<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2000
REGISTRATION NO. 333-87435
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LANDACORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 7379 94-3346710
(PRIOR TO REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
DELAWARE CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
(AFTER REINCORPORATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
4151 ASHFORD DUNWOODY RD.
SUITE 505
ATLANTA, GA 30319
(404) 531-9956
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EUGENE SANTA CATTARINA
LANDACORP, INC.
4151 ASHFORD DUNWOODY RD.
SUITE 505
ATLANTA, GA 30319
(404) 531-9956
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. DANAHER, ESQ. NILS H. OKESON, ESQ.
MARTIN J. WATERS, ESQ. J. MARK RAY, ESQ.
DEBORAH A. LANGIER, ESQ. ALSTON & BIRD LLP
WILSON SONSINI GOODRICH & ROSATI ONE ATLANTIC CENTER
PROFESSIONAL CORPORATION 1201 WEST PEACHTREE STREET
650 PAGE MILL ROAD ATLANTA, GA 30309-3424
PALO ALTO, CA 94304 (404) 881-7000
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2000
PROSPECTUS
3,500,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Landacorp, Inc.
This prospectus relates to an offering of 3,500,000 shares of common stock.
Landacorp is selling all of the shares of common stock being sold in the
offering.
Prior to the offering, there has been no public market for our common
stock. It is currently estimated that the initial public offering price per
share will be between $8 and $10.
------------------
We have applied to list our common stock on the Nasdaq National Market
under the symbol "LCOR."
------------------
<TABLE>
<CAPTION>
Per Share Total
---------------- ----------------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Landacorp, before expenses...................... $ $
</TABLE>
We and three of our stockholders have granted the underwriters an option
for a period of 30 days to purchase up to 525,000 additional shares of common
stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CHASE H&Q
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
SG COWEN
, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward-Looking Statements.................................. 16
How We Intend to Use the Proceeds from the Offering......... 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 32
Management.................................................. 42
Certain Relationships and Related Transactions.............. 49
Principal Stockholders...................................... 51
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 57
Underwriting................................................ 59
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find More Information......................... 62
Index to Financial Statements............................... F-1
</TABLE>
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3
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements
before making an investment decision. In this prospectus, unless the context
indicates otherwise, "Landacorp," "we," "us" and "our" refer to Landacorp, Inc.
LANDACORP
We offer business-to-business Internet-based and other electronic
medical management solutions to healthcare payers and providers that are
designed to control the cost and improve the quality of healthcare delivery. The
term medical management solution refers to our applications that automate and
streamline administrative and business processes, minimize inefficient paper-,
fax-and phone-based communications, and facilitate interaction among various
healthcare participants. Our solutions enable our clients to deliver consistent
and appropriate medical care utilizing their chosen clinical guidelines and
business process rules.
We currently offer two products to healthcare payers: maxMC and e-maxMC,
our new Internet-based medical management solution. As of December 31, 1999,
five payers who claim to have a combined membership of six million participants
were using maxMC. We have successfully tested e-maxMC internally and recently
began offering the solution to payers. We expect to complete testing of e-maxMC
with one of our payer customers in early 2000. We believe that the lack of
functionality offered by existing Internet-based medical management products
provides a significant market opportunity for e-maxMC. e-maxMC will add medical
management functions to payers' Web sites in order to attract repeat visits by
their members. We refer to Internet-based functions that generate repeat visits
as sticky applications.
Maxsys II is our medical management solution for healthcare providers.
As of December 31, 1999, approximately 175 hospitals were using Maxsys II or its
predecessor, Maxsys I. Although we no longer market Maxsys I, we continue to
support it as a service to our customers and pursuant to ongoing contractual
obligations.
The Internet is emerging as a powerful tool for connecting healthcare
participants, enhancing the efficiency of business processes, clinical
decision-making and case and disease management, and minimizing expenditures on
unauthorized or inappropriate care. Of the $1.1 trillion spent on healthcare in
the U.S. annually, an estimated $250 billion relates to unnecessary care,
redundant tests and procedures and excessive administrative costs. We believe
the healthcare industry has failed to realize much of the potential offered by
the Internet, as existing Internet-based products have merely linked healthcare
participants without providing the medical management functions needed to make
their interactions more efficient.
Our solutions enable our clients to complement existing information
systems, as well as other Internet-based products, with a rich set of medical
management functions, including:
- functions that assist with coordination of medical care by putting to
use clinical guidelines chosen by our customers in order to match
payers' business rules with providers' and members' requests for care;
- case and disease management tools that assist with the determination
of appropriate levels of care, perform short- and long-term care
planning and minimize unnecessary procedures; and
- tools for maintaining and reviewing physicians' credentials and other
biographical information, such as continuing medical education
credits, medical board certifications and records of disciplinary and
other adverse actions.
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<PAGE> 5
Our solutions are flexible and secure, and we can deploy them across a
broad range of computing environments. The solutions are also scalable, which
means customers can use them on a small scale for a limited number of users or
on a large scale for multiple users without affecting product performance. As a
result, our customers may tailor our solutions to suit their specific
administrative and business processes, clinical guidelines, existing information
systems and business models.
Our objective is to be the leading provider of Internet-based and other
electronic medical management solutions for healthcare payers and providers. Key
components of our strategy include:
- aggressively marketing our new Internet-based medical management
solution, e-maxMC;
- achieving greater market penetration;
- developing and offering application service provider services for
medium to small health plans and hospitals;
- continuing to add functionality to our electronic medical management
solutions; and
- pursuing strategic partnerships and acquisitions.
The address of our principal executive offices is 4151 Ashford Dunwoody
Road, Suite 505, Atlanta, Georgia, 30319. Our telephone number is (404)
531-9956. We incorporated on April 27, 1982 as Landa Management Systems
Corporation, a California corporation. We reincorporated as Landacorp, Inc., a
Delaware corporation, on December 3, 1999. Our fiscal year ends December 31.
5
<PAGE> 6
THE OFFERING
COMMON STOCK OFFERED BY US.............. 3,500,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE
OFFERING................................ 13,213,184 shares
USE OF PROCEEDS......................... Working capital and general
corporate purposes, including:
- development and implementation of
new applications;
- enhancing our sales and marketing
organization; and
- the purchase of assets from High
Technology Solutions, Inc., and
other possible strategic
partnerships and acquisitions.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL.................................. LCOR
-------------------------
This number does not include 911,115 shares of common stock subject to
outstanding options at December 31, 1999 with a weighted average exercise price
of $1.44 per share. Please see "Capitalization" for a more complete discussion
regarding our common stock and options to purchase our common stock and other
related matters.
-------------------------
Unless otherwise noted, all information in this prospectus:
- assumes the conversion of all outstanding preferred stock into common
stock on a one-for-one basis;
- assumes the cashless exercise of outstanding warrants to purchase
350,000 shares of common stock at an exercise price of $1.20 per
share, resulting in a net issuance of 303,333 shares of common stock
assuming an initial public offering price of $9.00 per share;
- assumes no exercise by the underwriters of their option to purchase
additional shares of common stock to cover over-allotments, if any.
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<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the following summary financial data in conjunction with
our financial statements and their related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in this
prospectus. We derived the following statement of operations data for the years
ended December 31, 1996, 1997 and 1998 and for the nine month period ended
September 30, 1999, and the balance sheet data at September 30, 1999, from the
audited financial statements included at the end of this prospectus. We derived
the following statement of operations data for the nine month period ended
September 30, 1998 from the unaudited financial statements included at the end
of this prospectus. In the pro forma as adjusted balance sheet data presented
below we have given effect to the receipt of the estimated net proceeds from
this offering at an assumed initial public offering price of $9.00 per share,
after deducting underwriting discounts and commissions and estimated offering
expenses, the cashless exercise of warrants to purchase 350,000 shares of common
stock at a price of $1.20 per share, resulting in a net issuance of 303,333
shares of common stock assuming an initial public offering price of $9.00 per
share, and the conversion of all outstanding shares of our preferred stock into
common stock on a one-for-one basis.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................... $ 1,939 $ 4,038 $ 6,217 $4,648 $ 7,067
Loss from operations......................... (1,697) (803) (1,985) (401) (1,524)
Net loss..................................... (1,897) (1,011) (1,910) (352) (1,452)
Net loss per share:
Basic and diluted......................... $ (1.74) $ (0.91) $ (1.84) $(0.34) $ (1.15)
Weighted average shares................... 1,088 1,108 1,041 1,045 1,259
Pro forma net loss per share:(1)
Basic and diluted (unaudited)............. $ (0.27) $ (0.17)
Weighted average shares (unaudited)....... 7,061 8,362
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $2,094 $30,393
Working capital........................................... 157 28,456
Total assets.............................................. 5,317 33,616
Stockholders' equity...................................... 967 29,266
</TABLE>
- -------------------------
(1) See Note 2 of Notes to Financial Statements for a discussion of the
computation of pro forma basic and diluted net loss per share and weighted
average shares outstanding.
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<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering. If any of the following risks actually occur, our
business, results of operations and financial condition could suffer material
harm, the trading price of our common stock could decline, and you could lose
all or part of your investment.
OUR BUSINESS WILL SUFFER IF OUR MAXMC AND E-MAXMC MEDICAL MANAGEMENT SOLUTIONS
DO NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE AMONG HEALTHCARE PAYER ORGANIZATIONS
Achieving our growth objectives depends on our maxMC and e-maxMC medical
management solutions achieving widespread market acceptance among healthcare
payer organizations, which is difficult to determine at this time. We
commercially released maxMC in 1997 and only five payer customers currently use
it. Therefore, maxMC currently has limited market acceptance. We expect to
complete testing e-maxMC in early 2000. As a result, e-maxMC has not achieved
any market acceptance at this time and we currently do not have sufficient
evidence to determine whether and to what extent it will achieve market
acceptance. Achieving market acceptance for our medical management solutions
will require ongoing improvement of their features and functionalities and
enhanced sales and marketing efforts. If we do not gain significant market share
for our maxMC and e-maxMC medical management solutions before our competitors
introduce alternative products with features similar to ours, our operating
results will suffer. Our operating results will also suffer if our pricing
strategies, such as our planned subscription pricing for payers, are not
economically viable or acceptable to our customers.
THE HEALTHCARE INDUSTRY MAY NOT ACCEPT OUR MEDICAL MANAGEMENT SOLUTIONS
To be successful, we must attract a significant number of payer
customers, such as managed care companies, and continue to attract provider
customers, such as hospitals. We cannot determine the extent to which the payer
market will accept our medical management solutions as substitutes for
traditional methods of processing healthcare information and managing patient
care. To date, many healthcare industry participants have been slow to adopt new
technology solutions. We believe that the complex nature of healthcare processes
and communications among healthcare industry participants, as well as concerns
about confidentiality of patient information, may hinder the development and
acceptance of new technology solutions such as our medical management solutions.
In addition, customers using existing information systems in which they have
made significant investments may refuse to adopt our solutions if they perceive
that our solutions will not complement their existing systems. As a result, the
conversion from traditional methods of communication to electronic information
exchange may not occur as rapidly as we expect it will. Even if the conversion
does occur as rapidly as expected, payers and providers may use solutions,
products and services offered by others.
WE HAVE A HISTORY OF QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR REVENUE AND
OPERATING RESULTS, AND EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT
IN VOLATILITY IN OUR STOCK PRICE
Our quarterly and annual revenue and operating results have varied
significantly in the past and will likely vary significantly in the future due
to a number of factors, many of which we cannot control. The factors that may
cause our quarterly revenue and operating results to fluctuate include:
- fluctuations in demand for our medical management solutions and
related services, including payers' and providers' reluctance to make
large technology purchases around the time of the change to the year
2000;
- the timing of customer orders and product implementations,
particularly orders from large customers involving substantial
implementation;
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<PAGE> 9
- the length of our sales cycle, which varies and is unpredictable;
- the length of our implementation process, which varies, is
unpredictable and often depends on matters outside of our control such
as the customer's ability to commit its resources to the
implementation process;
- our ability to develop, introduce, implement and support new products
and product enhancements;
- the rate of adoption of our medical management solutions, which often
require our customers to change some aspects of the way in which they
have traditionally conducted business;
- announcements and new product introductions by our competitors and
deferrals of customer orders in anticipation of new products, services
or product enhancements introduced by us or our competitors; and
- changes in the prices at which we can sell our medical management
solutions.
Accordingly, you should not rely on the results of any past periods as
an indication of our future performance. In some future periods, our operating
results may not meet expectations of public market analysts or investors. If
this occurs, our stock price may decline.
IF WE DO NOT HIRE AND RETAIN ADDITIONAL SALES, MARKETING AND IMPLEMENTATION
PERSONNEL WE MAY NOT SUCCEED IN IMPLEMENTING OUR GROWTH STRATEGY AND ACHIEVING
OUR TARGET REVENUE GROWTH
Our future growth depends to a significant extent on our ability to hire
additional sales, marketing and implementation personnel. Competition for these
people is intense. We have experienced difficulty in hiring qualified sales and
marketing professionals, as well as database administrators, and we may not be
successful in attracting and retaining such individuals. If we do not hire
additional qualified sales and marketing personnel, we may not succeed in
implementing our growth strategy and our targeted revenue growth may not be
achieved. In addition, even if our sales increase, our market penetration and
revenue growth will be limited if we are unable to hire additional personnel to
implement the medical management solutions we sell.
We also believe that our success depends to a significant extent on the
ability of our key personnel to operate effectively, both individually and as a
group. Many of our employees have only recently joined us, and we may experience
high turnover rates in some categories of personnel. If we do not assimilate new
employees in a timely and cost-effective manner, the productivity of those
employees will be low, and as a result our operating results may decrease.
In addition, companies in our industry whose employees accept positions
with competitors frequently claim that their competitors have engaged in unfair
hiring practices. Competitors or other companies may make such claims against us
in the future as we seek to hire qualified personnel. Any claim of this nature
could result in material litigation. We could incur substantial costs in
defending ourselves against these claims, regardless of their merits.
BECAUSE WE OFFER A LIMITED NUMBER OF PRODUCTS AND OPERATE EXCLUSIVELY IN THE
MARKET FOR MEDICAL MANAGEMENT SOLUTIONS, WE ARE PARTICULARLY SUSCEPTIBLE TO
COMPETITION, PRODUCT OBSOLESCENCE AND DOWNTURNS IN THE MARKET FOR MEDICAL
MANAGEMENT PRODUCTS
We depend on a limited number of products and we operate exclusively in
the market for medical management solutions. To date, we have derived
substantially all of our revenue from the sale and associated support of Maxsys
II (and its predecessor Maxsys I), a medical management solution marketed to
hospital providers. We anticipate that substantially all of our revenue in the
foreseeable future will be attributable to continued sales and associated
support of that solution, as well as sales and support of maxMC and e-maxMC, our
medical management solutions marketed to payers. Dependence on a limited product
line makes us particularly susceptible to the successful
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introduction of, or changes in market preferences for, competing products. In
addition, operating exclusively in the market for medical management solutions
makes us particularly susceptible to downturns in that market that may be
unrelated to the quality or competitiveness of our solutions.
OUR FUTURE SUCCESS DEPENDS IN SIGNIFICANT PART UPON THE CONTINUED SERVICE OF OUR
SENIOR MANAGEMENT PERSONNEL
Eugene Santa Cattarina, our President and Chief Executive Officer, and
Stephen Kay, our Chief Operating Officer and Chief Financial Officer, have a
great deal of experience in the healthcare information technology industry in
general and in the market for medical management solutions in particular.
Therefore, they are uniquely qualified to manage our business and would be
difficult to replace. We do not have employment contracts with these officers or
any of our other key personnel. As a result, these employees may voluntarily
terminate their employment with us at any time. The search for a replacement for
any of our key personnel could be time consuming, and could distract our
management team from the day-to-day operations of our business. This could delay
the implementation of our growth strategy and negatively impact our ability to
achieve targeted revenue growth. In addition, with the exception of two
executive officers and one key employee, we do not maintain key person life
insurance on our key personnel.
WE HAVE A LONG HISTORY OF LOSSES AND MAY NEVER BECOME PROFITABLE
We have been in business since 1982 and we have incurred significant
losses since that time. We expect to continue to incur losses on an annual basis
for the foreseeable future. As of September 30, 1999, our accumulated deficit
was $12.7 million. We expect to incur increased levels of product development,
sales and marketing and administrative expenses and, as a result, we will need
to increase our revenue significantly to achieve future profitability. Although
our revenue has grown in recent quarters, we may not be able to sustain this
growth and we may not realize sufficient revenue to achieve profitability.
Further, even if we achieve profitability, due to competition and the evolving
nature of the healthcare information technology and Internet market, we could
fail to sustain or increase profitability on a quarterly or annual basis.
THE LENGTH AND COMPLEXITY OF OUR SALES CYCLE AND PRODUCT IMPLEMENTATION PERIOD
MAY CAUSE US TO EXPEND SUBSTANTIAL TIME, EFFORT AND FUNDS WITHOUT RECEIVING
RELATED REVENUE
We do not control many of the factors that influence our customers'
buying decisions and the implementation of our medical management solutions. The
sales and implementation process for our solutions is lengthy, involves a
significant technical evaluation and requires our customers to commit a great
deal of time and money. The sale and implementation of our solutions are subject
to delays due to healthcare payers' and providers' internal budgets and
procedures for approving large capital expenditures and deploying new
technologies within their organizations. The sales cycle for our solutions is
unpredictable and has generally ranged from six to twenty-four months from
initial contact to contract signing. The time it takes to implement our
solutions is also difficult to predict and has typically ranged from six to
fifteen months from contract execution to the commencement of live operation.
During the sales cycle and the implementation period, we may expend substantial
time, effort and money preparing contract proposals, negotiating the contract
and implementing the solution without receiving any related revenue.
OUR MEDICAL MANAGEMENT SOLUTIONS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE
ERRORS, WHICH COULD LEAD TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR
REVENUES
Complex software products such as those included in our medical
management solutions frequently contain undetected errors when first introduced
or as new versions are released. We have, from time to time, found errors in the
software products included in our solutions, and in the future we may find
additional errors. In addition, we combine our solutions with software and
hardware products from other vendors. As a result, we may experience difficulty
in identifying the
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<PAGE> 11
source of an error. The occurrence of hardware and software errors, whether
caused by our solutions or another vendor's products, could:
- cause sales of our solutions to decrease and our revenues to decline;
- cause us to incur significant warranty and repair costs;
- divert the attention of our technical personnel away from product
development efforts; and
- cause significant customer relations problems.
BECAUSE OUR MEDICAL MANAGEMENT SOLUTIONS RELY ON TECHNOLOGY THAT WE OWN, OUR
BUSINESS WILL SUFFER IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS TO
THAT TECHNOLOGY AGAINST INFRINGEMENT BY COMPETITORS
To protect our intellectual property rights, we rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure. We
also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may copy or
otherwise obtain and use our products or technology. Monitoring unauthorized use
of our solutions is difficult and the steps we have taken may not prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States. If
we fail to protect our intellectual property from infringement, other companies
may use our intellectual property to offer competitive products at lower prices.
If we fail to compete effectively against these companies we could lose
customers and sales of our solutions and our revenue could decline . See
"Business -- Intellectual Property."
EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY OR OUR ALLEGED MISUSE OF THE
INTELLECTUAL PROPERTY OF OTHERS MAY CAUSE US TO BECOME INVOLVED IN COSTLY AND
LENGTHY LITIGATION
Although we are not currently involved in any intellectual property
litigation, we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement by us of the
intellectual property of others. These claims and any resulting litigation could
subject us to significant liability or invalidate our ownership rights in the
technology used in our solutions. Litigation, regardless of the merits of the
claim or outcome, could consume a great deal of our time and money and would
divert management time and attention away from our core business.
Any potential intellectual property litigation could also force us to do
one or more of the following:
- stop using the challenged intellectual property or selling our
products or services that incorporate it;
- obtain a license to use the challenged intellectual property or to
sell products or services that incorporate it, which could be costly
or unavailable; and
- redesign those products or services that are based on or incorporate
the challenged intellectual property, which could be costly and time
consuming or could adversely affect the functionality and market
acceptance of our products.
If we must take any of the foregoing actions, we may be unable to
manufacture and sell our solutions, which would substantially reduce our
revenue.
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WE FACE SIGNIFICANT COMPETITION FROM, AMONG OTHERS, SOFTWARE VENDORS, INTERNET
COMPANIES AND CONSULTING GROUPS FOCUSED ON THE HEALTHCARE INDUSTRY
We face intense competition in the market for our medical management
solutions. Many of our competitors have greater financial, technical, product
development, marketing and other resources than we have. Because these
organizations may be better known and have more customers than us, we may not
compete successfully against them. The principal companies we compete against in
the payer market include HPR (a subsidiary of McKesson HBOC), MedDecision,
PhyCom and Confer. In the hospital provider market, we compete against MIDS,
SoftMed Systems and others. We expect that competition will continue to increase
as a result of consolidation in the Internet, information technology and
healthcare industries. See "Business -- Competition."
RAPIDLY CHANGING TECHNOLOGY MAY IMPAIR OUR ABILITY TO DEVELOP AND MARKET OUR
MEDICAL MANAGEMENT SOLUTIONS
Because our business relies on technology, it is susceptible to:
- rapid technological change;
- changing customer needs;
- frequent new product introductions; and
- evolving industry standards.
In particular, the Internet is evolving rapidly and the technology used in
Internet related products changes rapidly. As the Internet, computer and
software industries continue to experience rapid technological change, we must
quickly modify our solutions to adapt to such changes. The demands of operating
in such an environment may delay or prevent our development and introduction of
new solutions and additional functions for our existing solutions that
continually meet changing market demands and that keep pace with evolving
industry standards. Moreover, competitors may develop products superior to our
solutions, which could make our products obsolete.
OUR CUSTOMERS MAY ENCOUNTER SYSTEM DELAYS, FAILURES OR LOSS OF DATA WHEN USING
OUR NEW INTERNET-BASED MEDICAL MANAGEMENT SOLUTION AS A RESULT OF DISRUPTIONS OR
OTHER PROBLEMS WITH INTERNET SERVICES AND INTERNET ACCESS PROVIDED BY THIRD
PARTIES
System delays, failures or loss of data experienced by our customers
could harm our business. The success of our new Internet-based medical
management solution for payers will depend on the efficient operation of
Internet connections among our payer customers and their members and associated
providers. These connections, in turn, depend on the efficient operation of Web
browsers, Internet connections and Internet service providers. In the past,
Internet users have occasionally experienced difficulties with Internet
connections and services due to system failures. Any disruption in Internet
access provided by third parties could delay or disrupt the performance of our
new Internet-based solution, and consequently, make it less acceptable to
payers. Furthermore, we will depend on our customers' hardware suppliers for
prompt delivery, installation and service of the equipment that runs our
applications.
SECURITY BREACHES AND SECURITY CONCERNS ABOUT INTERNET TRANSMISSIONS MAY CAUSE
CUSTOMERS TO REFUSE TO PURCHASE OR DISCONTINUE THE USE OF OUR MEDICAL MANAGEMENT
SOLUTIONS
Our customers will retain confidential customer and patient information
using our solutions. An experienced computer user who is able to access our
customers' computer systems could gain access to confidential patient and
company information. Therefore, our products must remain secure and the market
must perceive them as secure. The occurrence of security breaches could cause
customers to refuse to purchase or discontinue use of our solutions. Protecting
against such security breaches or alleviating problems caused by security
breaches may require us to
12
<PAGE> 13
expend significant capital and other resources. In addition, upgrading our
systems to incorporate more advanced encryption and authentication technology as
it becomes available may cause us to spend significant resources and encounter
costly delays. Concerns over the security of the Internet and other online
transactions and the privacy of users may also inhibit the growth of the market
for our Internet-based medical management solution.
WE OPERATE IN AN INDUSTRY SUBJECT TO CHANGING REGULATORY INFLUENCES, WHICH COULD
LIMIT THE USEFULNESS OF OUR SOLUTIONS OR REQUIRE US TO MAKE EXPENSIVE AND
TIME-CONSUMING MODIFICATIONS TO OUR PRODUCTS
During the past several years, federal, state and local governments have
increased their regulation of the U.S. healthcare industry and have proposed
numerous healthcare industry reforms. These reforms may increase governmental
involvement in healthcare, continue to reduce reimbursement rates and otherwise
change the operating environment for our customers. Our customers may react to
these proposals and the uncertainty surrounding the proposals by curtailing or
deferring investments, including those for our medical management solutions.
Existing state and federal laws regulate the confidentiality of
healthcare information and the circumstances under which such records may be
released. Congress is considering legislation and the Department of Health and
Human Services has proposed regulations that would further regulate the
confidentiality of healthcare information. In addition, the Department of Health
and Human Services has proposed regulations setting forth security standards for
all health plans, clearinghouses and providers to follow with respect to
healthcare information that is electronically transmitted, processed or stored.
While these laws and regulations may not apply to us directly, our products must
comply with existing and future laws and regulations in order to achieve market
acceptance. Such compliance may be difficult and expensive or even impossible to
achieve. These laws or regulations could restrict the ability of our customers
to obtain, use or disseminate patient information, which in turn could limit the
usefulness of our medical management solutions causing a decrease in our sales.
Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming prevalent. Such new laws
and regulations could limit the effectiveness and market acceptance of our
Internet-based medical management solutions or could cause us to have to modify
our solutions, which could be expensive and time consuming. See
"Business -- Government Regulation."
CONSOLIDATION IN THE HEALTHCARE INDUSTRY COULD LEAD TO LARGE INTEGRATED
HEALTHCARE DELIVERY SYSTEMS WHO MAY USE THEIR ENHANCED MARKET POWER TO FORCE
PRICE REDUCTIONS FOR OUR MEDICAL MANAGEMENT SOLUTIONS AND RELATED SERVICES
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense and the importance of
establishing relationships with large industry participants will become greater.
These industry participants may try to use their market power to negotiate price
reductions for our products and services. Our operating results may suffer if we
reduce our prices without achieving corresponding reductions in our expenses.
13
<PAGE> 14
WE MAY BE SUBJECT TO CLAIMS RELATED TO YEAR 2000 ISSUES, AND YEAR 2000 CONCERNS
COULD REDUCE DEMAND FOR OUR MEDICAL MANAGEMENT SOLUTIONS
The Year 2000 issue refers to the potential for disruption to business
activities caused by system failures or miscalculations that are triggered by
advancement of date records after 1999. A failure due to Year 2000 issues
involves numerous risks including:
- potential claims from our customers and their constituents;
- negative impact on market demand for medical management solutions
while our customers address Year 2000 issues;
- negative impact on demand for our solutions as potential customers
reduce their budgets for new information technology products and
services due to expenditures on their own Year 2000 compliance
efforts; and
- manufacturing, information, facility and development systems problems,
both those that are unique to us and those that affect geographical
areas where our business and employees reside.
Although we have experienced no problems with our solutions to date due
to the Year 2000 calendar change, we may yet discover that our current medical
management solutions or any new solutions, applications or product enhancements
that we develop in the future have problems because of the Year 2000. Such
problems could interfere with our customers' businesses, or cause our customers
to be dissatisfied with our solutions. These problems could also require us to
allocate more capital and resources to resolving Year 2000 issues and providing
technical support to our customers, which in turn would reduce the portion of
such resources dedicated to other forms of technical support or research and
development. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Readiness."
WE MAY ENCOUNTER ACQUISITION-RELATED RISKS SUCH AS BECOMING RESPONSIBLE FOR
UNEXPECTED LIABILITIES OF ACQUIRED BUSINESSES AND DIFFICULTIES INTEGRATING
EMPLOYEES AND OPERATIONS OF ACQUIRED BUSINESSES
As part of our strategy, we expect to review opportunities to acquire
other businesses or technologies. In connection with acquisitions, we could:
- issue stock that would dilute our stockholders' percentage ownership;
- incur debt; or
- assume liabilities.
Acquisitions could involve numerous risks, including:
- problems integrating the purchased operations, technologies or
products;
- unanticipated costs or unexpected liabilities;
- diversion of our management's attention from our core business;
- interference with existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of purchased organizations.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might purchase in the future.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER, WHICH MAY LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER STOCKHOLDER
MATTERS
Upon completion of this offering, our executive officers and directors
and their affiliates will beneficially own, in the aggregate, approximately 66%
of our outstanding common stock. As a result, these stockholders will be able to
exercise significant control over all matters requiring
14
<PAGE> 15
stockholder approval, including the election of directors and approval of
significant corporate transactions, which could delay or prevent an outside
party from acquiring or merging with us. See "Principal Stockholders."
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK
Provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- prohibiting cumulative voting in the election of directors;
- requiring super-majority voting to effect significant amendments to
our certificate of incorporation and bylaws;
- limiting the ability of stockholders to act by written consent; and
- establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline.
IF WE DO NOT MEET OUR FUTURE CAPITAL REQUIREMENTS, WE MAY BE UNABLE TO DEVELOP
OR ENHANCE OUR MEDICAL MANAGEMENT SOLUTIONS, TAKE ADVANTAGE OF FUTURE
OPPORTUNITIES OR RESPOND TO COMPETITIVE PRESSURES OR UNANTICIPATED EVENTS
We believe that the net proceeds of this offering, together with our
existing cash balances, credit facilities and expected cash flow from
operations, will allow us to meet our capital requirements at least through the
next 12 months. However, we may need or want to seek additional capital prior to
that time. Such capital may not be available to us on favorable terms, or at
all. Further, if we raise capital by issuing new equity securities, stockholders
may experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of common stock.
If we cannot raise capital on acceptable terms, we may not have the resources to
develop new products or enhance existing products, take advantage of future
opportunities or respond to competitive pressures or unanticipated events. For
additional information on our anticipated future capital requirements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE
Our current stockholders hold a substantial number of shares, which they
can sell in the public market in the near future. Sales of a substantial number
of shares of our common stock after this offering could cause our stock price to
fall. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional stock, as potential investors could
purchase shares in the public market, instead of directly from us. You should
read "Shares Eligible for Future Sale" for a full discussion of shares that may
be sold in the public market in the future.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $6.79 in the pro forma net tangible book
value per share of our common stock from the price you pay for our common stock.
For additional information on this calculation, see "Dilution."
15
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties, which may include statements about our:
- plans for implementing our Internet-based strategy, including the
general release of e-maxMC, our new e-medical management solution for
payers;
- business strategy;
- the market opportunity for our solutions;
- plans for hiring additional personnel;
- anticipated sources of funds and the ability to meet future liquidity
and capital requirements; and
- plans, objectives, expectations and intentions contained in this
prospectus that are not historical facts.
When we use the words "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," and similar expressions in this prospectus, we
generally are identifying forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus. We assume no obligation to update any
forward-looking statements.
------------------
Landacorp(R) is a registered trademark of our company. We have applied
to register the trademarks Maxsys(TM), maxMC(TM) and e-maxMC(TM). All other
brand names and trademarks appearing in this prospectus are the property of
their respective owners.
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<PAGE> 17
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We expect to receive net proceeds of approximately $28,299,000 from the
sale of 3,500,000 shares of common stock (approximately $29,635,413 if the
underwriters exercise their over-allotment option in full), at the assumed
initial public offering price of $9.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.
We expect to use the net proceeds from this offering for working capital
and other general corporate purposes, including expenditures for:
- the development and implementation of new products;
- increasing the size of our sales and marketing organization; and
- pursuing the proposed asset purchase from High Technology Solutions,
Inc. described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and other strategic
partnerships and acquisitions that complement our current and future
business and product lines.
Pending these uses, the net proceeds of this offering will be invested
in short-term, investment-grade, interest-bearing investments or accounts.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain all available funds and any future earnings for
use in the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future.
17
<PAGE> 18
CAPITALIZATION
(ROUNDED TO THE CLOSEST $1,000, EXCEPT PER SHARE DATA)
The following table sets forth the capitalization of Landacorp as of
September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of 6,800,000
outstanding shares of preferred stock to common stock on a one-for-one
basis and the cashless exercise of outstanding warrants to purchase
350,000 shares of common stock at an exercise price of $1.20,
resulting in a net issuance of 303,333 shares of common stock assuming
an initial public offering price of $9.00 per share; and
- on a pro forma basis as adjusted to reflect the sale by Landacorp of
3,500,000 shares of common stock offered hereby at an assumed public
offering price of $9.00 per share and the receipt of the estimated net
proceeds of such sale after deducting underwriting discounts and
commissions and estimated offering expenses.
You should read the information below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the notes to those statements appearing at the end
of this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value;
8,000,000 shares authorized; 6,800,000
shares issued and outstanding, actual;
no shares issued and outstanding, pro
forma; no shares issued and
outstanding, pro forma as adjusted..... $ 7,000 $ -- $ --
Common stock, $0.001 par value, 15,000,000
shares authorized; 2,609,851 shares
issued and outstanding, actual,
9,713,184 shares issued and
outstanding, pro forma; 13,213,184
shares issued and outstanding, pro
forma as adjusted...................... 3,000 10,000 13,000
Additional paid-in capital................ 16,919,000 16,919,000 45,215,000
Notes receivable from officers............ (189,000) (189,000) (189,000)
Unearned stock-based compensation......... (3,103,000) (3,103,000) (3,103,000)
Accumulated deficit....................... (12,670,000) (12,670,000) (12,670,000)
------------ ------------ ------------
Total stockholders' equity........ $ 967,000 $ 967,000 $ 29,266,000
============ ============ ============
</TABLE>
The information regarding the number of shares of common stock to be
outstanding after this offering is based on the number of shares outstanding as
of September 30, 1999 and does not include:
- 911,115 shares of our common stock subject to outstanding options at a
weighted average exercise price of $1.44 per share at December 31,
1999; and
- 359,350 additional shares of our common stock reserved for future
issuance under our stock option plans at December 31, 1999.
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<PAGE> 19
DILUTION
Our pro forma net tangible book value at September 30, 1999, after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock on a one-for-one basis and the cashless exercise of
outstanding warrants to purchase 350,000 shares of common stock, was $896,000 or
$0.09 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets less total liabilities divided by the pro
forma number of shares of common stock outstanding. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of common stock in this offering and the pro forma net
tangible book value per share of our common stock immediately afterwards.
Assuming our sale of 3,500,000 shares of common stock offered by this prospectus
at an assumed initial public offering price of $9.00 per share, and after
deducting underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value at September 30, 1999 would have
been approximately $29,195,000 or $2.21 per share. This represents an immediate
decrease in net tangible book value of $6.79 per share to new investors. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Pro forma net tangible book value per share at September
30, 1999............................................... $0.09
Increase per share attributable to new investors.......... 2.12
-----
As adjusted pro forma net tangible book value per share
after this offering....................................... (2.21)
------
Dilution per share to new investors......................... $ 6.79
======
</TABLE>
The following table summarizes, on a pro forma basis at September 30,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors purchasing shares in this offering.
We have assumed an initial public offering price of $9.00 per share, and we have
not deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 9,713,184 73.5% $11,286,000 26.4% $1.16
New investors................. 3,500,000 26.5 31,500,000 73.6 9.00
---------- ------- ----------- -------
Total............... 13,213,184 100.0% $42,786,000 100.0%
========== ======= =========== =======
</TABLE>
The foregoing discussion and tables assume no exercise of any
outstanding stock options. At December 31, 1999, there were outstanding options
to purchase an aggregate of 911,115 shares of common stock at a weighted average
exercise price of $1.44 per share. To the extent any stock options are
exercised, there will be further dilution to new investors. See "Capitalization"
and "Management -- Benefit Plans."
If the underwriters exercise their over-allotment in full, the following
will occur:
- the percentage of shares of common stock held by existing stockholders
will decrease to approximately 69.9% of the total number of shares of
our common stock outstanding after this offering; and
- the number of shares held by new investors will increase to 4,025,000,
or approximately 30.1% of the total number of shares of our common
stock outstanding after this offering.
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<PAGE> 20
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the following selected financial data in conjunction
with our financial statements and their related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. We derived the following statement of
operations data for the years ended December 31, 1996, 1997 and 1998 and for the
nine month period ended September 30, 1999, and the balance sheet data as of
December 31, 1997 and 1998 and September 30, 1999, from the audited financial
statements included at the end of this prospectus. We derived the following
balance sheet data as of December 31, 1995 and 1996 from audited financial
statements not included elsewhere in this prospectus. We derived the following
statement of operations data for the years ended December 31, 1994 and 1995 and
the nine month period ended September 30, 1998, and the balance sheet data as of
December 31, 1994, from our unaudited financial statements and, in our opinion,
such unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of Landacorp's
financial position and results of operations. You should not draw any
conclusions about results for a full year from the results of any interim
period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
System sales.................................... $ 886 $ 583 $ 1,007 $ 3,136 $ 4,967 $ 3,835 $ 5,633
Support services................................ 1,089 980 932 902 1,250 813 1,434
------ ------ ------- ------- ------- ------- -------
Total revenues................................ 1,975 1,563 1,939 4,038 6,217 4,648 7,067
------ ------ ------- ------- ------- ------- -------
Cost of revenues:
System sales.................................... 456 282 499 1,097 2,330 1,626 2,223
Support services................................ 263 235 285 299 422 297 440
------ ------ ------- ------- ------- ------- -------
Total cost of revenues........................ 719 517 784 1,396 2,752 1,923 2,663
------ ------ ------- ------- ------- ------- -------
Gross profit...................................... 1,256 1,046 1,155 2,642 3,465 2,725 4,404
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............................. 382 376 782 1,176 1,875 1,103 2,294
Research and development........................ 905 1,127 1,269 1,294 1,410 1,024 1,241
General and administrative...................... 565 408 801 975 2,165 999 2,393
------ ------ ------- ------- ------- ------- -------
Total operating expenses...................... 1,852 1,911 2,852 3,445 5,450 3,126 5,928
------ ------ ------- ------- ------- ------- -------
Loss from operations.............................. (596) (865) (1,697) (803) (1,985) (401) (1,524)
Interest and other income, net.................... -- -- -- -- 101 75 76
Interest expense.................................. (27) (52) (200) (208) (26) (26) (4)
------ ------ ------- ------- ------- ------- -------
Net loss.......................................... $ (623) $ (917) $(1,897) $(1,011) $(1,910) $ (352) $(1,452)
====== ====== ======= ======= ======= ======= =======
Net loss per share:
Basic and diluted............................... $(0.60) $(0.87) $ (1.74) $ (0.91) $ (1.84) $ (0.34) $ (1.15)
====== ====== ======= ======= ======= ======= =======
Weighted average shares......................... 1,038 1,058 1,088 1,108 1,041 1,045 1,259
Pro forma net loss per share(1):
Basic and diluted(unaudited).................... $ (0.27) $ (0.17)
======= =======
Weighted average shares(unaudited).............. 7,061 8,362
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
----------- ------- ------- ------- ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 45 $ 81 $ -- $ 142 $2,032 $2,094
Working capital (deficit)............................. (3,007) (2,700) (4,482) (5,545) 455 157
Total assets.......................................... 930 613 1,536 1,181 4,313 5,317
Notes payable and accrued interest to stockholders.... 1,697 1,588 2,035 2,716 -- --
Stockholders' equity (deficit)........................ (2,753) (2,420) (4,269) (5,259) 899 967
</TABLE>
- -------------------------
(1) See Note 2 of Notes to Financial Statements for a discussion of the
computation of pro forma basic and diluted net loss per share and weighted
average shares outstanding.
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analyses and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "could" "estimate,"
"expect" "intend" and "plan" and other similar expressions, constitute
forward-looking statements. These forward-looking statements are subject to
business and economic risks and uncertainties, and our actual results of
operations may differ materially from the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors" as well as other risks and uncertainties
referenced in this prospectus.
OVERVIEW
We offer business-to-business electronic medical management solutions to
healthcare payers and providers that are designed to help our clients control
the cost and improve the quality of healthcare delivery. Our applications
automate and streamline administrative and business processes and enable
real-time interaction among various healthcare participants. As of December 31,
1999, five payers who claim to have a combined membership of six million
participants were using our maxMC solution, and approximately 175 hospital
providers were using our Maxsys solutions. We recently began offering e-maxMC,
our Internet-based medical management solution for payers. We have successfully
tested e-maxMC internally and expect to complete a customer test of the
application in early 2000.
We have historically derived revenues from the installation and
licensing of our maxMC and Maxsys solutions, sublicensing third-party software
applications as part of system implementations and delivery of post-contract
customer support, training and consulting services. We are currently focusing
our primary development, sales and marketing efforts on our e-maxMC, maxMC and
Maxsys II solutions. Although we do not anticipate future system sales or
enhancements of Maxsys I, we continue to provide maintenance services to, and
receive maintenance fees from, customers who purchased this product in the past.
We plan to continue to support Maxsys I for the foreseeable future as a service
to such customers and pursuant to ongoing contractual obligations.
Traditionally, we have recognized system sales revenues and associated
costs using the percentage-of-completion method, with labor hours incurred
relative to total estimated contract hours as the measure of progress towards
completion. We recognize revenues from sublicensing of third-party software upon
installation of such software. We recognize revenues from support services
ratably over the support period. We recognize revenues from training and
consulting as such services are delivered.
We are introducing a new subscription-based fee structure for our
e-maxMC and maxMC solutions that would provide for implementation services at a
fixed hourly rate and the licensing of installed systems and post customer
contract support through a monthly subscription fee based upon the number of
members covered by the payer organization. If we enter into subscription-based
contracts we will recognize the fair value of the implementation services as
such services are delivered and will recognize subscription fees on a monthly
basis.
We expect to expand our operations and employee base, including our
sales, marketing, research and development, implementation, and support services
resources. In particular, we intend to expand our sales force significantly. To
accelerate the implementation of elements of our strategy, we intend to target
and pursue strategic acquisitions and relationships, such as marketing alliances
with vendors of complementary products and services and partnerships with
Internet providers of healthcare content, disease management and health-related
e-commerce services. Investigating or entering into any such strategic
relationships could lead to additional expenditures.
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<PAGE> 22
On January 31, 2000, we purchased from High Technology Solutions, Inc.
assets related to its business of providing Web site services to healthcare
payers. The purchase price for the assets is $1,268,000 (including an estimated
$18,000 in assumed liabilities) of which we paid $250,000 at the closing. We
will pay the balance in four quarterly payments of approximately $250,000 in
accordance with a promissory note secured by the assets we purchased. The
acquired assets include equipment, know how, trademarks and other intangible
rights used by High Technology Solutions, Inc. in the operation of its business
of providing Web site services to healthcare payers, as well as contracts, none
of which are material. In connection with the acquisition we hired a number of
former employees of High Technology Solutions, Inc. who we believe possess
strategic relationships with potential healthcare payer customers. We believe
the acquisition of the assets and the addition of these employees benefits
Landacorp by allowing us to accelerate the implementation of our strategy of
providing Web site services.
The purchase price of $1,268,000 (including an estimated $18,000 in
assumed liabilities) has been allocated to the various tangible and intangible
assets acquired. The acquired intangible assets will be amortized over their
estimated useful lives of twenty-four to thirty-six months. Factors considered
by the Company in determining estimated useful lives of the intangible assets
include, service life expectancies of the workforce based on anticipated option
vesting schedules and other compensation factors, effects of obsolescence on
intellectual property, and effects of competition and other economic factors on
goodwill.
During the year ended December 31, 1998 and the nine month period ended
September 30, 1999, we recorded unearned compensation totaling $4,166,000 and
$1,574,000, respectively, in connection with the grant of stock-based awards to
employees and directors. We are amortizing these amounts over the four-year
vesting period of the related options. We issued these options to create
incentives for continued performance. Of the total unearned compensation, we
amortized $1,173,000 in 1998 and $1,464,000 in the nine months ended September
30, 1999. We expect to amortize $493,000 in the fourth quarter of 1999,
$1,503,000 in 2000, $765,000 in 2001, $289,000 in 2002 and $54,000 in 2003. We
will reduce unearned compensation expense for future periods to the extent that
options terminate prior to full vesting.
22
<PAGE> 23
RESULTS OF OPERATIONS
The following table presents the statement of operations data as a
percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-------------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- -------------------
1996 1997 1998 1998 1999
----- ----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
System sales.................................... 51.9% 77.7% 79.9% 82.5% 79.7%
Support services................................ 48.1 22.3 20.1 17.5 20.3
----- ----- ----- ----- -----
Total revenues............................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
System sales.................................... 25.8 27.2 37.5 35.0 31.5
Support services................................ 14.7 7.4 6.8 6.4 6.2
----- ----- ----- ----- -----
Total cost of revenues....................... 40.5 34.6 44.3 41.4 37.7
----- ----- ----- ----- -----
Gross profit...................................... 59.5 65.4 55.7 58.6 62.3
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............................. 40.3 29.1 30.1 23.7 32.5
Research and development........................ 65.4 32.0 22.7 22.0 17.5
General and administrative...................... 41.3 24.1 34.8 21.5 33.8
----- ----- ----- ----- -----
Total operating expenses..................... 147.0 85.2 87.6 67.2 83.8
----- ----- ----- ----- -----
Loss from operations.............................. (87.5) (19.8) (31.9) (8.6) (21.5)
Interest and other income, net.................... -- -- 1.6 1.6 1.1
Interest expense.................................. (10.3) (5.2) (0.4) (0.6) (0.1)
----- ----- ----- ----- -----
Net loss.......................................... (97.8)% (25.0)% (30.7)% (7.6)% (20.5)%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues. During the nine months ended September 30, 1999, system sales
revenues were $5,633,000, an increase of $1,798,000 or 47% from system sales
revenues of $3,835,000 during the nine months ended September 30, 1998. This
increase resulted from growth in the volume of maxMC and Maxsys II contracts and
an increase in the value of maxMC contracts. During the nine months ended
September 30, 1999, two customers accounted for 23% and 16% of system sales
revenues.
During the nine months ended September 30, 1999, support services
revenues were $1,434,000, an increase of $621,000 or 76% from support services
revenues of $813,000 during the nine months ended September 30, 1998. This
increase in support services revenues resulted from an increase in the number of
support contracts sold for completed maxMC and Maxsys II contracts, partially
offset by declines in the number of Maxsys I support customers.
We believe that the number of contracts with hospital providers has
decreased due to their internal Year 2000 issues. We expect this trend to
continue through the first quarter of 2000.
Cost of Revenues. Cost of systems sales revenues consists principally of
costs incurred in the implementation of our software products, including
personnel costs, amortization of unearned stock-based compensation,
non-reimbursed travel expenditures, related department overhead, amortization of
capitalized software development costs, costs of third party software products,
and depreciation on equipment. Cost of system sales increased by $597,000 or 37%
from $1,626,000, representing 42% of system sales revenues, during the nine
months ended September 30, 1998 to $2,223,000, representing
23
<PAGE> 24
39% of system sales revenues, during the nine months ended September 30, 1999.
This cost increase resulted from an increase in personnel costs as we added
employees to perform software implementations, stock-based compensation expense
further discussed below, and additional license fees that were paid to third
party software vendors resulting from an increase in the volume of completed
software contracts. The increase in the gross margin on system sales from 58%
during the nine months ended September 30, 1998 to 61% during the nine months
ended September 30, 1999 resulted from implementation efficiencies realized from
the increased volume of software contracts and the increased size of individual
software contracts. We expect that cost of system sales revenues will continue
to increase as we add personnel to meet anticipated increases in contract
volume. We cannot yet determine the impact of these increased costs on our gross
margins.
Cost of support services revenues consists of personnel costs,
amortization of unearned stock-based compensation, support costs for third party
software licenses, related department overhead and depreciation on equipment.
Cost of support services revenues increased by $143,000 or 48% from $297,000,
representing 37% of support services revenues, during the nine months ended
September 30, 1998 to $440,000, representing 31% of support services revenues,
during the nine months ended September 30, 1999. This increase in dollars
resulted from an increase in salaries, benefits, stock-based compensation
expense further discussed below, and other personnel-related expenses as we
increased the size of the support services staff due to the increased volume of
customers purchasing support contracts. The increase in the gross margin on
support services from 63% during the nine months ended September 30, 1998 to 69%
during the nine months ended September 30, 1999 resulted from efficiencies
realized from additional support contracts sold for completed Maxsys II and
maxMC contracts. We expect that cost of support services revenues will continue
to increase in dollar amount as we continue to expand our customer support
department to meet anticipated customer demand. We cannot yet determine the
impact of these increased costs on our gross margins.
Research and Development. Research and development expenses consist of
personnel costs, amortization of unearned stock-based compensation, related
department overhead and depreciation on equipment. Research and development
expenses increased $217,000 or 21% from $1,024,000, representing 22% of total
revenues, during the nine months ended September 30, 1998 to $1,241,000,
representing 18% of total revenues, during the nine months ended September 30,
1999. This increase in dollars resulted from an increase in salaries, benefits
and other personnel-related expenses, including stock-based compensation expense
further discussed below, as we increased the size of the research and
development staff. We anticipate that we will continue to devote substantial
resources to research and development and that such expenses will increase in
dollar amounts. We cannot yet determine the impact of these increased costs on
our total operating expenses.
Sales and Marketing. Sales and marketing expenses consist principally of
compensation for our sales and marketing personnel, amortization of unearned
stock-based compensation, advertising, trade show and other promotional costs,
and department overhead. Sales and marketing expenses increased $1,191,000 or
108% from $1,103,000, representing 24% of total revenues, during the nine months
ended September 30, 1998 to $2,294,000, representing 33% of total revenues,
during the nine months ended September 30, 1999. This increase resulted from
increased salaries, benefits and other personnel-related expenses due to growth
in the number of sales and marketing personnel, stock-based compensation expense
further discussed below, increases in sales commissions due to an increase in
the volume of customer contracts, increases in travel costs due to the increased
headcount, and increases in trade shows and other marketing expenses incurred to
build additional product awareness. We expect that sales and marketing expenses
will continue to increase in dollar amounts as we continue to expand our sales
and marketing efforts, continue to add personnel and increase promotional
activities. We cannot yet determine the impact of these increased expenses on
our total operating expenses.
24
<PAGE> 25
General and Administrative. General and administrative expenses consist
of compensation for personnel, fees for outside professional services,
amortization of unearned stock-based compensation, and allocated occupancy and
overhead costs. General and administrative expenses increased $1,394,000 or 140%
from $999,000, representing 21% of total revenues, during the nine months ended
September 30, 1998 to $2,393,000, representing 34% of total revenues, during the
nine months ended September 30, 1999. This increase in dollars was due to an
increase in the number of employees, higher professional service fees,
stock-based compensation expense further discussed below, and increased
occupancy costs due to the commencement of our Atlanta office lease payment in
December 1998. We believe that our general and administrative expenses will
continue to increase in dollar amounts as a result of our growing operations,
the commencement of a new lease for expanded facilities in Chico in September
1999 and the expenses associated with operating as a public company. We cannot
yet determine the impact of these increased expenses on our total operating
expenses.
Stock-based Expenses. During the nine months ended September 30, 1999,
we recorded aggregate unearned compensation in the amount of $1,574,000 in
connection with the grant of certain stock options during 1999. Amortization of
stock-based compensation expense totaled $1,464,000 during the nine month period
ended September 30, 1999 and has been allocated to operating expenses as
follows: $141,000 to cost of system sales revenues, $11,000 to cost of support
sales revenues, $289,000 to sales and marketing, $102,000 to research and
development and $921,000 to general and administrative expenses. See Note 8 of
Notes to Financial Statements. There was no unearned compensation or stock-based
compensation expense during the nine month period ended September 30, 1998.
Interest and Other Income and Interest Expense. Interest and other
income consists primarily of earnings on our cash and cash equivalents. Interest
and other income amounted to $75,000 and $76,000 for the nine month periods
ended September 30, 1998 and 1999, respectively. During the nine month period
ended September 30, 1998, we incurred interest expense of $26,000 on obligations
to stockholders of the Company. We paid the obligations in full in March 1998.
Income Taxes. We recorded no income tax provision in the nine months
ended September 30, 1998 or 1999 due to the operating losses we incurred.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenues. System sales revenues increased by $2,129,000 or 211% from
$1,007,000 in 1996 to $3,136,000 in 1997 and by $1,831,000 or 58% to $4,967,000
in 1998. This increase in revenues resulted from growth in the volume of maxMC
and Maxsys II contracts. The increase from 1997 to 1998 was also due to an
increase in the value of maxMC contracts. In 1996, one customer accounted for
12% of system sales revenues and in 1998, one customer accounted for 13% of
system sales revenues. No customer accounted for more than 10% of system sales
revenues in 1997.
Support services revenues decreased $30,000 or 3% from $932,000 in 1996
to $902,000 in 1997 and increased by $348,000 or 39% to $1,250,000 in 1998. The
decrease from 1996 to 1997 in support services revenues resulted from the
decline in the total number of Maxsys I customers purchasing support contracts.
The increase from 1997 to 1998 in support services revenues resulted from
additional support contracts obtained as a result of the completion of maxMC and
Maxsys II software implementations, partially offset by a decline in Maxsys I
support revenues resulting from a continued decline in the total number of
Maxsys I support customers.
Cost of Revenues. Cost of system sales increased $598,000 or 120% from
$499,000, representing 50% of system sales revenues, in 1996 to $1,097,000,
representing 35% of system sales revenues, in 1997 and by $1,233,000 or 112% to
$2,330,000, representing 47% of system sales revenues, in 1998. This increase in
dollars resulted primarily from an increase in personnel-related
25
<PAGE> 26
expenses arising from an increase in headcount and, to a lesser extent from an
increase in license fees paid to third party software vendors resulting from an
increase in the volume of completed implementations. The increase in dollars
from 1997 to 1998 was also due to stock-based compensation expense further
discussed below. The increase in the gross margin on system sales from 50% in
1996 to 65% in 1997 resulted from an increase in contract volume without a
proportionate increase in headcount. The decrease in the gross margin on system
sales from 65% in 1997 to 53% in 1998 resulted from an increase in headcount as
we added personnel in anticipation of increases in the volume of software
contracts.
Cost of support services revenues increased by $14,000 or 5% from
$285,000, representing 31% of support services revenues, in 1996 to $299,000,
representing 33% of support services revenues, in 1997 and by $123,000 or 41% to
$422,000, representing 34% of support services revenues, in 1998. This increase
in dollars resulted from an increase in personnel-related expenses as we
increased the size of the support services staff due to the increased volume of
customers purchasing support contracts. The decrease in the gross margin on
support services from 69% in 1996 to 67% in 1997 resulted from the decline in
support services revenues due a decrease in the total number of Maxsys I
customers. The decrease in gross margin on support services from 67% in 1997 to
66% in 1998 resulted from an increase in headcount to support the increase in
customers purchasing support contracts.
Research and Development. Research and development expenses increased by
$25,000 or 2% from $1,269,000, representing 65% of total revenues, in 1996 to
$1,294,000, representing 32% of total revenues, in 1997 and by $116,000 or 9% to
$1,410,000, representing 23% of total revenues in 1998. This increase in dollars
resulted from an increase in personnel-related expenses as we increased the size
of the research and development staff.
Sales and Marketing. Sales and marketing expenses increased by $394,000
or 50% from $782,000, representing 40% of total revenues, in 1996 to $1,176,000,
representing 29% of total revenues, in 1997 and by $699,000 or 59% to
$1,875,000, representing 30% of total revenues, in 1998. This increase in
dollars resulted from increased personnel-related expenses due to growth in the
number of sales and marketing personnel, increases in sales commissions due to
an increase in the volume of software contracts, increases in travel costs due
to the increased headcount, and increases in trade shows and other marketing
expenses to build additional product awareness. The increase from 1997 to 1998
was also due to stock-based compensation expense further discussed below.
General and Administrative. General and administrative expenses
increased by $174,000 or 22% from $801,000, representing 41% of total revenues,
in 1996 to $975,000, representing 24% of total revenues, in 1997 and by
$1,190,000 or 122% to $2,165,000, representing 35% of total revenues, in 1998.
This increase in dollars was due to an increase in the number of employees and
higher professional service fees. The increase from 1997 to 1998 was also due to
increased employee relocation expenses and stock-based compensation expense
further discussed below.
Stock-based Expenses. During 1998, we recorded aggregate unearned
compensation in the amount of $4,166,000 in connection with the grant of certain
stock options during 1998. Related amortization totaled $1,173,000 during 1998
and has been allocated to operating expenses as follows: $86,000 to cost of
system sales revenues, $3,000 to cost of support sales revenues, $287,000 to
sales and marketing, $17,000 to research and development and $780,000 to general
and administrative expense. See Note 8 of Notes to Financial Statements.
Interest and Other Income and Interest Expense. The increase in interest
income of $101,000 in 1999 results entirely from interest earned on the proceeds
from the Company's Series D Preferred Stock financing. Interest expense
increased from $200,000 in 1996 to $208,000 in 1997 due to additional borrowings
from stockholders, and decreased to $26,000 in 1998 due to the repayment of
stockholder borrowings using proceeds from the sale of preferred stock in
February 1998.
26
<PAGE> 27
Income Taxes. We recorded no provision for federal and state income
taxes as we incurred net operating losses in 1996, 1997 and 1998. As of December
31, 1998, we had net operating loss carryforwards for federal tax purposes of
$6,309,000 and for state tax purposes of $1,442,000. These federal and state tax
loss carryforwards are available to reduce future taxable income and expire at
various dates through fiscal 2013. Under the provisions of the Internal Revenue
Code, certain substantial changes in our ownership may limit the amount of net
operating loss carryforwards that we could utilize annually in the future to
offset taxable income. We have not recognized a deferred tax asset on our
balance sheet. See Note 5 of Notes to Financial Statements.
27
<PAGE> 28
UNAUDITED QUARTERLY FINANCIAL RESULTS
The following table presents our quarterly results of operations for
each of the seven quarters in the period ended September 30, 1999. You should
read the following table in conjunction with our financial statements and the
related notes included in this prospectus. We have prepared this unaudited
information on the same basis as the audited financial statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
------------- ------------- ------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
System sales.................... $ 677 $1,392 $1,766 $ 1,132 $1,688
------ ------ ------ ------- ------
Support services................ 239 275 299 437 444
------ ------ ------ ------- ------
Total revenues................ 916 1,667 2,065 1,569 2,132
------ ------ ------ ------- ------
Cost of revenues:
System sales.................... 432 522 672 704 755
Support services................ 90 100 107 125 149
------ ------ ------ ------- ------
Total cost of revenues........ 522 622 779 829 904
------ ------ ------ ------- ------
Gross profit...................... 394 1,045 1,286 740 1,228
------ ------ ------ ------- ------
Operating expenses:
Sales and marketing............. 363 394 346 772 752
Research and development........ 335 318 371 386 390
General and administrative...... 264 274 461 1,166 772
------ ------ ------ ------- ------
Total operating expenses...... 962 986 1,178 2,324 1,914
------ ------ ------ ------- ------
(Loss) income from operations..... (568) 59 108 (1,584) (686)
Interest and other income, net.... 16 33 26 26 22
Interest expense.................. (26) -- -- -- --
------ ------ ------ ------- ------
Net (loss) income................. $ (578) $ 92 $ 134 $(1,558) $ (664)
====== ====== ====== ======= ======
<CAPTION>
QUARTER ENDED
-----------------------------
JUNE 30, SEPTEMBER 30,
1999 1999
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
System sales.................... $2,037 $1,908
------ ------
Support services................ 482 508
------ ------
Total revenues................ 2,519 2,416
------ ------
Cost of revenues:
System sales.................... 722 746
Support services................ 147 144
------ ------
Total cost of revenues........ 869 890
------ ------
Gross profit...................... 1,650 1,526
------ ------
Operating expenses:
Sales and marketing............. 752 790
Research and development........ 381 470
General and administrative...... 784 837
------ ------
Total operating expenses...... 1,917 2,097
------ ------
(Loss) income from operations..... (267) (571)
Interest and other income, net.... 27 27
Interest expense.................. -- (4)
------ ------
Net (loss) income................. $ (240) $ (548)
====== ======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
FOR THE QUARTER ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
System sales..................... 73.9% 83.5% 85.5% 72.1%
Support services................. 26.1 16.5 14.5 27.9
------ ------ ------ ------
Total revenues................. 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of revenues:
System sales..................... 47.2 31.3 32.5 44.9
Support services................. 9.8 6.0 5.2 7.9
------ ------ ------ ------
Total cost of revenues......... 57.0 37.3 37.7 52.8
------ ------ ------ ------
Gross profit....................... 43.0 62.7 62.3 47.2
------ ------ ------ ------
Operating expenses:
Sales and marketing.............. 39.6 23.6 16.7 49.2
Research and development......... 36.6 19.1 18.0 24.6
General and administrative....... 28.8 16.4 22.3 74.3
------ ------ ------ ------
Total operating expenses....... 105.0 59.1 57.0 148.1
------ ------ ------ ------
(Loss) income from operations...... (62.0) 3.6 5.3 (100.9)
Interest and other income, net..... 1.7 2.0 1.2 1.6
Interest expense................... (2.8) -- -- --
------ ------ ------ ------
Net (loss) income.................. (63.1%) 5.6% 6.5% (99.3%)
------ ------ ------ ------
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
FOR THE QUARTER ENDED
---------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
1999 1999 1999
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
System sales..................... 79.2% 80.9% 79.0%
Support services................. 20.8 19.1 21.0
------ ------ ------
Total revenues................. 100.0 100.0 100.0
------ ------ ------
Cost of revenues:
System sales..................... 35.4 28.7 30.8
Support services................. 7.0 5.8 6.0
------ ------ ------
Total cost of revenues......... 42.4 34.5 36.8
------ ------ ------
Gross profit....................... 57.6 65.5 63.2
------ ------ ------
Operating expenses:
Sales and marketing.............. 35.3 29.9 32.8
Research and development......... 18.3 15.1 19.4
General and administrative....... 36.2 31.1 34.6
------ ------ ------
Total operating expenses....... 89.8 76.1 86.8%
------ ------ ------
(Loss) income from operations...... (32.2) (10.6) (23.6)
Interest and other income, net..... 1.1 1.1 1.1
Interest expense................... -- -- (.2)
------ ------ ------
Net (loss) income.................. (31.1%) (9.5%) (22.7%)
------ ------ ------
</TABLE>
28
<PAGE> 29
Our revenues in the fourth quarter have generally been lower than those
in the third quarter due to staff vacations and our customers' holiday
schedules, which impact the progress of our implementation efforts.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through net cash
generated from operating activities, and private sales of common and preferred
stock, with net proceeds totaling $11.1 million. As of September 30, 1999, we
had $2.1 million in cash and cash equivalents and $157,000 in working capital
with outstanding debt totaling $255,000.
Net cash used in operating activities was $359,000 in 1996, $17,000 in
1997 and $2.4 million in 1998. Net cash provided by operating activities was
$435,000 in the nine months ended September 30, 1999. Net cash used to fund
operating activities in 1996 reflects net losses before non-cash charges for
depreciation and amortization and increases in accounts receivable, offset in
part by increases in deferred revenues, and increases in accounts payable and
accrued expenses. Net cash used to fund operating activities in 1997 reflects
net losses before non-cash charges for depreciation and amortization and
decreases in deferred revenue, offset in part by increases in accounts payable
and accrued expenses, and decreases in accounts receivable. Net cash used to
fund operating activities in 1998 reflects net losses before non-cash charges
for depreciation and amortization, amortization of unearned stock-based
compensation, increases in accounts receivable, decreases in deferred revenue,
and decreases in accounts payable and accrued expenses. Net cash provided by
operating activities in the nine months ended September 30, 1999 consists of net
losses before non-cash charges for depreciation and amortization, and increases
to accounts payable, accrued expenses and deferred revenue.
Net cash used in investing activities was $161,000 in 1996, $235,000 in
1997, $397,000 in 1998 and $636,000 for the nine months ended September 30,
1999. Investing activities consist primarily of purchases of computer equipment,
office furniture and leasehold improvements, and additions to capitalized
software development costs.
Net cash generated from financing activities was $439,000 in 1996,
$394,000 in 1997, $4.7 million in 1998 and $263,000 for the nine months ended
September 30, 1999. Net cash generated from financing activities in 1996 and
1997 resulted almost entirely from net proceeds from bank and stockholder
borrowings. Net cash generated from financing activities in 1998 resulted from
the issuance of preferred stock and common stock, partially offset by principal
payments on stockholder notes payable.
We purchased assets from High Technology Solutions, Inc. on January 31,
2000. At the closing, we paid High Technology Solutions, Inc. $250,000 and
delivered a promissory note in the principal amount of $1,000,000. Pursuant to
the terms of the promissory note we will pay High Technology Solutions, Inc.
four quarterly payments of $250,000 after the closing. The promissory note is
secured by the assets we purchased.
In February 1998, the Company entered into an agreement with Brian Lang
whereby the Company agreed to pay a bonus of $335,000 to Mr. Lang upon the
successful completion of an initial public offering. We will accrue and record
such amount as an operating expense in the period that we complete this
offering.
In February 1999, we obtained a line of credit that allows maximum
borrowings of $2.0 million. The agreement allows us to designate up to $300,000
of the maximum borrowings as a term note. Advances on the line of credit and the
term note are secured by all of our tangible and intangible personal property.
At September 30, 1999, we had not drawn against the line of credit, and $255,000
was outstanding on the term note, which we used to finance the purchase of
certain fixed assets. The line of credit and term note contain various
restrictive covenants, one of which the Company was not in compliance with at
September 30, 1999. In January 2000, the Company
29
<PAGE> 30
obtained waivers for all financial covenants for the period beginning September
30, 1999 through March 31, 2000, the expiration date of the line of credit and
term note.
We signed a lease for a new principal facility in March 1999. We began
making lease payments in September 1999 and we will continue to make such
payments for eighty-four months, resulting in aggregate lease expenses of
approximately $34,000 per quarter.
We expect to experience significant growth in our operating expenses for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash and cash
equivalents and the net proceeds from the sale of the common stock in this
offering will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. Thereafter, we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and may seek to raise such additional funds
through public or private debt or equity financings. Such additional financing
may be unavailable, or if it is available, it may only be available on
unreasonable terms and may be dilutive to our stockholders.
YEAR 2000 READINESS
Year 2000 problems refer to the inability of computer systems, software
products and other control devices to accept four digit entries to distinguish
21st century dates from 20th century dates.
We have not experienced any Year 2000 problems with our systems, and
none of our customers have complained of any Year 2000 problems with our
solutions. We have designed our solutions to be Year 2000 compliant. The
third-party software vendors whose products we sublicense to our customers have
provided us with assurances that their software is also Year 2000 compliant.
However, our solutions and the software we sublicense to our customers may
nevertheless contain undetected errors or defects associated with Year 2000 date
functions. If such errors or defects do exist, we may incur significant costs to
resolve them.
We have assessed our material internal information technology systems,
including our own solutions and third-party software and hardware technology,
and our non-information technology systems. We have completed testing of our
critical information technology systems and non-information technology systems.
To the extent that we were not able to test the technology provided by
third-party vendors, we have sought assurances from these vendors that their
systems are Year 2000 compliant. To date, we have not experienced any material
operational issues or costs with respect to our systems associated with the
change to the Year 2000. However, we may nevertheless experience material
unanticipated problems and costs caused by undetected errors or defects in the
technology used in our internal information technology and non-information
technology systems.
If our customers are not Year 2000 compliant, they may experience
material costs to remedy problems, and they could potentially face litigation
costs if problems with their information or other systems affect patient care.
In either case, Year 2000 issues could reduce or eliminate the budgets that
current or potential customers have for our solutions or could delay purchases
of our solutions. Such a result could seriously harm our business.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material.
Due to the Year 2000 compliance information gathered so far on our
solutions and internal systems that are critical to our continued operations in
the Year 2000, we believe that significant expenditures on contingency plans are
not warranted and no such expenditures have been made. Finally, we are also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failure
interruptions.
30
<PAGE> 31
Year 2000 issues affecting our business, our third party vendors or
suppliers, or our customers could have a number of "worst case" consequences.
These include:
- a significant decline in demand for our solutions;
- the failure of our newer solutions or applications in development to
achieve market acceptance;
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our solutions and
services to function properly, and any resulting settlements or
judgments; and
- our inability to manage our own business.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. We have adopted the provisions of SOP 98-1 in our
fiscal year beginning January 1, 1999, and the effects of adoption did not have
a material effect on our financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. SFAS 133 establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 deferred the effective date until the first fiscal
quarter ending June 30, 2000. We will adopt SFAS 133 in our quarter ending June
30, 2000 and do not expect such adoption to have a material effect on our
financial statements.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SoP No. 97-2, Software Revenue Recognition, With respect to
Certain Transactions" ("SoP 98-9"), which is effective for transactions entered
into in fiscal years beginning after March 15, 1999. SoP 98-9 amends SoP 97-2
and extends the effective date of SoP No. 98-4 "Deferral of the Effective Date
of a Provision of SoP 97-2, Software Revenue Recognition" ("SoP 98-4"), and
provides additional interpretive guidance. The adoption of SoP 97-2 has not had,
and the adoption of SoP 98-4 and SoP 98-9 are not expected to have, a material
effect on our financial statements.
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BUSINESS
OVERVIEW
We offer business-to-business Internet-based and other electronic
medical management solutions to healthcare payers and providers designed to
control the cost and improve the quality of healthcare delivery. Our medical
management solutions automate and streamline administrative and business
processes and facilitate interaction among various healthcare participants. Our
solutions help our clients deliver consistent and appropriate medical care
utilizing clinical guidelines and business process rules specified by them,
while minimizing inefficient paper-, fax- and phone-based communications.
We currently offer two products to healthcare payers: maxMC and e-maxMC,
our new, Internet-based medical management solution. As of December 31, 1999,
five payers who claim to have a combined membership of six million participants
were using maxMC. We have completed internal testing of e-maxMC, and we expect
to complete testing with one of our payer customers in early 2000. We believe
that the lack of functionality offered by existing Internet-based medical
management products provides a significant market opportunity for e-maxMC. We
believe that the sticky applications incorporated in e-maxMC will drive repeat
visits to payers' Web sites by their providers members.
Maxsys II is our product for healthcare providers. As of December 31,
1999, approximately 175 hospitals were using Maxsys II or its predecessor,
Maxsys I, which we continue to support with a maintenance program, but no longer
market.
Our solutions utilize an n-tiered system architecture that enables them
to complement existing information systems, as well as other Internet-based
products, with a rich set of medical management functions. An n-tiered system
architecture is one that accommodates the concurrent operation of multiple
servers and applications. Our solutions are flexible and secure, and we can
deploy them across a broad range of computing environments. They are also
scalable, which means customers can use them on a small scale for a limited
number of users or on a large scale for multiple users without affecting product
performance. As a result, our customers can configure and adapt our solutions to
fit their specific administrative and business processes, clinical guidelines,
existing information systems and business models.
THE INDUSTRY
Growth and Proliferation of the Internet. The Internet is the fastest
growing medium in history. The Internet is increasingly being used for
business-to-business and business-to-consumer interaction and is transforming
the fundamental economics and structure of many industries. The use of the
Internet has evolved from simple information publishing, messaging and data
gathering to enabling critical business transactions and confidential
communications. We believe payers and providers will increasingly rely on the
Internet to improve and expand their businesses and to control the cost of
healthcare delivery. In a recent survey by The Gartner Group, e-commerce ranked
as the second most important initiative for managed care organizations after
Year 2000 issues and was identified as the factor that will differentiate
managed care organizations in the future.
Complexity of the Healthcare Industry. Healthcare costs in the United
States have risen dramatically over the past two decades and now represent
approximately $1.1 trillion, or 14% of the annual gross domestic product. Of
this $1.1 trillion, an estimated $250 billion relates to unnecessary care,
redundant tests and procedures and excessive administrative costs. Insurance
carriers and other third-party payers have moved aggressively to control costs.
These payers have established rules for providers and patients to follow in
arriving at treatment decisions in order to manage the use of healthcare
resources more efficiently. These rules have increased the complexity and
administrative burden of delivering healthcare by requiring numerous and
complicated interactions
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among various industry participants, including interactions related to
verification of eligibility, determination of benefits, treatment decisions,
coordination of care and case and disease management. Managing these
interactions consumes a significant amount of labor and time, as most
information is delivered via paper-, phone- and fax-based exchanges and involves
redundant data entry and significant communication inefficiencies.
Problems with the Current Healthcare Information Technology
Environment. The unique characteristics of the healthcare industry, including
the large number of participants, the complexity of healthcare transactions and
pervasive concerns about confidentiality of patient information, have inhibited
the development of technology solutions that automate administrative and
business processes and clinical procedures and transactions across multiple
industry participants. Healthcare organizations and their traditional technology
vendors have focused on automating discrete business and administrative
processes, such as billing and scheduling for physicians, or claims processing
for hospitals and payers. As a result, the industry currently uses numerous
different mainframe and client/server systems that do not communicate with one
another, trapping information that needs to be shared among industry
participants in isolated, proprietary databases using non-standardized data
formats.
Impact of the Internet on the Healthcare Industry. We believe the
healthcare industry, because of its size, fragmentation and dependence on
information exchange, is extremely well suited to benefit from greater use of
the Internet. Consumers are utilizing the Internet to become more involved in
their personal healthcare by accessing healthcare information content and
purchasing health-related goods and services. Healthcare organizations are
increasingly utilizing the Internet to achieve enhanced connectivity and
communication among industry participants across the continuum of care. However,
we believe that many existing Internet-based products have merely linked
industry participants without providing them with the medical management
functions they need to manage administrative and business processes and clinical
procedures and transactions.
OUR SOLUTIONS
Our solutions provide the medical management functionality lacking in
existing Internet-based connectivity products and traditional healthcare
technology products. Our solutions utilize an n-tiered system architecture to
manage communication and interaction among payers, providers and members. Our
solutions automate and streamline administrative and business processes and
clinical procedures and transactions, and minimize inefficient paper-, fax- and
phone-based communications among payers, providers and members.
Our solutions benefit payers by:
- automating and streamlining administrative and business processes and
clinical procedures and transactions to enhance operational
efficiencies;
- increasing adherence to clinical guidelines to reduce delivery of
inappropriate care;
- providing sticky applications to attract providers and members to
payers' Web sites;
- enhancing member satisfaction; and
- aggregating member data for trend analysis and decision support.
Our solutions benefit providers by:
- automating and streamlining administrative and business processes and
clinical procedures and transactions to enhance operational
efficiencies;
- reducing payment denials and claims appeals by payers;
- increasing quality and consistency of care;
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- improving the efficiency of incident reporting and reducing the risk
of legal liability;
- assisting with accreditation and administration of compliance
programs; and
- aggregating data for trend analysis and decision support.
Members benefit from:
- increased access to health information content;
- empowerment and self-care, including participation in case management,
disease management and wellness programs; and
- improved information flow such as referral tracking, claims status
inquiries and personal information updating.
OUR STRATEGY
Our objective is to be the leading provider of Internet-based and other
electronic medical management solutions for healthcare payers and providers. Key
components of our strategy include:
Aggressively marketing our new Internet-based medical management
solution. We will aggressively market e-maxMC to payers. We believe that the
lack of medical management features and functions offered by existing
Internet-based products and services provides a significant market opportunity
for e-maxMC.
Achieving greater market penetration. We intend to expand our sales and
marketing team significantly in order to achieve greater penetration in the
healthcare payer and provider markets. We will continue to pursue opportunities
for additional sales to our current customers who may wish to acquire new
solutions, add new functions to existing solutions or extend our solutions to
new facilities and territories.
Developing and offering application service provider services for medium
to small payers and hospitals. We believe that many healthcare organizations do
not have the expertise, resources and time to develop internally their
consumer-focused, online initiatives. Consequently, we plan to provide payers
and hospitals with Web site consulting services, including design, development,
maintenance and hosting. If we are successful in developing and offering these
services, we believe we will be able to build stronger relationships with our
current clients and expand our client base.
Continuing to add functionality to our electronic medical management
solutions. We will continue to use our industry experience and understanding of
payers' and providers' specific medical management requirements to respond to
developments in the healthcare industry and develop additional features and
functionality for our solutions. We intend to incorporate the sticky
applications of e-maxMC into payers' Web sites to assist them with their
Internet healthcare initiatives. In addition, we plan to develop relationships
with leading providers of Internet healthcare content, disease management and
health-related e-commerce services in order to provide a comprehensive Internet
services offering for payers. We believe that this will enable us to forge
stronger relationships with payers and could potentially generate sponsorship,
advertising and e-commerce revenues.
Pursuing strategic partnerships and acquisitions. To accelerate
implementation of elements of our strategy, we intend to target and pursue
strategic acquisitions and relationships, such as marketing alliances with
vendors of complementary products and services and partnerships with Internet
providers of healthcare content, disease management and health-related
e-commerce services. We may pursue acquisitions, partnerships or licensing
arrangements to obtain technology if we determine that to do so would be more
cost effective or timely than developing our own. We also may choose to broaden
our customer base through acquisitions to improve our economies of scale.
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On January 31, 2000, we purchased from High Technology Solutions, Inc.
assets related to its business of providing Web site services to healthcare
payers. The purchase price for the assets is $1,268,000 (including an estimated
$18,000 of assumed liabilities) of which we paid $250,000 at the closing. We
will pay the balance in four quarterly payments of approximately $250,000 in
accordance with a promissory note secured by the assets we purchased. The
acquisition of the assets and the related addition of a number of former
employees of High Technology Solutions, Inc. benefits Landacorp by allowing us
to accelerate the implementation of our strategy of providing Web site services
to healthcare payers.
PRODUCTS
We currently market our solutions to payers and providers. The flexible
and open design of our solutions enables us to configure them to address our
customers' evolving needs and specific clinical, administrative and business
requirements. Our solutions feature:
- Rules Based Processing Capabilities. Our workflow engine utilizes a
series of customized "if . . . then . . . " associations to trigger
actions based upon changes in the state of any data within the
database (e.g., automatically notifying a case manager if a high-risk
authorization is requested).
- Clinical Guidelines Integrated into Workflow Applications. Our
solutions incorporate industry standard clinical guidelines and
specific medical management criteria provided by our customers into
automated authorization, case management and disease management
workflow processes.
- Interfacing Capabilities. We have built more than 300 interfaces which
enable efficient integration of our medical management solutions with
other data systems. An interface is a method for transferring data
from one system to another and a point at which a user can
automatically launch a third-party program from within a given data
system.
- Trend Analysis and Decision Support Tools. Our solutions enable
healthcare personnel to graphically view data in order to identify
trends and spend more time resolving issues rather than identifying
them.
MAXMC. Our core medical management solution for payers is maxMC. maxMC
integrates a payer's internal medical management guidelines and clinical,
administrative and business processes with specific information about a payer's
members. Key functions of this product include:
Care Coordination Center. This function verifies membership and benefits
eligibility and incorporates industry standard clinical guidelines, including
InterQual(R) and Milliman & Robertson, and criteria provided by the payer into
the treatment decision process to ensure consistent decisions about care across
member populations. Once the treatment decision data is input and the treatment
request is authorized, the function enables the appropriate data to be directly
and promptly exported to the payer's claims adjudication systems.
Case and Disease Management. This function supports both case management
and disease management programs using a combination of clinical disease
assessment protocols selected by the client. The client can employ these
protocols to determine appropriate levels of care, perform short- and long-term
care planning and minimize costly unnecessary procedures. The client can deploy
health assessments to identify members requiring case or disease management,
care planning or healthcare education.
Credentialing. This function assists with maintenance and review of
healthcare provider credentials by automating the maintenance and review of
physician and other care provider information, such as continuing medical
education credits, medical board certifications and records of disciplinary and
other adverse actions. Using the function, a payer can efficiently send requests
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for data to the National Practitioner Data Bank and other governmental bodies
and receive and incorporate that data in its systems for use in regulatory
compliance and other decision making.
E-MAXMC. Our new Internet-based medical management solution for payers,
e-maxMC, introduces providers and members into payers' internal medical
management systems by combining the immediate and broad-based connectivity of
the Internet with the medical management functions provided by our maxMC
solution. This solution will enable providers and members to secure access to a
payer's medical management information and proprietary business processes,
giving them the ability to engage in real-time, Internet-based transactions such
as clinically-based authorizations, referrals and health risk assessments. We
have successfully tested e-maxMC internally, and we expect to complete an
on-site test with one of our payer customers in early 2000.
e-maxMC will enable the following Web-based interactions between payers
and providers:
Referral Advice. Online notification to payers of referrals to
specialists and others by primary care physicians.
Treatment Requests and Communications. Affords primary care physicians
and specialists a medium for conducting online eligibility checks, requests for
care, clinical criteria analysis and benefits checks, in each case, in
accordance with individual payers' requirements.
Assignment of Care. Online capability for primary care physicians to
assign care management to appropriate specialists.
Cross-coverage. Online notification by one primary care physician that
another primary care physician will provide coverage for a specific period of
time.
Case and Disease Management Program Enrollment. Online requests that
patients be considered for enrollment in a particular case or disease management
program.
Inpatient Admission. Online notification by an inpatient facility that a
member has been admitted.
Health Risk Assessment. Online completion of health risk assessments by
primary care physicians and specialists.
e-maxMC will enable the following Web-based interactions between payers
and their members:
Information Exchange. Online reviewing and updating of member
demographic information and checking of plan benefit and claim status
information.
Physician Selection. Online selection of primary care physician in
accordance with payer-specific policies from up-to-date lists of in-network
physicians.
Health Risk Assessment. Online completion of health risk assessments by
members.
We will utilize e-maxMC's sticky applications to assist payers with the
development of their healthcare Web sites and other Internet healthcare
initiatives. We will seek to provide payer organizations with, among other
Internet services, healthcare content, disease management tools and e-commerce
capabilities in partnership with leading Internet companies. We believe that
this strategy will enable us to forge strong relationships with payers and could
potentially generate sponsorship, advertising and e-commerce revenues.
MAXSYS II. Maxsys II, our medical management solution for hospital
providers, enables hospital providers to improve communications and apply more
efficient workflow tools to the process of delivering healthcare. Maxsys II is
the successor to our Maxsys I product, which we
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continue to support with a maintenance program, but no longer market. Key
functions of our Maxsys II solution include:
Case/Utilization Management. This function helps ensure that patients
receive appropriate levels of care and minimizes expenses associated with
inappropriate and unduly lengthy hospital stays. The function enables providers
to reduce inefficient use of human resources and reduce denials of reimbursement
by payers resulting from failure to follow payer guidelines. Our provider
customers achieve these outcomes through the automation of the initial
evaluation and on-going review of patient care in order to monitor compliance
with clinical guidelines, including guidelines provided by the provider customer
and industry standard clinical guidelines, such as InterQual(R) and Milliman &
Robertson.
Quality Management. This function helps identify deficiencies in patient
care or provider performance and alert process improvement personnel in order to
promote early intervention. The function allows a provider's staff to monitor
and evaluate the provider's care processes, treatments, operative procedures and
outcomes. It also permits quality managers to better monitor high-cost,
high-risk procedures and to enforce quality initiatives by providing variance
reporting, process monitoring and centralized data.
Risk Management. This function helps to reduce financial losses by
automating and supporting timely and thorough investigations, interventions,
communication and education regarding potential and actual claims. This function
enables a provider's risk management staff to be notified instantly as incidents
are reported by personnel anywhere within the organization. The function also
supports efficient management, tracking and analysis of potential and asserted
claims by patient/episode, staff members, physicians, allied health
professionals and visitors.
Infection Control. This function facilitates effective management of
epidemology and analysis of treatment protocols based on the National Nosocomial
Infections Study model, which reports the national standards for epidemology
studies. The function eliminates redundant manual data entry by extracting
pertinent data from other sources in a provider's information technology system
and from data collected by case and quality management staff.
Credentialing. This function supports the tracking of provider
credentials by automating the maintenance and review of physician and other care
provider information such as continuing medical education credits, medical board
certifications and records of disciplinary and other adverse actions. The
function also facilitates the exchange of data with the National Practitioner
Data bank and other governmental bodies.
SERVICES
We offer our payer and provider customers comprehensive implementation
services such as:
- management of projects;
- identification of customer-specific system requirements;
- consideration of interactions between our solutions and our customer's
information systems and designing appropriate administrative, clinical
and business processes;
- building proprietary interfaces to other systems and configuring
hardware and software to support the customer's administrative,
clinical and business processes; and
- training customer personnel.
We plan to offer a broad range of Internet-related services, such as:
- co-developing payers' healthcare Web sites;
- designing and implementing branding strategies and sticky
applications;
- determining hardware and software requirements; and
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- providing general health content, disease management tools and
e-commerce capabilities in partnership with leading Internet
companies.
CUSTOMERS
We target payers with membership ranging from several million to 50,000
covered lives. As of December 31, 1999, five payers who claim to have a combined
membership of six million participants were using maxMC. Our top payer customers
by total contract value are Highmark (f/k/a Blue Cross Blue Shield of Western
Pennsylvania) and Renal Management Systems (a subsidiary of Baxter International
Inc.). Highmark and Renal Management Systems are currently using our maxMC
solution. Renal Management was the first of our customers to utilize maxMC's
disease management functionality, which they have implemented using a central
database and twenty-two remote satellite operations throughout the United
States.
We target hospital providers with licensed beds ranging from several
thousand to as few as 250. As of December 31, 1999 approximately 175 hospitals
were using Maxsys II or its predecessor, Maxsys I. Our top three provider
customers by total contract value are New York and Presbyterian Health Network,
All Children's Hospital of St. Petersburg and the Baptist Healthcare Systems,
Inc. New York and Presbyterian Health Network is currently implementing Maxsys
II at nine of its thirteen facilities. All Children's Hospital has recently
completed implementation of Maxsys II. Baptist Healthcare Systems has completed
implementation of Maxsys II across its five hospital system. Many of our
hospital provider customers continue to use Maxsys I, the predecessor of Maxsys
II, which we continue to support with a maintenance program, but no longer
market.
TECHNOLOGY
We believe that our proprietary technology platform provides us with a
competitive advantage. Our products utilize n-tiered and Web architecture
systems derived from our proprietary object oriented software foundation.
Through the application of middleware platforms or service oriented applications
that include business rules and service functions, our technology supports our
medical management solutions by ensuring high availability and scalability. We
currently employ Oracle database management systems to support the data storage
requirements of our solutions. We are also currently working towards releasing a
Microsoft SQL Server database management system version to appropriately
qualified sites.
We have developed an open architecture standard, allowing separate
functional components to run on several different hardware platforms. Maxsys II
and maxMC, based upon the leading fourth generation language of PowerBuilder,
run on standard Intel-compatible personal computers. Our common object request
broker architecture, CORBA, based rules engine runs on Microsoft NT and Sun
Solaris systems. emaxMC, which utilizes Java and Java Servelets for its
functionality and either Microsoft's Internet Explorer or Netscape's Netscape
Communicator browsers for the provider interface, makes use of any Internet
capable system with the application itself being served by a Microsoft NT or Sun
Solaris platform. Our data interface engine operates on the leading UNIX or
Microsoft NT platforms. Additional servers may be placed in the system, such as
report servers, fax servers or additional application servers, in order to
ensure scalability without performance loss. The interaction of all these
services and middleware makes the system truly n-tiered, rather than two-tiered
(client/server) or three-tiered (client/application/server).
COMPETITION
The market for our solutions is highly competitive and is characterized
by rapidly changing technology, evolving user needs and the frequent
introduction of new products. The principal companies we compete against in the
payer market include HPR (a subsidiary of McKesson HBOC), MedDecision, PhyCom
and Confer. In the hospital provider market, we compete against MIDS, SoftMed
Systems and others.
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We expect that competition will continue to increase as a result of
consolidation in the Internet, information technology and healthcare industries.
We believe that the principal factors affecting competition in our markets
include, product functionality, performance, flexibility and features, use of
open standards technology, quality of service and support, company reputation,
price and overall cost of ownership. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We depend upon our proprietary information and technology. We rely
primarily on a combination of copyright, trademark and trade secret laws and
license agreements to establish and protect our rights in our software products
and other proprietary technology. We require employees and third-party
consultants and contractors to enter into nondisclosure agreements to limit use
of, access to, and distribution of, our proprietary information. Nevertheless,
our means of protecting our proprietary rights may not be adequate to prevent
misappropriation. The laws of some foreign countries may not protect our
proprietary rights as fully or in the same manner as do the laws of the United
States. Also, despite the steps taken by us to protect our proprietary rights,
unauthorized third parties may be able to copy aspects of our products, reverse
engineer our products or otherwise obtain and use information that we regard as
proprietary. Furthermore, others may independently develop technologies similar
or superior to our technology, or design around the proprietary rights that we
own.
GOVERNMENT REGULATION
Participants in the healthcare industry, such as our payer and provider
customers, are subject to extensive and frequently changing laws and
regulations, including laws and regulations relating to the confidential
treatment and secure transmission of healthcare information such as patient
medical records. Legislators at both the state and federal levels have proposed
additional legislation relating to the use and disclosure of medical
information, and the federal government is likely to enact new federal laws or
regulations in the near future. Pursuant to the Health Insurance Portability and
Accountability Act of 1996, HIPAA, the Department of Health and Human Services,
DHHS, has proposed regulations setting forth security and privacy standards for
all health plans, clearinghouses and providers to follow with respect to an
individual's healthcare information that is electronically transmitted,
processed, or stored. In addition, Congress is currently considering various
legislative proposals regarding health information privacy.
While we do not believe that the security and privacy provisions of
HIPAA apply to Landacorp directly, our provider customers and our payer
customers must comply with HIPAA, its associated regulations and all other
applicable healthcare laws and regulations. Accordingly, in order for our
medical management solutions to be marketable, they must contain features and
functionality that allow our customers to comply with these laws and
regulations. We believe our products currently allow our customers to comply
with existing laws and regulations. However, because new regulations are yet to
come and because the proposed regulations may be modified prior to becoming
final, our products may require modification in the future. Any such
modification could be expensive, could divert resources away from other product
development efforts or could delay future releases or product enhancements. If
we fail to offer solutions that permit our customers to comply with applicable
laws and regulations our business will suffer.
In addition, laws governing healthcare payers and providers are often
not uniform among states. This could require us to undertake the expense and
difficulty of tailoring our products in order for our customers to be in
compliance with applicable state and local laws and regulations.
The Internet and its associated technologies are also subject to
government regulation. Many existing laws and regulations, when enacted, did not
anticipate the methods of Internet-based medical management solutions we offer.
We believe, however, that these laws and regulations may
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nonetheless be applied to us. Current laws and regulations which may affect our
Internet-based business relate to the following:
- patient medical record information;
- the electronic transmission of information between healthcare
providers, payers, clearinghouses and other healthcare industry
participants;
- the use of software applications in the diagnosis, cure, treatment,
mitigation or prevention of disease;
- health maintenance organizations, insurers, healthcare service
providers and/or employee health benefit plans; and
- the relationships between or among healthcare providers.
We expect to conduct our Internet-based medical management business in
substantial compliance with all material federal, state and local laws and
regulations governing our operations. However, the impact of regulatory
developments in the healthcare industry is complex and difficult to predict, and
our business could be adversely affected by existing or new healthcare
regulatory requirements or interpretations. These requirements or
interpretations could also limit the use of the Internet for our medical
management solutions or even prohibit the sale of a particular product or
service.
Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming more prevalent. Such laws
and regulations have covered, or may cover in the future, issues such as:
- security, privacy and encryption;
- pricing;
- taxation;
- content;
- copyrights and other intellectual property;
- contracting and selling over the Internet;
- distribution; and
- characteristics and quality of services.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Demand for our Internet-based applications and services may be affected by
additional regulation of the Internet. Any new legislation or regulation
regarding the Internet, or the application of existing law and regulations to
the Internet, could adversely affect our business. Additionally, while we do not
currently operate outside of the United States, the international regulatory
environment relating to the Internet market could have an adverse effect on our
business, especially if we expand internationally.
The growth of the Internet, coupled with publicity regarding Internet
fraud, may also lead to the enactment of more stringent consumer protection
laws. These laws may impose additional burdens on our business. The enactment of
any additional laws or regulations in this area may impede the growth of the
Internet, which could decrease our potential revenues or otherwise cause our
business to suffer.
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EMPLOYEES
As of December 31, 1999, we employed one hundred seven employees,
including twenty-eight employees in research and development, forty-five
employees in client services (including implementation and support services),
twenty-three employees in sales and marketing and eleven employees in finance
and administration. Our success depends on our continued ability to attract and
retain highly skilled and qualified personnel. Competition for such personnel is
intense in the information technology industry, particularly for talented
software developers, service consultants, and sales and marketing personnel. We
may not be able to attract and retain qualified personnel in the future.
Our employees are not members of any labor union. We consider our
relations with our employees to be good.
FACILITIES
Our corporate headquarters are located in Atlanta, Georgia, and our
Research and Development and Support Departments are located in Chico,
California. We have under leases approximately 21,000 square feet of office
space. We anticipate that our current facilities are adequate for our current
needs.
LEGAL PROCEEDINGS
Landacorp is not currently involved in any litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to our executive
officers and directors as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Eugene Santa Cattarina............... 52 President, Chief Executive Officer and Director
Stephen Kay.......................... 38 Chief Operating Officer and Chief Financial Officer
Bryan Lang........................... 41 Chief Technology Officer, Chief Marketing Officer and
Director
David Brown.......................... 44 Senior Vice President, Sales
Marlene McCurdy...................... 46 Senior Vice President, Client Services
Thomas Stephenson.................... 57 Chairman of the Board of Directors
Howard Cox........................... 55 Director
Jason Rosenbluth, MD................. 42 Director
Jerome Grossman, MD.................. 60 Director
</TABLE>
Eugene Santa Cattarina, President and Chief Executive Officer and
Director, came to Landacorp in July 1998, after serving since 1996 as President
and Chief Executive Officer of Medicode, Inc., a leading healthcare information
technology company that was recently acquired by United Healthcare Corporation.
From 1986 to 1993, Mr. Santa Cattarina served in a number of leadership
positions with TDS Healthcare Systems Corporation, a healthcare software systems
company, including President and Chief Operating Officer. Following the
acquisition of TDS Healthcare Systems Corporation by ALLTEL Corporation in 1993,
Mr. Santa Cattarina continued as President and Chief Operating Officer of TDS
Healthcare Systems Corporation until 1994, and as Executive Vice President of
ALLTEL Information Services-Healthcare Division from 1994 to 1995. From 1967 to
1986, he held various positions with Technicon Corporation, a clinical
laboratory automation company, including President, Domestic Division.
Stephen Kay, Chief Operating Officer and Chief Financial Officer, has
been involved with Landacorp since 1992, initially as the Director of Finance of
Landacorp UK Ltd. In early 1995, Mr. Kay was promoted to Chief Operating Officer
of Landacorp. He is currently Chief Operating Officer and Chief Financial
Officer of Landacorp and is responsible for overseeing finance and operations.
He has worked in a consultative capacity in the structuring of contracts,
implementation, and deployment plans of healthcare information systems for
hospitals, integrated delivery networks, managed care organizations, and
insurance companies, as well as for the United Kingdom's National Health
Service. Mr. Kay is a member of The Institute of Chartered Accountants in
England and Wales. He received his training at Touche Ross (now Deloitte Touche)
in London, England.
Bryan Lang, Chief Technology Officer and Chief Marketing Officer and
Director, is the founder of Landacorp. Mr. Lang served as Chief Executive
Officer of Landacorp from 1993 to 1998, has served as Chief Technology Officer
since 1998, and as Chief Marketing Officer since January 1999. Mr. Lang has been
a consultant and automated systems designer for fifteen years during which time
he has worked extensively with healthcare industry projects in the United
States, the United Kingdom, Canada, Saudi Arabia and Australia. As a specialist
in healthcare process optimization, information systems and resource management,
his efforts include work with hundreds of hospitals, health maintenance
organizations, ambulatory care services, private physician practices and the
U.S. and Saudi armed forces.
David Brown, Senior Vice President, Sales, joined Landacorp in July
1998. From 1997 to 1998, he was Vice President-Sales for HBO & Company's (now
McKesson/HBOC) provider and payer solutions. From 1985 to 1997, Mr. Brown served
in a number of sales and sales executive
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<PAGE> 43
positions including Regional Sales Director/Vice President-Sales for Eclipsys
Corporation (formerly ALLTEL Information Services-Healthcare Division, TDS
Healthcare Systems Corporation and Technicon Data Systems). From 1983 to 1985,
Mr. Brown was Regional Sales Director for Compucare, a provider of mainframe-
and minicomputer-based software and services to hospitals. Mr. Brown began his
career in healthcare with Technicon in 1980 as a Hospital Consultant and then
moved into the position of Sales Representative.
Marlene McCurdy, Senior Vice President, Client Services, joined
Landacorp in July 1998 after serving as Director, Implementation
Strategy/Research & Development for Eclipsys Corporation since 1995. From 1990
to 1995, Ms. McCurdy held a number of implementation and technical support
positions for TDS Healthcare Systems Corporation and ALLTEL Information
Services -- Healthcare Division, including Director, Implementation Services.
Thomas Stephenson, Director and Chairman of the Board, has been a
director of Landacorp since February 1998. He has been a general partner and
managing member of Sequoia Capital General Funds since 1988. Prior thereto, Mr.
Stephenson was President of Fidelity Venture Associates, the venture capital
subsidiary of Fidelity Investments. Mr. Stephenson is a director of Chapters
Online and a number of private companies. Mr. Stephenson received his BA and MBA
from Harvard University, and a law degree from Boston College Law School.
Howard Cox, Director, has served as a director of Landacorp since
February 1998. He is a General Partner of Greylock, a national venture capital
firm headquartered in Boston, with which he has been associated for 28 years.
Mr. Cox is a Director of Stryker Corporation in Michigan and numerous other
private companies. Prior to joining Greylock, Mr. Cox served in the Office of
the Secretary of Defense.
Jason Rosenbluth, MD, Director, has served as a director of Landacorp
since February 1998. Dr. Rosenbluth is a Managing Director of Bedrock Capital
Partners, a venture capital firm which he co-founded in 1997. From 1993 to 1997,
Dr. Rosenbluth was a healthcare securities analyst and managing director of
Volpe Brown Whelan & Company, an investment banking firm. Dr. Rosenbluth
currently serves as a director of a number of privately-held technology
companies. Dr. Rosenbluth holds an MD from Cornell University Medical College
and an MBA from the Wharton School of the University of Pennsylvania.
Jerome Grossman, MD, Director, has been a director of Landacorp since
May 1998. Dr. Grossman is currently chairman and Chief Executive Officer of a
newly formed company, Lion Gate Management Corporation. From 1995 to early 1999,
he was Chief Executive Officer of Health Quality Inc. He is chairman emeritus of
New England Medical Center, Inc. Dr. Grossman has been a founder of several
healthcare companies, and has held teaching, research, and medical positions at
Tufts University School of Medicine, Massachusetts General Hospital and Harvard
Medical School. Dr. Grossman serves as Trustee/Director of several corporations
and institutions, including Wellesley College, Stryker Corporation, Arthur D.
Little, Inc. and Stryker Corp. He served on the Board of the Federal Reserve
Bank of Boston from 1990 to 1997 and was its Chairman from 1994 to 1997.
BOARD COMPOSITION
Landacorp's board of directors is currently comprised of six members.
Four of our directors, Thomas Stephenson, Howard Cox, Jason Rosenbluth, MD and
Jerome Grossman, MD, are not employees of Landacorp.
BOARD COMMITTEES
Audit Committee. The audit committee of the board of directors is
comprised of Thomas Stephenson, Howard Cox, Jason Rosenbluth, MD and Jerome
Grossman, MD. Jason Rosenbluth is the chairman of the audit committee.
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<PAGE> 44
Compensation Committee. The compensation committee of the board of
directors is comprised of Thomas Stephenson, Howard Cox, Jason Rosenbluth, MD
and Jerome Grossman, MD. Howard Cox is the chairman of the compensation
committee.
DIRECTOR COMPENSATION
Employees of Landacorp and representatives of institutional investors in
Landacorp do not receive any compensation for serving on the board of directors.
Jerome Grossman, MD receives a fee of $1,000 per board meeting attended. In
1998, Eugene Santa Cattarina received $4,000 for serving as a director of
Landacorp prior to becoming employed by Landacorp.
We reimburse all of our directors, including employees and
representatives of institutional investors in Landacorp, for travel expenses
incurred in attending board meetings. In addition, all of our directors are
eligible to receive grants of stock options or other rewards pursuant to our
stock option plan. In July, 1999, we granted each non-employee member of the
board of directors an option to purchase 12,500 shares of our stock at $1.00 per
share. These options become exercisable over a period of four years. Our
shareholders have approved a policy of granting future non-employee directors
initial option grants for 12,500 shares of stock, vesting over four years, when
they join the board, and of granting all non-employee directors additional
option grants for 5,000 shares, vesting over two years, effective on the date of
each annual meeting.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our most highly
compensated executive officers whose total salary, bonus and other compensation
exceeded $100,000 during the year ended December 31, 1999. In accordance with
the rules of the Securities Exchange Commission, the compensation described in
this table does not include perquisites and other personal benefits received by
the executive officers named in the table below which did not exceed the lesser
of $50,000 or 10% of the total salary or bonus reported for those officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING ALL OTHER 2000 ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION SALARY(1)
--------------------------- -------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Eugene Santa Cattarina....................... $250,000 $109,037 -- -- $268,750
President and Chief Executive Officer
Stephen Kay.................................. 175,200 65,422 -- -- 188,340
Chief Operating Officer and
Chief Financial Officer
Bryan Lang................................... 175,200 51,592 50,000 -- 188,340
Chief Technology Officer and
Chief Marketing Officer
David Brown.................................. 150,000 68,790 -- -- 161,250
Senior Vice President, Sales
Marlene McCurdy.............................. 120,000 34,669 -- -- 140,000
Senior Vice President, Client Services
</TABLE>
- -------------------------
(1) Figures are based on annualized salary, excluding bonus, if any.
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<PAGE> 45
OPTION GRANTS
The following table provides certain information regarding options
granted by Landacorp to the named executive officers during the fiscal year
ended December 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
DATE OF OPTIONS DURING PRICE EXPIRATION --------------------
NAME GRANT GRANTED PERIOD ($/SHARE) DATE 5% 10%
---- --------- ---------- ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bryan Lang.................... July 1999 50,000 17.85% $1.00 July 2009 $683,000 1,117,000
</TABLE>
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table provides certain information with respect to options
exercised by named executive officers during the fiscal year ended December 31,
1999 and the value of unexercised options held by named executive officers as of
December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF
NUMBER OF OPTIONS AT FISCAL UNEXERCISED OPTIONS
SHARES ACQUIRED VALUE YEAR END 1999 AT FISCAL YEAR END 1999(2)
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE($)
---- --------------- -------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Eugene Cattarina........ 805,550 $2,859,703 --/-- --/--
Stephen Kay............. 300,000 1,065,000 --/-- --/--
Bryan Lang.............. 195,000 920,400 --/50,000 --/$400,000
David Brown............. 151,041 536,196 --/-- --/--
Marlene McCurdy......... 100,694 357,464 --/-- --/--
</TABLE>
- -------------------------
(1) For purposes of this calculation, value is based upon the difference between
the fair market value of the securities at the time of exercise, and the
exercise price. We based the calculation of the fair market value price at
the time of exercise on the Black-Scholes valuation used for calculation of
the cheap stock compensation, as set forth in Note 8 -- Fair Value
Disclosures -- to the Financial Statements included herewith.
(2) For purposes of this calculation, value is based upon the difference between
the fair market value of the securities at the fiscal year ended December
31, 1999, and the exercise price. We based the calculation of the fair
market value price at the end of fiscal year ended December 31, 1999 on the
price per share of this offering.
BENEFIT PLANS
1995 Incentive Stock Option Plan and 1998 Equity Incentive Plan
The board of directors adopted the 1995 Incentive Stock Option Plan (the
"1995 Plan") in April 1995. The shareholders adopted the 1995 Plan in December
1995. The board of directors adopted the 1998 Equity Incentive Plan (the "1998
Plan") in July 1998. The shareholders approved the 1998 Plan in September 1998.
The 1998 Plan provides for the granting to employees of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and for the granting to employees, directors and consultants of
non-statutory stock options and stock purchase rights. Since adoption of the
1998 Plan, we have not granted any options under the 1995 Plan.
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<PAGE> 46
As of September 30, 1999, there were 3,000,000 shares of our common
stock reserved for issuance under both plans. During 1998, options to purchase
95,000 shares of common stock granted under the 1995 and 1998 plans were
exercised. At December 31, 1998, options to purchase 2,253,947 shares of common
stock were outstanding, and options to purchase 588,802 shares of common stock
remained available. The outstanding options were exercisable at a weighted
average price of $0.71 per share. During the year ended December 31, 1999,
options to purchase 1,572,284 shares of common stock granted under the 1995 and
1998 plans were exercised. At December 31, 1999, options to purchase 911,115
shares of common stock were outstanding, and options to purchase 359,350 shares
of common stock remained available. The outstanding options were exercisable at
a weighted average price of $1.44 per share.
A stock option committee appointed by the board of directors administers
the 1995 Plan. Either the board of directors or a committee of the board of
directors may administer the 1998 Plan. Currently our compensation committee
administers the 1998 Plan.
Options granted under the 1995 Plan will vest in full upon notice of (a)
a merger, consolidation or reorganization in which we are not the surviving
company, (b) the acquisition by another company of all or substantially all of
our assets, or (c) our dissolution or liquidation. The options will expire
within thirty days of such notice, or otherwise, by their own terms.
Options granted under the 1998 Plan will terminate in the event of our
dissolution or termination. In the event of (a) a merger, consolidation or
reorganization in which we are not the surviving company, (b) a reverse merger
in which we are the surviving company, but our shares immediately prior to the
merger are converted into other property, or (c) the acquisition by another
company of all or substantially all of our assets, the surviving or acquiring
company must either assume the options, or substitute similar options or awards
for those outstanding under our 1998 Plan. If the acquiring or surviving company
refuses to do so, then all our outstanding options vest in full, and must be
exercised or expire at the time of such event.
The 1995 Plan will terminate automatically in April 2005, unless sooner
terminated by the board of directors. The 1998 Plan will terminate automatically
in July 2008, unless sooner terminated by the board of directors.
1999 Employee Stock Purchase Plan
In September 1999, the board of directors adopted our 1999 Employee
Stock Purchase Plan. Our stockholders adopted the 1999 Employee Stock Purchase
Plan in December 1999. We have reserved a total of 560,000 shares of common
stock for issuance under our 1999 Employee Stock Purchase Plan.
Our 1999 Employee Stock Purchase Plan, which is intended to qualify
under Section 423 of the United States tax code, contains consecutive six month
offering and purchase periods. The offering periods generally start on the first
trading day on or after May 15 and November 15 of each year, except for the
first such offering period which commences on the first trading day on or after
the effective date of this offering and ends on the last trading day on or
before May 14, 2000.
Employees are eligible to participate if they are customarily employed
by us or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year. However, any employee who (i) immediately
after grant owns stock possessing 5% or more of the total combined voting power
or value of all classes of our capital stock, or (ii) whose rights to purchase
stock under all of our employee stock purchase plans accrues at a rate which
exceeds $25,000 worth of stock for each calendar year may not be granted an
option to purchase stock under this plan. The 1999 Employee Stock Purchase Plan
permits participants to purchase common stock through payroll deductions of up
to 15% of the participant's "compensation." Compensation is defined as the
participant's base straight time gross earnings and commissions but is exclusive
of payments for overtime, shift premium payments, incentive compensation,
incentive payments,
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<PAGE> 47
bonuses and other compensation. The maximum number of shares a participant may
purchase during a single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1999 Employee Stock Purchase Plan is generally 85% of the
lower of the fair market value of the common stock (i) at the beginning of the
offering period or (ii) at the end of the purchase period. Participants may end
their participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
Rights granted under the 1999 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan. The 1999 Employee Stock
Purchase Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all our assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set. The 1999 Employee Stock Purchase Plan will terminate automatically in
2009, unless terminated earlier. The Board of Directors has the authority to
amend or terminate the purchase plan, except that no such action may adversely
affect any outstanding rights to purchase stock under the purchase plan. The
Board of Directors has the exclusive authority to interpret and apply the
provisions of the purchase plan.
401(k) PLAN
We maintain a tax-qualified employee savings and retirement plan, a
401(k) plan, that covers all of our eligible employees. Pursuant to the 401(k)
plan, participants may elect to reduce their current compensation, on a pre-tax
basis, by up to 15% of their taxable compensation or of the statutorily
prescribed annual limit, whichever is lower, and have the amount of such
reduction contributed to the 401(k) plan. Participants' salary reduction
contributions are fully vested at all times. Landacorp contributes matching
funds of up to 25% of employee contributions, subject to a cap of $900 per
employee per year. Landacorp, in its sole discretion, may make additional
employer contributions to the 401(k) plan. Participants' interests in their
additional employer contributions, if any, vest in accordance with a five-year
graduated vesting schedule. Participants generally are eligible for a
distribution from the 401(k) plan upon their reaching age 59 1/2, age 65, death,
disability or separation from service with Landacorp. The 401(k) plan is
intended to qualify under Section 401(a) of the Internal Revenue Code of 1986,
as amended, and its accompanying trust is intended to be a tax-exempt trust
under Section 501(a) of the Internal Revenue Code of 1986, as amended.
Contributions made on behalf of the participants, on a pre-tax basis, to the
401(k) plan, and income earned on such contributions, are not currently taxable
to participants. All such contributions are tax deductible by Landacorp.
LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of our directors
to the maximum extent permitted by Delaware law. Delaware law provides that the
directors of a corporation will not be personally liable for monetary damages
for breach of the fiduciary duties as directors, except liability for any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
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<PAGE> 48
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will
indemnify our directors and executive officers, and that we may indemnify our
other officers and employees and other agents, to the fullest extent permitted
by law. Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification.
We have entered into agreements to indemnify our executive officers, in
addition to indemnification provided for in our bylaws. These agreements, among
other things, provide for indemnification of our directors and executive
officers for expenses, judgments, fines, and settlement amounts incurred by any
such person in any action or proceedings arising out of such person's services
as a director or executive officer of Landacorp or at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. We also maintain
directors and officers liability insurance. At present, we are not aware of any
pending litigation or proceeding involving any director, officer, employee or
agent of Landacorp where indemnification will be required or permitted.
Furthermore, we are not aware of any threatened litigation or proceeding that
might result in a claim for indemnity by these individuals.
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<PAGE> 49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Series D Preferred Stock Financing
In February 1998, we amended our articles of incorporation to authorize
the issuance of 6,800,000 shares of Series D Preferred Stock ("Series D
Preferred Stock"), to designate the Series D Preferred Stock and to provide the
holders thereof with certain rights, privileges and preferences, including
certain liquidation and dividend preferences. In addition, we entered into an
Investors' Rights Agreement with each holder of Series D Preferred Stock
pursuant to which Landacorp granted the holders of Series D Preferred Stock
"piggy-back" registration rights with respect to certain registrations of our
securities pursuant to the Securities Act. See "Description of Capital Stock."
Immediately following the authorization, we converted all 41,000 shares
of Series A Preferred Stock then outstanding into shares of Series D Preferred
Stock, on a one-for-one basis, and all 115,000 shares of Series B Preferred
Stock and 450,000 shares of Series C Preferred Stock then outstanding into
1,122,000 shares of Series D Preferred Stock, using a ratio of 1.9833 shares of
Series D Preferred Stock for each share of Series B and Series C Preferred
Stock. In February 1998, following these conversions, the holders of the
converted Series D Preferred Stock sold all their shares to new investors, for
$1.20 per share. At the same time we sold an additional 5,619,000 shares of
Series D Preferred Stock to the new investors.
The following directors and beneficial owners of more than five percent
of our outstanding capital stock acquired beneficial ownership of Series D
Preferred Stock in this private placement as follows:
<TABLE>
<CAPTION>
DIRECTORS/5% STOCKHOLDERS NUMBER OF SHARES
------------------------- ----------------
<S> <C>
Bedrock Capital Partners I, LP(1)........................... 1,750,000
Greylock IX Limited Partnership............................. 2,500,000
Sequoia Capital VII(2)...................................... 2,500,000
Eugene Santa Cattarina...................................... 41,667
Jason Rosenbluth(3)......................................... 1,750,000
Howard Cox(4)............................................... 2,500,000
Thomas Stephenson(5)........................................ 2,500,000
</TABLE>
- -------------------------
(1) Includes 1,575,000 shares held by Bedrock Capital Partners I, LP, 87,500
shares held by Credit Suisse First Boston Bedrock Fund, L.P., 6,250 shares
held by Chris Paul, 6,250 shares held by Theodore Ridgeway and 75,000 shares
held by the VBW Employee Bedrock Fund, LP. Bedrock General Partner I, LLC is
a general partner of Bedrock Capital Partners I, LP and of VBW Employee
Bedrock Fund, LP.
(2) Includes 2,287,500 shares held by Sequoia Capital VII, 100,000 shares held
by Sequoia Technology Partners VII, 46,400 shares held by SQP 1997, 26,100
shares held by Sequoia 1997 LLC and 40,000 shares held by Sequoia
International Partners. SC VII-A Management Company LLC is a general partner
of Sequoia Capital VII, Sequoia Technical Partners VII and Sequoia
International Partners.
(3) Includes 1,750,000 shares held by Bedrock Capital Partners I, LP and its
affiliates, as listed in note 1 above. Dr. Rosenbluth is a co-founder and
managing partner of Bedrock General Partner I, LLC, the general partner of
Bedrock Capital Partners I, LP and of VBW Employee Bedrock Fund, LP. Dr.
Rosenbluth disclaims beneficial ownership of the shares held by the entities
or persons listed in note 1 above, except to the extent of his direct
pecuniary interest in the shares.
(4) Includes 2,500,000 shares held by Greylock IX Limited Partnership, Mr. Cox
is a general partner of Greylock IX Limited Partnership. Mr. Cox is a
general partner of Greylock IX GP Limited Partnership, which is a general
partner of Greylock IX Limited Partnership. Mr. Cox disclaims beneficial
ownership of the shares held by Greylock IX Limited Partnership, except to
the extent of his direct pecuniary interest in the shares.
(5) Includes 2,500,000 shares held by Sequoia Capital VII and its affiliates, as
listed in note 2 above. Mr. Stephenson is a managing member of SC VII-A
Management Company LLC, the general partner of Sequoia Capital VII, Sequoia
Technology Partners VII and Sequoia International Partners. Mr. Stephenson
disclaims beneficial ownership of the shares held by the entities listed in
note 2 above, except to the extent of his direct pecuniary interest in the
shares.
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<PAGE> 50
Warrants
In conjunction with our sale of preferred stock in February 1998, we
issued warrants to Mr. Gilbert Lang and Mrs. Beulah Lang and to Westminster
Health Care PLC for the purchase of 100,000 and 250,000 shares of common stock,
respectively, at the price of $1.20 per share. The warrants were fully vested
and exercisable on the date of grant. The warrants expire on the earlier of
February 28, 2003 or the closing of this offering.
Stockholders' Notes
At December 31, 1996, we had notes payable to Mr. Gilbert Lang, Mrs.
Beulah Lang, Mr. Bryan Lang and Mr. Roger Stratton totaling $1,720,000. At
December 31, 1997, we had notes payable to Mr. Gilbert Lang, Mrs. Beulah Lang,
Mr. Bryan Lang, Mr. Roger Stratton and Westminster Health PLC totaling
$2,221,000. These notes accrued interest at an annual rate of 12%. In March
1998, we used the proceeds of our February 1998 preferred stock financing to
repay stockholder notes and related accrued interest totaling $2,558,000.
During the year ended December 31, 1996, Mr. Bryan Lang converted notes
payable totaling $27,000 as payment of the exercise price of 13,000 vested
options. During the year ended December 31, 1997, Mr. Bryan Lang converted notes
payable totaling $21,000 as payment of the exercise price of 10,000 vested
options. During the six months ended June 30, 1998 and the year ended December
31, 1998, Mr. Gilbert Lang and Mrs. Beulah Lang converted notes payable totaling
$289,000 as payment of the exercise price of 91,000 vested options.
Early Exercise of Stock Options
As of September 30, 1999, we had full recourse notes from Mr. Eugene
Santa Cattarina, Mr. Stephen Kay, Mr. David Brown, Ms. Marlene McCurdy, Mr.
Brandon Raines and Mr. Bryan Lang, all employees, related to the early exercise
of stock options in the amount of $189,000. These notes accrue interest at a
rate of 6% per year, are secured by such shares of common stock, and are due and
payable in the event of termination of employment. Pursuant to the terms of
restricted stock purchase agreements entered into with these employees, we have
the option to repurchase a portion of these shares in the event of termination
of employment.
Bonus in Respect of Waiver of Deferred Compensation
Pursuant to agreement dated February 27, 1998, and in connection with
the sale of the preferred stock, Bryan Lang agreed to waive any and all rights
to $335,000 in deferred compensation that had accrued to his benefit. In
connection with this waiver, we further agreed that if either Landacorp's common
stock became publicly traded following an initial public offering, or if
Landacorp was sold for a value in excess of $40,000,000, then a success fee from
the proceeds would be paid to Mr. Lang in the amount of $335,000. This bonus
payment will be payable upon completion of the offering and will be recognized
as an operating expense.
Line of Credit
In 1997, we maintained an operating line of credit with a bank which was
guaranteed by Westminster Health Care PLC. This line of credit expired on
December 31, 1997, and the outstanding balance of $163,000 was repaid to the
bank by Westminster Health Care PLC in exchange for a note payable by Landacorp.
We repaid the note in March 1998.
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<PAGE> 51
PRINCIPAL STOCKHOLDERS
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless otherwise indicated below, to our knowledge, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. The number and percentage of shares beneficially
owned are based on 9,713,184 shares of common stock outstanding as of December
31, 1999, assuming the conversion of all outstanding preferred stock and the
exercise of all outstanding warrants. Shares of common stock subject to options
that are currently exercisable or exercisable within sixty days of December 31,
1999 are deemed to be outstanding and to be beneficially owned by the person
holding the options for the purpose of computing the percentage ownership of
that person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. The number of shares of common stock
outstanding after this offering includes shares of common stock being offered
and does not include the shares that are subject to the underwriters'
over-allotment option. Unless otherwise indicated, the address for each listed
stockholder is the same as Landacorp's.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned
Shares --------------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Bedrock Capital Partners I,
LP(1).................................................. 1,750,000 18.0% 13.2%
One Boston Place, Suite 3310
Boston, MA 02108
Greylock IX Limited Partnership.......................... 2,500,000 25.7 18.9
One Federal Street
Boston, MA 02110
Sequoia Capital VII(2)................................... 2,500,000 25.7 18.9
3000 Sandhill Road, Building 4, Suite 780
Menlo Park, CA 94025
Eugene Santa Cattarina................................... 847,217 8.7 6.4
Bryan Lang(3)............................................ 626,307 6.4 4.7
Gilbert Lang(4).......................................... 178,077 1.8 1.3
Beulah Lang(5)........................................... 178,077 1.8 1.3
Jason Rosenbluth, M.D.(6)................................ 1,750,000 18.0 13.2
One Maritime Plaza, 5(th) Floor
San Francisco, CA 94111
Howard Cox(7)............................................ 2,500,000 25.7 18.9
One Federal Street
Boston, MA 02110
Thomas Stephenson(8)..................................... 2,500,000 25.7 18.9
3000 Sandhill Road, Building 4, Suite 780
Menlo Park, CA 94025
Jerome Grossman, M.D.(9)................................. 33,565 * *
72 Spooner Road
Chestnut Hill, MA 02617
Westminster Healthcare PLC (10).......................... 250,000 2.5 1.6
48 Leicester Square
London WC2H 7FB
United Kingdom
Stephen Kay.............................................. 300,000 3.0 2.3
David Brown.............................................. 151,041 1.5 1.1
Marlene McCurdy.......................................... 100,694 1.0 *
</TABLE>
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<PAGE> 52
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned
Shares --------------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
------------------------ ------------ -------- --------
<S> <C> <C> <C>
All directors and executive officers as a group
(9 persons)(11)........................................ 8,808,824 90.7% 66.6%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 1,575,000 shares held by Bedrock Capital Partners I, LP, 87,500
shares held by Credit Suisse First Boston Bedrock Fund, L.P., 6,260 shares
held by Chris Paul, 6,250 shares held by Theodore Ridgeway, and 75,000
shares held by the VBW Employee Bedrock Fund, LP. Bedrock General Partner
I, LLC is a general partner of Bedrock Capital Partners I, LP and of VBW
Employee Bedrock Fund, LP.
(2) Includes 2,287,000 shares held by Sequoia Capital VII, 100,000 shares held
by Sequoia Technology Partners VII, 46,400 shares held by SQP 1997, 26,100
shares held by Sequoia 1997 LLC and 40,000 shares held by Sequoia
International Partners. SC VII-A Management Company LLC is a general
partner of Sequoia Capital VII, Sequoia Technical Partners VII and Sequoia
International Partners.
(3) In the event that the underwriters exercise their over-allotment option,
Bryan Lang will sell up to 62,000 shares of common stock in this offering.
If he sells all of such shares, the percentage of shares beneficially owned
by Mr. Lang after this offering will be 4.2%.
(4) Includes warrants to purchase 100,000 shares of common stock held jointly
with his spouse, Beulah Lang. Gilbert and Beulah Lang are Bryan Lang's
parents. Gilbert and Beulah Lang intend to exercise the warrants on a
cashless basis immediately prior to completion of this offering, resulting
in a net issuance of 86,667 shares of common stock at an assumed initial
public offering price of $9.00 per share. In the event that the
underwriters exercise their over-allotment option, Gilbert and Beulah Lang
will sell up to 86,667 of these shares in this offering. If they sell all
of such shares the percentage of shares beneficially owned by them after
this offering will be less than 1% of the then outstanding shares of common
stock.
(5) Includes 78,077 shares of common stock owned by her spouse, Gilbert Lang,
and warrants to purchase 100,000 shares of common stock held jointly with
him. Gilbert and Beulah Lang are Bryan Lang's parents. Gilbert and Beulah
Lang intend to exercise the warrants on a cashless basis immediately prior
to completion of this offering, resulting in a net issuance of 86,667
shares of common stock at an assumed initial public offering price of $9.00
per share. In the event that the underwriters exercise their over-allotment
option, Gilbert and Beulah Lang will sell up to 86,667 of these shares in
this offering. If they sell all of such shares the percentage of shares
beneficially owned by them after this offering will be less than 1% of the
then outstanding shares of common stock.
(6) Includes 1,750,000 shares held by Bedrock Capital Partners I, LP and its
affiliates, as listed in note 1 above. Dr. Rosenbluth is a co-founder and
managing partner of Bedrock General Partner I, LLC, the general partner of
Bedrock Capital Partners I, LP and of VBW Employee Bedrock Fund, LP. Dr.
Rosenbluth disclaims beneficial ownership of the shares held by the
entities or persons listed in note 1 above, except to the extent of his
direct pecuniary interest in the shares. Bedrock General Partner I, LLC has
voting and disposition power over the shares underlying the options held by
Dr. Rosenbluth.
(7) Includes 2,500,000 shares held by Greylock IX Limited Partnership. Mr. Cox
is a general partner of Greylock IX GP Limited Partnership, which is a
general partner of Greylock IX Limited Partnership. Mr. Cox disclaims
beneficial ownership of the shares held by Greylock IX Limited Partnership,
except to the extent of his direct pecuniary interest in the shares.
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<PAGE> 53
(8) Includes 2,500,000 shares held by Sequoia Capital VII and its affiliates,
as listed in note 2 above. Mr. Stephenson is a managing member of SC VII-A
Management Company LLC, the general partner of Sequoia Capital VII, Sequoia
Technology Partners VII and Sequoia International Partners. Mr. Stephenson
disclaims beneficial ownership of the shares held by the entities listed in
note 2 above, except to the extent of his direct pecuniary interest in the
shares.
(9) Includes 33,565 shares of common stock issuable upon the exercise of
options exercisable within sixty days of December 31, 1999.
(10) Includes warrants to purchase 250,000 shares of common stock. Westminster
Healthcare PLC intends to exercise the warrants on a cashless basis
immediately prior to the completion of this offering, resulting in a net
issuance of 216,666 shares of common stock at an assumed initial public
offering price of $9.00 per share. In the event that the underwriters
exercise their over-allotment option, Westminster Healthcare PLC will sell
up to 216,666 of these shares in this offering. If it sells all of such
shares the percentage of shares beneficially owned by Westminster
Healthcare PLC after this offering will be 1.6%. In 1997, we maintained an
operating line of credit with a bank which was guaranteed by Westminster
Healthcare PLC. This line of credit expired on December 31, 1997, and the
outstanding balance of $163,000 was repaid to the bank by Westminster
Healthcare PLC in exchange for a note payable by Landacorp. We repaid the
note in March 1998.
(11) Includes 33,565 shares of common stock issuable upon the exercise of
options exercisable within sixty days of September 30, 1999. Includes
1,750,000 shares held by Bedrock Capital Partners I, LP and its affiliates,
as listed in notes 1 and 6 above, 2,500,000 shares held by Greylock IX
Limited Partnership, as listed in note 7 above, and 2,500,000 shares held
by Sequoia Capital VII and its affiliates, as listed in notes 2 and 8
above.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
General
Landacorp's amended and restated certificate of incorporation, which
will become effective upon the closing of this offering, authorizes the issuance
of up to 15,000,000 shares of common stock, par value $0.001 per share, and
8,000,000 shares of preferred stock, par value $0.001 per share. This
description is only a summary. You should refer to the amended and restated
certificate of incorporation and bylaws which have been filed with the
Securities and Exchange Commission as exhibits to our registration statement, of
which this prospectus forms a part. As of December 31, 1999 2,609,851 shares of
common stock were outstanding and 6,800,000 shares of preferred stock, which
will automatically convert into 6,800,000 shares of common stock upon the
completion of this offering, were issued and outstanding. As of December 31,
1999, we had 109 stockholders.
Common Stock
Each holder of common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders. There are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued in the
future may be entitled, holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Landacorp, holders of common stock
would be entitled to share in Landacorp's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted the
holders of any then outstanding shares of Preferred Stock. Holders of common
stock have no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the shares of common
stock offered by Landacorp in this offering, when issued and paid for, will be
fully paid and nonassessable. The rights, preferences and privileges of the
holders of common stock are subject to and may be adversely affected by the
rights of the holders of shares of any series of preferred stock which Landacorp
may designate in the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be
authorized, without stockholder approval, from time to time to issue up to an
aggregate of 8,000,000 shares of preferred stock, $0.001 par value per share, in
one or more series, each of such series to have such rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors. The rights of the holders of common stock will be subject to, and may
be adversely affected by, the rights of holders of any preferred stock that may
be issued in the future. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could either have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, a
majority of the outstanding stock of Landacorp. Landacorp has no present plans
to issue any shares of preferred stock.
Registration Rights
Pursuant to the terms of the Investor Rights Agreement dated February
27, 1998 and upon the consummation of this offering, the holders of 6,800,000
shares of common stock issuable upon conversion of the preferred stock, holders
of 250,000 shares of common stock issued or issuable upon exercise of the
warrant granted to Westminster Health Care Limited, holders of any common stock
issued as a dividend or distribution, and their permitted transferees are
entitled to rights with respect to the registration of such shares under the
Securities Act. The holders of at least 30% of these securities may require us,
subject to limitations, to file a registration statement if the aggregate gross
offering price of at least $15 million. We are not required to effect (i) more
than
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<PAGE> 55
two such registrations pursuant to such demand registration rights; (ii) a
registration during the period in which any other registration statement has
been filed and for a period of 180 days after such registration has been
declared effective; or (iii) a registration for a period not to exceed 90 days,
if the Board of Directors of Landacorp has made a good faith determination that
such registration would be seriously detrimental to Landacorp or to its
stockholders. Furthermore, pursuant to the terms of the Investor Rights
Agreement, the holders of the these securities are entitled to registration
rights in connection with any registration by us of our securities for our own
account or the account of other security holders. In the event that we propose
to register any shares of common stock under the Securities Act, the holders of
such piggyback registration rights are entitled to receive notice of such
registration and are entitled to include their shares therein.
At any time after we become eligible to file a registration statement on
Form S-3, holders of $500,000 of registrable securities may require us to file
registration statements on Form S-3 under the Securities Act with respect to
their shares of common stock. We are not required to effect more than two such
registrations in any 12 month period.
Each of the foregoing registration rights is subject to conditions and
limitations, including the right of the underwriters in any underwritten
offering to limit the number of shares of registrable securities to be included
in such registration. The registration rights with respect to any holder thereof
terminate upon the earlier of 5 years from the effective date of this offering
or when the shares held by such holder may be sold under Rule 144 during any 90
day period. We are required to bear all of the expenses of all such
registrations, except underwriting discounts and commissions. Registration of
any of the registrable securities would result in such shares becoming freely
tradable without restriction under the Securities Act immediately upon
effectiveness of such registration. The Investor Rights Agreement also contains
a commitment of Landacorp to indemnify the holders of registration rights,
subject to limitations.
Holders of the shares of common stock issuable upon exercise of the
warrants described above are entitled to registration rights in connection with
any registration by us of our securities for its own account or the account of
other security holders.
Effect of Selected Provisions of the Certificate of Incorporation and Bylaws,
and the Delaware Antitakeover Statute
Provisions of our amended and restated certificate of incorporation and
bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
Landacorp. Such provisions could limit the price that investors might be willing
to pay in the future for shares of our common stock. These provisions allow us
to issue preferred stock without any vote or further action by the stockholders
and eliminate the right of stockholders to act by written consent without a
meeting. These provisions may make it more difficult for stockholders to take
corporate actions and could have the effect of delaying or preventing a change
in control of Landacorp.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 of Delaware law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own fifteen percent
or more of a corporation's voting stock. This statute could prohibit or delay
the accomplishments of mergers or other takeover or change in control attempts
with respect to Landacorp and, accordingly, may discourage attempts to acquire
us.
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<PAGE> 56
Our amended and restated certificate of incorporation eliminates the
right of stockholders to act by written consent without a meeting and our bylaws
eliminate the right of stockholders to call special meetings of stockholders.
The amended and restated certificate of incorporation does not provide for
cumulative voting in the election of directors. These and other provisions may
have the effect of deferring hostile takeovers or delaying changes in control or
management of Landacorp. The amendment of any of these provisions would require
approval by the board of directors and holders of at least 66 2/3% of the
outstanding common stock.
Board of Directors Vacancies
Our bylaws authorize the board of directors to fill vacant directorships
or increase the size of the Board of Directors. This may deter a stockholder
from removing incumbent directors and simultaneously gaining control of the
board of directors by filling the vacancies created by such removal with its own
nominees.
Stockholder Action; Special Meeting of Stockholders
Our certificate of incorporation provides that stockholders may act only
at duly called annual or special meetings of stockholders, not by written
consent. Our bylaws further provide that special meetings of our stockholders
may be called only by the President, Chief Executive Officer or Chairman of the
board of directors or a majority of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before
our annual meeting of stockholders, or to nominate candidates for election as
directors at our annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to,
or mailed and received at, our principal executive offices not less than 120
days prior to the first anniversary of the date of notice of annual meeting
provided with respect to the previous year's annual meeting of stockholders
provided, that if no annual meeting of stockholders was held in the previous
year if the date of the annual meeting of stockholders has been changed to be
more than 30 calendar days earlier than such anniversary, then notice by the
stockholder, to be timely, must be received before the solicitation is made. The
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may discourage stockholders from bringing matters
before our annual meeting of stockholders or from making nominations for
directors at our annual meeting of stockholders.
Authorized But Unissued Shares
Our authorized but unissued shares of common stock and preferred stock
are available for future issuance without stockholder approval, subject to
limitations imposed by the Nasdaq National Market. These additional shares may
be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a tender offer, merger or otherwise.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Norwest Bank of
Minnesota, N.A.
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<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock, including shares issued
upon exercise of outstanding options, in the public market could adversely
affect prevailing market prices. Furthermore, as described below, 9,409,851
shares currently outstanding will be available for sale after the expiration of
contractual restrictions on resale with the underwriters. Sales of substantial
amounts of our common stock in the public market after contractual restrictions
lapse could adversely affect the prevailing market price and our ability to
raise equity capital in the future.
Upon completion of this offering, we will have outstanding 13,259,851
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the 3,500,000
shares sold in this offering will be freely tradable without restriction under
the Securities Act unless purchased by our "affiliates." Based on shares
outstanding as of September, the remaining shares will become eligible for
public sale as follows:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
- -----------------------------------------------------------------------------
<S> <C>
At effective date.......................................... 352,195 shares
90 days after effective date............................... 9,250 shares
After 180 days post-effective date......................... 9,048,406 shares
</TABLE>
Lock-Up Agreements with the Underwriters
Stockholders holding 9,048,406 shares or approximately 67% of our common
stock, including all of our officers and directors, have signed lock-up
agreements with the underwriters under which they agreed not to sell, transfer
or dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of common
stock without the prior consent of Chase Securities, Inc. for a period of 180
days after the date of this prospectus.
Chase Securities, Inc. may choose to release some of these shares from
these restrictions prior to the expiration of this 180-day period, although we
are not aware of any current intention to request them to do so.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of: 1% of
the number of shares of our common stock then outstanding, which will equal
approximately 132,622 shares immediately after this offering; or the average
weekly trading volume of the common stock on the Nasdaq National Market during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to the sale. Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about Landacorp.
Rule 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, 144(k) shares may be sold immediately upon the completion of this
offering.
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Rule 701
Any employee, officer or director of, or consultant to, Landacorp who
purchased shares under a written compensatory plan or contract may be entitled
to sell our shares in reliance on Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
Under this rule, all holders of Rule 701 shares are required to wait until 90
days after the date of this prospectus before selling those shares. However,
because all shares that we have issued under Rule 701 are subject to lock-up
agreements, they will only become eligible for sale when the 180-day lock-up
agreements expire. As a result, they may be sold 90 days after the offering only
if the holder obtains the prior written consent of Chase Securities, Inc.
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<PAGE> 59
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Chase Securities, Inc.,
Prudential Securities Incorporated and SG Cowen Securities Corporation have
severally agreed to purchase from Landacorp the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Chase Securities, Inc.......................................
Prudential Securities Incorporated..........................
SG Cowen Securities Corporation.............................
---------
Total............................................. 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in Landacorp's business and the receipt of
certain certificates, opinions and letters from Landacorp, its counsel and its
independent auditors. The nature of the underwriters' obligation is such that
they are committed to purchase all shares of common stock offered hereby if any
of such shares are purchased.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY LANDACORP
<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
<S> <C> <C>
Per Share................................ $ $
Total.................................... $ $
</TABLE>
Landacorp estimates that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $996,000.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the representatives of the underwriters. The
representatives have informed Landacorp that the underwriters do not intend to
confirm discretionary sales in excess of 5% of the shares of common stock
offered hereby.
Landacorp and three stockholders of Landacorp have granted to the
underwriters an option, exercisable no later than 30 days after the date of this
prospectus, to purchase up to an aggregate of 525,000 additional shares of
common stock at the initial public offering price, less the underwriting
discount, set forth on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of common stock to be purchased by it shown in the above table
bears to the total number of shares of common stock offered hereby. Landacorp
and the three stockholders will be obligated, pursuant to the
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<PAGE> 60
option, to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of common stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Landacorp has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments the underwriters may be required to make in respect
thereof.
Certain stockholders of Landacorp, including executive officers and
directors, who will own in the aggregate 9,048,406 shares of common stock after
this offering, have agreed that they will not, without the prior written consent
of Chase Securities, Inc., offer, sell or otherwise dispose of any shares of
common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them during the 180-day period following the date of this prospectus. Landacorp
has agreed that it will not, without the prior written consent of Chase
Securities, Inc., offer, sell or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock during the 180-day
period following the date of this prospectus, except that Landacorp may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under its stock option plans, provided that, without
the prior written consent of Chase Securities, Inc., such additional options
shall not be exercisable during such period.
We have reserved an aggregate of 175,000 shares of the Common Stock
offered hereby for purchase from the underwriters through a directed share
program by persons having relationships with Landacorp. Such sales will be at
the initial public offering price. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. The underwriters will offer any reserved
shares not so purchased to the general public on the same terms as the other
shares offered hereby.
Prior to this offering, there has been no public market for the common
stock. Landacorp and the representatives of the several underwriters will
determined the initial public offering price. The principal factors to be
considered in determining the initial public offering price include:
- the current state of our development and our current financial
condition;
- the prospects for our future revenue and earnings;
- the experience and ability of our management;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.
The estimated initial public offering price range set forth on the cover
of this preliminary prospectus is subject to change as a result of market
conditions or other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market. Specifically, the underwriters may over-allot in connection with this
offering, creating a short position in the common stock for their own account.
In addition, to cover over-allotments or to stabilize the price of the common
stock, the underwriters may bid for, and purchase, shares of common stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for
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<PAGE> 61
distributing the common stock in this offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Each of these
transactions would create additional demand for the common stock and, as a
result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. Such transactions may be effected on
the Nasdaq National Market, in the over-the-counter market, or otherwise. The
underwriters may discontinue these transactions at any time.
Prudential Securities Incorporated facilitates the marketing of new
issues on-line through its PrudentialSecurities.com division. Clients of
PrudentialAdvisor(SM), a full service brokerage firm program, may view offering
terms and a prospectus on-line and place orders through their financial
advisors.
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LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, will pass upon the validity of the issuance of the shares of common
stock offered by this prospectus. Alston & Bird LLP, Atlanta, Georgia, will pass
upon certain legal matters in connection with this offering for the
underwriters.
EXPERTS
The balance sheets of Landacorp as of December 31, 1997 and 1998 and
September 30, 1999 and the statements of operations, stockholders' equity and
cash flows for each of the three years ended December 31, 1998, and for the nine
month period ended September 30, 1999, included in this prospectus, have been
included herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The balance sheet of the Interactive Healthcare Division of High
Technology Solutions, Inc. as of August 27, 1999 and the Statement of
Operations, divisional equity and cash flows for the year then ended, included
in this prospectus, have been included herein in reliance upon the report of
Ernst & Young LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with Securities and Exchange Commission in Washington,
D.C. a Registration Statement on Form S-1 under the Securities Act with respect
to the common stock offered in this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the information set forth
in the registration statement and its exhibits and schedules, portions of which
have been omitted as permitted by the rules and regulations of the SEC. For
further information about us and the common stock, we refer you to the
registration statement and to its exhibits and schedules. Statements in this
prospectus about the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, we refer you to the copy of such
contract, agreement or document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by reference to the
document to which it refers. Anyone may inspect the registration statement and
its exhibits and schedules without charge at the public reference facilities the
SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661. You may obtain copies of all or any part of these materials from the SEC
upon payment to the SEC of prescribed fees. You may also inspect these reports
and other information without charge at a Web site maintained by the SEC. The
address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
file reports, proxy statements and other information with the SEC. You will be
able to inspect and copy these reports, proxy statements and other information
at the public reference facilities maintained by the SEC and at the SEC's
regional offices at the addresses noted above. You also will be able to obtain
copies of this material from the Public Reference Section of the SEC as
described above, or inspect them without charge at the SEC's Web site. Our
common stock has been approved for quotation on the Nasdaq National Market. Upon
completion of this offering, you will be able to inspect reports, proxy
statements and information statements and other information concerning us at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
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LANDACORP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LANDACORP, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity (Deficit)................. F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
PRO FORMA FINANCIAL INFORMATION
Overview.................................................... F-22
Pro Forma Condensed Balance Sheet........................... F-23
Pro Forma Condensed Statement of Operations................. F-24
Notes to Pro Forma Condensed Financial Information.......... F-25
INTERACTIVE HEALTHCARE DIVISION OF HIGH TECHNOLOGY
SOLUTIONS, INC. FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-26
Balance Sheet............................................... F-27
Statement of Operations..................................... F-28
Statement of Divisional Equity.............................. F-29
Statement of Cash Flows..................................... F-30
Notes to Financial Statements............................... F-31
UNAUDITED FINANCIAL STATEMENTS
Unaudited Balance Sheet at November 26, 1999................ F-34
Unaudited Statements of Operations for the three months
ended November 27, 1998 and November 26, 1999............. F-35
Unaudited Statements of Cash Flows for the three months
ended November 27, 1998 and November 26, 1999............. F-36
Notes to Unaudited Financial Statements..................... F-37
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Landacorp, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Landacorp,
Inc. at December 31, 1997 and 1998 and at September 30, 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 and for the nine month period ended September 30, 1999,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Sacramento, California
October 22, 1999, except for Notes 6 and 10
which are as of January 31, 2000
F-2
<PAGE> 65
LANDACORP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
-------------------------- September 30, September 30,
1997 1998 1999 1999
----------- ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 142,000 $ 2,032,000 $ 2,094,000
Accounts receivable and costs and estimated
earnings in excess of billings on
uncompleted contracts, net.................. 640,000 1,651,000 2,218,000
Other current assets.......................... 113,000 186,000 195,000
----------- ------------ ------------
Total current assets................... 895,000 3,869,000 4,507,000
Property and equipment, net..................... 187,000 352,000 739,000
Capitalized software, net....................... 99,000 92,000 71,000
----------- ------------ ------------
$ 1,181,000 $ 4,313,000 $ 5,317,000
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 421,000 $ 125,000 $ 283,000
Accrued expenses.............................. 1,058,000 833,000 1,276,000
Deferred revenue and billings in excess of
costs and estimated earnings on uncompleted
contracts................................... 2,245,000 2,456,000 2,536,000
Note payable.................................. -- -- 255,000
Accrued interest -- related party............. 495,000 -- --
Notes payable -- related party................ 2,221,000 -- --
----------- ------------ ------------
Total current liabilities.............. 6,440,000 3,414,000 4,350,000
----------- ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; aggregate
liquidation amount $8,160,000 at December
31, 1998 and September 30, 1999; 8,000,000
shares authorized; 606,000, 6,800,000 and
6,800,000 shares issued and outstanding, no
shares pro forma (unaudited)................ 1,000 7,000 7,000 $ --
Common Stock, $0.001 par value, 15,000,000
shares authorized; 1,111,000, 1,028,000 and
2,610,000 shares issued and outstanding,
9,713,000 (unaudited) shares issued and
outstanding pro forma....................... 1,000 1,000 3,000 10,000
Additional paid-in capital.................... 4,047,000 15,102,000 16,919,000 16,919,000
Notes receivable from officers................ -- -- (189,000) (189,000)
Unearned stock-based compensation............. -- (2,993,000) (3,103,000) (3,103,000)
Accumulated deficit........................... (9,308,000) (11,218,000) (12,670,000) (12,670,000)
----------- ------------ ------------ ------------
Total stockholders' equity (deficit)... (5,259,000) 899,000 967,000 $ 967,000
----------- ------------ ------------ ------------
$ 1,181,000 $ 4,313,000 $ 5,317,000
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 66
LANDACORP, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
System sales.................. $ 1,007,000 $ 3,136,000 $ 4,967,000 $ 3,835,000 $ 5,633,000
Support services.............. 932,000 902,000 1,250,000 813,000 1,434,000
----------- ----------- ----------- ----------- -----------
Total revenues............. 1,939,000 4,038,000 6,217,000 4,648,000 7,067,000
----------- ----------- ----------- ----------- -----------
Cost of revenues:
System sales.................. 499,000 1,097,000 2,330,000 1,626,000 2,223,000
Support services.............. 285,000 299,000 422,000 297,000 440,000
----------- ----------- ----------- ----------- -----------
Total cost of revenues..... 784,000 1,396,000 2,752,000 1,923,000 2,663,000
----------- ----------- ----------- ----------- -----------
Gross profit.................... 1,155,000 2,642,000 3,465,000 2,725,000 4,404,000
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing........... 782,000 1,176,000 1,875,000 1,103,000 2,294,000
Research and development...... 1,269,000 1,294,000 1,410,000 1,024,000 1,241,000
General and administrative.... 801,000 975,000 2,165,000 999,000 2,393,00
----------- ----------- ----------- ----------- -----------
Total operating expenses... 2,852,000 3,445,000 5,450,000 3,126,000 5,928,000
----------- ----------- ----------- ----------- -----------
Loss from operations............ (1,697,000) (803,000) (1,985,000) (401,000) (1,524,000)
Interest and other income,
net........................... -- -- 101,000 75,000 76,000
Interest expense................ (200,000) (208,000) (26,000) (26,000) (4,000)
----------- ----------- ----------- ----------- -----------
Net loss........................ $(1,897,000) $(1,011,000) $(1,910,000) $ (352,000) $(1,452,000)
=========== =========== =========== =========== ===========
Net loss per share:
Basic and diluted............. $ (1.74) $ (0.91) $ (1.84) $ (0.34) $ (1.15)
=========== =========== =========== =========== ===========
Weighted average shares....... 1,088,000 1,108,000 1,041,000 1,045,000 1,259,000
Pro forma net loss per share:
Basic and diluted
(unaudited)................ $ (0.27) $ (0.17)
=========== ===========
Weighted average shares
(unaudited)................ 7,061,000 8,362,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 67
LANDACORP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
------------------ ------------------ PAID-IN FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICERS COMPENSATION
--------- ------ --------- ------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 606,000 $1,000 1,077,000 $1,000 $ 3,978,000 $ -- $ --
Issuance of Common Stock........... -- -- 24,000 -- 48,000 -- --
Net loss........................... -- -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------- -----------
Balance at December 31, 1996....... 606,000 1,000 1,101,000 1,000 4,026,000 -- --
Issuance of Common Stock........... -- -- 10,000 -- 21,000 -- --
Net loss........................... -- -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------- -----------
Balance at December 31, 1997....... 606,000 1,000 1,111,000 1,000 4,047,000 -- --
Issuance of Common Stock........... -- -- 95,000 -- 297,000 -- --
Conversion of Common Stock into
Series D Preferred Stock.......... 18,000 -- (178,000) -- -- -- --
Conversion of Series A, B and C
Preferred Stock to Series D
Preferred Stock................... 557,000 -- -- -- -- -- --
Issuance of Series D
Preferred Stock................... 5,619,000 6,000 -- -- 6,592,000 -- --
Unearned stock-based
compensation...................... -- -- -- -- 4,166,000 -- (4,166,000)
Amortization of unearned stock-
based compensation................ -- -- -- -- -- -- 1,173,000
Net loss........................... -- -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------- -----------
Balance at December 31, 1998....... 6,800,000 7,000 1,028,000 1,000 15,102,000 -- (2,993,000)
Issuance of Common Stock........... -- -- 10,000 -- 56,000 -- --
Common Stock issued for notes
receivable from officers.......... -- -- 1,572,000 2,000 187,000 (189,000) --
Unearned stock-based
compensation...................... -- -- -- -- 1,574,000 -- (1,574,000)
Amortization of unearned stock-
based compensation................ -- -- -- -- -- -- 1,464,000
Net loss........................... -- -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------- -----------
Balance at September 30, 1999...... 6,800,000 $7,000 2,610,000 $3,000 $16,919,000 $(189,000) $(3,103,000)
========= ====== ========= ====== =========== ========= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
------------ -------------
<S> <C> <C>
Balance at December 31, 1995....... $ (6,400,000) $(2,420,000)
Issuance of Common Stock........... -- 48,000
Net loss........................... (1,897,000) (1,897,000)
------------ -----------
Balance at December 31, 1996....... (8,297,000) (4,269,000)
Issuance of Common Stock........... -- 21,000
Net loss........................... (1,011,000) (1,011,000)
------------ -----------
Balance at December 31, 1997....... (9,308,000) (5,259,000)
Issuance of Common Stock........... -- 297,000
Conversion of Common Stock into
Series D Preferred Stock.......... -- --
Conversion of Series A, B and C
Preferred Stock to Series D
Preferred Stock................... -- --
Issuance of Series D
Preferred Stock................... -- 6,598,000
Unearned stock-based
compensation...................... -- --
Amortization of unearned stock-
based compensation................ 1,173,000
Net loss........................... (1,910,000) (1,910,000)
------------ -----------
Balance at December 31, 1998....... (11,218,000) 899,000
Issuance of Common Stock........... -- 56,000
Common Stock issued for notes
receivable from officers.......... -- --
Unearned stock-based
compensation...................... -- --
Amortization of unearned stock-
based compensation................ -- 1,464,000
Net loss........................... (1,452,000) (1,452,000)
------------ -----------
Balance at September 30, 1999...... $(12,670,000) $ 967,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 68
LANDACORP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(1,897,000) $(1,011,000) $(1,910,000) $ (352,000) $(1,452,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 81,000 162,000 239,000 167,000 270,000
Provision for doubtful accounts.................. 46,000 24,000 100,000 100,000 28,000
Amortization of unearned stock-based
compensation................................... -- -- 1,173,000 -- 1,464,000
Stock issued at discount for services rendered... -- -- -- -- 48,000
Changes in assets and liabilities:
Accounts receivable............................ (919,000) 529,000 (1,111,000) (1,589,000) (595,000)
Other current assets........................... (51,000) 17,000 (73,000) (40,000) (9,000)
Accounts payable............................... 188,000 59,000 (296,000) (263,000) 158,000
Accrued expenses............................... 375,000 251,000 (225,000) (290,000) 443,000
Deferred revenue............................... 1,633,000 (228,000) 211,000 238,000 80,000
Accrued interest -- related party.............. 185,000 180,000 (495,000) (495,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities................................. (359,000) (17,000) (2,387,000) (2,524,000) 435,000
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net........... (112,000) (167,000) (321,000) (203,000) (578,000)
Capitalized software development costs............. (49,000) (68,000) (76,000) (58,000) (58,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........ (161,000) (235,000) (397,000) (261,000) (636,000)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Bank borrowings, net............................... 128,000 35,000 -- -- 255,000
Proceeds from stockholder notes payable............ 510,000 382,000 100,000 100,000 --
Payments on stockholder notes payable.............. (220,000) (23,000) (2,032,000) (2,032,000) --
Proceeds from Common Stock issuances............... 21,000 -- 8,000 8,000 8,000
Proceeds from Preferred Stock issuances............ -- -- 6,598,000 6,598,000 --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities.... 439,000 394,000 4,674,000 4,674,000 263,000
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents..... (81,000) 142,000 1,890,000 1,889,000 62,000
Cash and cash equivalents, beginning of period....... 81,000 -- 142,000 142,000 2,032,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period............. $ -- $ 142,000 $ 2,032,000 $2,031,000 $ 2,094,000
=========== =========== =========== =========== ===========
Supplemental cash flow information:
Cash paid for interest............................. $ 1,000 $ 21,000 $ 526,000 $ 526,000 $ 4,000
=========== =========== =========== =========== ===========
Cash paid for income taxes......................... $ 1,000 $ 1,000 $ 1,000 $ -- $ 1,000
=========== =========== =========== =========== ===========
Supplemental non-cash financing activities:
Bank borrowing transferred to stockholder.......... $ -- $ -- $ 163,000 $ 163,000 $ --
=========== =========== =========== =========== ===========
Stockholder notes payable converted
into Common Stock................................ $ 27,000 $ 21,000 $ 289,000 $ 289,000 $ --
=========== =========== =========== =========== ===========
Series A, B and C Preferred Stock converted into
Series D Preferred Stock......................... $ -- $ -- $ 1,291,000 $1,291,000 $ --
=========== =========== =========== =========== ===========
Common Stock converted into
Series D Preferred Stock........................... $ -- $ -- $ 22,000 $ 22,000 $ --
=========== =========== =========== =========== ===========
Common Stock issued for notes receivable from
officers......................................... $ -- $ -- $ -- $ -- $ 189,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 69
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Landacorp, Inc. (the Company), was established in 1982 for the purpose
of developing health care quality and resource management systems that target
cost containment and quality improvement for hospitals and managed care
organizations. The Company maintains offices in Chico, California and Atlanta,
Georgia and derives all of its revenues from customers in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rounding
Dollar amounts, except per share data, in the financial statements are
rounded to the closest $1,000.
Use of estimates
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 results could differ from those estimates.
Revenue recognition
The Company derives revenues from the installation and licensing of
health care quality and resource management software systems, sales of third
party software applications as part of system implementations and from the
delivery of post-contract customer support, training and consulting services.
As the Company provides significant production, modification and/or
customization of the software installed, system sales revenues, including
training and consulting services essential to the software system, and the
associated costs are recognized using the percentage-of-completion method, using
labor hours incurred relative to total estimated contract hours as the measure
of progress towards completion. When the current estimates of total contract
revenue and contract cost indicate a loss, the Company records a provision for
the estimated loss on the contract. The allowance for contract losses totaled
$100,000 at December 31, 1997 and 1998 and $120,000 at September 30, 1999. Sales
of software products of other vendors are recognized upon installation. Support
services included in the initial licensing agreement and annual support service
renewal contracts are deferred and are recognized ratably over the support
period. Revenues from training and consulting not considered essential to the
functionality of the software system are recognized when the Company has
delivered the services in accordance with the terms of the service agreements or
have no future performance obligations. Amounts billed in advance of revenue
recognition are recorded as deferred revenue.
In future periods, the Company plans to introduce a new
subscription-based fee structure to payer organizations that would provide for
implementation services at a fixed hourly rate and licensing of the installed
system and post-contract customer support through a monthly subscription fee
based upon the number of members maintained by the payer organization. In
connection with such future arrangements, if any, that conform to the new
licensing structure, the Company will recognize the fair value of the
implementation services as such services are delivered and will recognize
license and post-contract customer support fees on a monthly basis at the
subscription rate.
The Company has not experienced any material product returns to date.
Accordingly, no provision for future product returns has been made.
F-7
<PAGE> 70
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of credit risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of trade accounts
receivable. The Company's revenues are derived from software licensing and
service transactions with customers in the United States. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for
probable credit losses based upon its historical experience.
At December 31, 1997, two customers accounted for 32% and 15% of gross
accounts receivable and costs and estimated earnings in excess of billings on
uncompleted contracts, respectively. At December 31, 1998, three customers
accounted for 12%, 11% and 10% of gross accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts, respectively.
At September, 1999, one customer accounted for 41% of gross accounts receivable
and costs and estimated earnings in excess of billings on uncompleted contracts.
During the year ended December 31, 1998, one customer accounted for 10%
of total revenues. During the nine month period ended September 30, 1999, two
customers accounted for 18% and 13% of total revenues, respectively. No
individual customer accounted for 10% or more of total revenues during the years
ended December 31, 1996 and 1997.
Cash and cash equivalents
Cash equivalents include highly liquid investments with maturities of
three months or less when purchased.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful life of the asset,
generally three to five years, or the lease term, if shorter.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows available to such assets.
Software development costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company capitalizes certain software development costs from the
date the technological feasibility of the product is established, using the
working model approach, through the date the product is available for general
release to customers. Capitalized costs are amortized on a product-by-product
basis, based on the greater amount computed by using (a) the ratio that current
gross revenues for a product bear to the total of current and anticipated future
gross revenues for that product, or (b) straight-line amortization over the
estimated product life. The Company evaluates the estimated net realizable value
of capitalized costs relating to each software product on a quarterly basis and
records write-downs to net realizable value for any amounts for which the net
book value is in
F-8
<PAGE> 71
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
excess of net realizable value. Net realizable value is determined based upon
the estimated future gross revenues from each product reduced by the estimated
future costs of completing and disposing of that product. No write-downs of
software development costs occurred during the years ended December 31, 1996,
1997 and 1998, or the nine month periods ended September 30, 1998 (unaudited)
and 1999, respectively.
Research and development
Research and development costs include expenses incurred by the Company
to develop and enhance its software products and are expensed as incurred.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the amount an employee must pay to acquire
the stock. The Company utilizes the multiple option approach to account for all
unearned stock-based compensation.
The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123.
Advertising expense
Advertising costs are expensed as incurred and totaled $42,000, $183,000
and $152,000 during the years ended December 31, 1996, 1997 and 1998,
respectively, and $118,000 (unaudited) and $98,000 during the nine months ended
September 30, 1998 and 1999, respectively.
Income taxes
Income taxes are accounted for using an asset and liability approach,
which requires the recognition of taxes payable or refundable for the current
year and deferred tax assets and liabilities for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax assets and liabilities are
based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Pro forma stockholder's equity (unaudited)
Effective upon the closing of the Company's planned initial public
offering, the outstanding shares of Series D Preferred Stock will automatically
convert into 6,800,000 shares of Common Stock. Additionally, the holders of
warrants to purchase 350,000 shares of common stock (see Note 7) have committed
to a cashless exercise of the warrants concurrent with the closing of the
Company's planned initial public offering, resulting in a net issuance of
303,333 shares of common stock assuming an initial public offering price of
$9.00 per share. The pro forma effects of the conversion and the cashless
exercise of warrants are unaudited and have been reflected in the accompanying
pro forma balance sheet at September 30, 1999.
F-9
<PAGE> 72
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net loss per share
Basic net loss per share is computed using the weighted average number
of common shares outstanding. Diluted net loss per share is computed using the
weighted average number of common and potential common shares outstanding.
Potential common shares consist of outstanding common shares subject to
repurchase by the company, the incremental number of common shares issuable upon
conversion of Preferred Stock (using the if-converted method) and common shares
issuable upon the exercise of stock options and warrants (using the treasury
stock method). Potential common shares are excluded from the computation if
their effect is anti-dilutive. Net loss per share computations are in accordance
with SFAS No. 128, "Earnings Per Share," and the Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 98.
The weighted average potential common shares excluded from the
determination of basic and diluted net loss per share as their effect is
anti-dilutive, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preferred Stock...................... 606,000 606,000 5,782,000 5,724,000 6,800,000
Common Stock subject to repurchase... -- -- -- -- 1,345,000
Common Stock options................. 576,000 818,000 941,000 627,000 1,519,000
Common Stock warrants................ -- -- 292,000 272,000 350,000
--------- --------- --------- --------- ----------
1,182,000 1,424,000 7,015,000 6,623,000 10,014,000
========= ========= ========= ========= ==========
</TABLE>
Pro forma net loss per share (Unaudited)
Pro forma basic net loss per share is computed using the weighted
average number of common shares outstanding and the pro forma effects of the
cashless exercise of outstanding warrants to purchase 350,000 shares of common
stock resulting in a net issuance of 303,333 shares of common stock assuming an
initial public offering price of $9.00 per share, and the automatic conversion
of the Company's outstanding Preferred Stock into shares of the Common Stock,
effective upon closing of the initial public offering as if such conversion and
exercise of warrants occurred January 1, 1998, or at date of original issuance,
if later. Pro forma diluted net loss per share is computed using the pro forma
weighted average number of common and potential common shares outstanding. Pro
forma potential shares of Common Stock consist of Common Stock subject to
repurchase and stock options and warrants (using the treasury stock method). Pro
forma potential shares of Common Stock have been excluded from the computation
as their effect is antidilutive.
Fair value of financial information
The Company's financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable are carried at cost, which
approximates fair value due to the short maturity of these instruments.
F-10
<PAGE> 73
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment information
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location, and reports one measure of
profitability to the chief operating decision maker. During the years ended
December 31, 1996, 1997 and 1998, and the nine months ended September 30, 1999,
the Company operated in a single business segment; licensing, installing and
supporting computer software to customers located in the United States.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions other than its reported net losses, that are required to be
reported in comprehensive income.
Interim financial information (Unaudited)
The accompanying interim financial statements for the nine months ended
September 30, 1998 are unaudited. The unaudited interim financial statements
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the nine months ended September 30, 1998. The
financial data and other information disclosed in these notes to financial
statements related to this period is unaudited.
Reclassifications
Certain prior year balances have been reclassified to conform to current
year presentation.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company has adopted the provisions of SOP 98-1
in its fiscal year beginning January 1, 1999, and the effects of adoption did
not to have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. SFAS 133 establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 deferred the effective date
F-11
<PAGE> 74
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
until the first fiscal quarter ending June 30, 2000. The Company will adopt SFAS
133 in its quarter ending June 30, 2000 and does not expect such adoption to
have a material effect impact on the Company's financial statements.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SoP No. 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" ("SoP 98-9"), which is effective for transactions entered
into in fiscal years beginning after March 15, 1999. SoP 98-9 amends SoP 97-2
and extends the effective date of SoP No. 98-4 "Deferral of the Effective Date
of a Provision of SoP 97-2, Software Revenue Recognition" ("SoP 98-4"), and
provides additional interpretive guidance. The adoption of SoP 97-2 has not had,
and the adoption of SoP 98-4 and SoP 98-9 are not expected to have, a material
effect on the Company's financial statements.
F-12
<PAGE> 75
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET COMPONENTS
The components of certain balance sheet captions are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
Accounts receivable and costs and estimated
earnings in excess of billings on uncompleted
contracts, net:
Accounts receivable........................... $ 727,000 $1,291,000 $1,893,000
Costs and estimated earnings in excess of
billings on uncompleted contracts........... -- 547,000 540,000
Less: Allowance for doubtful accounts......... (87,000) (87,000) (95,000)
Less: Allowance for contract losses........... -- (100,000) (120,000)
---------- ---------- ----------
$ 640,000 $1,651,000 $2,218,000
========== ========== ==========
Other current assets:
Prepaid license fees.......................... $ 79,000 $ 85,000 $ 56,000
Prepaid expenses and other.................... 34,000 101,000 139,000
---------- ---------- ----------
$ 113,000 $ 186,000 $ 195,000
========== ========== ==========
Property and equipment, net:
Computer equipment............................ $ 631,000 $ 870,000 $1,282,000
Furniture and fixtures........................ 131,000 140,000 188,000
Leasehold improvements........................ 43,000 48,000 160,000
---------- ---------- ----------
805,000 1,058,000 1,630,000
Less: accumulated depreciation................ (618,000) (706,000) (891,000)
---------- ---------- ----------
$ 187,000 $ 352,000 $ 739,000
========== ========== ==========
Capitalized software, net:
Capitalized software.......................... $ 208,000 $ 284,000 $ 342,000
Less: accumulated amortization................ (109,000) (192,000) (271,000)
---------- ---------- ----------
$ 99,000 $ 92,000 $ 71,000
========== ========== ==========
Accrued expenses:
Payroll related............................... $ 849,000 $ 733,000 $1,112,000
Allowance for contract losses................. 100,000 -- --
Other......................................... 109,000 100,000 164,000
---------- ---------- ----------
$1,058,000 $ 833,000 $1,276,000
========== ========== ==========
Deferred revenue and billings in excess of costs
and estimated earnings on uncompleted contracts:
Billings in excess of costs and estimated
earnings on uncompleted contracts........... $1,518,000 $1,235,000 $ 977,000
Deferred support revenue...................... 702,000 1,167,000 1,472,000
Other deferred revenue........................ 25,000 54,000 87,000
---------- ---------- ----------
$2,245,000 $2,456,000 $2,536,000
========== ========== ==========
</TABLE>
F-13
<PAGE> 76
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1997, the Company had notes payable to certain
stockholders totaling $1,720,000 and $2,221,000, respectively, which, accrued
interest at an annual rate of 12%. Interest expense recognized on stockholder
notes totaled $185,000, $180,000 and $31,000 for the years ended December 31,
1996, 1997 and 1998, respectively, and $31,000 (unaudited) for the nine months
ended September 30, 1998. In March 1998, these stockholder notes payable and
related accrued interest totaling $2,558,000 were repaid using proceeds from the
Series D Preferred Stock issuance (See Note 7).
During the year ended December 31, 1996, a stockholder converted notes
payable totaling $27,000 as payment for the exercise of 13,000 vested options.
During the year ended December 31, 1997, stockholders converted notes payable
totaling $21,000 as payment for the exercise of 10,000 vested options. During
the year ended December 31, 1998, stockholders converted notes payable totaling
$289,000 as payment for the exercise of 91,000 vested options.
In 1997, the Company maintained an operating line of credit with a bank
which was guaranteed by a stockholder (the guarantor). The line of credit
expired on December 31, 1997, and the outstanding balance of $163,000 was repaid
by the guarantor in exchange for a note payable from the Company. The Company
repaid the note to the guarantor in March 1998.
At September 30, 1999, the Company held full recourse notes receivable
from officers related to their purchases of Common Stock in the amount of
$189,000. The notes accrue interest at 6% per annum, are secured by all shares
of the Company's Common Stock purchased by these individuals and are due and
payable in 2006 or immediately in the event of termination.
5. INCOME TAXES
No current provision or benefit for federal or state income taxes has
been recorded for the years ended December 31, 1996, 1997 and 1998 and for the
nine months ended September 30, 1998 (unaudited) and 1999, as the Company has
incurred net operating losses and has no carryback potential.
At December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $6,309,000 and $1,442,000, respectively,
available to reduce future taxable income. At September 30, 1999, the Company
had federal and state net operating loss carryforwards of approximately
$6,487,000 and $1,531,000, respectively, available to reduce future taxable
income. Utilization of such carryforwards may be limited in certain
circumstances including, but not limited to, cumulative stock ownership changes
of more than 50 percent over a three-year period and expire at varying amounts
during the period from 1999 through 2013. The Company believes that there were
cumulative changes of ownership of greater than 50 percent in February 1998.
Accordingly, the amount of loss carryforwards that can be utilized to reduce
future taxable income for federal and state income tax purposes will be limited.
The amount of the limitation has not yet been calculated. The Company's planned
initial public offering is not expected to generate another 50 percent ownership
change.
F-14
<PAGE> 77
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Net deferred tax assets are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
Net operating loss carryforward.............. $ 1,716,000 $ 2,228,000 $ 2,294,000
Depreciation and amortization................ 810,000 629,000 438,000
Research and development credits............. 115,000 210,000 279,000
Allowance for doubtful accounts.............. 35,000 35,000 38,000
Allowance for contract losses................ 40,000 40,000 48,000
Other........................................ 122,000 40,000 122,000
----------- ----------- -----------
Gross deferred tax assets.................... 2,838,000 3,182,000 3,219,000
Less: Valuation allowance.................... (2,838,000) (3,182,000) (3,219,000)
----------- ----------- -----------
Net deferred tax assets...................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Based on a number of factors, including the lack of a history of
profits, management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets such that a full valuation allowance has been
provided.
6. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases its facilities and certain equipment under
noncancelable operating leases which expire at various times through 2004.
Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING RENTAL
DECEMBER 31, AMOUNTS
------------ ----------
<S> <C>
1999........................................................ $ 234,000
2000........................................................ 258,000
2001........................................................ 218,000
2002........................................................ 167,000
2003........................................................ 142,000
Thereafter.................................................. 136,000
----------
$1,155,000
==========
</TABLE>
Rent expense under noncancelable operating leases totaled $218,000,
$208,000 and $139,000 for the years ended December 31, 1996, 1997 and 1998,
respectively and $118,530 (unaudited) and $187,459 for the nine months ended
September 30, 1998 and 1999, respectively.
Line of credit agreement
In February 1999, the Company obtained a line of credit that allows
maximum borrowings of $2 million. The Company is allowed to designate up to
$300,000 of the maximum borrowings as a term note to finance equipment
purchases. Advances on the line of credit are collateralized by all tangible and
intangible personal property of the Company, accrue interest at prime and are
due in March 2000. At September 30, 1999, the Company had no outstanding
borrowings under the line of credit agreement and $255,000 on the term note. The
interest rate for borrowings under the term
F-15
<PAGE> 78
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
note is the Bank's prime rate plus 1%, 8.75% at September 30, 1999. There are
various restrictive covenants under the line of credit and term note, one of
which the Company was not in compliance with at September 30, 1999. In January
2000, the Company obtained waivers for all financial covenants for the period
beginning September 30, 1999 through March 31, 2000, the expiration date of the
line of credit and term note.
Shareholder bonus
In February 1998, the Company entered into an agreement with a
shareholder whereby the Company would pay a bonus of $335,000 to the shareholder
upon the successful completion of an initial public offering. Such amount will
be accrued and recorded as an operating expense in the period the initial public
offering is completed.
7. STOCKHOLDERS' EQUITY
As of December 31, 1998, the Company's Articles of Incorporation
authorized the Company to issue 15,000,000 shares of no par value Common Stock,
and 41,000, 115,000, 450,000 and 6,800,000 shares of $0.001 par value Series A,
B, C and D Preferred Stock, respectively.
Preferred Stock
Preferred Stock consists of the following:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------------------------- ------------------------ ------------------------
DECEMBER 31,
SHARES ------------------- SEPTEMBER 30, GROSS LIQUIDATION GROSS LIQUIDATION
AUTHORIZED 1997 1998 1999 PROCEEDS AMOUNT PROCEEDS AMOUNT
---------- ------- --------- ------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A............. 41,000 41,000 -- -- $ -- $ -- $ -- $ --
Series B............. 115,000 115,000 -- -- -- -- -- --
Series C............. 450,000 450,000 -- -- -- -- -- --
Series D............. 6,800,000 -- 6,800,000 6,800,000 8,513,000 8,160,000 8,513,000 8,160,000
Undesignated......... 594,000 -- -- -- -- -- -- --
--------- ------- --------- --------- ---------- ---------- ---------- ----------
8,000,000 606,000 6,800,000 6,800,000 $8,513,000 $8,160,000 $8,513,000 $8,160,000
========= ======= ========= ========= ========== ========== ========== ==========
</TABLE>
Recapitalization
At December 31, 1997, the Company had 41,000, 115,000 and 450,000
outstanding shares of Series A, B and C Preferred Stock, respectively. In
February 1998, the Company's Articles of Incorporation were amended to authorize
the Company to issue 6,800,000 shares of Series D Preferred Stock. Immediately
following the authorization, all 41,000 shares of Series A Preferred Stock were
converted into Series D Preferred Stock on a one-for-one basis. All shares of
Series B and Series C Preferred Stock were converted into 1,122,000 shares of
Series D Preferred Stock using a conversion ratio of 1.9833 shares of Series D
Preferred Stock issued for each share of Series B and Series C Preferred Stock
converted.
Additionally, certain stockholders converted 178,000 shares of Common
Stock into 18,000 shares of Series D Preferred Stock using a conversion ratio of
approximately .10 shares of Series D Preferred Stock issued for each share of
Common Stock converted.
Following the above conversions, in February 1998, the holders of the
converted Series D Preferred Stock sold all of their shares to new investors for
approximately $1.20 per share in accordance with an agreement between the
Company and its stockholders. In addition, the
F-16
<PAGE> 79
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Company issued 5,619,000 shares of Series D Preferred Stock to new investors for
approximately $1.20 per share. Offering costs of $145,000 were recorded as an
offset to the gross proceeds from the sale of Series D Preferred Stock.
Voting
Each share of Series D Preferred Stock has voting rights equal to one
share of Common Stock into which it is convertible and votes together as one
class with the Common Stock.
Dividends
Holders of Series A Preferred Stock were entitled to receive
noncumulative dividends at a rate of 10 percent per year, when and if declared
by the Company's Board of Directors. Holders of Series B and C Preferred Stock
were entitled to receive cumulative dividends at a rate of 3 percent per year,
when and if declared by the Company's Board of Directors. Cumulative dividends
were to be paid before any dividends could be declared or paid on any other
class of stock. No dividends were declared by the Board of Directors on the
Series A, B and C Preferred Stock.
Holders of Series D Preferred Stock are entitled to receive
noncumulative dividends at a rate of 10 percent per year, when and if declared
by the Company's Board of Directors. The holders of Series D Preferred Stock
will also be entitled to participate in dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-if converted basis. No dividends on Series D Preferred Stock
or Common Stock have been declared by the Company's Board of Directors.
Liquidation
In the event of the liquidation, dissolution or winding up of the
Company, including merger, consolidation, reorganization, sale of voting control
or sale of substantially all of the assets of the Company in which the
stockholders of the Company do not own a majority (50% or more) of the
outstanding shares of the surviving corporation, the holders of Series D
Preferred Stock are entitled to receive a sum equal to the original issue price
of the stock plus all declared and unpaid dividends. The remaining assets, if
any, shall be distributed ratably among the holders of Common Stock and Series D
Preferred Stock on an as-if-converted to Common Stock basis. Should the
Company's legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably among the holders of Series D
Preferred Stock.
Conversion
Each share of Series D Preferred Stock is convertible at the option of
the holder into shares of Common Stock by multiplying the appropriate conversion
rate in effect by the number of Series D Preferred Stock being converted. The
conversion rate is the quotient obtained by dividing the Original Issue Price by
the conversion price (which is initially the respective Original Issue Price,
until it is adjusted). Additionally, each share of Series D Preferred Stock
shall automatically be converted upon (i) an initial public offering of the
Company equal to or exceeding $6.00 per share with aggregate proceeds not less
than $15,000,000, or (ii) the written consent of at least sixty six and
two-thirds (66 2/3) percent of the Series D Preferred Stock holders then
outstanding. At December 31, 1998 and September 30, 1999, the conversion rate
was one to one and is not expected to change prior to the Company's Initial
Public Offering.
F-17
<PAGE> 80
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock warrants
In conjunction with the Series D Preferred Stock issuance, the Company
issued warrants to two stockholders for the rights to purchase 100,000 and
250,000 shares, respectively, of Common Stock at a price of $1.20 per share. The
warrants were fully vested and exercisable on the date of grant and expire on
the earlier of February 2003, or the closing of an initial public offering by
the Company. These warrants were accounted for in accordance with SFAS No. 123,
and the fair value of warrants, determined using the Black-Scholes option
pricing model, was immaterial on the date of issuance.
Restricted Common Stock
In March and May 1999, certain officers exercised, in exchange for full
recourse notes payable to the Company, stock options to purchase 1,572,284
shares of the Company's Common Stock at a price of $0.12 per share (See Note 4).
Under the terms of the stock purchase agreements, the Company has the right to
repurchase the unvested shares of Common Stock at the original issue price in
the event the officers cease to be employees of the Company. The repurchase
rights lapse ratably over 48 months from the original grant date of the options.
At September 30, 1999, 1,076,187 shares of Common Stock were subject to
repurchase rights.
8. STOCK OPTION PLANS
The Company has two stock option plans, the 1995 Stock Option Plan (1995
Plan) and the 1998 Equity Incentive Plan (1998 Plan), which provide for the
granting of incentive stock option awards to employees of the Company. Under the
two plans, options must be issued at prices not less than 100 percent of the
estimated fair value of the stock on the date of grant and are exercisable for
periods not exceeding ten years from the date of grant. Options granted to
stockholders who own greater than 10 percent of the outstanding stock at the
time of grant are exercisable for periods not exceeding five years from the date
of grant and must be issued at prices not less than 110 percent of the estimated
fair value at the date of grant. Options granted under the 1995 Plan vest in 25
percent increments 9, 15, 21 and 27 months after the date of grant. Options
granted to employees under the 1998 Plan vest at a rate of 20 percent per year
over five years from the grant date. Options granted to officers and directors
under the 1998 Plan vest over periods determined by the Board of Directors.
Options granted in 1998 to officers and directors were immediately exercisable.
As discussed in Note 7, the immediately exercisable options to purchase
1,572,284 shares of the Company's Common Stock granted in 1998 were exercised by
certain officers during 1999 and are subject to repurchase by the Company. In
July 1999, certain directors of the Company were granted options to purchase
50,000 shares of the Company's Common Stock. These options were immediately
exercisable and are also subject to the same restriction described in Note 7.
F-18
<PAGE> 81
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
The following table summarizes the status of the Company's stock option
plans as of and for the years ended December 31, 1996, 1997 and 1998 and as of
and for the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------- NINE MONTHS ENDED
1996 1997 1998 SEPTEMBER 30, 1999
-------------------- -------------------- ---------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- -------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year..................... 487,048 $3.23 609,048 $2.85 900,298 $2.54 2,253,947 $0.71
Granted above
fair value........... 164,000 1.94 379,500 1.95 -- -- -- --
Granted below
fair value........... -- -- -- -- 1,750,349 0.12 280,100 0.95
Exercised.............. (24,000) 3.75 (10,000) 2.09 (95,000) 3.13 (1,572,284) 0.12
Forfeited.............. (18,000) 1.90 (78,250) 2.13 (6,700) 1.90 (9,600) 0.13
Expired................ -- -- -- -- (295,000) 1.99 (70,848) 8.00
-------- -------- ---------- -----------
Outstanding at
period end............... 609,048 2.85 900,298 2.54 2,253,947 0.71 881,315 1.26
-------- -------- ---------- -----------
Options exercisable
at period end............ 427,798 3.23 602,298 2.84 2,005,132 0.72 516,315 1.70
-------- -------- ---------- -----------
Weighted-average
fair value of options
granted below fair value
during the period........ $ -- $ -- $2.40 $5.85
</TABLE>
As of December 31, 1998 and September 30, 1999, 588,802 and 389,150
shares of Common Stock were reserved for future issuance, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF REMAINING NUMBER OF REMAINING
EXERCISE SHARES CONTRACTUAL LIFE SHARES CONTRACTUAL LIFE
PRICES OUTSTANDING IN YEARS EXERCISABLE IN YEARS
- -------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
$0.12 1,750,349 9.8 1,572,284 9.8
1.90 432,750 5.9 362,000 5.9
8.00 70,848 0.3 70,848 0.3
--------- --- --------- ---
2,253,947 8.8 2,005,132 8.8
========= =========
</TABLE>
F-19
<PAGE> 82
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF REMAINING NUMBER OF REMAINING
EXERCISE SHARES CONTRACTUAL LIFE SHARES CONTRACTUAL LIFE
PRICES OUTSTANDING IN YEARS EXERCISABLE IN YEARS
- -------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
$0.12 168,565 9.1 33,565 9.1
0.50 28,000 9.8 -- --
1.00 252,000 9.8 50,000 9.8
1.90 432,750 5.3 432,750 5.3
------- --- ------- ---
881,315 7.4 516,315 5.9
======= =======
</TABLE>
Fair value disclosures
The Company calculated the fair value of each option on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123
using the following assumptions:
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------ --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Risk-free interest
rates.............. 6.3% 6.3% 5.8% 4.1% 5.7%
Expected lives (in
years)............. 5.0 5.0 5.0 5.0 5.0
Dividend yield....... 0.0% 0.0% 0.0% 0.0% 0.0%
Expected volatility.. 0.1% 0.1% 0.1% 0.1% 0.1%
</TABLE>
Had compensation cost for the Company's stock-based compensation plans
been determined based on the minimum value method prescribed by SFAS No. 123,
the Company's net pro forma loss would have been as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported.................... $(1,897,000) $(1,011,000) $(1,910,000) $(352,000) $(1,452,000)
Pro forma...................... (1,897,000) (1,011,000) (1,912,000) (358,000) (1,470,000)
Basic and diluted net loss per
share:
As reported.................... $ (1.74) $ (0.91) $ (1.84) $ (0.34) $ (1.15)
Pro forma...................... (1.74) (0.91) (1.84) (0.34) (1.16)
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described above and because additional option grants
are expected to be made each year, the above
F-20
<PAGE> 83
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
pro forma disclosures are not representative of the pro forma effect of option
grants on reported net loss for future years.
Unearned stock-based compensation
In connection with certain stock option grants and common stock
issuances during the year ended December 31, 1998 and the nine months ended
September 30, 1999, the Company recognized unearned compensation totaling
$4,166,000 and $1,574,000, respectively, which is being amortized over the
vesting period or as the Company's repurchase rights lapse (see Note 7), as
applicable, using the multiple option approach prescribed by SFAS No. 123.
Amortization expense recognized during the year ended December 31, 1998 and the
nine months ended September 30, 1998 and 1999, totaled $1,173,000, $0
(unaudited) and $1,464,000, respectively. Additionally compensation expense of
$48,000 was recorded in the period ended September 30, 1999 for stock sold at a
discount to a third party consultant for services provided, and is included in
general and administrative expense.
9. EMPLOYEE BENEFIT PLAN
All full-time employees who are at least 21 years old and have completed
90 days of service are eligible to participate in the Company's 401(k) Profit
Sharing Plan. Participants may elect to contribute up to 15% of their taxable
compensation or of the statutorily prescribed limit, whichever is lower, to the
Plan. The Company contributes matching funds of up to 25% of employee
contributions, subject to a cap of $900 per employee. The Company's
contributions totaled $10,000, $11,000 and $18,000 during the years ended
December 31, 1996, 1997 1998, respectively and $13,0000 (unaudited) and $25,000
during the nine months ended September 30, 1998 and 1999, respectively.
10. SUBSEQUENT EVENTS
Reincorporation
In December 1999, the Company reincorporated in the State of Delaware.
As a result of the reincorporation, the Company changed its name from Landa
Management Systems Corporation to Landacorp, Inc., and is authorized to issue
15,000,000 shares of $0.001 par value Common Stock and 8,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof.
Asset acquisition
On January 31, 2000, the Company acquired the net assets of Interactive
Healthcare Division ("IHD") of High Technology Solutions, Inc. ("HTS"). The
acquisition is being accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on the
acquisition date. The fair value of intangible assets was determined based upon
preliminary valuations and other available information.
Of the total purchase price of $1,268,000, the Company assumed
liabilities of $18,000 and paid $250,000 at closing, with the remaining balance
to be paid in four equal quarterly installments commencing April 2000. Of the
purchase price of $1,250,000 plus $18,000 of assumed liabilities, approximately
$63,000 has been allocated to property and equipment, and the remainder has been
F-21
<PAGE> 84
LANDACORP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
allocated to intangible assets, including intellectual property ($165,000), work
force ($160,000), and goodwill ($880,000). The acquired intangible assets will
be amortized over their estimated useful lives of twenty-four to thirty-six
months.
Stock Purchase Plan
In December 1999, the Company adopted an employee stock purchase plan.
Under the plan, eligible employees may purchase common stock through payroll
deductions of up to 15% of the participants compensation. The price per share is
the lower of 85% of the market price at the beginning or end of the offering
period. The plan provides for purchases by employees of up to an aggregate of
560,000 shares through 2009.
F-22
<PAGE> 85
LANDACORP, INC.
PRO FORMA CONDENSED FINANCIAL INFORMATION
OVERVIEW
On January 31, 2000, the Company acquired the net assets of Interactive
Healthcare Division ("IHD") of High Technology Solutions, Inc. ("HTS"). The
acquisition is being accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired on the basis of their respective fair values on the
acquisition date. The fair value of intangible assets was determined based upon
preliminary valuations and other available information.
Of the total purchase price of $1,268,000, the Company assumed
liabilities of $18,000 and paid $250,000 at the closing, with the remaining
balance to be paid in four equal quarterly installments commencing April 2000.
Of the purchase price of $1,250,000 plus $18,000 of assumed liabilities,
approximately $63,000 has been allocated to property and equipment, and the
remainder has been allocated to intangible assets, including intellectual
property ($165,000), work force ($160,000), and goodwill ($880,000). The
acquired intangible assets will be amortized over their estimated useful lives
of twenty-four to thirty-six months. Factors considered by the Company in
determining estimated useful lives of the intangible assets include, service
life expectancies of the workforce based on anticipated option vesting schedules
and other compensation factors, effects of obsolescence on intellectual
property, and effects of competition and other economic factors on goodwill.
The unaudited pro forma condensed balance sheet gives effect to this
acquisition as if it had occurred on September 30, 1999, by consolidating the
balance sheet of IHD at November 26, 1999 with the balance sheet of Landacorp at
September 30, 1999. The unaudited pro forma condensed statement of operations
gives effect to this acquisition as if it had occurred on January 1, 1998, by
consolidating the results of operations of IHD for the year ended November 27,
1998 with the results of operations of Landacorp for the year ended December 31,
1998 and the nine months ended November 26, 1999 for IHD, with the results of
operations of Landacorp for the nine months ended September 30, 1999. Although
IHD's results of operations for the three-month period ended February 26, 1999
have not been presented in the unaudited pro forma condensed statement of
operations, IHD's results of operations during such period were materially
consistent with that of the periods described above.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
The pro forma adjustments are described in the accompanying notes and are based
upon available information and certain assumptions that the Company believes are
reasonable.
The unaudited pro forma condensed financial information is based on the
historical financial statements of the Company and IHD included elsewhere in
this Prospectus, and other financial information not included in this
Prospectus, and the estimates and assumptions set forth in the notes to the
unaudited pro forma condensed financial statements.
A preliminary allocation of the purchase price has been made to major
categories of assets and liabilities in the accompanying Pro Forma Financial
Statements based on available information. The actual allocation of purchase
price and the resulting effect on income from operations may differ
significantly from the pro forma amounts included herein. These pro form
adjustments represent the Company's preliminary determination of purchase
accounting adjustments and are based upon available information and certain
assumptions that the Company believes to be reasonable. Consequently, the
amounts reflected in the Pro Forma Financial Statements are subject to change,
and the final amounts may differ substantially.
F-23
<PAGE> 86
LANDACORP, INC.
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS ROUNDED TO THE NEAREST $1,000)
<TABLE>
<CAPTION>
PRO FORMA
LANDACORP IHD ADJUSTMENTS
SEPTEMBER 30, NOVEMBER 26, ---------------------- PRO FORMA
1999 1999 (A) (B) COMBINED
------------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 2,094,000 $ -- $ -- $ (250,000) $ 1,844,000
Accounts receivable and costs
and estimated earnings in
excess of billings on
uncompleted contracts, net... 2,218,000 157,000 (157,000) -- 2,218,000
Other current assets........... 195,000 6,000 (6,000) -- 195,000
------------ --------- --------- ---------- ------------
Total current assets.... 4,507,000 163,000 (163,000) (250,000) 4,257,000
Property and equipment, net...... 739,000 63,000 -- -- 802,000
Capitalized software, net........ 71,000 -- -- -- 71,000
Other intangible assets.......... -- 150,000 (150,000) 1,205,000 1,205,000
------------ --------- --------- ---------- ------------
$ 5,317,000 $ 376,000 $(313,000) $ 955,000 $ 6,335,000
============ ========= ========= ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 283,000 $ 7,000 $ (7,000) $ -- $ 283,000
Accrued expenses............... 1,276,000 23,000 (5,000) 1,294,000
Deferred revenue and billings
in excess of costs and
estimated earnings on
uncompleted contracts........ 2,536,000 -- -- -- 2,536,000
Note payable................... 255,000 -- -- 1,000,000 1,255,000
Intercompany payable........... -- 468,000 (468,000) --
------------ --------- --------- ---------- ------------
Total current
liabilities........... 4,350,000 498,000 (480,000) 1,000,000 5,368,000
------------ --------- --------- ---------- ------------
Stockholders' equity (deficit):
Preferred Stock................ 7,000 -- -- -- 7,000
Common Stock................... 3,000 -- -- -- 3,000
Additional paid-in capital..... 16,919,000 -- -- -- 16,919,000
Notes receivable from
officers..................... (189,000) -- -- -- (189,000)
Unearned stock-based
compensation................. (3,103,000) -- -- -- (3,103,000)
Accumulated deficit............ (12,670,000) (122,000) 122,000 -- (12,670,000)
------------ --------- --------- ---------- ------------
Total stockholders'
equity (deficit)...... 967,000 (122,000) 122,000 -- 967,000
------------ --------- --------- ---------- ------------
$ 5,317,000 $ 376,000 $(358,000) $1,000,000 $ 6,335,000
============ ========= ========= ========== ============
</TABLE>
See accompanying notes to Pro Forma Financial Information.
F-24
<PAGE> 87
LANDACORP, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------
LANDACORP IHD
YEAR TWELVE MONTHS
ENDED ENDED
DECEMBER 31, NOVEMBER 27, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS COMBINED
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
System sales............ $ 4,967,000 $ 356,000 $ -- $ 5,323,000
Support services........ 1,250,000 -- -- 1,250,000
----------- --------- --------- -----------
Total revenues.... 6,217,000 356,000 -- 6,573,000
----------- --------- --------- -----------
Cost of revenues:
System sales............ 2,330,000 212,000 -- 2,542,000
Support services........ 422,000 -- -- 422,000
----------- --------- --------- -----------
Total cost of
revenues........ 2,752,000 212,000 -- 2,964,000
----------- --------- --------- -----------
Gross profit.............. 3,465,000 144,000 -- 3,609,000
----------- --------- --------- -----------
Operating expenses:
Research and
development........... 1,410,000 10,000 -- 1,420,000
Selling, general and
administrative........ 4,040,000 212,000 -- 4,252,000
Amortization of
intangible assets..... -- -- 429,000(c) 429,000
----------- --------- --------- -----------
Total operating
expenses........ 5,450,000 222,000 429,000 6,101,000
----------- --------- --------- -----------
Loss from operations...... (1,985,000) (78,000) (429,000) (2,492,000)
Interest and other income,
net..................... 101,000 -- -- 101,000
Interest and other
expense................. (26,000) (48,000) -- (74,000)
----------- --------- --------- -----------
Loss before income
taxes................. (1,910,000) (126,000) (429,000) (2,465,000)
Income tax benefit........ -- 8,000 -- 8,000
----------- --------- --------- -----------
Net loss.................. $(1,910,000) $(118,000) $(429,000) $(2,457,000)
=========== ========= ========= ===========
Pro forma net loss per
share(d):
Basic and diluted....... $ (.35)
===========
Pro forma weighted average
shares:
Basic and diluted....... 7,061,000
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------
LANDACORP IHD
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, NOVEMBER 26, PRO FORMA PRO FORMA
1999 1999 ADJUSTMENTS COMBINED
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
System sales............ $ 5,633,000 $ 404,000 $ -- $ 6,037,000
Support services........ 1,434,000 -- -- 1,434,000
----------- --------- --------- -----------
Total revenues.... 7,067,000 404,000 -- 7,471,000
----------- --------- --------- -----------
Cost of revenues:
System sales............ 2,223,000 282,000 -- 2,505,000
Support services........ 440,000 -- -- 440,000
----------- --------- --------- -----------
Total cost of
revenues........ 2,663,000 282,000 -- 2,945,000
----------- --------- --------- -----------
Gross profit.............. 4,404,000 122,000 -- 4,526,000
----------- --------- --------- -----------
Operating expenses:
Research and
development........... 1,241,000 13,000 -- 1,254,000
Selling, general and
administrative........ 4,687,000 340,000 -- 5,027,000
Amortization of
intangible assets..... -- -- 322,000(c) 322,000
----------- --------- --------- -----------
Total operating
expenses........ 5,928,000 353,000 322,000 6,603,000
----------- --------- --------- -----------
Loss from operations...... (1,524,000) (231,000) (322,000) (2,077,000)
Interest and other income,
net..................... 76,000 -- -- 76,000
Interest and other
expense................. (4,000) -- -- (4,000)
----------- --------- --------- -----------
Loss before income
taxes................. (1,452,000) (231,000) (322,000) (2,005,000)
Income tax benefit........ -- -- -- --
----------- --------- --------- -----------
Net loss.................. $(1,452,000) $(231,000) $(322,000) $(2,005,000)
=========== ========= ========= ===========
Pro forma net loss per
share(d):
Basic and diluted....... $ (.24)
===========
Pro forma weighted average
shares:
Basic and diluted....... 8,362,000
</TABLE>
See accompanying notes to Pro Forma Financial Information.
F-25
<PAGE> 88
LANDACORP, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following adjustments were applied to the Company's historical
financial statements and those of IHD to arrive at the pro forma condensed
financial information. The pro forma adjustments are preliminary and based upon
Company management's estimates and a preliminary valuation of the intangible
assets acquired.
(a) Reflects adjustments to eliminate assets, liabilities and equity
that were not acquired by the Company.
(b) The preliminary allocation of the purchase price, assuming the
acquisition occurred on September 30, 1999, for pro forma purposes, is as
follows:
<TABLE>
<S> <C>
Cash to be paid upon closing............................. $ 250,000
Notes payable............................................ 1,000,000
Liabilities assumed...................................... 18,000
----------
Total purchase price........................... $1,268,000
----------
Property and equipment................................... $ 63,000
Intangible assets:
Intellectual property.................................. 165,000
Work force............................................. 160,000
Goodwill............................................... 880,000
----------
Total purchase price allocation................ $1,268,000
==========
</TABLE>
(c) To record amortization of: acquired intellectual property totaling
$165,000 over the estimated period of benefit of twenty-four months,
acquired work force totaling $160,000 over the estimated period of benefit
of thirty-six months, and goodwill totaling $880,000 over the estimated
period of benefit of thirty-six months.
(d) Pro forma basic net loss per share for the year ended December 31,
1998 and the nine months ended September 30, 1999 is computed using the
weighted average number of common shares outstanding, including the pro
forma effects of the automatic conversion of 6,800,000 outstanding shares
of Series D preferred stock, and the cashless exercise of the outstanding
warrants to purchase 350,000 shares of the Company's common stock resulting
in a net issuance of 303,333 shares of common stock assuming an initial
public offering price of $9.00 per share, effective upon the closing of the
initial public offering as if such conversion occurred on January 1, 1998,
or at date of original issuance, if later. Pro forma diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common and potential common shares outstanding during the
period if their effect is dilutive. Pro Forma potential shares of common
stock consist of common stock subject to repurchase and stock options. At
December 31, 1998 and September 30, 1999, 941,000 and 2,864,000 potential
common shares, respectively, are excluded from the determination of diluted
net loss per share as the effect of such shares on a weighted average basis
is anti-dilutive.
F-26
<PAGE> 89
REPORT OF INDEPENDENT AUDITORS
Board of Directors
High Technology Solutions, Inc.
We have audited the accompanying balance sheet of Interactive Healthcare
Division of High Technology Solutions, Inc. (the "Company") as of August 27,
1999, and the related statement of operations, divisional equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Interactive
Healthcare Division of High Technology Solutions, Inc. as of August 27, 1999,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
San Diego, California
December 15, 1999
F-27
<PAGE> 90
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
BALANCE SHEET
AUGUST 27, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Costs and profits greater than billings................... $ 72,168
Billed accounts receivable................................ 60,750
Other current assets...................................... 3,460
--------
Total current assets.............................. 136,378
Property, plant and equipment............................... 78,088
Less accumulated depreciation............................... (10,911)
--------
Property, plant and equipment, net........................ 67,177
Goodwill, net of accumulated amortization of $20,922........ 60,404
Intangibles and other assets, net of accumulated
amortization of $36,842................................... 112,398
--------
Total assets...................................... $376,357
========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable.......................................... $ 22,861
Accrued expenses.......................................... 14,341
Accrued compensation and related expenses................. 23,034
Intercompany obligations.................................. 381,381
--------
Total current liabilities......................... 441,617
Commitments and contingencies
Divisional equity........................................... (65,260)
--------
Total liabilities and divisional equity........... $376,357
========
</TABLE>
See accompanying notes.
F-28
<PAGE> 91
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 27, 1999
<TABLE>
<S> <C>
Net revenues................................................ $ 439,983
Cost of revenues............................................ 307,571
---------
Gross profit................................................ 132,412
Expenses:
Research and development.................................. 57,791
Selling, general and administrative....................... 383,387
---------
441,178
---------
Net loss.................................................... $(308,766)
=========
</TABLE>
See accompanying notes.
F-29
<PAGE> 92
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
STATEMENT OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
TOTAL
DIVISIONAL
EQUITY
----------
<S> <C>
Initial capitalization on September 1, 1998................. $ 243,506
Net loss.................................................... (308,766)
---------
Balance at August 27, 1999.................................. $ (65,260)
=========
</TABLE>
See accompanying notes.
F-30
<PAGE> 93
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 27, 1999
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(308,766)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization............................. 68,675
Changes in assets and liabilities, net of acquisitions:
Billed accounts receivable............................. (60,750)
Cost and profit greater than billings, net............. (72,168)
Other current assets................................... (1,740)
Other assets........................................... (2,140)
Accounts payable....................................... 22,861
Accrued expenses....................................... 14,341
Accrued compensation and related expenses.............. 15,984
---------
Net cash used in operating activities....................... (323,703)
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (57,678)
---------
Net cash used in investing activities....................... (57,678)
FINANCING ACTIVITIES
Advances from High Technology Solutions, Inc................ 381,381
---------
Net cash provided by financing activities................... 381,381
---------
Net change in cash.......................................... --
---------
Ending cash balance......................................... $ --
=========
</TABLE>
See accompanying notes.
F-31
<PAGE> 94
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 27, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Description of Business
Interactive Healthcare Division (the "Company" or "IHD") is a division
of High Technology Solutions, Inc. ("HTS"). On September 1, 1998 HTS acquired
the assets of IHD (formerly MultiMedia Resources, Inc.) in a transaction
accounted as a purchase. The excess of consideration given over the fair value
of net assets acquired of $81,000 has been recorded as goodwill. The Company is
located in Oregon and is a developer of internet web sites primarily for the
healthcare information technology market.
Revenue Recognition
Revenue on firm fixed price contracts is recognized using the
percentage-of-completion method based on the ratio of costs incurred to date to
total estimated costs at completion. Provisions are made to recognize any losses
on contracts when losses become evident.
Goodwill and Intangibles
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized over three years.
Intangible and other assets consists primarily of intellectual property
recorded when the Company was purchased by HTS. These assets are being amortized
over the estimated useful lives of the relevant intangibles of four years.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the goodwill and other intangibles over
their remaining lives can be recovered through undiscounted future operating
cash flows of the acquired businesses. The impairment of goodwill and other
intangibles, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
provided on a straight-line method over the estimated useful lives of the
assets, which range from three to seven years.
Income Taxes
HTS files a consolidated federal income tax return which includes its
eligible subsidiaries and divisions, including the Company. The provision for
income taxes is computed assuming the Company filed a separate federal and state
income tax returns. Since the Company had a loss for the year ended August 27,
1999 and there are no separate carryback provisions applicable, no benefit for
its loss has been recorded. Any past or future tax benefit from the Company's
loss will be realized by HTS.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, the
F-32
<PAGE> 95
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. To date, the Company has not identified any such
indicators of impairment or recorded any impairment losses.
Use of Estimates
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 results could differ from those estimates.
Fiscal Year
The Company's fiscal year is 52 or 53 weeks ending the Friday
immediately prior to August 31.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at August 27, 1999:
<TABLE>
<S> <C>
Machinery and equipment..................................... $ 67,781
Furniture and fixtures...................................... 6,460
Purchased software.......................................... 3,847
--------
78,088
Accumulated depreciation and amortization................... (10,911)
--------
Property, plant and equipment, net.......................... $ 67,177
========
</TABLE>
3. INTERCOMPANY OBLIGATIONS
The intercompany obligations included in the accompanying balance sheet
represents non interest bearing advances from HTS to fund the Company's
operations.
HTS allocated to its various operations corporate charges for management
and other services. No allocations were made to IHD since the amounts allocable
were not significant.
4. EMPLOYEE BENEFIT PLAN
HTS sponsors a defined contribution plan covering substantially all
employees who are at least 21 years of age with one month of service. Employees
may elect to contribute up to 15% of their annual salary, subject to federal
limitations. Contributions by HTS are discretionary but will not exceed 6% of
employee compensation and were $1,623 for the fiscal year ended August 27, 1999
relating to IHD.
F-33
<PAGE> 96
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 27, 1999
5. COMMITMENTS AND CONTINGENCIES
The Company leases office equipment and conducts operations in leased
facilities. The leases expire on various dates through March 2004. Under the
terms of these noncancelable operating leases, the Company is required to pay
all taxes, insurance and maintenance. Rental expense under the leases
approximated $30,270 in fiscal year 1999.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
Fiscal year ending
2000...................................................... $31,678
2001...................................................... 4,728
2002...................................................... 4,728
2003...................................................... 4,728
2004...................................................... 2,758
-------
Total minimum lease commitments............................. $48,620
=======
</TABLE>
6. RISKS AND UNCERTAINTIES
During the fiscal year ended August 27, 1999, five customers accounted
for 77% of net revenue with each of the five customers individually accounting
for more than 10% of net revenue.
F-34
<PAGE> 97
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
UNAUDITED BALANCE SHEET
NOVEMBER 26, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Costs and profits greater than billings................... $ 138,083
Billed accounts receivable................................ 18,495
Other current assets...................................... 5,626
---------
Total current assets.............................. 162,204
Property, plant and equipment............................... 78,088
Less accumulated depreciation............................... (14,754)
---------
Property, plant and equipment, net..................... 63,334
Goodwill, net of accumulated amortization of $33,995........ 47,331
Intangibles and other assets, net of accumulated
amortization of $45,967................................... 103,206
---------
Total assets...................................... $ 376,075
=========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,942
Accrued expenses.......................................... 5,180
Accrued compensation and related expenses................. 18,030
Intercompany obligations.................................. 468,391
---------
Total current liabilities......................... 498,543
Commitments and contingencies
Divisional equity........................................... (122,468)
---------
Total liabilities and divisional equity........... $ 376,075
=========
</TABLE>
See accompanying notes.
F-35
<PAGE> 98
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
NOVEMBER 27, NOVEMBER 26,
1998 1999
------------ ------------
<S> <C> <C>
Net revenues................................................ $ 74,212 $132,778
Cost of revenues............................................ 55,379 88,556
-------- --------
Gross profit................................................ 18,833 44,222
Expenses:
Research and development.................................. 10,247 --
Selling, general and administrative....................... 65,797 101,430
-------- --------
76,044 101,430
-------- --------
Net loss.................................................... $(57,211) $(57,208)
======== ========
</TABLE>
See accompanying notes.
F-36
<PAGE> 99
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
NOVEMBER 27, NOVEMBER 26,
1998 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(57,211) $(57,208)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization............................. 17,325 26,108
Changes in assets and liabilities, net of acquisitions:
Billed accounts receivable............................. (17,025) 42,255
Cost and profit greater than billings, net............. (42,187) (65,915)
Other current assets................................... -- (2,166)
Other assets........................................... 1,720 --
Accounts payable....................................... 1,450 (15,919)
Accrued expenses....................................... -- (9,161)
Accrued compensation and related expenses.............. 8,243 (5,004)
-------- --------
Net cash used in operating activities....................... (87,685) (87,010)
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (16,215) --
-------- --------
Net cash used in investing activities....................... (16,215) --
FINANCING ACTIVITIES
Advances from High Technology Solutions, Inc................ 103,900 87,010
-------- --------
Net cash provided by financing activities................... 103,900 87,010
-------- --------
Net change in cash.......................................... -- --
-------- --------
Ending cash balance......................................... $ -- $ --
======== ========
</TABLE>
See accompanying notes.
F-37
<PAGE> 100
INTERACTIVE HEALTHCARE DIVISION OF
HIGH TECHNOLOGY SOLUTIONS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements have been omitted or condensed. In the opinion of
management, all necessary adjustments have been made to provide a fair
presentation. The operating results for the three months ended November 26,
1999, are not necessarily indicative of the results that may be expected for the
year ending August 25, 2000. For further information, refer to the audited
financial statements and footnotes included elsewhere herein.
F-38
<PAGE> 101
INSIDE FRONT COVER PAGE HEADER:
Imagine... a healthcare industry where communication among decision-makers is
actually timely, interactive and meaningful.
INSIDE SPREAD HEADER:
Make the right connections. Landacorp e-medical management solutions.
COPY HEADERS:
Landacorp.
Providing business-to-business solutions to enable e-medical management.
Landacorp provides comprehensive medical management and Internet-based solutions
to healthcare payers and providers that:
o Automate and streamline administrative, business and clinical processes;
o Enable secure, real-time interaction among various healthcare participants
over the Internet; and
o Add functionality to our payer clients' Web sites to attract repeat visits by
members.
Our solutions complement existing information systems and Internet-based
products and services, enabling our customers to configure and adapt our
solutions to fit their specific business and administrative processes, and
clinical guidelines.
Our solutions help our clients:
o Control the cost and improve the quality of healthcare delivery;
o Develop their Internet healthcare initiatives; and
o Improve their members' satisfaction and empowerment.
DESCRIPTION OF DIAGRAM:
The diagram illustrates the interactions between members and health plan, and
providers and health plan on mock computer screens that would be available to
members and providers using our e-maxMC medical management solution via Internet
connection.
<PAGE> 102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,500,000 SHARES
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
CHASE H&Q
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
SG COWEN
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OR
DISTRIBUTION OF THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO
POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS
OFFERING AND THE DISTRIBUTION IF THIS PROSPECTUS APPLICABLE TO THAT
JURISDICTION.
UNTIL (25 DAYS AFTER THE DAY OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/ NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 11,190
NASD Filing Fee............................................. 4,500
Nasdaq National Market Listing Fee.......................... 87,000
Printing Costs.............................................. 200,000
Legal Fees and Expenses..................................... 375,000
Accounting Fees and Expenses................................ 275,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent and Registrar Fees........................... 3,000
Miscellaneous............................................... 35,310
----------
Total............................................. $ 996,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a
corporation to include in its charter documents, and in agreements between the
corporation and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Our certificate of incorporation and bylaws provide that we will
indemnify our directors and executive offices, and that we may indemnify our
other officers and employees and other agents, to the fullest extent permitted
by law. We believe that the indemnification under our bylaws covers at least
negligence and gross negligence on the part of the indemnified parties. Our
bylaws also permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our executive offices, in
addition to indemnification provided for in our bylaws. These agreements, among
other things, provide for indemnification of our directors and executive
officers for expenses, judgments, fines, and settlement amounts incurred by any
such person in any action or proceedings arising out of such person's services
as a director or executive officer of Landacorp or at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers. We also maintain
directors and officers liability insurance. At present, we are not aware of any
pending litigation or proceeding involving any director, officer, employee or
agent of Landacorp where indemnification will be required or permitted.
Furthermore, we are not aware of any threatened litigation or proceeding that
might result in a claim for indemnity by these individuals.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, the Registrant has sold and issued the following
unregistered securities:
1. On April 16, 1996, we sold 13,000 shares of common stock to a
director for a purchase price of $27,000.
II-1
<PAGE> 104
2. On May 31, 1996, we sold 1,000 shares of common stock to Ben Steel
for a purchase price of $1,900.
3. On September 26, 1996, we sold 10,000 shares of common stock to David
Wellons for a purchase price of $19,000.
4. On December 22, 1997, we sold 2,000 shares of common stock to Howard
Shortly for a purchase price of $16,000.
5. On March 11, 1998, we sold 3000 shares of common stock to Daniel
Legare for a purchase price of $5,700.
6. On February 27, 1998, we sold an aggregate of 6,800,000 shares of
Series D preferred stock to investors for an aggregate purchase price of
$8,160,000.
7. On June 15, 1998, we sold an aggregate of 1,250 shares of common
stock to Matt Zerega for a purchase price of $2,375.
8. On March 17, 1999, we sold an aggregate of 1,362,285 shares of common
stock to employees, officers and directors for an aggregate purchase price of
$165,373.50.
9. On April 1, 1999, we sold 5,000 shares of common stock to Michael
Lake for a purchase price of $2,500.
10. On August 1, 1999, we sold 5,000 shares of common stock to Michael
Lake for a purchase price of $5,000.
The offers, sales and issuances of the above securities were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act, and/or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such Rule
701. The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through employment or other relationships,
to information about Landacorp.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Intentionally omitted.
3.2 Intentionally omitted.
3.3 Intentionally omitted.
3.4 Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.5 Bylaws.
4.1 Reference is made to Exhibits 3.4, 3.5, 10.5 and 10.11.
4.2* Specimen common stock certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.2* 1995 Stock Plan.
10.3* 1998 Equity Incentive Plan.
10.4* 1999 Employee Stock Purchase Plan
10.5* Series D Preferred Stock Purchase Agreement dated February
27, 1998.
10.6* Investor Rights Agreement dated February 27, 1998.
10.7* Sublease Agreement for Offices located at 4151 Ashford
Dunwoody Rd., Atlanta, Georgia, between Landacorp and Unisys
Corporation, dated September 1, 1991.
10.8* Lease Agreement for offices located on Fortress Avenue,
Chico, CA, between Landacorp and Fortress Development Group,
dated March 8, 1999.
10.9* Restricted Stock Purchase Agreement of Eugene Santa
Cattarina, dated October 20, 1998.
</TABLE>
II-2
<PAGE> 105
<TABLE>
<C> <S>
10.10* Restricted Stock Purchase Agreement of Stephen Kay, dated
October 20, 1998.
10.11* Restricted Stock Purchase Agreement of Bryan Lang, dated
October 20, 1998.
10.12* Voting Rights Agreement dated February 27, 1998.
10.13* Licensing Agreement by and between Interqual(R) Incorporated
and Landa management Systems Corporation, dated September 8,
1992.
10.14* Sublicensor Agreement by and between Interqual(R)
Incorporated and Landa Management Systems, effective April
15, 1994.
10.15* Distribution Agreement for Interqual(R)Medical
Appropriateness Review Systems, signed on January 1, 1996.
10.16* License Agreement - Software Developers, between Milliman &
Robertson, Inc. and Landacorp, dated August 17, 1998.
10.17 Asset Purchase Agreement dated January 31, 2000 between High
Technology Solutions, Inc. and Landacorp, Inc.
23.1 Consent of Independent Accountants
23.2 Consents of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.3 Consent of Independent Accountants
24.1* Powers of Attorney (included in this Registration Statement
at page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Other schedules are omitted because they are not applicable, or because
the information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California on February 8, 2000.
By:
/s/ STEPHEN P. KAY
------------------------------------
Stephen P. Kay
Chief Operating Officer
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on February 8, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ EUGENE SANTA CATTARINA* President, Chief Executive Officer and
- ----------------------------------------------------- Director
Eugene Santa Cattarina
/s/ STEPHEN P. KAY* Chief Operating Officer
- ----------------------------------------------------- and Chief Financial Officer
Stephen P. Kay (Principal Financial and Accounting Officer)
/s/ BRYAN H. LANG* Chief Technology Officer,
- ----------------------------------------------------- Chief Marketing Officer and Director
Bryan H. Lang
/s/ THOMAS F. STEPHENSON* Chairman of the Board of Directors
- -----------------------------------------------------
Thomas F. Stephenson
/s/ HOWARD E. COX* Director
- -----------------------------------------------------
Howard E. Cox
/s/ JASON M. ROSENBLUTH* Director
- -----------------------------------------------------
Jason M. Rosenbluth
/s/ JEROME H. GROSSMAN* Director
- -----------------------------------------------------
Jerome H. Grossman
</TABLE>
*By: /s/ STEPHEN P. KAY
- ------------------------------------
Stephen P. Kay
Attorney-in-Fact
II-4
<PAGE> 107
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Intentionally omitted.
3.2 Intentionally omitted.
3.3 Intentionally omitted.
3.4 Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.5 Bylaws.
4.1 Reference is made to Exhibits 3.4, 3.5, 10.5 and 10.11.
4.2* Specimen common stock certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.2* 1995 Stock Plan.
10.3* 1998 Equity Incentive Plan.
10.4* 1999 Employee Stock Purchase Plan
10.5* Series D Preferred Stock Purchase Agreement dated February
27, 1998.
10.6* Investor Rights Agreement dated February 27, 1998.
10.7* Sublease Agreement for Offices located at 4151 Ashford
Dunwoody Rd., Atlanta, Georgia, between Landacorp and Unisys
Corporation, dated September 1, 1991.
10.8* Lease Agreement for offices located on Fortress Avenue,
Chico, CA, between Landacorp and Fortress Development Group,
dated March 8, 1999.
10.9* Restricted Stock Purchase Agreement of Eugene Santa
Cattarina, dated October 20, 1998.
10.10* Restricted Stock Purchase Agreement of Stephen Kay, dated
October 20, 1998.
10.11* Restricted Stock Purchase Agreement of Bryan Lang, dated
October 20, 1998.
10.12* Voting Rights Agreement dated February 27, 1998.
10.13* Licensing Agreement by and between Interqual(R) Incorporated
and Landa management Systems Corporation, dated September 8,
1992.
10.14* Sublicensor Agreement by and between Interqual(R)
Incorporated and Landa Management Systems, effective April
15, 1994.
10.15* Distribution Agreement for Interqual(R)Medical
Appropriateness Review Systems, signed on January 1, 1996.
10.16* License Agreement - Software Developers, between Milliman &
Robertson, Inc. and Landacorp, dated August 17, 1998.
10.17 Asset Purchase Agreement dated January 31, 2000 between High
Technology Solutions, Inc. and Landacorp, Inc.
23.1 Consent of Independent Accountants
23.2 Consents of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.3 Consent of Independent Accountants
24.1* Powers of Attorney (included in this Registration Statement
at page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.4
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF LANDACORP, INC.
Landacorp, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that:
A. The name of this Corporation is Landacorp, Inc.
B. The date of filing of this Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was
October 15, 1999.
C. Pursuant to Sections 242 and 245 of the Delaware General
Corporation law, this Restated Certificate of Incorporation
restates, integrates and amends the provisions of the
Corporation's Amended and Restated Certificate of Incorporation
as follows:
FIRST: The name of this Corporation is Landacorp, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares to
be designated, respectively, Common Stock and Preferred Stock. The total number
of shares of Common Stock which this Corporation is authorized to issue is
15,000,000, with a par value of $0.001, and the total number of shares of
Preferred Stock which this corporation is authorized to issue is 8,000,000, with
a par value of $0.001. The Preferred Stock may be issued from time to time in
one or more series pursuant to a resolution or resolutions providing for such
issue duly adopted by the Board of Directors (authority to do so being hereby
expressly vested in the Board). The Board of Directors is further authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and, to fix the
number of shares of any such series of Preferred Stock and the designation of
any such series of Preferred Stock. The Board of Directors is authorized, within
the limits and restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares thereof then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series, and to fix
the number of shares of any series.
FIFTH: The Corporation is to have perpetual existence.
<PAGE> 2
SIXTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
SEVENTH: A. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be
designated in the Bylaws of the Corporation.
B. Each director shall serve until his or her successor is duly elected
and qualified or until his or her death, resignation, or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
C. Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock") voting together
as a single class; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
D. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of
the voting power of the then outstanding shares of Voting Stock, voting together
as a single class, shall be required for the adoption, amendment or repeal of
the following sections of the Corporation's Bylaws by the stockholders of the
Corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
E. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of the stockholders called in accordance
with the Bylaws, and no action shall be taken by the stockholders of the
Corporation by written consent.
F. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
EIGHTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, no director
of the Corporation or any subsidiary of the Corporation shall be personally
liable to the Corporation or its stockholders and shall otherwise be
-2-
<PAGE> 3
indemnified by the Corporation for monetary damages for breach of fiduciary duty
as a director of the Corporation, any predecessor of the Corporation or any
subsidiary of the Corporation.
B. The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation, any predecessor of the Corporation or any subsidiary of the
Corporation or serves or served at any other enterprise as a director or officer
at the request of the Corporation, any predecessor to the Corporation or any
subsidiary of the Corporation.
C. Neither any amendment nor repeal of this Article EIGHTH, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of
this Article EIGHTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article EIGHTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
NINTH: Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any rights of designation of Preferred Stock conferred on
the Board of Directors pursuant to Article FOURTH, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Article SEVENTH,
FOURTEENTH or this Article NINTH.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in Article
NINTH of this Certificate, and all rights conferred upon the stockholders herein
are granted subject to this right.
ELEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation.
TWELFTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation maybe
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
THIRTEENTH: Advance written notice of new business and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
-3-
<PAGE> 4
FOURTEENTH: Stockholders shall not be entitled to cumulative voting
rights for the election of directors.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the stockholders of the Corporation in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware,
as amended.
-4-
<PAGE> 5
IN WITNESS WHEREOF, Landacorp, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by Eugene Santa Cattarina, its
President, and attested by Stephen P. Kay, its Secretary, this ____ day of
________, 2000.
LANDACORP, INC.
------------------------------------
Eugene Santa Cattarina, President
Attested:
-----------------------------
Stephen P. Kay, Secretary
-5-
<PAGE> 1
EXHIBIT 3.5
BYLAWS
OF
LANDACORP, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1.................................................................................... 1
1.1 ANNUAL MEETINGS............................................................... 1
1.2 SPECIAL MEETINGS.............................................................. 1
1.3 NOTICE OF MEETINGS............................................................ 1
1.4 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS............... 2
1.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................................. 3
1.6 ADJOURNMENTS.................................................................. 3
1.7 QUORUM........................................................................ 3
1.8 ORGANIZATION.................................................................. 3
1.9 VOTING; PROXIES............................................................... 3
1.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD....................... 4
1.11 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................................... 5
ARTICLE 2.................................................................................... 5
2.1 NUMBER; QUALIFICATIONS........................................................ 5
2.2 ELECTION; QUALIFICATION AND TERM OF OFFICE.................................... 5
2.3 RESIGNATION AND VACANCIES..................................................... 5
2.4 REGULAR MEETINGS.............................................................. 6
2.5 SPECIAL MEETINGS.............................................................. 6
2.6 TELEPHONIC MEETINGS PERMITTED................................................. 7
2.7 QUORUM; VOTE REQUIRED FOR ACTION.............................................. 7
2.8 ORGANIZATION.................................................................. 7
2.9 INFORMAL ACTION BY DIRECTORS.................................................. 7
ARTICLE 3.................................................................................... 8
3.1 COMMITTEES.................................................................... 8
3.2 COMMITTEE RULES............................................................... 8
ARTICLE 4.................................................................................... 8
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION;
REMOVAL; VACANCIES............................................................ 8
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS....................................... 9
ARTICLE 5.................................................................................... 9
5.1 CERTIFICATES.................................................................. 9
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.... 9
ARTICLE 6.................................................................................... 10
6.1 THIRD PARTY ACTIONS........................................................... 10
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION................................. 10
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
6.3 SUCCESSFUL DEFENSE............................................................ 10
6.4 DETERMINATION OF CONDUCT...................................................... 11
6.5 PAYMENT OF EXPENSES IN ADVANCE................................................ 11
6.6 INDEMNITY NOT EXCLUSIVE....................................................... 11
6.7 INSURANCE INDEMNIFICATION..................................................... 11
6.8 THE CORPORATION............................................................... 12
6.9 EMPLOYEE BENEFIT PLANS........................................................ 12
6.10 INDEMNITY FUND................................................................ 12
6.11 INDEMNIFICATION OF OTHER PERSONS.............................................. 12
6.12 SAVINGS CLAUSE................................................................ 13
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES................... 13
ARTICLE 7.................................................................................... 13
7.1 FISCAL YEAR................................................................... 13
7.2 SEAL.......................................................................... 13
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES........ 13
7.4 INTERESTED DIRECTORS; QUORUM.................................................. 14
7.5 FORM OF RECORDS............................................................... 14
7.6 AMENDMENT OF BY-LAWS.......................................................... 14
</TABLE>
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<PAGE> 4
BYLAWS
OF
LANDACORP, INC.
ARTICLE 1
STOCKHOLDERS
1.1 ANNUAL MEETINGS
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place, either within or without the state of
Delaware, as may be designated by resolution of the Board of Directors from time
to time. Any other proper business may be transacted at the annual meeting.
1.2 SPECIAL MEETINGS
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer, or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 1.3 and 1.4 of this Article
I, that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than ten (10) nor more than sixty (60) days after
the receipt of the request. Nothing contained in this paragraph of this Section
1.2 shall be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the board of directors may be held.
1.3 NOTICE OF MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 1.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
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1.4 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, (i)
nominations for the election of directors, and (ii) business proposed to be
brought before any stockholder meeting may be made by the board of directors or
proxy committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally if such nomination or
business proposed is otherwise proper business before such meeting. However, any
such stockholder may nominate one or more persons for election as directors at a
meeting or propose business to be brought before a meeting, or both, only if
such stockholder has given timely notice in proper written form of their intent
to make such nomination or nominations or to propose such business. To be
timely, such stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the first anniversary date of mailing
of the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. To be in proper form, a stockholder's notice to the
secretary shall set forth:
(a) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person or
persons to be nominated or of the business to be proposed;
(b) a representation that the stockholder is a holder of record of stock
of the corporation entitled to vote at such meeting and, if applicable, intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice;
(c) if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder;
(d) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(e) if applicable, the consent of each nominee to serve as director of
the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
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1.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
1.6 ADJOURNMENTS
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
1.7 QUORUM
Except as otherwise provided by law, the certificate of incorporation or
these by-laws, at each meeting of stockholders the presence in person or by
proxy of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.6 of these
by-laws until a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
1.8 ORGANIZATION
Meetings of stockholders shall be presided over by the Chairman of the
Board, if any, or in his absence by the Vice Chairman of the Board, if any, or
in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
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1.9 VOTING; PROXIES
Except as otherwise provided by the certificate of incorporation or
these bylaws, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by him which has
voting power upon the matter in question, and stockholders shall not be entitled
to cumulate their votes in the election of directors. Each stockholder entitled
to vote at a meeting of stockholders may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors of election unless so determined by the holders of shares of stock
having a majority of the votes which could be cast by the holders of all
outstanding shares of stock entitled to vote thereon which are present in person
or by proxy at such meeting.
1.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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1.11 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Secretary shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
ARTICLE 2
BOARD OF DIRECTORS
2.1 NUMBER; QUALIFICATIONS
Except as otherwise provided in the certificate of incorporation, the
board of directors shall consist of six (6) members. The number of directors may
be changed by an amendment to this bylaw, duly adopted by the board of directors
or by the stockholders, or by a duly adopted amendment to the certificate of
incorporation. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
2.2 ELECTION; QUALIFICATION AND TERM OF OFFICE
Except as provided in Section 2.3 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal. Elections of directors need not be by
written ballot.
2.3 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention
of the Secretary of
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the corporation. When one or more directors shall resign from the board of
directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies. Unless
otherwise provided in the certificate of incorporation or these bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the stockholders having the right to vote as a single class may
be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the
certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by
a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so
elected. If at any time, by reason of death or resignation or
other cause, the corporation should have no directors in office,
then any officer or any stockholder or an executor,
administrator, trustee or guardian of a stockholder, or other
fiduciary entrusted with like responsibility for the person or
estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of the certificate
of incorporation or these bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided
in Section 211 of the Delaware General Corporation Law. If, at
the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a
majority of the whole board (as constituted immediately prior to
any such increase), then the Court of Chancery may, upon
application of any stockholder or stockholders holding at least
ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors,
summarily order an election to beheld to fill any such vacancies
or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of
the Delaware General Corporation Law as far as applicable.
2.4 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held at such places
within or without the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so determined notices thereof
need not be given.
2.5 SPECIAL MEETINGS
Special meetings of the board of directors for any purpose or purposes
maybe called at any
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time by the chairman of the board, the president, any vice president, the
secretary or any two (2) directors. Notice of the time and place of special
meetings shall be delivered personally or by telephone to each director or sent
by first-class mail or telegram, charges prepaid, addressed to each director at
that director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the corporation.
2.6 TELEPHONIC MEETINGS PERMITTED
Members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this by-law shall constitute presence in person at such meeting.
2.7 QUORUM; VOTE REQUIRED FOR ACTION
At all meetings of the Board of Directors a majority of the whole Board
of Directors shall constitute a quorum for the transaction of business. Except
in cases in which the certificate of incorporation or these by-laws otherwise
provide, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
2.8 ORGANIZATION
Meetings of the Board of Directors shall be presided over by the
Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in their absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
2.9 INFORMAL ACTION BY DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or such committee.
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ARTICLE 3
COMMITTEES
3.1 COMMITTEES
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it.
3.2 COMMITTEE RULES
Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to Article 3 of these by-laws.
ARTICLE 4
OFFICERS
4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES
The Board of Directors shall elect a President and Secretary, and it
may, if it so determines, choose a Chairman of the Board and a Vice Chairman of
the Board from among its members. The Board of Directors may also choose one or
more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or
more Assistant Treasurers. Each such officer shall hold office until the first
meeting of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal.
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Any officer may resign at any time upon written notice to the corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the corporation. Any number of offices may be held by the
same person. Any vacancy occurring in any office of the corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE 5
STOCK
5.1 CERTIFICATES
Every holder of stock shall be entitled to have a certificate signed by
or in the name of the corporation by the Chairman or Vice Chairman of the Board
of Directors, if any, or the President or Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by him in the corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES
The corporation may issued a new certificate of stock in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
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ARTICLE 6
INDEMNIFICATION
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
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6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the Agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of
Directors or an executive committee by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) or if
such quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article 4.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corporation, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article 6.
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6.8 THE CORPORATION
For purposes of this Article 6, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors and officers, so that any person who is or
was a director or Agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the provisions
of this Article 6 (including, without limitation the provisions of Section 6.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article 6, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
6.
6.10 INDEMNITY FUND
Upon resolution passed by the Board, the corporation may establish a
trust or other designated account, grant a security interest or use other means
(including, without limitation, a letter of credit), to ensure the payment of
certain of its obligations arising under this Article 6 and/or agreements which
may be entered into between the corporation and its officers and directors from
time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article 6 shall not be deemed to preclude the
indemnification of any person who is not an Agent (as defined in Section 6.1),
but whom the corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or otherwise.
The corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The corporation shall indemnify an employee, trustee or other agent
where required by law.
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<PAGE> 16
6.12 SAVINGS CLAUSE
If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Agent against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated, or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article 6 shall, unless otherwise prided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE 7
MISCELLANEOUS
7.1 FISCAL YEAR
The fiscal year of the corporation shall be determined by resolution of
the Board of Directors.
7.2 SEAL
The corporate seal shall have the name of the corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors.
7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES
Any written waiver of notice, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the
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<PAGE> 17
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
7.4 INTERESTED DIRECTORS; QUORUM
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum: or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.5 FORM OF RECORDS
Any records maintained by the corporation in the regular course of its
business, including its stock ledger, books of account, and minute books, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same.
7.6 AMENDMENT OF BY-LAWS
These by-laws may be altered or repealed, and new by-laws made, by the
Board of Directors, but the stockholders may make additional by-laws and may
alter and repeal any by-laws whether adopted by them or otherwise.
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<PAGE> 1
Exhibit 5.1
February 8, 2000
Landacorp, Inc.
4151 Ashford Dunwoody Rd.
Suite 505
Atlanta, Georgia 30319
Attention: Eugene Santa Cattarina
RE: REGISTRATION ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and exchange Commission on September 20, 1999 (Registration
No. 333-87435), as amended (the "Registration Statement"), in connection with
the registration under the Securities Act of 1933, as amended, of up to
4,025,000 shares of your Common Stock, $0.001 par value per share (the
"Shares"). The Shares include an over-allotment option granted to the
underwriters of the offering to purchase up to 525,000 shares. We understand
that the Shares are to be sold to the underwriters of the offering for resale to
the public as described in the Registration Statement. As your legal counsel, we
have examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the sale and issuance of the
Shares to be sold by you. It is our opinion that upon completion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Shares, including the proceedings being taken in
order to permit such transaction to be carried out in accordance with applicable
state securities laws, the Shares, when issued and sold in the manner described
in the Registration Statement, will be legally issued, fully paid and
non-assessable. We are members of the Bar of the State of California only and
express no opinion as to any matter relating to the laws of any jurisdiction
other than the laws of the State of California and the federal laws of the
United States. Without limiting the foregoing, we express no opinion as to the
securities laws of the State of Delaware. We consent to the use of this opinion
as an exhibit to the Registration Statement and further consent to the use of
our name wherever appearing in the Registration Statement, including the
Prospectus constituting a part thereof, and any amendments thereto.
Very truly yours,
/S/ WILSON SONSINI GOODRICH & ROSATI
Wilson Sonsini Goodrich & Rosati
<PAGE> 1
EXHIBIT 10.17
ASSET PURCHASE AGREEMENT
BETWEEN
HIGH TECHNOLOGY SOLUTIONS, INC.
AND
LANDACORP, INC.
January 31, 2000
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of January 31, 2000, by and between Landacorp, Inc., a Delaware
corporation ("Purchaser") and High Technology Solutions, Inc., a Delaware
corporation ("HTS"). Purchaser and HTS are referred to collectively herein as
the "Parties."
This Agreement contemplates a transaction in which Purchaser will
purchase the Acquired Assets and assume the Assumed Liabilities (as defined
herein) of HTS' Interactive Healthcare Division (the "Division"), in return for
cash and the Promissory Note (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means:
(a) Leased Real Property. All leasehold interests of HTS, as lessee,
relating to the Division, in the parcels of real property described on the
Disclosure Schedule, together with all rights, title and interest of HTS,
relating to the Division, in and to any leasehold improvements relating thereto
(the "Leased Real Property");
(b) Contracts. All contracts, agreements and commitments relating to the
Division, whether written or oral, to which HTS (or any of its predecessors) is
a party or a beneficiary and listed or described in the Disclosure Schedule,
including, without limitation, all existing contracts with any supplier or for
the furnishing of services to HTS, relating to the Division, all existing
contracts for the sale of merchandise or for the furnishing of services by HTS,
relating to the Division, all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research, marketing,
insurance, consulting or advertising contracts, billing and collection
agreements, service agreements, management agreements, acquisition agreements,
real property leases and subleases, personal property leases, motor vehicle
leases, license agreements, employment and sales agency agreements, and all
other contracts or agreements necessary to carry on the Division as currently
conducted by HTS (the "Contracts"), except such contracts as may not be
assignable which shall be listed on the Disclosure Schedule, and with respect to
which Purchaser, on or before the Closing Date, elects to accept by assignment
from HTS (the "Transferred Contracts");
(c) Equipment. All furniture and fixtures, office equipment, software
and computer equipment, tools, manufacturing equipment, maintenance and repair
equipment, parts, accessories, miscellaneous inventories and other items of
tangible personal property relating to the Division, whether on or off the books
of HTS, owned by, leased to or otherwise used or usable by HTS in connection
with the operation of the Division as listed on Exhibit A (the "Equipment");
(d) Permits. All licenses, certificates, permits, franchises,
registrations and authorizations of any Governmental Authority which are held by
HTS and required for or usable
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<PAGE> 3
in the operation or ownership of the Division or the Acquired Assets, including
those listed on the Disclosure Schedule hereto (the "Permits");
(e) Intangible Rights. All of HTS's right, title and interest in and to,
in each case relating to the Division, all trademarks, trademark applications,
service marks, trade names, copyrights, patents and patent applications,
including all Federal and state registrations thereof, and all technology, trade
secrets, product designs, software programs, inventions, methods, processes,
systems, know how, customer and supplier lists, pricing policies, market plans,
development plans and other intangible rights in existence on the Closing Date,
including, without limitation, those listed on the Disclosure Schedule hereto
(the "Intangible Rights");
(f) Inventory. All of HTS's inventory of raw materials (including
packaging), work-in-process, and finished goods relating to the Division,
wherever located, as existing on the Closing Date (the "Inventory");
(g) Prepaid Expenses. All prepaid expenses, deposits, charges, sums and
fees in respect of the Division or any of the Acquired Assets;
(h) Warranties, Etc. All of HTS's rights under manufacturers' and
vendors' warranties relating to the Division, and all similar rights against
third parties, relating to items included in the Acquired Assets, to the full
extent such rights are transferable (the "Warranties"); and
(i) Books and Records. Originals or, where not available or where such
are commingled with corporate records of other aspects of HTS's operations,
copies, of all contracts, leases and other agreements which relate to or are a
part of the Acquired Assets, accounting and financial information, customer and
supplier lists, customer files and account histories, plans, procedures and all
other books, records and papers of HTS relating to the conduct or operation of
the Division and the Acquired Assets and copies of HTS's tax returns and tax
records relating to the operations of the Division ("Books and Records").
The term Acquired Assets shall exclude the following:
(a) Cash and Cash Equivalents. All cash, cash equivalents, deposits and
marketable securities, whether on hand, in banks or otherwise as of the Closing
Date, except such deposits or prepayments as relate directly to the Acquired
Assets;
(b) Accounts Receivable. All of the Division's accounts receivables with
respect to work performed by the Division for all periods prior to the Closing
Date;
(c) Excluded Items. All such assets, rights and properties as Purchaser
shall elect in its sole and absolute discretion not to purchase at the Closing,
provided that no such election shall reduce the Purchase Price to the extent
that Purchaser declines to receive any contract, and the declined contract
relates to an item of equipment or inventory, then the tangible asset to which
the declined contract relates shall become an Excluded Asset not purchased by
Purchaser;
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Assumed Liabilities" means the following liabilities and obligations:
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<PAGE> 4
(a) all obligations and liabilities of HTS to perform the unperformed
portion of HTS's obligations under the Contracts, proposals, agreements,
licenses, leases, and similar documents, listed on the Disclosure Schedule;
(b) all obligations and liabilities under the permits, licenses,
franchises, consents, authorities and other similar authorizations listed on the
Disclosure Schedule, and;
(c) accrued vacation, sick and holiday time of employees of the
Division, as listed on the Disclosure Schedule; and
The term Assumed Liabilities shall not include the following:
(a) any liability or obligation which is accrued or reserved for on the
Financial Statements or which, in accordance with GAAP applied on a basis
consistent with the Financial Statements, would be required to be accrued or
reserved for in a balance sheet of HTS prepared as of the Closing Date;
(b) any liability or obligation of HTS under any Contracts for the
purchase of raw materials, merchandise, supplies or other materials or personal
property with any supplier or manufacturer or for the furnishing of services to
HTS arising prior to the Closing Date required in accordance with GAAP applied
on a basis consistent with the Financial Statements, to be accrued or reserved
for on the Closing Balance Sheet ("Trade Payables");
(c) any liability or obligation arising prior to the Closing Date out of
any breach by HTS of any Contract, including any liabilities or obligations
arising out of (i) HTS's failure to perform any Contract in accordance with its
terms (except where Purchaser has assumed the obligation to perform the
Contract) or (ii) the assignment to Purchaser of any Transferred Contract in
violation of the terms thereof (except such Transferred Contracts as are
disclosed at the Disclosure Schedule);
(d) any liability or obligation of HTS or its affiliates arising out of
any action, suit, investigation or proceeding based upon an event occurring or a
claim arising (i) prior to the Closing Date (including, without limitation, all
actions pending against HTS as described in the Disclosure Schedule (as defined
herein)), or (ii) after the Closing Date in the case of claims attributable to
acts or omissions of HTS or its affiliates occurring prior to the Closing Date
(including, without limitation, any claim for injury to person or property,
regardless of when made or asserted) except, in either case, where insurance is
actually collected with respect to such suit or claim pursuant to any insurance
policy of the Division currently in existence;
(e) any and all income, transfer, sales, use and other taxes
(collectively, "Taxes") payable with respect to the Division, assets, properties
or operations of HTS or any member of any affiliated group of which any of them
is a member for any period prior to the Closing Date, including, without
limitation, Taxes which are not due or assessed until after the Closing Date but
which are attributable to any period prior to the Closing Date;
(f) any liability or obligation under or in connection with employee
benefit plans for employees other than the employees listed on the Disclosure
Schedule, and as to such transferred employees only for periods any such
liability or obligation attributable to any period prior to the Closing Date;
(g) any liability or obligation arising out of the presence, spill,
discharge, treatment, storage, transport or removal of any Hazardous Substance
on, to or from any of the Leased Real
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<PAGE> 5
Property or premises otherwise used by HTS in connection with the Division prior
to the Closing Date; or
(h) any liabilities and obligations due from HTS to any affiliate of
HTS;
(i) any accounts payable specifically related to the Division;
(j) any liabilities of HTS to any employee of the Division listed on the
Disclosure Schedule with respect to any claim, complaint, allegation, charge,
duty, obligation, cause of action, grievance, lawsuit or other form of dispute
relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, including, without limitation, any and all claims
relating to or arising out of such employee's employment relationship with HTS
or the termination of that relationship; and
(k) any liability or obligation of HTS under this Agreement (or under
any side agreement between HTS on one hand and Purchaser on the other hand)
entered into on or after the date of this Agreement.
"Cash" means cash and cash equivalents (including marketable securities
and short term investments) calculated in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" has the meaning set forth in the
Non-Disclosure Agreement, dated as of November 23, 1999, by and between
Purchaser and HTS.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Financial Statement" has the meaning set forth in Section 3(f) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"HTS" has the meaning set forth in the preface above.
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Knowledge" means actual knowledge without independent investigation.
"License Agreement" shall mean the license agreement, by and between
Purchaser and HTS, in substantially the form attached hereto as Exhibit B,
pursuant to which Purchase shall
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<PAGE> 6
grant to HTS a fully-paid, perpetual, irrevocable, transferable non-exclusive
license to the RAMPS project extranet software in accordance with the terms and
conditions set forth in the License Agreement.
"Material Adverse Effect" means a material adverse effect on the
business, assets, operations or financial or other condition of HTS and/or the
Division exceeding five percent (5%) of the Purchase Price.
"Most Recent Financial Statements" has the meaning set forth in Section
3(f) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 3(f)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Purchaser" has the meaning set forth in the preface above.
"Purchaser's Note" means the promissory note, in the form attached
hereto as Exhibit C, by Purchaser in favor of HTS in the aggregate principal
amount of One Million Dollars ($1,000,000), as secured by the Acquired Assets.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Agreement" means the Security Agreement, in the form attached
hereto as Exhibit D, by and between HTS and Purchaser, securing payment of the
Purchaser's Note with the Acquired Assets.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
2. Basic Transaction.
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<PAGE> 7
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, Purchaser agrees to purchase from HTS, and HTS
agrees to sell, transfer, convey, and deliver to Purchaser, all of the Acquired
Assets at the Closing for the consideration specified below in this Section 2.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, Purchaser agrees to assume and become responsible
for all of the Assumed Liabilities at the Closing.
(c) Purchase Price. As consideration for its purchase of the Acquired
Assets and assumption of the Assumed Liabilities, Purchaser shall pay to HTS One
Million Two Hundred Fifty Thousand ($1,250,000) (the "Purchase Price") by
delivery to HTS on the Closing Date of (i) Two Hundred Fifty Thousand Dollars
($250,000) in cash and (ii) the Purchaser's Note.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Baker & McKenzie in
San Diego, California, commencing at 9:00 a.m. local time on the second business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine (the
"Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) HTS will deliver to
Purchaser the various certificates, instruments and documents referred to in
Section 6(a) below; (ii) Purchaser will deliver to HTS the various certificates,
instruments, and documents referred to in Section 6(b) below; (iii) HTS will
execute, acknowledge (if appropriate), and deliver to Purchaser (A) the License
Agreement, (B) the Security Agreement, (C) assignments (including intellectual
property transfer documents) in the forms attached hereto as Exhibit E and (D)
such other instruments of sale, transfer, conveyance and assignment as Purchaser
may reasonably request; (iv) Purchaser will execute, acknowledge (if
appropriate), and deliver to HTS (A) the Purchaser's Note, (B) the Security
Agreement, (C) the License Agreement, (D) an assumption of liabilities in the
form attached hereto as Exhibit F and (E) such other instruments of assumption
as HTS and its counsel reasonably may request, and (v) Purchaser will deliver to
HTS the consideration specified in Section 2(c) above.
3. Representations and Warranties of HTS. HTS represents and warrants to
Purchaser that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the disclosure schedule accompanying this Agreement attached as
Exhibit G (the "Disclosure Schedule"). The Disclosure Schedule will be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained in
this Agreement.
(a) Organization of HTS. HTS is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. HTS has requisite corporate power and authority to own and
operate its properties and assets, and to conduct the business of the Division
as presently conducted. HTS is duly qualified to transact the Division's
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<PAGE> 8
business and is in good standing as a foreign entity in each jurisdiction in
which the failure so to qualify would have a Material Adverse Effect on the
Division and the Division's financial condition.
(b) Authorization of Transaction. HTS has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and the documents and instruments to be executed and delivered by HTS
pursuant hereto and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the documents and
instruments to be executed and delivered by HTS pursuant hereto and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Board of Directors, and if required, the
stockholders of HTS, do not require any further proceedings on the part of HTS,
and do not and will not violate or conflict with the Certificate of
Incorporation or other charter documents applicable to HTS. This Agreement and
the documents and instruments to be executed and delivered by HTS pursuant
hereto have been and will be duly and validly executed and delivered by HTS and
this Agreement and the documents and instruments to be executed and delivered by
HTS pursuant hereto constitute valid and binding agreements of HTS, enforceable
against HTS in accordance with their terms, except to the extent to which such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
and by general principles of equity.
(c) Noncontravention. To the Knowledge of HTS, neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
Section 2 above), will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which HTS is subject or any
provision of the charter or bylaws of HTS or (ii) conflict with, result in a
material breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument,
mortgage, lien, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award or other arrangement to which HTS or
the Division is a party or by which it is bound or to which any of the Acquired
Assets is subject (or result in the imposition of any Security Interest upon any
of the Acquired Assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a Material Adverse Effect on the financial
condition of the Division or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. To the Knowledge of HTS, HTS is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section 2
above), except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the ability of the Parties to consummate the transactions contemplated by this
Agreement.
(d) Brokers' Fees. Neither HTS nor the Division has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Purchaser
could become liable or obligated. HTS has
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<PAGE> 9
no liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
(e) Title to Tangible Assets. HTS has, and at the Closing shall transfer
to Purchaser, good and marketable title to all of the Acquired Assets, free and
clear of all mortgages, liens, pledges, security interests, leases, options or
rights in third persons to acquire or lease, charges, adverse interests,
judgments, claims, encumbrances, restrictions or defects of any nature
whatsoever (collectively, "Encumbrances"). The Acquired Assets comprise all of
the assets, rights and properties (whether tangible or intangible, real,
personal or mixed) necessary for the conduct by Purchaser of the Division as a
going concern in the manner in which it is now and on the Closing Date shall be
conducted by HTS.
(f) Financial Statements. Attached hereto as Exhibit H are the
following financial statements (collectively, the "Financial Statements"): (i)
audited balance sheets and statements of income for the Division as of and for
the fiscal year ended August 29, 1999 and (ii) unaudited balance sheets and
statements of income for the Division (the "Most Recent Financial Statements")
as of and for the three (3) months ended November 30, 1999 (the "Most Recent
Fiscal Month End"). The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby and present fairly the financial condition of the
Division as of such date and the results of operations of the Division for such
period; provided, however, that the Most Recent Financial Statements are subject
to normal year-end adjustments and lack footnotes and other presentation items.
(g) Events Subsequent to Most Recent Fiscal Month End. Since the Most
Recent Fiscal Month End, there has not been any material adverse change in the
financial condition of the Division taken as a whole. Without limiting the
generality of the foregoing, since that date, neither HTS nor the Division has
engaged in any practice, taken any action, or entered into any transaction
outside the Ordinary Course of Business, the primary purpose or effect of which
has been to generate or preserve Cash.
(h) Legal Compliance. To the Knowledge of HTS, the Division has complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to comply would not have a Material Adverse Effect on
the financial condition of the Division.
(i) Intellectual Property. Section 3(i) of the Disclosure Schedule is a
true and complete list of all trademarks, trademark applications, service marks,
trade names, copyrights, patents and patent applications, including all Federal
and state registrations thereof, used in connection with the Division and which
are owned by or licensed to HTS (with an indication as to whether HTS is a
licensor or licensee in respect thereof, if applicable). Except as disclosed in
Section 3(i) of the Disclosure Schedule, (i) HTS is the sole and exclusive owner
or licensee of the Intangible Rights and has the sole and exclusive right to use
the Intangible Rights in the same manner in which it has been or is now using
it, (ii) there are no claims, demands or proceedings pending or, to the
Knowledge of HTS, threatened, that pertain to or challenge the right of HTS to
own or use the Intangible Rights, (iii) HTS has not granted any licenses or
other rights, and has no obligation to
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grant any licenses or other rights, with respect to the Intangible Rights, (iv)
HTS has not sold, and has no obligation to sell, any of the Intangible Rights or
any other intangible property or rights previously owned by HTS, and (v) to the
Knowledge of HTS, the Intangible Rights are not being infringed upon by any
other person. Except as set forth in the Disclosure Schedule, and to the
Knowledge of HTS, the operation of the Division, and the use of any of the
Intangible Rights in connection with the Division, has at no time violated and
does not violate any license or agreement with any third party or infringe any
rights of any third party.
(j) Contracts. Section 3(j) of the Disclosure Schedule lists each of the
following Contracts of HTS relating to the Division (such Contracts, together
with any and all Property Leases described in the Disclosure Schedule, being
hereinafter referred to as "Material Contracts"), true and complete copies of
which HTS has provided to Purchaser:
(i) all existing Contracts for the purchase of raw materials,
merchandise, supplies, other materials or personal property with any
supplier or manufacturer or for the furnishing of services to HTS, which
involve an aggregate payment or commitment per contract on the part of
HTS of more than $25,000 per year;
(ii) all existing Contracts for the sale of merchandise or for
the furnishing of services by HTS, which involve an aggregate payment or
commitment per contract on the part of the counterparty or
counterparties thereto of more than $25,000 per year;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting or advertising Contracts involving an aggregate
payment or commitment per contract on the part of HTS of more than
$25,000 per year;
(iv) all indentures, mortgages, notes, loan or credit agreements,
assignments or rents and leases or other Contracts or obligations
relating to the borrowing of money or to the direct or indirect guaranty
or assumption of obligations of others, in any case in an amount
exceeding $25,000 per year;
(v) all Contracts or agreements necessary to carry on the
Division as currently conducted by HTS that limit the ability of HTS to
compete in any line of Division or with any person or entity in any
geographic area or during any period of time; and
(vi) all other Contracts (excluding Property Leases listed in the
Disclosure Schedule) to which HTS is a party made other than in the
ordinary course of Division which involve payment of more than $25,000
per year in the aggregate.
Except as disclosed in Section 3(j) of the Disclosure Schedule, each of the
Material Contracts (i) is transferable to Purchaser without the consent, waiver
or approval of, or notice to, the counterparty thereto, (ii) is in full force
and effect, has not been assigned, modified, supplemented or amended, and
constitutes the entire agreement between the parties thereto with respect to the
subject matter thereof, and (iii) neither HTS nor the counterparty to any
Material Contract is in default thereunder, nor to the Knowledge of HTS, is
there any fact or state of facts with respect to any Material Contract which
upon notice, passage of time, or both, would give rise to a default thereunder.
(k) Equipment. Section 3(k) of the Disclosure Schedule contains a true
and complete list of each item of Equipment having a book value of $5,000 or
more. Each item of Equipment is in
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good operating condition, and in a state of good working order and repair
sufficient for the conduct of normal operation of the Division without the
necessity of any known capital expenditure in excess of $7,500 except as listed
and described in the Disclosure Schedule. HTS is not aware of any major capital
expenditure that will be required on the part of Purchaser within one year from
the date of this Agreement, that is not consistent with HTS's past practice
except as listed in the Disclosure Schedule or previously disclosed to
Purchaser.
(l) Inventory; Work In Progress. The Inventory which is shown on the
Disclosure Schedule and which is or will be subsequently recorded on the books
of HTS through the Closing Date consists of and will consist of raw materials,
work in process, and finished goods, of a quality usable or salable in the
normal course of the Division, except for any which has been written off or
written down to realizable value. The Inventory shall not include items for
which orders have been invoiced but have not yet shipped to the customer.
However, Purchaser agrees to ship such items as required. The amount of
Inventory existing at the time of the Closing shall be sufficient to operate the
Division in the Ordinary Course of Business.
(m) Accounts Receivable. The accounts receivable shown on the Disclosure
Schedule and through the Closing Date result from and will result from bona fide
sales made by HTS in the Ordinary Course of Business. For purposes of this
Agreement a sale shall be deemed completed when the product has actually been
moved from inventory.
(n) Real Property.
(i) Real Property Owned by HTS. HTS does not own any real
property.
(ii) Real Property Leased by HTS Relating to the Division. Except
for the Leased Real Property, HTS is not a lessor or lessee of any real
property.
(A) HTS has delivered to Purchaser a true and
complete copy of each lease or sublease of Leased Real Property used in the
business of the Division at the time of the Closing or in the past to which HTS
is a lessee or lessor, and has described each such lease or sublease in the
Disclosure Schedule by listing the name of the lessor and lessee, the address of
the Leased Real Property, the commencement and expiration dates of the current
term, the renewal options, if any, the security deposited by HTS with the lessor
or by the lessee with HTS, if any, and the monthly rental (including base rent
and all additional payments to be made by the lessee thereunder to the lessor,
whether or not designated additional rent).
(B) Except as set forth in the Disclosure Schedule,
each such lease or sublease (1) is transferable to Purchaser without the
consent, waiver or approval of, or notice to, the counterparty thereto, (2) is
in full force and effect and has not been assigned, modified, supplemented or
amended, and constitutes the entire agreement between the parties thereto with
respect to the subject matter thereof, and (3) neither HTS nor the counterparty
to any lease or sublease is in material default thereunder, nor to the Knowledge
of HTS, is there any fact or state of facts with respect to any lease or
sublease which, upon notice, passage of time, or both, would give rise to a
default thereunder.
(iii) Zoning and Building Codes. To the Knowledge of HTS, the
current uses of existing structures located on the Leased Real Property
are in compliance with all material applicable zoning and other land use
requirements including building codes.
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(iv) Utility Services. To the Knowledge of HTS, water, electric,
gas and sewer utility services and septic tank and storm drainage
facilities currently available to the Division's office site included in
the Leased Real Property are adequate for the present use thereof by HTS
in conducting the Division, and are not being misappropriated by HTS but
rather are being supplied to HTS by utility companies or municipalities
pursuant to valid and enforceable contracts, and, to the Knowledge of
HTS, there is no condition with will result in the termination of the
present access for the Leased Real Property to such utility services and
other facilities.
(v) Access. HTS has obtained all authorizations and
rights-of-way, including proof-of-dedication, which are necessary to
provide and ensure vehicular and pedestrian ingress and egress to and
from each site included in the Leased Real Property to public roads in a
manner and volume so as to facilitate HTS's current use thereof. To the
Knowledge of HTS, there are no conditions which will result in the
termination of the present access from the Leased Real Property to
existing public roads.
(vi) Eminent Domain. HTS has not received any notice with respect
to the exercise of the power of eminent domain, any condemnation or
taking as to all or any portion of the Leased Real Property. No
Governmental Authority having the power of eminent domain over all or
any part of the Leased Real Property has commenced or, to the Knowledge
of HTS, intends to exercise the power of eminent domain or a similar
power with respect to all or any part of the Leased Real Property.
(vii) Improvements. To the Knowledge of HTS, the improvements
located on the Leased Real Property are in good condition and are
structurally sound, and all mechanical and other systems located therein
are in good operating condition, and such improvements and such
mechanical and other systems are in a state of working order and repair
sufficient for the conduct of normal operation of the Division without
the necessity of any known capital expenditure in excess of $10,000. To
the Knowledge of HTS, there is no major capital expenditure that will be
required on the part of Purchaser within one year from the date of this
Agreement that is not consistent with HTS's past practice or that has
been previously disclosed to Purchaser.
(o) Absence of Undisclosed Liabilities. Except as and to the extent
reflected on or reserved for in the Most Recent Financial Statements or set
forth in the Disclosure Schedule and except for current liabilities incurred by
HTS in the Ordinary Course of Business since November 30, 1999, HTS has no
debts, liabilities or obligations relating to the Division of any nature or
kind, known or unknown, secured or unsecured (whether absolute, accrued,
contingent or otherwise), and whether due or to become due, including, without
limitation, any debts, liabilities (and tax liabilities due or to become due) or
obligations relating to or arising out of any act, transaction, circumstance or
state of facts which occurred or existed on or before the date hereof.
(p) Absence of Changes or Events. Since November 30, 1999 and except as
described in the Disclosure Schedule, to the Knowledge of HTS, there has not
occurred any event or condition which has or may be expected to have a Material
Adverse Effect on the properties, assets, liabilities (whether absolute,
contingent, accrued or otherwise), condition (financial or otherwise), results
of operations or business of the Division; and, without limiting the generality
of the foregoing, HTS has not in connection with the operation of the Division:
(a)
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incurred any material obligation or liability, secured or unsecured (whether
absolute, accrued, contingent, or otherwise), and whether due or to become due,
except current liabilities in the Ordinary Course of Business; (b) discharged or
satisfied any Encumbrance, or paid any material obligation or liability, except
current liabilities becoming due in the Ordinary Course of Business; (c)
mortgaged, pledged, or subjected to lien, charge, security interest or other
Encumbrance any of the Acquired Assets, except in the Ordinary Course of
Business; (d) terminated or discontinued any business operation of the Division,
or sold, transferred, licensed or otherwise disposed of any of the Acquired
Assets, except inventory sold in the Ordinary Course of Business; (e) canceled
or compromised any debt or claim, or waived or released any right of substantial
value, except in the Ordinary Course of Business; (f) increased the compensation
of any employee listed on the Disclosure Schedule hereto, consultant or agent in
an amount which is more than the greater of $10,000 or 10% of such person's
compensation; (g) terminated or failed to renew or received any notice of
termination, suspension, limitation, revocation, impairment, forfeiture or
nonrenewal of any Material Contract, Permit or Intangible Right; (h) suffered
any damage, destruction or loss (whether or not covered by insurance) materially
and adversely affecting any of the Acquired Assets, or suffered any taking or
seizure of any of the Acquired Assets by condemnation or eminent domain; (i)
made any capital expenditures exceeding $15,000 singly or $35,000 in the
aggregate with respect to the Division; (j) instituted, settled or agreed to
settle any litigation, action or proceeding before any governmental authority
affecting the business or operations of the Division, its financial condition
and results, or the property used in the conduct of the business of the
Division's operations; (k) made any change in accounting principles or methods,
or in the manner of keeping books, accounts and records of HTS as they relate to
the Division; (l) except for Inventory acquired or to be acquired in the
Ordinary Course of Business, acquired or made any material agreement or
commitment to acquire new or additional assets related to the Division; (m)
entered into any transaction other than in the Ordinary Course of Business; or
(n) entered into any agreement or made any commitment to do any of the things
described in the preceding subsections (a) through (n) of this Section 3(p).
(q) Taxes. Except as set forth in the Disclosure Schedule, HTS has
completed and filed all required tax returns of any nature whatsoever,
including, but not limited to, all income, payroll, withholding and excise tax
returns, and all appropriate state and local income, sales, excise, payroll,
withholding, franchise and real and personal property tax returns, and
corresponding returns under the laws of any jurisdiction, which are required to
be filed by it, and no extensions of time to file any such returns are in
effect. HTS has paid all income, payroll, withholding, sales, excise, franchise
and real and personal property taxes as shown on said returns, and all
assessments, additions to tax, penalties and interest of which notice has been
received by them (collectively, "Taxes"), to the extent such amounts have become
due. Such returns reflect all Taxes due and payable with respect to the periods
covered thereby, and there are no Tax liabilities, interest or penalties payable
with respect to such periods which have not been reflected as liabilities in the
Financial Statements. HTS has paid all Taxes which would not require the filing
of returns and which are required to be paid by it. To the extent any such Taxes
and any subsequent Tax liabilities have been accrued but have not been paid,
they have been adequately reflected as liabilities on HTS's books and, where
appropriate, in the Financial Statements. Except as so reflected and provided
for, no Tax liabilities, disallowances, or assessments have been assessed or
proposed which remain unpaid and, to the Knowledge of HTS, no fact or state of
facts exists or has existed which would constitute the grounds for the
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assessment of any Tax liability other than so reflected and provided for. No
examinations of the Federal, state or other tax returns, forms or information of
HTS are currently in progress or, to the Knowledge of HTS, are threatened. HTS
has not given any waiver or extension of any period of limitation governing the
time of assessment or collection of any Tax for any year which is still open for
assessment or remains in effect.
(r) Employees. No employees of HTS will be transferred to Purchaser in
connection with this Agreement.
(s) Permits. The Disclosure Schedule contains a true and complete list
of all Permits held by HTS, relating to the Division which are necessary for the
operation or ownership of the Division or the Acquired Assets (the "Material
Permits"), and all applications for any such Material Permits which are pending.
Except as disclosed in the Disclosure Schedule, (i) each of the Material Permits
is transferable to Purchaser without the consent, waiver, approval,
authorization or permit of, or filing with or notification to, any governmental
authority, (ii) all Material Permits are in full force and effect, (iii) there
is no action or proceeding which might result in a termination, suspension,
limitation, revocation, impairment, forfeiture or nonrenewal of any such
Material Permit nor, to the Knowledge of HTS, is there any fact or state of
facts existing which might result in, nor is there any basis for, any such
termination, suspension, limitation, revocation, impairment, forfeiture or
nonrenewal.
(t) Insurance. All property and liability insurance coverage presently
in effect and relating to the Division and the Acquired Assets is listed in the
Disclosure Schedule ("Insurance Policies"). There are no pending or, to the
Knowledge of HTS, threatened disputes with underwriters under any such Insurance
Policies, and all premiums due and payable thereunder have been paid. Each
Insurance Policy is valid and enforceable in accordance with its terms and in
full force and effect. HTS has not received notice of any default, cancellation
or non-renewal under any such Insurance Policy, nor of any misrepresentation or
inaccuracy in any application therefor, which default, misrepresentation or
inaccuracy would give the insurer the right to terminate such Insurance Policy
or to refuse to pay a claim thereunder. Except for claims set forth in of the
Disclosure Schedule, there is no outstanding unpaid claim or claims against HTS
under the Insurance Policies relating to the Division or the Acquired Assets.
(u) Litigation. There is no action, suit, arbitration, or other legal or
administrative proceeding or investigation before any governmental authority
pending or, to the Knowledge of HTS, threatened against or otherwise affecting
the Division or the Acquired Assets. To the Knowledge of HTS, there is no fact
or state of facts which might result in, nor is there any basis for, any such
action, suit, arbitration, or other proceeding or investigation. Neither the
Division nor the Acquired Assets is subject to, any order of any governmental
authority. There is no action, suit, arbitration, or other proceeding by HTS
involving the Division or the Acquired Assets currently pending or that HTS
currently intends to initiate.
(v) Computer Software. To the Knowledge of HTS, the computer software of
HTS relating to the Division and included in the Intangible Rights (the
"Software") performs in accordance with the documentation and other written
material, if any, used in connection with the Software and is free of defects in
operation, contains all current revisions of the Software, and includes all
computer programs, materials, tapes, know-how, object and source codes, other
written materials, and processes related to the Software necessary for the
operation of the Division as it currently conducts business. HTS will deliver to
Purchaser at the Closing
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complete and correct copies of all Software embodied in physical form and all
user and technical documentation related to the Software as it exists at the
Closing. Neither HTS nor, to the Knowledge of HTS, any employee or agent thereof
has developed or assisted in the enhancement of the Software, except for
enhancements included in the Software as delivered to Purchaser pursuant hereto
or the development of any program or product based on the Software or any part
thereof.
(w) Customers. As part of the computer database of HTS relating to the
Division contained among the equipment of HTS relating to the Division to be
sold to Purchaser hereunder, is included a true and complete and reasonably up
to date list of the Division's customers.
(x) Disclaimer of other Representations and Warranties. Except as
expressly set forth in this Section 3, HTS makes no representation or warranty,
express or implied, at law or in equity, in respect of any of the Division's
assets (including, without limitation, the Acquired Assets), liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. Purchaser hereby acknowledges and
agrees that, except to the extent specifically set forth in this Section 3,
Purchaser is purchasing the Acquired Assets on an "as-is, where-is" basis.
Without limiting the generality of the foregoing, HTS makes no representation or
warranty regarding any assets other than the Acquired Assets or any liabilities
other than the Assumed Liabilities, and none shall be implied at law or in
equity. In addition, HTS makes no representation or warranty, express or
implied, at law or in equity, concerning the future performance of the Division,
or HTS employees.
4. Representations and Warranties of Purchaser. Purchaser represents and
warrants to HTS that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization of Purchaser. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. Purchaser has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of Purchaser, enforceable in accordance
with its terms and conditions except to the extent to which enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and by general
principles of equity.
(c) Noncontravention. To the Knowledge of Purchaser, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in Section 2 above), will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Purchaser
is subject or any provision of its charter or bylaws or (ii) conflict with,
result in a material breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
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instrument, mortgage, lien, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award or other arrangement to
which Purchaser is a party or by which it is bound or to which any of its assets
is subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material Adverse Effect on the financial condition of
the Division or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Purchaser, to its Knowledge, does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement (including the
assignments and assumptions referred to in Section 2 above), except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. Purchaser has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which HTS could become liable or
obligated.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper or advisable, in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. HTS will give (and will cause the Division to
give) any notices to third parties, and HTS will use its reasonable best efforts
(and will cause the Division to use its reasonable best efforts) to obtain any
required third party consents that shall be required for the assignment or
transfer of any Contract, agreement, lease, license, instrument, mortgage, lien,
permit or other assumed liability that Purchaser may reasonably request in
connection with the matters referred to in Section 3(c) above. Each of the
Parties will give any notices to, make any filings with, and use its reasonable
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section 3(c) and Section 4(c) above.
(c) Operation of Business. HTS will not (and will not cause or permit
the Division to) engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, HTS will not (and will not cause or permit the
Division to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business, the primary purpose or
effect of which will be to generate or preserve Cash.
(d) Full Access. HTS will permit (and will cause the Division to permit)
representatives of Purchaser to have full access at all reasonable times, and in
a manner so as not to interfere with the normal business operations of HTS and
the Division, to all premises, properties, personnel, books, records (including
tax records), contracts, and documents of or pertaining to the Division.
Purchaser will treat and hold as confidential any Confidential Information that
it receives in the course of the reviews contemplated by this Section 5(d), will
not use
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any of the Confidential Information except in connection with this Agreement,
and, if this Agreement is terminated for any reason whatsoever, will return to
HTS and its Subsidiaries all tangible embodiments (and all copies) of the
Confidential Information which are in its possession.
(e) Notice of Developments. Each Party will give prompt written notice
to the other Party of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(e), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation or breach of warranty.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Purchaser. The obligation of Purchaser
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) HTS shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) HTS shall have delivered to Purchaser a certificate, signed
by its Chief Financial Officer, to the effect that each of the
conditions specified above in Section 6(a)(i)-(iii) is satisfied in all
respects;
(v) Purchaser shall have received all authorizations, consents,
and approvals of governments and governmental agencies referred to in
Section 3(c) and Section 4(c) above;
(vi) HTS shall have executed and delivered the License Agreement
and the Security Agreement;
(vii) All required third party consents, including contract
assignments for material Contracts shall have been obtained;
(viii) All employees listed on Disclosure Schedule shall have
executed an employment offer letter regarding their employment by
Purchaser in form and substance acceptable to Purchaser
(ix) all actions to be taken by HTS in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby, including, but not limited
to, transfer of all Trademarks, execution of the bill of sale and
assignment of contracts will be reasonably satisfactory in form and
substance to Purchaser.
Purchaser may waive any condition specified in this Section 6(a) if it executes
a waiver in writing so stating at or prior to the Closing.
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(b) Conditions to Obligation of HTS. The obligation of HTS to consummate
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Purchaser shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) Purchaser shall have delivered to HTS a certificate signed
by its Chief Financial Officer to the effect that each of the conditions
specified above in Section 6(b)(i)-(iii) is satisfied in all respects;
(v) Purchaser shall have received all other authorizations,
consents, and approvals of governments and governmental agencies
referred to in Section 3(c) and Section 4(c) above;
(vi) Purchaser shall have executed and delivered the License
Agreement, the Purchaser's Note and the Security Agreement.
(vii) all actions to be taken by Purchaser in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents including, but
not limited to, transfer of all Trademarks, execution of the bill of
sale and assignment of contracts required to effect the transactions
contemplated hereby will be satisfactory in form and substance to HTS.
HTS may waive any condition specified in this Section 6(b) if it executes a
waiver in writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) Purchaser and HTS may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Purchaser may terminate this Agreement by giving written
notice to HTS at any time prior to the Closing (A) in the event HTS has
breached any material representation, warranty, or covenant contained in
this Agreement (other than the representations and warranties in Section
3(f)-(x) above) in any material respect, Purchaser has notified HTS of
the breach, and the breach has continued without cure for a period of 10
days after the notice of breach or (B) if the Closing shall not have
occurred on or before January 31, 2000, by reason of the failure of any
condition precedent under Section 6(a) hereof (unless the failure
results primarily from Purchaser itself breaching any representation,
warranty, or covenant contained in this Agreement); and
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(iii) HTS may terminate this Agreement by giving written notice
to Purchaser at any time prior to the Closing (A) in the event Purchaser
has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, HTS has notified
Purchaser of the breach, and the breach has continued without cure for a
period of 10 days after the notice of breach or (B) if the Closing shall
not have occurred on or before January 31, 2000 by reason of the failure
of any condition precedent under Section 6(b) hereof (unless the failure
results primarily from HTS itself breaching any representation,
warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 5(d) above shall survive
termination.
8. Indemnification.
(a) Indemnification by HTS. From and after the Closing, HTS shall
indemnify, defend and hold Purchaser and its Affiliates harmless from and
against, and shall on demand reimburse Purchaser or its Affiliates for, any and
all liabilities, losses, damages, claims, fines, penalties, costs and expenses
(including, without limitation, reasonable attorneys' and accounting fees)
incurred by Purchaser or its Affiliates arising out of or resulting from any of
the following:
(i) the breach of any representation or warranty made by HTS
contained in this Agreement;
(ii) the nonperformance of any covenant or obligation to be
performed by HTS under this Agreement;
(iii) the failure of HTS to promptly pay and discharge, when due,
any liabilities other than the Assumed Liabilities;
(iv) claims arising in connection with products sold, shipped or
otherwise placed in the stream of commerce in connection with the
Division prior to the Closing, except to the extent that insurance
proceeds are collected with respect to any part of such claims; and
(v) any other matters to be indemnified by HTS pursuant to this
Agreement.
Any claim for indemnification asserted by Purchaser or its affiliates against
HTS pursuant to this Section 8(a) shall be subject to the limitation that HTS
shall not be obligated to indemnify Purchaser in excess of the aggregate amount
of $1,250,000.00, or the total amount paid to HTS, whichever is lower.
(b) Indemnification by Purchaser. From and after the Closing Date,
Purchaser shall indemnify, defend and hold HTS and their respective Affiliates
harmless from and against, and shall on demand reimburse HTS or their respective
Affiliates for, any and all liabilities, losses, damages, claims, fines,
penalties, costs and expenses (including, without limitation, reasonable
attorneys' and accounting fees) incurred by HTS or their respective Affiliates
arising out of or resulting from any of the following:
19
<PAGE> 20
(i) the breach of any representation or warranty made by
Purchaser contained in this Agreement;
(ii) the nonperformance of any covenant or obligation to be
performed by Purchaser under this Agreement;
(iii) the failure of Purchaser to promptly pay and discharge,
when due, any of the Assumed Liabilities;
(iv) claims arising in connection with products sold, shipped or
otherwise placed in the stream of commerce after the Closing, except to
the extent that insurance proceeds are collected with respect to any
part of such claims;
(v) other matters to be indemnified by Purchaser pursuant to this
Agreement.
Any claim for indemnification asserted by HTS or its affiliates against
Purchaser pursuant to this Section 8(b) shall be subject to the limitation that
Purchaser shall not be obligated to indemnify HTS in excess of the aggregate
amount of $1,250,000.00, or the total amount paid by Purchaser, whichever is
lower.
(c) Indemnification Procedures.
(i) For the purposes of this Section 8(c), the term "Indemnitee"
shall refer to the person or persons entitled, or claiming to be
entitled, to be indemnified, pursuant to Sections 8(a) or 8(b). The term
"Indemnitor" shall refer to the person or persons having the obligation
to indemnify pursuant to such provisions.
(ii) If an Indemnitee shall receive notice of any matter which an
Indemnitee has determined has given or could give rise to a right of
indemnification under this Agreement (a "Claim"), the Indemnitee shall
promptly give the Indemnitor written notice of such Claim, stating the
amount of the loss, if known, and method of computation thereof, all
with reasonable particularity and including documentary proof, if
available, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed
or arises; provided, however, that failure to so notify the Indemnitor
shall not relieve the Indemnitor from any liability which it may have on
account of the Claim, except to the extent the Indemnitor shall have
been prejudiced by such failure.
(iii) If an Indemnitee shall receive notice of any claim by a
third party which is or may be subject to indemnification (a "Third
Party Claim"), the Indemnitee shall promptly give the Indemnitor written
notice of such Third Party Claim; provided, however, that failure to so
notify the Indemnitor shall not relieve the Indemnitor from any
liability which it may have on account of the Claim, except to the
extent the Indemnitor shall have been prejudiced by such failure. In
such event the Indemnitee shall permit the Indemnitor, at its option, to
participate in the defense of such Third Party Claim by counsel of its
own choice and at its own expense. If, however, the Indemnitor
acknowledges in writing its obligation to indemnify the Indemnitee
hereunder against all losses that may result from such Third Party Claim
(subject to the limitations, if any, set forth herein), then the
Indemnitor shall be entitled, at its option, to assume and control the
defense of such Third Party Claim by counsel of its own choice and at
its own expense; provided that the Indemnitor and its counsel shall
proceed with diligence and good faith with respect thereto.
Notwithstanding the foregoing, the Indemnitee shall have the right
20
<PAGE> 21
to employ separate counsel in any such claim or proceeding and the fees
and expenses of such counsel shall be at the expense of such Indemnitor
if: (i) the Indemnitor has failed to promptly assume the defense and
employ counsel or (ii) the named parties to any such claim or proceeding
(including any impleaded parties) include such Indemnitee and any of the
Indemnitors, and such Indemnitee shall have been advised by its counsel
that there may be one or more legal defenses available to it which are
different from or in addition to those available to any of the
Indemnitors; provided, however that the Indemnitors shall not in such
event be responsible hereunder for the fees and expenses of more than
one firm of separate counsel in connection with any claim or proceeding.
(iv) In the event the Indemnitor exercises its right to undertake
the defense of any Third Party Claim, the Indemnitee shall cooperate
with the Indemnitor in such defense and make available to the Indemnitor
witnesses, pertinent records, materials and information in its
possession or under its control relating thereto as are reasonably
requested by the Indemnitor. Similarly, in the event the Indemnitee is,
directly or indirectly, conducting the defense against any Third Party
Claim, the Indemnitor shall cooperate with the Indemnitee in such
defense and make available to the Indemnitee witnesses, pertinent
records, materials and information in its possession or under its
control relating thereto as are reasonably requested by the Indemnitee.
No Third Party Claim may be settled by the Indemnitor without the
written consent of the Indemnitee, which consent shall not be
unreasonably withheld; provided, however, that the Indemnitor may settle
such Third Party Claim without the consent of the Indemnitee so long as
the settlement includes a written release of the Indemnitee, in form and
substance satisfactory to the Indemnitee, from the Third Party Claim by
the claimant thereunder. No Third Party Claim which is being defended in
good faith by the Indemnitee alone, or jointly with the Indemnitor,
shall be settled by the Indemnitee without the written consent of the
Indemnitor, which consent shall not be unreasonably withheld; provided,
however, that the Indemnitee may settle such Third Party Claim without
the consent of the Indemnitor so long as the settlement includes a
written release of the Indemnitor, in form and substance satisfactory to
the Indemnitor, from the Third Party Claim by the Indemnitee and the
claimant thereunder.
(d) Payment. Upon the determination of the liability under Section 8(c),
the Indemnitor shall pay to the Indemnitee, within ten (10) days such
determination, the amount of any claim for indemnification made hereunder. If
the Indemnitee is not paid in full for such claim within such ten (10) day
period, the Indemnitee shall have the right, in addition to and not in lieu of
any other rights that it may have against the Indemnitor or any other person,
firm or corporation, to set off the unpaid amount of any such claim against any
amounts owed by the Indemnitee to the Indemnitor. If the Indemnitee is Purchaser
and Purchaser is not paid in full for such claim within such ten (10) day
period, Purchaser shall have the right, in addition to and not in lieu of any
other rights that it may have against the Indemnitor or any other person, firm
or corporation, to set off the unpaid amount of any such claim against any
amounts owed by Purchaser under the Note. Upon the payment in full of any claim,
either by setoff or otherwise, the Indemnitor shall be subrogated to the rights
of the Indemnitee against any person, firm or corporation with respect to the
subject matter of such claim.
(e) Exclusive Remedy. The indemnification provided in this Section 8
will be the exclusive post-Closing remedy for damages available to Purchaser and
HTS for the breach of
21
<PAGE> 22
any representation or warranty by any party to any other party or for the
nonperformance of any covenant or obligation to be performed by any party under
this Agreement.
9. Miscellaneous.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing for a period of one (1) year following the Closing.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the
disclosure).
(c) Non-Solicitation. To the extent permitted by law, the parties
mutually agree that for a period of four (4) years immediately following the
Closing, neither party shall directly or indirectly solicit, induce, recruit or
encourage any employee of the other party to leave their employment, or take
away such employees, or attempt to solicit, induce, recruit, encourage or take
away such employees, either for itself or for any other person or entity, with
the exception of any transferred employee listed in the Disclosure Schedule
hereto.
(d) Former Employee Retention. Purchaser accepts any and all
responsibility for performance and retention of any former employee of HTS
subsequently employed by Purchaser following the Closing.
(e) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(f) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(g) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(i) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
22
<PAGE> 23
(j) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to HTS: Copy to:
Mr. Alan R. Stewart Carlos. D. Heredia, Esq.
Vice President, Corporate Development Baker & McKenzie
High Technology Solutions, Inc. 101 West Broadway
9665 Chesapeake Drive, Suite 300 12th Floor
San Diego, CA 92123 San Diego, CA 92101-3890
Fax: (858) 636-4490 Fax: (619) 236-0429
If to Purchaser: Copy to:
Landacorp, Inc., Martin J. Waters, Esq.
4151 Ashford Dunwoody Rd., Suite Wilson Sonsini Goodrich & Rosati,
505, Atlanta, Georgia 30319 650 Page Mill Road,
Attention: Chief Executive Officer. Palo Alto, California 94304.
Fax: (404) 531-4826 Fax: (650) 493-6811
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(k) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
(l) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Purchaser and HTS. HTS may consent to any such amendment at any time prior to
the Closing with the prior authorization of its board of directors. No waiver by
any Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(m) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
23
<PAGE> 24
(n) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(o) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(p) Incorporation of Exhibits and the Disclosure Schedule. The Exhibits
and the Disclosure Schedule identified in this Agreement are incorporated herein
by reference and made a part hereof.
(q) Attorneys' Fees. If any action at law or in equity is brought to
enforce or interpret the provisions of this Agreement or any other agreement or
instrument provided for herein, the prevailing party in such action shall be
entitled to recover as an element of such party's costs of suit, and not as
damages, reasonable attorneys' fees to be fixed by the court or arbitrator. The
prevailing party shall be the party who is entitled to recover its costs of suit
as ordered by the court, the arbitrator or by applicable law or court rules. A
party not entitled to recover its costs shall not recover attorneys' fees. No
sum for attorneys' fees shall be counted in calculating the amount of judgment
for purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
(r) Bulk Transfer Laws. Purchaser acknowledges and agrees that HTS will
not comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
*****
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE> 25
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
Landacorp, Inc.
By: /s/ STEPHEN P. KAY
-------------------------------
Its: COO/CFO
------------------------------
High Technology Solutions, Inc.
By: /s/ LAWRENCE B. PRIOR, II
-------------------------------
Its: President & COO
------------------------------
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
25
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our report dated October 22, 1999, except Notes 6 and 10 which are as of
January 31, 2000, relating to the financial statements of Landacorp, Inc., which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------
PricewaterhouseCoopers LLP
Sacramento, California
February 7, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated December 15, 1999, regarding the financial statements of
Interactive Healthcare Division of High Technology Solutions, Inc., which is
included in Amendment No. 3 to the Registration Statement (Form S-1) and related
Prospectus of Landacorp, Inc. for the registration of shares of its common
stock.
ERNST & YOUNG LLP
San Diego, California
February 7, 2000
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