section 8(c) hereof and such
other related matters as you may request.
(e) You shall have received letters addressed to you and
dated the date hereof and the Closing Date from Deloitte & Touche LLP,
independent certified public accountants, substantially in the forms heretofore
approved by you.
(f)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
contemplated by the Commission at or prior to the Closing Date and any request
of the Commission for additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been complied with; (ii)
there shall not have been any material change in the capital stock of the
Company nor any material increase in the short-term or long-term debt of the
Company from that set forth or contemplated in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); (iii) there shall not have
been, since the respective dates as of which information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company; (iv) the Company shall not have
any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company, other than those
reflected in or contemplated by the Registration Statement or the Prospectus (or
any amendment or supplement thereto); and (v) all the representations and
16
<PAGE>
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company (or such other officers
as are acceptable to you), as to the matters set forth in this Section 8(h) and
in Section 8(i) hereof.
(g) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(h) The Shares shall have been approved for quotation subject
to notice of issuance on the Nasdaq Stock Market's National Market.
(i) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to you, as Representatives of the several Underwriters,
and counsel for the Underwriters.
Any certificate or document signed by any officer of the
Company and delivered to you, as Representatives of the several Underwriters,
or to counsel for the Underwriters, shall be deemed a representation or warranty
by the Company to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 8, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (f) and paragraph (h)
shall be dated the Option Closing Date in question and the opinions called for
by paragraphs (c) and (d) shall be revised to reflect the sale of Additional
Shares.
9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Shares; (v) the
registration of the Common Stock under the Exchange Act and the listing of the
Shares on the Nasdaq National Market; (vi) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification);
(vii) the filing fees and the reasonable fees and expenses of counsel for
17
<PAGE>
the Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. in connection with the
offering; (viii) the transportation and other expenses incurred by or on behalf
of representatives of the Company in connection with presentations to
prospective purchasers of the Shares; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company; and (x) the performance by the Company of its
other obligations under this Agreement.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto or an
Abbreviated Registration Statement to be declared or become effective before the
offering of the Shares may commence, when notification of the effectiveness of
the registration statement or such post-effective amendment has been released by
the Commission or such Abbreviated Registration Statement has, pursuant to the
provisions of Rule 462 under the Act, become effective. Until such time as this
Agreement shall have become effective, it may be terminated by the Company, by
notifying you, or by you, as Representatives of the several Underwriters, by
notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date, each non-defaulting Underwriter shall be obligated, severally,
in the proportion which the number of Firm Shares set forth opposite its name in
Schedule I hereto bears to the aggregate number of Firm Shares set forth
opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney, Harris Upham & Co. Incorporated
(predecessor of Smith Barney Inc.), to purchase the Shares which such defaulting
Underwriter or Underwriters agreed, but failed or refused, to purchase. If any
Underwriter or Underwriters shall fail or refuse to purchase Shares which it or
they are obligated to purchase on the Closing Date and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter agreed, but failed or refused,
to purchase.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only
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<PAGE>
as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover page and the statements in the first and third paragraphs
under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 6(b) and
7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company, at the office of the
Company at 46 Prince Street, Rochester, New York 14607, Attention: Donald A.
Carlberg, President and Chief Executive Officer, with a copy to Crummy, Del Deo,
Dolan, Griffinger & Vecchione, One Riverfront Plaza, Newark, New Jersey 07102,
Attention: Jeffrey A. Baumel, Esq.; or (ii) if to you, as Representatives of
the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division, with a
copy to Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019,
Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of
the several Underwriters, the Company, its directors, its officers who sign the
Registration Statement and the controlling persons referred to in Section 7
hereof and, to the extent provided herein, their respective successors and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
PATIENT INFOSYSTEMS, INC.
By:
---------------------------------
Donald A. Carlberg
President and Chief Executive
Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
NEEDHAM & COMPANY, INC.
AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS
By: SMITH BARNEY INC.
By:
-----------------------------------
Managing Director
20
<PAGE>
SCHEDULE I
PATIENT INFOSYSTEMS, INC.
Number of
Underwriter Firm Shares
- ----------- -----------
Smith Barney Inc.. . . . . . . . . . . . . . . .
Needham & Company, Inc.. . . . . . . . . . . . .
-----------
Total . . . . 2,500,000
-----------
-----------
<PAGE>
Exhibit 5.1
October 11, 1996
Patient Infosystems, Inc.
46 Prince Street
Rochester, New York 14607
Ladies and Gentlemen:
You have requested our opinion with respect to the public offering and
sale by you, Patient Infosystems, Inc., a Delaware corporation (the "Company"),
pursuant to a Registration Statement on Form S-1 (No. 333-07643) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), of up to 2,500,000 shares (the "Shares") of Common Stock, par value $.01
per share, of the Company.
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents and corporate and public
records as we deem necessary as a basis for the opinion hereinafter expressed.
With respect to such examination, we have assumed the genuineness of all
signatures appearing on all documents presented to us as originals, and the
conformity to the originals of all documents presented to us as conformed or
reproduced copies. Where factual matters relevant to such opinion were not
independently established, we have relied upon certificates of appropriate state
and local officials, and upon certificates of executive officers and responsible
employees and agents of the Company.
Based upon the foregoing, it is our opinion that the Shares have been
duly and validly authorized and when sold, paid for and issued as
contemplated by the Registration Statement will be duly and validly issued and
fully paid and nonassessable.
<PAGE>
Patient Infosystems
October 11, 1996
Page 2
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, and to the use of our name as your counsel in connection
with the Registration Statement and in the Prospectus forming a part thereof. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours
/s/ Crummy, Del Deo, Dolan, Griffinger & Vecchione
--------------------------------------------------
<PAGE>
Portions of this Exhibit have been omitted pursuant
to a request for confidential treatment. The omitted
portions, marked by [****], have been separately filed
the Commission.
EXHIBIT 10.11
SERVICES AGREEMENT
This Agreement is effective this 28 day of July, 1996, (the "Effective Date")
between Disease State Management, Inc., 46 Prince Street, Rochester, New York
14607 ("Vendor") and Equifax. Vendor agrees to provide services to Equifax
under the terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as
Attachment A.
The product and all elements as set forth on Attachment A are subject to
prior approval by Equifax, such approval not to be unreasonably withheld.
B. COMPENSATION
1. Equifax shall pay Vendor a program operational fee of [****] in the
program described in Exhibit A. [****]
2. "At Risk" reports shall be generated and transmitted via fax directly
to health care providers for patients exhibiting specific high risk
behaviors. Such contacts shall be billed at a flat rate of [****] per
notification.
3. All amounts due under this Agreement shall be invoiced to Equifax by
Vendor and payable to Vendor within thirty days of the date of the
invoice. Payments exceeding thirty days past due shall be subject to a
service charge of [****] per month until paid.
In the event that Equifax shall request any changes in the concept,
specifications or scope of the product(s) or service(s) described on
Attachment A hereto, Vendor will notify Equifax the cost of such revisions
and will not proceed without prior written approval.
If the compensation provision on Attachment A hereto is other than [****]
Vendor will provide such documentation in support of all billings as
Equifax may reasonably require.
C. CONFIDENTIALITY
1. Equifax and Vendor acknowledge that certain confidential and
proprietary information may be disclosed by one of them to the other in the
course of this Agreement. For purposes of this Agreement, the term
"Confidential Information" includes the following: (a) All information
regarding the patient, Equifax's Customer, any patient medical
data and/or status, or provider information; and (b) any other information
identified as confidential in writing by the disclosing party prior to
disclosure. Notwithstanding the confidentiality requirements of this
Agreement, the foregoing shall not prevent Equifax from retaining
information, including any and all information and data pertaining to any
patient which comes to Equifax or to which Equifax is given access during
this Agreement.
Disease State Management-SM- and DSMI-SM- are servicemarks of Disease State
Management, Inc.
<PAGE>
2. Should Equifax receive confidential information of Vendor for use in
performing their Services, Equifax agrees to take all reasonable steps to
safeguard the confidentiality of said information and to prevent
unauthorized disclosure thereof by Equifax employees, agents and
representatives. Equifax shall maintain strict security procedures to
protect the confidentiality of any information received, stored, or
delivered on patients in the Equifax or any affiliated or associated
company's database.
3. The data released hereunder to Vendor regarding patients, patient
medical data, Equifax Customers, and provider information, is considered
sensitive and confidential information. Vendor warrants that is shall use
any information provided by Equifax strictly for the performance of this
Agreement. Vendor acknowledges and agrees to take all steps necessary to
safeguard the confidentiality of all information and reports, whether oral
or written, maintain such information as strictly confidential and to
prevent unauthorized disclosure thereof by Vendor's employees, agents,
representatives and other third parties. Vendor warrants that all such
information and reports will not be disclosed to any person, organization
or entity other than Equifax.
4. Each party shall hold the other party, its affiliated companies, the
officers, agents, employees, and independent contractors of the other party,
harmless and shall indemnify and defend such party for any claim of
expense or damage, whatsoever, resulting from the publishing or release by
such party, of information contrary to the above conditions.
5. The obligations of the Paragraph shall not apply to any Confidential
Information which the recipient can demonstrate is or becomes available to
the public through no breach of this Agreement.
6. Neither party to this Agreement shall, except as may be required by
law or federal regulation, or except with express written permission of
the other party, disclose the terms and conditions of this Agreement to
any third party or publicly advertise its contents.
7. The parties agree that Vendor's breach of any of its material
obligation under the applicable Confidentiality provisions of this
Agreement, may cause Equifax irreparable injury for which it would have
not adequate remedy at law, and that Equifax shall be entitled to specific
performance or preliminary or other injunctive relief in addition to any
and all remedies it may otherwise be entitled to at law in equity.
8. This paragraph shall survive the termination of this Agreement.
Vendor shall not duplicate any material containing Equifax Confidential
Information, except in the direct performance of its services under this
Agreement. Vendor shall return all copies of materials containing Equifax
Confidential Information upon Vendor's completion of services under this
Agreement or upon any earlier termination of this Agreement for any
reason whatsoever.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including reasonable attorneys' fees, arising from or in any way related
to its willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement.
Disease State Management-SM- and DSMI-SM- are servicemarks of Disease State
Management, Inc.
<PAGE>
E. LIMITATION OF LIABILITY
Neither Equifax nor vendor shall in any way be liable for any special,
indirect, exemplary, incidental or consequential damages, whether based on
contract, tort, or any other legal theory, even if Equifax or vendor has
been previously advised of the possibility of such damages. This
paragraph shall survive the termination of this agreement.
F. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quality to perform all such assignments
and projects given it by Equifax hereunder and agrees that it will
perform all such assignments and projects in a manner commensurate with
professional standards generally applicable to its industry.
G. OWNERSHIP OF MATERIALS
The parties acknowledge that any modifications to the printed materials
produced by its asthma program for Equifax are being created at the
insistence of Equifax and shall be deemed "work made for hire" under the
United States copyright law.
Equifax shall have the right to use the whole work, any part of the parts
thereof, or none of the work, as it sees fit. Equifax may alter the work,
add to it, or combine it with any other works, at its sole discretion.
Notwithstanding the foregoing, all original material submitted by Vendor
as part of the work or as part of the process creating the work, including
but not limited to listings, printouts, documentation, notes, reports,
shall be the property of Equifax whether or not Equifax uses such material.
No rights are reserved by Vendor.
All surveys, reports, data, documentation and all other information
prepared by Vendor in connection with the performance of its services
hereunder will become and remain Equifax's sole property. Title to all
material and documentation, including data furnished by Equifax to Vendor
or delivered by Equifax into the Vendor's possession shall remain with
Equifax. Vendor shall immediately return all such material or
documentation within seven (7) days of any request by Equifax or upon the
termination or conclusion of this Agreement, whichever shall occur first.
Equifax hereby grants Vendor a worldwide perpetual royalty free license to
the data and information created by Vendor in connection with this
agreement for purposes of making marketing presentations to other potential
customers and for the development and sales of additional products based
upon this data. Vendor's use of this data is limited to instances where
data will not be identified by patient or by client of Equifax.
Vendor agrees it will not disclose to any third party, without the prior
written consent of Equifax, any proprietary or confidential information
acquired from Equifax under this Agreement, including trade secrets,
business plans and confidential or other information which may be
proprietary to Equifax.
Vendor warrants and represents that is has or will have the right, through
written agreements with its employees, to secure for Equifax the rights
called for in this Section. Further, in the event Vendor uses any
subcontractor, even though subcontracting is not permitted by this
Agreement, or other third party to perform any of the services contracted
for under this Agreement, Vendor agrees to enter into such written
agreements with such third party, and to take such other steps as are or
may be required to secure for Equifax the rights called for in this Section.
Disease State Management-SM- and DSMI-SM- are servicemarks of Disease State
Management, Inc.
<PAGE>
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue
in full force and effect until the earlier of (i) completion of the
project assigned hereunder, (ii) terminated by at least thirty (30) days
written notice by either party to the other, sent by registered mail to
the address for each party first set forth above, or to such other address
which a party may designate for its receipt of notices hereunder. This
Agreement may be terminated by Equifax immediately in the event Equifax is
unable to obtain waivers from its customers regarding Vendor's services.
2. Transfer Upon Termination
Vendor shall transfer, assign and make available to Equifax or Equifax
representative all property and materials in Vendor's possession or control
and any copies thereof belonging to and paid for by Equifax, and all
information regarding Equifax project(s) covered by this Agreement, as set
forth in Paragraph C herein.
3. Neither Equifax nor Vendor shall be liable to the other for damages of
any kind, including but not limited to lost profits or Incidental, punitive
or consequential damages, relative to termination of this Agreement in
accordance with Section 6.2, even if advised of the possibility of such
damages.
I. INDEPENDENT CONTRACTORS
Vendor shall at all times be an independent contractor and shall so
represent itself to all third parties. Nothing in this Agreement shall be
deemed to constitute either party the agent or legal representative of the
other nor to constitute the parties as partners, agents or joint ventures
of one another.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for itself Equifax its parent,
subsidiaries or affiliate companies, nor disseminate any material of any
kind using the name of Equifax and/or Equifax such parent, subsidiary or
affiliate companies or using their trademarks, without the prior written
approval of Equifax.
K. GOVERNING LAW
This Agreement is entered into in the State of Texas and shall be
constructed and governed under and in accordance with the laws of that
State.
Disease State Management-SM- and DSMI-SM- are servicemarks of Disease State
Management, Inc.
<PAGE>
L. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon Equifax and
Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in whole
or in part by Vendor without the prior written consent of Equifax.
Factoring of accounts receivable is not permitted.
2) The failure of either party to take action as a result of a breach
of this Agreement by the other party shall constitute neither a waiver of
the particular breach involved nor a waiver of either party's right to
enforce any or all provisions of this Agreement through any remedy granted
by law or this Agreement.
3) Equifax is an Equal Opportunity Employer and does not discriminate
against any person because of race, color, creed, age, sex, or national
origin. Vendor represents that it has the same policy of Equal Opportunity
Employment.
4) This Agreement contains the entire understanding of the parties
with respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
5) The headings of each paragraph are for reference only and shall
not be construed as part of this Agreement.
6) Except for the obligation to pay money property due and owing,
either party shall be excused from any delay or failure in performance
hereunder caused by reason of any occurrence or contingency beyond its
reasonable control, including, but not limited to, failure of performance
by the other party, earthquake, labor disputes, riots, governmental
requirements, inability to secure materials on a timely basis, failure of
computer equipment, failures or delays of sources from which information
or data is obtained and transportation difficulties.
Disease State Management-SM- and DSMI-SM- are servicemarks of Disease State
Management, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer,
have entered in to this Agreement this 28 day of July, 1996
Equifax Disease State Management, Inc.
5001 Spring Valley Road 46 Prince Street
Suite 1000E Rochester, NY 14607
Dallas, TX 75244
By: /s/ Charles E. Page By: /s/ Donald A. Carlberg
---------------------------- ----------------------------
Title: President Title: President & CEO
------------------------- -------------------------
<PAGE>
EXHIBIT A
DIABETES
DISEASE MANAGEMENT
PROPOSAL
---------------------------------------
FOR
EQUIFAX HEALTHCARE ADMINISTRATIVE SERVICES
PRESENTED BY
Disease State Management,-SM- Inc.
46 Prince Street
Rochester, New York 14607
716-244-1360
Disease State Management and DSMI are registered service marks of Disease
State Management, Inc.
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
[****]
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
EXHIBIT 10.12
SERVICES AGREEMENT
This Agreement is effective this 13th day of September, 1996, (the
"Effective Date") between Patient Infosystems, 46 Prince Street, Rochester,
New York 14607 ("Vendor") and Health Resources,Inc. under the terms set forth
below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth in the
proposal incorporated herein as Exhibit A.
The product and all elements as set forth in Exhibit A are subject to
prior approval by Health Resources, Inc., such approval not to be
unreasonably withheld.
B. COMPENSATION
1. Health Resources, Inc. shall pay Vendor an operational fee of [****]
in the program described in Exhibit A.
2. Health Resources, Inc. shall pay Vendor for pre-printed materials
(e.g. marketing brochure, business reply mailer, program description)
required for the program. Vendor will furnish estimates for printing costs
upon determination of volumes and specifications.
3. All amounts due under this agreement shall be invoiced monthly to
Health Resources, Inc. by Vendor and payable within thirty days of the date
of the invoice. Payments exceeding thirty days past due shall be subject to
a service charge of [****] per month until paid.
4. In the event that Health Resources, Inc. shall request any changes in
the specifications or scope of the services described in Exhibit A
hereto, Vendor will notify Health Resources, Inc. of the cost of such
revisions and will not proceed without prior written approval.
C. CONFIDENTIALITY
1. Health Resources, Inc. and Vendor acknowledge that certain
confidential and proprietary information may be disclosed by one of them
to the other in the course of this Agreement. For purposes of this
Agreement, the term "Confidential Information" includes the following: (a)
All information regarding the patient, Health Resources, Inc's. Customer,
any patient medical data and/or status, or provider information; and (b)
any other information identified as confidential in writing by the
disclosing party prior to disclosure. Notwithstanding the confidentiality
requirements of this Agreement, the foregoing shall not prevent Health
Resources, Inc. from retaining information, including any and all
information and data pertaining to any patient which comes to Health
Resources, Inc. or to which Health Resources, Inc. is given access during
this Agreement.
2. Should Health Resources, Inc. receive confidential information of
Vendor for use in performing their Services, Health Resources, Inc.
agrees to take all reasonable steps to safeguard the confidentiality of
said information and to prevent unauthorized disclosure thereof by Health
Resources, Inc.'s employees, agents and representatives. Health
Resources, Inc. shall maintain strict security procedures to protect the
confidentiality of any information received, stored, or delivered on
patients in the Health Resources, Inc. or any affiliated or associated
company's database.
-1-
<PAGE>
3. The data released hereunder to Vendor regarding patients, patient
medical data, Health Resources, Inc. Customers, and provider information,
is considered sensitive and confidential information. Vendor warrants that
it shall use any information provided by Health Resources, Inc. strictly
for the performance of this Agreement. Vendor acknowledges and agrees to
take all necessary steps to safeguard the confidentiality of all
information and reports, whether oral or written, maintain such information
as strictly confidential and to prevent unauthorized disclosure thereof by
Vendor's employees, agents, representatives and other third parties. Vendor
warrants that all such information and reports will not be disclosed to
any person, organization or entity other than Health Resources, Inc.
4. Each party shall hold the other party, its affiliated companies, the
officers, agents, employees, and independent contractors of the other
party, harmless and shall indemnify and defend such party for any claim
of expense or damage, whatsoever, resulting from the publishing or
release by such party, of information contrary to the above conditions.
5. The obligations of the Paragraph shall not apply to any Confidential
Information which the recipient can demonstrate is or becomes available
to the public through no breach of this Agreement.
6. Neither party to this Agreement shall, except as may be required by
law or federal regulation, or except with express written permission of
the other party, disclose the terms and conditions of this Agreement to
any third party or publicly advertise its contents.
7. The parties agree that Vendor's breach of any of its material
obligation under the applicable Confidentiality provisions of this
Agreement, may cause Health Resources, Inc. irreparable injury for which
it would not have adequate remedy at law, and that Health Resources, Inc.
shall be entitled to specific performance or preliminary or other
injunctive relief in addition to any and all remedies it may otherwise be
entitled to at law or in equity.
8. This Paragraph shall survive the termination of this Agreement.
Vendor shall not duplicate any material containing Health Resources, Inc.
Confidential Information, except in the direct performance of its
services under this Agreement. Vendor shall return all copies of
materials containing Health Resources, Inc. Confidential Information upon
Vendor's completion of services under this Agreement or upon any
earlier termination of this Agreement for any reason whatsoever.
D. INDEMNIFICATION
D1. Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including reasonable attorneys' fees, arising from or in any way related to
its willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement.
D2. "Limitation of Liability"
Neither Health Resources, Inc. nor vendor shall in any way be liable for
any special, indirect, exemplary,incidental or consequential damages,
whether based on contract, tort, or any other legal theory, even if Health
Resources, Inc. or vendor has been previously advised of the possibility
of such damages. This paragraph shall survive the termination of this
agreement.
-2-
<PAGE>
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quality to perform all such
assignments and projects given it by Health Resources, Inc. hereunder and
agrees that it will perform all such assignments and projects in a manner
commensurate with professional standards generally applicable to its
industry.
F. OWNERSHIP OF MATERIALS
The parties acknowledge that any modifications to the printed materials
produced by its asthma program for Health Resources, Inc. are being
created at the insistence of Health Resources, Inc. and shall be deemed
"work made for hire" under the United States copyright law.
Health Resources, Inc. shall have the right to use the whole work, any part
of parts thereof, or none of the work, as it sees fit. Health Resources,
Inc. may alter the work, add to it, or combine it with any other works, at
it sole discretion. Notwithstanding the foregoing, all original material
submitted by Vendor as part of the work or as part of the process creating
the work, including but not limited to listings, printouts, documentation,
notes, reports, shall be the property of Health Resources, Inc. whether or
not Health Resources, Inc. uses such material. No rights are reserved by
Vendor.
All surveys and reports prepared by Vendor in connection with the
performance of its services hereunder will become and remain Health
Resources, Inc.'s sole property.
Vendor agrees it will not disclose to any third party, without the prior
written consent of Health Resources, Inc., any proprietary or confidential
information acquired from Health Resources, Inc. under this Agreement,
including trade secrets, business plans and confidential or other
information which may be proprietary to Health Resources, Inc..
Vendor warrants and represents that it has or will have the right, through
written agreements with its employees, to secure for Health Resources,
Inc. the rights called for in this Section. Further, in the event Vendor
uses any subcontractor, even though subcontracting is not permitted by this
Agreement, or other third party to perform any of the services contracted
for under this Agreement, Vendor agrees to enter into such written
agreements with such third party, and to take such other steps as are or
may be required to secure for Health Resources, Inc. the rights called for
in this Section.
G. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue
in full force and effect until the earlier of (i) completion of the project
assigned hereunder, (ii) terminated by at least one hundred eighty (180)
days written notice by either party to the other, sent by registered mail
to the address for each party first set forth above, or to such other
address which a party may designate for its receipt of notices hereunder.
This Agreement may be terminated by Health Resources, Inc. immediately in
the event Health Resources, Inc. is unable to obtain waivers from its
customers regarding Vendor's services.
-3-
<PAGE>
2. Payment on Termination
Upon termination of this Agreement Health Resources, Inc. is to pay for all
authorized work in process.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to Health Resources, Inc.
or Health Resources, Inc.'s representative all property and materials in
Vendor's possession or control and any copies thereof belonging to and paid
for by Health Resources, Inc., and all information regarding Health
Resources, Inc.'s project(s) covered by this Agreement, as set forth in
Paragraph C herein.
4. Neither Health Resources, Inc. nor Vendor shall be liable to the other for
damages of any kind, including but not limited to lost profits or incidental,
punitive or consequential damages, relative to termination of this Agreement
in accordance with Section 6.2, even if advised of the possibility of such
damages.
H. INDEPENDENT CONTRACTORS
Vendor shall at all times be an independent contractor and shall so represent
itself to all third parties. Nothing in this Agreement shall be deemed to
constitute either party the agent or legal representative of the other nor to
constitute the parties as partners, agents or joint ventures of one another.
I. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for itself, Health Resources, Inc.'s,
subsidiaries or affiliate companies, nor disseminate any material of any kind
using the name of Health Resources, Inc. and/or Health Resources, Inc.'s such
parent, subsidiary or affiliate companies or using their trademarks, without
the prior written approval of Health Resources, Inc.
J. GOVERNING LAW
This Agreement is entered into in the State of New York and shall be
constructed and governed under and in accordance with the laws of that State.
K. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon Health Resources, Inc.
and Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in whole or
in part by Vendor without the prior written consent of Health Resources, Inc.
2) The failure of either party to take action as a result of a breach of this
Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law or
this Agreement.
-4-
<PAGE>
3) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior written
or oral communications and may be modified in writing subject to mutual
agreement of the parties hereto.
4) The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
5) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including, but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
inability to secure materials on a timely basis, failure of computer
equipment, failures or delays of sources from which information or data is
obtained and transportation difficulties.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer,
have entered in to this Agreement this 13th day of September, 1996.
Health Resources, Inc. Patient Infosystems, Inc.
20 Erford Road 46 Prince Street
Lemoyne, PA 17043 Rochester, New York 14607
By: /s/ David L. Dalton By: /s/ Donald A. Carlberg
-------------------------- -------------------------
Title: President & CEO Title: President & CEO
---------------------- ----------------------
-6-
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
[****]
<PAGE>
EXHIBIT A
ASTHMA
DISEASE MANAGEMENT
PROPOSAL
-------------------------------------------------
PRESENTED BY
Patient Infosystems, Inc.
46 Prince Street
Rochester, New York 14607
716-244-1360
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
[****]
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
EXHIBIT 10.13
SERVICES AGREEMENT
This Agreement is effective this 13th day of September, 1996, (the "Effective
Date") between Patient Infosystems, 46 Prince Street, Rochester, New York
14607 ("Vendor") and Health Resources, Inc. Vendor agrees to provide
services to Health Resources, Inc. under the terms set forth below.
A. SERVICES
Vendor will provide the product(s) or service(s) set forth, and to the
specifications set forth in the proposal incorporated herein as Exhibit A.
The product and all elements as set forth in Exhibit A are subject to
prior approval by Health Resources, Inc., such approval not to be
unreasonably withheld.
B. COMPENSATION
1. Health Resources, Inc. shall pay Vendor an operational fee of [****] in
the program described in Exhibit A.
2. Health Resources, Inc. shall pay Vendor for pre-printed materials (e.g.
marketing brochure, business reply mailer, program description) required
for the program. Vendor will furnish estimates for printing costs upon
determination of volumes and specifications.
3. All amounts due under this agreement shall be invoiced monthly to Health
Resources, Inc. by Vendor and payable within thirty days of the date of
the invoice. Payments exceeding thirty days past due shall be subject to a
service charge of [****] per month until paid.
4. In the event that Health Resources, Inc. shall request any changes in
the specifications or scope of the services described in Exhibit A hereto,
Vendor will notify Health Resources, Inc. of the cost of such revisions
and will not proceed without prior written approval.
C. CONFIDENTIALITY
1. Health Resources, Inc. and Vendor acknowledge that certain confidential
and proprietary information may be disclosed by one of them to the other
in the course of this Agreement. For purposes of this Agreement, the term
"Confidential Information" includes the following: (a) All information
regarding the patient, Health Resources, Inc.'s Customer, any patient
medical data and/or status, or provider information; and (b) any other
information identified as confidential in writing by the disclosing party
prior to disclosure. Notwithstanding the confidentiality requirements of
this Agreement, the foregoing shall not prevent Health Resources, Inc. from
retaining information, including any and all information and data
pertaining to any patient which comes to Health Resources, Inc. or to which
Health Resources, Inc. is given access during this Agreement.
2. Should Health Resources, Inc. receive confidential information of
Vendor for use in performing their Services, Health Resources, Inc. agrees
to take all reasonable steps to safeguard the confidentiality of said
information and to prevent unauthorized disclosure thereof by Health
Resources, Inc.'s employees, agents and representatives. Health Resources,
Inc. shall maintain strict security procedures to protect the
confidentiality of any information received, stored, or delivered on
patients in the Health Resources, Inc. or any affiliated or associated
company's database.
-1-
<PAGE>
3. The data released hereunder to Vendor regarding patients, patient
medical data, Health Resources, Inc. Customers, and provider information,
is considered sensitive and confidential information. Vendor warrants that
it shall use any information provided by Health Resources, Inc. strictly
for the performance of this Agreement. Vendor acknowledges and agrees to
take all necessary steps to safeguard the confidentiality of all
information and reports, whether oral or written, maintain such information
as strictly confidential and to prevent unauthorized disclosure thereof by
Vendor's employees, agents, representatives and other third parties.
Vendor warrants that all such information and reports will not be disclosed
to any person, organization or entity other than Health Resources, Inc.
4. Each party shall hold the other party, its affiliated companies, the
officers, agents, employees, and independent contractors of the other
party, harmless and shall indemnify and defend such party for any claim
of expense or damage, whatsoever, resulting from the publishing or
release by such party, of information contrary to the above conditions.
5. The obligations of the Paragraph shall not apply to any Confidential
Information which the recipient can demonstrate is or becomes available
to the public though no breach of this Agreement.
6. Neither party to this Agreement shall, except as may be required by law
or federal regulation, or except with express written permission of the
other party, disclose the terms and conditions of this Agreement to
any third party or publicly advertise its contents.
7. The parties agree that Vendor's breach of any of its material obligation
under the applicable Confidentiality provisions of this Agreement, may
cause Health Resources, Inc. irreparable injury for which it would have not
adequate remedy at law, and that Health Resources, Inc. shall be entitled
to specific performance or preliminary or other injunctive relief in
addition to any and all remedies it may otherwise be entitled to at law
or in equity.
8. This Paragraph shall survive the termination of this Agreement.
Vendor shall not duplicate any material containing Health Resources, Inc.
Confidential Information, except in the direct performance of its
services under this Agreement. Vendor shall return all copies of materials
containing Health Resources, Inc. Confidential Information upon Vendor's
completion of services under this Agreement or upon any earlier termination
of this Agreement for any reason whatsoever.
D. INDEMNIFICATION
D1. Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including reasonable attorneys' fees, arising from or in any way related
to its willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement.
D2. "Limitation of Liability"
Neither Health Resources, Inc. nor vendor shall in any way be liable for
any special, indirect, exemplary, incidental or consequential damages,
whether based on contract, tort, or any other legal theory, even if
Health Resources, Inc. or vendor has been previously advised of
the possibility of such damages. This paragraph shall survive the
termination of this agreement.
-2-
<PAGE>
E. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quality and quality to perform all such
assignments and projects given it by Health Resources, Inc. hereunder
and agrees that it will perform all such assignments and projects in
a manner commensurate with professional standards generally applicable
to its industry.
F. OWNERSHIP OF MATERIALS
The parties acknowledge that any modifications to the printed materials
produced by its asthma program for Health Resources, Inc. are being
created at the insistence of Health Resources, Inc. and shall be deemed
"work made for hire" under the United States copyright law.
Health Resources, Inc. shall have the right to use the whole work, any
part of parts thereof, or none of the work, as it sees fit. Health
Resources, Inc. may alter the work, add to it, or combine it with any other
works, at its sole discretion. Notwithstanding the foregoing, all original
material submitted by Vendor as part of the work or as part of the process
creating the work, including but not limited to listings, printouts,
documentation, notes, reports, shall be the property of Health Resources,
Inc. whether or not Health Resources, Inc. uses such material. No rights
are reserved by Vendor.
All surveys and reports prepared by Vendor in connection with the
performance of its services hereunder will become and remain Health
Resources, Inc.'s sole property.
Vendor agrees it will not disclose to any third party, without the prior
written consent of Health Resources, Inc., any proprietary or confidential
information acquired from Health Resources, Inc. under this Agreement,
including trade secrets, business plans and confidential or other
information which may be proprietary to Health Resources, Inc.
Vendor warrants and represents that it has or will have the right, through
written agreements with its employees, to secure for Health Resources, Inc.
the rights called for in this Section. Further, in the event Vendor uses
any subcontractor, even though subcontracting is not permitted by this
Agreement, or other third party to perform any of the services contracted
for under this Agreement, Vendor agrees to enter into such written
agreements with such third party, and to take such other steps as are or
may be required to secure for Health Resources, Inc. the rights called for
in this Section.
G. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue in
full force and effect until the earlier of (i) completion of the project
assigned hereunder, (ii) terminated by at least one hundred eighty (180)
days written notice by either party to the other, sent by registered
mail to the address for each party first set forth above, or to such
other address which a party may designate for its receipt of notices
hereunder. This Agreement may be terminated by Health Resources, Inc.
immediately in the event Health Resources, Inc. is unable to obtain
waivers from its customers regarding Vendor's services.
-3-
<PAGE>
2. Payment on Termination
Upon termination of this Agreement Health Resources, Inc. is to pay for all
authorized work in process.
3. Transfer Upon Termination
Vendor shall transfer, assign and make available to Health Resources, Inc.
or Health Resources, Inc.'s representative all property and materials in
Vendor's possession or control and any copies thereof belonging to and paid
for by Health Resources, Inc., and all information regarding Health
Resources, Inc.'s project(s) covered by this Agreement, as set forth in
Paragraph C herein.
4. Neither Health Resources, Inc. nor Vendor shall be liable to the other for
damages of any kind, including but not limited to lost profits or incidental,
punitive or consequential damages, relative to termination of this Agreement
in accordance with Section 6.2, even if advised of the possibility of such
damages.
H. INDEPENDENT CONTRACTORS
Vendor shall at all times be an independent contractor and shall so represent
itself to all third parties. Nothing in this Agreement shall be deemed to
constitute either party the agent or legal representative of the other nor to
constitute the parties as partners, agents or joint ventures of one another.
I. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for itself, Health Resources, Inc.'s,
subsidiaries or affiliate companies, nor disseminate any material of any kind
using the name of Health Resources, Inc. and/or Health Resources, Inc.'s such
parent, subsidiary of affiliate companies or using their trademarks, without
the prior written approval of Health Resources, Inc.
J. GOVERNING LAW
This Agreement is entered into the State of New York and shall be constructed
and governed under and in accordance with the laws of that State.
K. MISCELLANEOUS
1) The terms of this Agreement shall be binding upon Health Resources, Inc.
and Vendor and their respective successors and permitted assigns.
Notwithstanding the foregoing, this Agreement is not assignable in whole or
in part by Vendor without the prior consent of Health Resources, Inc.
2) The failure of either party to take action as a result of a breach of this
Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law or
this Agreement.
-4-
<PAGE>
3) This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior written
or oral communications and may be modified in writing subject to mutual
agreement of the parties hereto.
4) The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
5) Except for the obligation to pay money property due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including, but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
inability to secure materials on a timely basis, failure of computer
equipment, failures or delays of sources from which information or data is
obtained and transportation difficulties.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer,
have entered in to this Agreement this 13th day of September, 1996.
Health Resources, Inc. Patient Infosystems, Inc.
20 Erford Road 46 Prince Street
Lemoyne, PA 17043 Rochester, New York 14607
By: /s/ David L. Dalton By: /s/ Donald A. Carlberg
-------------------------- -------------------------
Title: President & CEO Title: President & CEO
---------------------- ----------------------
-6-
<PAGE>
EXHIBIT A
DIABETES
DISEASE MANAGEMENT
PROPOSAL
-----------------------------------------------------------
PRESENTED BY
Patient Infosystems, Inc.
46 Prince Street
Rochester, New York 14607
716-244-1360
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
[****]
<PAGE>
Portions of this Exhibit have been omitted pursuant
to a request for confidential treatment. The omitted
portions, marked by [****], have been separately filed
the Commission.
SERVICES AGREEMENT
This Agreement is effective this 24th day of September, 1996, (the "Effective
Date") between Patient Infosystems, Inc., 46 Prince Street, Rochester, New York
14607 ("Vendor") and Harris Methodist Health Plan, 611 Ryan Plaza Drive, Suite
900, Arlington, TX 76011-4009 ("Harris"). Vendor agrees to provide services to
Harris under the terms set forth below.
A. SERVICES
Vendor shall enroll up to [****] patients, to be designated by Harris no
later than November 1, 1996, in its asthma disease management program as
described in Exhibit A to this Agreement. Vendor shall provide Harris with
enrollment packages for use in enrolling patients, with each package to
include an introductory letter from Harris, a program enrollment form and
an SF 36 Health Survey form, as well as SF-36 Health Survey forms for use
at the completion of the program. Harris shall provide Vendor with a
completed program enrollment form and a completed SF-36 Health Survey for
each patient at enrollment as well as a completed SF 36 Health Survey at
the conclusion of the program. Vendor shall provide the asthma disease
management program services as described in Exhibit A, and scoring of the
SF 36 Health Surveys completed before and after the delivery of the program
services.
B. COMPENSATION
1. Harris shall pay Vendor program operational fees as follows:
[****] at the time of patient enrollment in the program
2. All amounts due under this Agreement shall be invoiced monthly to
Harris by Vendor and payable to Vendor within thirty days of the date of
the invoice. Payments exceeding thirty days past due shall be subject to a
service charge of [****] per month until paid.
3. In the event that Harris shall request any changes in the
specifications or scope of the services described in Exhibit A hereto,
Vendor will notify Harris of the cost of such revisions and will not
proceed without prior written approval.
C. CONFIDENTIALITY
1. Harris and Vendor acknowledge that certain confidential and proprietary
information may be disclosed by one of them to the other in the course of
this Agreement. For purposes of this Agreement, the term "Confidential
Information" includes the following: (a) All information regarding the
patient, Harris's customers, any patient medical data and/or status, or
provider information; and (b) any other information identified as
confidential in writing by the disclosing party prior to disclosure.
Notwithstanding the confidentiality requirements of this Agreement, the
foregoing shall not prevent Vendor from retaining information, including
any and all information and data pertaining to any patient which comes to
Vendor or to which Vendor is given access during this Agreement.
2. Should Vendor receive confidential information from Harris for use in
performing its services, Vendor agrees to take all reasonable steps to
safeguard the confidentiality of said information and to prevent
unauthorized disclosure thereof by Vendor's employees, agents and
representatives. Vendor shall maintain strict security procedures to
protect the confidentiality of any information received, stored, or
delivered on patients in the Harris or any affiliated or associated
company's database.
<PAGE>
3. The data released hereunder to Vendor regarding patients, patient
medical data, Harris's customers, and provider information is considered
sensitive and confidential information. Vendor acknowledges and agrees to
take all steps necessary to safeguard the confidentiality of all
information provided by Harris , whether oral or written, to maintain such
information as strictly confidential and to prevent unauthorized disclosure
thereof by Vendor's employees, agents, representatives and other third
parties. Vendor warrants that all such information will not be disclosed
to any person, organization or entity other than Harris.
4. The obligations of this Paragraph C shall not apply to any Confidential
Information which the recipient can demonstrate is or becomes available to
the public through no breach of this Agreement.
5. Neither party to this Agreement shall, except as may be required by law
or federal regulation, or except with express written permission of the
other party, disclose the terms and conditions of this Agreement to any
third party or publicly advertise its contents.
6. The parties agree that a breach of any of the material obligations
under the applicable confidentiality provisions of this Agreement may cause
irreparable injury for which the injured party would have not adequate
remedy at law, and that the injured party shall be entitled to specific
performance or preliminary or other injunctive relief in addition to any
and all remedies it may otherwise be entitled to at law or in equity.
7. This Paragraph C shall survive the termination of this Agreement.
D. INDEMNIFICATION
Each party shall indemnify and hold the other party harmless from and
against all liability, damages, penalties, losses, costs or expenses,
including reasonable attorneys' fees, arising from or in any way related to
its willful or negligent actions or omissions in performing the
responsibilities as described in this Agreement.
E. LIMITATION OF LIABILITY
Neither Harris nor Vendor shall in any way be liable for any special,
indirect, exemplary, incidental or consequential damages, whether based on
contract, tort, or any other legal theory, even if Harris or Vendor has
been previously advised of the possibility of such damages. This Paragraph
E shall survive the termination of this Agreement.
F. PROFESSIONAL STANDARDS
Vendor represents that it has facilities, personnel, experience and
expertise sufficient in quantity and quality to perform all such
assignments and projects given it by Harris hereunder and agrees that it
will perform all such assignments and projects in a manner commensurate
with professional standards generally applicable to its industry.
G. OWNERSHIP OF MATERIALS
All surveys, reports and documentation prepared by Vendor in connection
with the performance of its services hereunder will become and remain
Harris's sole property. Title to all material and documentation, including
data furnished by Harris to Vendor or delivered by Harris into the
Vendor's possession, shall remain with Harris. Vendor shall immediately
return all such material or documentation within seven (7) days of any
request by Harris or upon the termination or conclusion of this
Agreement, whichever shall occur first.
<PAGE>
All date collected by Vendor in the course of performing its services under
this Agreement shall remain Vendor's sole property. Vendor's use of the
data is limited to instances where data will not be identified by patient
or by client of Harris.
Vendor agrees it will not disclose to any third party, without the prior
written consent of Harris, any proprietary or confidential information
acquired from Harris under this Agreement, including trade secrets,
business plans and confidential or other information which may be
proprietary to Harris.
Vendor warrants and represents that it has or will have the right, through
written agreements with its employees, to secure for Harris the rights
called for in this Paragraph G. Further, in the event Vendor uses any
subcontractor, or other third party to perform any of the services
contracted for under this Agreement, Vendor agrees to enter into such
written agreements with such third party, and to take such other steps as
are or may be required to secure for Harris the rights called for in this
Paragraph G.
H. DURATION OF AGREEMENT
1. Term
This Agreement is effective as of the Effective Date and shall continue in
full force and effect for a period of twelve months from the effective
date.
2. Termination
If Harris defaults in the payment of any amounts due to Vendor under this
Agreement, Vendor may give Harris notice of such default and if Harris
does not cure any payment default within five (5) days after the giving of
such notice, then Vendor may terminate this Agreement on not less than
thirty (30) days notice to Harris.
I. INDEPENDENT CONTRACTORS
Vendor shall at all times be an independent contractor and shall so
represent itself to all third parties. Nothing in this Agreement shall be
deemed to constitute either party as the agent or legal representative of
the other nor to constitute the parties as partners, or joint ventures of
one another.
J. THIRD PARTY OBLIGATIONS
In connection with this Agreement, Vendor shall make no commitments or
disbursements, incur no obligations nor place any advertising, public
relations or promotional material for itself, Harris, its parent,
subsidiaries or affiliate companies, nor disseminate any material of any
kind using the name of Harris and/or Harris's parent, subsidiary or
affiliate companies or using their trademarks, without the prior written
approval of Harris.
K. GOVERNING LAW
This Agreement is entered into in the State of Texas and shall be
constructed and governed under and in accordance with the laws of that
State.
<PAGE>
L. MISCELLANEOUS
1. The terms of this Agreement shall be binding upon Harris and Vendor
and their respective successors and permitted assigns. Notwithstanding the
foregoing, this Agreement is not assignable in whole or in part by either
party without the prior written consent of the other party.
2. The failure of either party to take action as a result of a breach of
this Agreement by the other party shall constitute neither a waiver of the
particular breach involved nor a waiver of either party's right to enforce
any or all provisions of this Agreement through any remedy granted by law
or this Agreement.
3. This Agreement contains the entire understanding of the parties with
respect to the subject matter contained herein, supersedes any prior
written or oral communications and may be modified in writing subject to
mutual agreement of the parties hereto.
4. The headings of each paragraph are for reference only and shall not be
construed as part of this Agreement.
5. Except for the obligation to pay money properly due and owing, either
party shall be excused from any delay or failure in performance hereunder
caused by reason of any occurrence or contingency beyond its reasonable
control, including, but not limited to, failure of performance by the other
party, earthquake, labor disputes, riots, governmental requirements,
inability to secure materials on a timely basis, failure of computer
equipment, failures or delays of sources from which information or data is
obtained and transportation difficulties.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized officer, have
entered in to this Agreement this 24th day of September, 1996
Harris Methodist Health Plan Patient Infosystems, Inc.
611 Ryan Plaza Drive, Suite 900 46 Prince Street
Arlington, TX 66011-4008 Rochester, NY 14607
By: /s/ Edward Harris, M.D. By: /s/ Donald A. Carlberg
-------------------------- ------------------------
Title: Director of Wellness and Prevention Title: President & CEO
----------------------------------- ------------------------
<PAGE>
EXHIBIT A
ASTHMA
DISEASE MANAGEMENT
PROPOSAL
------------------------------------
PRESENTED BY
Patient Infosystems, Inc.
46 Prince Street
Rochester, New York 14607
716-244-1380
<PAGE>
Portions of this Exhibit have been omitted pursuant
to a request for confidential treatment. The omitted
portions, marked by [****], have been separately filed
with the Commission.
[*****]
<PAGE>
EXHIBIT 11.1
PATIENT INFOSYSTEMS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995
PERIOD FROM (DATE OF PERIOD FROM
FEBRUARY 22, 1995 INCORPORATION) FEBRUARY 22, 1995
(DATE OF TO JUNE 30, 1995 SIX MONTH (DATE OF
INCORPORATION) --------------------- PERIOD ENDED INCORPORATION)
TO DECEMBER 31, 1995 JUNE 30, 1996 TO JUNE 30, 1996
--------------------- (UNAUDITED) ------------- ---------------------
<S> <C> <C> <C> <C>
Net loss............................ $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
--------------------- --------------------- ------------- ---------------------
--------------------- --------------------- ------------- ---------------------
Weighted average Common Stock
outstanding........................ 5,004,000 5,004,000 5,004,000 5,004,000
Weighted average Series A
Convertible Preferred Stock
outstanding........................ 720,000 -- 1,800,000 1,800,000
Weighted average Series B
Convertible Preferresd Stock
outstanding........................ -- -- 100,000 100,000
Staff Accounting Bulletin Common
Stock Equivalents:
Series A Convertible Preferred
Stock issued August and September
1995, calculated using the
treasury stock method at $10.00
per share........................ 972,000 1,620,000 -- --
Series B Convertible Preferred
Stock issued May and June 1996,
calculated using the treasury
stock method at $10.00 per
share............................ 300,000 300,000 250,000 250,000
Dilutive effect of stock options
granted in the twelve months
preceding the offering,
calculated using the treasury
stock method at $10.00 per
share............................ 1,190,740 1,190,740 1,190,740 1,190,740
--------------------- --------------------- ------------- ---------------------
Number of shares to be used in
calculation...................... 8,186,740 8,114,740 8,344,740 8,344,740
--------------------- --------------------- ------------- ---------------------
--------------------- --------------------- ------------- ---------------------
Loss per common share............. $ (0.14) $ (0.03) $ (0.15) $ (0.29)
--------------------- --------------------- ------------- ---------------------
--------------------- --------------------- ------------- ---------------------
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-07643 of Patient Infosystems, Inc. of our report dated July 16, 1996
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Deloitte & Touche LLP
Rochester, New York
October 11, 1996
