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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File No. 1-9815
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CYCARE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-0842322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7001 North Scottsdale Road
Suite 1000
Scottsdale, Arizona 85253-3644
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 596-4300
Securities registered pursuant to Section 12(b)of the Act:
Title of Class Name of Exchange on Which Registered
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Common Stock, Par Value $.01 Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of March 22, 1996: Common Stock, $.01 par value:
$125,115,658.
The number of shares outstanding of the Registrant's Common Stock as of
March 22, 1996: Common Stock, $.01 par value: 5,058,170 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report for the year ended December 31,
1995 (the "Annual Report"), are incorporated by reference into Part II.
Portions of the Company's Proxy Statement for the Annual Shareholders'
Meeting to be held on May 21, 1996 (the "Proxy Statement") are incorporated by
reference into Part III.
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<PAGE>
PART 1
ITEM 1. BUSINESS
CyCare Systems, Inc. (the "Company"), founded in 1967 and incorporated
in 1969, is a leading provider of information systems, related support services
and electronic data interchange (EDI) services to the health care industry,
including physicians, medical group practices, academic practice centers and
integrated delivery networks. The Company's services and systems are based
primarily on open-systems architecture using software developed or acquired by
the Company to improve the productivity and profitability of its customers.
Applications include appointment scheduling, patient and member registration
information, business office management, electronic claims processing, patient
care and patient accounting.
INDUSTRY BACKGROUND
The Company estimates that there are over 570,000 physicians in
private practice and approximately 148,000 medical practices in the United
States. The economic pressures and informational demands upon physicians and
medical practices have increased significantly during the past decade. At the
same time, the increased power and decreased cost of computers have made
computers an effective information processing solution for a broader range of
medical practices. Approximately 70% of physician practices now use computers or
computer services for at least some of their information processing
requirements.
The demand for more comprehensive and accurate information processing
solutions is expected to continue. Health care cost containment efforts have
greatly increased the amount and complexity of required information. At the same
time, increased competition has resulted in a greater focus on demonstrating the
quality of care delivered to patients. Practice management systems help
providers reduce the costs and improve the quality of delivering health care
services by automating patient care and administrative processes, ensuring
timely access to relevant information, streamlining the storage and retrieval of
information, and matching patient needs with available resources.
The ongoing pressure to contain health care costs is also changing the
structure of health care providers and their practice management system
requirements. Over the next several years, the majority of practicing physicians
are expected to be channeled into ever enlarging networks, group practices,
HMOs, and integrated delivery systems (IDS). In addition, the number of
third-party payer organizations has increased. At the same time, federal and
state governments, which are estimated to be responsible for approximately 30%
of physician claims for patient charges as a result of Medicare, Medicaid and
other programs, have imposed pricing and reimbursement regulations that
significantly complicate billing procedures and increase the information a
medical practice must maintain with respect to its patients. Furthermore, health
care payers are increasingly transferring the economic risk of health care
delivery to providers by shifting from the traditional fee-for-service
reimbursement model to managed care reimbursement models, such as payment based
on capitation. Under capitation, providers are paid an annual fixed fee per
individual to deliver all health care services required by that individual. This
reimbursement model encourages health care providers to modify their emphasis
from not only treating illness, but also to maintaining wellness. The expansion
in the number of managed care and third-party payer organizations, as well as
additional governmental regulation and the change in reimbursement models, has
greatly increased the complexity of pricing practices, billing procedures and
reimbursement policies impacting medical practices. These trends are prompting
dramatic change in, and ultimately major expenditures for, physician practice
management information systems.
Other factors also are increasing the demand for more comprehensive
and accurate information systems. The growing administrative burdens placed on
medical practices have caused physicians to join together in group practices to
share administrative costs and achieve economies of scale. The Company believes
the movement toward group practices has accelerated the trend toward automation
as group practices require the greater efficiency and productivity of an
automated system. Not only has there been a movement toward group practices,
more recently group practices have been coming together to form larger group
practices. In addition, hospitals and insurance companies are buying and/or
managing physician practices and networking them into one common system. The
general increase in the size and complexity of medical practices has resulted in
a greater need for analysis of data and production of timely management
information reports which allow physicians and other health care providers to
reach informed conclusions regarding the quality and appropriateness of various
procedures and practices.
Technological advances have made more comprehensive, cost-effective
computer solutions available to physician practices. While early systems
concentrated principally on patient billing and collection activities, systems
are now available which record and store clinical information, automate the
processing of insurance and third-party payer claims, and integrate the
operations of physician practices with larger health care organizations such as
hospitals, HMOs and management service organizations (MSO). The Company believes
that these various factors will cause medical practices to seek additional and
more comprehensive computer-based solutions for their information processing
needs.
STRATEGY
The Company's goal is to be the leading provider of physician practice
management systems and services. The Company's strategy includes the following
key elements:
* Provide a Strong and Integrated Product Line. In 1993, the Company
upgraded its large-group product, the CS3000, the first client/server
system in this market segment. In 1994, the Company introduced a new
small-group product, the Windows(TM)-based SpectraMED(TM). In 1995, the
Company began shipping its comprehensive medical records product, CS-CIS,
that has a complete data repository, drug interaction reporting, imaging
and outcomes reporting capabilities. The Company will continue to enhance
these products and to develop new applications that address the rapidly
changing requirements of today's health care environment.
* Provide a Full Range of Transaction Processing Services. The Company
currently offers electronic transactions (EDI) such as claims processing,
remittance advices, eligibility checking and encounter data. Additional
capabilities include statement processing and paper claims for those
insurance carriers without electronic submission capabilities.
* Provide Systems Integration Services. The Company's strategy is to provide
the core practice management system solution using its open-system
architecture, then use its integration expertise to build state-of-the-art
communication networks to tie in ancillary systems such as pharmacies,
labs, radiology departments, etc. and in today's IDS environment,
hospitals.
* Expand National Direct Sales Organization. The Company plans to expand its
direct sales organization to market to a larger number of medical
practices, MSOs, IDSs, and practice management consultants.
* Strategic Acquisitions. The Company continually evaluates the acquisition
of products, services and businesses that are similar or complementary to
those offered by the Company. Many of these potential acquisitions would
allow the Company to expand its customer base or provide new technologies
to existing and future customers. Consistent with this strategy, in
December 1995, the Company acquired Richard D. Jugel and Company. This
acquisition provided the Company with the ability to process UB-92
(hospital-based) claims electronically.
PRODUCTS AND SERVICES
The Company's strategy is implemented through two primary business
units: Group Practice and CyData, Inc.
Group Practice
The Company's Group Practice business unit has served physician groups
and other ambulatory care organizations for over 28 years, and it maintains a 20
percent market share in group practices with 25 or more physicians. This
business unit is uniquely positioned with a comprehensive range of software
applications and services that meet the information processing requirements of
smaller practices that are consolidating into larger groups, and for groups that
are affiliating with each other to form IDSs. Business solutions offered are in
the areas of patient information and registration, business office management,
third-party management, electronic claims clearing, prepaid managed care,
appointment scheduling and clinical information. In addition to systems, support
services such as account management, systems integration and networking,
education and training, installation and documentation are also offered. In
1995, this business unit had revenues of $47.7 million versus $40.5 million and
$36.5 million in 1994 and 1993, respectively. In 1995, 71% of these revenues
were recurring.
The Company developed its Group Practice products, with the exception
of SpectraMED, using client/server based technology to eliminate the dependence
on proprietary technology and enable the Company to add and refine applications
as technology changes. The hardware platform chosen to run the Company's
products is Hewlett Packard's HP 9000, Series 800 business server. This
RISC-based platform provides excellent scalability and has one of the best
price/performance ratios in the industry.
CyCare System 3000(TM) (CS3000) . The CS3000 was introduced in late
1993 and is designed for group practices with 12 or more physicians. The CS3000
is a UNIX-based client/server system that features point and click interface
technology and optimum flexibility through open-systems architecture which
allows integrated access to data from a variety of sources throughout the
organization. The CS3000 is designed to improve physician/provider productivity
and personnel utilization of its customers. Modules included are patient
information and registration, managed care, scheduling and business office
management. The patient information and registration module gives instant access
to patient, guarantor and insurance coverage information that can be used
throughout the product. The system's managed care module is designed to support
capitated contracting from both the provider and the payer perspectives and the
scheduling module is designed to maximize productivity by automating test
schedules, examinations, and procedures. Business office management features are
designed to maximize revenue and minimize staffing requirements.
Clinical Information System (CS-CIS). In August 1995, the Company
signed a relicensing agreement with Wang Laboratories, Inc. to market Wang's
fully functional electronic medical records systems. CS-CIS is a client/server
system that will run on any industry standard 486 or Pentium PC. Its relational
database can share data with every database that is compliant with open-systems
standards. Because CS-CIS was implemented for open-systems, it interfaces
smoothly with multiple UNIX platforms running Novell Netware. CS-CIS fully
integrates the entire practice from the front desk to the examining room,
regardless of medical specialty, and stores all patient data in a clinical
information repository. CS-CIS doesn't replace the CS3000, or any other practice
management system; instead, the systems work in tandem to form a sophisticated
information network for the ambulatory environment. CS-CIS is designed for the
way physicians work intuitively. During an encounter, the physician can check
test results or enter information with a pen on digital forms that look like
familiar paper forms. Referrals, prescriptions and other ancillary services can
be ordered electronically in one easy step. The practice realizes the increased
efficiencies as lower overhead and increased profits in a managed care
environment.
Enterprise-wide Scheduling (CS-ES). The Company is currently developing
an enterprise-wide scheduling product known as CS-ES. CS-ES is a
state-of-the-art achievement based on a sophisticated SQL database for easy
access to information. On-line help and user-friendly graphical interface
employing Microsoft(R) Windows(TM) cut training time and enable the user to move
easily throughout the system. As physician groups combine to form integrated
delivery networks, the ability to schedule patient appointments for numerous
resources becomes extremely critical to both the cost and quality of care. The
CS-ES will allow the physician practice to schedule and coordinate appointments
for multiple resources, specialties or departments. Additional features include:
daily patient lists, resource usage and no-show reports, patient reminder
letters, identification of credit risks, copays, referring physicians, and
preauthorization.
SpectraMED. In February 1994, the Company began shipments of
SpectraMED, the first full spectrum practice management and patient care
solution designed to use the Microsoft(R) Windows(TM) operating system. This
state-of-the-art software solution addresses the practice management needs of
individual providers and groups of up to 12 physicians. This product offers
features such as electronic medical records, live audio and video records that
can be stored in the SpectraMED patient file, patient names/alerts, the ability
to maintain multiple fee schedules and simplified ad-hoc reporting. SpectraMED
is designed to take full advantage of all the EDI and statement processing
capabilities of the Company's CyData subsidiary.
CyData, Inc.
In 1992, the Company formed a wholly-owned subsidiary named CyData,
Inc., that provides solutions to accelerate cash flow, maximize productivity,
reduce administrative costs and improve profitability. More than 25 percent of
the nation's traditional group practices have streamlined operations through
CyData's electronic data interchange (EDI) services, including on-line and
roster eligibility, claims, encounters, remittance advice and statement
processing. CyData's revenues, including intercompany transaction processing
revenues, were $19.0 million, $17.0 million and $13.6 million in 1995, 1994 and
1993, respectively. Intercompany transaction processing revenues were $5.7
million, $5.5 million and $5.1 million in 1995, 1994 and 1993, respectively.
These revenues were 100% recurring in 1995. CyData has also initiated a special
marketing effort called the Participating Payer Program. Insurance payers that
join the Participating Payer Program have agreed to absorb most if not all of
the physician's costs to process claims electronically. In return, the payers
enjoy a cost savings from reduced paper claims processing. Currently, the
clearinghouse formats, edits and processes over four million claims per month.
Electronic Data Interchange. CyData provides a complete financial
processing solution. From the moment a patient walks in the door, health care
providers can confirm if a patient is eligible for treatment (on-line or roster
eligibility). After providing treatment, the physician or hospital can submit
insurance claims or encounter information daily to CyData where it will be
edited, formatted to the payer's unique specifications and transmitted to one of
the over 500 insurance carriers that accept electronic claims from CyData. The
amount the insurer will pay (remittance advice) can be electronically
transmitted back to the provider for updating of accounts receivable, without
rekeying of data. Physicians and hospitals can then collect the final amount
owed by sending a statement to the patient using CyData's statement processing
capabilities, as described below.
Statement Processing. CyData also provides a statement processing
service to medical groups to assist with patient billing. Groups submit, via
electronic transmission or computer tape, billing information to the Corporate
Information Center in Dubuque, Iowa. CyData then prints and mails statements.
Processing five million statements each month, the Company has the facilities to
process statements more inexpensively and efficiently than the groups can do
themselves.
SOFTWARE LICENSING, DEVELOPMENT AND PROTECTION
The Company does not sell its software to customers. The Company
licenses its software to all distributed and in-house/turnkey customers. The
standard license agreement provides that, for a specified fee, a customer is
granted the non-transferable right to use the Company's software products.
Distributed customers are charged lower license fees than non-distributed
customers. The Company's initial software licenses are associated with related
hardware and all sales are accounted for as systems sales.
The Company has implemented an innovative software pricing philosophy,
Living Software, in the Group Practice business unit. The Company licenses
software to customers at a flat rate, including all services and future
upgrades. Because of this structure and because "living software" minimizes
customer's initial cash flow, brand loyalty is enhanced. This pricing philosophy
shifts a portion of the initial software license fee into recurring revenue over
the life of the contract and allows customers to protect their investment in
software. A portion (usually 10%) of the Company's initial license fee is
payable upon execution of a license agreement, with the remainder payable upon
delivery and testing of the software. License agreements contain provisions
designed to prevent disclosure and unauthorized use of the Company's products.
Clients sign license agreements for continuing software use, support and
enhancements, generally for a period of three to five years.
Computer software is subject to rapid changes as a result of internal
and external forces, particularly in the rapidly-changing health care market.
Internally, changing needs of the customer require software to be flexible,
easily modified or completely revised to meet the customer's needs. External
factors, such as technological changes in hardware and changing requirements of
outside parties (like insurance carriers) may necessitate software enhancements
or modifications. To meet these needs, the Company maintains a staff of systems
analysts and programmers in Dubuque, Iowa; Omaha, Nebraska; and Scottsdale,
Arizona to develop and enhance its products. The Company has also contracted
programming from outside sources from time to time. The Company has a number of
significant projects currently in development, including: enterprise-wide
scheduling, new EDI processes, and various upgrades to CS3000 and CS-CIS.
The Company capitalizes certain software development costs, primarily
coding and testing, which meet recoverability tests. The capitalized costs are
then amortized over future periods or written down to their net realizable
value, if recoverability tests are not met. Once a software package is
developed, the expenses associated with its licensing generally are limited to
marketing, installation, support, product updates and administration.
Net research and development expenses were $4.3 million (7% of
revenues) in 1995, $4.1 million (8% of revenues) in 1994, and $4.2 million (9%
of revenues) in 1993. The Company anticipates that these expenditures will
continue to be approximately 8% of revenues.
Application software generally cannot be patented. Instead, the
Company relies upon contract, trade secret and copyright laws to protect its
proprietary knowledge. Customers sign agreements restricting use to their own
operations and prohibiting disclosure to third parties. Furthermore, customers
generally are not provided with the Company's software source code.
Company-prepared manuals are marked as protected under copyright laws. In
addition, employees are notified of the confidential nature of the Company's
proprietary information and trade secrets and are required to sign
non-disclosure agreements. Regardless of these restrictions, it may be possible
for competitors to obtain the Company's trade secrets. The Company will seek to
protect its rights and to enforce the non-disclosure provisions of its
agreements. The names "CyCare" and "CyData" and their associated logos are
trademarks of the Company.
EQUIPMENT SALES AND RENTALS AND SOURCES OF SUPPLY
Through agreements with equipment manufacturers, the Company sells and
leases various minicomputers, personal computers, video display terminals and
peripheral equipment used in the Company's systems. While customers could
purchase or lease identical equipment from other sources, they have not
generally done so.
Most components of CyCare's distributed processing and in-house/turnkey
systems, such as IBM mainframes and personal computers, Hewlett-Packard
minicomputers and personal computers, Bull Worldwide Information Systems, Inc.
minicomputers, Link and Wyse video display terminals and Cincom Systems, Inc.
database management software, are purchased from single sources. While
alternative sources of minicomputers, video display terminals and software are
available to the Company, additional time would be required to adapt the
equipment to the Company's requirements. In addition, the use of alternative
sources might necessitate redesign or recoding of the Company's application
software and could result in some interruption of the delivery of systems. The
Company believes its relationships with its suppliers are good. Periodically,
the Company reevaluates the equipment and software purchased from suppliers. The
Company has entered into a value-added agreement with Hewlett Packard to
purchase equipment for resale to its customers.
INSTALLATION, SUPPORT AND TRAINING
The Company maintains an extensive customer service organization.
Specialists assist customers in installation or conversion and provide ongoing
support. Services performed by such specialists include planning system options
and determining software required, assisting file conversion, implementing
operating procedures, training, planning the equipment environment and
coordinating with other departments. Other personnel handle the day-to-day
contact with the customer concerning such items as requests for supplies,
special processing runs, additional services and problem determination.
Technical support personnel provide continuing enhancements and improvements to
the Company's software and assist customers in communicating with equipment
manufacturers. They also furnish custom programming to customers, usually
charged on a time and material basis.
Installation of a system normally commences upon execution of a
contract, with installation completed in two to three weeks for SpectraMED
clients, and two to six months for CS3000 clients. The equipment supplier
installs the hardware used by distributed and in-house/turnkey customers.
Installation of software may occur in phases, but initial processing usually
begins within two months.
Initial training on the use of the system is generally included in the
cost of the system. In addition, the customer is provided with a user manual
describing the features of the system and how to use it effectively. The Company
also provides continuing classes to update and train the customer personnel at
regional training facilities. The Company periodically schedules state and
national user meetings and executive forums, which allow an exchange of ideas
and techniques among customers and provide the Company with ideas for future
enhancements and products.
CLIENTS, MARKETING AND BACKLOG
The Company markets its Group Practice products for large physician
groups and CyData products and services through sales representatives located in
nine offices throughout the country. The Company currently has 24 direct sales
people, plus 17 sales support personnel with specific product expertise and 5
telemarketing individuals. The Company's sales representatives are experienced
in the computer service field and knowledgeable about the Company's products and
services, and are supported by a marketing and technical staff. The Company's
SpectraMED product is marketed through a nationwide network of over 150
independent dealers that is supported by the Company's marketing and technical
support staffs.
The Company's customers are principally located throughout the United
States. Revenues generated in Canada represent less than 1% of total revenues
and are considered insignificant. In 1995, the Company's Canadian subsidiary was
dissolved and financial transaction reporting and operational activities were
assumed by the Company.
The Company's services and systems are directed at different health
care markets as categorized by its strategic business units. Services and
systems have been designed to meet the specific requirements for each of these
markets.
The Company's backlog for equipment sales and software licenses was
$1,355,000 at March 22, 1996 and $4,890,000 at March 17, 1995. All of the March
22, 1996 backlog is expected to be filled in the current fiscal year.
COMPETITION
Competition is intense in the market served by the Company. The
industry is highly fragmented and includes numerous competitors. The Company
believes that the most important factors in a potential customer's evaluation of
its services and systems are reliability, functional/technical capabilities,
price, future flexibility, data security, support services and cost
effectiveness. The Company continues to focus on increasing customer
satisfaction as a method of improving potential customers' perceptions and
adding value to its products. Improvement has been seen based on the increased
number of customer reference sites and customer retention. The Company believes
it is one of the largest providers of computer information processing services
and systems to physicians and medical group practices. Competitors include other
computer service companies, equipment manufacturers and consulting firms, some
of which are substantially larger and have greater financial, marketing and
personnel resources than the Company. Neither the Company nor any competitor is
believed by the Company to have a 10% or greater share of the current market.
COMMUNICATION NETWORK AND DATA SECURITY
The Company supplies its services through a nationwide data
communications network consisting of leased and WATS telephone lines. Data
stations or video display terminals located on customer premises are connected
through one of these networks to the Company's computer facility.
Computer accessibility is critical to the success of an on-line system,
such as the Company's shared system. In 1995, the Company's computer facility
was operational for over 99% of the Company's customers' normal working hours.
CyCare has a diagnostic system which monitors its leased telephone
lines to detect sources of degradation in data received. The Company maintains a
remote diagnostic system for problem solving and training customer personnel.
This system allows the Company's technical personnel to immediately communicate
with a customer's computer rather than having to visit the customer's location.
The Company maintains confidentiality and security due to the nature of
the information it processes. The Company restricts data access for shared
customers, restricts physical access to its computer facility and requires its
employees to sign agreements acknowledging the confidentiality of information
processed. Customer information is duplicated and transferred to an off-site
location on a daily basis.
EMPLOYEES
As of March 8, 1996, the Company employed approximately 486 persons,
including 46 sales representatives, 144 employees engaged in providing
installation services and continuing support and 106 systems analysts and
programmers involved in research and development and continuing maintenance of
CyCare's systems and programs, the balance being administrative, operations and
clerical employees.
Systems analysts and programmers are in short supply and, consequently,
competition for such personnel is intense. The Company believes that its future
success will be dependent in part upon recruiting and retaining qualified
technical personnel as well as other employees. CyCare considers its employee
relations to be good.
GOVERNMENT REGULATION
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care facilities. During the past several years, the health care industry
has been subject to an increase in governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. Many lawmakers
have announced that they intend to propose programs to reform the U.S. health
care system. These programs may contain proposals to increase governmental
involvement in health care, lower reimbursement rates or otherwise change the
operating environment for the Company's customers. Health care providers may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for the Company's products
and related services. Cost containment measures instituted by health care
providers as a result of regulatory reform or otherwise could result in greater
selectivity in the allocation of capital funds. Such selectivity could have an
adverse effect on the Company's ability to sell its products and related
services. The Company cannot predict with any certainty what impact, if any,
such proposals or health care reforms might have on its business, financial
condition and results of operations.
ITEM 2. PROPERTIES
The Company's principal processing and development operation is located
in approximately 114,000 square feet of a nine-story commercial office building
in Dubuque, Iowa, purchased by the Company in September 1986. In 1994, the
Company refinanced the building and it is currently subject to a mortgage being
amortized over five years with payments ending in April 1999. The building has
approximately 215,000 leasable square feet. Space not needed by CyCare will
continue to be leased to other tenants. The Company leases approximately 33,000
square feet for its corporate headquarters in Scottsdale, Arizona. The Company
also leases office space in various United States cities for terms generally not
exceeding five years. Offices are located in Atlanta, Chicago, Dallas,
Minneapolis, Omaha, San Diego and Bedminster, New Jersey and are equipped to
service all aspects of the Company's business. The Company considers these
facilities to be adequate for its present and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, there are no legal proceedings pending against
or involving the Company that in the opinion of management could result in a
materially adverse change in the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position with the Company
- ---- --- -------------------------
Jim H. Houtz 60 Chairman of the Board of Directors, President
and Chief Executive Officer
David H. Koeller 48 President of Group Practice
Mark R. Schonau 39 Chief Financial Officer, Secretary/Treasurer
Bill W. Childs 56 Senior Vice President
Randy L. Skemp 39 Senior Vice President
Carolyn S. Haupert 52 Senior Vice President
Mr. Houtz has been Chief Executive Officer since founding the Company
in 1967, and has served as a director since its incorporation in 1969. In
January 1994, he was also named President of the Company.
Mr. Koeller joined the Company in 1970 and has held various positions
in operations and client services. He was named Vice President - Operations in
1979, Senior Vice President - Operations, Corporate Information Center in 1986,
and Executive Vice President - Group Practice Systems in 1989. In October 1990,
he was named Executive Vice President - Technical Services and Development. In
January 1994, he was named President of Group Practice.
Mr. Schonau joined the Company in May 1988, as Corporate Controller. In
November 1988, he was appointed Secretary/Treasurer. In 1989, he was appointed
Chief Financial Officer. Prior to joining the Company, he was a Senior Manager
with Ernst & Whinney (currently Ernst & Young LLP).
Mr. Childs joined the Company in April 1995 as Senior Vice President.
From 1984 until his employment by the Company in 1995, Mr. Childs was President
and Chief Executive Officer of Health Data Analysis, Inc., a health care
publishing and consulting organization.
Mr. Skemp joined the Company in January 1983, as an Operations
Supervisor. In 1985, Mr. Skemp was named to Manager of Credit Union Sales and
Telemarketing. In 1988, he assumed the position of Director of Commercial and
Distribution Services in Data Clearing and in 1990 was named Director of Account
Management for the central and eastern regions of the United States. In January
1993, Mr. Skemp was named Vice President and then Senior Vice President in May
1994.
Ms. Haupert joined the Company in August 1974 and has held various
management positions. She was named Manager of Clinical Development in 1983;
Director-Application Support in May 1985; Director of Product Development in
January 1988, and Director of Data Clearing Products and Services in June 1991.
Ms. Haupert was named Vice President in January 1993 and subsequently named
Senior Vice President in January 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Certain information in response to this item is incorporated herein by
reference from "Shareholder Information" on page 27 of the Annual Shareholders'
Report.
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this item is incorporated herein by
reference from "Eleven - Year Comparison of Selected Financial Data" on page 26
of the Annual Shareholders' Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this item is incorporated herein by
reference from "Management's Discussion and Analysis" on pages 12 and 13 of the
Annual Shareholders' Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information in response to this item is incorporated herein by
reference from the "Consolidated Financial Statements" on pages 14 through 24 of
the Annual Shareholders' Report.
"Quarterly Results" on page 24 of the Annual Shareholders' Report is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information in response to this item is incorporated herein by
reference from "Election of Directors" on pages 1 and 2 and "Compliance with
Section 16(a) under the Securities Exchange Act of 1934" on page 15 of the Proxy
Statement and from "Executive Officers of the Registrant" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
Certain information in response to this item is incorporated herein by
reference from "Board Compensation Committee Report on Executive Compensation,"
"Performance Graph," "Summary Compensation Table," "Director Compensation,"
"Option/SAR Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in
Last Fiscal Year and FY-End Option/SAR Values," and "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements" on pages 8 through
14 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this item is incorporated herein by
reference from "Security Ownership of Certain Beneficial Owners and Management"
on page 7 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated herein by
reference from "Certain Relationships and Related Transactions" on pages 14 and
15 of the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
<TABLE>
<CAPTION>
Page in
Annual Shareholders' Report
---------------------------
<S> <C>
Incorporated by reference in Part II, Item 8 of this report:
Report of Ernst & Young LLP, Independent Auditors 25
Consolidated Balance Sheets at December 31, 1995 and 1994 14
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page in
Annual Shareholders' Report
---------------------------
<S> <C>
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 16
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 17
Notes to Consolidated Financial Statements 18 through 24
(2) Financial Statement Schedules
Page in
Form 10-K
---------
Included in Part IV of this report:
Consent of Independent Auditors on Consolidated Financial Statements 18
Schedule II - Valuation and Qualifying Accounts 19
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is
included in the consolidated financial statements or notes thereto.
</TABLE>
(3)Information with respect to this item is contained in Item 14(c) hereof
and is incorporated herein by reference.
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
Page in Sequential
Numbering Where
Exhibit Appears
Exhibit Number Description or Manner of Filing
-------------- ----------- -------------------
<S> <C> <C>
3-A Restated Certificate of Incorporation i
3-B By-Laws i
4 The Shareholder Rights Agreement dated ii
May 15, 1989
10-A(a) Long-Term Incentive Plan of the Company dated Page __
March 1, 1995, as amended
10-B(a) Employee Stock Purchase Plan of the Company, Page __
dated November 25, 1987, as amended
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page in Sequential
Numbering Where
Exhibit Appears
Exhibit Number Description or Manner of Filing
-------------- ----------- -------------------
<S> <C> <C>
10-C(a) Director Stock Plan of the Company, Page ____
dated October 14, 1994
10-D(b) Proprietary Systems, License and Services Agreement iii
dated June 30, 1984 between Cincom Systems, Inc.
and the Company, as amended
10-E(b) Form of OEM Agreement between Honeywell iv
Information Systems, Inc. and the Company
10-F(a) The Company's 401(k) Savings Plan, as amended iii
10-G(a) Retirement Plan of the Company dated May 1, 1974, iii
as amended
10-H(b) Amendment to Value Added Reseller Agreement for v
Equipment, Products and Services dated October
9, 1991, between Bull HN Information Systems and
the Company. (This is an amendment to the Form
of OEM Agreement between Honeywell Information
Systems, Inc. and the Company)
10-I(b) Reseller Start-Up Purchase Agreement for Equipment, v
software and services dated September 27, 1991
between Hewlett-Packard and the Company
10-J Marketing Agreement dated September 30, 1986, i
between Computer Associates International, Inc.
and the Company, as amended
10-K(b) Renewal of Remarketer Agreements for IBM Products vi
dated September 15, 1992, between IBM and the
Company
10-L(b) Addendum to Reseller Start-Up Purchase Agreement for vi
Equipment, Software and Services dated August 25,
1992, between Hewlett-Packard and the Company
10-M(b) Private Label Reseller Agreement for Software and v
Services dated October 22, 1991, between Vision
Software, Inc. and the Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page in Sequential
Numbering Where
Exhibit Appears
Exhibit Number Description or Manner of Filing
-------------- ----------- -------------------
<S> <C> <C>
10-N(a) Consulting Agreement between Jim H. Houtz, vi
Chairman of the Board and Chief Executive Officer,
and the Company dated January 2, 1993
10-O(a) Employment Agreement between Mark R. Schonau, Page ____
Chief Financial Officer, Secretary and Treasurer,
and the Company dated November 3, 1995
10-P(a) Executive Severance Agreement between Mark R. Schonau, vi
Chief Financial Officer, Secretary and Treasurer,
and the Company dated October 20, 1992
10-Q(a) Supplemental Retirement Agreement between Jim H. vii
Houtz, Chairman of Board, Chief Executive and
President and the Company dated December 28, 1993
10-R(b) Exchange of Business Agreement dated June 22, 1993, vii
between Datamedic Corporation and the Company
10-S(b) Software Purchase Agreement dated June 7, 1993, vii
between Health Software, Inc. and the Company
10-T(b) Software Program License Agreement executed vii
January 4, 1993, between Resource Information
Management Systems, Inc. and the Company
10-U(c) Reseller Agreement between Wang Laboratories, Inc. Page ____
and the Company dated August 31, 1995
13 Annual Report to Security Holders for the fiscal Page ____
year ended December 31, 1995
21 Subsidiaries of the Registrant Page ____
23 Consent of Ernst & Young LLP Page ____
27 Financial Data Schedule Page ____
</TABLE>
<PAGE>
(a) Management contract or compensatory plan or
arrangement required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
(b) Confidential treatment granted as to portions
thereof.
(c) Confidential treatment requested as to portions
thereof.
i Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1988.
ii Incorporated by reference to the Company's Report
on Form 8-K dated May 9, 1989.
iii Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1989.
iv Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1985.
v Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1991.
vi Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1992.
vii Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYCARE SYSTEMS, INC.
DATE: March 26, 1996 /s/ Mark R. Schonau
-------------------
Mark R. Schonau
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 26, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
Signature Capacity
/s/ Jim H. Houtz Director, Chairman of the Board of
------------------------------- Directors, President and Chief
Jim H. Houtz Executive Officer
/s/ Mark R. Schonau Chief Financial Officer,
------------------------------- Secretary and Treasurer
Mark R. Schonau
/s/ Frank H. Bertsch Director
-------------------------------
Frank H. Bertsch
/s/ Richard J. Burgmeier Director
-------------------------------
Richard J. Burgmeier
------------------------------- Director
A. Theodore Engkvist
/s/ James L. Schamadan, M.D. Director
-------------------------------
James L. Schamadan, M.D.
<PAGE>
Schedule II
CYCARE SYSTEMS, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
Allowance for beginning costs and at end
doubtful accounts of period expenses Deductions of period
----------------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1993 $ 884,000 $ 1,353,000 $ (1,189,000) (a)(d) $ 1,048,000
Year ended December 31, 1994 $ 1,048,000 $ 544,000 $ (837,000) (a) $ 755,000
Year ended December 31, 1995 $ 755,000 $ 389,000 $ (324,000) $ 820,000
Additions
Balance at charged to Balance
beginning costs and at end
Reserve for lease loss of period expenses Deductions of period
- ---------------------- --------- -------- ---------- ---------
Year ended December 31, 1993 $ 140,000 $ (140,000) (c) $ 0
Year ended December 31, 1994 $ 0 $ 0 $ 0
Year ended December 31, 1995 $ 0 $ 0 $ 0
Additions
Balance at charged to Balance
Amortization of beginning costs and at end
software products of period expenses Deductions of period
----------------- --------- -------- ---------- ---------
Year ended December 31, 1993 $ 8,350,000 $ 5,953,000 $ (5,387,000) (b)(d) $ 8,916,000
Year ended December 31, 1994 $ 8,916,000 $ 2,168,000 $ (7,170,000) (e) $ 3,914,000
Year ended December 31, 1995 $ 3,914,000 $ 5,801,000 $ (4,600,000) (b)(e) $ 5,115,000
Additions
Balance at charged to Balance
Amortization of beginning costs and at end
goodwill of period expenses Deductions of period
-------- --------- -------- ---------- ---------
Year ended December 31, 1993 $ 2,618,000 $ 4,004,000 $ (6,455,000) (b)(d) $ 167,000
Year ended December 31, 1994 $ 167,000 $ 18,000 $ 185,000
Year ended December 31, 1995 $ 185,000 $ 19,000 $ 204,000
Additions
Balance at charged to Balance
Amortization of beginning costs and at end
other intangibles of period expenses Deductions of period
----------------- --------- -------- ---------- ---------
Year ended December 31, 1993 $ 5,344,000 $ 796,000 $ (4,063,000) (b)(d) $ 2,077,000
Year ended December 31, 1994 $ 2,077,000 $ 65,000 $ 2,142,000
Year ended December 31, 1995 $ 2,142,000 $ 97,000 $ 2,239,000
</TABLE>
- ----------
(a) Uncollectible accounts written off, net of recoveries.
(b) Software product capitalization, goodwill, and intangibles written off in
connection with the Company's strategic redirection.
(c) Deductions relating to payments on lease.
(d) Software product capitalization, goodwill, intangibles and accounts
receivable written off in connection with the sale of the Company's
Practice Management business unit.
(e) Remove fully amortized accounts.
CYCARE SYSTEMS, INC.
1995 LONG-TERM INCENTIVE PLAN
ARTICLE 1. PURPOSE AND EFFECTIVE DATE
1.1 General. The purpose of the CyCare Systems, Inc. 1995 Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
CyCare Systems, Inc. (the "Company") by linking the personal interests of its
key employees to those of Company stockholders and by providing its key
employees with an incentive for outstanding performance. The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of employees upon whose judgment, interest, and
special effort the successful conduct of the Company's operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from time
to time to selected officers and key employees. It is also intended that the
Plan replace the CyCare Systems, Inc. Stock Option Plan (the "Prior Plan");
provided, however, that options granted under the Prior Plan shall continue to
be subject to the terms and conditions set forth in the agreement evidencing the
option grant.
1.2 Effective Date. The Plan is effective as of March 1, 1995 (the
"Effective Date"). Within one year after the Effective Date, the Plan shall be
submitted to the shareholders of the Company for their approval. The Plan will
be deemed to be approved by the stockholders if it receives the affirmative vote
of the holders of a majority of the shares of stock of the Company present, or
represented, and entitled to vote at a meeting duly held (or by the written
consent of the holders of a majority of the shares of stock of the Company
entitled to vote) in accordance with the applicable provisions of Delaware law
and the Company's Bylaws and Restated Certificate of Incorporation. Any Awards
granted under the Plan prior to stockholder approval are effective when made
(unless the Committee specifies otherwise at the time of grant), but no Award
may be exercised or settled and no restrictions relating to any Award may lapse
before stockholder approval. If the stockholders fail to approve the Plan, any
Award previously made shall be automatically canceled without any further act.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 1.2 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, Dividend Equivalent Award,
or Other Stock-Based Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the
Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means and includes each of the following:
(1) A change of control of the Company through a transaction
or series of transactions, such that any person (as that term is
used in Section 13 and 14(d)(2) of the 1934 Act), excluding
affiliates of the Company as of the Effective Date, is or becomes
the beneficial owner (as that term is used in Section 13(d) of
the 1934 Act) directly or indirectly, of securities of the
Company representing 35% or more of the combined voting power of
the Company's then outstanding securities;
(2) Upon the first purchase under a tender offer or exchange
offer for 20% or more of the outstanding shares of Stock (or
securities convertible into Stock), other than an offer by the
Company or any Subsidiary or any employee benefit plan sponsored
by the Company or any Subsidiary;
(3) Any merger or consolidation of the Company in which the
Company is not the continuing or surviving corporation or
pursuant to which Shares would be converted into cash, securities
or other property, other than a merger of the Company in which
the holders of the Shares immediately before the merger have the
same proportionate ownership of Common Stock of the surviving
corporation immediately after the merger;
(4) Substantially all of the assets of the Company are sold
or otherwise transferred to parties that are not within a
"controlled group of corporations" (as defined in Section 1563 of
the Code) in which the Company is a member; or
(5) If, at any time after March 1, 1995, there shall cease
to be a majority of the Board comprised as follows: individuals
who as of March 1, 1995, constitute the Board and any new
director(s) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of
the majority of the directors still in office who either were
directors as of March 1, 1995, or whose election or nomination
for election was previously so approved.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the committee of the Board described in Article
3.
(g) "Disability" shall mean any illness or other physical or mental
condition of a Participant which renders the Participant
incapable of performing his full-time duties for the Company for
six consecutive months and within 30 days after notice by the
Committee to the Participant, the Participant does not return
to the full-time performance of his duties.
(h) "Dividend Equivalent" means a right granted to a Participant
under Article 10.
(i) "Fair Market Value" means with respect to Stock or any other
property, the fair market value of such Stock or other property
determined by such methods or procedures as may be established
from time to time by the Committee. Unless otherwise determined
by the Commttee, the Fair Market Value of Stock as of any date
shall be the closing price for the Stock as reported in The Wall
Street Journal for that date or, if no closing price is so
reported for that date, the closing price on the next preceding
date for which a closing price was reported.
(j) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor
provision thereto.
(k) "Non-Qualified Stock Option" means an Option that is not intended
to be an Incentive Stock Option.
(l) "Option" means a right granted to a Participant under Article 6
of the Plan to purchase Stock at a specified price during
specified time periods. An Option may be either an Incentive
Stock Option or a Non-Qualified Stock Option.
(m) "Other Stock-Based Award" means a right, granted to a Participant
under Article 11, that relates to or is valued by reference to
Stock or other Awards relating to Stock.
(n) "Participant" means a person who, as an officer or key employee
of the Company or any Subsidiary, has been granted an Award under
the Plan.
(o) "Performance Share" means a right granted to a Participant under
Article 8, to receive cash, Stock, or other Awards, the payment
of which is contingent upon achieving certain performance goals
established by the Committee.
(p) "Plan" means the CyCare Systems, Inc. 1995 Long-Term Incentive
Plan, as amended from time to time.
(q) "Restricted Stock Award" means Stock granted to a Participant
under Article 9 that is subject to certain restrictions and to
risk of forfeiture.
(r) "Stock" means the Common Stock of the Company and such other
securities of the Company that may be substituted for Stock
pursuant to Article 12.
(s) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 7 to receive a payment equal to the
difference between the Fair Market Value of a share of Stock as
of the date of exercise of the SAR over the grant price of the
SAR, all as determined pursuant to Article 7.
(t) "Subsidiary" means any corporation of which a majority of the
outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
ARTICLE 3. ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee that is
appointed by, and shall serve at the discretion of, the Board. The Committee
shall consist of at least two individuals who are members of the Board who are
"disinterested persons," as such term is defined in Rule 16b3 promulgated under
Section 16 of the Securities Exchange Act of 1934 (the "1934 Act") or any
successor provision, except as may be otherwise permitted under Section 16 of
the 1934 Act and the regulations and rules promulgated thereunder.
3.2 Action By The Committee. A majority of the Committee shall constitute a
quorum. The acts of a majority of the members present at any meeting at which a
quorum is present and acts approved in writing by a majority of the Committee in
lieu of a meeting shall be deemed the acts of the Committee. Each member of the
Committee is entitled to, in good faith, rely or act upon any report or other
information furnished to that member by any officer or other employee of the
Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
3.3 Authority of Committee. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan including but not limited to, the exercise price, grant
price, or purchase price, any restrictions or limitations on the
Award, any schedule for lapse of forfeiture restrictions or
restrictions on the exercisability of an Award, and accelerations
or waivers thereof, based in each case on such considerations as
the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and under what circumstances
an Award may be settled in, or the exercise price of an Award may
be paid in, cash, Stock, other Awards, or other property, or an
Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(g) Decide all other matters that must be determined in connection
with an Award;
(h) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan; and
(i) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable
to administer the Plan.
3.4 Decisions Binding. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment provided in Section 13.1, the
aggregate number of shares of Stock reserved and available for Awards or which
may be used to provide a basis of measurement for or to determine the value of
an Award (such as with a Stock Appreciation Right or Performance Share Award)
shall be 1,120,000.
4.2 Lapsed Awards. To the extent that an Award terminates, expires or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan and shares subject to SARs or
other Awards settled in cash will be available for the grant of an Award under
the Plan, in each case to the full extent available pursuant to the rules and
interpretations of the Securities and Exchange Commission under Section 16 of
the 1934 Act, as amended.
4.3 Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
4.4 Limitation On Number of Shares Subject To Awards. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Stock
with respect to one or more Awards that may be granted to any one Participant
over the term of the Plan shall be 600,000.
ARTICLE 5. ELIGIBILITY
5.1 General. Awards may be granted only to individuals who are officers or
other key employees (including employees who also are directors or officers) of
the Company or a Subsidiary, as determined by the Committee.
ARTICLE 6. STOCK OPTIONS
6.1 General. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under
an Option shall be determined by the Committee, provided that the
exercise price for any Option shall not be less than the Fair Market
Value as of the date of grant.
(b) Time And Conditions Of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part, provided that no Option may be exercisable prior to
six months following the date of the grant of such Option. The
Committee also shall determine the performance or other conditions, if
any, that must be satisfied before all or part of an Option may be
exercised.
(c) Payment. The Committee shall determine the methods by which
the exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, shares of Stock, or other
property (including "cashless exercise" arrangements), and the methods
by which shares of Stock shall be delivered or deemed to be delivered
to Participants. Without limiting the power and discretion conferred
on the Committee pursuant to the preceding sentence, the Committee
may, in the exercise of its discretion, but need not, allow a
Participant to pay the Option price by directing the Company to
withhold from the shares of Stock that would otherwise be issued upon
exercise of the Option that number of shares having a Fair Market
Value on the exercise date equal to the Option price, all as
determined pursuant to rules and procedures established by the
Committee.
(d) Evidence of Grant. All Options shall be evidenced by a
written Award Agreement between the Company and the Participant. The
Award Agreement shall include such provisions as may be specified by
the Committee.
6.2 Incentive Stock Options. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall
be set by the Committee, provided that the exercise price for any
Incentive Stock Option may not be less than the Fair Market Value as
of the date of the grant.
(b) Exercise. In no event, may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) Lapse of Option. An Incentive Stock Option shall lapse under
the following circumstances:
(1) The Incentive Stock Option shall lapse ten years after
it is granted, unless an earlier time is set in the Award
Agreement.
The Incentive Stock Option shall lapse twelve months after
the Participant's termination of employment, if the termination
of employment employment was attributable to Disability.
(2) If the Participant separates from employment other than
as provided in paragraph (2), the Incentive Stock Option shall
lapse three months after the Participant's termination of
employment.
(3) If the Participant dies before the Option lapses
pursuant to paragraph (1), (2) or (3), above, the Incentive Stock
Option shall lapse, unless it is previously exercised, on the
earlier of (i) the date on which the Option would have lapsed had
the Participant lived and had his employment status (i.e.,
whether the Participant was employed by the Company on the date
of his death or had previously terminated employment) remained
unchanged; or (ii) 15 months after the date of the Participant's
death. Upon the Participant's death, any exercisable Incentive
Stock Options may be exercised by the Participant's legal
representative or representatives, by the person or persons
entitled to do so under the Participant's last will and
testament, or, if the Participant shall fail to make testamentary
disposition of such Incentive Stock Option or shall die
intestate, by the person or persons entitled to receive said
Incentive Stock Option under the applicable laws of descent and
distribution.
(d) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock
with respect to which Incentive Stock Options are first exercisable by
a Participant in any calendar year may not exceed $100,000.00.
(e) Ten-Percent Owners. An Incentive Stock Option shall be
granted to any individual who, at the date of grant, owns stock
possessing more than ten percent of the total combined voting power of
all classes of Stock of the Company only if such Option is granted at
a price that is not less than 110% of Fair Market Value on the date of
grant and the Option is exercisable for no more than five years from
the date of grant.
(f) Expiration of Incentive Stock Options. No Award of an
Incentive Stock Option may be made pursuant to this Plan after 2005.
(g) Right To Exercise. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) Right of Payment. Upon the exercise of a Stock Appreciation
Right, the Participant to whom it is granted has the right to receive
the excess, if any, of:
(1) The Fair Market Value of one share of Stock on the date
of exercise; over
(2) The grant price of the Stock Appreciation Right as
determined by the Committee, which shall not be less than the
Fair Market Value of one share of Stock on the date of grant in
the case of any SAR related to any Incentive Stock Option.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise,
methods of settlement, form of consideration payable in settlement,
and any other terms and conditions of any Stock Appreciation Right
shall be determined by the Committee at the time of the grant of the
Award and shall be reflected in the Award Agreement.
ARTICLE 8. PERFORMANCE SHARES
8.1 Grant of Performance Shares. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted t each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
8.2 Right To Payment. A grant of Performance Shares gives the Participant
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Shares are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. The Committee
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant, provided that the time period during which the
performance goals must be met shall, in all cases, exceed six months.
8.3 Other Terms. Performance Shares may be payable in cash, Stock, or other
property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 9. RESTRICTED STOCK AWARDS
9.1 Grant of Restricted Stock. The Committee is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Committee. All Awards of Restricted
Stock shall be evidenced by an Award Agreement.
9.2 Issuance And Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.
9.3 Forfeiture. Except as otherwise determined by the Committee at the time
of the grant of the Award or thereafter, upon termination of employment during
the applicable restriction period, Restricted Stock that is at that time subject
to restrictions shall be forfeited and reacquired by the Company, provided,
however, that the Committee may provide in any Award Agreement that restrictions
or forfeiture conditions relating to Restricted Stock will be waived in whole or
in part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part restrictions or
forfeiture conditions relating to Restricted Stock.
9.4 Certificates For Restricted Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical possession of the certificate until such time
as all applicable restrictions lapse.
ARTICLE 10. DIVIDEND EQUIVALENTS
10.1 Grant Of Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as may
be selected by the Committee. Dividend Equivalents shall entitle the Participant
to receive payments equal to dividends with respect to all or a portion of the
number of shares of Stock subject to an Option Award or SAR Award, as determined
by the Committee. The Committee may provide that Dividend Equivalents be paid or
distributed when accrued or be deemed to have been reinvested in additional
shares of Stock, or otherwise reinvested.
ARTICLE 11. OTHER STOCK-BASED AWARDS
11.1 Grant Of Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including without limitation shares
of Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Committee shall determine the terms
and conditions of such Awards.
ARTICLE 12. PROVISIONS APPLICABLE TO AWARDS
12.1 Stand-Alone, Tandem, And Substitute Awards. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
12.2 Exchange Provisions. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or another
Award (subject to Section 12.1), based on the terms and conditions the Committee
determines and communicates to the Participant at the time the offer is made.
12.3 Term Of Award. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant.
12.4 Form Of Payment For Awards. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Committee determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Committee.
12.5 Limits Of Transfer. No right or interest of a Participant in any Award
may be pledged, encumbered, or hypothecated to or in favor of any party other
than the Company or a Subsidiary, or shall be subject to any lien, obligation,
or liability of such Participant to any other party other than the Company or a
Subsidiary. Except as otherwise provided below, no Award shall be assignable or
transferable by a Participant other than by will or the laws of descent and
distribution or, except in the case of an Incentive Stock Option, pursuant to a
court order that would otherwise satisfy the requirements to be a domestic
relations order as defined in Section 414(p)(1)(B) of the Code, if the order
satisfies Section 414(p)(1)(A) of the Code notwithstanding that such an order
relates to the transfer of a stock option rather than an interest in an employee
benefit pension plan. In the Award Agreement for any Award other than an Award
that includes an Incentive Stock Option, the Committee may allow a Participant
to assign or otherwise transfer all or a portion of the rights represented by
the Award to specified individuals or classes of individuals, or to a trust
benefiting such individuals or classes of individuals, subject to such
restrictions, limitations, or conditions as the Committee deems to be
appropriate.
12.6 Beneficiaries. Notwithstanding Section 12.5, a Participant may, in the
manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If the Participant is married, a designation of a person other
than the Participant's spouse as his beneficiary with respect to more than 50
percent of the Participant's interest in the Award shall not be effective
without the written consent of the Participant's spouse. If no beneficiary has
been designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a Participant at any time provided the change or revocation is
filed with the Committee.
12.7 Stock Certificates. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with federal or state securities laws,
rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Committee may place legends on any Stock certificate to reference restrictions
applicable to the Stock.
12.8 Acceleration Upon A Change Of Control. If a Change of Control occurs,
all outstanding Options, Stock Appreciation Rights, and other Awards in the
nature of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse. To the extent that this
provision causes Incentive Stock Options to exceed the dollar limitation set
forth in Section 6.2(d), the excess Options shall be deemed to be Non-Qualified
Stock Options. Notwithstanding any provision in this Plan to the contrary, if a
Change of Control of the Company has occurred and the Participant's employment
is terminated for any reason except those "excepted causes" detailed below, the
Participant shall be entitled for a seven-month period following such
termination, to exercise all Options and other Awards that were exercisable as
of the date of such termination (taking into account the acceleration provision
of this Section 12.8). For this purpose, excepted cause shall mean termination
of employment due to (i) the death of the Participant, (ii) the disability of
the Participant, or (iii) cause (which shall deem to occur if the Participant
willfully engages in conduct that is demonstrably and materially injurious to
the Company, monetarily, or otherwise; and in making such determination, no act,
or failure to act, on the Participant's part shall be deemed "willful" unless
done, or omitted to be done, by the Participant in bad faith and without
reasonable belief that the act or omission was in the best interest of the
Company.
ARTICLE 13. CHANGES IN CAPITAL STRUCTURE
13.1 General. In the event a stock dividend is declared upon the Stock, the
shares of Stock then subject to each Award (and the number of shares subject
thereto) shall be increased proportionately without any change in the aggregate
purchase price therefor. In the event the Stock shall be changed into or
exchanged for a different number or class of shares of Stock or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, there shall be substituted for
each such share of Stock then subject to each Award (and for each share of Stock
then subject thereto) the number and class of shares of Stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award.
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION
14.1 Amendment, Modification and Termination. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan. However, without approval of the stockholders of the Company or
other conditions (as may be required by the Code, by the insider trading rules
of Section 16 of the 1934 Act, by any national securities exchange or system on
which the Stock is listed or reported, or by a regulatory body having
jurisdiction), no such termination, amendment, or modification may:
(a) Materially increase the total number of shares of Stock that
may be issued under the Plan, except as provided in Section 13.1;
(b) Materially modify the eligibility requirements for
participation in the Plan; or
(c) Materially increase the benefits accruing to Participants
under the Plan.
14.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant.
ARTICLE 15. GENERAL PROVISIONS
15.1 No Rights To Awards. No Participant or employee shall have any claim
to be ganted any Award under the Plan, and neither the Company nor the Committee
is obligated to treat Participants and employees uniformly.
15.2 No Stockholders Rights. No Award gives the Participant any of the
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
15.3 Withholding. The Company or any Subsidiary shall have the authority
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any taxable event arising as a result of this Plan. With respect
to withholding required upon any taxable event under the Plan, Participants may
elect, subject to the Committee's approval, to satisfy the withholding
requirement, in whole or in part, by having the Company or any Subsidiary
withhold shares of Stock having a Fair Market Value on the date of withholding
equal to the amount to be withheld for tax purposes in accordance with such
procedures as the Committee establishes. The Committee may, at the time any
Award is granted, require that any and all applicable tax withholding
requirements be satisfied by the withholding of shares of Stock as set forth
above.
15.4 No Right To Employment. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
15.5 Unfunded Status Of Awards. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
15.6 Indemnification. To the extent allowable under applicable law, each
member of the Committee or of the Board shall be indemnified and held harmless
by the Company from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such member in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action or failure to act under
the Plan and against and from any and all amounts paid by him or her in
satisfaction of judgment in such action, suit, or proceeding against him or her
provided he or she gives the Company an opportunity, at its own expense, to
handle and defend the same before he or she undertakes to handle and defend it
on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Bylaws or Restated Certificate of Incorporation, as
a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
15.7 Relationship To Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary.
15.8 Expenses. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
15.9 Titles And Headings. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
15.10 Fractional Shares. No fractional shares of stock shall be issued and
the Committee shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up.
15.11 Securities And Compliance. With respect to any person who is, on the
relevant date, obligated to file reports under Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
void to the extent permitted by law and voidable as deemed advisable by the
Committee.
15.12 Government And Other Regulations. The obligation of the Company to
make payment of awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by government agencies as
may be required. The Company shall be under no obligation to register under the
Securities Act of 1933, as amended (the "1933 Act"), any of the shares of Stock
paid under the Plan. If the shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
15.13 Governing Law. The Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of Arizona.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
The purpose of the CyCare Systems, Inc. Employee Stock Purchase Plan
(hereinafter called the "Plan"), is to provide employees of CyCare Systems,
Inc., a Delaware corporation , or any successor corporation, (hereinafter called
the "Company"), and its affiliated companies with an opportunity to acquire a
proprietary interest in the Company through the purchase of Common Stock of the
Company, with a par value of $.01 per share (the "stock"). It is the intention
of the Company to have the Plan qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code of 1986 (the "Code"). The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that Section
of the Code.
2. Definitions.
(a) "Base pay" means all compensation paid by the Company to the employee,
(before withholding or other deductions), including regular straight time
earnings plus payments for overtime, commissions, incentive compensation,
bonuses, and other special payments.
(b) "Employee" means any person, including an officer, who is customarily
employed for more than 20 hours per week and more than five months in a calendar
year by (1) the Company, or (2) any affiliated company, 50% or more of whose
voting shares are owned directly or indirectly by the Company.
3. Eligibility.
(a) Any employee as defined in Paragraph 2 who shall be employed by the
Company on the date his participation in the Plan is to become effective shall
be eligible to participate in the Plan, subject to the limitations imposed by
Section 423 (b) of the Code.
(b) Any provision of the Plan to the contrary notwithstanding, no employee
shall be granted an option:
(1) If, immediately after the grant, such employee would own shares,
and/or hold outstanding options to purchase stock, possessing 5% or more of the
total combined voting power or value of all classes of shares of the Company or
of any subsidiary of the Company, as defined by Section 424(f) of the Code,
taking into account in determining stock ownership, any stock owned by the
brothers, sisters, spouse, ancestors or descendants of such employee and stock
owned by corporations, partnerships, estates or trusts of which such employee is
a shareholder, partner or beneficiary, as the case may be, as required by
Section 424(d) of the Code; or
(2) Which permits his rights to purchase shares under all employee
stock purchase plans of the Company and its subsidiaries, as defined by Section
424(f) of the Code, to accrue at a rate which exceeds $25,000.00 determined by
the fair market value of the shares (determined at the time such option is
granted) for each calendar year in which such stock option is outstanding at any
time, all determined in the manner provided by Section 423 (b) (8) of the Code.
4. Offering Dates.
The Plan will be implemented by means of one or more offerings, each offering
being one year in length. The first offering shall commence on a date determined
by the Board, if a majority of the Directors then in office are ineligible to
participate in the Plan, or a committee of Directors not eligible to participate
in the Plan (the "Committee") designated by the Board to administer the Plan, on
which date the Board shall allocate stock to the Plan; provided, however, that
such date shall not be more than six months after the date on which stock of the
Company is first offered for sale to the public and further provided that in no
event shall the Plan become effective unless within twelve months of the date of
its adoption by the Board, it has been approved at a duly called meeting of the
stockholders of the Company. Subsequent offerings may be made by the Board at
one year intervals after the date on which the first offering commences, and any
such subsequent offering shall be one year in length as well.
On or prior to the date on which any offering commences, the Board shall
determine the number of shares allocated to the Plan which shall be available
for purchase under said offering. Any of such shares which are not purchased
under any such offering may be available for purchase in subsequent offerings if
the Board so determines.
5. Participation.
(a) An eligible employee may become a participant by completing an
authorization for a payroll deduction on the form provided by the Company and
filing it with the payroll office during the thirty day period before the date
the offering commences. An authorization shall become effective on the date that
it is filed with the payroll office.
(b) Payroll deductions for a participant shall commence on the date when
the authorization for a payroll deduction becomes effective and shall end on the
termination date of the offering to which such authorization is applicable
unless sooner terminated as provided in Paragraph 10.
(c) Participation in any offering under the Plan shall neither limit, nor
require, participation in any other offering except that no employee may have
more than one authorization for a payroll deduction in effect simultaneously.
6. Payroll deductions.
(a) At the time a participant files an authorization for a payroll deduction,
the participant shall elect to have deductions made from his pay on each payday
during the time he is a participant in an offering at a rate not to exceed 10%
of the base pay, as defined in Paragraph 2, which the participant is entitled to
receive on such payday.
(b) All payroll deductions made for a participant shall be credited to the
participant's account under the Plan. A participant may not make any separate
cash payment into such account.
(c) A participant may discontinue his participation in the Plan as provided
in Paragraph 10, but no other change can be made by a participant during an
offering.
7. Granting of Option.
(a) On the offering date following the date when a participant's
authorization for a payroll deduction becomes effective, he shall be granted an
option for as many full shares as he will be able to purchase with the payroll
deductions credited to his account during his participation in that offering.
(b) The option price of shares purchased with payroll deductions made for a
participant therein shall be the lower of:
(1) 85% of the fair market value of the stock on the date the option
is granted (which is the date on which the respective offering commences), or
(2) 85% of the fair market value of the stock on the date the option
is exercised (which is the date the respective offering ends), but in no event
shall the purchase price be less than the par value of the stock.
8. Exercise of Option.
(a) Unless a participant gives written notice to the company as hereinafter
provided, his option for the purchase of shares with payroll deductions made
during the applicable offering will be exercised automatically for him on the
date on which said offering ends, if the participant is an employee on that
date, for the purchase of the number of full shares which the accumulated
payroll deductions in his account at that time will purchase at the applicable
option price, subject to the provisions of Paragraph 12. The balance in the
account with interest thereon shall be paid to the participant.
(b) By written notice to the Company during the 60 day period preceding the
date on which an offering ends, a participant may elect, effective at the
termination of said offering, to:
(1) Withdraw all the accumulated payroll deductions in his or her
account on the date the offering ends, with interest thereon; or
(2) Exercise the option for a specified number of full shares less
than the number of full shares which the accumulated payroll deductions in this
account will purchase at the applicable option price and withdraw the balance of
the accumulated payroll deductions in the account at that time, with interest
thereon.
9. Delivery.
As promptly as practicable after the termination of each offering, the Company
will deliver to each participant, as appropriate, either the shares purchased
upon the exercise of the option together with a cash payment equal to the
balance credited to his account during such offering which was not used for the
purchase of shares, with interest thereon, or a cash payment equal to the total
of the payroll deductions credited to his account during such offering, with
interest thereon.
10. Withdrawal.
(a) A participant may withdraw payroll deductions credited to his account
under the Plan at any time by giving written notice to the Company. All of the
participant's payroll deductions credited to his account, with interest thereon,
will be paid to him promptly after receipt of his notice of withdrawal, and no
further payroll deductions will be made from his pay except in accordance with
an authorization for a new payroll deduction filed in accordance with Paragraph
5, for subsequent years.
(b) A participant's withdrawal will not have any effect upon his
eligibility to participate in a succeeding offering or in any similar plan which
may hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any reason,
including retirement, the payroll deductions credited to his account with
interest thereon will be returned to him, or, in the case of his death, to the
person or persons entitled thereto under Paragraph 14.
11. Interest.
In any situation where the Plan specifically provides for the payment of
interest on a participant's payroll deductions, such interest paid shall be
simple interest, calculated at the rate of 6% per annum, computed on the balance
in the participant's account at the end of each month.
12. Stock.
(a) The shares to be sold to participants under the Plan may, at the election
of the Company, be either treasury shares or shares originally issued for such
purpose. The maximum number of shares which shall be made available for sale
under the Plan during the offerings under the Plan shall be 1,320,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Paragraph 17. If the total number of shares for which options are to be
granted on any date in accordance with Paragraph 7 exceeds the number of shares
then available under the Plan (after deduction of all shares for which options
have been exercised or are then outstanding), the Company shall make a pro rata
allocation of the shares available in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable.
(b) The participant will have no interest in shares covered by his option
until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be registered
in the name of the participant, or, if the participant so directs, by written
notice to the Company prior to the termination date of the pertinent offering,
in the names of the participant and one such other person as may be designated
by the participant, as joint tenants with rights of survivorship, to the extent
permitted by applicable law.
13. Administration of the Plan.
The Plan shall be administered so as to ensure that all participants have the
same rights and privileges as are provided by Section 423(b)(5) of the Code.
Members of the Committee may be appointed from time to time by the Board and
shall be subject to removal by the Board. The decision of a majority in number
of the members of the Committee in office at the time shall be deemed to be the
decision of the Committee.
The Board or the Committee, from time to time, may approve the forms of any
documents or writings provided for in the Plan, and may adopt, amend and rescind
rules and regulations not inconsistent with the Plan for carrying out the Plan
and may construe the Plan. The Board or the Committee may delegate the
responsibility for maintaining all or a portion of the records pertaining to
participants' accounts to persons not affiliated with the Participating
Companies. All expenses of administering the Plan shall be paid by the
Participating Companies.
14. Designation of Beneficiary.
A participant may file a written designation of a beneficiary who is to receive
any shares and cash to the participant's credit under the Plan in the event of
such participant's death prior to delivery to him of such shares and cash. Such
designation of beneficiary may be changed by the participant at any time by
written notice. Upon the death of a participant and upon receipt by the Company
of proof of the identity and existence at the participant's death of a
beneficiary validly designated by him under the Plan, the Company shall deliver
such shares and cash to such beneficiary. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company) the Company, in its discretion, may deliver such
shares and cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent, or relative is known to the
Company, then to such other person as the Company may designate. No designated
beneficiary shall prior to the death of the participant by whom he has been
designated, acquire any interest in the shares or cash credited to the
participant under the Plan.
15. Transferability.
Neither payroll deductions credited to a participant's account nor any rights
with regard to the exercise of an option or to receive shares under the Plan may
be assigned, transferred, pledged, or otherwise disposed of in any way by the
participant. Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Paragraph 10.
16. Changes in Capitalization.
If any option under this Plan is exercised subsequent to any stock dividend,
split-up, spin-off, recapitalization, merger, consolidation, exchange of shares,
or the like, occurring after such option was granted, as a result of which
shares of any class shall be issued in respect of the outstanding shares, or
shares shall be changed into the same class or classes, the number of shares to
which such option shall be applicable and the option price for such shares shall
be appropriately adjusted by the Company.
17. Amendment or termination.
The Board of Directors of the Company may at any time terminate or amend the
Plan, provided however, that amendments to the Plan relating to the amount,
price, or timing of grants shall not be made more than once in any six month
period, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.
Notwithstanding the foregoing, no such termination can affect options previously
granted, nor may an amendment make any change in any option theretofore granted
which would adversely affect the rights of any participant nor may an amendment
be made without prior approval of the shareholders of the Company if such
amendment would materially increase the benefits accruing to participants under
the Plan or materially modify the requirements as to eligibility for
participation in the Plan. Without limiting the generality of the foregoing, an
amendment may not be made without prior stockholder approval if it would:
(a) Require the sale of more shares than are authorized under Paragraph 12
of the Plan; or
(b) Permit payroll deductions at a rate in excess of 10% of a participant's
base pay; or
(c) Decrease the purchase price of the stock for any purchase period below
the lower of 85% of the fair market value of the stock on te date the option is
granted or 85% of the fair market value of the stock on the date the option is
exercised.
The Plan shall terminate in any event on such date as all of the shares
allocated to the Plan shall have been purchased pursuant to the provisions of
the Plan.
18. Notices.
All notices or other communications by a participant to the Company under or in
connection with the Plan shall be deemed to have been duly given when received
by the Treasurer of the Company, or when received in the form specified by the
Company at the location, or by the person, designated by the Company for the
receipt thereof.
19.Miscellaneous.
Except as otherwise expressly provided herein, any authorization, election, or
notice of document under the Plan from an eligible employee or participant shall
be delivered to his employer corporation and, subject to any limitations
specified in the Plan, shall be effective when so delivered.
The term "business day" shall mean any day other than Saturday, Sunday or
a legal holiday in Iowa.
The masculine pronoun shall include the feminine.
The Plan, and the Company's obligation to sell and deliver shares of Stock
hereunder, shall be subject to all applicable federal, state and foreign laws,
rules and regulations, and to such approval by any regulatory or governmental
agency as may, in the opinion of counsel for the Company, be required.
Exhibit C
CYCARE SYSTEMS, INC.
DIRECTOR STOCK PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan. CyCare Systems, Inc., a Delaware
corporation, hereby establishes the CyCare Systems, Inc. Director Stock Plan
(the "Plan") for the benefit of its Non-employee Directors. The Plan sets forth
the terms of an initial, one-time grant of Non-Qualified Stock Options and
subsequent annual grants of Restricted Stock to Non-employee Directors. All such
grants are subject to the terms and provisions set forth in this Plan.
1.2 Purpose of the Plan. The purpose of the Plan is to encourage
ownership in the Company by Non-employee Directors, to strengthen the ability of
the Company to attract and retain the services of experienced and knowledgeable
individuals as Non-employee Directors of the Company, and to provide
Non-employee Directors with a further incentive to work for the best interests
of the Company and its stockholders.
1.3 Effective Date. The Plan is effective as of October 18, 1994 (the
"Effective Date"). Within one year after the Effective Date, the Plan shall be
submitted to the stockholders of the Company for their approval. The Plan will
be deemed to be approved by the stockholders if it receives the affirmative vote
of the holders of a majority of the shares of stock of the Company present, or
represented, and entitled to vote at a meeting duly held in accordance with the
applicable provisions of the Delaware Law and the Company's Bylaws and Restated
Certificate of Incorporation. Any Awards granted under the Plan prior to
stockholder approval are effective when made, but no Award may be exercised or
settled and no restrictions relating to any Award may lapse before stockholder
approval. If the stockholders fail to approve the Plan, any Award previously
made shall be automatically canceled without any further act.
1.4 Duration of the Plan. The Plan shall remain in effect until such
time as the Plan is terminated by the Board of Directors pursuant to Article 9
or Section 10.4.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1. Definitions. For purposes of the Plan, the following terms will
have the meanings set forth below:
(a) "Award" means a grant of Non-Qualified Stock Options or
Restricted Stock under the Plan.
(b) "Board" or "Board of Directors" means the Board of
Directors of the Company, and includes any committee of the Board of
Directors designated by the Board to administer this Plan.
(c) "Change in Control" of the Company means and includes each
of the following:
(1) a change of control of the Company of a nature
that would be required to be reported in response to Item 6(e)
of Schedule 14A of the Exchange Act regardless of whether the
Company is subject to such reporting requirements;
(2) a change of control of the Company through a
transaction or series of transactions, such that any person
(as that term is used in Section 13 and 14(d)(2) of the
Exchange Act), excluding affiliates of the Company as of the
Effective Date, is or becomes the beneficial owner (as that
term is used in Section 13(d) of the Exchange Act), directly
or indirectly, of securities of the Company representing 35%
or more of the combined voting power of the Company's then
outstanding securities;
(3) any consolidation or liquidation of the Company
in which the Company is not the continuing or surviving
corporation or pursuant to which Shares would be con- verted
into cash, securities, or other property, other than a merger
of the Company in which the holders of the Shares immediately
before the merger have the same proportionate ownership of
Common Stock of the surviving corporation immediately after
the merger;
(4) the stockholders of the Company approve any plan
or proposal for the liquidation or dissolution of the Company;
or
(5) substantially all of the assets of the Company
are sold or otherwise transferred to parties that are not
within a "controlled group of corporations" (as defined in
Section 1563 of the Code) in which the Company is a member.
The foregoing events shall not be deemed to be a Change in
Control if the transaction or transactions causing such change
shall have been approved by the affirmative vote of at least a
majority of the members of the Board in office as of the
Effective Date ("Incumbents"), those serving on the Board
pursuant to nomination or appointment thereto by a majority of
Incumbents ("Successors"), and those serving on the Board
pursuant to nomination or appointment thereto by a majority of
a Board composed of Incumbents and/or Successors.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" means the committee appointed by the Board to
administer the Plan.
(f) "Company" means CyCare Systems, Inc., a Delaware
corporation, or any successor as provided in Section 10.3.
(g) "Director" means any individual who is a member of the
Board of Directors of the Company.
(h) "Disability" means a permanent and total disability,
within the meaning of Section 22(e)(3) of the Code. To the extent
permitted pursuant to Section 16 of the Exchange Act, Disability shall
be determined by the Board in good faith, upon receipt of sufficient
competent medical advice from one or more individuals, selected by the
Board, who are qualified to give professional medical advice.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor provision.
(j) "Fair Market Value" means the average of the highest and
lowest quoted selling prices for Shares on the relevant date, or (if
there were no sales on such date) the average of the highest and lowest
quoted selling prices on the immediately preceding date on which such
sales occurred, as reported in The Wall Street Journal or a similar
publication selected by the Committee.
(k) "Grant Date" means July 1, 1995 and each anniversary of
that date.
(l) "Non-employee Director" means any individual who is a
member of the Board of Directors of the Company, but who is not
otherwise an employee of the Company.
(m) "Non-Qualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6, that is not intended to be an
incentive stock option qualifying under Section 422 of the Code.
(n) "Option" means a Non-Qualified Stock Option granted under
the Plan.
(o) "Participant" means a Non-employee Director of the Company
who has been granted an Award under the Plan.
(p) "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some way, and the
Shares are subject to a substantial risk of forfeiture, as provided in
Article 7.
(q) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and
shall include a "group," as that term is defined in Section 13(d).
(r) "Restricted Stock" means an Award granted to a
Non-employee Director pursuant to Article 7 that is subject to a Period
of Restriction.
(s) "Shares" means the shares of the Company's Common Stock,
$.01 par value.
2.2 Gender and Number. Except as indicated by the context, any
masculine term also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
2.3. Severability of Provisions. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the plan
administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the plan administrators, and the
remaining provisions of the Plan or actions by plan administrators shall be
construed and enforced as if the invalid provision or action had not been
included or undertaken.
2.4. Incorporation by Reference. In the event this Plan does not
include a provision required by Rule 16b-3 to be stated herein, such provision
(other than one relating to eligibility requirements or the price and amount of
Awards) shall be deemed automatically to be incorporated by reference herein,
insofar as Participants subject to Section 16 of the Exchange Act are concerned.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan will be administered by the Committee,
subject to the restrictions set forth in the Plan.
3.2 Administration by the Committee. The Committee has the full power,
discretion, and authority to interpret and administer the Plan in a manner that
is consistent with the Plan's provisions. However, the Committee does not have
the power to (i) determine Plan eligibility, or to determine the number, the
price, the vesting period, or the timing of Awards to be made under the Plan to
any Participant or (ii) take any action that would result in the Awards not
being treated as "formula awards" within the meaning of Rule 16b-3(c)(ii) or any
successor provision, promulgated pursuant to the Exchange Act.
3.3 Decisions Binding. The Committee's determinations and decisions
under the Plan, and all related orders or resolutions of the Board shall be
final, conclusive, and binding on all persons, including the Company, its
stockholders, employees, Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. The total number of Shares available for grant
under the Plan may not exceed 50,000, subject to adjustment as provided in
Section 4.3. The Shares issued pursuant to the exercise of Options granted under
the Plan and the Shares issued as Restricted Stock may be authorized and
unissued Shares or Shares reacquired by the Company, as determined by the
Committee.
4.2 Lapsed Awards. If any Option or Share of Restricted Stock granted
under the Plan terminates, expires, or lapses for any reason, any Shares subject
to purchase pursuant to such Option and any such Shares of Restricted Stock
again will be available for grant under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, the number and/or type of Shares
subject to any outstanding Award, and the Option exercise price per Share under
any outstanding Option will be automatically adjusted so that the proportionate
interests of the Participants will be maintained as before the occurrence of
such event.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. Eligibility. Eligibility to participate in the Plan is limited to
Non-employee Directors.
5.2 Actual Participation. All eligible Non-employee Directors will
receive a grant of Options pursuant to Article 6 and annual grants of Restricted
Stock pursuant to Article 7.
ARTICLE 6. ONE-TIME GRANT OF OPTIONS
6.1. One-Time Grant of Options. Each individual who is a Non-employee
Director on October 18, 1994 will be granted Options on that date, the exercise
of which will entitle the Non-employee Director to purchase 2,500 Shares. The
specific terms of the Options are subject to the provisions of this Article 6
and the Option Agreement executed pursuant to Section 6.2.
6.2. Option Agreement. The grant of Options will be evidenced by an
Option Agreement that will not include any terms or conditions that are
inconsistent with the terms and conditions of this Plan.
6.3 Option Exercise Price Per Share. The Option exercise price per
Share under any outstanding Option granted pursuant to this Article 6 shall be
$12.375 (the "Exercise Price").
6.4. Duration of Options. Each Option granted to a Participant under
this Article 6 shall expire on October 18, 1999, the fifth (5th) anniversary
date of its grant, unless the Option is earlier terminated, forfeited, or
surrendered pursuant to a provision of this Plan.
6.5. Vesting of Options Subject to Exercise. Subject to Section 1.3,
the Options granted to the Participants under this Article 6 shall vest and
become subject to exercise during the four-year period (the "Exercise Period")
beginning on the Effective Date and ending on October 18, 1998; provided,
however, that only one-quarter of the total number of Options granted to a
Participant pursuant to this Article 6 shall vest during each of the four
one-year periods during the Exercise Period that begin on the Effective Date and
each subsequent October 18 thereafter until October 18, 1998.
6.6. Exercise or Disposition of Options. Participants shall be entitled
to exercise any Option that has vested at any time within the period beginning
with the Effective Date and ending five (5) years after the Effective Date;
provided, however, that the disposition by a Participant of any Shares acquired
pursuant to the exercise of an Option shall occur only after the end of the six
(6) month period beginning on the date that Company's stockholders approve the
Plan.
6.7. Payment. Options are exercised by delivering a written notice of
exercise to the Secretary of the Company, setting forth the number of Options to
be exercised and accompanied by a payment equivalent to the product of the
number of Options exercised multiplied by the Exercise Price (the "Total
Exercise Price"). The Total Exercise Price is payable:
(a) in cash or its equivalent;
(b) by tendering previously acquired Shares having a Fair
Market Value at the time of exercise equal to the Total Exercise Price;
(c) by directing the Company to withhold from the shares of
Stock that would otherwise be issued upon exercise of the Options that
number of Shares having a Fair Market Value on the exercise date equal
to the Total Exercise Price; or
(d) by a combination of (a), (b), and (c).
A Participant may elect to use the payment method described in clause
(c) of this Section 6.7 only with the consent of, and at the time and
in the manner prescribed by, the Committee. As soon as practicable
after receipt of a written notification of exercise and full payment,
the Company shall deliver to the Participant, in the Participant's
name, Share certificates in an appropriate amount based upon the number
of Shares purchased pursuant to the exercise of the Options.
6.8. Restrictions on Share Transferability. To the extent necessary to
ensure that Options granted under this Article 6 comply with applicable law, the
Board shall impose restrictions on the transferability of any Shares acquired
pursuant to the exercise of an Option under this Article 6, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any Stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.9. Termination of Service on Board of Directors Due to Death or
Disability. If a Participant's service on the Board is terminated by reason of
death or Disability, any outstanding Options held by the Participant that are
not fully vested are immediately forfeited and returned to the Company. Any
outstanding options held by the Participant that are fully vested will remain
fully vested and subject to exercise.
To the extent an Option is fully vested and exercisable as of the date
of death or Disability, it will remain exercisable for sixty (60) days after the
date of death or Disability by the Participant or such person or persons as
shall have been named as the Participant's legal representative or beneficiary,
or by such persons as shall have acquired the Participant's Options by will or
by the laws of descent and distribution. Any Option that is fully vested but not
exercised during this sixty (60) day period after death or Disability will be
immediately forfeited to the Company.
6.10. Termination of Service on Board of Directors for Other Reasons.
If the Participant's service on the Board is terminated for any reason other
than for death or Disability, any outstanding Options held by the Participant
that are not fully vested as of the date of termination are immediately
forfeited to the Company. To the extent an Option is fully vested and
exercisable as of such date, it will remain exercisable for sixty (60) days
after the date the Participant's service on the Board terminates. Any Option
that is fully vested but not exercised during this sixty (60) day period after
termination of service will be immediately forfeited to the Company.
6.11. Limitations on the Transferability of Options. No Option granted
under this Article 6 may be sold, transferred, pledged, assigned, or otherwise
alienated, other than by will, the laws of descent and distribution, or under
any other circumstances allowed by the Committee that would not violate the
transferability restrictions contained in Rule 16b-3(a)(2) or any successor
provision.
ARTICLE 7. ANNUAL RESTRICTED STOCK GRANTS
7.1. Initial Grant of Restricted Stock. Each individual who is a
Non-employee Director on July 1, 1995 will be granted One Thousand (1,000)
Shares of Restricted Stock on that date. The specific terms of the Restricted
Stock grant are subject to the provisions of this Article 7 and the Restricted
Stock Agreement executed pursuant to Section 7.3.
7.2. Annual Grant of Restricted Stock. Each individual who is a
Non-employee Director on the relevant Grant Date after July 1, 1995 will be
granted One Thousand (1,000) Shares of Restricted Stock on such Grant Date,
subject to the limitation on the number of Shares that may be awarded under the
Plan.
7.3. Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that will not include any terms or
conditions that are inconsistent with the terms and conditions of the Plan.
7.4. Nontransferability of Restricted Stock. The Shares of Restricted
Stock granted may not be sold, transferred, pledged, assigned, or otherwise
alienated until the end of the applicable Period of Restriction.
7.5. Period of Restriction. The Period of Restriction for each grant of
Shares of Restricted Stock awarded pursuant to this Article 7 shall expire at
the end of the one (1) year period following the applicable Grant Date.
7.6. Certificate Legend. Any certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented
by this certificate, whether voluntary, involuntary, or by
operation of law, is subject to certain restrictions on
transfer as set forth in the CyCare Systems, Inc. Director
Stock Plan, and the corresponding Restricted Stock Agreement.
A copy of the Plan and the Restricted Stock Agreement may be
obtained from the Secretary of CyCare Systems, Inc."
7.7. Removal of Restrictions. Except as otherwise provided in the Plan,
Shares of Restricted Stock covered by each Restricted Stock grant made under the
Plan shall become freely transferable by the Non-employee Director after the
last day of the Period of Restriction. Once the Shares are released from the
restrictions, the Non-employee Director shall be entitled to have the legend
required by Section 7.6 removed from his or her Share certificates. All rights
with respect to the Restricted Stock granted to a Non-employee Director under
the Plan shall be available during his or her lifetime only to such Non-employee
Director.
7.8. Voting Rights. During the Period of Restriction, Non-employee
Directors holding Shares of Restricted Stock granted hereunder will have voting
rights with respect to those Shares.
7.9. Dividends and Other Distributions. During the Period of
Restriction, cash and stock dividends on Shares of Restricted Stock may be
either currently paid or withheld by the Company for the Participant's account.
At the discretion of the Committee, interest may be paid on the amount of cash
dividends withheld, including cash dividends on stock dividends, at a rate and
subject to such terms as will be determined by the Committee.
7.10. Termination of Service on Board. If a Participant's service on
the Board terminates for any reason before the end of a Period of Restriction
relating to any grant of Restricted Stock, the Restricted Stock that is subject
to a Period of Restriction shall be forfeited to the Company and will be again
available for grant under the Plan.
ARTICLE 8. CHANGE IN CONTROL
In the event of a Change in Control of the Company, all Awards granted
under the Plan that are still outstanding and not yet vested or are subject to
restrictions, shall become immediately one hundred percent (100%) vested in each
Participant or shall be free of any restrictions, as of the first date that a
Change in Control occurs, and shall be exercisable for the remaining duration of
the Award. All Options that are exercisable as of the effective date of the
Change in Control will remain exercisable for the remaining duration of the
Options.
ARTICLE 9. AMENDMENT, MODIFICATION, AND TERMINATION
9.1 Amendment, Modification, and Termination. Subject to the terms set
forth in this Section 9.1, the Committee may terminate, amend, or modify the
Plan at any time; provided, however, that stockholder approval is required for
any Plan amendment that would materially increase the benefits to Participants
or the number of securities that may be issued, or materially modify the
eligibility requirements in the Plan. Further, Plan provisions relating to the
amount, price, and timing of securities to be awarded under the Plan may not be
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
9.2. Awards Previously Granted. Unless required by law, no termination,
amendment, or modification of the Plan shall in any manner adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant holding the Award.
ARTICLE 10. MISCELLANEOUS
10.1. Indemnification. Each individual who is or shall have been a
member of the Board or the Committee shall be indemnified and held harmless by
the Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under this Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to assume and defend the same before he or she undertakes to
defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such individuals may be entitled under
the Company's Restated Certificate of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
10.2. Beneficiary Designation. Each Participant under the Plan may name
any beneficiary or beneficiaries to whom any benefit under the Plan is to be
paid in the event of his or her death. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his or her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
10.3. Successors. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
10.4. Requirements of Law. The granting of Awards under the Plan shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required. Notwithstanding any other provision of the Plan, the Committee may, in
its sole discretion, terminate, amend, or modify the Plan in any way necessary
to comply with the applicable requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission as interpreted pursuant to no-action letters
and interpretive releases.
10.5. Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
EMPLOYMENT AGREEMENT
by and between
CYCARE SYSTEMS, INC.
and
MARK R. SCHONAU
November 3, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DUTIES AND TERM..............................-1-
1.1 Employment.................................................-1-
1.2 Position and Responsibilities..............................-1-
1.3 Term.......................................................-1-
1.4 Location...................................................-2-
ARTICLE II
COMPENSATION.................................-2-
2.1 Base Salary................................................-2-
2.2 Bonus Payments.............................................-2-
2.3 Stock Options..............................................-2-
2.4 Additional Benefits........................................-3-
ARTICLE III
TERMINATION OF EMPLOYMENT....................-4-
3.1 Death or Retirement of Executive...........................-4-
3.2 By Executive...............................................-4-
3.3 By Company.................................................-4-
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT............-4-
4.1 Upon Termination for Death or Disability...................-5-
4.2 Upon Termination by Company for Cause or by
Executive Without Good Reason..............................-5-
4.3 Upon Termination by the Company Without Cause or
by Executive for Good Reason...............................-6-
ARTICLE V
RESTRICTIVE COVENANTS........................-7-
5.1 Confidentiality............................................-7-
5.2 Competition................................................-8-
5.3 Non-Disparagement..........................................-9-
5.4 Remedies..................................................-10-
-i-
<PAGE>
ARTICLE VI
MISCELLANEOUS...............................-10-
6.1 Definitions...............................................-10-
6.2 Key Man Insurance.........................................-13-
6.3 Mitigation of Damages; No Set-Off; Dispute
Resolution................................................-13-
6.4 Successors; Binding Agreement.............................-14-
6.5 Modification; No Waiver...................................-14-
6.6 Severability..............................................-15-
6.7 Notices...................................................-15-
6.8 Assignment................................................-15-
6.9 Entire Understanding......................................-15-
6.10 Executive's Representations...............................-15-
6.11 Liability of Company with Respect to
Insurance Policy..........................................-16-
6.12 Governing Law.............................................-16-
EXHIBIT A
DISPUTE RESOLUTION PROCEDURES...............-17-
-ii-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of
November 3, 1995, by and between CYCARE SYSTEMS, INC., a Delaware corporation
(the "Company"), and MARK R. SCHONAU ("Executive"). This Agreement shall
supersede and replace in its entirety the Employment Agreement between Company
and Executive dated August 1, 1994.
ARTICLE I
DUTIES AND TERM
1.1 Employment. In consideration of their mutual covenants and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
is hereby acknowledged, the Company agrees to hire Executive, and Executive
agrees to remain in the employ of the Company, upon the terms and conditions
herein provided.
1.2 Position and Responsibilities.
(a) Executive shall serve as Chief Financial Officer,
Secretary and Treasurer of the Company (or in a capacity and with a title of at
least substantially equivalent quality) reporting directly to the Chief
Executive Officer of the Company. Executive agrees to perform services not
inconsistent with his position as shall from time to time be assigned to him by
the Chief Executive Officer.
(b) Executive further agrees to serve, if elected, as a
director of the Company and as an officer or director of any subsidiary or
affiliate of the Company.
(c) During the period of his employment hereunder, Executive
shall devote substantially all of his business time, attention, skill and
efforts to the faithful performance of his duties hereunder.
1.3 Term. The term of Executive's employment under this Agreement shall
commence on the date first above written and shall continue, unless sooner
terminated, until October 31, 1997; provided, however, that commencing on May 1,
1996 and on each subsequent day thereafter, the Executive's term of employment
shall automatically be extended without further action by the Company or
Executive for the eighteen (18) month period commencing on each such day. The
initial term of this Agreement and the cumulative extensions of the term of this
Agreement are subject to the terms of Article III and IV hereof.
<PAGE>
1.4 Location. During the period of his employment under this Agreement,
Executive shall not be required, except with his prior written consent, to
relocate his principal place of employment outside Maricopa County, Arizona.
Required travel on the Company's business shall not be deemed a relocation so
long as Executive is not required to provide his services hereunder outside of
Maricopa County, Arizona, for more than thirty (30%) percent of his working days
during any consecutive six (6) month period.
ARTICLE II
COMPENSATION
For all services rendered by Executive in any capacity during his
employment under this Agreement, including, without limitation, services as a
director, officer or member of any committee of the Board of the Company or of
the board of directors of any subsidiary or affiliate of the Company, the
Company shall compensate Executive as follows:
2.1 Base Salary. The Company shall pay to Executive an annual base
salary of not less that $154,000 (the "Base Salary") during the term hereof;
provided, however, that in the event the Company institutes a salary reduction
program which affects all exempt employees (as defined by standard Company
policies in compliance with the Fair Labor Standards Act) by the same
percentage, then Executive's Base Salary may be reduced by such percentage (and
the term "Base Salary" as used in this Agreement shall refer to Base Salary as
so adjusted). Executive's Base Salary shall be paid in equal semi-monthly
installments. The Base Salary shall be reviewed annually by the Board or a
committee designated by the Board and the Board or such committee may, in its
discretion, increase the Base Salary.
2.2 Bonus Payments. During the period of Executive's employment under
this Agreement, Executive shall be entitled to bonus payments, if any shall be
due, pursuant to the executive bonus plan which has been established by
resolution of the Board for each fiscal year. The Company shall use all
reasonable efforts to cause the Board or a committee thereof to establish in
each fiscal year during the term hereof an executive bonus plan. Any bonus under
an executive bonus plan is referred to herein as the "Annual Incentive Bonus".
2.3 Stock Options. The Company shall use all reasonable efforts to
establish and maintain one or more stock option plans in which Executive shall
be entitled to participate to the same extent as other Senior Executives (as
such term is defined in Section 6.1 hereof). The terms and conditions of such
plan(s) shall be determined and administered by the Board or a committee
thereof.
-2-
<PAGE>
2.4 Additional Benefits. Executive shall be entitled to participate in
all employee benefit and welfare programs, plans and arrangements (including,
without limitation, pension, profit-sharing, supplemental pension and other
retirement plans, insurance, hospitalization, medical and group disability
benefits, travel or accident insurance plans) and to receive fringe benefits,
such as dues and fees of professional organizations and associations, which are
from time to time available to the Company's executive personnel; provided,
however, there shall be no duplication of termination or severance benefits, and
to the extent that such benefits are specifically provided by the Company to
Executive under other provisions of this Agreement, the benefits available under
the foregoing plans and programs shall be reduced by any benefit amounts paid
under such other provisions. Executive shall during the period of his employment
hereunder continue to be provided with benefits at a level which shall in no
event be less in any material respect than the benefits made available to
Executive by the Company as of the date of this Agreement. Notwithstanding the
foregoing, the Company may terminate or reduce benefits under any benefit plans
and programs to the extent such reductions apply uniformly to all Senior
Executives entitled to participate therein, and Executive's benefits shall be
reduced or terminated accordingly. Specifically, without limitation, Executive
shall receive the following benefits:
(a) Death Benefit. The Company shall maintain a $1,000,000
insurance policy on Executive's life through a split-dollar arrangement.
Executive shall designate the beneficiary of such policy.
(b) Short-Term Disability Benefits. In the event of
Executive's failure substantially to perform his duties hereunder on a full-time
basis for a period not exceeding 180 consecutive days or for periods aggregating
not more than 180 days during any twelve-month period as a result of incapacity
due to physical or mental illness, the Company shall continue to pay the Base
Salary to Executive during the period of such incapacity, but only in the
amounts and to the extent that disability benefits payable to Executive under
Company-sponsored insurance policies are less than Executive's Base Salary.
(c) Relocation Expenses. In the event Executive's principal
place of employment is relocated by mutual consent of the parties outside
Maricopa County, Arizona, the Company shall reimburse Executive for all usual
relocation expenses incurred by Executive and his household in moving to the new
location, including, without limitation, moving expenses and rental payments for
temporary living quarters in the area of relocation for a period not to exceed
six months.
(d) Reimbursement of Business Expenses. The Company shall, in
accordance with standard Company policies, pay, or reimburse Executive for, all
reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement.
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(e) Vacations. Executive shall be entitled to the number of
business days, excluding Company holidays, of paid vacation during each year of
employment hereunder in accordance with the terms of the Company's employee
handbook. Executive may accrue and carry forward unused vacation days from any
particular year of his employment under this Agreement to the next.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 Death or Retirement of Executive. Executive's employment under this
Agreement shall automatically terminate upon the death or Retirement (as defined
in Section 6.1) of Executive.
3.2 By Executive. Executive shall be entitled to terminate his
employment under this Agreement by giving Notice of Termination (as defined in
Section 6.1) to the Company:
(a) for Good Reason (as defined in Section 6.1); and
(b) at any time without Good Reason.
3.3 By Company. The Company shall be entitled to terminate Executive's
employment under this Agreement by giving Notice of Termination to Executive:
(a) in the event of Executive's Total Disability (as defined
in Section 6.1);
(b) for Cause (as defined in Section 6.1); and
(c) at any time without Cause.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
If Executive's employment hereunder is terminated in accordance with
the provisions of Article III hereof, except for any other rights or benefits
specifically provided for herein following his period of employment, the Company
shall be obligated to provide compensation and benefits to Executive only as
follows, subject to the provisions of Section 5.4 hereof:
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4.1 Upon Termination for Death or Disability. If Executive's employment
hereunder is terminated by reason of his death or Total Disability, the Company
shall:
(a) pay Executive (or his estate) or beneficiaries any Base
Salary which has accrued but not been paid as of the termination date (the
"Accrued Base Salary");
(b) pay Executive (or his estate) or beneficiaries for unused
vacation days accrued as of the termination date in an amount equal to his Base
Salary multiplied by a fraction the numerator of which is the number of accrued
unused vacation days and the denominator of which is 360 (the "Accrued Vacation
Payment");
(c) reimburse Executive (or his estate) or beneficiaries for
expenses incurred by him prior to the date of termination which are subject to
reimbursement pursuant to this Agreement (the "Accrued Reimbursable Expenses");
(d) provide to Executive (or his estate) or beneficiaries any
accrued and vested benefits required to be provided by the terms of any
Company-sponsored benefit plans or programs (the "Accrued Benefits"), together
with any benefits required to be paid or provided in the event of Executive's
death or Total Disability under applicable law;
(e) pay Executive (or his estate) or beneficiaries any Annual
Incentive Bonus with respect to a prior fiscal year which has accrued but has
not been paid; and in addition,
(f) Executive (or his estate) or beneficiaries shall have the
right to exercise all vested unexercised stock options and warrants outstanding
at the termination date in accordance with terms of the plans and agreements
pursuant to which such options or warrants were issued.
4.2 Upon Termination by Company for Cause or by Executive Without Good
Reason. If Executive's employment is terminated by the Company for Cause, or if
Executive terminates his employment with the Company other than (x) upon
Executive's death or Total Disability or (y) for Good Reason, the Company shall:
(a) pay Executive the Accrued Base Salary;
(b) pay Executive the Accrued Vacation Payment;
(c) pay Executive the Accrued Reimbursable Expenses;
(d) pay Executive the Accrued Benefits, together with any
benefits required to be paid or provided under applicable law;
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(e) pay Executive any accrued Annual Incentive Bonus with
respect to a prior year which has accrued but has not been paid; and in addition
(f) Executive shall have the right to exercise vested options
and warrants in accordance with Section 4.1(f).
4.3 Upon Termination by the Company Without Cause or by Executive for
Good Reason. If Executive's employment is terminated by the Company without
Cause or by Executive for Good Reason, the Company shall:
(a) pay Executive the Accrued Base Salary;
(b) pay Executive the Accrued Vacation Payment;
(c) pay Executive the Accrued Reimbursable Expenses;
(d) pay Executive the Accrued Benefits, together with any
benefits required to be paid or provided under applicable
law;
(e) pay Executive the Accrued Annual Bonus Payments;
(f) pay Executive commencing on the thirtieth day following
the termination date twelve (12) monthly payments equal to one-twelfth of the
sum of (1) Executive's Base Salary in effect immediately prior to the time such
termination occurs, plus (2) the average of the Annual Incentive Bonuses paid to
Executive for the two (2) fiscal years immediately preceding the fiscal year in
which the termination occurs and then six (6) monthly payments equal to
one-twelfth of the Executive's Base Salary in effect immediately prior to the
time such termination occurs; provided, however, should Executive attain
alternative employment during the last six (6) months of the eighteen (18) month
payment period, the Company's obligations under this Section 4.3(f) will be
reduced by the amount of Executive's compensation from his new employer during
this six (6) month period. For example, if Executive were entitled to receive
$18,000 per month for twelve (12) months and $12,800 per month for six (6)
months under this Section 4.3(f), and seven (7) months following his termination
date he finds alternative employment that pays him $15,000 per month, the
Company would be obligated to pay Executive twelve (12) monthly payments of
$18,000 and no monthly payments for the final six (6) month period.
(g) maintain in full force and effect, for Executive's and his
eligible beneficiaries' continued benefit, until the first to occur of (x) his
attainment of alternative employment or (y) eighteen (18) months following the
termination date of his employment hereunder the employee benefits provided
pursuant to Company-sponsored benefit plans, programs or other arrangements in
which Executive was entitled to participate as a full-time employee immediately
prior to such termination in accordance
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with Section 2.4 hereof, subject to the terms and conditions of such plans and
programs (the "Continued Benefits"). If Executive's continued participation is
not permitted under the general terms and provisions of such plans, programs and
arrangements, the Company shall arrange to provide Executive with Continued
Benefits substantially similar to those which Executive would have been entitled
to receive under such plans, programs and arrangements; and in addition
(h) Executive shall have the right to exercise all vested
unexercised stock options and warrants in accordance with Section 4.1(f) and
shall have the right to vest and exercise any unvested, unexercised stock
options and warrants that vest within six (6) months following the termination
date. The unvested options or warrants will vest in accordance with their terms,
as if Executive was an employee of the Company during the six (6) month period
following the termination date. In consideration for this extension of the
vesting period, Executive agrees that he shall make himself available to be a
consultant of the Company at the Board's request during the six (6) month
period, and perform services for up to thirty (30) hours per month.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 Confidentiality.
(a) Executive covenants and agrees to hold in strictest
confidence, and not disclose to any person without the express written consent
of the Company, any and all of the Company's Proprietary Information, as defined
in subparagraph (c) below, except as such disclosure may be required in
connection with his employment hereunder. This covenant and agreement shall
survive this Agreement and continue to be binding upon Executive after the
expiration or termination of this Agreement, whether by passage of time or
otherwise, so long as such information and data shall remain proprietary
information.
(b) Upon expiration or termination of this Agreement for any
reason, Executive shall immediately turn over to the Company any "Proprietary
Information." Executive shall have no right to retain any copies of any material
qualifying as Proprietary Information for any reason whatsoever after expiration
or termination of his employment hereunder without the express written consent
of the Company.
(c) For purposes of this Agreement, "Proprietary Information"
means and includes the following: the identity of clients or customers or
potential clients or customers of the Company or its affiliates; any written,
typed or printed lists, or other materials identifying the clients or customers
of the Company or its affiliates; any financial or other information supplied by
clients or customers of the Company or its
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affiliates; any and all data or information involving the Company, its
affiliates, programs, methods, or contacts employed by the Company or its
affiliates in the conduct of their business; any lists, documents, manuals,
records, forms, or other materials used by the Company or its affiliates in the
conduct of their business; any descriptive materials describing the methods and
procedures employed by the Company or its affiliates in the conduct of their
business; and any other secret or confidential information concerning the
Company's or its affiliates' business or affairs. The terms "list," "document"
or their equivalents, as used in this subparagraph (c), are not limited to a
physical writing or compilation but also include any and all information
whatsoever regarding the subject matter of the "list" or "document," whether or
not such compilation has been reduced to writing. "Proprietary Information"
shall not include any information which: (i) is or becomes publicly available
through no act or failure of Executive; (ii) was or is rightfully learned by
Executive from a source other than the Company before being received from the
Company; or (iii) becomes independently available to Executive as a matter of
right from a third party. If only a portion of the Proprietary Information is or
becomes publicly available, then only that portion shall not be Proprietary
Information hereunder.
(d) Executive acknowledges that he is Chief Financial Officer,
Secretary and Treasurer of the Company and in such capacity he will be a
representative of the Company with respect to clients and potential clients of
the Company. Executive also acknowledges that he has had and will continue to
have access to confidential information about the Company, its affiliates, and
their clients and that "Proprietary Information" acquired by him at the expense
of the Company is for use in its business. Executive has substantial experience
in the information technology products and services marketing and distribution
industry and possesses special, unique, extraordinary skills, and knowledge in
this field. Executive's management and financial services to the Company are
special, unique, and extraordinary and the success or failure of the Company is
dependent upon his discharge of his duties and obligations. Accordingly, by
execution of this Agreement, and subject to subparagraph (c) hereof, Executive
agrees that during his employment with the Company and for a period of twelve
(12) months following the date of expiration or termination of his employment
hereunder (the "Non-Competition Period") for any reason (whether such
termination shall be voluntary or involuntary), he shall not violate the
provisions of Section 5.2. Executive agrees that the twelve (12) month period
referred to in the preceding sentence shall be extended by the number of days
included in any period of time during which he is or was engaged in activities
constituting a breach of Section 5.2.
5.2 Competition.
(a) During the Non-Competition Period specified in Section
5.1(d), Executive shall not:
(i) except as a passive investor in publicly-held
companies, and except for investments held as of the date hereof,
directly or indirectly own,
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operate, manage, consult with, control, participate in the management
or control of, be employed by, maintain or continue any interest
whatsoever in any company that directly competes with the Company in
the United States; or
(ii) directly or indirectly solicit any business of a
nature that is directly competitive with the business of the Company
from any individual or entity that obtained such products or services
from the Company or its affiliates at any time during his employment
with the Company; or
(iii) directly or indirectly solicit any business of
a nature that is directly competitive with the business of the Company
from any individual or entity solicited by him on behalf of the Company
or its affiliates; or
(iv) employ, or directly or indirectly solicit, or
cause the solicitation of, any employees of the Company who are in the
employ of the Company on the termination date of his employment
hereunder for employment by others.
(b) Executive expressly agrees and acknowledges that:
(i) it will require at least twelve (12) months for
the Company to locate, hire and train an appropriate individual to
perform the functions and duties that Executive is performing
hereunder;
(ii) the Company has protected business interests
throughout the United States of America and that competition with and
against such business interests would be harmful to the Company;
(iii) this covenant not to compete is reasonable as
to time and geographical area and does not place any unreasonable
burden upon him;
(iv) the general public will not be harmed as a
result of enforcement of this covenant not to compete;
(v) his personal legal counsel has reviewed this
covenant not to compete; and
(vi) he understands and hereby agrees to each and
every term and condition of this covenant not to compete (including,
without limitation, the provisions of Section 5.4).
5.3 Non-Disparagement. During the term of this Agreement and the
Non-Competition Period, neither Executive nor the Company shall disparage the
other, and neither shall disclose to any third party the conditions of
Executive's employment with the Company except as may be required (i) pursuant
to applicable law or
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regulations, including the rules and regulations of the Securities and Exchange
Commission, (ii) to effectuate the provisions of employee plans or programs and
insurance policies, or (iii) as may be otherwise contemplated herein or unless
such information becomes publicly available without fault of the party making
such disclosure.
5.4 Remedies. Executive expressly agrees and acknowledges that this
covenant not to compete is necessary for the protection of the Company and its
affiliates because of the nature and scope of their business and his position
with the Company. Further, Executive acknowledges that any breach of this
covenant not to compete would result in irreparable damage to the Company, and
in the event of his breach of this covenant not to compete, money damages will
not sufficiently compensate the Company for its injury caused thereby, and that
the remedy at law for any breach or threatened breach of Sections 5.1, 5.2 and
5.3 will be inadequate and, accordingly agrees, that the Company shall, in
addition to all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such breach), be
entitled to injunctive relief or specific performance and that in addition to
such money damages he may be restrained and enjoined from any continuing breach
of this covenant not to compete without any bond or other security being
required of any court. Executive further acknowledges and agrees that if the
covenant not to compete herein is deemed to be unenforceable and/or the
Executive fails to comply with this Article V, the Company has no obligation to
provide any compensation or other benefits described in Article IV hereof.
ARTICLE VI
MISCELLANEOUS
6.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
(c) "Accrued Base Salary" - as defined in Section 4.1(a);
(d) "Accrued Benefits" - as defined in Section 4.1(d);
(e) "Accrued Reimbursable Expenses" - as defined in Section
4.1(c);
(f) "Accrued Vacation Payment" - as defined in Section 4.1(b);
(g) "Annual Incentive Bonus" - as defined in Section 2.2(a);
(h) "Base Salary" - as defined in Section 2.1;
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(i) "Board" - shall mean the Board of Directors of the
Company;
(j) "Cause" shall mean the occurrence of any of the following:
(i) Executive's gross and willful misconduct which
is injurious to the Company;
(ii) Executive's engaging in fraudulent conduct with
respect to the Company's business or in conduct of a criminal nature
that may have an adverse impact on the Company's standing and
reputation;
(iii) the continued and unjustified failure or
refusal by Executive to perform the duties required of him by this
Agreement which failure or refusal shall not be cured within fifteen
(15) days following (A) receipt by Executive of written notice from
the Board specifying the factors or events constituting such failure
or refusal, and (B) a reasonable opportunity for Executive to correct
such deficiencies;
(iv) Executive's use of drugs and/or alcohol in
violation of then current Company policy;
(v) Executive's breach of his obligation under
Section 1.2(c) hereof which shall not be cured within fifteen (15)
days after written notice thereof to Executive; or
(vi) Executive's direct or indirect provision of
financial or other Company information (whether written or oral)
("Company Information") to any Person with a potential interest in
acquiring all or part of the Company's capital stock or assets, unless
Executive provides the Company Information to such Person pursuant to
the prior written approval of the Company's Chief Executive Officer or
pursuant to Board authorization. The indirect provision of Company
Information shall include Executive providing Company Information to
any officer, employee, or agent of the Company who Executive knows or
should know is having written or oral discussions with any Person with
a potential interest in acquiring all or part of the Company's capital
stock or assets.
(k) "Common Stock" - shall mean shares of the common stock,
par value $.01 per share, of the Company;
(l) "Continued Benefits" - as defined in Section 4.3(g);
(m) "Expiration" shall mean the expiration of Executive's
employment hereunder in accordance with Section 1.3;
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(n) "Good Reason" shall mean the occurrence of any of the
following:
(i) The Company's failure to elect or reelect or to
appoint or reappoint Executive to offices, titles or positions carrying
comparable authority, responsibilities, dignity and importance to that
of Executive's offices and positions as of October 1, 1995;
(ii) Material change by the Company in Executive's
function, duties or responsibilities (including reporting
responsibilities) which would cause Executive's position with the
Company to become of less dignity, responsibility and importance than
those associated with his functions, duties or responsibilities as of
October 1, 1995;
(iii) Executive's Base Salary is reduced by the
Company (unless such reduction is pursuant to a salary reduction
program as described in Section 2.1 hereof) or there is a material
reduction in the benefits that are in effect for the Executive on
October 1, 1995 in accordance with Section 2.4 (unless such reduction
is pursuant to a uniform reduction in benefits for all Senior
Executives);
(iv) Except with Executive's prior written consent,
relocation of Executive's principal place of employment to a location
outside of Maricopa County, Arizona, or requiring Executive to travel
on the Company's business more than is required by Section 1.4 hereof;
(v) The failure by the Company to obtain the
assumption by operation of law or otherwise of this Agreement by any
entity which is the surviving entity in any merger or other form of
corporate reorganization involving the Company or by any entity which
acquires all or substantially all of the Company's assets; or
(vi) Other material breach of this Agreement by the
Company, which breach is not cured within fifteen (15) days after
written notice thereof is received by the Company.
(o) "Non-Competition Period" - as defined in Section 5.1(d);
(p) "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated. Each Notice of Termination shall be delivered at least 30 days prior
to the effective date of termination;
(q) "Person" shall mean an individual, corporation,
partnership, joint venture or other entity;
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(r) "Proprietary Information" - as defined in Section 5.1(c);
(s) "Retirement" shall mean normal retirement at age 65;
(t) "Senior Executives" shall mean the chief executive officer
and the four most highly compensated executive officers of the Company
determined in accordance with the rules and regulations of the Securities and
Exchange Commission under the Exchange Act;
(u) "Termination" shall mean the termination of Executive's
employment hereunder other than upon expiration of the term of such employment
in accordance with Section 1.3;
(v) "Total Disability" shall mean Executive's failure
substantially to perform his duties hereunder on a full-time basis for a period
exceeding 180 consecutive days or for periods aggregating more than 180 days
during any twelve-month period as a result of incapacity due to physical or
mental illness. If there is a dispute as to whether Executive is or was
physically or mentally unable to perform his duties under this Agreement, such
dispute shall be submitted for resolution to a licensed physician agreed upon by
the Board and Executive, or if an agreement cannot be promptly reached, the
Board and Executive shall promptly select a physician, and if these physicians
cannot agree, the physicians shall promptly select a third physician whose
decision shall be binding on all parties. If such a dispute arises, Executive
shall submit to such examinations and shall provide such information as such
physician(s) may request, and the determination of the physician(s) as to
Executive's physical or mental condition shall be binding and conclusive.
Notwithstanding the foregoing, if Executive participates in any group disability
plan provided by the Company which offers long-term disability benefits, "Total
Disability" shall mean total disability as defined therein.
6.2 Key Man Insurance. The Company shall have the right, in its sole
discretion, to purchase "key man" insurance on the life of Executive. The
Company shall be the owner and beneficiary of any such policy. If the Company
elects to purchase such a policy, Executive shall take such physical
examinations and supply such information as may be reasonably requested by the
insurer.
6.3 Mitigation of Damages; No Set-Off; Dispute Resolution.
(a) Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Agreement,
except as provided in Sections 4.3(f) and (g) hereof, be reduced by any
compensation earned by Executive as the result of employment by another employer
after the date of termination of his employment hereunder or otherwise. The
Company's obligation to make the payments provided for in this Agreement shall
not be affected by any set-off, counterclaim,
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recoupment, defense or other claim or action which the Company may have against
Executive.
(b) If there shall be any dispute between the Company and
Executive (i) in the event of any termination of Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by Executive, whether Good Reason existed, or (iii)
otherwise, the dispute shall be resolved in accordance with the dispute
resolution procedures set forth in Exhibit A hereto, the provisions of which are
incorporated as a part hereof, and the parties hereto hereby agree that such
dispute resolution procedures shall be the exclusive method for resolution of
disputes under this Agreement. In the event of a dispute hereunder as to whether
a termination by the Company was for Cause or by the Executive for Good Reason,
until there is a resolution and award as provided in Exhibit A, the Company
shall pay all amounts, and provide all benefits, to Executive and/or Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide hereunder as though such termination were by the
Company without Cause or by Executive for Good Reason and shall pay the
reasonable legal fees and expenses of counsel for Executive in connection with
such dispute resolution; provided, however, that the Company shall not be
required to pay any disputed amounts or any legal fees and expenses pursuant to
this subparagraph (b) except upon receipt of a written undertaking by or on
behalf of Executive (and/or Executive's family or other beneficiaries, as the
case may be) to repay, without interest or penalty, as soon as practicable after
completion of the dispute resolution (A) all such amounts to which Executive (or
Executive's family or other beneficiaries, as the case may be) is ultimately
adjudged not be entitled with respect to the payment of such disputed amount(s)
and (B) in addition, in the case of legal fees and expenses, a proportionate
amount of legal fees and expenses attributable to any of Executive's claim(s)
(or any of Executive's defenses or counter-claims(s)), if any, which shall have
been found by the dispute resolver to have been frivolous or without merit.
6.4 Successors; Binding Agreement. This Agreement shall be binding upon
any successor to the Company and shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, beneficiaries,
designees, executors, administrators, heirs, distributees, devisees and
legatees.
6.5 Modification; No Waiver. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument by the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any other term or condition.
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6.6 Severability. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or more
of such covenants or agreements, if not material to the employment arrangement
that is the basis for this Agreement, shall not affect the validity or
enforceability of any other covenant or agreement contained herein. If, in any
judicial proceeding, a court shall refuse to enforce one or more of the
covenants or agreements contained herein because the duration thereof is too
long, or the scope thereof is too broad, it is expressly agreed between the
parties hereto that such duration or scope shall be deemed reduced to the extent
necessary to permit the enforcement of such covenants or agreements.
6.7 Notices. All the notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the parties
hereto at the following addresses:
If to the Company, to it at:
Cycare Systems, Inc.
7001 North Scottsdale Road, Suite 1000
Scottsdale, Arizona 85253
Attn: Chief Executive Officer
If Executive, to him at:
Mark R. Schonau
2028 East Freeport Lane
Gilbert, Arizona 85254
6.8 Assignment. This Agreement and any rights hereunder shall not be
assignable by either party without the prior written consent of the other party
except as otherwise specifically provided for herein.
6.9 Entire Understanding. This Agreement (together with the Exhibit
incorporated as a part hereof) constitutes the entire understanding between the
parties hereto and no agreement, representation, warranty or covenant has been
made by either party except as expressly set forth herein.
6.10 Executive's Representations. Executive represents and warrants
that neither the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement to which he
is a party or by which he is bound.
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6.11 Liability of Company with Respect to Insurance Policy. Executive
has selected the insurer and policy referred to in Section 2.4(a) hereof, and
the Company shall not have any liability to Executive (or his beneficiaries)
should the insurance company which issues the policy referred to therein fail or
refuse to pay (whether voluntarily or by reason of any order, injunction or
otherwise) thereunder or if any rights or elections otherwise available to
Executive thereunder are restricted or eliminated.
6.12 Governing Law. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Arizona
applicable to contracts executed and wholly performed within such state.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Company:
CYCARE SYSTEMS, INC.
By:___________________________________
Name:________________________________
Title:__________________________________
Executive:
MARK R. SCHONAU
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EXHIBIT A
DISPUTE RESOLUTION PROCEDURES
A. If a controversy should arise which is covered by Section 6.3 of
Article VI, then not later than twelve (12) months from the date of the event
which is the subject of dispute either party may serve on the other a written
notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds thereof ("Notice of Controversy");
provided that, in any event, the other party shall have at least thirty (30)
days from and after the date of the Notice of Controversy to serve a written
notice of any counterclaim ("Notice of Counterclaim"). The Notice of
Counterclaim shall specify the claim or claims in reasonably specific detail. If
the Notice of Controversy or the Notice of Counterclaim, as the case may be, is
not served within the applicable period, the claim set forth therein will be
deemed to have been waived, abandoned and rendered unenforceable.
B. Following receipt of the Notice of Controversy (or the Notice of
Counterclaim, as the case may be), there shall be a three week period during
which the parties will make a good faith effort to resolve the dispute through
negotiation ("Period of Negotiation"). Neither party shall take any action
during the Period of Negotiation to initiate arbitration proceedings.
C. If the parties should agree during the Period of Negotiation to
mediate the dispute, then the Period of Negotiation shall be extended by an
amount of time to be agreed upon by the parties to permit such mediation. In no
event, however, may the Period of Negotiation be extended by more than five
weeks or, stated differently, in no event may the Period of Negotiation be
extended to encompass more than a total of eight weeks.
D. If the parties agree to mediate the dispute but are thereafter
unable to agree within a week on the format and procedures for the mediation,
then the effort to mediate shall cease, and the Period of Negotiation shall
terminate four weeks from the Notice of Controversy (or the Notice of
Counterclaim, as the case may be).
E. Following the termination of the Period of Negotiation, the dispute
(including the main claim and counterclaim, if any) shall be settled by
arbitration, and judgment upon the award may be entered in any court having
jurisdiction thereof. The format and procedures of the arbitration are set forth
below (referred to below as the "Arbitration Agreement").
F. A notice of intention to arbitrate ("Notice of Arbitration") shall
be served within 45 days of the termination of the Period of Negotiation. If the
Notice of Arbitration is not served within this period, the claim set forth in
the Notice of Controversy (or the Notice of Counterclaim, as the case may be)
will be deemed to have been waived, abandoned and rendered unenforceable.
<PAGE>
G. The arbitration, including the Notice of Arbitration, will be
governed by the Commercial Rules of the American Arbitration Association except
that the terms of this Arbitration Agreement shall control in the event of any
difference or conflict between such Rules and the terms of this Arbitration
Agreement.
H. The dispute revolver shall reach a decision on the merits on the
basis of applicable legal principles as embodied in the law of the State of
Arizona.
I. There shall be one dispute resolver, regardless of the amount in
controversy. The dispute resolver will be empowered to render an award and
interim decisions and shall be a member of the bar of any of the fifty States of
the United States or of the District of Columbia. The dispute resolver shall be
promptly appointed pursuant to Rule 13 of the Commercial Rules of the American
Arbitration Association ("AAA"). If the dispute resolver has not been appointed
within forty-five days of the AAA's initial transmission of lists of potential
arbitrators, then the AAA shall unilaterally designate the dispute resolver.
J. At the time of appointment and as a condition thereto, the dispute
resolver will be apprised of the time limitations and other provisions of this
Arbitration Agreement and shall indicate such dispute resolver's agreement to
the Tribunal Administrator to comply with such provisions and time limitations.
K. During the 30-day period following appointment of the dispute
resolver, either party may serve on the other a request for limited numbers of
documents directly related to the dispute. Such documents will be produced
within seven days of the request.
L. Following the thirty-day period of document production, there will
be a forty-five day period during which limited depositions will be permissible.
Neither party will take more than five depositions, and no deposition will
exceed three hours of direct testimony.
M. Disputes as to discovery or prehearing matters of a procedural
nature shall be promptly submitted to the dispute resolver pursuant to telephone
conference call or otherwise. The dispute resolver shall make every effort to
render a ruling on such interim matters at the time of the hearing (or
conference call) or within five business days thereafter.
N. Following the period of depositions, the arbitration hearing shall
promptly commence. The dispute resolver will make every effort to commence the
hearing within thirty days of the conclusion of the deposition period and, in
addition, will make every effort to conduct the hearing on consecutive business
days to conclusion.
O. An award will be rendered, at the latest, within nine months of the
date of the Notice of Arbitration and within thirty days of the close of the
arbitration hearing. The award shall set forth the grounds for the decision in
reasonably specific detail and shall
<PAGE>
also specify whether any claim (or defense or counter-claim) of Executive is
found to be frivolous or without merit and what proportion, if any, of his legal
fees and expenses which have been paid by the Company Executive shall be
required to repay to the Company in accordance with Section 6.3(b). The award
shall be final and nonappealable except as provided in Arizona Revised Statutes
ss.ss. 12-1512 and 12-2101-01.
FILE COPY
TABLE OF CONTENTS
Page No.
1. Definitions ........................................................ 1
2. Term and Termination .............................................. 3
3. License Grant ...................................................... 4
4. Title, Right and Restrictions....................................... 7
5. Installation and Training .......................................... 8
6. Software Support ................................................... 8
7. Publicity .......................................................... 9
8. License Prices and Payment ......................................... 10
9. Product Evaluation ................................................. 12
10. Marketing Activities ............................................... 12
11. Warranties Representations and Disclaimers ......................... 12
12. Trademarks and Trade Names ......................................... 13
13. Confidentiality .................................................... 14
14. No Solicitation of Employees ....................................... 15
15. Disclosure ......................................................... 15
16. Survival............................................................ 15
17. No Assignment ...................................................... 15
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18. Escrow Agreement ................................................... 16
19. Relationship of the Parties ........................................ 16
20. Notices ............................................................ 16
21. No Waiver .......................................................... 16
22. Amendments ......................................................... 17
23. Severability ....................................................... 17
24. Attorney's Fees .................................................... 17
25. Dispute Resolution ................................................. 17
26. Governing Law ...................................................... 18
27. Headings ........................................................... 18
28. Entire Agreement ................................................... 18
List of Exhibits
Exhibit A CyCare "Living Software" price model for
the CyCare Medical Records application.
Exhibit B WANG NON-DISCLOSURE AGREEMENT Source Code
Exhibit C-1 CyCare Golden Installed Base Customer List
Exhibit C-2 CyCare Initial Installation Sites Customer List
Exhibit D Product Third Parties Tools or Utilities List
Exhibit E Wang Reciprocal Non-Disclosure Agreement
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Exhibit F Monthly Payment/Remittance Report (Sample)
Exhibit G Physician Workstation Functional Specification
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CyCare RESELLER AGREEMENT
This reseller agreement (hereafter "Agreement") is entered into as of this 30th
day of August, 1995 by and between Wang Laboratories, Inc. (hereafter "Wang") a
Delaware corporation with its corporate offices at 600 Technology Park Drive,
Billerica, Massachusetts 01821 and CyCare Systems, Inc. (hereafter "CyCare") a
Delaware corporation with its corporate offices at 7001 North Scottsdale Road,
Suite 1000, Scottsdale, Arizona 85253-3644.
WHEREAS, Wang develops and distributes software for the healthcare marketplace
to its customers; and
WHEREAS, Wang desires to license its Physician Workstation software to CyCare
for the expressed purpose of having CyCare sublicense the Physician Workstation
software to its customers; and
WHEREAS, CyCare desires to sublicense, distribute and provide First Line and
Second Line Support for the Physician Workstation software under the CyCare name
to its customers; and
WHEREAS, both parties desire to work together to actively market the Physician
Workstation software in the Group Practice and Hospital marketplaces with the
appropriate benefits as set forth in this agreement to flow to the respective
parties; and
WHEREAS, Wang agrees to grant CyCare an exclusive license to the Physician
Workstation software with respect to a certain contract customer base; and
WHEREAS, CyCare agrees to exclusively sublicense Wang's Physician Workstation
software within a certain contract customer base and other entities as defined
in Exhibits C-1 and C-2.
NOW THEREFORE, in consideration of their mutual promises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Wang and CyCare agree as follows:
1. Definitions. The following definitions will apply as used throughout this
agreement.
"Effective Date" means August 30,1995.
"End User" means a third party to whom CyCare provides Product for the End
User's own internal business use.
"Enhancement" means a modification or replacement of the Product or a
portion thereof, which customizes an existing feature or function of the
Product or provides improvement for an original feature or function of the
Product.
"Error" means a condition in the Product that causes its operation to
deviate in a material way from its then current functional specification.
"First Line Support" means services required to install the Product at the
End User's site; training End Users on the operation of the Product in
conjunction with any CyCare-supplied applications; receiving all calls
from End Users concerning the Product; providing on-site End User support,
when necessary; and providing documentation to Wang's Physician
Workstation Support Group of any problems that are caused by or occurring
in the Product.
"Golden Sample" means a copy of the latest release of the Product, in
object code, which Wang will provide to CyCare and from which CyCare will
make duplications and distribute copies to End Users.
"Group Practice" means all physician groups, including independent
physician associations (IPAs), managed service organizations (MSOs) free
standing clinics, and other service providers of ambulatory care giving
organizations.
"Material Non-performance" means failure of CyCare to: (1) pay any moneys
due Wang in a timely manner; or (2) copy or distribute any Wang product in
accordance with the sublicense and distribution rights granted to CyCare
in Section 3 "License Grant", or failure of Wang to provide Third Line
Support.
"Minimum Target" shall be, for the initial period and each subsequent year
of the agreement, the target revenue (not revenue guarantees) total
dollars Wang expects to receive from CyCare and CyCare expects to pay to
Wang in accordance with the Living Software price model attached as
Exhibit A (inclusive of the initial and monthly payments) for the CyCare
Medical Records application sublicensed by CyCare to CyCare's End Users in
accordance with Subsection 8.2 herein.
"New Product" means a new software module which contains new capabilities
not included in the current release of the Product. A New Product will be
offered at a new commercial list price and orderable under a unique model
number.
"Product" means the current release of the Physician Workstation software,
including Updates, provided by Wang to CyCare pursuant to the Agreement.
CyCare is solely responsible to provide the database software ("SUPRA")
which is not part of the Product. CyCare and Wang are jointly responsible
for the integration of the Product with the "SUPRA" database software,
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"Patch" means a revision of Product object code or operating information
that is intended to correct an Error in the Product and which is typically
provided to those End Users reporting the Error.
"Request" means a request to modify the Product to include features or
functionality not part of the current release delivered by Wang.
"Second Line Support" consists of CyCare providing problem diagnosis,
duplication, and source isolation analysis for problems CyCare reports to
Wang's Physician Workstation Support Group.
"Territory" means the geographic area in which CyCare is authorized to
distribute the Product, which is defined as the United States only, except
for the U.S. Government and Agencies, Departments, Bureaus and Divisions
thereof.
"Third Line Support" consists of developing a Patch in the current or most
recent Product release that materially affects the End User's or CyCare's
use of the Product.
"Update" means a release of Product in which Wang has incorporated
accumulated Patches.
2. Term and Termination.
2.1 Term. The term of the Agreement ("Contract Term") will be [confidential
portion omitted and filed separately] months from the Effective Date of
the Agreement. The Agreement shall automatically renew for successive
twelve (12) month periods unless either party provides the other party
with thirty (30) days advance written notice of its intent not to renew
the Agreement.
2.2 Termination: Transition Period. In the event that the parties fail to
agree to extend or renew the Contract Term beyond the initial
[confidential portion omitted and filed separately] months, the Agreement
will be extended automatically for an additional eighteen (18) months for
the purposes of winding down the parties' relationship (the "Transition
Period"). During the first twelve (12) months of the Transition Period the
terms and conditions of the Agreement as they exist on the date of
termination will continue and remain enforceable, except that CyCare's
exclusive right to grant sublicenses (as set forth in Sections 3.2 (a) and
(b) herein), CyCare's license to the Source Code (as set forth in Section
3.5 herein) will terminate, and CyCare's commitment to sublicense
exclusively the Product for its Medical Records application during the
Contract Term will no longer apply. Thereafter, for the remaining six (6)
months of the Transition Period the Agreement will continue, except that
CyCare's right to sublicense the Product to any third party will
terminate. Upon the conclusion of the Transition Period, the Agreement
will
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terminate (except as set forth in Section 16. "Survival" herein); however,
Wang will continue to make Third Line Support available to Cycare and its
End Users at the Monthly Fee rates set forth in Subsection 8.2 herein.
2.3 Early Termination. Wang or CyCare may terminate the Agreement upon
reasonable written notice if: (i) the other party has committed a
"Material Non-performance" or (ii) the other party commits a material
breach of the Agreement, and such breach continues for more than thirty
(30) days after written notice thereof; or (iii) CyCare fails to fulfill
its annual "Minimum Target" for the initial eighteen (18) months of the
Contract Term or any subsequent year of the Agreement.
2.4 Effect of Termination: Continuation of Payments. CyCare and Wang agree
that CyCare's obligation to pay Wang any payments owing hereunder will
extend and survive the termination or expiration of the Agreement.
3. License Grant.
3.1 Grant: Internal Use. Wang grants to CyCare a nonexclusive, nontransferable
license for installation and use of the Product for its own internal
business use only, including training, demonstration systems, and support.
Cycare agrees it shall not copy (other than for archival purposes),
modify, distribute, transfer to another party, or use the Product, in
whole or in part, or reverse engineer or decompile the Product to derive
source code or to allow any other party to use the Product, except as
expressly provided for in the Agreement.
3.2 Sublicenses.
(a) Wang grants to CyCare a sole and exclusive, nontransferable right to
sublicense, copy, embed and distribute the Product (Wang will not directly
license or indirectly sublicense the Product), within the Territory to the
entities set forth in Exhibit C-1 and the Initial Installation site
customers listed in Exhibit C-2 from a Golden Sample that Wang will
deliver to CyCare.
Wang and CyCare agree that on a quarterly basis CyCare has the option of
adding accounts to Exhibit C-1 as follows; up to 100 new accounts per year
to a maximum of 750 at the end of the Contract Term; accounts with more
than one location will be identified by location unless CyCare has a
corporate agreement with the entity or Wang and CyCare agree to put the
entity in its entirety on Exhibit C-1. Wang and CyCare agree that any
other major companies will be discussed by the parties.
Wang recognizes that CyCare intends to continue to market its Medical
Records application to all Group Practice accounts. Wang has indicated
potential issues with twelve (12) existing CyCare accounts. In the event
CyCare is denied
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exclusivity for any of twelve (12) accounts, CyCare will continue to
compete and if Products are sold by Wang to such accounts, for a period of
six (6) months, CyCare will receive full credit (in accordance with
Subsection 8.2 herein) towards its Minimum Target for the initial eighteen
(18) months of the Contract Term.
(b) Wang grants to CyCare an exclusive, nontransferable right to
sublicense, copy, embed and distribute the Product (Wang will not
indirectly sublicense the Product), within the Territory to Teaching
Hospitals and University Medical Centers End Users from a Golden Sample
that Wang will deliver to CyCare.
(c) Wang grants CyCare a non-exclusive, non-transferable right to
sublicense the Product to End Users within the Territory from a Golden
Sample that Wang will deliver to CyCare.
(d) An individual End User sublicense granted by CyCare pursuant to
subsection (a), (b) or (c) above shall be in effect for as long as such
CyCare End User continues to pay CyCare and CyCare pays the amounts due to
Wang as set forth in Section 8. herein.
(e) CyCare agrees to sublicense to End Users the Product under terms and
conditions which include, but are not limited to, the following
provisions:
CyCare grants End User a non-exclusive, non-transferable license for
the Product to install and use the Product for the End User's internal
business use only for as long as the End User continues to pay CyCare
monthly support fees in accordance with CyCare's "Living Software"
price model. CyCare's End User shall not copy (other than for archival
purposes), distribute, modify, transfer to another entity, or use the
Product, in whole or in part, or reverse engineer or decompile the
Product to derive source code or to allow any other party to use the
Product.
(f) With regard to requests to sublicense the Product outside the
Territory, CyCare shall not set up branch offices for the sublicense of
the Product outside the Territory, directly or indirectly seek or solicit
customers for the sublicense of the Product outside of the Territory nor
sublicense the Product outside the Territory. CyCare shall immediately
notify Wang in writing if CyCare wishes to pursue an order or receives an
order or inquiry (i) from any customer located outside of the Territory,
or (ii) from any customer located inside the Territory for the Product to
be used outside the Territory. Wang will advise CyCare within five (5)
business days whether or not Wang consents to each request, such consent
shall not be unreasonably withheld. Reasonableness shall be based upon
among other things the applicable International law and other agreements,
if any, which may effect Wang's decision to give its consent to CyCare in
response to each such request.
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3.3 Installation Instructions. Wang will provide CyCare with installation
instructions for the Product which CyCare may copy and incorporate into
CyCare's Medical Records product installation instructions. Wang will also
provide CyCare with an "on-line-help" facility for the Product in PC
readable electronic form for incorporation into CyCare's Medical Records
product "on-line-help" text. CyCare agrees that such instructions are the
property of Wang and shall be protected as copyrighted materials as set
forth in Section 4.2 herein
3.4 Sales and Marketing Materials. Any sales and marketing materials provided
by Wang may be copied and used by CyCare in its sales and marketing
materials provided that CyCare accurately replicates the Wang provided
information and exactly depicts the Wang name and logo as provided by
Wang. Wang will allow CyCare the right to make a reasonable number of
demonstration copies of the Physician Workstation software for use in
CyCare's sales and marketing activities so long as all such copies are
clearly marked "For Demonstration Use Only" and with Wang's copyright
notices and other legends that appear on the Golden Sample.
3.5 Source Code. Wang grants to CyCare a nonexclusive, nontransferable license
for use of the Product source code (subject to the terms of Subsection 4.4
herein) and limited to specific modules of the Product, but exclusive of
the software set forth in Exhibit D (the "Source Code"). Wang's grant of
such license of Source Code is solely for the development by CyCare of
modifications of the Product in response to specific Requests and will be
subject to the provisions of the WANG NON-DISCLOSURE AGREEMENT Source Code
substantially provided in the form of Exhibit B. CyCare will only receive
and utilize such Source Code to modify the Product to create unique
customer modifications in response to Requests in such instances where
Wang has declined to create such modifications of the Product as set forth
in Subsection 4.4 herein.
3.6 Requests. Modifications to the Product developed by CyCare in response to
Requests will be the exclusive property of CyCare; however, CyCare hereby
grants to Wang a perpetual, royalty free, fully paid license to use and
sublicense to Wang customers each modification that CyCare develops from
the Wang Source Code. Patches, Updates, and Enhancements of the Product
developed by Wang will remain the exclusive property of Wang and Wang
hereby grants to CyCare a royalty free, fully paid license only for the
Contract Term to use and sublicense each such Patch, Update and
Enhancement to the Product to End Users. Sublicenses of the Product
granted by CyCare to each End User shall survive the termination of the
Agreement for as long as a valid End User customer sublicense remains in
effect for such End User.
3.7 New Products. The parties agree to negotiate the rights to any New
Products which Wang or CyCare may develop or acquire after the Effective
Date pursuant
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to terms and conditions the parties may agree to in the future and be
consistent with the Agreement.
4. Title. Rights and Restrictions.
4.1 Proprietary Product. CyCare agrees that no title to or ownership of the
Product, and Enhancements will pass to CyCare at any time, but shall
remain exclusively with Wang, except modifications developed by CyCare
based on End User Requests pursuant to Subsection 3.6 herein to which
CyCare will retain title and ownership.
CyCare agrees to exclusively sublicense subject to Section 3.2 Wang's
Physician Workstation software within its certain contract customer base
as defined in Exhibits C-1 and C-2. during the Contract Term, and any
extensions thereof, of the Agreement.
4.2 Copyrights. CyCare agrees that the Product and Enhancements, including any
documentation enclosed in the Product's packaging and any materials
distributed during the course of Product Sales and Technical Support
training, are the property of Wang, are protected by copyright law against
unauthorized copying, and that no title to or ownership of the Product or
Enhancements or such materials is hereby transferred. Notwithstanding any
copyright notice, the Product, documentation and all training materials
marked as "Confidential" or "Proprietary" contain proprietary and
confidential information of Wang and CyCare shall not disclose or
distribute them except as expressly provided for herein. CyCare shall not
reverse compile or disassemble the Product, in whole or in part, or
otherwise attempt to derive source code from the Product. CyCare shall
safeguard the confidentiality of the Product, documentation and training
materials and shall not use them to develop competitive or derivative
products.
4.3 Unauthorized Use. CyCare shall notify Wang promptly in the event that it
becomes aware of or suspects any unauthorized use of the Product or
documentation and to cooperate fully with Wang in taking any reasonable
action that Wang may request to protect Wang's proprietary interests in
the Product and documentation.
4.4 Product Modifications. In the event CyCare becomes aware of a Request,
CyCare agrees to contact Wang and notify Wang of any such Request which
may be considered beneficial for future Product releases. Wang will
evaluate each such Request for possible incorporation into future Product
releases. If such Requests are consistent with Wang's Product development
plans, Wang will agree to implement the modification. If CyCare is willing
to pay to have such modifications required by such Request implemented,
Wang will agree to implement the modification. If the requested
modification is not consistent with
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Wang's Product development plans or CyCare is not willing to fund the
modification, Wang will not be obligated to implement the modification.
In the event Wang declines to develop such modification, Wang will make
available, subject to Subsections 3.1, 4.2 and substantially under the
terms and conditions of Exhibit B herein, to Cycare the Product Source
Code (not including the software listed in Exhibit D) which Wang deems
necessary for CyCare to develop the modification arising from such
Request. In connection with the above Source Code access, CyCare agrees to
provide technical resources who will review the Product Source Code at
Wang's development headquarters. Wang will make Source Code and printouts
available to CyCare during the process at Wang's corporate headquarters
and subject to the nondisclosure agreement set forth in Exhibit B for
review at a mutually agreeable time by the designated CyCare technical
resources.
4.5 Product Reviews. At a minimum Wang and CyCare will convene technical
product reviews once each quarter to discuss the future direction of the
development plans for the Product and to discuss End User feedback
relative to use of the Product.
5. Installation and Training.
5.1 Installation. Wang will provide installation services for minimally the
first two (2) Provider Workstation installations on a Time-and-Materials
basis, plus reasonable out-of-pocket travel and living expenses as
incurred. Thereafter, CyCare will provide all of the installation and
training services for its End Users, unless otherwise requested of Wang
for other than the first two installations. All installation services will
be on a Time-and-Materials basis, plus reasonable out-of-pocket travel
and living expenses as incurred.
5.2 Training. Wang will provide CyCare with training services for End Users
upon CyCare request at Wang's then current rates. Wang will provide
initial Sales and Technical Support "train-the-trainer" training to CyCare
personnel subject to mutually agreeable schedules and locations. For the
initial training CyCare will reimburse Wang for reasonable out-of-pocket
travel and living expenses incurred by Wang in delivering this initial
training. CyCare agrees to timely assign the appropriate personnel to
attend such initial Technical Support and Sales training provided by Wang.
Such initial Technical Support training will not exceed one (1), five (5)
day course and will include training relative to proper installation of
the Product at an End User location. Such initial Sales training will not
exceed one (1), three (3) day course.
6. Software Support.
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6.1 Support. CyCare will provide its customers with First and Second Line
Support. Wang will provide Third Line Support to CyCare only. In
connection with the Third Line Support and subject to Subsections 3.1 and
4.2 herein, Wang will provide CyCare with a full database layout down to
the data element level, detailed documentation to the program function
level, and a trace code function that enables CyCare to debug the Product.
As part of Third Line Support Wang agrees to provide CyCare with a minimum
of two (2) Updates per twelve (12) month period.
As part of Third Line Support, at the request of CyCare, Wang will assist
with trouble shooting and support of End User problems, which cannot be
resolved by CyCare. If the problem is diagnosed to be other than a Product
problem such assistance will be billable to CyCare at Wang's then current
Time-and-Material rates, plus reasonable out-of-pocket travel and living
expenses as incurred.
CyCare agrees to provide Wang with prompt notice of any Product problem it
encounters and cannot resolve and CyCare will document each such oral
request within twenty-four (24) hours of placing the initial call with
Wang. Wang agrees to notify CyCare of any known Errors. Wang agrees to
provide CyCare Third Line Support on a seven (7) day by twenty-four (24)
hour basis with a one (1) hour response time. Wang agrees to respond on a
best-effort basis to critical End User Errors reported by CyCare to
immediately provide a resolution to the critical End User reported Error.
6.2 Sales and Support Staff. CyCare shall maintain at all times a Sales and
Technical Support staff, knowledgeable of the Product and trained in
accordance with Wang standards in the use, maintenance and support of the
Product.
6.3 Warranty Support. Wang's limited warranty, described in Section 11.2
herein, extends only to CyCare. CyCare agrees that it is responsible for
providing warranty services to its End Users. CyCare may provide Updates
only to those End Users for whom CyCare pays the applicable monthly
support fees to Wang in accordance with the Living Software price model as
set forth in Exhibit A.
7. Publicity.
7.1 Press Release. Wang and CyCare agree to a a joint press release announcing
this relationship subject to the prior mutual agreement of the nature of
the press release by both parties.
7.2 Joint Marketing. Wang intends to proactively launch a marketing campaign
for the healthcare marketplace. CyCare and Wang will also agree to
cooperate in other marketing activities which the parties mutually agree
would be beneficial in promoting this relationship and the Product in the
most favorable light, inclusive of industry trade shows, conferences,
symposiums, interviews for national
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publications, industry consultants, speaking engagements and marketing
materials. CyCare grants Wang, the right to use its name in Wang marketing
materials, provided CyCare has reviewed the materials prior to release.
7.3 Customer Accounts. Cycare agrees that Wang may, subject to CyCare's and
CyCare's End User's prior approval, which will not be unreasonably
withheld, use CyCare customer accounts as reference accounts for future
OPEN software sales opportunities.
8. License Prices and Payment.
8.1 Initial License Fee. CyCare agrees to pay Wang an initial license fee of
[confidential portion omitted and filed separately] (to be paid at
contract signing and the remaining [confidential portion omitted and filed
separately] to be paid within ninety (90) days thereafter) for the
shipment by Wang to CyCare of the "Golden Sample" of the Product, which
includes licenses granted for demonstration, training and support and
sublicenses for the initial installation sites. Wang agrees that the
Initial License Fee will be applied to the Minimum Target for the first
eighteen (18) month period.
8.2 Continuing Fees. The CyCare Living Software price model for the Medical
Records application will be the basis on which fees are to be paid to Wang
by CyCare at a rate of [confidential portion omitted and filed separately]
of the Initial License Fee and Monthly Fee charged by CyCare to its End
Users in accordance with the Living Software price model set forth in
Exhibit A, dated April, 1995, (which may only be modified to reflect a
decrease in the list price of the CyCare Living Software price model by
mutual agreement of the parties). CyCare may increase its list price of
the Living Software price model without Wang's consent and CyCare will
forward Wang a copy of the increased prices for its records. Wang agrees
to license the Product (excluding any data base product, "SUPRA" or
otherwise, and all third party tools and utilities listed on Exhibit D,
which CyCare must acquire directly) to CyCare for CyCare's use in
sublicensing its Medical Records application based on the CyCare net price
of the Medical Records application sublicensed to the CyCare End User
utilizing the CyCare "Living Software" price model set forth in Exhibit A.
The CyCare net price for the Medical Records application will be
discounted no more than [confidential portion omitted and filed
separately] off of the Living Software price model set forth in Exhibit A,
unless otherwise agreed in advance by Wang. Any increase in the CyCare
Medical Records application "Living Software" price model will be paid to
Wang at the [confidential portion omitted and filed separately] fee
percentage rate of revenue due Wang. Initial Installation site prices will
be as set forth in Exhibit C-1.
8.3 Minimum Target. The parties agree that the "Minimum Target" payments Wang
expects to receive from CyCare and CyCare expects to pay to Wang for the
first eighteen (18) months of the term of the Agreement will be
[confidential portion omitted and filed separately] for Wang's Product
that CyCare sublicenses to its End Users in accordance with the Living
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Software price model and at the [confidential portion omitted and filed
separately] fee payment percentage rate. For the subsequent twelve (12)
months of the Agreement, the parties agree that the "Minimum Target"
payments Wang expects to receive from CyCare and CyCare expects to pay to
Wang will be [confidential portion omitted and filed separately] for its
sublicensing of Wang's Product. For the remaining twelve (12) months of
the Agreement, the parties agree that the "Minimum Target" payments Wang
expects to receive from CyCare and CyCare expects to pay to Wang will be
[confidential portion omitted and filed separately] for its sublicensing
of Wang's Product. For the initial eighteen (18) months of the Agreement
or any of the successive twelve (12) month periods, Wang agrees to allow
CyCare to roll-over any payments made to Wang which are in excess of the
Minimum Target for that period into the Minimum Target for the next
successive twelve (12) month period.
8.4 Records: Payments.
(a) Records. CyCare will notify Wang weekly upon shipment of the Medical
Records software that the End User has been invoiced for the Initial
License Fee. CyCare agrees to keep accurate records of their Product
sublicenses and provide Wang with a detailed monthly report of the number
of sublicenses it has granted during the preceding month within thirty
(30) days following the end of the month for which the report is being
generated. Cycare's monthly payment report to Wang will be substantially
similar to the form set forth in Exhibit F and will also detail the fees
being paid to Wang (both initial fees and monthly fees) for that month.
Wang reserves the right to audit CyCare's applicable End User agreements,
books and records with thirty (30) days written notice for accurate
compliance with this reporting and remittance requirement.
(b) Payments. Payments to Wang will be made monthly for the Products
sublicensed and installed during the term of the Agreement in accordance
with the "Living Software" Price Model set forth in Exhibit A. All
payments will be due immediately and are payable within sixty (60) days
from the end of the month for which the initial sublicense fee is reported
in (a) above as being invoiced to each End User or thirty (30) days after
the end of each month for the monthly fees due for each End User in
accordance with the Living Software price model provided in Exhibit A.
Wang may impose, and CyCare agrees to pay, a late payment charge of one
percent (1 %) per month for any late payment of the fees specified above.
In the event an End User fails to make timely payments to CyCare, a cure
notice may be provided to the End User from CyCare, requesting that the
non-payment be remedied within thirty (30) days from the date of the
written notice. If payment is not received within the thirty (30) day cure
period, CyCare, at its sole option, may rescind the End User's sublicense
of the Product and no further payments will be due from CyCare to Wang for
the canceled End User sublicense monthly fees. Any subsequent successful
efforts of CyCare to collect any outstanding payments due CyCare by the
End User prior to the sublicense being rescinded,
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will likewise flow to Wang in accordance with the fee percentage rates
specified in Subsection 8.2 herein.
8.5 Service Rate. Wang's hourly rate used to calculate Time-and-Materials (as
such term is used herein) is [confidential portion omitted and filed
separately] per hour and is valid for the initial 18 months from the
Effective Date. For each subsequent 12 month period the hourly rate will
increase by 5% compounded annually during the Contract Term. All
reasonable out-of-pocket travel and living expenses incurred by Wang in
providing the services required pursuant to the Agreement will be billed
at actual cost of the expenses incurred.
9. Product Evaluation. CyCare agrees to use reasonable efforts to evaluate
Wang's image and workflow products in CyCare's current application product
set as it exists on the Effective Date and in future CyCare products,
except where such implementation would be cost prohibitive when compared
to other competitive products in the marketplace.
10. Marketing Activities.
10.1 Sales Forecasts. During the term of the Agreement, Cycare will provide to
Wang quarterly revenue forecasts for the Product for the upcoming six (6)
month period. Each quarterly revenue forecast will detail the anticipated
payments to be due Wang resulting from CyCare's sublicensing of the
Product, but will exclude any CyCare End User customer names.
10.2 Costs. Each party will bear all of its own costs and expenses in pursuing
any activities under this Section 10.
11. Warranties. Representations and Disclaimers.
11.1 Indemnification. Wang, at its own expense, will defend and indemnify
CyCare against claims that the Product furnished under the Agreement
infringes a United States patent, trademark, copyright or trade secrets
provided that CyCare (i) gives Wang prompt written notice of such claims,
(ii) gives Wang sole authority to defend and settle such claims, and (iii)
provides all reasonable assistance to Wang in defending or settling such
claims and if any such claim or action is pending or if Wang determines
that the Product may become the subject of a claim of infringement, Wang,
at its option and expense, will either procure for CyCare the right to
continue using the Product, replace or modify the Product so that it
becomes non-infringing or grant CyCare. Wang will not defend or indemnify
CyCare if any claim of infringement (i) is asserted by a parent,
subsidiary or affiliate of CyCare, (ii) results from the alteration of the
Product by CyCare or its End User, or (iii) results from the use of the
Product in combination with any non-Wang product or in practicing any
process. This states the entire
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liability of Wang and CyCare's sole and exclusive remedies for patent,
trademark, trade secrets, or copyright infringement.
11.2 Warranty. Wang warrants to CyCare for the Contract Term that the Product
will perform in accordance with its then functional specification. Wang
does not warrant that the Product will operate in all combinations that
are selected for use by an End User or CyCare or that the operation of the
Product will be uninterrupted or error-free. If CyCare during the Contract
Term notifies Wang in writing after the Product is installed that the
Product did not conform to this limited warranty, Wang will correct any
Product defect it finds in conformance with its Third Line support
obligation.
THE WARRANTIES STATED HEREIN ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, STATUTORY, EXPRESS AND IMPLIED, INCLUDING, WITHOUT LIMITATION,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
In no event shall Wang be liable to CyCare or its End User for any
special, incidental, indirect, punitive or consequential damages based
upon breach of warranty, breach of contract, strict tort or any other
legal theory, even if Wang has been notified of the possibility of such
potential loss or damage. Such damages for which Wang shall not be liable
include, but are not limited to, the loss of profits, the loss of savings
or revenue, the loss of employee time, the loss of use of the Product or
any associated equipment, the cost of capital, the cost of any substitute
equipment or products, facilities or services, downtime, the loss of
software or data, injury to property and the claims of third parties.
IN NO EVENT SHALL WANG'S LIABILITY IN CONNECTION WITH THE PRODUCT ACQUIRED
OR SERVICE PROVIDED HEREUNDER EXCEED THE PRICE PAID FOR THE PRODUCT OR
SERVICE BY THE END USER.
Except for an action brought to recover payments due hereunder, any action
must be commenced within twenty four (24) months after CyCare has
knowledge of the claim.
The Agreement allocates the risks of the Product selection and failure
between Wang and CyCare. This allocation is recognized by both parties and
is reflected in the price of the Product.
11.3 Representations. Wang owns all right, title and interest to the Product
(other than the third party software set forth in Exhibit D) and all
related intellectual property. To the best of Wang's knowledge there are
no current claims, proceedings, or litigation pending against Wang
involving the Product.
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12. Trademarks and Trade Names. During the term of the Agreement, CyCare is
authorized to use the trademark "Wang", Wang's distinctive logo, and the
Wang trademarks associated with the Product in connection with the
marketing of the Product. However, such use shall give CyCare no interest
in any trademarks logo or trade names of Wang. The registered trademark
"Wang" may be used only to identify the Product that is licensed to CyCare
by Wang. CyCare agrees that the Wang logo will appear on the initial
screen. CyCare may not use any Wang trademark or trade name in a way that
implies that it is a Wang agent, legal partner, representative, employee,
franchisee or joint venturer. CyCare may not include Wang trademarks or
trade names in any name under which it does business but may use the
following legend in signs, advertising, correspondence, proposals and
other materials, in type that is smaller and less prominent that CyCare's
own name:
"Authorized Reseller for Wang's Product"
Upon the expiration or termination of this Agreement, CyCare shall
immediately discontinue all use of Wang's trademarks, trade names and
service marks and shall not use any mark or any part of any mark that is
similar to any Wang mark.
During the term of the Agreement, Wang is authorized to use the trademark
"CyCare", CyCare's distinctive logo, and the Cycare trademarks associated
with the CyCare products in connection with the marketing of the CyCare
products. However, such use shall give Wang no interest in any trademarks,
logo or trade names of CyCare. The registered trademark "CyCare" may be
used only to identify the CyCare products that are licensed to Wang by
CyCare. Wang may not use any CyCare trademark or trade name in a way that
implies that it is a CyCare agent, legal partner, representative,
employee, franchisee or joint venturer. Wang may not include CyCare
trademarks or trade names in any name under which it does business, but
may use the following legend in signs, advertising, correspondence,
proposals and other materials, in type that is smaller and less prominent
that Wang's own name:
"Authorized Reseller for CyCare's Product"
Upon the expiration or termination of the Agreement, Wang shall
immediately discontinue all use of CyCare's trademarks, trade names and
service marks and shall not use any mark or any part of any mark that is
similar to any CyCare mark.
13. Confidentiality. The Agreement, the Product, Enhancements, including
related documentation, materials distributed and information conveyed at
Sales and Technical Support training, any other materials marked as
"Confidential" or "Proprietary" and any information conveyed by Wang at
meetings relating to Wang's unpublished marketing and Product strategies
or R & D plans are the confidential and proprietary property of Wang or
its suppliers (hereinafter
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"Confidential Information"). CyCare, on behalf of itself and its employees
as well as itself, agrees to receive and maintain all Confidential
Information in confidence, to use it only for its intended purpose, and,
except as provided herein, not to disclose it to third parties without the
prior written consent of Wang. CyCare shall limit its disclosure of
Confidential Information to only those of its employees who need such
information for the purposes of this Agreement. Notwithstanding the above,
CyCare shall have no obligation to Wang with respect to any Confidential
Information that is already known to it, free of any obligations of
confidentiality, or becomes generally publicly available through no
wrongful act of CyCare.
Exhibits C-1 and C-2 and any other materials marked as "Confidential" or
"Proprietary" and any information conveyed by CyCare at meetings relating
to CyCare's unpublished marketing and product strategies or R & D plans
are the confidential and proprietary property of CyCare or its suppliers
(hereinafter "Confidential Information"). Wang, on behalf of itself and
its employees as well as itself, agrees to receive and maintain all
Confidential Information in confidence, to use it only for its intended
purpose, and, except as provided herein, not to disclose it to third
parties without the prior written consent of CyCare. Wang shall limit its
disclosure of Confidential Information to only those of its employees who
need such information for the purposes of the Agreement. Notwithstanding
the above, Wang shall have no obligation to CyCare with respect to any
Confidential Information that is already known to it, free of any
obligations of confidentiality, or becomes generally publicly available
through no wrongful act of Wang.
14. No Solicitation of Employees. For the term of the Agreement and any
renewal thereof, and for one (1) year after termination, each party agrees
not to solicit any employees of the other party or an end-user of the
other party without the prior written consent of the other party or the
end-user, respectively, except through advertisements and solicitations
directed to the market generally.
15. Disclosure. CyCare hereby discloses to Wang that it is a developer of
software and that CyCare may have comparable software products to the
Product and materials in existence or in development, or may decide to
develop similar software in the future, or may decide to purchase similar
software from a third party. CyCare agrees that disclosure of such
development does not in any way reduce or modify its obligations under
this Agreement or its Exhibits (as executed if necessary), particularly
those contained in Sections 3.5, 3.6 and 4. The parties agree that such
disclosure is made solely for informational purposes. Wang does not hereby
waive any of its rights with respect to the enforcement of the provisions
of the Agreement or any other right it may have with respect to the source
code of the Product or the related intellectual property.
16. Survival. The rights and obligations of the parties which by their nature
survive, shall survive the expiration or termination of this Agreement,
including, but not
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limited to, those set forth in, Sections 2.2, 2.4, 3.2, 4.1, 4.2, 4.3,
6.1, 8.2, 8.4, 8.5, 10., 11.1,11.2,12., 13., and 14.
17. No Assignment. No assignment of the fully executed contract will be
allowed unless authorized in advance in writing by the other party, with
such approval by the other party not being unreasonably withheld. The
exceptions to the above prohibition are assignments to wholly owned
subsidiaries or assignments in connection with the sale or transfer of the
parties entire business as related to the Product.
18. Escrow Agreement. Wang agrees to allow CyCare to become a beneficiary of
Wang's source code escrow account established with a third party escrow
agent at the then current fees. CyCare shall have the right to receive a
copy of the documented source code for the Product (deposited in the
account) upon the occurrence of one or more of the following events and
provided that CyCare is not in breach of the Agreement or has filed or had
filed against it a petition in bankruptcy or had a receiver appointed:
(a) Wang ceases doing business or is finally adjudicated as bankrupt (not
including reorganizations under Chapter 11 or any similar successor
provision);
(b) Wang fails in a material manner to provide support or maintenance for
the Product required by the Agreement and such material failure continues
unabated for more than forty-five (45) days after written notice from
CyCare.
The source code which is subject to this Section 18 shall be deemed to be
Confidential Information. Release of the source code to CyCare upon the
occurrence of any of these events will not in any way diminish CyCare's
obligations hereunder with respect to Confidential Information.
CyCare shall be responsible for all costs associated with becoming and
continuing as a beneficiary of the source code escrow account.
19. Relationship of the Parties. The parties agree that in all matters
relating to this Agreement, CyCare shall act as an independent contractor
and shall not expressly or impliedly represent that it has any authority
to assume or create any obligation on behalf of Wang. Neither party shall
hold itself out to be a joint venturer, partner, employee, representative,
franchisee, servant or agent of the other.
20. Notices. All notices required or permitted herein shall be effective only
if in writing and either hand delivered or sent by certified or registered
mail, return receipt
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requested, to the undersigned signatories or their successors at the
addresses set forth on the first page hereof. If mailed, notices shall be
deemed effective five (5) business days after mailing.
21. No Waiver. The waiver or failure to enforce any breach or default
hereunder shall not constitute the waiver of any other or subsequent
breach or default.
22. Amendments. The Agreement can only be modified by a writing that
specifically references the Agreement and is duly signed by a duly
authorized representative of each party. The Agreement may not be
supplemented or modified by any course of dealing or trade usage.
23. Severability. If any provision of the Agreement is held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be affected and the parties shall
negotiate, in good faith, a legal and enforceable substitute provision
that most nearly effects the parties' intent of the provision.
24. Attorney's Fees. The parties agree if either one commences a lawsuit
against the other, that each party shall be responsible for its own
attorney's fees and litigation costs.
25. Dispute Resolution. The following procedures apply to all disputes.
However, compliance with each procedure in this section is subject in each
case to the prior approval of either party's insurance carrier whose
liability may be affected.
(a) Either party may serve a written request upon the other that
designated senior managers of each party attempt to resolve. The
designated senior managers (John Pollock for Wang and Bill Childs for
CyCare or their respective designee) will meet within fourteen (14) days
of the request, alternating the place of meeting, beginning at CyCare's
corporate offices. After thirty (30) days from receipt of the request,
either party may serve a written request for binding arbitration.
(b) The parties agree that any dispute that remains unresolved upon the
completion of (a) above will be submitted to binding arbitration in the
city of Boston in accordance with the rules and procedures of the American
Arbitration Association before a single arbitrator who will be appointed
from a panel of qualified persons supplied by the American Arbitration
Association (AAA) and reasonably familiar with the computer software
industry. The Commercial Arbitration Rules of the AAA will apply. The
parties may engage in reasonable discovery permitted by the Federal Rules
of Civil Procedure subject to supervision and time limits of the
arbitrator. The decision on the arbitrator will be governed by and will
not rewrite, invalidate or expand upon the terms and conditions of the
Agreement. The
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decision will be final and may be enforced as a judgment in any court of
competent jurisdiction. Judgment upon any award made in such arbitration
may be entered and enforced in any court of competent jurisdiction in the
State of Massachusetts. Notwithstanding anything to the contrary contained
herein, if Wang or CyCare will require immediate injunctive relief or
other equitable relief, then the party requiring such relief will have the
power to invoke the jurisdiction of any court having jurisdiction and, if
such party so elects, the other party hereby consents to the jurisdiction
of the state and federal courts in the State of Massachusetts and to the
applicable service of process.
Each party will pay its own legal fees and expenses, and the cost of the
arbitrator will be shared equally by the parties. Any statements made in
the course of any negotiation will not be used for any purpose except to
interpret a resulting agreement.
26. Governing Law. All matters, including, without limitation, matters of
construction, procedure, remedies, interpretation, validity and the rights
and duties of the parties shall be governed by the laws of the
Commonwealth of Massachusetts, and all disputes between the parties shall
be adjudicated only in a court within Massachusetts that has jurisdiction
and venue at Wang's corporate headquarters.
27. Headings. Section headings are provided for convenient reference only and
shall not be construed otherwise.
28. Entire Agreement. The parties acknowledge that they each have read the
Agreement, including the Exhibits, and agree to be bound by its terms and
conditions. The parties further agree that the Agreement is the complete
and exclusive statement of the mutual understanding of the parties and
that it supersedes and cancels all previous and contemporaneous written
and oral agreements and communications relating to the subject matter of
the Agreement.
BOTH PARTIES ACKNOWLEDGE HAVING READ THE AGREEMENT AND UNDERSTANDS AND AGREES TO
BE BOUND BY ITS TERMS, CONDITIONS, AND PRICES. BOTH PARTIES FURTHER AGREE THAT
THE AGREEMENT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE MUTUAL
UNDERSTANDINGS OF THE PARTIES AND THAT THE AGREEMENT SUPERSEDES AND CANCELS ALL
PREVIOUS AND CONTEMPORANEOUS WRITTEN AND ORAL AGREEMENTS AND COMMUNICATIONS
RELATING TO THE SUBJECT MATTER OF THE AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed
as a sealed instrument in their names by the properly and duly authorized
officers or representatives as of the date first above written.
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CyCare Systems, Inc. Wang Laboratories, Inc.
Signature: Mark R. Schonau Signature: Bruce Ryan
--------------------------- ---------------------------
Name: Mark R. Schnau Name: Bruce Ryan
--------------------------- ---------------------------
Title: CFO Title: President
--------------------------- ---------------------------
Date: 8/30/95 Date: 8/30/95
--------------------------- ---------------------------
19
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Exhibit A
CyCare Medical Records Application
Living Software Price Model
(To Be Provided By CyCare)
[confidential portion omitted and filed separately]
20
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Exhibit B
Wang NON-DISCLOSURE AGREEMENT
Source Code
Wang Laboratories, Inc., a Delaware Corporation ("Wang") and CyCare
Systems, Inc., a Delaware corporation ("CyCare") of 7001 North Scottsdale Road,
Suite 1000, Scottsdale, Arizona 85253-3644 ("Recipient") agree to enter into a
confidential business relationship, whereby under specific circumstances, and
subject to certain terms and conditions, as set forth in the Reseller Agreement
by and between CyCare and Wang dated as of August 30, 1995 (the "Reseller
Agreement"). Recipient may need access to specific modules of the Physician
Workstation software ("Software") and to associated documentation and other
information relating to the Software as described in the Reseller Agreement
(hereinafter collectively referred to as "Source Code"). Such Source Code will
be provided in accordance with the Reseller Agreement. In consideration of the
foregoing, it is hereby agreed that:
1. Recipient acknowledges and agrees that notwithstanding any copyright notice
on or in the Source Code, the Source Code comprises highly valuable trade
secrets and other confidential information of Wang and that any unauthorized use
or disclosure of the Source Code would cause serious and irreparable harm to
Wang.
2. Recipient agrees to use the Source Code only for the purpose described above
and shall make no other use of the Source Code whatsoever, including, without
limitation, the development or sale of competing products or services or any
other use that would deprive Wang of any revenue or business opportunity.
3. Recipient agrees to maintain all Source Code that it receives in the
strictest confidence using the utmost care and shall not directly or indirectly
disclose it, reveal it or otherwise make it available, in whole or in part, to
any third party without the prior written consent of Wang.
4. Recipient shall limit access to the Source Code within its organization to
only those of its employees who have been advised in writing of Wang's rights in
the Source Code and who need such information to fulfill the purpose of this
Agreement. Upon request, Recipient shall promptly supply Wang with the names of
each employee who has or has had access to all or any part of the Source Code.
5. At the completion of each development effort, Recipient shall immediately
return to Wang all tangible materials containing Source Code made available or
supplied to Recipient by Wang, including, but not limited to, drawings,
documents, hardware, disks and tapes without retaining any copies, notes or
extracts. Upon request, Recipient shall also deliver to Wang a certificate of an
officer of Recipient certifying that all copies of the Source Code in any form
(except executable object code) have been returned.
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Page 2 of 2
6. Recipient acknowledges and agrees that money damages alone will not be an
adequate remedy for any breach of this Agreement or Recipient's obligation of
confidentiality with respect to the Source Code. Accordingly, Recipient agrees
that Wang shall be entitled to equitable relief to restrain or redress any
breach or threatened breach of this Agreement or Recipient's obligation of
confidentiality with respect to the Source Code in addition to any other
remedies Wang may have at law or equity.
7. Nothing in this Agreement shall be construed to authorize Recipient to use
the Software in source or in object form on any unlicensed system. Recipient
acknowledges and agrees that Wang shall have no responsibility or obligation to
support or maintain any modifications to any Wang product made by Recipient
unless and until Wang incorporates such modifications into the Product.
8. Except as set forth elsewhere in this Agreement Wang shall not be obligated
to disclose any information or Source Code to Recipient or enter into any other
agreement or arrangement with Recipient nor shall it be construed as granting
any rights, by license or otherwise, in any information, software or inventions
of Wang. Recipient's obligations under this Agreement shall survive the
termination of its association with Wang regardless of the manner of such
termination and shall be binding upon Recipient's heirs, successors and assigns.
This Agreement is entered into under the laws of the Commonwealth of
Massachusetts as a sealed instrument and shall be construed thereunder and any
cause of action arising between the parties relating to the Source Code, whether
under this Agreement or otherwise, may be brought in a court having jurisdiction
and venue at the home office of Wang and Recipient hereby consents to such
jurisdiction and venue.
Wang Laboratories, Inc. CyCare Systems, Inc.
By By
----------------------------------- --------------------------------
Title Title
-------------------------------- -----------------------------
Date Date
--------------------------------- ------------------------------
22
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Exhibit C-1
CyCare Installed Base Customer List
(To Be Provided By CyCare)
[confidential portion omitted and filed separately]
23
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Exhibit D
Product Software
Wang OPEN/image Server
Wang OPEN/image Custom Controls (Doc MGR, Display, Scan, Print VBX's)
Microhelp (Animation VBX, Gauge VBX, Tip Help VBX)
Farpoint (Spread (VBX and C++), Tabpro VBX)
QE Runtime Library
Visual Basic Runtime
25
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Exhibit E
RECIPROCAL NON-DISCLOSURE AGREEMENT
Wang Laboratories, Inc., a Delaware Corporation ("Wang") and CyCare
Systems, Inc., a Delaware corporation ("CyCare") of 7001 North Scottsdale Road,
Suite 1000, Scottsdale, Arizona 85253-3644.
agree to enter into a confidential business relationship for the purpose of as
set forth in the Agreement. In order to achieve this purpose, either party may
disclose information that it deems confidential and/or proprietary. Therefore,
it is hereby agreed that:
1. For a period of three (3) years from the date of the disclosure of the
information, the receiving party will consider as Confidential Information any
information it receives in tangible form from the disclosing party that is
marked as Confidential or Proprietary. Information which is disclosed orally
will be considered Confidential Information if it is identified as confidential
at the time of disclosure and reduced to writing and sent to the receiving party
within ten (10) days of the disclosure.
2. Each party agrees to receive and maintain all Confidential Information in
strictest confidence using at least reasonable care and, except as provided
herein, shall not use Confidential Information for its own benefit or disclose
it to third parties without the written consent of the disclosing party.
3. Upon request, the receiving party shall immediately return all tangible
materials made available or supplied by the disclosing party including, but not
limited to, drawings, documents, hardware, disks and tapes without retaining any
copies, notes or extracts.
4. Neither party shall have any obligations under this Agreement with respect to
information which: (a) is already known to the receiving party or is publicly
available at the time of disclosure; (b) is disclosed to the receiving party by
a third party who is not in breach of an obligation of confidentiality; (c)
becomes publicly available after disclosure through no act of the receiving
party; or (d) is developed by the receiving party without breach of this
Agreement.
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5. This Agreement does not obligate either party to disclose any information to
the other or enter into any other agreement or arrangement nor shall it be
construed as granting any rights by license or otherwise in any software or
inventions of either party. The parties' obligations under this Agreement shall
survive the termination of their association regardless of the manner of such
termination. This Agreement shall be governed as a sealed instrument under
Massachusetts law.
Wang Laboratories, Inc. CyCare Systems, Inc.
By: By
-------------------------------- -----------------------------------
Title: Title:
----------------------------- -------------------------------
Date: Date:
------------------------------ --------------------------------
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Exhibit F
Monthly Payment/Remittance Report
(To Be Inserted By Wang)
28
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Exhibit G
Physician Workstation Functional Specification
(To Be Inserted By Wang)
29
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EXHIBIT G
Physicians' Workstation Product Functionality Specification
Introduction
Physician's Workstation (PWS) is a scaleable, point of care application designed
by physicians for use in the ambulatory environment. PWS operates effectively
across existing health information systems to capture and build an extensive
patient record. Information is automatically obtained from existing systems,
received via fax, scanned in at the point of care, or updated by the physician
directly during the encounter. Information is stored and catalogued in a
clinical information database. This patient specific information will furnish
the physician and health care organization with the information that is
essential in a capitated or managed care environment.
PWS is a client server operating environment with a focus on open systems.
Developed around the Microsoft Windows Graphical front end, PWS provides a
scaleable operating environment to satisfy the growing needs of the healthcare
industry. PWS will run on any industry standard 486 or Pentium PC, uses Oracle
as the relational database but can be ported to any ANSI-SQL ODBC compliant
database. Multiple UNIX server platforms can be used along with Novell Netware.
PWS also includes an interface server to facilitate data exchange between PWS
and existing systems.
Specific Functionality
PWS provides the following major components:
Workspace-- Graphical Desktop for the Clinical User
The Workspace is the central controlling point for the application
environment. It provides a graphical container holding all the major
objects listed below. It provides an intuitive desktop metaphor that is
customizable by the user. The Workspace allows each individual to control
size, positioning and activation of the major components.
Appointment List-- Display of appointments past, present, and future
The Appointment window provides a view of the user's appointment list for
scheduled and walk-in patients. The appointment list allows the user to
display a list of past, present, and future scheduled appointments. The
appointment list can be populated through an interface to the organizations
appointment scheduling and registration system or directly through PWS.
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Patient Summary -- Discreet elements representing categories like: Acute
Illnesses, Chronic Illnesses, Habits, Family History, Medications,
Hospitalization, Health Maintenance, Allergies, Immunizations, Occupation,
Optometrics.
The Patient Summary window provides the user with a tab-folder view of the
details of each category: Acute Illnesses, Chronic Illnesses, Habits,
Family History, Medications, Hospitalization, Health Maintenance,
Allergies, Immunizations, Occupation, Optometrics. There is a separate tab
for each of the listed categories. In order to facilitate easy and quick
viewing of the data, one additional tab is provided that is a customizable
report for each individual user. Each user has the ability to easily format
the report and select items from the individual categories by date or by
sequence. Population of these tabs can occur through automatic feed from
the encounter note and or direct data entry.
Patient Records--Image based patient chart
Based on Wang's core imaging technology, the Patient Record window provides
a view of the historical chart of the patient. Images can be scanned in via
the Scan Utility or are created through the Encounter documentation window.
Each document is indexed and identified by author, date, and document type
so they are easy to find and identify. Capabilities to page through a chart
or search an index to find a specific document are available.
Encounter Documentation -- includes ICD-9, CPT4 coding, clipart annotation,
disposition, referral to another provider, suspension of encounter
The Encounter window allows the user to perform the documentation of the
clinical note. The user has the ability to call up forms that mimic the
paper forms used in the practice today. The user can type into the form
using the keyboard, the user can write on the form with a pen and tablet
which provides the look and feel of handwriting on paper, or the user can
use customizable templates that allow for faster more accurate
documentation. Templating can be implemented in a interactive manner so the
variables for each visit can be prompted for with quick responses provided
by the user. The user can also append medical clipart to the note and
annotate it with the pen and tablet providing a more accurate picture of
the problem which in turn facilitates better patient communications.
In addition, the Encounter window provides customizable pick lists of
diagnosis and procedure coding, as well as input of the encounter
disposition, electronic signature, generation of a referral note, and
suspension of the encounter. The suspension capability allows the user to
save an in-process note in it's interim state for completion at a later
date or time.
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Order Entry--Medication, Laboratory and Radiology
The Order Entry window provides the user with a graphical order entry
screen where laboratory, radiology and pharmacy orders may be generated. It
provides customized lists of the user's favorite or most used lists of
medications, lab and radiology tests. The user can order individually or
via sets which are dynamic and customizable on-the-fly. Sets can be made up
of any or all of the three order entry categories. Creation of a set can be
accomplished dynamically as the user generates their order.
Results Retrieval-- Laboratory and Radiology Text reports
The Results window provides by patient a view of all the results of both
laboratory and radiology results that have been delivered electronically to
the system. Through the use of the interface server the PWS can gather up
results in a textual format and present them to the user for review. This
helps to eliminate the need to search for missing results; they are there
when you need them. Each result is indexed by date and description for easy
access. Any part of the result can be copied into the encounter note.
In-Basket--To do list with simple e-mail capability
The In-Basket window is a listing of things the user needs to respond to.
This can take three forms, ticklers which are notes to yourself, mail which
are messages between users like phone messages, and phone consults which
are follow-ups the user needs to perform relating to a particular patient.
In addition, the In-Basket can also receive messages related to lab and
radiology results with links to the actual results. The system can be
implemented so results are returned to the In-Basket of the ordering
provider to facilitate faster notification and review of results.
Encounter Summary -- Complete and In-process encounters, Referrals sent and
Received
The Encounter Summary window provides a list of all encounters the patient
has had with the PWS system. By selecting one of the entries the user can
see details about the visit including, diagnosis, procedures, tests and
medications ordered, assigned provider and vitals for the visit. The user
also is provided a list of all In-Process (suspended) encounters, as well
as any referrals that were sent and any referrals that were received.
Demographics-- Patient Demographics with Insurance, Employers and Emergency
Contact Information
The Demographics window allows the user to see pertinent information
related to the patient. Detailed demographics, Insurance carrier and policy
numbers, Emergency Contact Information, and Primary provider information is
available.
<PAGE>
Vital Signs-- Customizable Vitals
A Vital Signs Entry window is available for the user to enter the vitals
for the visit. The vitals displayed are customizable to the user so vitals
that are important to your clinic or specialty can be captured.
Setup-- Customization of the desktop to suit individual users
The Setup window allows the user to control the attributes of the
workspace. The user can customize the workspace appearance, appointment
display time slices, patient summary report display format, and appointment
list and in-basket refresh timers.
Utilities
PWS comes with the following utilities to assist in the installation, setup
and historical record scanning.
Install Utility--Installation of PWS
Scan Utility--Scanning application to support scanned input of
patient information
Administration Utility--Application/database setup including
customizable pick lists and creating users
Form Builder Utility-- Design environment to create forms
<PAGE>
Checklist of Functions
- --------------------------------------------------------------------------------
Summary Sheet x
- --------------------------------------------------------------------------------
Problems x
- --------------------------------------------------------------------------------
Immunizations x
- --------------------------------------------------------------------------------
Allergies x
- --------------------------------------------------------------------------------
Medications x
- --------------------------------------------------------------------------------
Drug-drug interaction checking x
- --------------------------------------------------------------------------------
Drug-allergy interaction checking x
- --------------------------------------------------------------------------------
Past Visits x
- --------------------------------------------------------------------------------
Vital Signs x
- --------------------------------------------------------------------------------
Past History x
- --------------------------------------------------------------------------------
Family History x
- --------------------------------------------------------------------------------
Habits x
- --------------------------------------------------------------------------------
Hospitalizations x
- --------------------------------------------------------------------------------
Occupation x
- --------------------------------------------------------------------------------
Optometry x
- --------------------------------------------------------------------------------
Acute Illnesses x
- --------------------------------------------------------------------------------
Chronic Illnesses x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Encounter Window
- --------------------------------------------------------------------------------
Open/New Encounter Form/Document x
- --------------------------------------------------------------------------------
Hold/Suspend Encounter Form/Document x
- --------------------------------------------------------------------------------
Close Encounter x
- --------------------------------------------------------------------------------
Able to append changes to encounter x
- --------------------------------------------------------------------------------
Annotate with Medical Clipart x
- --------------------------------------------------------------------------------
Save Form/Document x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Order Entry
- --------------------------------------------------------------------------------
Able to define order sets x
- --------------------------------------------------------------------------------
Able to order lab tests x
- --------------------------------------------------------------------------------
Able to order radiology tests x
- --------------------------------------------------------------------------------
Able to order medications x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Appointment Window
- --------------------------------------------------------------------------------
Display of Physician Schedule x
- --------------------------------------------------------------------------------
Past Appointments x
- --------------------------------------------------------------------------------
Current Appointments x
- --------------------------------------------------------------------------------
Future Appointments x
- --------------------------------------------------------------------------------
Manual appointment logging within Medical Records x
- --------------------------------------------------------------------------------
<PAGE>
General Features
- --------------------------------------------------------------------------------
Supports electronic signature x
- --------------------------------------------------------------------------------
Supports electronic transfer of Med. Rec. x
to another location
- --------------------------------------------------------------------------------
Supports FAX of Medical Records documents x
- --------------------------------------------------------------------------------
Supports ticklers/reminder system x
- --------------------------------------------------------------------------------
Supports document/forms building x
- --------------------------------------------------------------------------------
Supports multiple printers to send forms x
- --------------------------------------------------------------------------------
Supports referral notices x
- --------------------------------------------------------------------------------
Supports use of 3rd party report/query tool x
- --------------------------------------------------------------------------------
Supports patient education/index listing of topics x
to print and provide patients about
illness/conditions
- --------------------------------------------------------------------------------
Patient Search/Lookup within Medical Records x
- --------------------------------------------------------------------------------
Able to creat an encounter without an appointment x
- --------------------------------------------------------------------------------
Flow Sheet display x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Interface Capabilities
- --------------------------------------------------------------------------------
Bi-Directional information flow of the following: x
- --------------------------------------------------------------------------------
Patient Demographics x
- --------------------------------------------------------------------------------
Insurance x
- --------------------------------------------------------------------------------
Contact-Emergency x
- --------------------------------------------------------------------------------
Providers Info x
- --------------------------------------------------------------------------------
Lab Results x
- --------------------------------------------------------------------------------
Text file results x
- --------------------------------------------------------------------------------
Abnormal range indicators x
- --------------------------------------------------------------------------------
Radiology x
- --------------------------------------------------------------------------------
Imaging x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Security
- --------------------------------------------------------------------------------
User login verification x
- --------------------------------------------------------------------------------
Audit Trail x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Customization
- --------------------------------------------------------------------------------
Able to create customized destop display x
- --------------------------------------------------------------------------------
Able to customize forms x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
???
- --------------------------------------------------------------------------------
Able to build dictionary entries for picklists x
- --------------------------------------------------------------------------------
- --Global x
- --------------------------------------------------------------------------------
- --Clinic/Department x
- --------------------------------------------------------------------------------
- --Physician x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
General Windows Feature
- --------------------------------------------------------------------------------
User of color palette x
- --------------------------------------------------------------------------------
Able to size windows x
- --------------------------------------------------------------------------------
Multi-support of various input devices x
- --------------------------------------------------------------------------------
- --pen x
- --------------------------------------------------------------------------------
- --tablet x
- --------------------------------------------------------------------------------
- --mouse x
- --------------------------------------------------------------------------------
- --keyboard x
- --------------------------------------------------------------------------------
- --voice--Via third party COTS product x
- --------------------------------------------------------------------------------
- --Windows '95 compatibility x
- --------------------------------------------------------------------------------
- --On-line Help x
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
CyCare Systems, Inc. and Subsidiaries
Discussion and Analysis of Financial Condition
and Results of Operations
General
The Company continues to focus its product line on the physician and group
practice marketplace. As these markets continue to evolve toward managed care,
electronic medical records and integrated delivery networks, the demand for
sophisticated information technology is increasing. The Company responded to
these demands by introducing innovative products and services throughout the
year. With the introduction of these new products, the Company took a $3.8
million technology charge in the fourth quarter of 1995 to eliminate certain
products which the Company now regards as obsolete. This charge is discussed
further in Note 3 to the Consolidated Financial Statements.
1995 Compared to 1994
The Company's net income for the year ended December 31, 1995 was $2.0
million which includes a $3.8 million technology charge. Net income for the
year, excluding the technology charge, was $4.3 million versus $3.0 million for
the year ended December 31, 1994, an increase of 43%. Total revenue in 1995
increased to $62.9 million from $53.8 million in 1994, or 17%. Comparable
year-to-year services revenue increased to $47.6 million, up 10%, while systems
revenue increased to $13.7 million, or 50%. Services revenue increased due to
additional monthly license fees and transaction volume growth within CyData, the
Company's wholly owned EDI subsidiary. The growth in systems sales is
attributable to the continuing success of the CS3000, one of the few
client/server-based systems in the market today. The Company anticipates further
success of the product which has been complemented by the roll-out of its
electronic medical records product, CS-CIS, which began shipping in late 1995.
Services margins in 1995 were 61% as compared to 62% from the prior year.
Systems margins increased to 34%, up from 30% in 1994. This increase is
primarily attributable to new account sales in 1995 that have more software and
higher margins than sales to existing customers.
Selling and administrative costs as a percentage of revenues were 35% in
1995, versus 36% in 1994. Overall these costs increased $2.4 million which was
mainly due to the expansion in the Company's sales and marketing teams. Research
and development expenses increased approximately $278,000, or 7%, from 1994. As
a percentage of revenues, research and development costs were 7% in 1995 and 8%
in 1994. The Company is committed to funding future development of its core
group practice product line which includes the CS3000, the CS-CIS medical
records product and the enterprise-wide scheduling product, slated for release
in 1996. Additional dollars are also being spent on the Company's Windows-based
system, SpectraMED, and on expanding the electronic transaction processing
capabilities of its CyData subsidiary.
Interest expense continues to decrease as the Company continues to reduce
its average outstanding debt.
The Company's effective income tax rate for 1995 was 37% versus 40% in 1994.
This reduction was mainly attributable to changes in certain state income tax
laws that had a beneficial impact on the Company's income tax expense.
1994 Compared to 1993
The Company's net income for the year ended December 31, 1994 was $3.0
million, versus $1.2 million for the year ended December 31, 1993, an increase
of 150%. (The net income of $1.2 million for 1993 excludes the $3.7 million gain
[loss after tax] on the sale of the Company's Practice Management business unit
and the $11.9 million restructuring charge incurred in the fourth quarter of
1993. Any further references to 1993 financial results will also exclude these
items.) Total revenue from 1993 to 1994 declined 20% due to the sale of the
Practice Management business unit. Excluding 1993 Practice Management revenue of
$20.8 million, the Company's total revenue increased 15% from 1993 to 1994.
Comparable year-to-year services revenue increased 10%, while systems sales
increased 45%. The systems revenue growth was attributable to the continued
market acceptance of the Company's CS3000 system and successful introduction of
its Windows-based SpectraMED product. Services revenue grew due to increases in
monthly license fees and services, primarily for new CS3000 and SpectraMED
clients, and an increase in transactions processed by the Company's wholly owned
CyData subsidiary.
Services margins increased to 62% in 1994, from 49% the prior year. This
increase was primarily due to the fourth quarter 1993 sale of Practice
Management, a business unit that had lower operating margins than the Company's
remaining business units.
Systems sales were 70% hardware and 30% software in 1994, versus 75% and
25%, respectively, in 1993. Software sales increased 5% as a percentage of
systems sales, but this increase in high-margin software was offset by a
decrease in hardware margins due to customer demand for less profitable personal
computers.
Selling and administrative costs as a percentage of revenue were 36% in 1994
versus 34% in 1993. While selling and administrative costs from continuing
operations decreased due to the sold division, sales and administrative costs as
a percentage of revenue increased 2%. The 2% increase in 1994 was due to the
Company more than doubling its sales and marketing staffs as a result of the
success of its core business products.
Research and development expenses decreased 3% from 1993 to l994. As a
percentage of revenue, research and development costs were 8% in 1994 and 9% in
1993, excluding Practice Management revenues. The Company continued to spend its
research and development dollars enhancing its CS3000 and SpectraMED products,
developing its electronic medical records and enterprise-wide scheduling
products and adding additional capabilities to its EDI products and services.
Interest expense decreased 45% year-to-year due primarily to a reduction in
average debt outstanding.
The Company's effective income tax rate in 1994 was 40% versus 44% in 1993,
excluding the sale of Practice Management and the restructuring charge. The
decrease is primarily due to the increase in income before taxes, which had the
effect of reducing the relative impact of non-deductible expenses on the income
tax rate.
Financial Position
The Company had working capital of $17.6 million at December 31, 1995,
including $13.6 million in cash. The Company's cash flow from operations in 1995
was $6.6 million.
During 1995, the Company used funds to reduce debt, purchase treasury stock
and for additional investments in software products and capital expenditures.
The Company's long-term debt at December 31, 1995 was $2.9 million versus $4.2
million at December 31, 1994. Under the 1.5 million share repurchase program
authorized by its Board of Directors, the Company purchased 80,227 shares for
$1.9 million in 1995 and 812,800 shares for $7.6 million in 1994. The Company
will continue to purchase shares as considered necessary and as authorized under
the share repurchase program.
The Company has a $3.5 million revolving line of credit that expires in
April 1997. The Company anticipates that its current cash position, together
with funds generated from operations and available from its line of credit, will
be sufficient to meet its working capital requirements, debt obligations and to
finance any capital expenditures. On a long-term basis, the Company plans to
generate cash through operations, bank borrowings and/or raise capital through
private or public offerings to meet future capital needs.
<PAGE>
CONSOLIDATED BALANCE SHEETS
CyCare Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In Thousands
Except Share Data)
December 31 1995 1994
-----------------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $13,570 $13,760
Accounts receivable, less $820 allowance for doubtful accounts in 1995,
$755 in 1994 6,975 4,184
Unbilled work at estimated realizable value 1,922 1,868
Supply and equipment inventories 1,000 723
Prepaid and other assets 3,378 3,223
Deferred income taxes 42 414
-----------------------
Total Current Assets 26,887 24,172
Property and equipment at cost, less accumulated depreciation and amortization 9,806 9,778
Software products, less $5,115 accumulated amortization in 1995, $3,914
in 1994 7,587 9,353
Goodwill, less $204 accumulated amortization in 1995, $185,000 in 1994 938 545
Other intangibles, less $2,239 accumulated amortization in 1995, $2,142
in 1994 754 252
Other assets 301 296
=======================
Total Assets $46,273 $44,396
=======================
Liabilities And Shareholders' Equity:
Current liabilities:
Current portion of long-term debt $1,300 $1,546
Accounts payable 2,563 1,989
Accrued expenses 3,270 2,753
Accrued payroll 1,021 1,208
Client deposits and unearned income 824 1,225
Income taxes payable 302 196
-----------------------
Total Current Liabilities 9,280 8,917
Long-term debt, less current portion 2,853 4,153
Other long-term liabilities 1,674 2,671
Deferred income taxes 2,381 3,432
Shareholders' equity:
Preferred stock, par value $1.00, 1,000,000 shares authorized, none issued
Common stock, par value $.01,10,000,000 shares authorized; 6,097,957 issued 61 61
in 1995 and 1994
Capital in excess of par value 31,436 29,505
Retained earnings 8,110 7,114
Less treasury stock, 1,003,037 and 1,280,569 shares at cost in 1995 and 1994, (9,522) (11,457)
respectively
-----------------------
Total Shareholders' Equity 30,085 25,223
-----------------------
Commitments
Total Liabilities And Shareholders' Equity $46,273 $44,396
=======================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Cycare Systems, Inc. and Subsidiaries
<TABLE>
(In Thousands Except Per Share Data)
<CAPTION>
Years Ended December 31 1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Revenues:
Services $ 47,627 $ 43,329 $ 60,138
Systems 13,724 9,132 6,310
Interest and dividends 881 608 183
Other income 690 743 4,431
----------------------------------
62,922 53,812 71,062
----------------------------------
Costs and Expenses:
Services 18,452 16,349 31,312
Systems 9,006 6,379 4,771
Software product amortization 5,801 2,168 5,953
Research and development 4,347 4,069 4,203
Selling and administrative 21,778 19,334 30,083
Interest 450 464 844
----------------------------------
59,834 48,763 77,166
----------------------------------
Income (loss) before income taxes 3,088 5,049 (6,104)
Income taxes 1,135 2,029 1,657
----------------------------------
Net Income (Loss) $ 1,953 $ 3,020 ($ 7,761)
==================================
Earnings (loss) per share $ 0.38 $ 0.60 ($ 1.39)
Common and common equivalent shares used in the calculation of
earnings (loss) per share 5,183 5,018 5,579
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CyCare Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(In Thousands)
Period Ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income (Loss) $ 1,953 $ 3,020 ($ 7,761)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Amortization of goodwill and intangibles 116 83 943
Depreciation and amortization 1,669 1,743 2,265
Software product amortization 2,223 2,168 2,188
Write off of intangible assets -- -- 7,623
Technology Charge 3,759 -- --
Gain on sale of business unit -- -- (3,675)
Provision for losses on accounts receivable 389 544 907
Provision for deferred income taxes (679) 2,095 (2,392)
(Gain) loss on sale of equipment 2 (22) (31)
Changes in operating assets and liabilities:
Acounts receivable and unbilled work (3,059) (839) 2,544
Other assets (438) 1,382 444
Accounts payable and accrued expenses (184) 313 (2,335)
Contract reserve -- (25) 11
Income taxes payable 1,823 (3,168) 3,875
Other long-term liabilities (997) 509 1,276
--------------------------------------
Net cash provided by operating activities 6,577 7,803 5,882
Investing Activities:
Purchase of property and equipment (1,692) (1,615) (1,241)
Proceeds from sale of equipment 9 155 142
Proceeds from sale of business unit -- -- 24,093
Capitalized software products (4,034) (3,257) (4,872)
Increase in intangible assets (100) (140)
--------------------------------------
Net cash provided by (used in) investing activities (5,817) (4,857) 18,122
Financing activities:
Proceeds from revolving line of credit and long-term borrowings -- 4,100 3,128
Principal payments on revolving line of credit, long-term
borrowings and capital lease obligations (1,546) (5,408) (7,925)
Translation adjustment (29) (4) (2)
Net Proceeds from sale of common stock, warrants, options
and treasury stock 2,550 1,457 623
Purchase of treasury stock (1,925) (7,576) (2,484)
--------------------------------------
Net cash used in financing activities (950) (7,431) (6,660)
--------------------------------------
Increase (decrease) in cash and cash equivalents (190) (4,485) 17,344
Cash and cash equivalents at beginning of year 13,760 18,245 901
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 13,570 $ 13,760 $ 18,245
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CyCare Systems, Inc. and Subsidiaries
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
(In Thousands Except Share Data)
===========================================================================================================================
Common Stock
---------------------- Capital In
Par Excess of Retained Treasury
Shares Value Par Value Earnings Stock Total
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 5,592,782 $61 $29,125 $11,861 ($3,309) $37,738
Net loss (7,761) (7,761)
Translation adjustment (2) (2)
Purchase of treasury stock (281,300) (2,484) (2,484)
Proceeds from employee stock
purchase plan offering 71,590 (11) 429 418
Exercise of stock options 35,000 (5) 210 205
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 5,418,072 61 29,109 4,098 (5,154) 28,114
Net income 3,020 3,020
Translation adjustment (4) (4)
Purchase of treasury stock (812,800) (7,576) (7,576)
Proceeds from employee stock
purchase plan offering 54,741 55 329 384
Tax benefit of stock options 212 212
Exercise of stock options 157,375 129 944 1,073
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 4,817,388 61 29,505 7,114 (11,457) 25,223
Net income 1,953 1,953
Translation adjustment (29) (29)
Purchase of treasury stock (80,227) (1,925) (1,925)
Proceeds from employee/director stock
plan offerings 42,204 134 349 483
Issuance of common stock 21,430 106 490 596
Tax benefit of stock options 1,718 1,718
Exercise of stock options 294,125 (27) (928) 3,021 2,066
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,094,920 $61 $31,436 $8,110 ($9,522) $30,085
-------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CyCare Systems, Inc. and Subsidiaries
1. Summary of Significant Accounting Principles
Basis of preparation:
The consolidated financial statements include the Company (a Delaware
corporation) and its subsidiaries. Operations in Canada which were insignificant
and made up less than 1% of revenues were discontinued in the first quarter of
1995. All intercompany transactions and accounts have been eliminated.
Nature of operations:
CyCare's principal line of business is in providing systems and services to
the physician group marketplace, and electronic data interchange to the health
care industry. The principal markets for the Company's products and services are
geographically disbursed throughout the United States.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues:
The Company provides information processing services and systems, primarily
to medical group practices, faculty practice plans and medical enterprises
throughout the United States. Initial software license fee revenues are
recognized for financial statement purposes when the contract is signed, and
upon shipment of systems and, if applicable, upon compliance with certain other
conditions. Software maintenance revenues are recognized when billed, a majority
of which are billed monthly.
Supply and equipment inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and equipment:
Depreciation is computed by the straight-line method over the estimated
useful lives of such assets. Leasehold improvements are amortized over the
remaining life of the lease. Property and equipment are summarized below:
Property and equipment are summarized below:
Estimated
useful life
1995 1994 in years
------- ------- ------------
(In Thousands)
Land $ 500 $ 500
Buildings and
improvements 10,090 9,921 5 - 23
Computers
and equipment 19,351 18,806 3 - 8
Furniture
and fixtures 2,503 2,335 8 - 10
Leasehold
improvements 56 56 Lease term
------- -------
32,500 31,618
Less accumulated
depreciation
and
amortization 22,694 21,840
------- -------
Property and
equipment, net $ 9,806 $ 9,778
Research and development:
Research and development costs, principally the design and development
(exclusive of certain costs capitalized as software products) of proprietary
systems, and programming, are expensed as incurred. Routine maintenance of
proprietary software is also expensed as incurred.
Software products:
Certain internal software development costs, primarily coding and testing
and meeting recoverability tests, are capitalized as software products. The cost
of software capitalized is amortized over the greater of its life of three to
five years, or the ratio of current revenues to current and anticipated revenues
from such software.
Income taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes.
Goodwill and intangibles:
Goodwill represents the excess of cost over the fair value of assets at the
date of acquisition of businesses acquired. The goodwill is being amortized over
40 years. The allocated costs of certain contracts and customer lists acquired
in conjunction with the acquisition of businesses are included in intangibles.
The intangibles are being amortized over the related lives ranging from two to
twelve years. The Company assesses the recoverability of goodwill and
intangibles based upon expected future, undiscounted cash flows and other
relevant information.
Earnings per share:
Earnings per share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the year. Fully
diluted earnings per share are not presented since such amounts would not have a
material dilutive effect.
Cash and cash equivalents:
Cash and cash equivalents include demand deposits, bank money market
accounts and repurchase agreements since they represent highly liquid
investments with remaining maturities of less than three months when purchased.
Concentration of credit risk:
Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist principally of accounts receivable and
unbilled work. A majority of the Company's accounts receivable and unbilled work
are derived from sales in various geographic areas to customers in the health
care industry. The Company performs ongoing credit risk evaluations of its
customer's financial condition and generally does not require collateral. The
Company's significant customers are major, well-known businesses in the health
care industry. Credit losses have been provided for in the financial statements
and have been within management's expectations.
Accounting for stock-based compensation:
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, which provides an alternative
to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for stock-based compensation issued to employees. The Statement allows for a
fair value based method of accounting for employee stock options and similar
equity instruments. However, for companies that continue to account for
stock-based arrangements under Opinion No. 25, Statement No. 123 requires
disclosure of the pro forma effect on net income and earnings per share of its
fair value based accounting for those arrangements. These disclosure
requirements are effective for fiscal years beginning after December 15, 1995,
or upon initial adoption of the statement, if earlier. The Company continues to
evaluate the provisions of Statement No. 123 and has not determined whether it
will adopt the recognition and measurement provisions of that Statement, which
the Company expects would result in increased compensation expense in future
periods.
Reclassifications:
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with 1995 financial statement presentation.
2. Acquisitions and Dispositions
During December 1995, the Company acquired all of the outstanding stock of
Richard D. Jugel & Company (Jugel), a provider of electronic data interchange
services, for 21,430 shares of CyCare common stock which was valued at $600,000.
This transaction was accounted for as a purchase. In addition, the Company
executed covenants not to compete with two former officers of Jugel for $100,000
cash and a $500,000 note payable. In connection with the acquisition, the
Company acquired assets with a fair value of $196,000 and assumed liabilities of
$8,000. The results of operations of Jugel are not considered significant.
Therefore, pro forma information has not been included.
During 1993, the Company sold substantially all of the assets and certain
liabilities of its Practice Management business unit for $24.1 million in cash.
This business unit provided processing and collection services for
hospital-based physicians throughout the United States. Assets sold approximated
$18.8 million and liabilities assumed by the purchaser were $588,000. In
addition, the Company recorded charges for liabilities related to the
disposition of the business. These charges, which totaled $2.2 million, were for
facilities and workforce adjustments as a result of the sale, as well as certain
transaction related fees. The sale resulted in a profit before tax of
approximately $3.7 million which is included in other income. The Company had
taxable income related to the gain of $10.9 million due primarily to
nondeductible goodwill included in the assets sold.
3. Corporate Charges
During the fourth quarter of 1995, the Company recorded charges of
approximately $3.8 million, primarily related to previously developed software
technology which the Company will replace with more advanced products. The
charges related primarily to the Company's previously developed medical records
technology, which will be replaced by a more advanced product licensed from Wang
Laboratories, and a mainframe version of the CyCare System 3000, which the
Company has determined would not be viable in a client/server environment.
During the fourth quarter of 1993, the Company wrote down assets and established
reserves totaling $11.9 million, primarily related to its decision to focus
efforts on those products and services perceived to be the most attractive to
the health care marketplace. These adjustments included the discontinuance of
certain products and services formerly offered by the Company, which resulted in
the elimination of the related capitalized software, intangibles and goodwill
associated with these products and services. In addition, the Company's Board of
Directors authorized the repurchase of an additional one million shares of its
common stock from time to time in the open market at prevailing market prices.
As a result of the sale of the Practice Management business unit, the Company
operates fewer offices and has reduced corporate overhead. The write-downs and
reserves related principally to product lines eliminated or de-emphasized and
are as follows:
- --------------------------------------------------------------------------------
(In Thousands)
Capitalized software $ 3,765
Goodwill and intangibles 3,858
Office consolidations, relocation
and severance reserves 753
Retirement benefit 1,612
Other 1,933
-------
$11,921
-------
The impact on the income statement is as follows:
- --------------------------------------------------------------------------------
(In Thousands)
Cost of services 390
Cost of systems sold 350
Software product amortization 3,765
Selling and administrative expenses 7,416
-------
$11,921
-------
4. Long-Term Debt and Line of Credit
Long-term debt consisted of the following at December 31:
1995 1994
- --------------------------------------------------------------------------------
(In Thousands)
First mortgage payable to a bank,
at prime rate plus .25%
monthly principal payments
of $68,334 to April 1999,
collateralized by a building $2,733 $3,553
Term loan payable to a bank, at
prime rate, monthly principal
payments of $37,778 to
April 1999, collateralized
by all assets 1,378 1,831
Other 42 315
------ ------
$4,153 $5,699
------ ------
Less current portion 1,300 1,556
----- -----
Long-term portion $2,853 $4,153
====== ======
Maturities of long-term debt due in each of the next four years is
$1,300,000 in 1996, $1,280,000 in 1997, $1,282,000 in 1998 and $291,000 in 1999.
The Company estimates that the fair market value of the above long-term debt
approximates its recorded value since the interest rates vary with prime. The
Company's borrowing agreements contain covenants which place various
restrictions on financial ratios, levels of net worth and working capital, and
prohibits the payment of dividends.
During the years ended December 31, 1995, 1994 and 1993, the Company made
interest payments which totaled approximately $450,000, $456,000, and $844,000,
respectively.
The Company has a $3,500,000 line of credit with a bank expiring in April
1997. At December 31, 1995 and 1994, the unused portion totaled $3,500,000.
Borrowings under the line of credit bear interest at the bank's prime rate less
.25%.
Information with respect to the line of credit is as follows:
<TABLE>
<CAPTION>
Maximum Average Weighted
amount amount average
Balance of Weighted outstanding outstanding interest rate
end of average during the during the during the
period interest rate period period period
Line of Credit
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995 $ ---- ---- ---- ---- ----
Year Ended December 31, 1994 $ ---- ---- ---- ---- ----
Year Ended December 31, 1993 $ ---- 6.5% $4,671,000 $2,647,000 5.5%
</TABLE>
The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balance by the number of months the
borrowings were outstanding. The weighted average interest rate during the
period was computed by dividing the actual interest expense by the average
short-term debt outstanding.
Note 5. Benefit Plans
The Company has a stock option plan for key employees. Shareholders amended
the plan in 1995 to provide an additional 300,000 shares of common stock for
future grants, bringing the total shares reserved for common stock options to
1,120,000. The plan qualifies as an incentive stock option plan. Non-qualified
stock options can also be issued under the plan. Options are granted at the fair
market value at date of grant. Incentive stock options expire on the fifth
anniversary of the date of grant. The non-qualified options are exercisable
based on terms established by the Board of Directors. All options expire upon
termination of employment. In addition, under certain circumstances all options
may become immediately exercisable. Transactions involving the plan are
summarized as follows:
<TABLE>
<CAPTION>
Option price
Benefit Plans Available Unexercised Exercisable per share
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 126,647 589,000 343,000 $ 4.88 - 10.00
Granted (40,500) 40,500 7.00 - 7.00
Becoming exercisable 142,250 4.88 - 10.00
Exercised (35,000) (35,000) 4.88 - 7.63
Cancelled 30,000 (30,000) (30,000) 6.00 - 9.63
---------------------------------------------------
Balance at December 31, 1993 116,147 564,500 420,250 4.88 - 10.00
Granted (127,500) 127,500 8.25 - 12.75
Becoming exercisable 99,375 4.88 - 7.25
Exercised (157,375) (157,375) 4.88 - 9.00
Cancelled 82,000 (82,000) (82,000) 6.00 - 10.00
---------------------------------------------------
Balance at December 31, 1994 70,647 452,625 280,250 4.88 - 12.75
Amended Plan 300,000
Granted (315,500) 315,500 14.88 - 32.50
Becoming exercisable 92,750 4.88 - 12.75
Exercised (293,500) (293,500) 4.88 - 12.75
Cancelled 39,250 (39,250) (39,250) 4.88 - 19.00
---------------------------------------------------
Balance at December 31, 1995 94,397 435,375 40,250 $ 4.88 - 32.50
---------------------------------------------------
</TABLE>
In 1995, shareholders approved the issuance of 50,000 shares of common stock
under a stock plan for non-employee directors of the Company. Under the plan,
non-employee directors received a one-time non-qualified stock option grant of
2,500 shares that vests at a rate of 25% per year and expires five years from
the date of grant. Additionally, any non-employee director serving in such
capacity as of July 1st of each year is granted 1,000 restricted shares. The
term of the restriction is one year from date of grant. However, under certain
circumstances the non-qualified stock option will become immediately exercisable
and all restrictions will be removed from the restricted stock grant. In 1995,
non-qualified stock options were granted for 7,500 shares (at a price of $12.38)
and restricted stock grants were issued for 3,000 shares, leaving 39,500 shares
available for future issuance.
The Company also has an Employee Stock Purchase Plan. In 1995, shareholders
amended the plan to provide an additional 300,000 shares under the plan,
increasing the total authorized to 1,320,000. The purchase price is the lesser
of 85% of the fair market value of the stock at either the beginning or end of
the plan year. Employees may designate up to 10% of their compensation for the
purchase of stock. The number of shares purchased by employees was 39,204 in
1995, 54,741 in 1994 and 71,590 in 1993. At December 31, 1995, 302,701 shares
remained unissued under the plan and will be made available for employee
purchase during the plan year commencing January 1, 1996.
The number of shares of treasury stock the Company purchased was 80,227 in
1995, 812,800 in 1994 and 281,300 in 1993. The average price per share based on
the fair market value on date of purchase was $23.99 in 1995, $9.32 in 1994 and
$8.83 in 1993. Included in the 1994 purchases were 412,800 shares purchased, at
$9.00 per share, from an entity that was owned by a former director of the
Company. The Company utilized 357,759 in 1995, 212,116 in 1994 , and 106,590 in
1993 of treasury shares to fund the Stock Option, Director Stock and Employee
Stock Purchase Plans and for an acquisition as discussed in Note 2.
The Company's 401(k) Savings Plan was established for the benefit of all of
its employees. Participants may contribute an amount not exceeding 15% of
pre-tax compensation, or 10% of after-tax compensation, or a combination of
pre-tax and after-tax contributions not to exceed 19% of compensation, received
during the period of participation in the Plan. The Company's matching
contribution to the Plan is 15% of the employee's first 10% of compensation
contributed. The Company's expense under the Plan, including administrative
costs, amounted to $145,000 in 1995, $204,000 in 1994 and $286,000 in 1993.
Effective December 28, 1993, the Company entered into a retirement benefit
and post-employment benefit program with its Chairman and Chief Executive
Officer in recognition of past services and the additional responsibilities
assumed upon the restructuring of the Company during the fourth quarter of 1993.
Under the retirement benefit element, he is to receive 60% of his average wages
during his last two years of service subject to certain reductions. The Company
accounts for these benefits under the provisions of Statement of Financial
Accounting Standard No. 87 and is to fund the benefits from corporate assets at
the time the payments are required between the ages of 65 and 70. The projected
benefit obligation was $650,000 and $550,000 at December 31, 1995 and 1994,
respectively. The expense recorded was $222,000 in 1995, $210,000 in 1994 and
none in 1993 given the effective date at year end. Any unrecognized prior
service costs are being amortized over a three-year period.
In accordance with the retirement benefit arrangement above, during 1993 the
Company also modified its split-dollar life insurance arrangement with its
Chairman and Chief Executive Officer whereby premiums paid and to be paid under
the policies are not required to be returned to the Company should he reach age
70. Accordingly, the Company expensed the existing premiums recorded as assets
in the fiscal year ended December 31, 1993 and recorded a $692,000 liability for
the present value of the future payments, which are required through 2003. The
total expense of this arrangement recorded during 1993 was $1.6 million and was
reflected in the fourth quarter 1993 corporate restructuring. The expense
recorded, representing interest costs, was $44,000 in 1995 and $23,000 in 1994.
Should the Chairman and Chief Executive Officer not attain age 70, the Company
would receive a return of all prior premiums paid from the policy proceeds.
NOTE 6. INCOME TAXES
Significant components of the federal and state income tax expense for the
years ended December 31 are:
1995 1994 1993
- --------------------------------------------------------------------------------
(In Thousands)
Current:
Federal $ 1,687 $ (57) $ 3,271
State 127 (9) 778
----------------------------------------------
Total Current $ 1,814 $ (66) $ 4,049
Deferred:
Federal (631) 1,823 (2,081)
State (48) 272 (311)
----------------------------------------------
Total Deferred: (679) 2,095 (2,392)
$ 1,135 $ 2,029 $ 1,657
==============================================
Total income tax payments, net of refunds received, were approximately
($116,000) in 1995, $3,134,000 in 1994 and $223,000 in 1993.
The following table reconciles the differences between the effective income
tax rate and the federal statutory income tax rate for the years ended December
31:
1995 1994 1993
- --------------------------------------------------------------------------------
Federal statutory rate 34% 34% (34%)
Goodwill - - 55
State taxes net
of federal benefit 2 4 5
Other 1 2 1
----------------------------------------------
37% 40% 27%
==============================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
1995 1994 1993
- --------------------------------------------------------------------------------
(In Thousands)
Deferred tax liabilities: $ 599 $ 732 $ 637
Tax versus financial
reporting depreciation
Capitalizing versus
expensing certain
software develop-
ment costs 2,784 3,678 3,230
Prepaid expenses
and other 435 885 861
------------------------------------------
Total deferred tax liabilities 3,818 5,295 4,728
Deferred tax assets:
Tax versus financial
reporting liabilities 1,384 2,157 3,248
Prepaid software
licenses 95 120 557
------------------------------------------
Total deferred tax assets 1,479 2,277 3,805
------------------------------------------
Net deferred tax liabilities $ 2,339 $ 3,018 $ 923
==========================================
NOTE 7. Commitments
The Company leases premises and equipment under non-cancelable operating
leases at various dates through 2003. Certain of these leases contain renewal
and purchase option clauses under various terms.
Rental expense charged to operations was approximately $4,714,000 in 1995,
$4,704,000 in 1994 and $6,284,000 in 1993. The approximate annual rental
commitments in each of the next five years and thereafter is approximately
$2,100,000 in 1996, $1,714,000 in 1997, $1,396,000 in 1998, $635,000 in 1999,
$370,000 in 2000 and $638,000 thereafter.
The Company also acts as lessor for portions of its building and computer
equipment with a cost of $8,549,000, accumulated depreciation of $5,235,000 and
a net carrying value of $3,314,000. At December 31, 1995, future minimum lease
receivables under the lease agreements are approximately $832,000 in 1996,
$752,000 in 1997, $563,000 in 1998, $298,000 in 1999, $110,000 in 2000, and
$20,000 thereafter.
NOTE 8. Quarterly Results (Unaudited)
Quarterly financial results for the years ended December 31, 1995 and 1994
are summarized below.
Note 8 - Quarterly Results
1995 1994
- --------------------------------------------------------------------------------
(In Thousands Except Per Share Data)
Revenues 1st Quarter $ 15,761 $ 12,996
2nd Quarter 16,463 13,163
3rd Quarter 16,184 13,423
4th Quarter 14,514 14,230
Gross profit: 1st Quarter $ 8,206 $ 6,938
2nd Quarter 8,707 7,208
3rd Quarter 8,231 7,276
4th Quarter 4,519 7,494
Net income (loss): 1st Quarter $ 1,013 $ 608
2nd Quarter 1,113 680
3rd Quarter 1,142 776
4th Quarter (1,315) 956
Earnings (loss) per share 1st Quarter $ 0.20 $ 0.12
2nd Quarter 0.21 0.14
3rd Quarter 0.22 0.16
4th Quarter (0.25) 0.19
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
CyCare Systems, Inc.
We have audited the accompanying consolidated balance sheets of CyCare
Systems, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CyCare Systems,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
February 14, 1996
REPORT OF CYCARE MANAGEMENT
To the Shareholders of CyCare Systems, Inc.
February 14, 1996
Management recognizes that it is primarily responsible for the integrity and
fairness of all information and representations contained in the consolidated
financial statements and notes thereto, as well as other sections of the annual
report. In preparing the consolidated financial statements, we have made
informed judgments and estimates in accounting for transactions and events and
given due consideration to materiality.
The Company's internal accounting controls are designed to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use
and produce adequate records for preparation of financial information. There are
limits inherent in all systems of internal accounting control based on the
recognition that the cost of such systems should not exceed the benefits to be
derived. We believe our systems provide the appropriate balance.
Management has cooperated in providing information and full access to
records to the Company's independent auditors, Ernst & Young LLP, during the
course of their audit of the consolidated financial statements. Ernst & Young
LLP meets annually with the Board of Directors, which includes members who are
not employees of the Company, to review internal accounting control, auditing
and financial reporting matters.
/s/ Jim H. Houtz /s/ Mark R. Schonau
Jim H. Houtz Mark R. Schonau
Chairman of the Board, President Chief Financial Officer, Secretary
and Chief Executive Officer and Treasurer
ELEVEN - YEAR COMPARISON OF SELECTED FINANCIAL DATA
CyCare Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 62,922 $ 53,812 $ 71,062 $ 75,635 $ 75,444 $ 79,429 $ 86,215 $ 83,734 $ 67,718 $ 57,186 $ 48,585
Net income(loss) $ 1,953 $ 3,020 $ (7,761) $ 1,499 $ 612 $(11,657) $ 3,079 $ 486 $ 3,762 $ 2,866 $ 3,116
Capital additions $ 1,692 $ 1,615 $ 1,241 $ 772 $ 1,416 $ 1,958 $ 2,482 $ 6,368 $ 10,340 $ 10,350 $ 6,509
Working capital $ 17,607 $ 15,255 $ 18,287 $ 9,867 $ 8,712 $ 8,028 $ 12,145 $ 12,624 $ 19,057 $ 18,546 $ 16,451
Total assets $ 46,273 $ 44,396 $ 48,730 $ 60,843 $ 64,558 $ 70,229 $ 87,469 $ 92,670 $ 75,276 $ 64,906 $ 53,273
Long-term debt $ 2,853 $ 4,153 $ 5,690 $ 7,200 $ 8,305 $ 12,072 $ 15,948 $ 20,215 $ 10,263 $ 5,717 $ 1,014
Financial Ratios:
Percent recurring
service revenue
to total 76% 81% 85% 85% 87% 82% 79% 80% 71% 61% 51%
Return on revenues-
Before tax 4.9% 9.4% (8.6%) 3.3% 1.8% (21.0%) 5.7% 1.1% 5.7% 8.9% 11.2%
After tax 3.1% 5.6% (10.9%) 2.0% .8% (14.7%) 3.6% .6% 5.6% 5.0% 6.4%
Return on common
shareholders'
equity 7.1% 11.3% (23.6%) 4.0% 1.7% (27.8%) 6.6% 1.1% 9.1% 7.7% 11.5%
Total debt to total
capitalization .54 .76 .73 .61 .74 .94 .83 1.05 .71 .67 .52
Current ratio 2.9:1 2.7:1 2.7:1 1.8:1 1.6:1 1.4:1 1.7:1 1.6:1 2.4:1 2.5:1 2.1:1
Per Share Data:
Earnings (loss)
Per share $ 0.38 $ 0.60 $ (1.39) $ 0.27 $ 0.11 $ (2.10) $ 0.54 $ 0.09 $ 0.70 $ 0.55 $ 0.67
Book value per
common share $ 5.90 $ 5.24 $ 5.19 $ 6.75 $ 6.54 $ 6.44 $ 8.56 $ 7.95 $ 7.92 $ 7.28 $ 6.72
Dividends per
share(2)
Employees
(December 31) 493 464 450 1,069 1,131 1,188 1,257 1,445 976 1,018 677
States and provinces
covered 53 53 53 53 53 53 52 53 53 53 53
</TABLE>
Securities Information
The common stock of CyCare Systems, Inc. is listed on the New York Stock
Exchange under the symbol CYS. The high, low and closing transaction prices as
reported by the NYSE are set forth in the following tables.
1995 High Low Close
- --------------------------------------------------------------------------------
4th Quarter 34 1/2 22 5/8 25 5/8
3rd Quarter 39 1/2 27 1/4 33 1/4
2nd Quarter 27 1/2 22 1/8 27 1/4
1st Quarter 23 3/8 14 1/2 21 7/8
1994 High Low Close
- --------------------------------------------------------------------------------
4th Quarter 15 7/8 10 3/4 14 7/8
3rd Quarter 13 3/4 11 1/2 12 5/8
2nd Quarter 12 1/2 9 5/8 12 1/4
1st Quarter 11 1/8 7 3/4 10 3/8
SUBSIDIARIES OF THE REGISTRANT
Percentage
Jurisdiction of Voting
of Securities
Name of Subsidiaries Incorporation Owned
- -------------------- ------------- ----------
CyData, Inc. Delaware 100%
The financial statements of this subsidiary, along with those of Registrant, are
included in the Consolidated Financial Statements filed herewith.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
CyCare Systems, Inc.
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of CyCare Systems, Inc. of our report dated February 14, 1996, included in the
1995 Annual Report to Shareholders of CyCare Systems, Inc.
Our audits also included the financial statement schedules of CyCare Systems,
Inc. listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Registration Statement No.
2-83933 on Form S-8 dated May 19, 1986, Registration Statement No. 33-5201 on
Form S-8 dated May 19, 1986, Registration Statement No. 33-18845 on Form S-8
dated November 25, 1987, Registration Statement No. 33-31677 on Form S-8 dated
October 27, 1989, Registration Statement No. 33-34913 on Form S-8 dated May 15,
1990, Registration Statement No. 33-44487 on Form S-8 dated December 13, 1991,
Registration Statement No. 33-44488 on Form S-8 dated December 13, 1991,
Registration Statement No. 33-60217 on Form S-8 dated June 14, 1995,
Registration Statement No. 33-60219 on Form S-8 dated June 14, 1995,
Registration Statement No. 33-60221 on Form S-8 dated June 14, 1995 and
Registration Statement No. 33-65465 on Form S-3 dated December 29, 1995 of
CyCare Systems, Inc. of our report dated February 14, 1996, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of CyCare
Systems, Inc.
Ernst & Young LLP
Phoenix, Arizona
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND
INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 13,570
<SECURITIES> 0
<RECEIVABLES> 6,975
<ALLOWANCES> 0
<INVENTORY> 1,000
<CURRENT-ASSETS> 26,887
<PP&E> 9,806
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,273
<CURRENT-LIABILITIES> 9,280
<BONDS> 2,853
0
0
<COMMON> 61
<OTHER-SE> 30,024
<TOTAL-LIABILITY-AND-EQUITY> 46,273
<SALES> 13,724
<TOTAL-REVENUES> 62,922
<CGS> 9,006
<TOTAL-COSTS> 18,452
<OTHER-EXPENSES> 31,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 450
<INCOME-PRETAX> 3,088
<INCOME-TAX> 1,135
<INCOME-CONTINUING> 1,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,953
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
