FORM 10-K/A. - ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Amendment #1
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from_____________________ to__________________________
Commission file number 0-22319
PATIENT INFOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 16-1476509
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46 Prince Street, Rochester, NY 14607
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 242-7200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class registered Name of each exchange on which
registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 31, 1999, 8,033,002 shares of common stock were
outstanding, and the aggregate market value of the common shares of Patient
Infosystems, Inc. held by non-affiliates was approximately $8 million.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information concerning the Company's
directors and executive officers as of April 28, 1999.
Name Age Position
Derace L. Schaffer, M.D........... 51 Chairman of the Board
Donald A. Carlberg................ 46 Director, President and
Chief Executive Officer
John V. Crisan.................... 54 Chief Financial Officer
Neal Westermeyer.................. 55 Chief Operating Officer
Kent A. Tapper.................... 42 Vice President, Financial
Planning
Victoria Nelson Neidigh........... 39 Vice President, Sales
John Pappajohn.................... 70 Director
Barbara J. McNeil, M.D., Ph.D..... 58 Director
Carl F. Kohrt, Ph.D............... 55 Director
David B. Nash, M.D. .............. 43 Director
Derace L. Schaffer, M.D. has been Chairman of the Board and a Director of
the Company since its inception in February 1995. Dr. Schaffer is President of
the Ide Imaging Group, P.C., as well as the Lan Group, a venture capital firm
specializing in health care and high technology investments. He serves as a
director of the following public companies: Allion Healthcare, Inc.; American
Physician Partners, Inc.; and Oncor, Inc. He is also a director of several
private companies, including Analytika, Inc., Card Systems, Inc. and
Logisticare, Inc. Dr. Schaffer is a board certified radiologist. He received his
post graduate radiology training at Harvard Medical School and Massachusetts
General Hospital, where he served as Chief Resident. Dr. Schaffer is a member of
Alpha Omega Alpha, the national medical honor society, and is Clinical Professor
of Radiology at the University of Rochester School of Medicine.
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.
John V. Crisan has been Chief Financial Officer since March 1999. From
March 1994 to March 1999, Mr. Crisan was Senior Vice President and Chief
Financial Officer of Access Health, Inc. Previously, Mr. Crisan held senior
positions with growth oriented companies including Value Behavioral Health (a
division of Value Health, Inc.) and Partners National Health Plans.
Additionally, Mr. Crisan served as Vice President, Health Affairs for Blue Cross
Blue Shield of Ohio, Inc. and began his career with Ernst & Young.
Neal Westermeyer has been Chief Operating Officer since March 1999. From
July 1998 to January 1999, Mr. Westermeyer was Vice President and General
Manager for HBOC, formerly National Health Enhancement Systems, where he managed
a health information systems and technology based business unit. From January
1998 to July 1998, Mr. Westermeyer served as Senior Vice President of Sales and
Services at HBOC. From June 1993 to January 1998, Mr. Westermeyer served as
Executive Vice President and Chief Operating Officer for National Health
Enhancement Systems, Inc. Previously, he has also held senior positions at Human
Inc., Nabisco Brands, Inc. and Ralston Purina Company.
Kent A. Tapper has been Vice President, Financial Planning since April
1999. Prior to this, he was Vice President, Chief Information Officer since
April 1998 and was 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.
Victoria Nelson Neidigh has been Vice President, Sales since January 1998.
Ms. Neidigh is responsible for managing the Company's national sales staff and
developing strategies to increase the Company's presence in key market sectors,
including managed care organizations and pharmaceutical companies, as well as,
promoting enrollment growth in current and new clients. Prior to this, she
served as Vice President, Managed Care and National Accounts since January 1997.
From August 1995 to January 1997 Ms. Neidigh served as Regional Account Manager
for Apria Healthcare, Inc. From September 1994 to August 1995 Ms. Neidigh served
as District Sales Manager for Homedco, Inc. From March 1994 to September 1994
Ms. Neidigh served as Vice President of Sales and Marketing for Alternative
HomeCare, Inc.
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: The Care
Group, Inc. (Allion, Inc.), MCInformatics, Inc. (MCI), Pace Health Management
Systems, Inc. American Physician Partners.
Barbara J. McNeil, M.D., Ph.D. 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.
Carl F. Kohrt, Ph.D. 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.
David B. Nash, M.D. has been Executive Vice President, Medical Affairs of
the Company since April 1996. Dr. Nash is currently and has been for at least
the last five years, 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 Price
in Managed Care from the American Managed Care Pharmacy Association. He also
serves as a scientific advisory board member of iSTAT Corp. Dr. Nash also
provides his services to the Company on a part-time consulting basis.
No family relationship exists between any of the above directors or
executive officers. The normal term of office for all executive officers listed
above runs from one Annual Meeting of Stockholders of the Company to the next,
or approximately one year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based on a review of the copies of reports furnished to the Company, the Company
believes that during the year ended December 31, 1998 all filing requirements
applicable to its officers, directors and ten percent beneficial owners were
met.
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 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 Audit Committee consists
of John Pappajohn, Barbara J. McNeil and Carl F. 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 Compensation Committee consists of
Derace Schaffer, Barbara J. McNeil and Carl F. Kohrt. The Company reimburses
directors for their out-of-pocket expenses incurred in attending Board and
Committee meetings.
Item 11. Executive Compensation.
Director Compensation
During 1998, the Company paid Derace Schaffer $62,500 in connection with
the part-time performance of his duties as Chairman of the Board of Directors.
From July 1998 through the date hereof, the Company has been compensating Derace
Schaffer at the annual rate of $125,000 for his services. All Directors were
also reimbursed for expenses incurred in connection with attending meetings,
including travel expenses to such meetings.
Executive Compensation
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiary for each of the fiscal years ended December 31, 1998, 1997 and 1996
for those persons who were at December 31, 1998, (i) the Chief Executive Officer
and (ii) the other three most highly compensated executive officers of the
Company who received compensation in excess of $100,000 during the fiscal year
ended December 31, 1998 (the "named executive officers").
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long-Term
Compensation
Awards
Annual Compensation Securities
Name and Principal Position Year Salary Bonus Underlying Options (#)
- --------------------------- ---- ------ ----- ----------------------
<S> <C> <C> <C> <C>
Donald A. Carlberg, President and Chief 1998 $194,231 $25,000 20,000
Executive Officer 1997 $161,538 $25,000 0
1996 $131,731 $25,000 18,000
Kent A. Tapper, Vice President, Financial 1998 $118,039 $0 0
Planning 1997 $101,923 $10,000 0
1996 $86,298 $5,000 0
Marion B. LaVigne, Ph.D., Vice President,
Clinical Services (1) 1998 $110,772 $0 50,000
Victoria Nelson Neidigh, Vice President,
Sales 1998 $139,646 $0 50,000
</TABLE>
(1) Ms. LaVigne resigned her position as Vice President, Clinical Services as of
March 19, 1999.
The following table sets forth certain information regarding options
granted to the Chief Executive Officer and the named executive officers of the
Company during 1998.
<TABLE>
<CAPTION>
Option Grants During 1998
-------------------------
Individual Grants
-----------------
Potential Realizable Value
Number of % of Total Options at Assumed Annual Rates of
Securities Granted to Exercise Stock Price Appreciation
Underlying Options Employees in Price Expiration for Option Term (3)
Granted (#)(1) Fiscal Year (2) $/Share Date 5% ($) 10% ($)
-------------- --------------- ------- ---------- ------ -------
Name
----
<S> <C> <C> <C> <C> <C> <C>
Donald A. Carlberg 20,000 5.0% $1.38 6/25/08 $17,357 $43,987
Kent A. Tapper - - - - - -
Marion B. LaVigne 50,000 12.5% $1.38 3/17/08 $43,394 $109,968
Victoria Nelson Neidigh 50,000 12.5% $1.38 3/17/08 $43,394 $109,968
</TABLE>
(1) All options will become exercisable at the rate of 20% per year from the
date of grant and have ten year terms as long as the optionee's employment with
the Company continues. The exercise price of each option is equal to the fair
market value of the underlying Common Stock on the date of the grant, as
determined by the Board of Directors.
(2) Total number of options granted during fiscal year 1998 was 399,200.
(3) Future value of current year grants assumes appreciation in the market value
of the Common Stock of 5% and 10% per year over the ten-year option period as
required by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of actual values. The actual
value realized may be greater than or less than the potential realizable values
set forth in the table.
<PAGE>
No stock options were exercised by the Chief Executive Officer or the named
executive officers of the Company during 1998. The following table sets forth
certain information regarding unexercised options held by the Chief Executive
Officer and the named executive officers of the Company at December 31, 1998.
<TABLE>
<CAPTION>
Aggregated Option Exercises during 1998
and Option Values on December 31, 1998
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998(#) December 31, 1998($)(1)
-------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald A. Carlberg 151,200 102,800 $283,500 $192,750
Kent A. Tapper 21,600 14,400 $40,500 $27,000
Marion B. LaVigne (2) 10,440 57,560 $19,575 $107,925
Victoria Nelson Neidigh 3,000 62,000 $ 5,625 $116,250
</TABLE>
(1) Calculated based upon $1.88 market value of the underlying securities as of
December 31, 1998. The Compensation Committee approved repricing of employee
stock options on March 17, 1998 and December 10, 1998.
(2) At the time of Ms. LaVigne's resignation on March 19, 1999, the number of
securities underlying unexercised options that were exercisable amounted to
23,680 and the unexercisable options amounted to 44,320. All of Ms. LaVigne's
unexercised options as of March 19, 1999, the date of her resignation, were
forfeited.
Repricing Report of the Board of Directors
In March 1998 and again in December 1998, the Board of Directors considered
a proposal from management for significant changes to existing employee
programs, including options held by the Company's executive officers. This
proposal arose largely from a broad decline in the price of the Common Stock of
the Company that had resulted in a substantial number of stock options granted
pursuant to the Company's existing option plan having exercise prices well above
the recent historical trading prices of the Common Stock. This decline together
with the resulting equity disparity between new hires who receive option grants
at the current fair market value and existing employees' exercise prices
prompted the proposal. The Board was advised by management that management
believed that employee and executive turnover was likely to increase. In large
part, this increase was expected because the Company's total compensation
package for long-term employees, which included options with exercise prices
well above the then-current trading price, no longer provided an effective
retention incentive, particularly when combined with job security concerns. In
addition, the Company's existing option grants were not competitive with
competing offers from other companies, since options granted to new hires at
other companies would be granted at current trading prices.
The Board also reviewed independent data obtained by management regarding
equity and other compensation offered by competitors as well as other companies
in the health care industry. The Board considered both cash and equity
compensation as possibilities to aid employee and executive retention by the
Company. The Board recognized that an amendment of existing options with
exercise prices higher than fair market value to provide exercise prices at fair
market value would provide additional incentives to employees because of the
increased potential for appreciation. Such additional incentives were necessary,
the Board decided, in order for the Company's employee programs to continue to
meet their objectives, including driving operating performance in accordance
with the Company's plans and targets, promoting employee retention, addressing
stockholder concerns for dilution, and preserving the reserved shares for
employee stock programs.
Considering these factors, the Board determined it to be in the best
interests of the Company and its stockholders to amend outstanding stock options
under its option plan to set the exercise prices equal to the current market
value with the same vesting and expiration terms as existing options, thus
restoring the incentives for employees to remain as employees of the Company and
to exert their maximum efforts on behalf of the Company and focus on achieving
the Company's operating plans. The Board determined not to impose any exercise
restrictions or to defer the date of the repricing, even though management's
proposal had included certain of these restrictions, because of the competitive
situation that the Company faced as well as concerns that external market
factors could affect the repricing.
Accordingly, in March 1998 and again in December 1998, the Board approved
an amendment of each outstanding option held by all current executive officers
of the Company with exercise prices above the then-current trading price to
provide an exercise price equal to the current trading price. The exchanged
options will continue to vest at the same rate and on the same terms as the
original options and will terminate on the same date and terms as the original
options. The first option amendments were completed on March 17, 1998; options
held by executive officers for 16,800 shares with exercise prices ranging from
$8.50 to $10.00 were exchanged for options for an equal number of shares at an
exercise price of $3.13, the fair market value of the Company's Common Stock on
March 17, 1998, the effective date of the initial repricing. The second option
amendments were completed on December 10, 1998; options held by executive
officers for 154,800 shares with exercise prices ranging from $2.08 to $3.13
were exchanged for options for an equal number of shares at an exercise price of
$1.38, the fair market value of the Company's Common Stock on December 10, 1998,
the effective date of the second repricing.
The Chief Executive Officer and the named executive officers in 1998 that
had their options repriced are listed below in the Ten Year Option Repricings
table.
<TABLE>
<CAPTION>
Ten-Year Option Repricings
--------------------------
Length of
Number of original
securities Market price option term
underlying of stock at Exercise price remaining at
options/SARs time of at time of New date of
repriced or repricing or repricing or exercise repricing or
Name Date amended (#) amendment($) amendment($) price ($) amendment
---- ---- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald Carlberg, 12/10/98 18,000 $1.38 $2.08 $1.38 27 months
Director, President and 12/10/98 20,000 $1.38 $2.75 $1.38 54 months
Chief Executive Officer
Kent A. Tapper, Vice - - - - - -
President, Financial
Planning
Marion B. LaVigne, Ph.D., 3/17/98 1,800 $3.13 $10.00 $3.13 44 months
Vice President, Clinical 12/10/98 1,800 $1.38 $3.13 $1.38 35 months
Services 12/10/98 50,000 $1.38 $3.13 $1.38 50 months
Victoria Nelson 3/17/98 15,000 $3.13 $8.50 $3.13 47 months
Neidigh, Vice 12/10/98 15,000 $1.38 $3.13 $1.38 38 months
President, Sales 12/10/98 50,000 $1.38 $3.13 $1.38 50 months
12/10/98 1,800 $1.38 $10.00 $1.38 35 months
</TABLE>
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 1,080,000 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 36,000 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.
As of December 31, 1998 there were 867,920 options outstanding under the
Plan, the following table sets forth information regarding the number of options
outstanding and the exercise price of these options.
Number of Options
Outstanding at
December 31, 1998 Exercise Price
----------------- --------------
268,200 $0.14
108,000 $0.69
3,600 $1.04
485,140 $1.38
2,880 $3.13
100 $4.00
Of these options, 36,000 were 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.
<PAGE>
Employment Contracts and Change-In-Control Provisions
The Company has entered into an employment agreement with Mr. Carlberg as
its President and Chief Executive Officer dated March 1, 1995. The agreement
with Mr. Carlberg 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, $175,000 in June 1997 and $200,000 in June of 1998. Upon
execution of the agreement, Mr. Carlberg received a $15,000 signing bonus and an
option to purchase up to 180,000 shares of Common Stock of the Company at an
exercise price of $.14 per share, and in 1996, 1997 and 1998, he received
bonuses of $25,000. 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. If the Company terminates Mr. Carlberg's
employment for reasons other than for cause, the Company is required to pay Mr.
Carlberg's compensation and fringe benefits for a period of six months following
the date of termination.
The Company has entered into a consulting agreement with John V. Crisan
dated March 8, 1999 pursuant to which Mr. Crisan serves as Chief Financial
Officer and a member of the Board of Directors. The agreement with Mr. Crisan
has a term of two years. Either party may terminate the agreement for any reason
and without liability for a period of 90 days from the date of the agreement.
Pursuant to the agreement, Mr. Crisan receives a basic consulting fee of $5,000
per week that he renders services for the Company. Mr. Crisan is not obligated
to perform services on a full-time basis for the Company. The Company must pay
or reimburse Mr. Crisan for all reasonable business expenses actually incurred
or paid by him in the performance of his services under the agreement, including
business-related travel expenses and temporary housing expenses. Upon execution
of the agreement, Mr. Crisan received options to purchase 150,000 shares of
Common Stock of the Company at an exercise price of $1.50 per share. The options
have a ten-year term, vest over three years, with 50% of the options vesting on
the first anniversary of the grant date and 25% on each of the second and third
anniversaries of the grant date. In the event of a change of control of the
Company, all options immediately vest. If Mr. Crisan is terminated for cause or
resigns prior to March 8, 2001, Mr. Crisan is prohibited from competing with the
Company for one year from the termination or resignation date. If the Company
terminates Mr. Crisan without cause, the Company must pay Mr. Crisan severance
equal to the amount of the basic consulting fee in effect as of the date of
termination, but not to exceed $100,000, such payments to be made in equal
monthly installments of not more than $20,000.
The Company has entered into an employment agreement with Mr. Westermeyer
as its Chief Operating Officer dated March 8, 1999, which has a term of two
years. The agreement calls for Mr. Westermeyer to receive a base salary of
$175,000 with compensation reviews annually and may be adjusted to reflect
increased responsibilities, capabilities and performance. Mr. Westermeyer may be
eligible for a bonus up to 30% of his base salary. The Company shall pay or
reimburse Mr. Westermeyer for all reasonable business expenses actually incurred
or paid by him, including business-related travel expenses and temporary housing
expenses. Mr. Westermeyer received an option to purchase 150,000 shares of
Common Stock of the Company at an exercise price of $1.50 per share. The option
has a ten year term, vests over three years, with 40,000 shares that vested upon
grant. The remaining options vest at a rate of 25% over three years from the
date of grant. Either party can terminate the agreement with written notice of
not less than 60 days from the date of termination. In the event Mr. Westermeyer
is terminated without cause prior to a Change in Control, Mr. Westermeyer
receives one year's worth of his annual salary, as in effect on the termination
date. Generally, in the event Mr. Westermeyer is terminated without cause after
a Change in Control, Mr. Westermeyer will be entitled to receive up to two
year's worth of annual salary as in effect on the date of the Change in Control
as adjusted thereafter from time to time.
Board Compensation Committee Report on Executive Compensation
Compensation for the Company's executive officers was determined in light
of the responsibilities involved in commencing the Company's business
operations, developing its initial and ongoing customer relationships,
commencing patient information programs and negotiating with the Company's
investment bankers. During 1998, Mr. Carlberg received a bonus of $25,000
reflecting Mr. Carlberg's efforts in connection with the expansion of the
Company's operations and the substantial roll-out of the Company's patient
information systems.
The Compensation Committee evaluates the performance of each executive
officer of the Company in the context of the goals and challenges that the
Company faces over the next year. The determinations as to salary and bonus are
made in a context of the challenges faced in the Company, the individual
performance of the individual and the salaries of executives at comparative
companies in the Company's industry. Compensation for the Company's Executive
Officers was determined in light of the responsibilities involved in commencing
the Company's business operations, developing its initial and ongoing customer
relationships and negotiating with the Company's investment bankers.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Derace Schaffer, Barbara J. McNeil
and Carl F. Kohrt for the fiscal year ended December 31, 1998. None of these
individuals was at any time during fiscal year 1998 or any other time an officer
or employee of the Company. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any other entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
Company Performance Graph
The following graph compares the cumulative total stockholder return on the
Common Stock of Patient Infosystems, Inc. from December 19, 1996 (the date the
Common Stock was first offered to the public at an initial public offering price
of $8.00 per share) through December 31, 1998 with the cumulative total return
on the NASDAQ Stock Market - U.S. Index and the cumulative total return on the
NASDAQ Health Services Index. The Company did not pay any dividends during this
period. The NASDAQ Stock Market - U.S. Index and the NASDAQ Health Services
Index are published daily.
The graph assumes an investment of $100 in each of Patient Infosystems,
Inc., the NASDAQ Stock Market - U.S. Index and the NASDAQ Health Services Index
on December 31, 1998 and 1997. The Comparison also assumes that all dividends
are reinvested.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PATIENT INFOSYSTEMS, INC., THE NASDAQ STOCK
MARKET - U.S. INDEX AND THE NASDAQ HEALTH SERVICES INDEX
12/19/96 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Patient Infosystems, Inc. 100.00 115.63 33.13 23.44
NASDAQ Stock Market - U.S. Index 100.00 99.49 122.15 171.40
NASDAQ Health Services Index 100.00 100.55 103.16 88.13
</TABLE>
The comparisons in this table are required by the rules of the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's Common Stock. The stock price
performance graph shall not be deemed to be incorporated into any filing under
the Securities Act or the Exchange Act, notwithstanding any general statement
contained in any such filing incorporating this Proxy Statement by reference,
except to the extent that the Company specifically incorporates this information
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of April 28, 1999, (i)
by each person the Company knows to be the beneficial owner of 5% or more of the
outstanding shares of Common Stock, (ii) the Chief Executive Officer and the
named executive officers listed in the Summary Compensation Table, (iii) each
director of the Company and (iv) all executive officers and directors of the
Company as a group.
Shares Beneficially Percentage Beneficially
Beneficial Owner (1) Owned Owned
-------------------- ----- -----
Derace L. Schaffer (2)........................ 1,726,100 21.5%
John Pappajohn (3)........................... 1,514,080 18.8%
Edgewater Private Equity Fund II, L.P.,
666 Grand Avenue, Suite 200
Des Moines, IA 50309 ......................... 970,000 12.1%
Donald A. Carlberg (4)........................ 188,600 2.3%
John V. Crisan (5)............................ 20,000 *
Neal Westermeyer (5).......................... 17,835 *
Kent A. Tapper (6)............................ 21,700 *
Victoria Nelson Neidigh (7)................... 16,720 *
Barbara J. McNeil (6)......................... 21,600 *
Carl F. Kohrt (6)............................. 21,600 *
David B. Nash (8) ............................ 19,840 *
All directors and executive officers as a
group (10 persons) (9)........................ 3,568,075 44.4%
* 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 288,000 shares held by Dr. Schaffer's minor children. Also includes
21,600 shares which are issuable upon the exercise of options that are either
currently exercisable or which become exercisable within 60 days of April
28,1999. Does not include 14,400 shares subject to outstanding options which are
not exercisable within 60 days of April 28, 1999.
(3) Includes 360,000 shares held by Halkis, Ltd., a sole proprietorship owned by
Mr. Pappajohn, 360,000 shares held by Thebes, Ltd., a sole proprietorship owned
by Mr. Pappajohn's spouse and 360,000 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 21,600 shares which
are either currently exercisable or which become exercisable within 60 days of
April 28, 1999. Does not include 14,400 shares subject to outstanding options
which are not exercisable within 60 days of April 28, 1999.
(4) Includes options to purchase 187,600 shares which are either currently
exercisable or which become exercisable within 60 days of the date of April 28,
1999. Does not include 66,400 shares subject to outstanding options which are
not exercisable within 60 days of April 28,1 1999.
(5) Does not include 150,000 shares subject to outstanding options which are not
exercisable within 60 days of April 28, 1999.
(6) Includes options to purchase 21,600 shares which are either currently
exercisable or which become exercisable within 60 days of April 28, 1999. Does
not include 14,400 shares subject to outstanding options which are not
exercisable within 60 days of April 28, 1999.
(7) Includes options and warrants to purchase 16,720 shares which are either
currently exercisable or which become exercisable within 60 days of April 28,
1999. Does not include 50,080 shares subject to outstanding options and warrants
which are not exercisable within 60 days of April 28, 1999.
(8) Includes options and warrants to purchase 19,480 shares which are either
currently exercisable or which become exercisable within 60 days of April 28,
1999. Does not include 50,560 shares subject to outstanding options and warrants
which are not exercisable within 60 days of April 28, 1999.
(9) Includes options and warrants to purchase 332,160 shares which are either
currently exercisable or which become exercisable within 60 days of April 28,
1999. Does not include 539,040 shares subject to outstanding options and
warrants which are not exercisable within 60 days of April 28, 1999.
Item 13. Certain Relationships and Related Transactions
The Company was initially capitalized on February 22, 1995 through the sale
of 3,600,000 shares of its Common Stock for $.14 per share. Included among the
participants in that transaction were Dr. Derace Schaffer, Chairman of the
Board, who purchased 1,656,000 shares, Dr. Schaffer's spouse who purchased
144,000 shares, John Pappajohn, a director, who purchased 541,800 shares, a sole
proprietorship owned by Mr. Pappajohn which purchased 360,000 shares. Mr.
Pappajohn's spouse, who purchased 360,000 shares, and a sole proprietorship
owned by Mr. Pappajohn's spouse which purchased 360,000 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 addition,
Edgewater Private Equity Fund II, L.P., ("Edgewater"), a five percent owner of
the Common Stock of the Company, acquired 1,000,000 shares of Series A Preferred
Stock in the Series A Preferred Stock offering.
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,
Mr. Pappajohn, who purchased 40,000 shares, and Edgewater which purchased
200,000 shares.
On February 26, 1999, the Company, through its newly formed, wholly-owned
subsidiary, Patient Infosystems Acquisition Corp., acquired substantially all of
the assets of HealthDesk Corporation, a consumer healthcare software company
primarily engaged in the business of designing and developing Internet based
products in the healthcare, wellness and disease management industries. The
acquired assets include inventory, intellectual property, hardware and software.
The principal consideration paid for the transaction was $761,463. The Company
paid for the acquisition using its available cash. John Pappajohn, a member of
the Board of Directors of the Company, was a member of the Board of Directors of
HealthDesk Corporation at the time of the acquisition of HealthDesk.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PATIENT INFOSYSTEMS, INC.
/s/ Donald A. Carlberg
- ----------------------
President and Chief Executive Officer
April 30, 1999
- --------------
Dated
