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FORM 10-K
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) FOR THE SECURITIES EXCHANGE ACT OF 1934
(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, 1999
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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
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PATIENT INFOSYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 16-1476509
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46 Prince Street, Rochester, NY 14607
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 242-7200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class registered Name of each exchange on which
registered
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Per Share
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(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. [X] Yes [ ]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 February 29, 2000, 8,040,202 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 $10 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders to be filed prior to April 30, 2000 are incorporated by reference
in Part III.
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PART I
Item 1. DESCRIPTION OF BUSINESS.
General
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Patient Infosystems, Inc. (the "Company" or "Patient Infosystems") 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.
Patient Infosystems provides patient-centered health care information
systems and services to manage, collect and analyze information to improve
patient compliance with prescribed treatment protocols, to improve the process
of off-site patient management and to enhance patient and provider information.
The Company's technology platform integrates an advanced voice recognition
telephone system, high-speed data processing and analysis capability, and demand
publishing and information distribution capabilities and utilizes the Internet
and Internet technologies. The system utilizes trained telephone operators and
computerized interactive voice response technology and behavior modification
based treatment to communicate via telephone directly with the patient at home
in order to gather relevant patient data. This data is subsequently evaluated
and automatically transmitted via computer generated reports to health care
payors, providers and patients, with these reports being tailored to the
specific needs of each recipient. The Company markets its services to
pharmaceutical manufacturers, pharmacy benefit managers ("PBMs") and health care
payors, such as managed care organizations ("MCOs"), integrated delivery
networks ("IDNs") and insurance companies and health care providers, to collect
data outside of the physician office and institutional setting to enhance
compliance by patients with prescribed treatment protocols. The Company`s
systems may also be used to address the full spectrum of health care information
needs with respect to care quality, patient satisfaction and patient and
provider education.
During its first two years of operations, the Company emphasized the
development of disease management programs, which accounted for a substantial
portion of its revenue during 1997. However, during 1998 and 1999, the Company
devoted increased resources to the development of other applications of its
technology platform, including demand management, patient surveys, outcomes
analysis and Internet-based capabilities.
Recent Developments
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Since January 2000, the Company has accepted the resignations of Neal
Westermeyer, Chief Operating Officer; John V. Crisan, Chief Financial Officer;
and Dr. David B. Nash, a member of the Company's Board of Directors. None of the
foregoing individuals cited any disputes with the Company and all such
individuals have indicated that their reasons for departing from the Company
were personal.
As of the close of business on March 30, 2000, Donald A. Carlberg, the
Company's Chief Executive Officer and President, will resign his position with
the Company and Roger Chaufournier has been appointed by the Board of Directors
to serve as Chief Executive Officer and President.
Information Capture, Delivery and Analysis Technologies Utilizing the Internet
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The Company's technology platform integrates an advanced voice
recognition telephone system, high-speed data processing and analysis
capability, demand publishing and information distribution capabilities and
behavior modification-based compliance algorithms with a real time Internet
on-line communication system. The system utilizes trained telephone operators
and computerized interactive voice response technology to communicate via
telephone directly with the patient at home as well as with payors and providers
in order to gather and deliver relevant patient data. In order to minimize
costly live operator interaction, a computer initiates each call to the patient,
which call is automatically transferred to an operator and finally routed to an
automated speech application. Patients respond to the recorded speech
application by speaking normally. This approach is designed to enable a wider
variety of possible responses 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 the Internet and
demand publishing capabilities. The Company's Internet capabilities enable the
Company's systems to interface on a real-time basis with patients, payors and
providers. Demand publishing technology enables the creation of highly
individualized reports by inserting stored graphic images and text that can be
customized for race, gender and age. These reports are also customized to the
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.
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Each contact with a patient contributes to the establishment of a
longitudinal database, which can be analyzed to provide information about
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.
Internet Capabilities
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On February 26, 1999, the Company, through its newly formed,
wholly-owned subsidiary, Patient Infosytems Acquisition Corp., acquired
substantially all the assets of HealthDesk Corporation ("HealthDesk"), a
consumer healthcare software company that focuses on general health and chronic
disease management through ongoing targeted support for patients, families and
caregivers. The acquired assets include HealthDesk OnLine and HealthDesk OnLine
for Diabetes, which are both accessible through the Internet and on CD-ROM. The
Company also acquired HealthDesk's Care Team Connect product, which is
accessible over the Internet and provides a communication mechanism between
patients and their caregivers. The Company uses the core technologies associated
with these products to support the Company's other programs, which include the
case management support system, disease management, demand management, patient
surveys and clinical studies.
Integrated Disease Management System
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The Company's primary application of its integrated information capture
and delivery technology is its integrated disease management system. This system
is designed to provide caregivers 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 system will
permit caregivers to improve patient compliance and, as a consequence, improve
patient outcomes.
The Company's disease management programs are developed for targeted
diseases on both a customized or standardized basis. The Company's disease
management system has four major components.
First, using a panel of recognized medical and clinical experts, the
Company develops a disease-specific patient intervention and compliance program
that includes a template for the integration of each patient's history, current
medical status and treatment protocol. The panel identifies guidelines for
generally accepted treatment protocols and diagnostic interventions for
particular diseases and then uses these guidelines to determine what information
is to be gathered from the patient.
Second, when a patient is enrolled, a patient history is obtained,
including the histories of the chronic illness, medications, and surgical
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 is used to create customized reports for distribution to the
patient's health care provider and payor as well as the patient.
Third, the Company establishes periodic telephone contacts with each
patient to monitor the patient's compliance with prescribed therapies as well as
the patient's treatment progress. Contacts are made in accordance with a
designated patient contact schedule, which is established for each disease
management program. The frequency varies depending upon the disease under
management and the goal of the applicable treatment.
Fourth, the data gathered from the patient during each contact is
processed and stored in the Company's database. 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 routine
basis, payors.
The Company's disease management programs are further supported by the
Company's demand publishing technology. This technology enables the Company to
provide personalized behavior modification and educational materials to patients
in addition to individual patient reports, which may include pictures, diagrams
and informative discussions relating to the treatment course intended to modify
or reinforce certain behaviors. At the same time, individual patient reports are
provided to the health care provider. These reports are more factual in nature
and contain the relevant clinical and behavioral information that has been
gathered. And on a routine basis, the Company will also provide summary
information to the patient's health care payor with respect to patient progress
and activity.
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Patient Infosystems Products
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The Company's product offerings fall into four major categories:
- "CareSense" disease management and compliance programs
- "ForeQuest" patient survey programs
- "Nurse 411" demand management programs
- Internet-based products and services
"CareSense" disease management and compliance programs
The Company develops customized disease management and risk assessment
programs in conjunction with a number of customers, as well as standardized
disease management programs for a variety of customers. Each of the Company's
customer agreements for its customized programs provide for development fees to
be paid to the Company upon the achievement of certain milestones. In addition,
the agreements for customized disease management programs may provide for some
form of exclusivity period, during which the Company is prohibited from engaging
or participating in other projects involving the specific disease target that is
the subject of that program. The exclusivity periods extend until, in general, a
certain date or certain period following the achievement of a specified
milestone in the development or implementation of the program. The Company
enrolled its first patients in a disease management program in October 1996, and
has enrolled more than 390,000 patients in those programs through the end of
1999.
All of the Company's customer agreements, which are typically
terminable without cause by either party, require payment to the Company of
operational fees per enrolled patient. The amount of the per patient program
operational fee varies with the length, complexity and frequency of patient
contacts as dictated by the respective program protocols. Patient enrollment in
each of the Company's programs will depend upon the identification and referral
by the Company's customers of patients to the Company's system, which will vary
from program to program.
The Company's "CareSense" programs are:
Asthma
The Company has developed disease management programs for asthmatic
patients that have been marketed to payors and other participants in the health
care industry, and such programs have been provided to patients since 1997.
Through February 2000, the Company has had approximately 14,500 patients
participate in these programs through separate service agreements with nine
different health care companies
Congestive Heart Failure
The Company has services agreements with Bristol-Myers and Astra-Zeneca
to develop, implement and operate disease management programs to aid in the
treatment of patients suffering from congestive heart failure. The Company has
completed the development of the program in the English and Spanish languages.
These programs have been provided to patients since 1997, and through February
2000, the Company has had approximately 9,200 patients participate in the
programs.
Diabetes
The Company has developed disease management programs for diabetic
patients that have been marketed to payors and other participants in the health
care industry. Bristol-Myers, along with four other entities, have retained the
Company to provide disease management programs for patients who are suffering
from diabetes and are enrolled in health care programs for which these companies
provide services. These programs have been provided to patients since 1997, and
through February 2000, the Company has had approximately 5,200 patients
participate in these programs.
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Secondary Cardiovascular Disease
The Company has entered into a services agreement with Bristol-Myers to
develop, implement and operate a disease management program relating to the
prevention of cardiovascular sequelae in patients who have recently experienced
certain cardiovascular illnesses or treatments such as angina, cardiac bypass
surgery or myocardial infarction. The Company has completed the development of
this program in both the English and Spanish languages. This program has been
provided to patients since 1997, and through February 2000, the Company has had
approximately 500 patients participate in this program.
Hypertension
The Company has developed a compliance program for patients with
hypertension that has been marketed to payors and other participants in the
health care industry. Bristol-Myers and RxAmerica have each retained the Company
to provide this compliance program for patients who are suffering from
hypertension and are enrolled in health care programs for which these companies
provide services. Through February 2000, approximately 800 patients have
participated in this program.
Pharmaceutical Support Programs
An area of growth for the Company in 1999 was custom programs sold to
pharmaceutical companies that are intended to add value to their operations. The
Company has been retained by Bristol-Myers, Astra-Zeneca, Janssen and Abbott to
develop and operate programs that support specific products in the areas of
diabetes, anxiety, prostatis and others. As of February 2000, approximately
23,000 patients have participated in these programs. The majority of the
Company's development revenues in 1999 were realized from these programs.
Additional Disease Targets
The Company has identified additional opportunities in large chronic
disease markets, including the treatment of chronic obstructive pulmonary
disease, cancer, osteoporosis, depression, arthritis, HIV infection and
high-risk pregnancy. Each of these targets has been identified as having
characteristics that make them attractive candidates for the Company's programs.
The Company is currently involved in discussions with customers for the
development of programs in a variety of these areas.
"Nurse 411" demand management programs
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. The Company believes that its system can be used to provide automated
or semi-automated demand management services. The Company is currently providing
demand management to approximately 156,000 enrollees for Kentucky Medicaid, CHA
HMO, Inc., Health Right and McClellan Air Force Base.
"ForeQuest" patient survey programs
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. The Company has developed a
series of automated surveys ranging from general health to disease specific
instruments. The product line includes surveys for NCQA, CAHPS, SF-12; child
health questionnaire; patient satisfaction; asthma; diabetes; back pain;
depression; maternity; and the Pra Plus for elderly populations. Through
February 2000, approximately 345,000 patients have participated in these survey
programs.
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Internet-based products and services
The Company's Case Management Support System ("CMSS") is an
Internet-based software product that is intended to be used by case management
organizations. The customer's case managers access the system using an approved
browser and internet service provider ("ISP") connection. (Browser and ISP are
not supplied by Patient Infosystems.) The system enables care managers to
effectively interface with, and utilize, Patient Infosystems' "CareSense" and
"ForeQuest" intervention programs for patient care planning and implementation
improves case managers efficiency and productivity. Additionally, the CMSS
provides the case management organization's management with a reporting tool and
a case distribution and documentation tool that can be used to better monitor
and manage case management activity. Patient Infosystems licenses it's CMSS
software and operating system to customers who agree to an initial license fee
plus ongoing user and support fees. Through February 2000, the Company has sold
two CMSS contracts that have two-year and four-year terms respectively.
Other Applications of the Integrated Information Capture and Delivery Technology
Outcomes Analysis
The Company expects to utilize information gathered from patients
enrolled in its programs to serve two purposes. First, information regarding
treatment results, success of the compliance 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, this
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 analytical methodologies using database management and
information technologies. The Company intends to use these data analysis
technologies to predict the best treatment methodologies for patients.
Clinical Studies
Many pharmaceutical companies and contract research organizations are
seeking more economical, efficient and reliable methods for compiling and
analyzing clinical data in conducting clinical trials. Furthermore, many drug
development protocols have begun to emphasize 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
later stage clinical trials. The Company believes that its system can also
assist pharmaceutical companies in studying and documenting the efficacy of
approved products in order to provide ongoing information to the Food and Drug
Administration or for marketing purposes.
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.
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Sales and Marketing
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Through 1997, the Company's efforts focused primarily on the
development of disease management programs. Beginning in 1998, the Company began
aggressively marketing the other services that its technology platform can
provide including demand management, patient surveys, pharmaceutical support
programs and outcomes analysis. The Company markets its integrated disease
management system to organizations within the health care industry that are
involved in the treatment of disease or payment of medical services for patients
who require complex or long-term medical therapies. These industry organizations
include five distinct groups: pharmaceutical companies, medical service
companies, Pharmacy Benefits Managers, health care payors and employer groups.
The Company currently employs a sales and marketing staff of four persons to
market the Company's systems. In addition, the senior members of the Company's
management are actively engaged in marketing the Company's programs.
The Company has conducted patient surveys and clinical studies designed
to document the clinical and cost benefits that result from the application of
its integrated information capture and delivery system. The results of these
studies are being used to supplement the Company's marketing efforts. The
Company intends to continue to promote the benefits of its products through
publication in clinical journals and presentations at scientific conferences
referencing the favorable near term-results of these studies. To date, these
studies have pertained to the Company's asthma and diabetes programs.
Research and Development
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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 its
integrated information capture and delivery system, as well as development of
the Company's standardized disease state management programs. Research and
development costs have decreased as the Company has completed the development of
its primary disease management programs. The Company anticipates that research
and development expenses will continue to decrease in future periods, as the
Company continues to expand its operations.
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. The Company maintains 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.
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RISK FACTORS
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An investment in the Company's Common Stock is speculative in nature
and involves a high degree of risk. No investment in the Company's Common Stock
should be made by any person who is not in a position to lose the entire amount
of such investment.
History of Operating Losses
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The Company has incurred losses in every quarter since its inception in
February 1995. The Company's ability to operate profitably is dependent upon its
ability to develop and market its products in an economically successful manner.
No assurances can be given that the Company will be able to generate revenues or
ever operate profitably in the future.
The Company's prospects must be considered in light of the numerous
risks, expenses, delays and difficulties frequently encountered 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 will achieve recurring revenue or profitability
on a consistent basis or at all.
In October 1996 the Company began enrolling patients in its first
disease state management program and only began substantial patient contacts
during 1998. The Company currently has patients enrolled in five of its
disease-specific programs. Through February 2000, an aggregate of approximately
550,000 persons have been enrolled in Company programs. The participation of
patients in the Company's programs has been limited by several factors,
including the limited ability of clients to provide the Company with accurate
information with respect to the specific patient populations, including coding
errors that necessitated extensive labor-intensive data processing prior to
program implementation. In addition, the Company has encountered resistance from
patients and other sources of information to the Company's systems.
Working Capital Shortfalls; Qualified Auditors' Opinion; Urgent Need for
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Working Capital
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The Company has never earned profits and has been dependent upon its
initial public offering and private placements of its equity securities, through
which the Company has raised over $20 million to date, to fund its working
capital requirements. The Company has incurred operating losses of not less than
$7.3 million during the year ended December 31, 1999 and had approximately
$400,000 in working capital at December 31, 1999. The Company has had to seek
private financing in order to continue its operations. Although the Company has
secured limited funds through a working capital credit line, it anticipates,
based on currently proposed plans and assumptions relating to its operations
that, with available resources, the Company's contemplated cash requirements
will be satisfied for no more than the first six months of calendar year 2000.
The Company is seeking additional capital. If it is unable to identify
additional sources of capital the Company could be required to curtail its
activities or cease operations. As a result of the above, the Independent
Auditors' Report on the Company's consolidated financial statements appearing
at Item 8 includes an emphasis paragraph indicating that the Company's
recurring losses from operations raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
their uncertainty.
Failure to Satisfy Listing Requirements Under The Nasdaq National Market;
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Potential Limited Trading Market; Possible Volatility of Stock Price; Potential
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Effects of "Penny Stock" Rules
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In order for the Company's Common Stock to continue to be quoted on The
Nasdaq National Market, it must have net tangible assets of at least $4 million.
As of December 31, 1999, the Company's net tangible assets were less than $4
million. Accordingly, the Company expects that its Common Stock may be delisted
from The Nasdaq National Market at any time. Nevertheless, the Company believes
that it will satisfy the continuing listing criteria can continue to be listed
on The Nasdaq Small Cap Market and if its shares are delisted from the Nasdaq
National Market, that its Common Stock may be listed for trading on the Nasdaq
Small Cap Market. No assurance can be given that the liquidity of the Common
Stock will not be adversely affected if it is traded on The Nasdaq Small Cap
Market ("Nasdaq"). In order to satisfy continued listed criteria on The Nasdaq
Small Cap Market, a company must have net tangible assets of at least $2
million.
No assurance can be given that the Company's Common Stock will
maintain its listing on Nasdaq. If the failure to meet the maintenance criteria
results in the Company's Common Stock no longer being eligible for quotation on
Nasdaq, trading, if any, of the Common Stock would thereafter be conducted in
the non-Nasdaq over-the-counter market. As a result of such delisting, an
investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the Company's Common Stock. In addition,
if the Common Stock was to become delisted from trading on Nasdaq and the
trading price of the Common Stock was less than $5.00 per share, trading in the
Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and
impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage them from effecting transactions in the Common Stock, which could
severely limit the liquidity of the Common Stock and the ability to sell the
Common Stock in the secondary market.
In the absence of an active trading market, purchasers of the Common
Stock may experience substantial difficulty in selling their shares. The trading
price of our Common Stock is expected to be subject to significant fluctuations
in response to variations in quarterly operating results, changes in analysts'
earnings estimates and other factors. In addition, the stock market is subject
to price and volume fluctuations that affect the market prices for companies and
that are often unrelated to operating performance.
Resignations of Certain Officers and a Director; New Management
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Since January 2000, the Company has accepted the resignations of Neal
Westermeyer, Chief Operating Officer; John V. Crisan, Chief Financial Officer;
and Dr. David B. Nash, a member of the Company's Board of Directors. None of the
foregoing individuals cited any disputes with the Company and all such
individuals indicated that their reasons for departing from the Company were
personal. As of the close of business on March 30, 2000, Donald A. Carlberg, the
Company's Chief Executive Officer and President, has resigned his position and
Roger Chaufournier has been appointed by the Board of Directors to serve as
Chief Executive Officer and President. In light of these resignations, the
Company has experienced a substantial change in management. It has appointed
Kent Tapper as its acting Chief Financial Officer and is actively seeking to
fill other management positions. No assurance can be given that the Company's
current or future members of management will be able to operate the business of
the Company effectively.
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Terminability of Agreements; Exclusivity Provisions
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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.
New Concept; Uncertainty of Market Acceptance; Limitations of Commercialization
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Strategy
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In connection with the commercialization of the Company's health
information system, the Company is marketing new services designed to link
patients, health care providers and payors in order to provide specialized
disease management services for targeted chronic diseases. This is still
perceived to be 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. 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.
Unpredictability of Patient Behavior May Affect Success of Programs
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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.
9
<PAGE> 10
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 competes 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 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.
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 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. There can be no assurance that
competitive pressures will not have a material adverse effect on the Company.
Substantial Fluctuation in Quarterly Operating Results
- ------------------------------------------------------
The Company's results of operations have fluctuated 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.
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. 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.
Quality Control
- ---------------
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
include random monitoring of telephone calls, patient surveys to confirm patient
participation and effectiveness of the particular program, and supervisory
reviews of telephone agents.
10
<PAGE> 11
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, as amended ("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 state laws governing the confidentiality of
patient information. 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 ("HIPAA"), P.L. 104-191. This
legislation requires the Secretary of the Department 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 in the process of promulgating and publishing
proposed rules addressing the standards, however, no final rules have been
adopted to date. Final rules may be adopted during 2000. 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 that govern financial and other arrangements among health care
providers. These laws prohibit certain fee splitting arrangements among 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. Specifically, HIPAA increased the amount
of civil monetary penalties from $2,000 to $10,000. Criminal penalties range
from misdemeanors, which carry fines of not more than $10,000 or imprisonment
for not more than one year, or both, to felonies, which carry fines of not more
than $25,000 or imprisonment for not more than five years, or both. Further,
criminal violations may result in permanent mandatory exclusions and additional
permissive exclusions from participation in Medicare and Medicaid programs.
Furthermore, the Company and its customers may be subject to federal
and state laws and regulations governing the submission of false healthcare
claims to the government and private payers. Possible sanctions for violations
of these laws and regulations include minimum civil penalties between
$5,000-$10,000 for each false claim and treble damages.
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
11
<PAGE> 12
approvals, comply with applicable regulations or comply with existing or future
laws, rules or regulations or their interpretations.
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 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.
Significant Customer Concentration
- ----------------------------------
The Company's current contracts are concentrated in a small number of
customers, with several of the Company's most significant contracts being with
Bristol-Myers, Aetna U.S. HealthCare and Astra Zeneca. 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 maintain their agreements with the Company,
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.
Dependence on Customers for Marketing and Patient Enrollment
- ------------------------------------------------------------
The Company has 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 managed care organizations, 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 programs and for the
receipt of valid patient information. The timing and extent of patient
enrollment is completely within the control of the Company's customers. The
Company has faced difficulty in receiving reliable patient information from
certain of its customers, which has hampered its ability to complete certain of
its projects. 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.
Control of the Company
- ----------------------
The Company is controlled by the executive officers, directors and
certain stockholders of the Company who beneficially own in the aggregate
approximately 44.5% 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.
Potential Liability and Insurance
- ---------------------------------
The Company will provide information to health care providers and
managed care organizations 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 $5 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 professional liability policy with coverage of $10
million in the aggregate and per occurrence. There can be no
12
<PAGE> 13
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.
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.
Employees
- ---------
As of February 29, 2000, the Company had 93 full and part-time
employees.
Financial Information
- ---------------------
For financial information concerning the Company, see the financial
statements and the notes thereto included elsewhere herein.
Item 2. DESCRIPTION OF PROPERTIES.
The Company's executive and corporate offices are located in Rochester,
New York in approximately 13,000 square feet of leased office space under an
operating lease that expires on December 31, 2000. The Company leases office
space for its Demand Management call center in Wayne, Pennsylvania in
approximately 2,047 square feet of leased office space under a lease agreement
that expires in May 2001. The Company also leases office space for its Internet
Technology Group in Paoli, Pennsylvania in approximately 5,000 square feet of
leased office space under a lease agreement that expires in August 2002.
The Company believes its plants and facilities are suitable and
adequate, and have sufficient productive capacity, to meet its current needs.
Item 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its subsidiaries is a party to any
material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1999.
13
<PAGE> 14
PART II
Item 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Company's common stock is traded on the NASDAQ National Market
System under the symbol "PATI". The following table sets forth, for the periods
indicated, the range of the high and low closing sale price for the Company's
Common Stock as reported on the NASDAQ National Market.
HIGH LOW
---- ---
1998
----
First Quarter $4.50 $2.63
Second Quarter $5.00 $2.50
Third Quarter $3.44 $1.81
Fourth Quarter $1.88 $1.00
1999
----
First Quarter $2.81 $1.31
Second Quarter $2.88 $2.13
Third Quarter $3.00 $1.88
Fourth Quarter $3.00 $1.38
(b) Holders
The approximate record number of holders of the Company's common stock as
of February 29, 2000 is 80. However, the Company believes that there are in
excess of 750 beneficial holders of Common Stock of the Company.
(c) Dividends
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
and growth of its business. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors.
14
<PAGE> 15
Item 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
PERIOD FROM
FEB. 22, 1995
YEAR ENDED DECEMBER 31, (INCEPTION) TO
---------------------------------------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 3,545,207 $ 2,344,072 $ 2,062,373 $ 845,412 $ 113,000
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Cost of Sales 5,614,128 4,011,710 2,574,214 748,322 111,870
Sales and Marketing 2,445,425 1,929,525 1,853,224 913,547 375,384
General and Administrative 1,885,566 1,490,210 1,244,287 1,760,760 678,498
Research and Development 967,365 298,686 489,115 310,552 89,909
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 10,912,484 7,730,131 6,160,840 3,733,181 1,255,661
------------ ------------ ------------ ------------ ------------
Operating Loss (7,367,277) (5,386,059) (4,098,467) (2,887,769) (1,142,661)
Other Income (Expenses) (250,897) 556,592 835,116 81,333 26,009
------------ ------------ ------------ ------------ ------------
Net Loss $ (7,618,174) $ (4,829,467) $ (3,263,351) $ (2,806,436) $ (1,116,652)
============ ============ ============ ============ ============
Net Loss Per Share - Basic and Diluted $ (0.95) $ (0.60) $ (0.41) $ (0.44) $ (0.18)
============ ============ ============ ============ ============
Weighted Average Common
Common Shares Outstanding 8,032,533 8,018,398 7,980,094 6,347,716 5,954,299
============ ============ ============ ============ ============
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and Cash Equivalents $ 489,521 $ 6,316,955 $ 779,317 $ 15,666,609 $ 1,182,080
Working Capital 414,132 7,992,894 13,242,387 14,591,700 611,655
Total Assets 3,844,395 10,519,727 15,036,473 17,085,387 1,763,629
Long Term Obligations 500,000 -- -- -- --
Total Liabilities 1,427,732 894,339 587,728 1,631,650 598,464
Total Stockholders' Equity 2,416,663 9,625,388 14,448,745 15,453,737 1,165,165
</TABLE>
15
<PAGE> 16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis provides a review of the Company's
operating results for the years ended December 31, 1999, 1998 and 1997, and its
financial condition at December 31, 1999. The focus of this review is on the
underlying business reasons for significant changes and trends affecting the
revenues, net losses, and financial condition of the Company. This review should
be read in conjunction with the accompanying consolidated financial statements.
In an effort to give investors a well-rounded view of the Company's
current condition and future opportunities, this Annual Report on Form 10-K
includes forecasts by the Company's management about future performance and
results. Because they are forward-looking, these forecasts involve
uncertainties. They include risks of market acceptance of or preference for the
Company's systems and services, competitive forces, the impact of, and changes
in, government regulations, general economic factors in the healthcare industry,
and other factors discussed in the Company's filings with the Securities and
Exchange Commission.
Overview
- --------
The Company was formed on February 22, 1995. Although the Company has
completed the development of its integrated information capture and delivery
system and has developed several disease state management programs for specific
diseases, the Company is continuing to refine its products for additional
applications. In October 1996 the Company began enrolling patients in its first
disease state management program and began substantial patient contacts during
1998. The Company currently has patients enrolled in five of its
disease-specific programs. Through February 2000, an aggregate of over 550,000
persons have enrolled and participated in Company programs. The enrollment of
patients in the Company's programs has been limited by several factors,
including the limited ability of clients to provide the Company with accurate
information with respect to the specific patient populations, including coding
errors that necessitated extensive labor-intensive data processing prior to
program implementation. In addition, the Company has encountered resistance from
patients and other sources of information to the Company's systems.
In response to these market dynamics, the Company has taken several
tactical and strategic steps including, formal designation of internal personnel
at customer sites to assist clients with implementation; closer integration of
Company systems personnel with clients to facilitate accurate data transfers;
and most importantly, promotion of a broader product line to enable clients to
enter the Company's disease management programs through a variety of channels.
The Company also markets two additional services, demand management services and
automated surveys (general health and disease-specific), both of which can
provide mechanisms for enrollment to the Company's disease management programs.
Nevertheless, no assurance can be given that the Company's efforts will succeed
in increasing patient enrollment in Company programs.
The Company has entered into services agreements 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; (iv) patients suffering from chronic
pain, and (v) patients who are at increased risk of suffering from epilepsy. In
addition, the Company has entered into services agreements to operate its
disease management programs for patients suffering from asthma, diabetes and
hypertension. These contracts 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. To the extent that the Company has had limited
enrollment of patients in its programs, the Company's operations revenue has
been, and may continue to be limited. Moreover, as the Company has completed the
development of its primary disease management programs, it anticipates that
development revenue will continue to be minimal unless and until the Company
enters into new development agreements. 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 contracts call for a fixed program operational 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 for the
delivery of program services varies by contract. Revenues from program
operations are recognized ratably as the program services
16
<PAGE> 17
are delivered. The amount of the per patient fee varies 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 has not
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.
Revenues from Operations, which includes fees received by the Company
for operating its programs, has increased substantially and has become the most
significant source of the Company's revenues. Furthermore, as enrollment in
Company operated disease management programs continues to increase and these
revenue sources have become the primary source of the Company's revenues. The
Company is continuing to devote significant marketing efforts to increasing the
number of disease and demand management programs that are in operation as well
as development resources to expand its products that include licensing of
Internet-based technology. Nevertheless, the Company is still supporting a
substantial infrastructure in maintaining the capacity necessary to deliver its
services and to offer its services to new customers. Therefore, the Company will
be required to increase substantially the number of patient contacts and
management programs to cover the costs necessary to maintain the capability to
service its customers. In that the Company only began substantial patient
contacts during 1998 and has still, to this date, increased contacts at a
relatively slow rate, the Company is continually examining its costing
structures to determine the levels that will be necessary to achieve
profitability.
The sales cycle for the Company's programs may be extensive 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.
The Company began to provide other services to customers in the
healthcare industry during 1997, which included new applications of its
information capture and delivery system. These consisted of patient surveys,
health risk assessments, nursing support lines and marketing support functions.
In February 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 for
$761,463. The Company obtained funds for the HealthDesk acquisition from its
available cash. The assets that were acquired by the Company included inventory,
intellectual property, hardware and software.
During 1999, as a result of its continuing losses, the Company felt the
pressure of severe working capital short falls. By the end of 1999, the
Company's available cash had been reduced to a level that threatened to severely
limit its operations. Although the Company established lines of credit in the
amount of $1.5 million in December 1999 and $1 million in March 2000, as
discussed below, the Company is continuing to incur losses and must identify
substantial additional capital to sustain its operations. As a result of the
above, the Independent Auditors' Report on the Company's consolidated financial
statements appearing at Item 8 includes an emphasis paragraph indicating that
the Company's recurring losses from operations raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of their uncertainty.
In December 1999, the Company established a credit facility with
Norwest Bank Iowa, National Association ("Norwest) for $1.5 million (the
"Original Line of Credit"). The Original Line of Credit is guaranteed by two
of the Company's directors: John Pappajohn and Derace L. Schaffer (the
"Original Guarantees"). In March 2000, the Original Line of Credit was increased
to a total of $2.5 million (the "Line of Credit") and also guaranteed by Messrs.
Pappajohn and Schaffer (the "Additional Guarantees").
Interest under the Line of Credit is the prime rate of interest
established by Norwest or, at the Company's election, the LIBOR Rate Option.
The principal and any unpaid interest under the Line of Credit is due and
payable in a single payment on March 31, 2001. In conjunction with the Line of
Credit, the Company granted to Norwest a security interest in all of the
Company's assets.
In consideration of the Original Guarantees, the Company granted to
each of Messrs. Pappajohn and Schaffer warrants to purchase 187,500 shares of
the Company's Common Stock at an exercise price of $1.5625 per share, which
was the closing price of the Company's Common Stock on December 28, 1999. In
consideration of the Additional Guarantees, the Company intends to grant to
each of Messrs. Pappajohn and Schaffer warrants to purchase 125,000 shares of
the Company's Common Stock at an exercise price of $2.375 per share, which
was the closing price of the Company's Common Stock on March 21, 2000.
17
<PAGE> 18
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Revenues are comprised of revenues from operations fees, development
fees and licensing fees. Revenues increased 51% from $2,344,072 for the year
ended December 31, 1998 to $3,545,207 for the year ended December 31, 1999. A
summary of these revenues by category is as follows:
DECEMBER 31, DECEMBER 31,
Revenues 1999 1998
- -------- ---- ----
Operations Fees $3,270,900 $1,385,720
Development Fees 227,307 689,157
Licensing Fees 47,000 269,195
---------- ----------
Total Revenues $3,545,207 $2,344,072
========== ==========
Revenues from operations fees increased 136% from $1,385,720 for the
year ended December 31, 1998 to $3,270,900 for the year ended December 31, 1999.
Operations revenues are generated as the Company provides services to its
customers for their disease-specific programs. Operations revenues increased
significantly in 1999, as the Company continued to increase the membership
levels in the Company's disease management programs and demand management
programs.
Revenues from development fees decreased 67% from $689,157 for the year
ended December 31, 1998 to $227,307 for the year ended December 31, 1999. The
Company received $689,157 in development revenues for the year ended December
31, 1998, related almost entirely to fees from Bristol-Myers ("BMS") for the
development of disease state management agreements. In 1999, the Company
received development revenues from a variety of other customers (including BMS)
related to other disease-specific programs. The Company has completed
substantially all services under these agreements and is currently receiving
revenues in connection with the development of only three programs. Development
revenues include clinical, technical and operational design or modification of
the Company's primary disease management programs. Development revenues have
declined from year to year since the year ended December 31, 1997, as the
Company reduced the amount of development work it has performed for its
customers. The Company anticipates that revenue from development fees will
continue to decline unless the Company enters into new development agreements.
Revenues from licensing fees decreased 83% from $269,195 for the year
ended December 31, 1998 to $47,000 for the year ended December 31, 1999.
Licensing revenue represents amounts that the Company charges its customers,
either on a one-time only or continuing basis, for the right to enroll patients
in or the right to license other entities certain of its programs, primarily but
not limited to, the Company's Internet-based Case Management Support System
product line or its standardized asthma and diabetes programs. The Company had
licensing fees of $47,000 from the sale of its Internet-based products in 1999.
The Company also provides other services to customers in the healthcare
industry that involve new applications of its information capture and delivery
system. These services include patient surveys, health risk assessments, patient
satisfaction surveys, physician education programs and marketing support
functions.
18
<PAGE> 19
Costs and Expenses
Cost of sales include salaries and related benefits, services provided
by third parties, and other expenses associated with the development of the
Company's customized disease state management programs, as well as the operation
of each of its disease state management programs.
Cost of sales increased 40% from $4,011,710 for the year ended December
31, 1998 to $5,614,128 for the year ended December 31, 1999. The increase in
these costs primarily reflects an increased level of program development and
operational activities, as well as the Company's creation of the capacity
necessary to handle anticipated increases in the number of individuals to whom
the Company provides services.
Sales and marketing expenses increased 27% from $1,929,525 for the year
ended December 31, 1998 to $2,445,425 for the year ended December 31, 1999.
These costs consist primarily of salaries, related benefits and travel costs,
sales materials and other marketing related expenses. Increased spending in this
area is attributable to the Company's efforts to expand its sales and marketing
staff during the year ended December 31, 1999. It is anticipated that the
Company will continue to invest heavily in the sales and marketing process in
future periods, though at somewhat lower levels.
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 increased 27% from
$1,490,210 for the year ended December 31, 1998 to $1,885,566 for the year ended
December 31, 1999. These expenditures were incurred to develop the corporate
infrastructure necessary to support anticipated program development and
operations growth. The increase in these costs was caused by an increase in the
Company's level of business activity and the addition of required administrative
personnel. The Company expects that general and administrative expenses will
decrease in future periods as expense controls and infrastructure reductions are
implemented.
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 its
integrated information capture and delivery system, its Internet-based software
products and its standardized disease state management programs. Research and
development expenses increased 224% from $298,686 for the year ended December
31, 1998 to $967,365 for the year ended December 31, 1999. The increase in
research and development expenses reflects the Company's acquisition of
Healthdesk in February 1999, which became the Company's Internet Technology
development group devoting most of its efforts to the development of the
Company's Internet-based software products.
Other Income/Expense is comprised of interest income and losses on
investments. The net totals are as follows:
DECEMBER 31 DECEMBER 31
1999 1998
---- ----
Interest income $ 166,164 $ 556,592
Losses on investment
Pati Canada (167,063) --
Pulse Group (250,000) --
--------- ---------
Total Income/(Expense) $(250,897) $ 556,592
--------- ---------
Interest income is generated primarily from cash balances and short-term money
market investments. Interest income decreased to $166,164 for the year ended
December 31, 1999 from $556,592 for the year ended December 31, 1998. The
decrease in interest income reflects the use by the Company of its available
cash and the reduction of proceeds that can earn interest.
19
<PAGE> 20
Losses on investments are associated with two unrelated investments by the
Company: (1) Patient Infosystems Canada, Inc. ("Pati Canada") and (2) the Pulse
Group. At the end of 1998, the Company entered into a joint venture agreement
with MacLean Hunter Publishing Limited to market and sell, on an exclusive basis
in Canada, products and services developed by the Company and to jointly manage,
finance and operate the business entity Pati Canada. The venture was dedicated
to the development of a commercially viable business built around the sale,
marketing and service of the Company's products and services in Canada. The loss
of $167,063 reported for 1999 represents the Company's share of the loss
incurred by the venture. On October 1, 1999, the Company acquired 100% control
of the venture and the results of operations from that day forward are included
in the Company's consolidated financial statements. The Company's 1997
investment in the Pulse Group was deemed to be no longer realizable as of June
30, 1999, and the initial total investment of $250,000 was recorded as an
investment loss.
The Company had a net loss of $7,618,174 for the year ended December
31, 1999, compared to $4,829,467 for the year ended December 31, 1998. This
represents a loss of $.95 per share for 1999 and $.60 for 1998.
20
<PAGE> 21
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Revenues are comprised of revenues from operations fees, development
fees and licensing fees. Revenues increased 14% from $2,062,373 for the year
ended December 31, 1997 to $2,344,072 for the year ended December 31, 1998. A
summary of these revenues by category is as follows:
DECEMBER 31, DECEMBER 31,
REVENUES 1998 1997
- -------- ---- ----
Operations Fees $1,385,720 $ 735,841
Development Fees 689,157 826,532
Licensing Fees 269,195 500,000
---------- ----------
Total Revenues $2,344,072 $2,062,373
========== ==========
Revenues from operations increased 88% from $735,841 for the year ended
December 31, 1997 to $1,385,720 for the year ended December 31, 1998. Operations
revenues are generated as the Company provides services to its customers for
their disease-specific programs. Operations revenues increased significantly in
1998, as the Company continues to increase the membership levels in the
Company's disease state management programs and primarily from the Company's
demand management programs. The demand management programs operate from the
Company's medical call center, which was established in May 1998, in Wayne,
Pennsylvania The medical call center is staffed by registered nurses on a
24-hour, 7-day a week schedule.
Revenues from development fees decreased 17% from $826,532 for the year
ended December 31, 1997 to $689,157 for the year ended December 31, 1998. The
Company received $689,157 in development revenues for the year ended December
31, 1998, related almost entirely to fees from Bristol-Myers for the development
of disease state management agreements. The Company also received development
revenues from a small number of other customers related to other
disease-specific programs. Development revenues include clinical, technical and
operational design or modification of the Company's primary disease management
programs. Development revenue declined from the year ended December 31, 1997 to
December 31, 1998 because the Company reduced its development fees charged to
certain customers.
Revenues from licensing fees decreased 46% from $500,000 for the year
ended December 31, 1997 to $269,195 for the year ended December 31, 1998.
Licensing revenue represents amounts that the Company charges its customers, on
a one-time fee basis, for the right to enroll patients in or the right to
license other entities certain of its programs, primarily but not limited to,
the Company's standardized asthma and diabetes programs. Licensing fees received
in 1998 included $99,750 from the sale of consumer healthcare software which are
Internet based products.
The Company also provides other services to customers in the healthcare
industry which involve new applications of its information capture and delivery
system. These services include patient surveys, health risk assessments, patient
satisfaction surveys, physician education programs and marketing support
functions.
Costs and Expenses
Cost of sales include salaries and related benefits, services provided
by third parties, and other expenses associated with the development of the
Company's customized disease state management programs, as well as the operation
of each of its disease state management programs.
Cost of sales increased 56% from $2,574,214 for the year ended December
31, 1997 to $4,011,710 for the year ended December 31, 1998. The increase in
these costs primarily reflected an increased level of program development and
operational activities, as well as the Company's creation of the capacity
necessary to handle anticipated increases in the number of individuals to whom
the Company provides services.
21
<PAGE> 22
Sales and marketing expenses increased 4% from $1,853,224 for the year
ended December 31, 1997 to $1,929,525 for the year ended December 31, 1998.
These costs consist primarily of salaries, related benefits and travel costs,
sales materials and other marketing related expenses. Spending in this area
remained relatively consistent with the prior year because the Company's sales
and marketing staff did not expand during the twelve month period ended December
31, 1998.
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 increased 20% from
$1,244,287 for the year ended December 31, 1997, to $1,490,210 for the year
ended December 31, 1998. These expenditures were incurred to develop the
corporate infrastructure necessary to support anticipated program development
and operations. The increase in these costs was caused by an increase in the
Company's level of business activity, and the addition of required
administrative personnel.
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 its
integrated information capture and delivery system, as well as development of
the Company's standardized disease state management programs. Research and
development expenses decreased 39% from $489,115 for the year ended December 31,
1997 to $298,686 for the year ended December 31, 1998. The decrease in research
and development expenses reflects the Company's completion of the development of
its primary disease management programs.
The Company generates net investment income primarily from cash
balances and investments. Investment income decreased to $556,592 for the year
ended December 31, 1998 from $835,116 for the year ended December 31, 1997. The
decrease in interest income reflects the use by the Company of its available
cash and the reduction of proceeds that can earn interest.
The Company had a net loss of $4,829,467 for the year ended December
31, 1998 compared to $3,263,351 for the year ended December 31, 1997. This
represents a loss of $.60 per share for 1998 and $.41 for 1997.
Liquidity and Capital Resources
At December 31, 1999 the Company had working capital of $414,132, as
compared to working capital of $7,992,894 at December 31, 1998 which has
diminished further since such date. Since its inception the Company has
primarily funded its operations, working capital needs and capital expenditures
from the sale of equity securities. On December 19, 1996 the Company completed
an initial public offering of its common stock which generated net proceeds to
the Company of $14,082,048. On January 8, 1997, an additional 300,000 shares of
common stock were sold pursuant to an underwriters over-allotment provision,
which generated net proceeds to the Company of $2,232,000. Recognizing that the
Company's working capital was depleted, the Company commenced a private
placement of equity securities in October 1999 which was not completed. In
December 1999, the Company established a credit facility for $1,500,000
guaranteed by two of the Company's Board members. In March, 2000, the facility
was increased by an additional $1,000,000 also guaranteed by the same Board
members. In connection with the 1999 guarantees, the Board members were granted
warrants to purchase a total of 375,000 shares of Common Stock for $1.5625 per
share.
The Company has expended significant amounts to expand its operational
capabilities including increasing its administrative and technical costs. While
the Company has curtailed its spending levels in recent months, to the extent
that revenues do not increase substantially, the Company's losses will continue
and its available capital will diminish further. The Company will be required to
seek additional capital immediately or cease its operations. The Company has no
identified source of additional capital and no assurance can be given that
additional capital will be available on terms that will be satisfactory to the
Company. As a result of the above, the Independent Auditor's Report on the
Company's consolidated financial statements appearing at Item 8 includes an
emphasis paragraph indicating that the Company's recurring losses from
operations raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of their uncertainty.
Capital expenditures during 1999 were $433,598, as compared to
expenditures of $594,663 during 1998 and $394,161 during 1997. The expenditures
during these periods represented the purchase of the significant technology
platform components of the integrated information capture and delivery system as
well as purchases required to support the Company's growing employee base.
22
<PAGE> 23
Inflation
Inflation did not have a significant impact on the Company's costs
during 1999, 1998 or 1997. The Company continues to monitor the impact of
inflation in order to minimize its effects through pricing strategies,
productivity improvements and cost reductions.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activity, which is
required to be adopted by the Company in 2001. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges of underlying transactions must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Management has not yet determined the effect SFAS No. 133 will have, if any, on
the Company's consolidated financial position, results of operations or cash
flows.
Year 2000 Issues
The Company suffered no ill effects from Year 2000 related technological issues
or otherwise.
Forward-Looking Statements
When used in this and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result," "expects," "plans," "will
continue," "is anticipated," "estimated," "project," or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company has no obligation to publicly release the
result of any revisions that may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily in its
cash transactions. The Company does not believe it is exposed to changes in
foreign currency exchange rates because it does not currently invest in foreign
currency instruments. A discussion of the Company's accounting policies for
financial instruments is included in the Summary of Significant Accounting
Policies in the Notes to the Financial Statements. While the Company's current
international operations are limited to Canada, it does not invest its cash in
foreign currency instruments nor does it maintain cash in Canada except to
facilitate inter-country transactions. The balances the Company has in cash or
cash equivalents are generally available without legal restrictions to fund
ordinary business operations. The Company regularly invests excess operating
cash in certificates of deposit and U.S. government bonds and other bonds that
are subject to changes in short-term interest rates. Accordingly, the Company
believes that the market risk arising from its holding of these financial
instruments is minimal. The Company made purchases of available-for-sale
securities of $21,073 in 1999 and $7,826,910 in 1998.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements Page
----------------------------- ----
Independent Auditors' Report 25
Consolidated Balance Sheets 26
Consolidated Statements of Operations 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Patient Infosystems, Inc.
Rochester, New York
We have audited the accompanying consolidated balance sheets of Patient
Infosystems, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements present fairly, in all
material respects, the financial position of Patient Infosystems, Inc. and
subsidiary at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company's recurring losses from
operations raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning this matter are also described in Note
10. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Deloitte & Touche LLP
Rochester, New York
January 28, 2000
(March 21, 2000 as to Note 11)
25
<PAGE> 26
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 489,521 $ 6,316,955
Available-for-sale securities - 1,029,674
Accounts receivable (net of doubtful accounts allowance of $50,000) 650,279 1,320,626
Prepaid expenses and other current assets 126,613 219,978
Employee notes receivable 75,451 -
----------------------------------
Total current assets 1,341,864 8,887,233
PROPERTY AND EQUIPMENT, net 1,291,351 1,182,494
Debt Issuance Costs 382,500 -
Intangible Assets (net of accumulated amortization of $38,055) 584,669
Other Assets 244,011 450,000
----------------------------------
TOTAL ASSETS $ 3,844,395 $ 10,519,727
----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 496,533 $ 304,436
Accrued salaries and wages 190,232 277,931
Accrued expenses 22,767 58,904
Deferred revenue 218,200 253,068
----------------------------------
Total current liabilities 927,732 894,339
LONG TERM DEBT 500,000 -
COMMITMENTS (Note 8)
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: shares - authorized:
20,000,000; issued and outstanding: 1999 - 8,040,202
1998 - 8,020,042 80,402 80,200
Additional paid-in capital 21,968,536 21,561,094
Accumulated other comprehensive income 1,805 -
Accumulated deficit (19,634,080) (12,015,906)
----------------------------------
Total stockholders' equity 2,416,663 9,625,388
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,844,395 $ 10,519,727
==================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES $ 3,545,207 $ 2,344,072 $ 2,062,373
--------------------------------------------------------
COSTS AND EXPENSES:
Cost of revenue 5,614,128 4,011,710 2,574,214
Sales and marketing 2,445,425 1,929,525 1,853,224
General and administrative 1,885,566 1,490,210 1,244,287
Research and development 967,365 298,686 489,115
--------------------------------------------------------
Total costs and expenses 10,912,484 7,730,131 6,160,840
--------------------------------------------------------
OPERATING LOSS (7,367,277) (5,386,059) (4,098,467)
Other income (expense) (250,897) 556,592 835,116
--------------------------------------------------------
NET LOSS $ (7,618,174) $ (4,829,467) $ (3,263,351)
--------------------------------------------------------
NET LOSS PER SHARE - BASIC
AND DILUTED $ (.95) $ (.60) $ (.41)
--------------------------------------------------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,032,533 8,018,398 7,980,094
--------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Accum'd Other Total Total
Common Stock Paid-in Comprehensive Accumulated Stockholders' Comprehensive
Shares Amount Capital Income Deficit Equity Loss
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 7,653,202 $ 76,532 $19,300,293 $ - $(3,923,088) $15,453,737
Sale of common stock at $8.00
per share in January 1997
(net of issuance costs
of $168,000) 300,000 3,000 2,229,000 - - 2,232,000
Compensation expense related
to issuance of stock warrants - - 8,283 - - 8,283
Exercise of stock options 58,320 583 12,433 - - 13,016
Unrealized gain on investments
available-for-sale - - - 5,060 - 5,060 $ 5,060
Net loss for the year end
December 31, 1997 - - - - (3,263,351) (3,263,351) (3,263,351)
---------------------------------------------------------------------------------------
$(3,258,291)
============
Balances, December 31, 1997 8,011,522 80,115 21,550,009 5,060 (7,186,439) 14,448,745
Compensation expense related
to issuance of stock warrants - - 7,388 - - 7,388
Exercise of stock options 8,520 85 3,697 - - 3,782
Unrealized loss on investments
available-for-sale - - - (5,060) - (5,060) $ (5,060)
Net loss for the year end
December 31, 1998 - - - - (4,829,467) (4,829,467) (4,829,467)
---------------------------------------------------------------------------------------
$ (4,834,527)
=============
Balances, December 31, 1998 8,020,042 80,200 21,561,094 - (12,015,906) 9,625,388
Compensation expense related to
issuance of stock warrants and options - - 13,443 - - 13,443
Debt issuance costs in the form of stock
warrants 382,500 382,500
Exercise of stock options and warrants 20,160 202 11,499 - - 11,701
Foreign currency translation adjustment - - - 1,805 - 1,805 $ 1,805
Net loss for the year end
December 31, 1999 - - - - (7,618,174) (7,618,174) (7,618,174)
---------------------------------------------------------------------------------------
$(7,616,369)
============
Balances, December 31, 1999 8,040,202 $ 80,402 $21,968,536 $1,805 $(19,634,080) $2,416,663
========================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING :
Net loss $ (7,618,174) $ (4,829,467) (3,263,351)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 503,341 366,474 293,763
Loss on sale of property - 1,350 2,171
Loss on investments 250,000 - -
Amortization of premiums and discounts on available-for-sale securities - (142,054) (209,832)
Compensation expense related to issuance of stock warrants and options 13,443 7,388 8,283
Decrease (Increase) in accounts receivable 670,347 (907,670) (26,741)
Decrease (increase) in prepaid expenses and other current assets 93,365 185,529 (234,980)
Increase in employee notes receivable (75,451) - -
Increase (decrease) in accounts payable 192,097 214,762 (107,000)
(Decrease) increase in accrued salaries and wages (87,699) (42,341) 193,243
(Decrease) in accrued expenses (36,137) (20,332) (132,221)
Increase (decrease) in deferred revenue (34,868) 185,519 (515,234)
(Decrease) in accrued loss on development contracts - (30,997) (36,142)
-----------------------------------------------
Net cash used in operating activities (6,129,736) (5,011,839) (4,028,041)
-----------------------------------------------
INVESTING:
Property and equipment additions (433,598) (594,663) (394,161)
Proceeds from sale of property - 3,310 1,299
Purchases of available-for-sale securities (21,073) (7,826,910) (18,121,444)
Maturities of available-for-sale securities 1,050,747 19,166,565 6,104,000
Purchase of HealthDesk Assets (761,463) - -
Increase in other assets (44,012) (202,607) (247,393)
-----------------------------------------------
Net cash (used in) provided by investing activities (209,399) 10,545,695 (12,657,699)
-----------------------------------------------
FINANCING:
Proceeds from issuance of common stock, net 11,701 3,782 2,245,016
Proceeds from line of credit 500,000 - -
(Decrease) in accrued initial public offering costs - - (446,568)
-----------------------------------------------
Net cash provided by financing activities 511,701 3,782 1,798,448
-----------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,827,434) 5,537,638 (14,887,292)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,316,955 779,317 15,666,609
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 489,521 $ 6,316,955 $ 779,317
-----------------------------------------------
Supplemental disclosures of cash flow information
Cash paid (received) for income taxes, net $ 36,361 $ 43,701 $ (9,509)
-----------------------------------------------
</TABLE>
See notes to consolidated financial statements.
SUPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company issued 375,000 stock purchase warrants with a fair value of
$382,500 in conjunction with the guarantee by certain Board members of
the Company's line of credit.
29
<PAGE> 30
PATIENT INFOSYSTEMS, INC.
NOTES TO consolidated FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Patient Infosystems, Inc. ("the Company") designs and
develops health care information systems and services to manage, collect
and analyze patient-related information to improve patient compliance with
prescribed treatment protocols. Through its various patient compliance
programs for disease state management, the Company provides important
benefits for the patient, the health care provider and the payor. 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 consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Patient Infosystems Canada, Inc. (see Note
9). Significant intercompany transactions and balances have been eliminated
in consolidation.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
consist of cash and cash equivalents, available-for-sale securities and the
line of credit. The carrying values of cash and cash equivalents,
available-for-sale securities and the line of credit approximate fair
value.
REVENUE RECOGNITION AND DEFERRED REVENUE - The Company's principal source
of revenue to date has been from contracts with various pharmaceutical
companies and managed care organizations for the development and operation
of disease management programs for chronic diseases, disease management
programs and other health care information system applications. Deferred
revenue represents amounts billed in advance under these contracts.
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, are recognized in full as identified.
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.
Licenses - Revenue derived from software license fees is recognized when
the criteria established by Statement of Position 97-2, Software Revenue
Recognition, is satisfied. License fees associated with hosting
arrangements (e.g. arrangements that include the right of the customer to
use the software stored on the Company's hardware), are recognized ratably
over the hosting period when such fees are fixed and determinable. Hosting
fees with payment terms extending past one year are recognized as payments
become due.
CASH AND CASH EQUIVALENTS - Cash and 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 cash equivalents and accounts receivable. The Company places its
cash and cash equivalents with high credit quality institutions.
30
<PAGE> 31
The Company operates in only one business segment and its current contracts
are concentrated in a small number of customers, consequently, the loss of
any one of its customers could have a material adverse effect on the
Company and its operations. During the years ended December 31, 1999, 1998
and 1997, approximately $1,075,430 (30%) and $755,000 (32%), and $925,800
(45%) respectively, of the Company's revenues arose from contracts with one
customer. At December 31, 1999 and 1998, accounts receivable included
balances of $292,183 and $736,650, respectively, from contracts with that
customer.
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.
The Company regularly assesses all of its long lived assets for impairment
and recognizes a loss when the carrying value of an asset exceeds its fair
value. The Company determined that no impairment loss need be recognized
for applicable assets in 1999, 1998 or 1997.
INTANGIBLE ASSETS - Intangible assets represent the intellectual property
(i.e.: tradenames, trademarks, licenses and brandnames) acquired from
HealthDesk Corporation (see Note 9) which are being amortized over 15 years
using the straight-line method..
DEBT ISSUANCE COSTS - Debt issuance costs will be amortized, using the
straight-line method over the term of the line of credit starting January
1, 2000.
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 - 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 carry
forwards.
NET LOSS PER SHARE - The calculations for the basic and diluted loss per
share were based on loss available to common stockholders of $(7,618,174),
$(4,829,467) and $(3,263,351) and a weighted average number of common
shares outstanding of 8,032,533, 8,018,398 and 7,980,094 for the years
ended December 31, 1999, 1998 and 1997 respectively. Options to purchase
shares of common stock were outstanding but not included in the computation
of diluted loss per share in 1999, 1998 and 1997 because the effect would
be antidilutive due to the net loss in those years.
RETIREMENT PLAN - The Company has a retirement plan which qualifies under
Section 401(k) of the Internal Revenue Code. This retirement plan allows
eligible employees to contribute 1% to 15% of their income on a pretax
basis to the plan. The Company's annual contribution to the plan is at the
discretion of the Board of Directors. The Company made no contributions to
this plan in 1999, 1998 and 1997.
ACCUMULATED OTHER COMPREHENSIVE INCOME - Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
Items considered comprehensive income include foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. The Company's components
of comprehensive income include net loss, foreign currency translation
adjustments and, for years prior to 1999, unrealized gains and losses on
investments.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 133 - In June
1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activity, which is
required to be adopted by the Company in 2001. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges of underlying transactions must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. Management has not
yet determined the effect SFAS No. 133 will have, if any, on the Company's
consolidated financial position, results of operations or cash flows.
RECLASSIFICATIONS - Certain 1998 and 1997 amounts have been reclassified to
conform with 1999 presentations.
31
<PAGE> 32
2. AVAILABLE -FOR-SALE SECURITIES
The following is a summary of available-for-sale securities at December 31:
1999 1998
Certificates of Deposit $ - $1,029,674
---------------------
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows at December 31:
1999 1998
Computer software $ 661,473 $ 545,467
Computer equipment 1,164,596 795,996
Telephone equipment 358,306 301,172
Leasehold improvements 43,979 43,979
Office furniture and equipment 395,789 363,387
------------------------------
2,624,143 2,050,001
Less accumulated depreciation 1,332,792 867,507
------------------------------
Property and equipment, net $ 1,291,351 $ 1,182,494
------------------------------
4. LINE OF CREDIT
On December 23, 1999, the Company signed a $1,500,000 Revolving Note and
Credit Agreement with Norwest Bank, Iowa. The note is guaranteed by two of
the Company's board members and is due and payable on March 31, 2001.
Interest is due and payable monthly at a floating rate of based upon LIBOR
plus 1.75% (effective rate at December 31, 1999 was 8.5%). The line of
credit is secured by substantially all of the Company's assets. As of
December 31, 1999, the Company had borrowed $500,000 under the Agreement.
The Company expects to fully utilize the entire credit line during the
first quarter of calendar year 2000.
In connection with the guarantees described above, the Board of Directors
have approved the issuance of 187,500 warrants to each of the guarantors.
These warrants will vest immediately and have an exercise price of $1.5625
per share.
32
<PAGE> 33
5. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1999, 1998
and 1997 were: $36,361, $43,701, and $(9,509), respectively. These amounts
represent state and local income taxes only and are included in General and
administrative expenses.
Income tax expense (benefit) for the years ended December 31, differed from
the U.S. federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed "expected" tax expense $(2,577,816) $(1,627,160) $(1,109,539)
Change in the valuation allowance
for deferred tax assets 3,148,000 1,974,000 1,088,000
State and local income taxes at statutory rates,
net of federal income tax benefit (450,360) (284,275) (194,408)
Other, net (83,463) (18,864) 206,438
--------------------------------------------
$ 36,361 $ 43,701 $ (9,509)
--------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax
liabilities at December 31, are presented below.
<TABLE>
<CAPTION>
Deferred income tax assets: 1999 1998
<S> <C> <C>
Accounts receivable, principally due
to allowance for doubtful accounts $ 20,000 $ 20,000
Deferred revenue 129,000 101,000
Compensation 41,000 89,000
Net operating loss carryforwards 7,710,000 4,569,000
Tax credit carryforwards 75,000 59,000
Other 4,000 20,000
----------- -----------
Total gross deferred income tax assets 7,979,000 4,858,000
Less valuation allowance (7,859,000) (4,711,000)
----------- -----------
Net deferred income tax assets 120,000 147,000
----------- -----------
Deferred income tax liabilities:
Property and equipment, principally due to
differences in depreciation and amortization (81,000) (69,000)
Other (39,000) (78,000)
----------- -----------
Total gross deferred income tax liability (120,000) (147,000)
----------- -----------
Net deferred income taxes $ - $ -
===========================
</TABLE>
At December 31, 1999 the Company has net operating loss carryforwards for
federal income tax purposes of approximately $19,274,000, which are
available to offset future federal taxable income, if any, through 2019.
The Company also has investment tax credit carryforwards for federal income
tax purposes of approximately $75,000, which are available to reduce future
federal income taxes, if any, through 2019.
33
<PAGE> 34
6. PUBLIC OFFERING OF COMMON STOCK
In December 1996, the Company sold 2,000,000 shares of common stock through
an initial public offering which generated net proceeds of $14,082,048
after deducting applicable issuance costs and expenses. On January 8, 1997,
an additional 300,000 shares of common stock were sold pursuant to an
underwriters over-allotment provision, which generated net proceeds to the
Company of $2,232,000 after deducting underwriting discounts and
commissions.
7. 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 SFAS No. 123,
"Accounting for Stock-Based Compensation". No compensation cost has been
recognized for the Stock Option Plan as it relates to employees since the
exercise price of the options on the date of grant approximated fair market
value. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the date of grant for awards
consistent with the provisions of SFAS No. 123, the Company's net loss and
net loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss - as reported $(7,618,174) $(4,829,467) $(3,263,351)
Net loss - pro forma $(7,921,103) $(4,949,320) $(3,406,973)
Net loss per share - basic
and diluted - as reported $ (0.95) $ (0.60) $ (0.41)
Net loss per share - basic
and diluted - pro forma $ (0.99) $ (0.62) $ (0.43)
</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
rates of 5.89% for year ended December 31, 1999, 5.32% for year ended
December 31, 1998, and 5.98% for the year ended December 31, 1997 and an
expected life of 7 years. For the options granted after July 1, 1996, the
Company has used a volatility factor of .74 for year ended December 31,
1999, .94 for year ended December 31, 1998, and .53 for year ended December
31, 1997. For purposes of pro forma disclosure, the estimated fair value of
each option is amortized to expense over that option's vesting period.
34
<PAGE> 35
The Stock Option Plan authorizes 1,680,000 shares of common stock to be
issued. 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 not be less than the estimated
fair market value of the common stock at the date the option is granted.
The Committee shall fix the terms of the grants with no option term lasting
longer than ten years. The ability to exercise such options shall be
determined by the Committee when the options are granted. All of the
outstanding options vest at the rate of 20% per year with the exception of
(a) 76,000 options that were vested as of the date of grant and (b) 260,000
options which vest over 3 years.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
<S> <C> <C>
Options outstanding at January 1, 1997 891,960 $2.34
Options granted during the year ended December 31, 1997
(weighted average fair value of $5.16) 307,000 $4.39
Options forfeited by holders during the year
ended December 31, 1997 (342,580) $4.83
Options exercised during the year ended December 31, 1997 (58,320) $0.22
-----------
Options outstanding at December 31, 1997 798,060 $2.21
Options granted during the year ended December 31, 1998
(weighted average fair value of $1.38) 399,200 $1.38
Options forfeited by holders during the year
ended December 31, 1998 (320,820) $3.15
Options exercised during the year ended December 31, 1998 (8,520) $0.44
-----------
Options outstanding at December 31, 1998 867,920 $0.91
Options granted during the year ended December 31, 1999
(weighted average fair value of $2.05) 695,100 $2.05
Options forfeited by holders during the year
ended December 31, 1999 (246,300) $1.65
Options exercised during the year ended December 31, 1999 (12,960) $0.14
===========
Options outstanding at December 31, 1999 1,303,760 $1.39
===========
Options exercisable at December 31, 1999 462,684 $0.70
===========
Options available for grant at December 31, 1999 293,560
===========
</TABLE>
35
<PAGE> 36
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<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>
$.14 - $.99 360,000 5.43 $ .31 295,200 $ 0.30
$1.00 - $1.99 607,760 8.07 $1.44 167,484 $ 1.40
$2.00 - $2.75 336,000 9.44 $2.46 -
---------- -------
1,303,760 462,684
---------- -------
</TABLE>
The Company also has outstanding stock purchase warrants entitling the
holders to purchase a total of 15,120 shares of common stock at a price of
$2.13 per share (weighted average exercise price). At December 31, 1999,
9,360 of these warrants are currently vested, with the remaining 5,760
warrants vesting at 20% per year. The Company has recorded compensation
costs in connection with the issuance of these warrants for the years ended
December 31, 1999, 1998 and 1997 in the amount of $8,233, $7,388 and $8,283
respectively.
8. COMMITMENTS
The Company leases office space for its operating facilities under
operating lease agreements that expire at varying dates through August
2002. Rent expense under these operating leases for the years ended
December 31, 1999, 1998 and 1997 was $302,194, $210,375 and $154,907
respectively.
At December 31, 1999, future minimum lease payments under these leases are
summarized as follows:
2000 $ 300,213
2001 87,428
2002 41,453
---------
$ 429,094
=========
36
<PAGE> 37
9. ACQUISITIONS
On February 28, 1999, the Company, through its newly formed, wholly-owned
subsidiary, Patient Infosystems Acquisition Corp., acquired substantially
all 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 principle consideration paid for the transaction
was $761,463. The results of operations of HealthDesk Corporation for the
full year of 1999 are not material to the Company's consolidated financial
statements.
The following unaudited pro forma results of operations for the year ended
December 31, 1998 have been prepared as if an acquisition of HealthDesk
Corporation had occurred as of the beginning of 1998:
Pro Forma
Combined
------------------
Revenues $ 2,400,530
Net loss (6,948,179)
------------------
Net loss per share - basic and diluted $ (0.87)
==================
The pro forma combined results do not purport to be indicative of results
that would have occurred had the asset acquisition been in effect for the
period presented, nor do they purport to be indicative of the results that
will be obtained in the future.
On November 12, 1998, the Company entered into a joint venture agreement
with MacLean Hunter Publishing Limited to market and sell, on an exclusive
basis in Canada, products and services developed by the Company and to
jointly manage, finance and operate the business entity Patient Infosystems
Canada, Inc. ("PATI-CN"), which is dedicated to the development of a
commercially viable business built around the sale, marketing and service
of the Company's products and services.
On October 1, 1999, the Company entered into a "Share Purchase Agreement"
with Rogers Publishing Limited ("ROGERS", formerly called Maclean Hunter
Publishing Limited) to purchase ROGERS' 50% share in PATI-CN for the sum of
$1.00 Canadian funds. Additionally, ROGERS reimbursed PATI-CN $41,149
Canadian funds for expenses charged to PATI-CN by ROGERS prior to October
1, 1999. As of October 1, 1999, PATI-CN became a wholly-owned subsidiary of
the Company. The results of operations of PATI-CN for the full year of 1998
and 1999 are not material to the Company's consolidated financial
statements.
10. GOING CONCERN
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the accompanying consolidated financial statements, the Company incurred an
operating loss for 1999 of $7,367,277 and had an accumulated deficit of
$19,634,080 at December 31, 1999. These factors, among others may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependant upon
its ability to generate sufficient cash flow to meet its obligations and,
ultimately, to attain profitability. Management is currently assessing the
Company's operating structure for the purpose of reducing ongoing expenses,
increasing sources of revenue and is negotiating the terms of additional
debt or equity financing.
37
<PAGE> 38
11. SUBSEQUENT EVENT
On March 21, 2000, the Company secured an additional $1,000,000 line of
credit under substantially the same terms as those described in Note 4.
Management anticipates that additional warrants for purchase of common
stock will be issued to the guarantors of this additional line of credit on
a proportional basis.
12. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited interim results of operations
by quarter:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Revenues $ 833,812 $ 1,002,943 $ 875,964 $ 832,488
Gross margin (616,114) (351,730) (571,905) (529,172)
Net loss (1,713,727) (2,042,886) (1,882,535) (1,979,026)
Net loss per common share (0.21) (0.25) (0.23) (0.26)
Year ended December 31, 1998:
Revenues $ 290,354 $ 874,119 $ 465,181 $ 714,418
Gross margin (422,384) (4,670) (555,355) (685,229)
Net loss (1,055,038) (680,017) (1,348,843) (1,745,569)
Net loss per common share (0.13) (0.08) (0.17) (0.22)
</TABLE>
The quarterly gross margins for 1998 differ from those previously reported
in the Company's Form 10Q's as a result of certain reclassifications from
sales and marketing and general and administrative expenses to cost of
revenue. These reclassifications were made to conform to 1999
presentations.
38
<PAGE> 39
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the Company's Proxy Statement for
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December 31,
1999.
Item 11. EXECUTIVE COMPENSATION.
Director Compensation
- ---------------------
Incorporated by reference to the Company's Proxy Statement for
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December 31,
1999.
Executive Compensation
- ----------------------
Incorporated by reference to the Company's Proxy Statement for
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December 31,
1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Company's Proxy Statement for
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December 31,
1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement for
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the fiscal year ended December 31,
1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The financial statements of the Company are included in Part II, Item 8.
(2) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
All other financial statements schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements.
(b) Reports on Form 8 - K:
No reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 1999.
(c) Exhibits:
Exhibit # Description of Exhibits
- --------- -----------------------
(3) Articles of Incorporation and By-Laws:
Certificate of Incorporation
----------------------------
39
<PAGE> 40
Incorporated herein by reference from Exhibit 3.1 on Form S-1
Registration Statement of the Company, filed with the Commission on
December 17, 1996.
BY-LAWS
Incorporated herein by reference from Exhibit 3.3 on Form S-1
Registration Statement of the Company, filed with the Commission on
December 17, 1996.
(10) MATERIAL CONTRACTS:
10.2 PATIENT INFOSYSTEMS, INC. STOCK OPTION PLAN, incorporated herein by
reference from Exhibit 10.2 on Form S-1 Registration Statement of the
Company, filed with the Commission on December 17, 1996.
10.15 ASSET PURCHASE AGREEMENT dated as of September 29, 1998 among Patient
Infosystems Acquisition Corp., the Company and HealthDesk Corporation.
Incorporated herein by reference from Exhibit 10.15 on Form 10-K 1998
Annual Report of the Company, filed with the Commission on April 13,
1999.
10.16 AMENDMENT TO ASSET PURCHASE AGREEMENT dated as of December 1, 1998
among Patient Infosystems Acquisition Corp., the Company and HealthDesk
Corporation. Incorporated herein by reference from Exhibit 10.16 on
Form 10-K 1998 Annual Report of the Company, filed with the Commission
on April 13, 1999.
10.17 SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT dated as of February 1,
1999 among Patient Infosystems Acquisition Corp., the Company and
HealthDesk Corporation. Incorporated herein by reference from Exhibit
10.17 on Form 10-K 1998 Annual Report of the Company, filed with the
Commission on April 13, 1999.
10.19 CONSULTING AGREEMENT dated as of March 8, 1999 between the Company and
John V. Crisan. Incorporated herein by reference from Exhibit 10.19 on
Form 10-K 1998 Annual Report of the Company, filed with the Commission
on April 13, 1999.
10.20 LEASE AGREEMENT dated as of February 22, 1995 between the Company and
Conifer Prince Street Associates. Incorporated herein by reference from
Exhibit 10.20 on Form 10-K 1998 Annual Report of the Company, filed
with the Commission on April 13, 1999.
10.21 FIRST ADDENDUM TO LEASE AGREEMENT dated as of August 22, 1995 between
the Company and Conifer Prince Street Associates. Incorporated herein
by reference from Exhibit 10.21 on Form 10-K 1998 Annual Report of the
Company, filed with the Commission on April 13, 1999.
10.22 SECOND ADDENDUM TO LEASE AGREEMENT dated as of November 17, 1995
between the Company and Conifer Prince Street Associates. Incorporated
herein by reference from Exhibit 10.22 on Form 10-K 1998 Annual Report
of the Company, filed with the Commission on April 13, 1999.
10.23 THIRD ADDENDUM TO LEASE AGREEMENT dated as of March 28, 1996 between
the Company and Conifer Prince Street Associates. Incorporated herein
by reference from Exhibit 10.23 on Form 10-K 1998 Annual Report of the
Company, filed with the Commission on April 13, 1999.
10.24 FOURTH ADDENDUM TO LEASE AGREEMENT dated as of October 29, 1996 between
the Company and Conifer Prince Street Associates. Incorporated herein
by reference from Exhibit 10.24 on Form 10-K 1998 Annual Report of the
Company, filed with the Commission on April 13, 1999.
10.25 FIFTH ADDENDUM TO LEASE AGREEMENT dated as of November 30, 1996 between
the Company and Conifer Prince Street Associates. Incorporated herein
by reference from Exhibit 10.25 on Form 10-K 1998 Annual Report of the
Company, filed with the Commission on April 13, 1999.
10.26 SIXTH ADDENDUM TO LEASE AGREEMENT dated as of November 24, 1997 between
the Company and Conifer Prince Street Associates. Incorporated herein
by reference from Exhibit 10.26 on Form 10-K 1998 Annual Report of the
Company, filed with the Commission on April 13, 1999.
10.27 SUBLEASE AGREEMENT dated as of March 30, 1998 between the Company and
Medecision, Incorporated. Incorporated herein by reference from Exhibit
10.27 on Form 10-K 1998 Annual
40
<PAGE> 41
Report of the Company, filed with the Commission on April 13, 1999.
10.30 SEVENTH ADDENDUM TO LEASE AGREEMENT dated as of June 16, 1999 between
the Company and Conifer Prince Street Associates.
10.31 LEASE AGREEMENT dated as of July 2, 1999 between the Company and Cadena
Properties Limited.
10.32 LEASE AGREEMENT dated as of August 1, 1999 between the Company and
Michele M. Hoey and John E. Hoey.
10.33 REVOLVING NOTE dated as of December 23, 1999 between the Company and
Norwest Bank Iowa, National Association.
10.34 CREDIT AGREEMENT dated as of December 23, 1999 between the Company and
Norwest Bank Iowa, National Association.
10.35 SECURITY AGREEMENT dated as of December 23, 1999 between the Company
and Norwest Bank Iowa, National Association.
10.36 ARBITRATION AGREEMENT dated as of December 23, 1999 between the Company
and Norwest Bank Iowa, National Association.
10.37 FINANCING STATEMENT executed by the Company and Norwest Bank Iowa,
National Association.
10.38 FIRST AMENDMENT TO CREDIT AGREEMENT dated as of March 21, 2000 between
the Company and Norwest Bank Iowa, National Association.
10.39 NOTE MODIFICATION AGREEMENT dated as of March 21, 2000 between the
Company and Norwest Bank Iowa, National Association.
All other exhibits are omitted because they are not applicable or the required
information is shown elsewhere in this Annual Report on Form 10-K.
41
<PAGE> 42
SCHEDULE II
PATIENT INFOSYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF YEAR ADDITIONS DEDUCTIONS YEAR
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1999 $ 50,000 $ - $ - $ 50,000
1998 $ - $ 50,000 $ - $ 50,000
1997 $ - $ - $ - $ -
Deferred Tax Assets Valuation
Allowance:
1999 $4,711,000 $3,121,000 $ 48,000 $7,784,000
1998 $2,414,000 $2,297,000 $ - $4,711,000
1997 $1,326,000 $1,088,000 $ - $2,414,000
Accumulated Amortization
of Intangible Assets:
1999 $ - $ 38,055 $ - $ 38,055
1998 $ - $ - $ - $ -
1997 $ - $ - $ - $ -
Accumulated Amortization
of Computer Software
1999 $ 315,151 $ 139,465 $ - $ 454,616
1998 $ 183,354 $ 131,797 $ - $ 315,151
1997 $ 72,466 $ 110,888 $ - $ 183,354
</TABLE>
42
<PAGE> 43
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PATIENT INFOSYSTEMS, INC.
By: /s/ Donald A. Carlberg March 30, 2000
---------------------- --------------
Donald A. Carlberg Date
Director, President, and Chief Executive Officer
Pursuant to the requirements the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Donald A. Carlberg March 30, 2000
--------------------------------------- --------------
Donald A. Carlberg Date
Director, President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kent A. Tapper March 30, 2000
--------------------------------------- --------------
Kent A. Tapper Date
Vice President Financial Planning
(Principal Financial and Accounting Officer)
By: /s/ Derace L. Schaffer, M.D. March 30, 2000
--------------------------------------- --------------
Derace L. Schaffer, M.D. Date
Chairman of the Board
By: /s/ John Pappajohn March 30, 2000
--------------------------------------- --------------
John Pappajohn Date
Director
By: /s/ Barbara J. McNeil, M.D., Ph.D. March 30, 2000
--------------------------------------- --------------
Barbara J. McNeil, M.D., Ph.D. Date
Director
By: /s/ Carl F. Kohrt, Ph.D. March 30, 2000
--------------------------------------- --------------
Carl F. Kohrt, Ph.D. Date
Director
44
<PAGE> 1
Exhibit 10.30
SEVENTH ADDENDUM TO LEASE
This Seventh Addendum To Lease is made and entered into the 16th day of June
1999, between Conifer Prince Street Associates (Landlord) and Patient
Infosystems, Inc. formerly DSMI Corporation (Tenant).
WITNESSETH: that Tenant currently leases and occupies approximately 12,954
square feet of office space at 46 Prince Street, Rochester, New York 14607
pursuant to a Lease Agreement and First, Second, Third, Fourth, Fifth and Sixth
Addenda To Lease, dated February 22, 1995; August 18, 1995; November 17, 1995;
March 28, 1996; October 29, 1996, November 30, 1996 and November 24, 1997,
respectively.
WHEREAS, Tenant and Landlord desire to extend the Term of the Lease until
December 31, 2000.
NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify
certain provisions of the Lease as follows:
1. Effective upon full execution of this Seventh Addendum To Lease, the
Term of the Lease shall be extended from November 30, 1999 to December
31, 2000.
2. Tenant agrees to pay, Base Rent for its' leased premises, consisting of
approximately 12,954 square feet, as follows:
<TABLE>
<CAPTION>
Annual
Period Per Sq.ft. Monthly
Month-to-Month Base Rent Base Rent
---------------- --------- ---------
<S> <C> <C>
12/1/1999-12/31/2000 $14.50 $15,652.76
</TABLE>
3. Effective upon full execution of this Seventh Addendum To Lease, and as
consideration for Landlord's consent to extend the Term of the Lease,
as stated above, Section 5, of the First Addendum To Lease and Section
33, " First Right To Lease" , of the Lease Agreement shall become null
and void.
Except as modified above, all other terms and conditions of the Lease
Agreement and First, Second, Third, Fourth, Fifth and Sixth Addenda To
Lease, dated February 22, 1995; August 18, 1995; November 17, 1995;
March 28, 1996; October 29, 1996 and November 30, 1996 and November 24,
1997, respectively, shall remain unchanged and in full force and
effect.
Agreed to by: Agreed to by:
PATIENT INFOSYSTEMS, INC. CONIFER PRINCE STREET ASSOCIATES
formerly DSMI CORPORATION
By: /s/ J.V. Crisan By: /s/ Thomas L. Fountain
--------------------------- -------------------------
J.V. Crisan Thomas L. Fountain
VP Conifer Realty Corporation
as agent
Date June 16, 1999 Date June 16, 1999
--------------------------- -------------------------
<PAGE> 1
Exhibit 10.31
CADENA PROPERTIES LIMITED
--------------------------------------
FAIRVIEW BUSINESS PARK
2289, 2317, 2319, 2321
FAIRVIEW STREET
BURLINGTON, ONTARIO
--------------------------------------
<PAGE> 2
INDEX
ARTICLE 1-
CERTAIN BASIC LEASE PROVISIONS
SUMMARY OF RECURRING CHARGES
SCHEDULES AND DEFINITIONS
1.1 Basic Lease Provisions
ARTICLE II - CONSTRUCTION
2.1 Landlord's Work
2.2 Tenant's Improvements and Fixtures
ARTICLE III- DEMISE AND TERM
3.1 Demise of Premises and Term
3.2 Continuance in Possession
3.3 Surrender of Premises
ARTICLE IV - RENT
4.1 Minimum Rent
4.2 Additional Rent
4.3 Place of Payment of Rent
4.4 Net Lease
4.5 Interest on Arrears
4.6 Set Off and Abatement
4.7 Per Diem Adjustment
4.8 Measurement
ARTICLE V - GENERAL COVENANTS
5.1 Covenants of Landlord
5.2 Covenants of Tenant
ARTICLE VI- TAXES
6.1 Payment of Real Property Taxes by the Landlord
6.2 Payment of Taxes by the Tenant
ARTICLE VII- USE
7.1 Use of Premises
ARTICLE VIII - OPERATING COSTS
8.1 Operating Costs & Additional Operating Costs
8.2 Payment of Operating Costs
ARTICLE IX - UTILITIES, HEATING, VENTILATING & AIR CONDITIONING
9.1 Utilities
9.2 Heating
ARTICLE X - REPAIRS, ALTERATIONS & MAINTENANCE
10.1 Tenant Repairs
10.2 Maintenance & Repairs by the Landlord
10.3 Tenant Alterations
10.4 Repair Where the Tenant is at Fault
10.5 Government Order and Regulation
10.6 Landlord's Alterations
2
<PAGE> 3
INDEX CONTINUED
---------------
ARTICLE XI - DAMAGE, DESTRUCTION & EXPROPRIATION
11.1 Termination in the Event of Damage & Destruction
11.2 Expropriation
11.3 Remodelling
ARTICLE XII - INSURANCE & LIABILITY
12.1 Tenants Liability
12.2 Landlord's Insurance
12.3 Indemnity by the Tenant
12.4 Limitations of Landlord's Liability
12.5 Limitation of Tenant's Liability
12.6 Increase in Insurance Premiums
12.7 Unauthorized Use of Chemicals
ARTICLE XIII - ASSIGNMENT OR SUBLETTING
13.1 Assignment or Subletting by the Tenant
13.2 Transfers & Encumbrances by the Landlord
13.3 Change of Control
13.4 Security on Improvements and Fixtures
ARTICLE XIV
14.1 Subordination & Attornment by the Tenant
ARTICLE XV - DEFAULT
15.1 Re-Entry & Termination on Default
15.2 Right to Terminate or Re-Let
15.3 Bankruptcy of the Tenant & Additional Rights of Termination
15.4 Landlord's Rights to Cure Defaults
15.5 Remedies Generally
15.6 Waiver
15.7 Landlord's Entry
ARTICLE XVI - MISCELLANEOUS
16.1 Unavoidable Delays
16.2 Severability
16.3 No Collateral Agreements
16.4 Rules & Regulations
16.5 Accord and Satisfaction
16.6 Successors
16.7 Parking
16.8 Registration & Planning Act
16.9 Notices
16.10 Interpretation
<PAGE> 4
LEASE AGREEMENT
---------------
THIS LEASE is made between the Landlord and Tenant hereinafter
identified and constitutes a Lease between the parties of the Leased Premises in
the Building hereinafter described, on the terms and with and subject to the
agreements of the parties herein after set out.
ARTICLE I - CERTAIN BASIC LEASE PROVISIONS, SUMMARY OF RECURRING
CHARGES SCHEDULES AND DEFINITIONS
1.1 BASIC LEASE PROVISIONS
The following are certain basic lease provisions, which are part of,
and are in certain instances referred to in subsequent provisions of, this
Lease:
(1) Date of this Lease: July 2, 1999
-------------------------------------------------------
(2) Landlord: CADENA PROPERTIES LIMITED
c/o CHAMBERS HALL REAL ESTATE INC.
20 Hughson Street South, Suite 200
Hamilton, Ontario L8N 2A1
Telefax Number: (416)-521-8981
(3) Tenant: PATIENT INFO SYSTEMS CANADA INC.
-------------------------------------------------------------------
(4) Address of Tenant: 2289 FAIRVIEW STREET, UNIT 210
BURLINGTON, ONTARIO L7R 2E3
(5) Guarantor: N/A
-----------------------------------------------------------------
(6) Address of Guarantor: N/A
-------------------------------------------------------
(7) Occupation Date: July 7, 1999
------------------------------------------------------------
(8) Commencement Date: July 7, 1999
------------------------------------------------------------
(9) Lease Term: Three (3) years, Zero (0) months, less any broken portion
of a calendar month excluded from the Term pursuant to Clause (m) of
Schedule "A" hereto.
(10) Expiry Date: July 6, 2002
---------------------------------------------------------------
(11) Area of the Premises: 834 square feet (subject to adjustment
as provided in Section 4.8).
(12) Permitted use of the Leased Premises: General office use only.
--------------------------------------
<PAGE> 5
-2-
(13) Basic Rent: Determined pursuant to Section 4.1 which is as follows:
Commencing on the 7th day of July, 1999 and ending on the 6th day of
July, 2002 the Tenant shall pay to the Landlord Seven Thousand & Eighty
Nine Dollars--xx/100 ($7,089.00) per annum payable in equal monthly
installments of Five Hundred & Ninety Dollars --75/100 ($590.75) plus
Operating Costs and Realty Taxes as provided herein.
(14) Deposit: To be paid prior to occupancy.
Landlord holds a deposit of One Thousand & Thirty Three Dollars--67/100
($1,033.67) to be applied against the last month's rent including
G.S.T. and a deposit of One Hundred & Forty Seven Dollars---83/100
($147.83) to be applied against first month's rent.
(15) Schedules Attached: A - Definitions X
B - Legal Description X
C - Outline of Premises X
D - Landlord's and Tenant's Work X
1.2 RENEWAL OPTION:
Provided that the Tenant is not in default, then the Tenant shall have
the right, upon giving the Landlord Six (6) months written notice of
the intention to renew prior to the expiration of the Lease term, to
renew the said lease for a further term of Three (3) year under the
same terms and conditions, save and except:
(i) the right of further renewal which is expressly excepted, and
(ii) the rental rate shall be the then current market rate for similar space
in the area, and to be agreed upon by the two parties, but will not be
less than the last year of the term provided in 1.1 (13) above.
ARTICLE II - CONSTRUCTION
2.1 LANDLORD'S WORK
The Tenant accepts the Premises in an "as-is" condition save
and except for any work (if any) described under the heading "Landlord's Work"
in Schedule "D". The Tenant shall not make any claim for the Landlord's failure
to perform Landlord's Work unless it has given written notice of any
deficiencies to the Landlord within thirty (30) days of taking possession of the
Premises.
2.2 TENANT'S IMPROVEMENTS AND FIXTURES
All improvements and fixtures installed in or affixed to the Premises,
whether by the Landlord or the Tenant, and whether they are leasehold
Improvements or are affixed to such an extent as to become tenant's fixtures
according to general law, shall upon being installed or affixed, become the
property of the Landlord, but subject, in the case of tenant's fixtures, to
removal by the Tenant pursuant to Section 3.3.
<PAGE> 6
-3-
ARTICLE III - DEMISE AND TERM
3.1 DEMISE OF PREMISES AND TERM
In consideration of the rents, covenants and agreements hereinafter
reserved and contained on the part of the Tenant to be respectively paid,
observed and performed, the Landlord does demise and lease the Premises to the
Tenant, to have and to hold for the Term and upon the conditions herein
mentioned.
3.2 CONTINUANCE IN POSSESSION
In the event that the Tenant remains in possession of the Premises
after the expiration of the Term without objection by the Landlord and without
any written agreement otherwise providing, it shall be deemed to be a tenant
from month to month terminable on no less that one (1) month's prior written
notice and subject otherwise to the provisions of this Lease which shall be read
with such changes as are appropriate to a monthly tenancy and except for monthly
rent which shall be one tenth of the annual rent payable in the last year of the
lease term during the continuance period.
3.3 SURRENDER OF PREMISES
Upon the expiration or sooner termination of this Lease, the Tenant
shall vacate and surrender to the Landlord the Premises in accordance with the
provisions of this Lease. No improvement, trade, fixtures, furniture or
equipment shall be removed by the Tenant from the Premises either during or at
the expiration or sooner termination of the Term except that the Tenant:
(i) may at the end of the Term (or during the Term if in the usual
course of the tenancy business) if it is not in default
hereunder remove trade fixtures, furnishings, equipment and
inventory installed by it;
(ii) shall at the end of the Term or sooner termination of this
Lease remove such Improvements, trade fixtures, furnishings,
equipment and inventory as the Landlord shall require to be
removed. The Lessee shall not be required to remove any
improvements made by the Lessor prior to occupancy.
The Tenant shall, in the case of any removal either during or at the
end of the Term, make good any damage caused to the Premises and any
Improvement by any such removal.
ARTICLE IV - RENT
4.1 MINIMUM RENT
Commencing on the commencement date and thereafter during the Term, the
Tenant shall pay to the Landlord yearly and every year Basic Rent equal to the
amount specified in Subsection 1.1(13) for each year of the Term. Basic Rent
shall be payable by equal monthly installments in advance on the first day of
each calendar month during the Term, provided that if the Term commences on a
day which is not the first day of calendar month, then the installment of Basic
Rent payable on the date of commencement of the Term for the broken portion of a
calendar month at the beginning of the Term shall be calculated at a rate per
day of one three hundred and sixty-five (1/365) of the annual minimum rent.
4.2 ADDITIONAL RENT
The Tenant shall pay to the Landlord, in addition to Basic Rent, all
amounts stated to be payable to the Landlord under this Lease which amounts will
be considered to be rent for the purposes of this Lease. The obligation of the
Tenant to pay additional rent shall survive the expiration or sooner termination
of this Lease.
<PAGE> 7
-4-
4.3 PLACE OF PAYMENT OF RENT
All rent payable hereunder shall be paid by the Tenant to the Landlord
at the office of the Landlord specified in Section 1.1(2) or at such other place
in Canada as the Landlord may designate in writing from time to time without any
prior demand therefore, and shall be payable in lawful money of Canada, at par.
4.4 NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease
shall be a completely net Lease for the Landlord, and except as expressly
hereinafter set out, that the Landlord shall not be responsible during the term
of the Lease or any renewal terms for any costs, charges, expenses and outlays
of any nature whatsoever arising from or relating to the Lease.
4.5 INTEREST ON ARREARS
In every case where the Tenant shall fail to pay the full amount of any
installment of rent when due, the Tenant shall pay interest at an annual rate of
five percentage points (5%) over the prime rate from time to time charged by the
chartered bank of the Landlord upon loans to its preferred borrowers (or if such
rate of interest shall become unlawful, at the maximum rate permitted by law) on
the unpaid amount or deficiency from the date it was properly due until paid.
Whenever such interest is to be calculated over a period in excess of one (1)
year, it shall be compounded annually.
4.6 SET-OFF AND ABATEMENT
All rent payable hereunder by the Tenant to the Landlord shall be paid
without any deduction, set-off or abatement whatsoever, except as herein
expressly provided. The Tenant covenants and agrees that whenever it is in
default hereunder, the Landlord may, at its option, apply all sums received from
or due to the Tenant against amounts due and payable hereunder in such manner as
the Landlord sees fit, regardless of any designations or instructions by the
Tenant to the contrary.
4.7 PER DIEM ADJUSTMENT
If any period for which rent including taxes is to be paid is not
twelve (12) calendar months, the rent and taxes payable by the Tenant under this
Lease will be adjusted on a per diem basis, based on three hundred and
sixty-five (365) days.
4.8 MEASUREMENT
The Landlord may, at its option, have its Architect measure the area of
the Premises in accordance with standards for measurement of similar premises as
determined by the Architect in which case "Area of premises" for the purposes of
Section 4.1 and Subsection 8.2(d) will be adjusted accordingly.
ARTICLE V - GENERAL COVENANTS
5.1 COVENANTS OF LANDLORD
The Landlord covenants with the Tenant that, subject to any provisions
of the Lease to the contrary, the Tenant shall and may peaceably possess and
enjoy the Premises during the Term without any interruption or disturbance from
the Landlord or any other person or persons lawfully claiming by, from or under
it, and the Landlord shall observe and perform all the covenants and provisions
of this Lease on its part to be observed and performed.
<PAGE> 8
-5-
5.2 COVENANTS OF TENANT
The Tenant covenants to pay rent and to observe and perform all the
covenants and provisions of this Lease on its part to be observed and performed.
ARTICLE VI- TAXES
6.1 PAYMENT OF REAL PROPERTY TAXES BY THE LANDLORD
The landlord shall pay or cause to be paid to the taxing authority or
authorities having jurisdiction all Realty Taxes on the Land and Building
together with all leasehold improvements, fixtures and equipment contained
therein.
6.2 PAYMENT OF TAXES BY THE TENANT
The Tenant covenants with the Landlord as follows:
(a) BUSINESS TAXES
In every year of the Term, to pay when due the business taxes and all
other taxes and assessments levied in respect of the occupancy of the
Premises by the Tenant and in respect of the use by the Tenant of the
Common Facilities and the Lands;
(b) SALES TAX
The Tenant shall pay unto the Landlord any tax in the nature of the
Goods and Services Tax (G.S.T.) which is levied as a result of the
Tenants use and occupancy of the Premises and in respect of the use by
the Tenant of the Common Facilities and the Lands.
(c) REALTY TAXES AND ASSESSMENTS
In every year during the Term, to pay to the Landlord as additional
rent the Tenant's portion of all Realty Taxes as reasonably allocated
by the Landlord, and the tenant's proportionate share of any levy or
tax in the nature of a commercial or industrial concentration levy
which is assessed or levied against the Landlord or the building and
land.
(d) SEPARATE SCHOOL TAXES
If the Tenant or any person occupying any part of the Premises shall
elect to have the Premises or any part of the Premises assessed for
separate school taxes, the amount by which the separate school taxes
exceed the amount which would have been payable for school taxes had
such election not been made, shall be paid by the Tenant to the
Landlord as additional rent within twenty (20) days after written
demand therefore by the Landlord.
(e) TAX INCREASE ON TENANT'S ADDITIONS TO PREMISES
If the taxes in respect of the Building, or any part thereof, shall be
increased by reason of any installations made in or alterations made to
the Premises by the Tenant, the amount of such increase shall be paid
by the Tenant to the Landlord as additional rent within twenty (20)
days after written demand therefor by the Landlord.
<PAGE> 9
-6-
ARTICLE VII - USE
7.1 USE OF PREMISES
The Premises shall be used only for the purpose as described in
Subsection 1.1(12), and for no other purpose and the Tenant shall not carry on
or permit to be carried on in the Premises, or in, on or about the Lands and
Building, any business or activity which shall be considered by the Landlord
acting reasonably to be a nuisance. The Tenant shall not commit or suffer to be
committed any waste upon the Premises or upon the Lands and Building, or to do
or suffer any act or thing which may disturb the quiet enjoyment of any other
tenant or the building.
ARTICLE VIII - OPERATING COSTS
8.1 OPERATING COSTS AND ADDITIONAL OPERATING COSTS
In each calendar year, the Tenant shall pay to the Landlord, as
additional rent, its proportionate share of the Operating Costs, and Additional
Operating Costs if applicable.
8.2 PAYMENT OF OPERATING COSTS
(a) The Landlord shall, prior to the commencement of the Term and
within one hundred days of the commencement of each calendar
year thereafter, give to the Tenant a statement of the
Landlord's reasonable estimate of the Tenant's proportionate
share of the Operating Cost for the ensuing calendar year or
portion thereof and the Tenant shall pay to the Landlord the
amount of such estimate in equal monthly installments in
advance on the first day of each month during such calendar
year or portion thereof.
(b) The Landlord shall be entitled subsequently during the year on
at least ten (10) days notice to the Tenant to reasonably
revise its estimate of the Tenant's Proportionate Share of the
Operating Cost and the amount of the monthly installments on
account thereof payable by the Tenant.
(c) Within a reasonable time after the end of each calendar year,
the Landlord shall prepare a statement setting out in
reasonable detail the Landlord's calculation of its actual
Operating Costs for the previous calendar year end, and the
Tenant's proportionate share thereof. If the total of the
monthly installments paid by the Tenant for any calendar year
is less than the actual amount of the Tenant's proportionate
share of the Operating Costs for such calendar year or portion
thereof in question the Tenant shall pay the deficiency to the
Landlord within ten (10) days after notice from the Landlord
of the amount of the deficiency. Similarly, if the total of
the monthly installments paid by the Tenant is more than the
actual amount of the Tenant's proportionate share of the
Operating Costs applicable for the calendar year or portion
thereof in question, the Landlord shall pay to the Tenant the
amount of the excess within ten (10) days after its notice
setting out actual amount of the Tenant's proportionate share
of the Operating Cost if applicable, or alternatively grant a
credit to the Tenant's account against current and future
Operating Costs.
(d) The Tenant's Proportionate Share shall be the fraction which
has as its numerator the area of the Premises and has as its
denominator the total area of all buildings which comprise the
development of which the premises form part. Area of the
Buildings which comprise the development shall mean from time
to time the aggregate of the areas of all leasable premises
measured in the same way as contemplated by Section 4.8 of
this Lease.
(e) In the case of premises in the two storey building known as
2321 Fairview Street, the Landlord may make a separate
assessment of Additional Operating Costs for which the Tenants
Proportionate Share shall be a fraction which has as its
numerator the area of the demised premises and has as its
denominator the Area of the Building.
<PAGE> 10
-7-
ARTICLE IX - UTILITIES, HEATING, VENTILATING & AIR CONDITIONING
9.1 UTILITIES
The Landlord shall pay to the relevant utility company the cost of all
utilities and the Tenant shall pay to the Landlord its proportionate share of
such cost as allocated by the Landlord, pursuant to 8.1 and 8.2 herein.
9.2 HEATING
The Tenant shall heat, ventilate and/or cool the Premises in such a
manner as to maintain the Premises at a reasonable temperature. The Landlord
may, from time to time, stipulate reasonable conditions of temperature and
humidity to be maintained in the Premises, and the Tenant shall comply with such
stipulations.
ARTICLE X - REPAIRS, ALTERATIONS & MAINTENANCE
10.1 TENANT'S REPAIRS
The Tenant agrees that it will, at its cost, at all times keep
(i) the Premises including exterior entrances, all glass windows
and all partitions, doors, equipment, machinery, and fixtures;
and
(ii) any facility of the Premises, including, without limitation,
any equipment which exclusively serves the Premises whether or
not such equipment is technically within the Premises, roof
mounted heating or ventilating;
in good order, condition and repair.
In addition to the foregoing:
(iii) The landlord has provided fluorescent tubes which shall be the
Tenant's responsibility to replace and maintain as required
from time to time.
(iv) The Tenant shall give the Landlord prompt written notice of
any accident or other defect in any sprinkler system, water
pipes, gas pipes or heating apparatus, telephone, electric or
other wires on any part of the premises.
10.2 MAINTENANCE AND REPAIRS BY THE LANDLORD
The Landlord will maintain and repair:
(i) the structural portions of the Building; and
(ii) the Common Facilities;
as would a prudent owner, having regard to size, age and location (provided that
the Landlord may at its own discretion, acting reasonably, determine whether or
not any maintenance or repair is required), but the cost (except for the cost of
repairing or replacing inherent structural defects or weaknesses) will be
included in Operating Costs. The Landlord shall not be required to repair the
Building where it is not substantially compensated for the cost of such repairs,
either through Operating Costs or from proceeds of insurance.
10.3 TENANT'S ALTERATIONS
(a) If at any time and from time to time the Tenant shall at its
own expense wish to make changes, including, without
limitation, alterations or improvements in and to the
leasehold improvements of the premises and/or trade fixtures
in the Premises, it shall first submit to the Landlord an
adequate description of the contemplated work and
<PAGE> 11
-8-
obtain the Landlord's written approval of the work, such
approval not to be unreasonably withheld or delayed. The
Landlord may impose conditions upon such construction as it
considers necessary to protect the building or to ensure the
orderly completion of the work.
(b) The Tenant, at its own expense, shall have the right, subject
to the approval of the Landlord and in accordance with all
local by-laws, to install signs designating its company name
on the Premises.
10.4 REPAIR WHERE THE TENANT IS AT FAULT
If the building or any part of it requires repair, replacement or
alteration, (a) because of the negligence, fault, omission, want of skill, act
or misconduct of the Tenant or its officers, agents, employees, contractors,
invitees or licensees, (b) due to the requirements of governmental authorities
relating to the Tenant's conduct of business, or (c) as a result of the Tenant
stopping up or damaging the heating apparatus, cooling equipment, water pipes,
drainage pipes or other equipment or facilities or parts of the Building, the
cost of the repairs, replacements or alterations plus a sum equal to fifteen
percent (15%) of the cost for the Landlord's overhead will be paid by the Tenant
to the Landlord on demand.
10.5 GOVERNMENTAL ORDER AND REGULATIONS
The Tenant shall at all times keep the Leased Premises in accordance
with the law, directions, rules and regulations of every governmental authority
having jurisdiction, and shall not commit, suffer or permit any act or omission
on the Premises which shall result in an illegal use or cause any breach of such
laws, directions, rules and regulations. If any such laws, directions, rules and
regulations require any changes in the Premises, the Tenant shall perform such
changes at its own expense, but subject to the provisions of Section 10.3.
10.6 LANDLORD'S ALTERATIONS
The Landlord may from time to time alter or change the improvements or
permit such to be altered or changed, in the Building or on the Land by the
construction, removal, relocation or alteration of any such improvements,
including, without limitation, the construction of other rentable premises. In
the course of conducting any such improvements, the Landlord shall have the
right to make alterations, structural or otherwise, to the Premises including,
without limitation, the running of ducts or conduits through the Premises, but
in so doing shall, to the extent reasonably possible in the circumstances,
minimize any interference with the Tenant's use and occupation of the Premises.
ARTICLE XI - DAMAGE, DESTRUCTION & EXPROPRIATION
11.1 TERMINATION IN THE EVENT OF DAMAGE AND DESTRUCTION
(a) If the Building is damaged and/or destroyed so that it will
require more than 120 days to repair the same, the Landlord
may, by written notice to the Tenant within 30 days of the
date of such damage, terminate this Lease effective on the
date of such damage and destruction.
(b) Upon any damage or destruction to the Premises, provided that
the Landlord has not terminated this Lease, the Landlord and
the Tenant shall repair the Premises in accordance with their
obligations to repair under Sections 10.1 and 10.2 of this
Lease as soon as reasonably possible and during the period
following the occurrence of such destruction or damage, for so
long as the Landlord is fully reimbursed from proceeds payable
under policies of insurance maintained by the Landlord,
minimum rent and additional rent shall from time to time abate
in the same proportion that the part of the Premises from time
to time rendered unfit for use or occupancy by reason of such
destruction is of the whole of the Premises.
<PAGE> 12
-9-
11.2 EXPROPRIATION
The parties agree to reasonably co-operate in the case of any
expropriation to maximize the claim of each party from the expropriating
authority.
11.3 REMODELLING
That in the event of the Landlord desiring at any time during the term,
or any renewal thereof, to remodel the said building, or any part thereof, or to
take down the said building, the Tenant will, on receiving six months' notice in
writing, surrender this lease and all the remainder of the term, if any, then
yet to come and unexpired, as from the day mentioned in such notice, and will,
subject nevertheless to the provisions hereinbefore contained thereupon, vacate
the premises and yield up to the Landlord the peaceable possession thereof.
It is understood that the said six month's notice need not expire at the end of
any year or at the end of any month and in the event of the day fixed for
termination of the lease expiring on some other day than the last day of a
month, the rent for such month shall be apportioned for the broken period. The
Tenant's responsibility for payment of rent and additional rent shall be limited
to the period of time during occupancy which may be less than six months if the
Lessee vacates prior to the expiration of the six months notice period.
ARTICLE XII - INSURANCE & LIABILITY
12.1 TENANT'S INSURANCE
The Tenant shall throughout the Term provide and keep in force:
(a) comprehensive general liability insurance in the name of the
Landlord and the Tenant with respect to the business carried
on in or from the Premises and the use and occupancy thereof
by the Tenant for bodily injury and death and damage to
property of others; and
(b) fire insurance on an "all risks" basis in respect of the
Improvements and the Tenant's fixtures, furniture, equipment
and inventory.
Insurance effected by the Tenant under this Section 12.1 shall be in amounts
which the Landlord acting reasonably shall from time to time determine as being
sufficient, and shall name the Landlord as an additional name-insured and in
respect of the insurance described in Subsection 12.1(a) provide for a
cross-liability endorsement. Such insurance shall release the Landlord from
certain liability as set out in Section 12.4 and shall otherwise be upon such
terms and conditions as the Landlord acting reasonably shall from time to time
require as being reasonable and sufficient. The Tenant shall upon request file
with the Landlord copies of current certificates, to establish the Tenant's
insurance coverage in effect from time to time and the payment of premiums
thereon.
12.2 LANDLORD'S INSURANCE
The Landlord will maintain at the expense of the Tenant, throughout the
Term, in those reasonable amounts, and with those reasonable deductions that a
prudent owner of a building similar to the Building would maintain, having
regard to size, age and location, (a) all risks insurance on the Building
(excluding the foundations and excavations) and the machinery, boilers and
equipment contained in it and owned by the Landlord, (except property that the
Tenant and other Tenants are required to insure); (b) public liability and
property damage insurance with respect to the Landlord's operations in the
Building.
12.3 INDEMNITY BY THE TENANT
The Tenant shall indemnify and hold harmless the Landlord against any
and all liability, loss, claims, demands, damages or expenses, including legal
expense, due to or arising out of injury to any person (including injury
resulting in death) and damage to, loss of or theft of any property of any
person arising out of any accident or other occurrence on or about the Premises
or any act or neglect
<PAGE> 13
-10-
by the Tenant or those over whom it might be expected to exercise control, and
costs, liabilities, damages or expenses due to or arising out of any work done
by, or act of neglect or emission of the Tenant or its servants, employees,
agents, contractors, invitees, concessionaires or licensees in and about the
Premises, or due to or arising out of any breach or non-performance by the
Tenant of any provision of this Lease.
12.4 LIMITATIONS OF LANDLORD'S LIABILITY
The Landlord shall not be liable or in any way responsible to the
Tenant in respect of any loss, injury or damage required to be insured against
by the Tenant under the provisions of Section 12.1, whether or not such loss,
injury or damage is the result of the negligence of the Landlord or those for
whom the Landlord is in law responsible. The Landlord shall not be liable for
its failure to perform any of its covenants hereunder provided that it is using
its commercially reasonable efforts to rectify' such default as soon as
reasonably possible.
12.5 LIMITATION OF TENANT'S LIABILITY
The Tenant shall not be liable or in any way responsible to the
Landlord in respect of any loss, injury or damage to the extent that the
Landlord actually recovers proceeds under insurance policies maintained by the
Landlord pursuant to Section 12.2, whether or not such loss, injury or damage is
the result of the negligence of the Tenant or those for whom the Tenant is in
law responsible.
12.6 INCREASE IN INSURANCE PREMIUMS
The Tenant will not do or omit or permit to be done or omitted, any
thing upon the Leased Premises which shall cause the rate of insurance upon the
Building, or any part thereof, to be increased, and if the insurance rate shall
be increased as aforesaid the Tenant will pay to the Landlord as additional
rent, in addition to any part of insurance premiums hereinbefore agreed to be
paid by the Tenant, the amount by which the insurance premiums shall be so
increased, and, if notice of cancellation shall be given respecting any
insurance policy, or, if any insurance policy upon the Building or any part
thereof shall be cancelled or its renewal be refused by an insurer by reason of
the use of the Premises by the Tenant, the Tenant shall alter, remedy or rectify
such use upon being requested to do so in writing by the Landlord, and if the
Tenant shall fail to do so within twenty-four (24) hours of such written
request, the Landlord may at its option terminate this Lease forthwith by
leaving upon the Leased Premised notice in writing of its intention so to do. In
determining whether increased premiums are the result of the Tenant's use of the
Premises, a schedule, issued by the organization ranking the insurance rate on
the Premises, showing the various components of such rate, shall be conclusive
evidence of the several items and charges which make the insurance rate on the
leased Premises. Any increase in insurance premiums payable to the Tenant as
aforesaid, shall be payable forthwith upon demand in writing therefore by the
Landlord.
12.7 UNAUTHORIZED USE OF CHEMICALS
The Tenant hereby indemnifies and saves harmless the Landlord from all
liability, cost, claims and damages resulting from the unauthorized or negligent
use of any chemical or other substance which are not permitted to be used
according to any Federal, Provincial or Municipal regulations and in particular
in regards to any contaminant as that term is defined in The Environmental
Protection Act, furthermore, the Tenant shall on breach of the above covenant
conduct the necessary clean up of the premises and any other property
contaminated by the Tenant. Failure to do so shall entitle the Landlord to
conduct the cleanup and recover the cost as rent pursuant to the lease.
ARTICLE XIII - ASSIGNMENT OR SUBLETTING
13.1 ASSIGNMENT OR SUBLETTING BY THE TENANT
The Tenant shall not assign this Lease or sublet all or any part of the
Leased Premises without the prior written consent of the Landlord which shall
not be unreasonably withheld. The Tenant shall be responsible for and shall pay
to the Landlord forthwith on demand all reasonable administrative and legal
costs of the Landlord in connection with the Landlord's consent to any
assignment of subletting by the Tenant. Any such assignment or subletting
consented to by the Landlord shall not
<PAGE> 14
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release the Tenant of any obligations of the Tenant under the provisions of this
Lease. It is a condition of such assignment or subletting that the assignee or
subtenant directly agree with the Landlord to be bound by the provisions of this
Lease and upon such assignment or subletting the Tenant shall forthwith furnish
copies of all documents relating thereto to the Landlord and the Tenant at the
request of the Landlord shall enforce for the benefit of the Landlord all
obligations of third parties contained in all or any of such documents to the
extent necessary to give effect to this Lease.
13.2 TRANSFERS AND ENCUMBRANCES BY THE LANDLORD
The Landlord may sell, transfer, encumber or otherwise deal with the
Land and Building or any portion thereof or any interest of the Landlord
therein, in every case without the consent of the Tenant. To the extent that any
purchaser or transferee from the Landlord assumes responsibility for the
covenants of the Landlord under this Lease, the Landlord shall without further
written agreement be freed and relieved of liability upon such covenants and
obligations.
13.3 CHANGE OF CONTROL
Any change in the effective voting control of a corporate tenant or
corporate guarantor (whether by sale, transfer or other disposition of shares or
otherwise and whether direct or indirect), without the consent of the Landlord,
shall entitle the Landlord, at its option, to terminate this Lease. The Tenant
shall make available to the Landlord all records reasonably required by the
Landlord to determine whether any such change of control has occurred.
13.4 SECURITY ON IMPROVEMENTS AND FIXTURES
The Tenant shall not create any encumbrance or other security in any of
its property that is or becomes an improvement or trade fixture that had
priority above the Landlord's interest in such property.
ARTICLE XIV
14.1 SUBORDINATION AND ATTORNMENT BY THE TENANT
This Lease is subject and subordinate to (but at the option of the
Landlord or any mortgagee or encumbrancer of the Land and Building shall be
attorned and the Tenant bound to) any mortgage or other encumbrance which may
now or at any time hereafter affect the Premises. On request at any time and
from time to time of the Landlord or of any such mortgagee or encumbrancer of
the Premises, the Tenant covenants and agrees to either (i) attorn to such
mortgagee or encumbrancer and become bound to it as its tenant of the Premises
for the then unexpired residue of the Term and upon the terms herein contained
(subject always to the respective priorities as between themselves or mortgagees
or encumbrancers who from time to time request such attornment) or (il) postpone
and subordinate this Lease to such mortgage or other encumbrance with the intent
and effect that this Lease and all the rights of the Tenant shall be subject to
the rights of such mortgagee or encumbrancer as fully as if such mortgage or
other encumbrance had been made before the making of this Lease. Whichever of
the foregoing may be requested (and notwithstanding that any previous attornment
and subordination shall have been given) the Tenant shall execute promptly any
instruments of attornment, postponement or subordination which may be so
requested to give effect to the foregoing. Whenever requested from time to time
by the Landlord or any mortgagee or encumbrancer of the Premises, the Tenant
shall promptly execute and deliver to the party requesting the same a
certificate or acknowledgement as to the status and validity of this Lease and
the state of the rental account hereunder and such other information as may be
reasonably required.
<PAGE> 15
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ARTICLE XV - DEFAULT
15.1 RE-ENTRY AND TERMINATION ON DEFAULT
If and whenever:
(a) any Basic Rent or additional rent payable by the Tenant under
this Lease shall be in arrears and shall not then be paid
within fifteen (15) days, or
(b) the Tenant shall have breached or failed to comply with any of
its covenants and agreements contained in this Lease, and
shall have failed to commence to remedy such breach of
non-compliance within fifteen (15) days after written notice
thereof given by the Landlord to the Tenant (or such longer
period if any as the Landlord may allow acting reasonably for
the remedying of such breach of non-compliance) or thereafter
fails to diligently proceed to remedy such breach or
non-compliance;
then and in every case it shall be lawful for the landlord at any time
thereafter at its option to enter into and upon the Premises or any part thereof
in the name of the whole and to terminate this Lease and all the rights of the
Tenant hereunder, anything in the Lease to the contrary notwithstanding.
15.2 RIGHT TO TERMINATE OR RELET
If the Landlord does not exercise its right under Section 15.1 to
terminate this Lease, it may nevertheless relet the Premises or a part of them
for whatever term or terms (which may be for a term extending beyond the Term)
and at whatever rent and upon whatever other terms, covenants and conditions the
Landlord considers advisable and may at its option enforce subleases of the
Premises and collect rents thereunder to apply against the obligations of the
Tenant under this Lease, in which case the Tenant shall continue to be liable
for the performance of all of its obligations under this Lease including the
payment of rent and all amounts payable hereunder.
15.3 BANKRUPTCY OF THE TENANT AND ADDITIONAL RIGHTS OF TERMINATION
In addition to all other rights of the Landlord to terminate hereunder,
whether or not the Term has commenced and whether or not any Basic Rent has been
prepaid, this Lease may be terminated at the option of the Landlord if the
Tenant shall make a general assignment for the benefit of its creditors, shall
be declared to be bankrupt, or shall file a petition in bankruptcy or insolvency
or for any re-adjustment of debts or creditor's arrangement or shall make a
proposal under the Bankruptcy Act or take advantage of any legislation for the
relief of bankrupt or insolvent debtors in respect of its own debts, or if any
execution, attachment or similar process shall be issued against the Tenant, or
any encumbrancer of the Tenant shall take any action or proceeding whereby any
of the improvements, fixtures, furnishings or property of the Tenant on the
Premises or the Tenant's leasehold interest in the Premises shall be taken, or
if the Tenant attempts to remove any substantial part of the fixtures,
furnishings or stock-in-trade from the premises other than in the normal course
of its business, or if a receiver, manager, custodian or any official having
similar power shall be appointed with respect to the Premises or any property of
the Tenant on the leased Premises. If this Lease is terminated pursuant to any
provisions of this Section 15.3, the Tenant shall, in addition to meeting all
the other requirements of this Article XV, forthwith pay to the Landlord Basic
Rent for the three (3) months next ensuing after the termination of this Lease
as accelerated rent.
15.4 LANDLORD'S RIGHTS TO CURE DEFAULTS
If and whenever the Tenant shall default in the performance of any of
its covenants under this Lease including, without limitation, the Tenant's
obligation to repair and maintain the Premises and/or take out insurance, the
Landlord may perform such covenant for the account of the Tenant and may enter
upon the Premises for the purpose, and no notice thereof need be given to the
Tenant except if and to the extent any provision of this Lease expressly
required that notice be given in the circumstances. The Landlord shall not be
liable to the Tenant for any loss, damage or inconvenience to the Tenant or to
the Tenant's business or stock-in-trade caused by acts of the Landlord in
remedying or attempting to remedy such default, and the Tenant shall promptly
pay to the Landlord on demand the amount of all costs, charges and expenses
incurred by the Landlord in connection with
<PAGE> 16
- 13 -
such default or in curing or attempting to cure such default, together with an
administrative fee of fifteen percent (15%) of such amount.
15.5 REMEDIES GENERALLY
Mention in this Lease of any particular remedy or remedies of the
Landlord in respect of any default by the Tenant shall not preclude the Landlord
from any other remedy in respect thereof, whether available at law or in equity,
or by statute, or expressly provided for herein. No remedy shall be exclusive or
dependent upon any other remedy, but the Landlord may from time to time exercise
any one or more of such remedies generally or in combination, such remedies
being cumulative and not alternative.
15.6 WAIVER
No waiver by the Landlord or the Tenant of any default, breach or
non-compliance hereunder shall operate as a waiver of such party's rights
hereunder in respect of any continuing or subsequent default, breach of
non-observance, and no waiver shall be inferred from or implied by any
overlooking by the Landlord or the Tenant of such default, breach or
non-observance.
15.7 LANDLORD'S ENTRY
The Landlord may enter onto the Premises for the purpose of:
(a) showing the Premises to prospective tenants of the Premises or
purchasers or mortgagees of the Building;
(b) inspecting the Premises; and
(c) performing repairs or alterations to the Premises permitted
under Section 10.2 or Section 10.6 of this Lease.
The Landlord shall give reasonable notice to the Tenant before exercising any
such right of entry other than in the case of an emergency (real or apprehended)
or the Tenant's default.
15.8 DETERMINATIONS
Any determination to be made under this Lease, shall, unless expressly
stated to the contrary, be made by the Landlord, acting reasonably. Should the
Tenant dispute any determination by the Landlord, it shall comply with the
provisions of this Lease in accordance with the Landlord's determination, on a
without prejudice basis and then be entitled to take any action available at law
for the recovery of damages provided that the Tenant agrees that it shall not be
entitled to challenge any determination made by the Landlord later than six
months after the date upon which the Tenant is notified of such determination.
ARTICLE XVI - MISCELLANEOUS
16.1 UNAVOIDABLE DELAYS
In the event that either the Landlord or the Tenant shall be delayed,
hindered or prevented from the performance of any act or covenant required
hereunder by reason of any unavoidable delay not the fault of the party delayed,
then performance of such act or covenant shall be excused for the period during
which such performance is rendered impossible, and the time for the performance
thereof shall be extended accordingly, provided that this Section shall not
apply to the payment of any monies required by this Lease.
16.2 SEVERABILITY
Should any provision of this Lease be unenforceable it shall be
considered separate and severable from the remaining provisions of this Lease,
which shall remain in force and be binding as though the provision had not been
included.
<PAGE> 17
- 14 -
16.3 NO COLLATERAL AGREEMENTS
This Lease constitutes the entire agreement between the Landlord and
the Tenant relating to the subject matter hereof and may be amended only by an
agreement in writing signed by the parties hereto and neither party is bound by
any representations, warranties, promises, agreement or inducements not embodied
herein.
16.4 RULES AND REGULATIONS
The Landlord may adopt rules and regulations acting reasonably and they
may differentiate between different types of businesses. Each rule and
regulation, as revised from time to time, forms part of this Lease as soon as
the rule, regulation or revision is made known to the Tenant. The Tenant will
comply with each rule and regulation and each revision of it. No rule or
regulation, however, will contradict the terms, covenants and conditions of this
Lease.
16.5 ACCORD AND SATISFACTION
Payment by the Tenant or receipt by the Landlord of less than the
required monthly payment of Basic Rent is on account of the earliest stipulated
Basic Rent. An endorsement or statement on a cheque or letter accompanying a
cheque or payment as Tenant is not an acknowledgement of full payment or an
accord and satisfaction, and the Landlord may accept the balance of the Rent or
pursue its other remedies.
16.6 SUCCESSORS
The rights and obligations under this Lease extend to and bind the
successors and assigns of the Landlord and, if Section 13.1 is complied with,
the heirs, executors, administrators and permitted successors and assigns of the
Tenant. If there is more than one Tenant, or more thin one person constituting
the Tenant, they are bound jointly and severally by this Lease.
16.7 PARKING
To provide designated or undesignated parking spaces in the parking
areas to the north, south, east and west of the premises, apportioned according
to the square footage of the floor area of the Leased Premises, to the Tenant
and it employees, and in accordance with municipal requirements.
16.8 REGISTRATION AND PLANNING ACT
The Tenant shall not register this Lease without the prior written
consent of the Landlord, provided that if the Landlord shall refuse such
consent, the Landlord shall, at the request of the Tenant, execute a memorandum
or short form of lease for the purpose of registration which shall suffice to
give notice of this Lease and the Tenant's interest herein without disclosure of
any terms which the Landlord does not desire to have disclosed. This Lease is
entered into subject to the express condition that it is to be effective only if
the provisions of Section 49 of the Planning Act, 1983, Statutes of Ontario,
1983, c.l (as it may from time to time be amended) are complied with.
16.9 NOTICES
Any notice given by the Tenant to the Landlord shall be sufficiently
given if delivered to the Landlord, if mailed, postage prepaid and registered,
addressed to the address set out in Section 1.1(2) above, or if telefaxed, and
any notice given by the Landlord to the Tenant or to the guarantor shall be
sufficiently given if delivered to the Tenant or to the guarantor if mailed,
postage prepaid and registered, addressed to the Tenant at the Premises and to
the guarantor at the address set out in Section 1.1(4) above, or if telefaxed.
Any such notice given as aforesaid shall be conclusively deemed to have been
given on the second business day on which such notice is mailed or the day on
which such notice is delivered, or telefaxed, as the case may be. Either party
may at any time give notice and from and after the giving of such notice, the
address therein specified shall be deemed to be the address of such party for
the giving of notices. The word "notice" in this clause shall include any
request, statement or other writing given by the Landlord to the Tenant or to
the guarantor or by the Tenant to the Landlord.
<PAGE> 18
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16.10 INTERPRETATION
This Lease shall be construed and governed by the laws of the Province
of Ontario. Time shall be of the essence of this Lease and every part hereof.
The heading introducing articles, sections and sub-sections are for convenience
of reference only, and shall not affect the interpretation thereof. All
references to the Tenant shall be read with such changes in number and gender as
may be appropriate, according to whether the Tenant is a male or female person
or a corporation of partnership.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
Landlord: CADENA PROPERTIES LIMITED
Per: /s/ Illegible
-------------------------------------------
Secretary
Tenant: PATIENT INFO SYSTEMS CANADA INC.
Per: /s/ Illegible
---------------------------------------------
Per:
---------------------------------------------
<PAGE> 19
SCHEDULE "A" - DEFINITIONS
--------------------------
The following definitions apply in this Lease:
(a) "ARCHITECT" means an accredited architect chosen by the Landlord from
time to time.
(b) "BASIC RENT" means the annual rent payable pursuant to Section 4.1
based upon the annual amount per square foot of area of the premises
specified in Subsection 1.1(11).
(c) "BUILDING" means the building built on the development, part of which
is occupied by the Tenant.
(d) "COMMON FACILITIES" means all the lands, buildings and improvements
constituting the building except for rentable premises therein
(including the premises), and except for other portions of such
buildings and improvements which are from time to time allocated by the
Landlord for private use by one or a limited group of Tenants.
(e) "IMPROVEMENTS" means all fixtures, improvements, installations,
alterations and additions from time to time made, erected or installed
by or on behalf of the Tenant in the Premises and by or on behalf of
Tenants in other premises, with the exception of trade fixtures and
furniture, but includes, without limitation, all partitions and doors,
however affixed, light fixtures, heating, cooling and ventilating
equipment and all wall to wall carpeting with the exception of such
carpeting where laid over vinyl tile of finished floor and affixed so
as to be readily removable without damage.
(f) "LAND" means those lands and premises described in Schedule 'B'.
(g) "LANDLORD" means the Landlord specified in Subsection 1.1(2) and its
successors and assigns.
(h) "LEASE" means this Lease, including the schedules attached hereto, and
any amendments to such lease from time to time.
(i) "OPERATING COSTS" means such of the Landlord's costs and expenses which
are attributable to the maintenance, operation, supervision and
administration of the Building including the Common Facilities and
shall include without limitation or duplication:
(i) the cost of all insurance, together with the deductible
portion of any insurance claims, in respect of all-risks
coverage or fire and extended coverage endorsement perils,
public liability and property damage and other casualties and
contingencies against which the Landlord may reasonably insure
(including the insurance which the Landlord is obligated to
obtain pursuant to Section 12.2) applicable to the Building
and all buildings and improvements thereon, including all
rentable premises and the Common Facilities;
(ii) the cost of policing and supervising the security of the
Building and the Common Facilities;
(iii) the cost of cleaning, maintaining and repairing the Building
and Common Facilities, including the cost of snow clearing
and removal and landscaping maintenance and including those
costs incurred with respect to rentable premises including the
leased premises;
(iv) periodic depreciation calculated in accordance with generally
accepted accounting practice on:
- the original capital cost of any fixtures, furnishings and
equipment in the Common Facilities; and
<PAGE> 20
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- the cost or expense of any repair, maintenance, renovation
or replacement of any part of each of (a) the Common
Facilities including fixtures, furnishings and equipment
therein, and (b) the portions of buildings containing
rentable premises in the Building, including the Leased
premises, which portions consist of foundations, exterior
weather walls (excluding store fronts and glass),
structural subfloors and roofs, the structural portions of
bearing walls and structural columns and beams, the capital
cost of which in each case is in excess of FIVE THOUSAND
($5,000) dollars and not recovered out of insurance
proceeds;
in each case, together with interest at a rate equal to one percent (1%) in
excess of the interest rate from time to time charged to the Landlord by the
chartered bank of the Landlord at the beginning of each fiscal period on the
un-depreciated capital cost of all such items being depreciated from time to
time;
(v) the cost of all utilities including electricity, gas, and
water.
(vi) remuneration (including contributions toward usual fringe
benefits, unemployment insurance and similar contributions) of
personnel to the extent engaged in maintaining, operating,
administering and supervising the Building;
(vii) an administrative and supervisory fee.
Operating Costs shall be allocated to each fiscal period in accordance with
generally accepted accounting practice as determined by the Landlord's auditors,
and any prepaid expense (for example, insurance) may be allocated to the fiscal
period in which the expense is incurred.
(j) "PREMISES" means the rentable premises in the Building which are shown
outlined in red on Schedule(s) 'C', the exact measurements of which are
to depend on the actual location of perimeter walls and other
construction defining the boundaries thereof, when and as actually
constructed, (it being agreed that reasonable variations in the
configuration and measurements of such premises necessitated by or
during construction by the Landlord shall be permitted).
(k) "REALTY TAXES" means all present or future real property, business,
municipal, school and local improvement taxes, assessments and rates
and all taxes, assessments and rates of a like nature imposed in
respect of real property from time to time by any municipality, school
or public authority, including any costs and fees incurred by the
Landlord in verifying the reasonableness of or contesting any of the
same in good faith (although this shall not imply any obligation of the
Landlord to contest to any Realty Taxes), but excluding income or
profits taxes upon the income of the Landlord to the extent such taxes
are not levied in lieu of Realty Taxes.
(1) "TENANT" means the person, firm or corporation herein before described
and identified as being the Tenant specified in Subsection 1.1(3) and
except where the context is inconsistent therewith, also includes, if
the Tenant is a firm or corporation, its permitted successors and
assigns, and if the Tenant is a person, its heirs, executors,
administrators and permitted assigns.
(m) "TERM" means the period commencing on the commencement date and running
for the number of years specified in Subsection 1.1(9) provided that if
the occupation date is other than the first day of a month, the Term
shall exclude the part of the month at the end of the Term so that the
Term will end on the last day of the month. Term shall include renewal
terms, if any.
(n) "ADDITIONAL OPERATING COSTS" means such of the Landlord's costs and
expenses which are attributable to the maintenance, operation,
supervision and administration of the office building known as 2321
Fairview Street and shall include without limitation janitorial service
if provided, maintenance, repair and replacement of heating and air
conditioning equipment. This definition shall not replace or exclude
those Operating Costs defined in (i) above, but is intended to cover
those additional costs applicable only to the two storey building and
which are not applicable to the other buildings on the development.
<PAGE> 21
SCHEDULE "B" - LEGAL DESCRIPTION
--------------------------------
Part of Lots 4 and 5, Registered Plan 203, and known municipally as 2289 to 2323
Fairview Street in the City of Burlington, in the Regional Municipality of
Halton, in the Province of Ontario.
<PAGE> 22
SCHEDULE "C"
------------
ATTACHED TO AND FORMING PART OF THE LEASE
BETWEEN:
CADENA PROPERTIES LIMITED (AS LANDLORD)
- - AND -
PATIENT INFO SYSTEMS CANADA INC.
(AS TENANT)
[MAP OF PATIENT INFO SYSTEMS]
<PAGE> 23
SCHEDULE "D"
------------
Attached to and forming part of the Lease
BETWEEN:
CADENA PROPERTIES LIMITED (AS LANDLORD)
- - AND-
PATIENT INFO SYSTEMS CANADA INC.
(AS TENANT)
- ------------------------------------------------------------------------------
1. LEASEHOLD IMPROVEMENTS BY THE TENANT
If the Tenant is to perform any repairs, alterations or renovations
within the premises, the Tenant shall comply with all applicable laws,
by-laws and regulations in completing such work, including obtaining
building permits and shall save harmless the Landlord from any and all
claims, assessments, penalties, damages, costs and expenses which may
be incurred by the Tenant or the Landlord as a result of the Tenant's
work to the premises.
All Leasehold Improvements in, on, for, or which serve the Premises,
shall immediately become the absolute property of Landlord upon
affixation or installation, without compensation, therefor to the
Tenant, except where provided herein, but the Landlord shall have no
obligation to repair, replace, maintain, insure or be responsible in
any way for them, all of which shall be the Tenant's responsibility.
2. LANDLORD'S WORK
Landlord to complete the following repairs to the property at 2289
Fairview Street, Unit #210, Burlington, Ontario:
1. Paint interior of office space, washroom and foyer, from
Landlord's sample.
2. Install carpet in office and foyer, from Landlord's samples.
3. Repair toilet in washroom.
4. Replace ceiling fluorescent light grids (2).
5. Clear air returns.
6. Reinstall door to main office.
7. Repair windows (exterior).
8. Complete lexan retrofit as per Landlord's specifications.
<PAGE> 1
Exhibit 10.32
LEASE AGREEMENT
1. PARTIES
THIS AGREEMENT, MADE THE ___________day of __________________ one thousand nine
hundred and ninety-nine (1999), by and between Michele M. Hoey and John E. Hoey
(hereinafter called Lessor), of the one part, and Patient Infosystems, Inc. with
a principal place of business at 46 Prince Street, Rochester, NY 14607
(hereinafter called Lessee), of the other part.
2. PREMISES
3. TERM
4. MINIMUM RENT
WITNESSETH THAT: Lessor does hereby demise and let unto Lessee all that certain
2nd floor of the premises located at 15 Maple Avenue, Paoli, PA consisting of
approximately 3,715 sq. feet together with up to ten, but no more than ten
(10)designated parking spaces in the lot contiguous to the Premises (said spaces
shall be designated by Lessor and are not assignable by Lessee) in the County of
Chester, State of Pennsylvania, to be used and occupied as A Business office and
for no other purpose, for the term of Three (3) years beginning the 1st day of
August one thousand nine hundred and ninety-nine (1999), and ending the 31st day
of July Two thousand nine hundred and Two (2002), for the minimum three year
rental of One Hundred and Ninety Five Thousand and Thirty Seven Dollars & Forty-
Four Cents (Dollars) ($195,037.44), lawful money of the United States of
America, payable in monthly installments in advance during the said term of this
lease, as follows: Yr. 1 (8/1/99-7/31/01): $5,262.92 per month; Yr. 2
(8/1/00-7/31/01: $5,417.70 per month;** ($ each payment) on the 1st day of each
month, rent to begin from the 1st day of August, 1999, the first installment to
be paid at the time of signing this lease.
**and Yr. (3) (8/1/01-7/31/02): $5,572.50 per month.
Lessee shall be responsible for all utility expenses related to or occasioned by
its occupancy of the demised premises. Further, Lessee shall promptly, reimburse
Lessor for Lessees' pro-rata share of Lessors' common area and/or collective
utility expense(s).
5. INABILITY TO GIVE POSSESSION
6. ADDITIONAL RENT
If Lessor is unable to give Lessee possession of the demised premises,
as herein provided, by reason of the holding over of a previous occupant, or by
reason of any cause beyond the control of the Lessor, the Lessor shall not be
liable in damages to the Lessee therefor, and during the period that the Lessor
is unable to give possession, all rights and remedies of both parties hereunder
shall be suspended.
(a) DAMAGES FOR DEFAULT
(a) Lessee agrees to pay as rent in addition to the minimum rental
herein reserved any and all sums which may become due by reason of the failure
of Lessee to comply with all the covenants of this lease and pay any and all
damages, costs and expenses which the Lessor may suffer or incur by reason of
any default of the Lessee or failure on his part to comply with the covenants of
this lease, and each of them, and also any and all damages of the demised
premises caused by any act or neglect of the Lessee.
(b) TAXES
(b) Lessee further agrees to pay as rent in addition to the minimum
rental herein reserved all taxes assessed or imposed upon the demised premises
and/or the building of which the demised premises is a part during the term of
this lease, in excess of and over and above those assessed or imposed at the
time of making this lease. The amount due hereunder on account of such taxes
shall he apportioned for that part of the first and last calendar years covered
by the term hereof. The same shall be paid by Lessee to Lessor on or before the
first day of July of each and every year.
(c) FIRE INSURANCE PREMIUMS
(c) Lessee further agrees to pay to Lessor as additional rent all
increase or increases in fire insurance premiums upon the demised premises
and/or the building of which the demised premises is a part, due to an increase
in the rate of fire insurance in excess of the rate on the demised premises at
the time of making this lease, if said increase is caused by any act or neglect
of the Lessee or the nature of the Lessee's business.
(d) WATER RENT
(d) Lessee further agrees to pay as additional rent, if there is a
metered water connection to the said premises, all charges for water consumed
upon the demised premises in excess of the yearly minimum meter charge and all
charges for repairs to the said meter or meters on the premises, whether such
repairs are made necessary by ordinary wear and tear, freezing, hot water,
accident or other causes, immediately when the same become due.
(e) SEWER RENT
(e) Lessee further agrees to pay as additional rent, if there is a
metered water connection to said premises, all sewer rental or charges for use
of sewers, sewage system, and sewage treatment works servicing the demised
premises in excess of the yearly minimum of such sewer charges, immediately when
the same become due.
7. PLACE OF PAYMENT
All rents shall be payable without prior notice or demand at the office
of Lessor in 536 Whitford Hills Road, Exton, PA 19341
- --------------------------------------------------------------------------------
or at such other place as Lessor may from time to time designate by notice in
writing.
8. AFFIRMATIVE COVENANTS OF LESSEE
Lessee covenants and agrees that he will without demand
(a) PAYMENT OF RENT
(a) Pay the rent and all other charges herein reserved as rent on the
days and times and at the place that the same are made payable, without fail,
and if Lessor shall at any time or times accept said rent or rent charges after
the same shall have become due and payable, such acceptance shall not excuse
delay upon subsequent occasions, or constitute or be construed as a waiver of
any of Lessor's rights. Lessee agrees that any charge or payment herein
reserved, included or agreed to be treated or collected as rent and/or any other
charges or taxes, expenses, or costs herein agreed to be paid by the Lessee may
be proceeded for and recovered by the Lessor by distraint or other process in
the same manner as rent due and in arrears.
(b) CLEANING, REPAIRING, ETC.
(b) Keep the demised premises clean and free from all ashes, dirt and
other refuse matter; replace all glass windows, doors, etc., broken; keep all
waste and drain pipes open; repair all damage to plumbing and to the premises in
general; keep the same in good order and repair as they now are, reasonable wear
and tear and damage by accidental fire or other casualty not occurring through
negligence of Lessee or those employed by or acting for Lessee alone excepted.
The Lessee agrees to surrender the demised premises in the same condition in
which Lessee has herein agreed to keep the same during the continuance of this
lease.
(c) REQUIREMENTS OF PUBLIC AUTHORITIES
(c) Comply with any requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Lessee or his use of the demised premises,
and save Lessor harmless from penalties, fines, costs or damages resulting from
failure to do so.
(d) FIRE
(d) Use every reasonable precaution against fire.
(e) RULES AND REGULATIONS
(e) Comply with rules and regulations of Lessor promulgated as
hereinafter provided.
(f) SURRENDER OF POSSESSIONS
(f) Peaceably deliver up and surrender possession of the demised
premises to the Lessor at the expiration or sooner termination of this lease,
promptly delivering to Lessor at his office all keys for the demised premises.
(g) NOTICE OF FIRE, ETC.
(g) Give to Lessor prompt written notice of any accident, fire, or
damage occurring on or to the demised premises.
(h) CONDITION OF PAYMENT
(h) Lessee shall be responsible for the condition of the pavement,
curb, cellar doors, awnings and other erections in the pavement during the term
of this lease; shall keep the pavement free from snow and ice, and shall be and
hereby agrees that Lessee is solely liable for any accidents, due or alleged to
be due to their defective condition, or to any accumulations of snow and ice.
(i) AGENCY ON REMOVAL
(i) The Lessee agrees that if, with the permission in writing of
Lessor, Lessee shall vacate or decide at any time during the term of this lease,
or any renewal thereof, to vacate the herein demised premises prior to the
expiration of this lease, or any renewal hereof, Lessee will not cause or allow
any other agent to represent Lessee in any sub-letting or reletting of the
demised premises other than an agent approved by the Lessor ____________________
_______ ______________________________________ and that should Lessee do so or
attempt to do so, the Lessor ________________________________________________
may remove any signs that may be placed on or about the demised premises by such
other agent without any liability to Lessor or to said agent, the Lessee
assuming all responsibility for such action.
9. NEGATIVE COVENANTS OF LESSEE
Lessee covenants and agrees that he will do none of the following
things without the consent in writing of Lessor first had and obtained:
(a) USE OF PREMISES
(a) Occupy the demised premises in any other manner or for any other
purpose than as above set forth.
(b) ASSIGNMENT AND SUBLETTING
(b) Assign, mortgage or pledge this lease or under-let or sub-lease the
demised premises, or any part thereof, or permit any other person, firm or cor-
poration to occupy the demised premises, or any part thereof; nor shall any
assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease,
without an additional written consent by the Lessor, and without such consent no
such assignment, mortgage or pledge shall be valid. If the Lessee becomes
embarrassed or insolvent, or makes an assignment for the benefit of creditors,
or if a petition in bankruptcy is filed by or against the Lessee or a bill in
equity or other proceeding for the appointment of a receiver for the Lessee is
filed, or if the real or personal property of the Lessee shall be sold or levied
upon by any Sheriff, Marshall or Constable, the same shall be a violation of
this covenant.
<PAGE> 2
(c) SIGNS
(c) Place or allow to be placed any stand, booth, sign or show case
upon the doorsteps, vestibules or outside walls or pavement of the premises or
paint, place, erect or cause to be painted, placed or erected any sign,
projection or device on or in any part of the premises. Lessee shall remove any
sign, projection or device painted, placed or erected, if permission has been
granted and restore the walls, etc. to their former conditions, at or prior to
the expiration of this lease. In case of the breach of this covenant (in
addition to all other remedies given to Lessor in case of breach of any
conditions or covenants of this lease) Lessor shall have the privilege of
removing said stand, booth, sign show case, projection or device, and restoring
said walls, etc. to their former condition, and Lessee, at Lessor's option,
shall be liable to Lessor for any and all expenses so incurred by Lessor.
(d) ALTERATIONS, IMPROVEMENTS
(d) Make any alterations, improvements, or additions to the demised
premises. All alterations, improvements, additions or fixtures, whether
installed before or after the execution of this lease, shall remain upon the
premises at the expiration or sooner determination of this lease and become the
property of Lessor, unless Lessor shall, prior to the determination of this
lease, have given written notice to Lessee to remove the same, in which event
Lessee will remove such alterations, improvements and additions and restore the
premises to the same good order and condition in which they now are. Should
Lessee fail so to do, Lessor may do so, collecting, at Lessor's option, the
cost and expense thereof from Lessee as additional rent.
(e) MACHINERY
(e) Use or operate any machinery that, in Lessor's opinion, is harmful
to the building or disturbing to other tenants occupying other parts thereof.
(f) WEIGHTS
(f) Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the Structure.
(g) FIRE INSURANCE
(g) Do or suffer to be done, any act, matter or thing objectionable to
the fire insurance companies whereby the fire insurance or any other insurance
now in force or hereafter to be placed on the demised premises, or any part
thereof, or on the building of which the demised premises may be a part, shall
become void or suspended, or whereby the same shall be rated as a more hazardous
risk than at the date of execution of this lease, or employ any person or
persons objectionable to the fire insurance companies or carry or have any
benzine or explosive matter of any kind in and about the demised premises. In
case of a breach of this covenant (in addition to all other remedies given to
Lessor in case of the breach of any of the conditions or covenants of this
lease) Lessee agrees to pay to Lessor as additional rent any and all increase or
increases of premiums on insurance carried by Lessor on the demised premises, or
any part thereof, or on the building of which the demised premises may be a
part, caused in any way by the occupancy of Lessee.
(h) REMOVAL OF GOODS
(h) Remove, attempt to remove or manifest an intention to remove
Lessee's goods or property from or out of the demised premises otherwise than in
the ordinary and usual course of business, without having first paid and
satisfied Lessor for all rent which may become due during the entire term of
this lease.
(i) VACATE PREMISES
(i) Vacate or desert said premises during the term of this lease, or
permit the same to be empty and unoccupied.
10. LESSOR'S RIGHTS
Lessee covenants and agrees that Lessor shall have the right to do the
following things and matters in and about the demised premises:
(a) INSPECTION OF PREMISES
(a) At all reasonable times by himself or his duly authorized agents to
go upon and inspect the demised premises and every part thereof, and/or at his
option to make repairs, alterations and additions to the demised premises or the
building of which the demised premises is a part.
(b) RULES AND REGULATIONS
(b) At any time or times and from time to time to make such rules and
regulations as in his judgment may from time to time be necessary for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein. Such rules and regulations shall, when noticed thereof is given
to Lessee, form a part of this lease.
(c) SALE OR RENT SIGN PROSPECTIVE PURCHASERS OR TENANTS
(c) To display a "For Sale" sign at any time, and also, after notice
from either party of intention to determine this lease, or at any time within
three months prior to the expiration of this lease, a "For Rent" sign, or both
"For Rent" and "For Sale" signs; and all of said signs shall be placed upon such
part of the premises as Lessor may elect and may contain such matter as Lessor
shall require. Prospective purchasers or tenants authorized by Lessor may
inspect the premises at reasonable hours at any time.
(d) DISCONTINUE FACILITIES AND SERVICES
(d) The Lessor may discontinue all facilities furnished and services
rendered, or any of them, by Lessor, not expressly covenanted for herein, it
being understood that they constitute no part of the consideration for this
lease.
11. RESPONSIBILITY OF LESSEE
(a) Lessee agrees to be responsible for and to relieve and hereby
relieves the Lessor from all liability by reason of any injury or damage to any
person or property in the demised premises, whether belonging to the Lessee or
any other person, caused by any fire, breakage or leakage in any part or portion
of the demised premises, or any part or portion of the building of which the
demised premises is a part, or from water, rain or snow that may leak into,
issue or flow from any part of the said premises, or of the building of which
the demised premises is a part, or from the drains, pipes, or plumbing work of
the same, or from any place or quarter, whether such breakage, leakage, injury
or damage be caused by or result from the negligence of Lessor or his servants
or agents or any person or persons whatsoever.
(b) Lessee also agrees to be responsible for and to relieve and hereby
relieves Lessor from all liability by reason of any damage or injury to any
person or thing which may arise from or be due to the use, misuse or abuse of
all or any of the elevators, hatches, openings, stairways, hallways, of any kind
whatsoever, which may exist or hereafter be erected or constructed on the said
premises, or from any kind of injury which may arise from any other cause
whatsoever on the said premises or the building of which the demised premises is
a part, whether such damage, injury, use, misuse or abuse be caused by or result
from the negligence of Lessor, his servants or agents or any other person or
persons whatsoever.
12. RESPONSIBILITY OF LESSOR
(a) TOTAL DESTRUCTION OF PREMISES
(a) In the event that the demised premises is totally destroyed or so
damaged by fire or other casualty not occurring through fault or negligence of
the Lessee or those employed by or acting for him, that the same cannot be
repaired or restored within a reasonable time, this lease shall absolutely cease
and determine, and the rent shall abate for the balance of the term.
(b) PARTIAL DESTRUCTION OF PREMISES
(b) If the damage caused as above be only partial and such that the
premises can be restored to their then condition within a reasonable time, the
Lessor may, at his option, restore the same with reasonable promptness,
reserving the right to enter upon the demised premises for that purpose. The
Lessor also reserves the right to enter upon the demised premises whenever
necessary to repair damage caused by fire or other casualty to the building of
which the demised premises is a part, even though the effect of such entry be to
render the demised premises or a part thereof untenantable. In either event the
rent shall be apportioned and suspended during the time the Lessor is in
possession, taking into account the proportion of the demised premises rendered
untenantable and the duration of the Lessor's possession. If a dispute arises as
to the amount of rent due under this clause, Lessee agrees to pay the full
amount claimed by Lessor. Lessee shall, however, have the right to proceed by
law to recover the excess payment, if any.
(c) REPAIRS BY LESSOR
(c) Lessor shall make such election to repair the premises or terminate
this lease by giving notice thereof to Lessee at the leased premises within
thirty days from the day Lessor received notice that the demised premises had
been destroyed or damaged by fire or other casualty.
(d) DAMAGE FOR INTERRUPTION OF USE
(d) Lessor shall not be liable for any damage, compensation or claim by
reason of inconvenience or annoyance arising from the necessity of repairing any
portion of the building, the interruption in the use of the premises, or the
termination of this Lease by reason of the destruction of the premises.
(e) REPRESENTATION OF CONDITION OF PREMISES
(e) The Lessor has let the demised premises in their present condition
and without any representations on the part of the Lessor, his officers,
employees, servants and/or agents. It is understood and agreed that Lessor is
under no duty to make repairs or alterations at the time of letting or at any
time thereafter.
(f) ZONING
(f) It is understood and agreed that the Lessor hereof does not
warrant or undertake that the Lessee shall be able to obtain a permit under any
Zoning Ordinance or Regulation for such use as Lessee intends to make of the
said premises, and nothing in this lease contained shall obligate the Lessor to
assist Lessee in obtaining said permits; the Lessee further agrees that in the
event a permit cannot be obtained by Lessee under any Zoning Ordinance or
Regulation, this lease shall not terminate without Lessor's consent, and the
Lessee shall use the premises only in a manner permitted under such Zoning
Ordinance or Regulation.
13. MISCELLANEOUS AGREEMENT AND CONDITION
(a) EFFECTS OF REPAIRS ON RENTALS
(a) No contract entered into or that may be subsequently entered into
by Lessor with Lessee, relative to any alterations, additions, improvements or
repairs, nor the failure of Lessor to make such alterations, additions,
improvements or repairs as required by any such contract, nor the making by
Lessor or his agents or contractors of such alterations, additions, improvements
or repairs shall in any way affect the payment of the rent or said other charges
at the time specified in this lease.
(b) AGENCY
(b) It is hereby expressly agreed and understood that the said ________
is acting as agent only and shall not in any event be held liable to the owner
or to Lessee for the fulfillment or non-fulfillment of any of the terms or
conditions of this lease, or for any action or proceedings that may be taken by
the owner against Lessee, or by Lessee against the owner.
(c) WAIVER OF CUSTOM
(c) It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to en-
force the covenants and provisions of this lease in strict accordance with the
terms hereof, notwithstanding any conduct or custom on the part of the Lessor in
refraining from so doing at any time or times; and, further, that the failure of
Lessor at any time or times to enforce his rights under said covenants and
provisions strictly in accordance with the same shall not be construed as having
created a custom in any way or manner contrary to the specific terms, pro-
visions and covenants of this lease or as having in any way or manner modified
the same.
(d) CONDUCT OF LESSEE
(d) This lease is granted upon the express condition that Lessee
and/or the occupants of the premises herein leased, shall not conduct themselves
in a manner which the Lessor in his sole opinion may deem improper or
objectionable, and that if at any time during the term of this lease or any
extension or continuation thereof, Lessee or any occupier of the said premises
shall have conducted himself, herself or themselves in a manner which Lessor in
his sole opinion deems improper or objectionable, Lessee shall be taken to have
broken the covenants and conditions of this lease, and Lessor will be entitled
to all of the rights and remedies granted and reserved herein for the Lessee's
failure to observe any of the covenants and conditions of this lease.
(e) FAILURE OF LESSEE TO REPAIR
(e) In the event of the failure of Lessee promptly to perform the
covenants of Section 8(b) hereof, Lessor may go upon the demised premises and
perform such covenants, the cost thereof, at the sole option of Lessor, to be
charged to Lessee as additional and delinquent rent.
14. REMEDIES OF LESSOR
If the Lessee
(a) Does not pay in full when due any and all installments of rent
and/or any other charge or payment herein reserved, included, or agreed to be
treated or collected as rent and/or any other charge, expense, or cost herein
agreed to be paid by the Lessee, or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the demised premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual course of business without having first paid and
satisfied the Lessor in full for all rent and other charges then due or that may
thereafter become due until the expiration of the then current term, above
mentioned; or
(d) Becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against the
Lessee, or a bill in equity or other proceeding for the appointment of a
receiver for the Lessee is filed, or if proceedings for reorganization or for
composition with creditors under any State or Federal law be instituted by or
against Lessee, or if the real or personal property of the Lessee shall be sold
or levied upon by any Sheriff, Marshall or Constable; _________________ then and
in any or either of said events, there shall be deemed to be a breach of this
lease, and thereupon ipso facto and without entry or other action by Lessor;
(1) The rent for the entire unexpired balance of the term of this
lease, as well as all other charges, payments, costs and expenses herein agreed
to be paid by the Lessee, or at the option of Lessor any part thereof, and also
all costs and officers' commissions including watchmen's wages and further in-
cluding the five percent chargeable by Act of Assembly to the Lessor, shall, in
addition to any and all installments of rent already due and payable and in
arrears and/or any other charge or payment herein reserved, included or agreed
to be treated or collected as rent, and/or any other charge, expense or cost
herein agreed no be paid by the Lessee which may be due and payable and in
arrears, be taken to be due and payable and in arrears as if by the terms and
provisions of this lease, the whole balance of unpaid rent and other charges,
payments, taxes, costs and expenses were on that date payable in advance; and if
this lease or any part thereof is assigned, or if the premises or any part
thereof is sub-let, Lessee hereby irrevocably constitutes and appoints Lessor
Lessee's agent to collect the rents due by such assignee or sub-lessee and apply
the same to the rent due hereunder without in any way affecting Lessee's
obligation to pay any unpaid balance of rent due hereunder;
<PAGE> 3
(2) This lease and the term hereby created shall determine and become
absolutely void without any right on the part of the Lessee to save the
forfeiture by payment of any sum due or by other performance of any condition,
term or covenant broken; whereupon, Lessor shall be entitled to recover damages
for such breach in an amount equal to the amount of rent reserved for the
balance of the term of this lease, less the fair rental value of the said
demised premises, for the residue of said term.
15. FURTHER REMEDIES OF LESSOR
In the event of any default as above set forth in Section 14, the
Lessor, or anyone acting on Lessor's behalf, at Lessor's option:
(a) may without notice or demand enter the demised premises, breaking
open locked doors if necessary to effect entrance, without liability to action
for prosecution or damages for such entry or for the manner thereof, for the
purpose of distraining or levying and for any other purposes, and take posses-
sion of and sell all goods and chattels at auction, on three days' notice served
in person on the Lessee or left on the premises, and pay the said Lessor out of
the proceeds, and even if the rent be not due and unpaid, should the Lessee at
any time remove or attempt to remove goods and chattels from the premises
without leaving enough thereon to meet the next periodical payment, Lessee
authorizes the Lessor to follow for a period of ninety days after such removal,
take possession of and sell at auction, upon like notice, sufficient of such
goods to meet the proportion of rent accrued at the time of such removal; and
the Lessee hereby releases and discharges the Lessor, and his agents, from all
claims, actions, suits, damages, and penalties, for or by reason or on account
of any entry, distraint, levy, appraisement or sale; and/or
(b) may enter the premises, and without demand proceed by distress and
sale of the goods there found to levy the rent and/or other charges herein
payable as rent, and all costs and officers' commissions, including watchmen's
wages and sums chargeable to Lessor, and further including a sum equal to 5% of
the amount of the levy as commissions to the constable or other person making
the levy, shall be paid by the Lessee, and in such case all costs, officers'
commission and other charges shall immediately attach and become part of the
claim of Lessor for rent, and any tender of rent without said costs, commission
and charges made after the issue of a warrant of distress shall not be
sufficient to satisfy the claim of the Lessor. Lessee hereby expressly waives in
favor of Lessor the benefit of all laws now made or which may hereafter be made
regarding any limitation as to the goods upon which, or the time within which,
distress is to be made after removal of goods, and further relieves the Lessor
of the obligations of proving or identifying such goods, it being the purpose
and intent of this provision that all goods of Lessee, whether upon the demised
premises or not, shall be liable to distress for rent. Lessee waives in favor of
Lessor all rights under the Act of Assembly of April 6, 1951, P. L. 69, and all
supplements and amendments thereto that have been or may hereafter be passed,
and authorizes the sale of any goods distrained for rent at any time after five
days from said distraint without any appraisement and/or condemnation thereof.
(c) The Lessee further waives the right to issue a Writ of Replevin
under the Pennsylvania Rules of Civil Procedure, No. 1071 &c. and Laws of the
Commonwealth of Pennsylvania, or under any other law previously enacted and now
in force, or which may be hereafter enacted, for the recovery of any articles,
household goods, furniture, etc., seized under a distress for rent or levy upon
an execution for rent, damages or otherwise; all waivers hereinbefore mentioned
are hereby extended to apply to any such action; and/or
(d) may lease said premises or any part or parts thereof to such person
or persons as may in Lessor's discretion seem best and the Lessee shall be
liable for any loss of rent for the balance of the then current term.
16. CONFESSION OF JUDGEMENT
If rent and/or any charges hereby reserved as rent shall remain unpaid
on any day when the same ought to be paid, Lessee hereby empowers any Pro-
thonotary, Clerk of Court or attorney of any Court of Record to appear for
Lessee in any and all actions which may be brought for rent and/or the charges,
payments, Costs and expenses reserved as rent, or agreed to be paid by the
Lessee and/or to sign for Lessee an agreement for entering in any competent
Court an amicable action or actions for the recovery of rent or other charges,
payments, costs and expenses, and in said Suits or in said amicable action or
actions to confess judgment against Lessee for all or any part of the rent
specified in this lease and then unpaid including, at Lessor's option, the rent
for the entire unexpired balance of the term of this lease, and/or other
charges, payments, costs and expenses reserved as rent or agreed to be paid by
the Lessee, and for interest and costs together with any attorney's commission
of 5%. Such authority shall not be exhausted by one exercise thereof, but
judgment may be confessed as aforesaid from time to time as often as any of said
rent and/or other charges, payments, costs and expenses, reserved as rent shall
fall due or be in arrears, and such powers may be exercised as well after the
expiration of the original term and/or during any extension or renewal of this
lease.
17. EJECTMENT
When this lease shall be determined by condition broken, either during
the original term of this lease or any renewal or extension thereof, and also
when and as soon as the term hereby created or any extension thereof shall have
expired, it shall be lawful for any attorney as attorney for Lessee to file an
agreement for entering in any competent Court an amicable action and judgment in
ejectment against Lessee and all persons claiming under Lessee for the recovery
by Lessor of possession of the herein demised premises, for which this lease
shall be his sufficient warrant, whereupon, if Lessor so desires, a writ of
Execution or of Possession may issue forthwith, without any prior writ or
proceedings whatsoever, and provided that if for any reason after such action
shall have been commenced the same shall be determined and the possession of the
premises hereby demised remain in or be restored to Lessee, Lessor shall have
the right upon any subsequent default or defaults, or upon the termination of
this lease as hereinbefore set forth, to bring one or more amicable action or
actions as hereinbefore set forth to recover possession of the said premises.
18. AFFIDAVIT OF DEFAULT
In any amicable action of ejectment and/or for rent in arrears, Lessor
shall first cause to be filed in such action an affidavit made by him or someone
acting for him setting forth the facts necessary to authorize the entry of
judgment, of which facts such affidavit shall be conclusive evidence and if a
true copy of this lease (and of the truth of the copy such affidavit shall be
sufficient evidence) be filed in such action, it shall not be necessary to file
the original as a warrant of attorney, any rule of Court, custom or practice to
the contrary notwithstanding.
19. WAIVER BY LESSEE OF ERRORS, RIGHT OF APPEAL, STAY, EXEMPTION, INQUISITION
Lessee expressly agrees that any judgment, order or decree entered
against him by or in any Court or Magistrate by virtue of the powers of attorney
contained in this lease, or otherwise, shall be final, and that he will not take
an appeal, certiorari, writ of error, exception or objection to the same, or
file a motion or rule to strike off or open or to stay execution of the same,
and releases to Lessor and to any and all attorneys who may appear for Lessee
all errors in the said proceedings, and all liability therefor. Lessee expressly
waives the benefits of all laws, now or hereafter in force, exempting any goods
on the demised premises, or elsewhere from distraint, levy or sale in any legal
proceedings taken by the Lessor to enforce any rights under this lease. Lessee
further waives the right of inquisition on any real estate that may be levied
upon to collect any amount which may become due under the terms and conditions
of this lease, and does hereby voluntarily condemn the same and authorizes the
Prothonotary or Clerk of Court to issue a Writ of Execution or other process
upon Lessee's voluntary condemnation, and further agrees that the said real
estate may be sold on a Writ of Execution or other process. If proceedings shall
be commenced by Lessor to recover possession under the Acts of Assembly, either
at the end of the term or sooner termination of this lease, or for nonpayment of
rent or any other reason Lessee specifically waives the right to the three
months' notice and/or the fifteen or thirty days' notice required by the Act of
April 6, 1951, P. L. 69, and agrees that five days' notice shall be sufficient
in either or any other case.
20. RIGHT OF ASSIGNEE OF LESSOR
The right to enter judgment against Lessee and to enforce all of the
other provisions of this lease hereinabove provided for may, at the option of
any assignee of this lease, be exercised by any assignee of the Lessor's right,
title and interest in this lease in his, her or their own name, notwithstanding
the fact that any or all assignments of the said right, title and interest may
not be executed and/or witnessed in accordance with the Act of Assembly of May
28, 1715, 1 Sm. L. 90, and all supplements and amendments thereto that have been
or may hereafter be passed and Lessee hereby expressly waives the requirements
of said Act of Assembly and any and all laws regulating the manner and/or form
in which such assignments shall be executed and witnessed.
21. REMEDIES CUMULATIVE
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to him by law and equity shall be cumulative and concurrent. No
determination of this lease or the taking or recovering of the premises shall
deprive Lessor of any of his remedies or actions against the Lessee for rent due
at the time or which, under the terms hereof, would in the future become due as
if there has been no determination, or for any and all sums due at the time or
which, under the terms hereof, would in the future become due as if there had
been no determination, nor shall the bringing of any action for rent or breach
of covenant, or the resort to any other remedy herein provided for the recovery
of rent be construed as a waiver of the right to obtain possession of the
premises.
22. CONDEMNATION
In the event that the premises demised or any part thereof is taken or
condemned for a public or quasi-public use, this lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor, and rent
shall abate in proportion to the square feet of leased space taken or condemned
or shall cease if the entire premises be so taken. In either event the Lessee
waives all claims against the Lessor by reason of the complete or partial taking
of the demised premises, and it is agreed that the Lessee shall not be entitled
to any notice whatsoever of the partial or complete termination of this lease by
reason of the aforesaid.
23. SUBORDINATION
This Agreement of Lease and all its terms, covenants and provisions are
and each of them is subject and subordinate to any lease or other arrangement or
right to possession, under which the Lessor is in control of the demised
premises, to the rights of the owner or owner's of the demised premises and of
the land or buildings of which the demised premises are a part, to all rights of
the Lessor's landlord and to any and all mortgages and other encumbrances now or
hereafter placed upon the demised premises or upon the land and/or the buildings
containing the same; and Lessee expressly agrees that if Lessor's tenancy,
control, or right to possession shall terminate either by expiration, forfeiture
or otherwise, then this lease shall thereupon immediately terminate and the
Lessee shall, thereupon, give immediate possession; and Lessee hereby waives any
and all claims for damages or otherwise by reason of such termination as
aforesaid.
24. TERMINATION OF LEASE
It is hereby mutually agreed that either party hereto may terminate
this lease at the end of said term by giving to the other party written notice
thereof at least ninety 90 days prior thereto, but in default of such notice,
this lease shall continue upon the same terms and conditions in force
immediately prior to the expiration of the term hereof as are herein contained
for a further period of one (1) year and so on from year to year unless or
until terminated by either party hereto, giving the other ninety (90) days
written notice for removal previous to expiration of the then current term;
PROVIDED, however, that should this lease be continued for a further period
under the terms hereinabove mentioned, any allowances given Lessee on the rent
during the original term shall not extend beyond such original term, and further
provided, however, that if Lessor shall have given such written notice prior to
the expiration of any term hereby created, of his intention to change the terms
and conditions of this lease, and Lessee shall not within ten (10) days from
such notice notify Lessor of Lessee's intention to vacate the demised premises
at the end of the then current term, Lessee shall be considered as Lessee under
the terms and conditions mentioned in such notice for a further term as above
provided, or for such further term as may be stated in such notice. In the event
that Lessee shall give notice, as stipulated in this lease, of intention to
vacate the demised premises at the end of the present term, or any renewal or
extension thereof, and shall fail or refuse so to vacate the same on the date
designated by such notice, then it is expressly agreed that Lessor shall have
the option either (a) to disregard the notice so given as having no effect, in
which case all the terms and conditions of this lease shall continue thereafter
with full force precisely as if such notice had not been given, or (b) Lessor
may, at any time within thirty days after the present term or any renewal or
extension thereof, as aforesaid, give the said Lessee ten days' written notice
of his intention to terminate the said lease; whereupon the Lessee expressly
agrees to vacate said premises at the expiration of the said period of ten days
specified in said notice. All powers granted to Lessor by this lease may be
exercised and all obligations imposed upon Lessee by this lease shall be
performed by Lessee as well during any extension of the original term of this
lease as during the original term itself. * *
25. NOTICES
All notices required to be given by Lessor to Lessee shall be
sufficiently given by leaving the same upon the demised premises, but notices
given by Lessee to Lessor must be given by registered mail, and as against
Lessor the only admissible evidence that notice has been given by Lessee shall
be a registry return receipt signed by Lessor or his agent.
26. LEASE CONTAINS ALL AGREEMENTS
It is expressly understood and agreed by and between the parties hereto
that this lease and the riders attached hereto and forming a part hereof set
forth all the promises, agreements, conditions and understandings between Lessor
or his Agents and Lessee relative to the demised premises, and that there are no
promises, agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. It is further understood and
agreed that, except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this lease shall be binding upon Lessor or
Lessee unless reduced to writing and signed by them.
** Notwithstanding the aforesaid termination provisions, the Parties agree that
Lessee may one time on February 1, 2001, terminate this Lease by providing
Lessor with 120 days prior written notice and paving at the time of said
notice a penalty equal to three (3) times the then applicable months rent.
<PAGE> 4
27. HEIRS AND ASSIGNEES
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several and respective
heirs, executors, administrators, successors and assigns of said parties; and
if there shall be more than one Lessee, they shall all be bound jointly and
severally by the terms, covenants and agreements herein, and the word "Lessee"
shall be deemed and taken to mean each and every person or party mentioned as a
Lessee herein, be the same one or more; and if there shall be more than one
Lessee, any notice required or permitted by the terms of this lease may be given
by or to any one thereof, and shall have the same force and effect as if given
by or to all thereof, The words "his" and "him" wherever stated herein shall be
deemed to refer to the "Lessor" and "Lessee" whether such Lessor or Lessee be
singular or plural and irrespective of gender. No rights, however, shall inure
to the benefit of any assignee of Lessee unless the assignment to such assignee
has been approved by Lessor in writing as aforesaid.
28. ADVANCE RENT
Lessee shall, upon execution hereof, pay Lessor as security for the
performance of all the terms, covenants, and conditions of this lease, the sum
of Fifteen Thousand, Seven Hundred Eighty-Eight Dollars and Seventy-Six cents in
Advance Rent. This Advance Rent shall be returnable to Lessee at expiration
provided that (1) premises have been vacated; (2) Lessor shall have inspected
the premises after such vacation; and (3) Lessee shall have complied with all
the terms, covenants and conditions of this lease, in which event the advance
rent so paid hereunder shall be returned to Lessee; otherwise, said sum
deposited hereunder or any part thereof may be retained by Lessor at his option,
as liquidated damages, or may be applied by Lessor against any actual loss,
damage or injury chargeable to Lessee hereunder or otherwise, if Lessor
determines that such loss, damage or injury exceeds said sum paid. Lessor's
determination of the amount, if any, to be returned to Lessee shall be final.
It is understood that the said deposit is not to be considered as the last
rental due under the lease.
29. HEADINGS NO PART OF LEASE
Any headings preceding the text of the several paragraphs and
sub-paragraphs hereof are inserted solely for convenience of reference and shall
not constitute a part of this lease, nor shall they affect its meaning,
construction or effect.
IN WITNESS WHEREOF, the parties hereto have executed these presents the
day and year first above written, and intend to be legally bound thereby.
SEALED AND DELIVERED IN THE PRESENCE OF:
/s/Michele M. Hoey
__________________________________ __________________________________
MICHELE M. HOEY, LESSOR (Agent)
/s/John E. Hoey
__________________________________ __________________________________
JOHN E. HOEY, LESSOR (Seal)
__________________________________ __________________________________
Attest: PATIENT INFOSYSTEMS, INC. (Seal)
By: /s/Donald A. Carlberg
__________________________________ __________________________________
Secretary DONALD A. CARLBERG, President, (Seal)
Lessee
=======================================
LEASE,
MICHELE HOEY AND JOHN E. HOEY
----------------------------------------
TO
PATIENT INFOSYSTEMS, INC.
----------------------------------------
Premises 2nd Floor of 15 Maple Ave.
-----------------------------
Paoli, PA 19301
Rent, $ See Paragraph 4 per ____________
Commence August 1, 1999
Expires July 31, 2002
John C. Clark Co., Phila.
FOR VALUE RECEIVED ______ hereby assign, transfer and set over unto _________
________________________________________________________________________________
Executors, Administrators, Successors and Assigns, all ________right, title and
interest in the within _________________________________________________________
and all benefit and advantages to be derived therefrom.
WITNESS________hand and seal this ___________day of ________________A.D. 19_____
SEALED AND DELIVERED
IN PRESENCE OF
<PAGE> 1
Exhibit 10.33
[LOGO]
NORWEST BANK IOWA, REVOLVING NOTE
NATIONAL ASSOCIATION
- -------------------------------------------------------------------------------
$1,500,000.00 December 23, 1999
FOR VALUE RECEIVED, Patient Infosystems, Inc. (the "Borrower") promises to pay
to the order of Norwest Bank Iowa, National Association (the "Bank"), at its
principal office or such other address as the Bank or holder may designate from
time to time, the principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND 001100
DOLLARS ($1,500,000.00), or the amount shown on the Bank's records to be
outstanding, plus interest (calculated on the basis of actual days elapsed in a
360-day year) accruing on the unpaid balance at the annual interest rate defined
below. Absent manifest error the Bank's records will be conclusive evidence of
the principal and accrued interest owing hereunder.
This Revolving Note is issued pursuant to a Credit Agreement of even date
herewith between the Bank and the Borrower (the "Agreement"). The Agreement, and
any amendments or substitutions thereto, contain additional terms and conditions
including default and acceleration provisions. The terms of the Agreement are
incorporated into this Revolving Note by reference. Capitalized terms not
expressly defined herein shall have the meanings given them in the Agreement.
INTEREST RATE
BASE RATE OPTION. Unless the Borrower chooses the LIBOR Rate Option as defined
below, the principal balance outstanding under this Revolving Note will bear
interest at an annual rate equal to the Base Rate, floating (the "Base Rate
Option"). The Base Rate is the "base" or " prime" rate of interest established
by the Bank from time to time at its principal office in Des Moines, Iowa.
LIBOR RATE OPTION. Subject to the terms and conditions of the Agreement the
Borrower may elect that all or portions of the principal balance of this
Revolving Note bear interest at the LIBOR Rate plus 1.75% (the "LIBOR Rate
Option"). Specific reference is made to the Section 3 of the Agreement for terms
governing the designation of interest periods and rate portions.
The LIBOR Rate will be computed in accordance with the following formula.
LIBOR Rate = London Interbank Rate
--------------------------
1.00- Reserve Percentage
Where,
(1) "London Interbank Rate" means the average rate at which U.S. Dollar
deposits with a term equal to the applicable LIBOR Interest Period and
in an amount equal to the LIBOR Rate Portion are offered to the Bank on
the London Interbank Market.
(2) "Reserve Percentage" means the Federal Reserve System requirement
(expressed as a percentage) applicable to the dollar deposits used in
calculating the LIBOR Rate above.
REPAYMENT TERMS
INTEREST. Interest will be payable on the last day of each month, beginning
January 31, 2000. Interest accruing under the LIBOR Rate Option will be payable
at the end of the respective LIBOR Interest Period or the last day of each
month, whichever is earlier.
1
<PAGE> 2
PRINCIPAL. Principal, and any unpaid interest, will be payable in a single
payment due on March 31,2001.
PREPAYMENT FEE. Each prepayment of principal amounts bearing interest under the
LIBOR Rate Option, whether voluntary or by reason of acceleration, will be
accompanied by accrued interest on the amount prepaid plus a prepayment fee
equal to the amount, if any, by which:
(1) the additional interest that would have been payable on the
amount prepaid if it had not been paid until the last day of
the applicable interest period, exceeds
(2) the interest that would have been recoverable by the Bank by
reinvesting the amount prepaid from the prepayment date to the
last day of the applicable interest period in U.S. Government
Securities having a maturity date on or about that date.
ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses incurred by
the Bank in the event this Revolving Note is not duly paid. Demand, presentment,
protest and notice of nonpayment and dishonor of this Revolving Note are
expressly waived. This Revolving Note will be governed by the substantive laws
of the State of Iowa.
PATIENT INFOSYSTEMS, INC.
By: /s/ Donald A. Carberg
-----------------------------
Its: President & CEO
-----------------------------
<PAGE> 1
Exhibit 10.34
[LOGO]
NORWEST BANK IOWA,
NATIONAL ASSOCIATION CREDIT AGREEMENT
===============================================================================
THIS AGREEMENT (the "Agreement") dated as of December 23, 1999 (the "Effective
Date") is between Norwest Bank Iowa, National Association (the "Bank") and
Patient Infosystems, Inc. (the "Borrower").
BACKGROUND
The Borrower has asked the Bank to provide a line of credit to be used for
general business purposes.
The Bank is agreeable to meeting the Borrower's request, provided that the
Borrower agrees to the terms and conditions of this Agreement. The Revolving
Note, this Agreement, and all "Security Documents" described in Exhibit A may
collectively be referred to as the "Documents."
In consideration of the promises contained in this Agreement, the Borrower and
the Bank agree as follows:
1. LINE OF CREDIT
1.1 LINE OF CREDIT AMOUNT. During the Line Availability Period defined
below, the Bank agrees to provide a revolving line of credit (the
"Line") to the Borrower. Outstanding amounts under the Line will not,
at any one time, exceed ONE MILLION FIVE HUNDRED THOUSAND DOLLARS AND
00/100 DOLLARS ($1,500,000.00).
1.2 LINE AVAILABILITY PERIOD. The "Line Availability Period" will mean the
period of time from the Effective Date or the date on which all
conditions precedent described in this Agreement have been met,
whichever is earlier, through and including March 31, 2001 (the "Line
Expiration Date").
1.3 ADVANCES. The Borrower's obligation to repay advances made under the
Line will be evidenced by a single promissory note (the "Revolving
Note") dated as of the Effective Date and in form and content
acceptable to the Bank. Reference is made to the Revolving Note for
interest rate and repayment terms.
2. EXPENSES
2.1 ORIGINATION FEE. The Borrower shall pay to the Bank an origination fee
of $2,500.00, which shall be paid at closing, and which shall be deemed
to be earned upon payment by the Borrower.
2.2 DOCUMENTATION EXPENSE. The Borrower agrees to reimburse the Bank for
its reasonable expenses relating to the preparation of the Documents
and any possible future amendments to the Documents, which
reimbursement may include, but shall not be limited to, reimbursement
of reasonable attorneys' fees, including the allocated costs of the
Bank's in-house counsel. Despite such reimbursement the Borrower
acknowledges that the Bank's counsel is engaged solely to represent the
Bank and does not represent the Borrower.
2.3 COLLECTION EXPENSES. In the event the Borrower fails to pay the Bank
any amounts due under this Agreement or under the Documents, the
Borrower will pay all costs of collection, including reasonable
attorneys' fees and legal expenses incurred by the Bank.
<PAGE> 2
3. DISBURSEMENTS AND PAYMENTS
3.1 REQUESTS FOR ADVANCES. Any Line advance permitted under this Agreement
must be requested by telephone or in a writing delivered to the Bank
(or transmitted via facsimile) by any person reasonably believed by the
Bank to be an authorized officer of the Borrower. The Bank will not
consider any such request if there is an event which is, or with notice
or the lapse of time would be, an event of default under this
Agreement. Proceeds will be deposited into the Borrower's account at
the Bank or disbursed in such other manner as the parties agree.
3.2 INTEREST RATE OPTION BASED ON LIBOR. In addition to interest rates
based on the Base Rate Option defined in the Revolving Note, the
Borrower may elect to fix a rate of interest for an agreed upon period
of time and principal amount agreeable to the Bank and Borrower based
upon the margin stated in the Revolving Note and at an interest rate
derived from the current LIBOR rate available to the Bank on national
or international money markets for a similar time period and dollar
amount.
In order to elect the LIBOR Rate Option, as defined in the Revolving
Note, the Borrower must request a quote from the Bank two days prior to
funding. This request must designate an amount (the "LIBOR Rate
Portion") and a period (the "LIBOR Interest Period"). The LIBOR Rate
Portion must be at least $100,000 and the LIBOR Interest Period will be
for 30, 60 or 90 days or such other period to which the parties may
agree. The Bank shall not be obligated to provide a LIBOR rate quote if
it determines that no deposits with an amount and maturity equal to
those for which a quotation has been requested are available to it in
the London interbank market. The Borrower must orally accept a quote
when received or it will be deemed rejected. If accepted, the LIBOR
Rate Option will remain in effect for the LIBOR Interest Period
specified in the quote. At the end of each LIBOR Interest Period the
principal amount subject to the LIBOR Rate Option shall bear interest
at the Base Rate Option (as defined in the Revolving Note).
3.3 PAYMENTS. All principal, interest and fees due under the Documents
shall be paid in immediately available funds as contracted in this
Agreement and no later than the payment due date set forth in the
statement mailed to the Borrower by the Bank. Should a payment come due
on a day other than a day on which the Bank is open for substantially
all of its business (a "Banking Day", except as otherwise provided),
then the payment shall be made no later than the next Banking Day. For
amounts bearing interest at the LIBOR Rate (if any) a Banking Day is a
day on which the Bank is open for substantially all of its business and
on which dealings in U.S. dollar deposits are carried on in the London
interbank market.
4. SECURITY
All amounts due under this Agreement and the Documents will be secured
as provided in Exhibit A. The Borrower also hereby grants the Bank a
security interest (independent of the Bank's right of set-off) in its
deposit accounts at the Bank and in any other debt obligations of the
Bank to the Borrower.
5. CONDITIONS PRECEDENT
The Borrower must deliver to the Bank the documents described in
Exhibit A, properly executed and in form and content acceptable to the
Bank, prior to the Bank's initial advance or disbursement under this
Agreement.
2
<PAGE> 3
6. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the
best of its knowledge and upon due inquiry, makes the representations
and warranties contained in Exhibit B. Each request for an advance
under this Agreement constitutes a reaffirmation of these
representations and warranties.
7. COVENANTS
During the time period that credit is available under this Agreement,
and thereafter until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, the Borrower
agrees to:
7.1 FINANCIAL INFORMATION
(a) ANNUAL FINANCIAL STATEMENTS. Provide the Bank within 120 days of the
Borrower's fiscal year end, the Borrower's annual audited financial
statements.
(b) NOTICES. Provide the Bank prompt written notice of (1) any event which
has or might after the passage of time or the giving of notice, or
both, constitute an event of default under the Documents, or (2) any
event that would cause the representations and warranties contained in
this Agreement to be untrue.
(c) ADDITIONAL INFORMATION. Provide the Bank with such other information as
it may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
7.2 OTHER COVENANTS
(a) NATURE OF BUSINESS. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(b) BOOKS AND RECORDS. Maintain adequate books and records and refrain from
making any material changes in its accounting procedures whether for
tax purposes or otherwise.
(c) COMPLIANCE WITH LAWS. Comply in all material respects with all laws
applicable to its business and the ownership of its property.
(d) PRESERVATION OF RIGHTS. Maintain and preserve all rights, privileges,
charters and franchises it now has, excluding sale of assets in the
ordinary course of business and the loss of a management contract with
independent physicians.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a
covenant is an indication that the risk of the transaction has
increased. As consideration for any waiver or modification of these
covenants, the Bank may require: additional collateral, guaranties or
other credit support; higher fees or interest rates; and possible
modifications to the Documents and the monitoring of the Agreement. The
waiver or modification of any covenant that has been violated by the
Borrower will be made in the sole discretion of the Bank. These options
do not limit the Bank's right to exercise its rights under Section 8 of
this Agreement.
3
<PAGE> 4
8. EVENTS OF DEFAULT AND REMEDIES
8.1 DEFAULT
Upon the occurrence of any one or more of the following events of
default, or at any time afterward unless the default has been cured,
the Bank may declare the Line to be terminated and in its discretion
accelerate and declare the unpaid principal, accrued interest and all
other amounts payable under the Revolving Note to be immediately due
and payable:
(a) Default by the Borrower in the payment when due of any principal or
interest due under the Revolving Note and continuance for twenty (20)
days.
(b) Default by the Borrower in the observance or performance of any
covenant or agreement contained in this Agreement, and continuance for
more than twenty (20) days.
(c) Default by the Borrower in the observance or performance of any
covenant or agreement contained in the Documents, or any of them,
excluding this Agreement, after giving effect to any applicable grace
period.
(d) Default by the Borrower in an amount exceeding $100,000.00 in any
agreement with the Bank or any other lender that relates to
indebtedness or contingent liabilities which would allow the maturity
of such indebtedness to be accelerated.
(e) Any representation or warranty made by the Borrower to the Bank in this
Agreement, or in any financial statement or report submitted to the
Bank by or on behalf of the Borrower or by or on behalf of the
Guarantor before or after the Effective Date is untrue or misleading in
any material respect.
(f) Any litigation or governmental proceeding against the Borrower seeking
an amount that would have a material adverse effect on the Borrower or
the Borrower's operations and which is not insured or subject to
indemnity by a solvent third party either 1) results in a judgment
equal to or in excess of that amount against the Borrower or 2) remains
unresolved on the 270th day following its filing.
(g) A garnishment, levy or writ of attachment, or any local, state, or
federal notice of tax lien or levy is served upon the Bank for the
attachment of property of the Borrower in the Bank's possession or
indebtedness owed to the Borrower by the Bank.
(h) The Guarantor dies or becomes insolvent or is the subject of a
voluntary or involuntary petition under the United States Bankruptcy
Code, or the Guarantor is in default with respect to any liabilities or
indebtedness owed to the Bank which would permit the Bank to accelerate
his indebtedness.
(i) The issuer of any one of the Standby L/Cs described in Exhibit A is
placed into receivership by the FDIC or advises the Bank that it
intends to repudiate its obligations to the Bank under the Standby L/C
issued by it.
8.2 IMMEDIATE DEFAULT
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, then the Line shall immediately terminate and the
unpaid principal, accrued interest and all other amounts payable under
the Revolving Note and the Documents will become immediately due and
payable without notice or demand.
4
<PAGE> 5
9. MISCELLANEOUS
(a) 360 DAY YEAR. All interest and fees due under this Agreement will be
calculated on the basis of actual days elapsed in a 360 day year.
(b) GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all calculations for compliance
with financial covenants will be made using generally accepted
accounting principles consistently applied ("GAAP").
(c) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are cumulative
and not exclusive of any remedies provided by law.
(d) AMENDMENTS OR MODIFICATIONS. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed
by the Bank.
(e) BINDING EFFECT: ASSIGNMENT. This Agreement and the Documents are
binding on the successors and assigns of the Borrower and Bank. The
Borrower may not assign its rights under this Agreement and the
Documents without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the Documents and
exchange financial information about the Borrower with actual or
potential participants or assignees.
(f) IOWA LAW. This Agreement and the Documents will be governed by the
substantive laws of the State of Iowa.
(g) SEVERABILITY OF PROVISIONS. If any part of this Agreement or the
Documents are unenforceable, the rest of this Agreement or the
Documents may still be enforced.
(h) INTEGRATION. This Agreement and the Documents describe the entire
understanding and agreement of the parties and supersedes all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERNS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE ALSO APPLIES TO ANY OTHER CREDIT AGREEMENTS (EXCEPT CONSUMER LOANS
OR OTHER EXEMPT TRANSACTIONS) NOW IN EFFECT BETWEEN YOU AND THIS LENDER. BY
SIGNING BELOW THE BORROWER HEREBY ACKNOWLEDGES THAT IT HAS RECEIVED COPIES OF
THIS AGREEMENT AND ALL OTHER DOCUMENTS.
5
<PAGE> 6
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Iowa, Patient Infosystems, Inc.
National Association 46 Prince Street
666 Walnut Street, P.O. Box 837 Rochester, NY 14607
Des Moines, Iowa 50304-0837 Attention: /s/ Donald A. Carberg
----------------------
Attention: Randall R. Stromley, With a copy to:
Vice President
John Pappajohn
c/o Equity Dynamics
2116 Financial Center
666 Walnut Street
Des Moines, Iowa 50309
NORWEST BANK IOWA, By: /s/ Donald A. Carberg
NATIONAL ASSOCIATION ----------------------------
By: /s/ Randall R. Stromley Its: President & CEO
------------------------------- ---------------------------
Randall R. Stromley, Vice President
PATIENT INFOSYSTEMS, INC.
6
<PAGE> 7
EXHIBIT A
CONDITIONS PRECEDENT TO INITIAL ADVANCE
NOTE
The Revolving Note
SECURITY DOCUMENTS
STANDBY LETTERS OF CREDIT. Standby letters of credit (each standby letter of
credit a "Standby L/C") issued by banking institutions acceptable to the Bank
upon the application of each of the following individuals as account party in
the following amount, naming the Bank as beneficiary thereunder: 1) John
Pappajohn, $750,000.00; 2) Derace L. Schaffer, $750,000. Each Standby L/C will
support the obligations of the Borrower under the Revolving Note.
Each Standby L/C shall bear an expiry date of April 30, 2001, and shall permit
the Bank to draw upon it in an amount equal to the amount of the Standby L/C on
the 20th day following a default by the Borrower under the Revolving Note or at
any time on or after March 31, 2001.
PERSONAL GUARANTY OF JOHN PAPPAJOHN. The unconditional personal Guaranty of John
Pappajohn. Pursuant to the Guaranty, the Guarantor guarantees a maximum of
$80,000.00 principal indebtedness, plus accrued interest on the full amount of
the Line, plus collection costs.
SECURITY AGREEMENT OF BORROWER. A Security Agreement signed by the Borrower,
granting the Bank a first lien security interest in the Borrower's accounts,
inventory, equipment and general intangibles described in that Agreement,
together with one or more UCC-1 Financing Statements sufficient to perfect the
security interest granted to the Bank in each jurisdiction where such property
is located.
AUTHORIZATION
CORPORATE CERTIFICATE OF AUTHORITY. A certificate of the Borrower's corporate
secretary as to the incumbency and signatures of the officers of the Borrower
signing the Documents and containing a copy of resolutions of the Borrower's
board of directors authorizing execution of the Documents and performance in
accordance with the terms of the Agreement.
ORGANIZATION
ARTICLES OF INCORPORATION AND BY - LAWS. A certified copy of the Borrower's
Articles of Incorporation and By-Laws and any amendments, if applicable.
CERTIFICATE OF GOOD STANDING. A copy of the Borrower's Certificate of Good
Standing, recently certified by the Delaware Secretary of State.
OTHER
ARBITRATION AGREEMENT. The Bank's standard form of Arbitration Agreement dated
December 23, 1999 signed by the Bank and Borrower, subjecting to binding
arbitration potential controversies between the Bank and Borrower relating to
the Documents and the Agreement, as more fully described in the Arbitration
Agreement.
7
<PAGE> 8
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
ORGANIZATIONAL STATUS. The Borrower is a corporation duly formed and in good
standing under the laws of the State of Delaware.
AUTHORIZATION. This Agreement, and the execution and delivery of the Documents
required hereunder, is within the Borrower's powers, has been duly authorized
and does not conflict with any of its organizational documents or any other
agreement by which the Borrower is bound, and has been signed by all persons
authorized and required to do so under its organizational documents.
LITIGATION. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business, except those disclosed in
Exhibit C attached hereto.
TAXES. The Borrower has paid when due all federal, state and local taxes.
NO DEFAULT. Except as otherwise disclosed to the Bank prior to the date hereof,
there is no event which is, or with notice or the lapse of time would be, an
event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with ERISA and has
received no notice to the contrary from the PBGC or other governmental entity.
ENVIRONMENTAL MATTERS. (1) The Borrower is in compliance in all material
respects with all health and environmental laws applicable to the Borrower and
its operations and knows of no conditions or circumstances that could interfere
with such compliance in the future; (2) the Borrower has obtained all
environmental permits and approvals required by law for the operation of its
business; and (3) the Borrower has not identified any "recognized environmental
conditions", as that term is defined by the American Society for Testing and
Materials in its standards for environmental due diligence, which could subject
the Borrower to enforcement action if brought to the attention of appropriate
governmental authorities.
8
<PAGE> 1
Exhibit 10.35
[LOGO]
NORWEST BANK IOWA,
NATIONAL ASSOCIATION SECURITY AGREEMENT
===============================================================================
Norwest Bank Iowa, Patient Infosystems, Inc.
National Association 46 Prince Street
666 Walnut Street, PO Box 837 Rochester, NY 14607
Des Moines, Iowa 50304 (the "Borrower")
(the "Bank")
December 23, 1999
1. SECURITY INTEREST AND COLLATERAL. To secure payment of the Obligations (as
defined below), the Borrower hereby enters into this Security Agreement (the
"Agreement") and grants to the Bank a security interest (the "Security
Interest") in the Collateral (defined below).
"Obligations" means every present and future debt, liability, and obligation
which the Borrower may owe to the Bank, whether direct or indirect, due or
unmatured, absolute or contingent, primary or secondary, or joint, several or
joint and several, and whether it arises with or without documents, such as
deposit account overdrafts and charges, and including all extensions, renewals,
amendments or replacements of such debt, liability, or obligation.
"Collateral" means the following property, excluding consumer goods, in which
the Borrower now has or hereafter acquires an interest:
(a) "INVENTORY". All inventory held for sale or lease or supply under a service
contract, or which constitutes work in process or materials used or consumed in
the Borrower's business.
(b) "EQUIPMENT". All equipment including but not limited to all machinery,
vehicles, furniture, appliances, fixtures, manufacturing and processing
equipment, shop equipment, office and recordkeeping equipment, computer hardware
and software, and parts and tools.
(c) "GENERAL INTANGIBLES". All general intangibles including but not limited to
applications for patents, patents, copyrights, trademarks, trade secrets,
goodwill, trade names, customer lists, permits, franchises, contracts, and the
right to use the Borrower's name, together with all other intangible property
rights such as the right to redeem or accept payment under an annuity contract
or a non-negotiable certificate of deposit issued by a bank.
(d) "ACCOUNTS AND OTHER RIGHTS TO PAYMENT". All rights of the Borrower to the
payment of money, whether arising out of a sale, lease, or other disposition of
goods or other property by the Borrower, out of a rendering of services by or
loan from the Borrower, out of the overpayment of taxes or other liabilities of
the Borrower, or otherwise arising under any contract or agreement, whether
earned by performance or not, together with all other rights and interests
(including all liens and security interests) which the Borrower may at any time
have by law or agreement against the person or property of any account debtor or
obligor, including but not limited to all present and future debt instruments,
chattel papers, accounts, contract rights, loans and other obligation
receivable, unearned insurance premiums, rebates, and negotiable documents.
The Collateral shall also include, as applicable, all (i) products of the
Collateral; (ii) substitutions and replacements for the Collateral; (iii)
proceeds from the sale or disposition of the Collateral, including insurance
proceeds and any rights of subrogation resulting from the damage or destruction
of the Collateral; and (iv) for Collateral that is tangible, all additions,
increases,
1
<PAGE> 2
improvements, accessories, attachments, parts, equipment and repairs now or in
the future attached to or used in connection with such Collateral, and any
warehouse receipts, bills of lading or other documents of title now or in the
future evidencing the Borrowers ownership of the Collateral.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Borrower represents, warrants and
agrees that:
(a) Borrower is a corporation whose chief executive office is located at 46
Prince Street, Rochester, New York, 14607, and that this Agreement has been
authorized by all necessary corporate action.
(b) The Collateral will be primarily used for business purposes.
(c) Borrower has and will have title to each item of Collateral free and clear
of all security interests and other encumbrances, except:
(i) the Security Interest;
(ii) liens for taxes not delinquent or which the Borrower is
contesting in good faith;
(iii) liens securing purchase money indebtedness to the extent
consented to in writing in advance by the Bank;
(iv) liens held by those persons described on attached Exhibit A
in the order of priority described therein.
The Borrower will defend the Collateral against the claims of all persons except
the Bank. Borrower will not dispose of any interest in the Collateral without
the prior written consent of the Bank, except that, until the occurrence of an
Event of Default and the revocation by the Bank of Borrower's right to do so,
Borrower may sell Inventory in the ordinary course of business.
(d) Borrower will execute and deliver to the Bank financing statements and any
other documents that the Bank may require to perfect its Security Interest in
the Collateral, and will not permit any tangible Collateral to be located in
any state and/or county in which a financing statement perfecting such
Collateral is required to be but has not been filed. Borrower agrees that the
Bank may alternatively execute financing statements to perfect the Security
Interest in the Collateral where permitted by law.
(e) Each Account and each document is (or will be when arising or issued) the
valid and legally enforceable obligation, subject to no defense, set-off or
counterclaim (other than those arising in the ordinary course of business) of
the obligor shown by the Borrower's records to be obligated to pay such Account.
Borrower will not agree to the material modification or cancellation of any such
right to payment without the Bank's prior written consent, and will not
subordinate any such Account or right to payment to any other claim.
(f) Borrower will at all times:
(i) keep all tangible Collateral in good working order and
condition, normal depreciation excepted;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon Collateral;
(iii) permit the Bank to examine or inspect any Collateral, wherever
located, and to examine, inspect and copy Borrower's books and records
pertaining to the Collateral and
2
<PAGE> 3
Borrower's business, and to request verifications from account obligors of
amounts owed to Borrower;
(iv) keep accurate and complete records regarding the Collateral and
Borrower's business and financial condition and provide the Bank such periodic
reports of condition as the Bank may reasonably request;
(v) promptly notify the Bank of any loss of or material damage to any
Collateral or of any adverse change known to Borrower regarding the prospect of
payment on any Account;
(vi) upon Bank's request, promptly deliver to the Bank any instrument,
document or chattel paper constituting Collateral, duly endorsed or assigned by
Borrower;
(vii) keep all tangible Collateral insured against loss and damage,
including risks of fire (including extended coverage), theft, collision (in case
of Collateral consisting of motor vehicles) and such other risks in such amounts
as the Bank may reasonably request, with any loss payable to the Bank to the
extent of its interest and with the commitment of the insurer to notify the Bank
before cancellation;
(viii) pay when due or reimburse the Bank on demand for all costs of
collection of the Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorney's fees) incurred by the Bank in connection
with this Agreement and the Obligations, including expenses incurred in any
litigation or bankruptcy proceedings;
(ix) prevent the Collateral from being used or kept in violation of all
applicable law;
(x) obtain a waiver or consent from the owner and any mortgagee of any
real property where the Collateral may be located that provides that the
Security Interest will at all times be senior to any such interest or lien.
(g) If Borrower breaches any covenant or warranty in this Agreement, and the
breach or failure continues for a period of ten calendar days after the Bank
gives written notice (or, in the case of the agreement contained in clause (vii)
of Section 2(f), immediately upon the occurrence of such failure, without notice
or lapse of time), the Bank may in its discretion perform or observe such
agreements in the Borrower's or the Bank's name, and may take any other actions
which the Bank deems necessary to cure or correct such failure. Borrower shall
reimburse the Bank on demand for all costs and expenses (including reasonable
attorneys' fees) incurred by the Bank in performing or observing such
agreements. If the Borrower fails to reimburse the Bank upon demand, the Bank
may cause such amounts to be advanced or added to any of the Obligations secured
hereunder, which will bear interest at the highest rate provided under the note
designated for this purpose by the Bank at the time of the advance.
(h) Borrower irrevocably appoints the Bank or its delegate as attorney-in-fact
of Borrower with the right (but not the duty) to execute, deliver, endorse or
file, in the name and on behalf of Borrower, any instruments, documents,
financing statements, applications for insurance or other agreements required of
Borrower under Section 2 at any time following an Event of Default.
Following an Event of Default, the Bank may in its discretion enforce any rights
of the Borrower under any contract of insurance, and in the Borrower's or the
Bank's name, execute and deliver proofs of claim, receive payment of proceeds,
endorse checks and other instruments representing payment of such proceeds, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
3. EVENTS OF DEFAULT. Each of the following occurrences shall constitute an
event of default under this Agreement (each an "Event of Default"):
3
<PAGE> 4
(a) the Borrower fails to make any payment of principal or interest due under
any of the Obligations or the Borrower is otherwise in default with respect to
any of the Obligations, and any applicable grace period stated therein, if any,
has lapsed and the indebtedness has been accelerated and is fully due and
payable; or
(b) the Borrower fails to observe or perform any of the covenants or agreements
contained in this Agreement, after giving effect to any applicable grace period,
if any; or
(c) any representation or warranty by the Borrower set forth in this Agreement
or made to the Bank in any financial statements or reports submitted to the Bank
by or on behalf of Borrower is materially false or misleading.
4. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of Default
and at any time thereafter, the Bank may exercise any one or more of the
following rights and remedies:
(a) declare all unmatured Obligations to be immediately due and payable, without
presentment or other notice or demand;
(b) exercise all rights available upon default to a secured party under the
Uniform Commercial Code. The Bank may require Borrower to make the Collateral
available to the Bank at a place to be designated by the Bank which is
reasonably convenient to both parties, and if notice to Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given in the manner specified in this Agreement at least 10 calendar days prior
to the date of any public sale or disposition or the date after which any
private sale may occur;
(c) exercise any or all other rights available to the Bank by law or agreement
against the Collateral, the Borrower or any other person or property.
The Bank shall not be obligated to preserve any rights Borrower may have against
prior parties, to liquidate or realize on the Collateral at all or in any
particular manner or order, or apply any cash proceeds of Collateral in any
particular order.
5. OTHER PERSONAL PROPERTY. Unless at the time the Bank takes possession of any
tangible Collateral, or at any time within seven days thereafter, the Borrower
gives the Bank written notice of the existence of property belonging to the
Borrower that does not constitute Collateral, but which is located or found upon
or within such Collateral, together with a description of such property, the
Bank shall not be responsible or liable to the Borrower with respect to such
property unless it has actual knowledge of its existence and location upon or in
such Collateral.
6. LOCK BOX, COLLATERAL ACCOUNT. Upon the Bank's request following an Event of
Default, the Borrower will direct each obligor on an account to make payments to
a special lock box under the control of the Bank. Borrower authorizes and
directs the Bank to deposit into a special collateral account to be established
and maintained with the Bank all checks, drafts and cash payments, received in
said lock box. All deposits to this collateral account shall constitute
Collateral and shall not constitute payment of any Obligation. At its option,
the Bank may, at any time, apply collected funds on deposit in the collateral
account to the payment of the Obligations in such order of application as the
Bank may determine, or permit the Borrower to withdraw all or part of the
balance of the collateral account. If a collateral account is established,
Borrower agrees that it will promptly deliver to the Bank for deposit into the
collateral account all payments on Accounts. All such payments shall be
delivered to the Bank in the form received (except for Borrower's endorsement
where necessary). Until deposited, all payments on Accounts received by Borrower
shall be held in trust by the Borrower as the property of the Bank, and shall
not be commingled with any funds or property of the Borrower.
4
<PAGE> 5
7. COLLECTION RIGHTS OF THE BANK. In addition to its rights under Sections 4 and
6, the Bank may, at any time following an Event of Default, notify any account
obligor or any other person obligated to pay any amount due with respect to an
Account to make payment directly to the Bank. Upon the Bank's request, Borrower
will notify such account obligors and other obligors in writing and will state
on all invoices to such account obligors or other obligors that the amount due
is payable directly to the Bank. At any time after the Bank or Borrower gives
such notice to an account obligor or other obligor, the Bank may, in its
discretion, and in its own name or in Borrower's name, demand, sue for, collect
or receive any money or property at any time payable or receivable on account
of, or securing, any such chattel paper, account, or other right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive or change the obligations (including collateral obligations) of
any such account obligor or other obligor.
8. AMENDMENTS. This Agreement can be waived, amended or terminated and the
Security Interest released, only in an express writing signed by the Bank. A
waiver signed by the Bank shall be effective only in the specific instance and
for the specific purpose given.
9. NO WAIVER; CUMULATIVE REMEDIES. Delay or failure to act shall not preclude
the exercise or enforcement of any of the Bank's rights or remedies. All rights
of the Bank shall be cumulative and may be exercised singularly or concurrently,
at the Bank's option, and the exercise of any one such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of any other.
10. NOTICES. All notices to be given to Borrower shall be deemed sufficiently
given if delivered or mailed to the Borrower at the above address or at the most
recent address shown on the Bank's records.
11. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of Borrower and the Bank and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Borrower and delivered to the Bank. A photographic or other reproduction of this
Agreement or of any financing statement signed by the Borrower shall have the
same force and effect as the original.
12. APPLICABLE LAW; SEVERABILITY. Except to the extent otherwise required by
law, this Agreement shall be governed by the laws of the state in which the
Bank's main office is located. If any provision or application of this Agreement
is unenforceable in any respect, such unenforceability shall not affect other
provisions of this Agreement.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
14. INTEGRATION. This Agreement represents the entire understanding of the Bank
and Borrower with respect to the Collateral and supersedes all prior oral or
written agreements between the parties relating to the Collateral.
IN WITNESS WHEREOF, this Agreement was executed the day and
year first above
PATIENT INFOSYSTEMS, INC.
By: /s/ Donald A. Carberg
------------------------------
Title: President & CEO
------------------------------
5
<PAGE> 1
EXHIBIT 10.36
[LOGO]
NORWEST BANK IOWA,
NATIONAL ASSOCIATION ARBITRATION AGREEMENT
================================================================================
Norwest Bank Iowa, Patient Infosystems, Inc.
National Association 46 Prince Street
666 Walnut Street, P.O. Box 837 Rochester, NY 14607
Des Moines, Iowa 50304-0837 (the "Borrower")
(the "Bank")
December 23, 1999
1. AGREEMENT TO ARBITRATE. The Bank and Borrower agree to submit to binding
arbitration by the American Arbitration Association (the "AAA") of all claims,
disputes and controversies (whether in tort, contract, or otherwise, except
"core proceedings" under the U.S. Bankruptcy Code) arising between themselves
and their respective employees, officers, directors, attorneys and other agents,
which relate in any way without limitation to existing and future loans and
extensions of credit or requests for additional credit including by way of
example but not by way of limitation the negotiation, collateralization,
administration, repayment, modification, default, termination and enforcement of
such loans or extensions of credit.
2. RULES GOVERNING ARBITRATION. Arbitration under this Agreement will be
governed by the Federal Arbitration Act and proceed in Des Moines, Iowa in
accordance with AAA Rules.
3. SELECTION OF ARBITRATOR. Arbitration will be conducted before a single
neutral arbitrator selected in accordance with AAA Rules and who shall be an
attorney who has practiced commercial law for at least ten years.
4. STATUTES OF LIMITATION AND PROCEDURAL ISSUES. The arbitrator will determine
whether an issue is arbitratable and will give effect to applicable statutes of
limitation. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction. The arbitrator has the discretion to decide, upon documents
only or with a hearing, any motion to dismiss for failure to state a claim or
any motion for summary judgment. The institution and maintenance of an action
for judicial relief or for any provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
5. DISCOVERY. Discovery will be governed by the Iowa Rules of Civil Procedure.
Discovery must be completed at least 20 days before the hearing date and within
180 days of the commencement of arbitration. Each request for an extension and
all other discovery disputes will be determined by the arbitrator upon a showing
that the request is essential for the party's presentation and that no
alternative means for obtaining information are available during the initial
discovery period.
6. EXCEPTIONS TO ARBITRATION. This Agreement does not limit the right of either
party to a) foreclose against real or personal property collateral; b) exercise
self-help remedies such as setoff or repossession; c) obtain provisional
remedies such as replevin, injunctive relief, attachment or the appointment of a
receiver during the pendency or before or after any arbitration proceeding; or
d) obtain a cognovit judgment, if available. These exceptions do not constitute
a waiver of the right or obligation of either party to submit any dispute to
arbitration, including those arising from the exercise of these remedies.
1
<PAGE> 2
7. Arbitration Costs and Fees. The arbitrator will award costs and expenses in
accordance with the provisions of the documents evidencing each loan or
extension of credit.
NORWEST BANK IOWA,
NATIONAL ASSOCIATION PATIENT INFOSYSTEMS, INC.
By: /s/Randall R. Stromley By: /s/ Donald A. Carberg
---------------------------------- ---------------------------------
Randall R. Stromley, Vice President
<PAGE> 1
Exhibit 10.37
Uniform Commercial Code - FINANCING STATEMENT - FORM UCC-1
REORDER FROM REGISTRE, INC.
514 PIERCE ST.
P.O. BOX 218
ANOKA, MN 55303
(612) 421-1713
<TABLE>
IMPORTANT - READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM.
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
This FINANCING STATEMENT No of Additional 3. [ ] The Debtor is a transmitting utility.
is presented to a Filing Sheets Presented:
Officer for filing pursuant
to the Uniform Commercial Code.
- ----------------------------------------------------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) 2. Secured Party(ies) 4. For Filing Officer; Date, Time.
and Address(es): Name(s) and Address(s) No. Filing Office
Patient Infosystems, Inc. Norwest Bank Iowa,
46 Prince Street National Association
Rochester, NY 14607 666 Walnut Street
Des Moines, IA 50309
- ------------------------------------------------------------------------------------------------------------------------------
5. This Financing Statement covers the following types (or items) of property: 6. Assignee(s) of Secured party and Address(es)
See Exhibit A attached
7. [ ] The described crops are growing or
to be grown on:*
[X] Products of the Collateral are also covered [ ] The described goods are or are to be
- -------------------------------------------------------------------------------- affixed to:*
8. Describe Real Estate Here: [ ] This statement is to be 9. Name of [ ] The lumber to be cut or minerals or the
indexed in the Real a Record like (including oil and gas) is on:*
Estate Records: Owner * (Describe Real Estate Below)
------------------------------------------------------------------
No & Street Town or City County Section Block Lot
- --------------------------------------------------------------------------------
10. This statement is filed without the debtor's signature to perfect a
security interest in collateral (check appropriate box)
[ ] under a security agreement signed by debtor authorizing secured
party to file this statement, or
[ ] which is proceeds of the original collateral described above in which
a security interest was perfected, or
[ ] acquired after a change of name, identity or corporate structure
of the debtor, or [ ] as to which the filing has lapsed, or
already subject to a security interest in another jurisdiction:
[ ] when the collateral was brought into the state, or [ ] when the
debtor's location was changed to this state.
</TABLE>
Patient Infosystems, Inc.
- ---------------------------------- ---------------------------------
By /s/ Donald A. Carberg By
-------------------------------- --------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
(1) Filing Officer Copy - Numerical
(5/82) STANDARD FORM - FORM UCC-1 - Approved by Secretary of New York
<PAGE> 2
===============================================================================
[LOGO: NORWEST BANKS]
DESCRIPTION OF
COLLATERAL
- --------------------------------------------------------------------------------
EXHIBIT A TO FINANCING STATEMENT
Debtor: Patient Infosystems, Inc.
------------------------------------------------------------------------
Secured Party: Norwest Bank Iowa, National Association
-------------------------------------------------------------------
THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES OR ITEMS OT PROPERTY (THE
"COLLATERAL"):
[X] (a) All inventory of Debtor, whether now owned or hereafter acquired and
wherever located;
[X] (b) All equipment of Debtor, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture fixtures, manufacturing equipment farm machinery
and equipment, shop equipment office and recordkeeping equipment pans
and tools, and the goods described in any equipment schedule or list
furnished to Secured Party by Debtor (but no such schedule or list need
be furnished in order for the security interest to be valid as to all
of Debtor's equipment).
[ ] (c) All farm products of Debtor, whether now owned or hereafter acquired,
including but not limited to (i) all poultry and livestock and their
young, products thereof and produce thereof, (ii) all crops, whether
annual or perennial, and the products thereof, and (iii) all feed,
seed, fertilizer, medicines and other supplies used or produced by
Debtor in farming operations, (iv) any crop insurance payments and any
government farm support payments, including any diversion or deficiency
payments. The real estate concerned with the above described crops
growing or to be grown is:____________________________________________
_______________________________________________________________________
and the name of the record owner is:___________________________________
[X] (d) Each and every right of Debtor to the payment of money, whether such
right to payment now exists or hereafter arises, whether such right to
payment arises out of a sale, lease or other disposition of goods or
other property by Debtor, out of a rendering of services by Debtor, out
of a loan by Debtor, out of the overpayment of taxes or other
liabilities of Debtor, or otherwise arises under any contract or
agreement whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens and
security interests) which Debtor may at any time have by law or
agreement against any account debtor or other obligor obligated to make
any such payment or against any of the property of such account debtor
or other obligor; including but not limited to all present and future
debt instruments, chattel paper, loans and obligations receivable and
tax refunds.
[X] (e) All general intangibles of Debtor, whether now owned or hereafter
acquired, including, but not limited to, applications for patents,
copyrights, trademarks, trade secrets, good will, trade names,
customers lists, permits and franchises, and the right to use Debtor's
name.
REGARDLESS OF WHICH BOXES ARE CHECKED ABOVE, THIS FINANCING STATEMENT ALSO
COVERS:
All substitutions and replacements for and products of any of the
foregoing property not constituting consumer goods and proceeds of any
and all of the foregoing property and, in the case of all tangible
Collateral, together with all accessions and, except in the case of
consumer goods, together with (i) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used
in connection with any such goods, and (il) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering
such goods.
<PAGE> 1
Exhibit 10.38
[LOGO: NORWEST]
NORWEST BANK IOWA,
NATIONAL ASSOCIATION FIRST AMENDMENT
===============================================================================
THIS FIRST AMENDMENT (the "First Amendment") dated to be effective as of March
21, 2000 is between Norwest Bank Iowa, National Association (the "Bank") and
Patient Infosystems, Inc. (the "Borrower").
BACKGROUND
The Borrower and the Bank entered into a Credit Agreement dated as of December
23, 1999 (the "Agreement"), pursuant to which the Bank extended to the Borrower
a committed revolving line of credit (the "Line"). Borrowings under the Line are
evidenced by a promissory note dated as of December 23, 1999 (the "December 1999
Revolving Note").
The Borrower has now requested that the Bank increase the amount of credit
available under the Line to TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS
($2,500,000.00). The Bank is willing to grant this request, subject to the terms
and conditions of this First Amendment. Capitalized terms not otherwise defined
in this First Amendment shall have the meaning given them in the Agreement.
In consideration of the above premises, the Bank and the Borrower agree that the
Agreement is hereby amended as of the date of this First Amendment as follows:
1. Section 1.1 of the Agreement is hereby deleted in its entirety and restated
as follows:
"1.1 LINE OF CREDIT AMOUNT. During the Line Availability Period
defined below, the Bank agrees to provide a revolving line of
credit (the "Line") to the Borrower. Outstanding amounts under
the Line will not, at any one time, exceed TWO MILLION FIVE
HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00)."
2. To evidence increased borrowings under the Line, the Borrower will modify the
December 1999 Revolving Note by executing and delivering to the Bank a note
modification agreement in form and content acceptable to the Bank (the" Note
Modification Agreement"). Each reference in the Agreement to the Revolving Note
shall be deemed to refer to the December 1999 Revolving Note as modified by the
Note Modification Agreement.
3. In consideration of increased availability under the Line, the Bank has
required additional credit support, which John Pappajohn and Derace L. Schaffer
have agreed to provide. Therefore, as an additional condition precedent to the
obligation of the Bank to provide additional credit under the Line, the Borrower
will deliver, or cause to be delivered to the Bank letters of credit issued by
banking institutions acceptable to the Bank for the benefit of the Bank as
beneficiary, in the amount of $1,000,000.00. Until such time that the Bank
receives such letters of credit, and until such time as the Borrower has
otherwise complied with all other terms of the Agreement as amended by this
First Amendment, the Bank will have no obligations under this Amendment to honor
requests for additional credit under the increased Line. The description of
"Standby Letters of Credit" described on Exhibit A to the Agreement shall be
amended to reflect the terms of this paragraph.
4. The Borrower hereby represents and warrants to the Bank as follows:
A. The Agreement as amended by this First Amendment remains in
full force and effect.
<PAGE> 2
B. The Borrower has no knowledge of any default under the
terms of the Agreement or the Revolving Note, or of any event that with
notice or the lapse of time or both would constitute a default under
the Agreement or the Revolving Note.
C. The execution, delivery and performance of this First
Amendment and all related documentation described in this First
Amendment are within its corporate powers, have been duly authorized
and are not in contravention of law or the terms of the Borrower's
articles of incorporation or bylaws, or of any undertaking to which the
Borrower is a party or by which it is bound.
D. The resolutions set forth in the Corporate Certificate of
Authority dated December 21, 1999 and delivered by the Borrower to the
Bank have not been amended or rescinded, and remain in full force and
effect.
6. Except as modified by this First Amendment, the Agreement remains unchanged
and in full force and effect.
7. The Borrower and the Guarantor each acknowledge receipt of a copy of the
Agreement and this First Amendment and all related documents referenced therein
and executed by the Borrower and the Guarantor in connection with the Agreement
and the indebtedness of the Borrower to the Bank under the Agreement.
IN WITNESS WHEREOF, the Bank and Borrower have executed this First Amendment as
of the date and year first above written.
NORWEST BANK IOWA,
NATIONAL ASSOCIATION PATIENT INFOSYSTEMS, INC.
/s/ Randall R. Stromley By: /s/ Donald A. Carberg
Randall R. Stromley ------------------------------
Vice President Its: President & CEO
-----------------------------
<PAGE> 3
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR JOHN PAPPAJOHN
John Pappajohn acknowledges that he has reviewed the terms of the above
Agreement and agrees that his Guaranty dated as of December 23, 1999, will
continue to support the Borrower's obligations under the Agreement as amended by
the above First Amendment.
Date:
------------------------------- ----------------------------------
John Pappajohn
<PAGE> 1
Exhibit 10.39
[LOGO-NORWEST]
NORWEST BANK IOWA, NOTE MODIFICATION
NATIONAL ASSOCIATION AGREEMENT
===============================================================================
MARCH 21, 2000
THIS NOTE MODIFICATION AGREEMENT (the "Note Modification Agreement") is dated to
be effective March 21, 2000 between Norwest Bank Iowa, National Association (the
"Bank") and Patient Infosystems, Inc. (the "Borrower").
REFERENCE IS HEREBY MADE to a First Amendment of even date amending a Credit
Agreement entered into between the Bank and the Borrower dated as of December
23, 1999 (as amended, the "Agreement"), and the promissory note referenced in
the Agreement that was given by the Borrower to the Bank dated as of December
23, 1999 (the "December 1999 Revolving Note"). Capitalized terms not expressly
defined herein shall have the meanings given them in the Agreement. The Borrower
has requested that the Bank increase the amount of credit available under the
Line to $2,500,000.00. The Bank is agreeable to meeting the Borrower's requests,
subject to the Borrower's execution of this Note Modification Agreement.
FOR VALUABLE CONSIDERATION, therefore, the Bank and the Borrower agree that the
first sentence of the first paragraph of the December 1999 Revolving Note shall
be deleted in its entirety and restated as follows:
"FOR VALUE RECEIVED, Patient Infosystems, Inc. (the "Borrower")
promises to pay to the order of Norwest Bank Iowa, National Association
(the "Bank"), at its principal office or such other address as the Bank
or holder may designate from time to time, the principal sum of TWO
MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00) or the
amount shown on the Bank's records to be outstanding, plus interest
(calculated on the basis of actual days elapsed in a 360-day year)
accruing on the unpaid balance at the annual interest rate defined
below. Absent manifest error, the Bank's records will be conclusive
evidence of the principal and accrued interest owing hereunder."
Except as modified above by this Note Modification Agreement, the December 1999
Revolving Note remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the Bank and Borrower have executed this Note Modification
Agreement as of the date and year first above written.
NORWEST BANK IOWA,
NATIONAL ASSOCIATION PATIENT INFOSYSTEMS, INC.
/s/ Randall R. Stromley By: /s/ Donald A. Carberg
--------------------------
Randall R. Stromley
Vice President Its: President & CEO
------------------------
<PAGE> 1
(21) SUBSIDIARIES
EXHIBIT 21
Subsidiaries
------------
<TABLE>
<CAPTION>
Name Jurisdiction Trade Name of Organization
- --------------------------------------- --------------------- ---------------------------------
<S> <C> <C>
Patient Infosystems Acquisition Corp. Delaware HealthDesk
PATI Acquisition Corp. Delaware PATI Acquisition Corp.
Patient Infosystems Canada, Inc. Ontario, Canada Patient Infosystems Canada, Inc.
</TABLE>
All other exhibits are omitted because they are not applicable or the required
information is shown elsewhere in this Annual Report on Form 10-K.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001017813
<NAME> PATIENT INFOSYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 489,521
<SECURITIES> 0
<RECEIVABLES> 700,279
<ALLOWANCES> (50,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,341,864
<PP&E> 2,624,143
<DEPRECIATION> 1,332,792
<TOTAL-ASSETS> 3,844,395
<CURRENT-LIABILITIES> 927,732
<BONDS> 0
0
0
<COMMON> 80,402
<OTHER-SE> 2,336,261
<TOTAL-LIABILITY-AND-EQUITY> 2,416,663
<SALES> 3,545,207
<TOTAL-REVENUES> 3,545,207
<CGS> 5,614,128
<TOTAL-COSTS> 10,912,484
<OTHER-EXPENSES> 250,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,618,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,618,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,618,174)
<EPS-BASIC> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
