SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14236
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HEALTHPLEX, INC.
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(Name of small business issuer in its charter)
Delaware 11-2714365
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
60 Charles Lindbergh Blvd., Uniondale, New York 11553
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(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (516) 542-2200
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- -----
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year were
$12,468,396.
As at April 10, 1997, 3,585,082 shares of Common Stock of the
registrant were outstanding. The aggregate market value of the
1,888,564 shares of Common Stock held by non-affiliates as of
such date was $2,773,828.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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General
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Healthplex, Inc. (the "Company" or "Healthplex") is a
Delaware corporation and the successor by merger of Dentshield,
Inc., a New York corporation organized on March 26, 1981. The
Company's address is Nassau West Corporate Center I, 60 Charles
Lindbergh Boulevard, Uniondale, New York 11553 and its telephone
number there is (516) 542-2200.
The Company renders marketing, claims processing, electronic
data processing, printing and related services to Dentcare
Delivery Systems, Inc. ("Dentcare"), a dental health-care plan
company, pursuant to an exclusive agreement. (See Item 12.
Certain Relationships and Related Transactions). The Company
operates its own separate plan through a wholly-owned subsidiary,
International Healthcare Services, Inc. ("IHS," and together with
Dentcare, the "Plans"). The Company also provides administrative
services to certain unaffiliated dental plans on an
"administrative services-only" basis.
The Company's wholly-owned subsidiary, O.A.SYS.
Corporation, develops document imaging systems, including
hardware and software components, and markets these systems to
hospitals, insurance companies and small businesses. O.A.SYS.
derives revenues from consulting fees, software development fees
and from dealer mark-ups on resales of imaging hardware equipment
manufactured by third-party suppliers.
A significant portion of the Company's revenues are derived
from its service arrangement with Dentcare and from the Company's
operation of IHS. The Company renders consulting, data systems,
claims processing, marketing, printing and other services to the
Plans pursuant to Service Agreements between the Company and each
of the Plans. The Company's Service Agreement with Dentcare
provides for compensation to the Company based upon various fee
components designed to allocate reasonably the various costs of
providing services. The fee may not exceed that permitted by
applicable law. See "Government-Regulation - General." Service
fee income is generally determined as a percentage of premium
income of the related Plan. The Company is responsible for
collection of bills and accounts receivable, establishing and
maintaining records and books of accounts, processing and payment
of claims, marketing, preparation of annual budgets (including
setting forth major operating objectives, anticipated revenues,
expenses, cash flow and capital expenditures), management of all
purchases and leases of equipment (with delegated authority to
commit for purchases or leases of up to $5,000), obtaining
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general liability insurance, review of employee benefit plans,
design and implementation of utilization programs and cost
control measures, professionalism and quality control systems,
banking, contract negotiations and overall responsibility for
administrative functions.
Each Service Agreement is for a term of three years and is
automatically renewable for additional one-year periods upon
notice given two years in advance. Dentcare may terminate the
Service Agreement by furnishing written notice thereof to the
Company on or before the anniversary date of the Service
Agreement. Such termination would be effective two years after
the applicable anniversary date. The Service Agreements may be
terminated by either party, among other reasons, for cause upon
60 days prior written notice.
The Service Agreement with Dentcare ends automatically if
Dentcare's authority to operate a dental health service program
is terminated and ends on 15 days' written notice if the parties
determine that their best interests cannot be served by
modifications to the Service Agreement required by the applicable
State Insurance Department.
The Company also derives premium revenues from the pre-paid
dental plan operations of its wholly-owned subsidiary, IHS.
The Company also provides administrative services, primarily
claims processing and related electronic data processing
services, to unaffiliated dental plans. The administrative
services only business enables the Company to utilize the excess
capacity of its electronic data processing capabilities. The
Company typically charges a per claim handling fee for processing
these claims. The administrative services only business is
attractive since the Company is not subject to the same risks
which exist in those instances where the Company's affiliates
undertake an underwriting risk in providing fee-for-service or
capitation programs.
ELECTRONIC DATA PROCESSING SERVICES
As an integral part of its services, the Company renders
information and image processing services to its Plans and to
unaffiliated businesses. The Company's EDP functions are
provided in-house with a Data General 6240 Series Computer with
128 megabytes of memory and over 16 billion bytes of disk space.
The Company has developed its own software using an SQL Fourth
Generation Language and an Oracle Database. Over 60 terminals
are in use with unlimited expansion capabilities. The Company
also utilizes an Oasys document imaging system with PC
workstations and a Hewlett-Packard 144 disk optical autochanger.
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MARKETING
The Company markets its services through its own employees
and through marketing arrangements with third parties. The
Company's marketing efforts traditionally have entailed
convincing groups to switch from existing dental plans to those
of the Plans or convincing groups to join a dental plan. This
marketing effort involves a two-tier process in which the Company
must first convince a group to contract with a Plan to make plan
participation available to the members of the group and, if this
external marketing is achieved, the Company must then convince
potential subscribers and enrollees to participate in the Plan.
These marketing efforts typically involve significant marketing
costs incurred over a period of several months prior to
realization of revenues derived from such efforts.
THE PLANS - GENERAL
Dentcare is a New York not-for-profit corporation. Pursuant
to its charter and by-laws, Dentcare has no stockholders or
members as such. IHS is a New Jersey for profit business
corporation and is wholly-owned by Healthplex.
Dentcare is authorized to furnish health expense indemnity
under Article 43 of the New York Insurance Law, and provides
prepaid dental insurance programs and fee-for-service programs to
groups and to individuals in New York State. Under a prepaid
plan, the dentist is compensated on the basis of the number of
enrolled patients, regardless of the extent of services
performed. Under a fee-for-service, or indemnity program, the
dentist is paid fees for the performance of various dental
procedures. Dentcare's primary service area consists of New York
City and surrounding counties.
IHS is authorized by the New Jersey Department of Banking
and Insurance to act as a "dental plan organization" in the State
of New Jersey. IHS provides prepaid dental plans to groups and
individuals and is a wholly-owned subsidiary of the Company. As
such, the consolidated financial statements of the Company
contained elsewhere herein include the financial statements of
IHS.
At April 10, 1997, Dentcare and IHS had 107,781 and 23,304
members, respectively, and the Company serviced 125,136 members
on an administrative service only basis.
PREPAID PLANS
Under the prepaid dental plans of both Dentcare and IHS,
monthly premiums are collected on behalf of Dentcare and IHS from
the groups and are paid to participating dentists, or providers,
after deduction of expenses paid by Dentcare or IHS or charged by
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the Company in accordance with its Service Agreement. Such
payments to the provider are commonly referred to as capitation
fees. Under the Company's capitation fee program, the capitation
fee is a fixed monthly fee based only on the number of
subscribers enrolled with a particular provider without regard to
the number of patient visits or types of work performed. The
Company believes that the capitation fee concept provides
significant incentive for providers to practice preventive
dentistry. If the provider actively improves the dental health
of his patients, the provider's work load decreases, thereby
improving the provider's operating margins and profitability.
Specialized dental services, such as orthodontics,
endodontics, periodontics and oral surgery are provided through
specialists with whom the Company contracts on behalf of the
Plan.
Dentcare and IHS offer several different plans for
subscribers, principally groups such as unions, associations,
school systems, law enforcement agencies, municipalities and
pension benefit organizations. As of April 10, 1997, Dentcare
had 1,635 subscribing groups and IHS had 1,053 subscribing groups
for prepaid dental plan programs.
Under the prepaid plans of Dentcare and IHS there is no
pre-enrollment examination of the enrollee. The plans accept the
existing condition of each of the subscribers and their
dependents. There are no deductible amounts prior to coverage
under the plan, maximum limitation on coverage(s) provided under
the plan contract or pre-authorizations as commonly required by
indemnity insurance carriers for treatment. In addition, neither
the provider, group nor subscriber is burdened with submitting
insurance claim forms.
The Dentcare and IHS form of group dental agreements do not
cover fixed and removable prosthetic devices and orthodontic
services. However, Dentcare and IHS offer prosthetic and
orthodontic service options to groups through providers and
specialists with whom the applicable plan contracts, up to dollar
amounts specified in the individual plan. The standard
arrangement generally requires subscribers to share in the cost
of such services.
FEE-FOR-SERVICE PLAN
Dentcare is authorized to provide fee-for-service dental
plans in New York.
Under the fee-for-service dental plan operating in New York,
enrollees are entitled to reimbursement for certain dental
procedures performed based upon a specified schedule of fees for
services. Enrollees are entitled to select dentists of their
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choice and are not restricted to providers participating in
Company managed plans.
Under its fee-for-service plans, Dentcare reimburses for all
types of dental services based upon specified schedules of fees
for services and the Company provides claims processing services
to facilitate reimbursement for services performed. Fee
schedules are provided to each subscriber with the subscriber's
plan contract. The schedules are filed with the New York
Insurance Department. Such schedules are subject to change at
such time as a subscriber's contract is renewed. The Company
undertakes all responsibility for claims processing and
professional review of claims presented for payment on behalf of
Dentcare.
PROVIDERS
Neither the Company, Dentcare nor IHS engages in the
practice of dentistry, providing of professional dental services
or the operation of dental offices or facilities. Dental
services are provided by practicing dentists, providers, who
enter into participating dentist agreements with Dentcare or IHS.
Under the standard participation agreement, the participating
dentist represents that he or she is a duly licensed dentist, has
professional malpractice liability insurance, agrees to provide
necessary dental services to enrollees and agrees not to
differentiate or discriminate in treatment of patients by reason
of their status as enrollees. The providers are compensated on a
monthly basis by payment of a capitation fee per enrollee equal
to proceeds of dental premiums less administrative expenses and
costs for specialty dental services.
The providers furnish dental services to enrollees at their
own dental facilities and may continue to treat their own
patients on a fee-for-service basis. The providers are regulated
by the Boards of Dental Examiners of their respective states of
practice.
QUALITY ASSURANCE PROCEDURES
Dentcare and IHS each has a Professional Standards Committee
("Standards Committee"), which is responsible for reviewing the
quality, appropriateness and costs of dental care delivered by
the providers to the enrollees. Each Standards Committee is
composed of several participating providers. The Committee
reviews the adequacy of the physical facilities, staffing and
equipment of each provider office. Prior to entering into a
contractual relationship with any provider, the Company
determines whether the potential provider has adequate education,
appropriate board certification by the applicable Board of Dental
Examiners and proper licensing. See "Government Regulation." The
Plans do not accept providers who have had their licenses
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suspended or revoked. The Committee also inspects the potential
provider facility to determine whether the facility, staffing and
equipment comply with minimum standards. A random sample of the
provider's dental records are reviewed to assure that records are
comprehensive and complete. The Committee performs periodic
dental audits and surveys of selected providers to determine the
quality and dollar value of care rendered by the provider to the
enrollees. The audits are based on review of patient dental
records and utilization and service reports. The results of the
dental audits are furnished to the provider in reports that
describe the scope of the review, problems and deficiencies,
suggestions for corrective actions and notification of reaudits
to determine the effectiveness of corrective actions which are to
be implemented by the Plan and/or the provider.
The Committee reviews the utilization of certain services by
the subscriber in relationship to the premium fees in order to
evaluate the adequacy of the capitation fees paid to the provider
and whether the services provided are being rendered in an
efficient and cost effective manner. The providers are required
to maintain utilization statistics of services rendered to the
Plans' enrollees which reports are collected on a monthly basis.
Rules and regulations under the applicable New York and New
Jersey statutes require internal review of dental care delivered
to the consumer. The procedures described above are believed by
management to be adequate to insure the quality and control of
dental services. Management also believes that the quality
assurance procedures which are set forth hereinabove are in
compliance with the statutes, rules and regulations which will
govern the prepaid fee-for-service dental plans which are
intended to be affiliated with and organized by the Company in
the future.
GOVERNMENT REGULATION
Prepaid dental plans and fee-for-service dental plans are
subject to statutes, rules and regulations in each state in which
a plan operates.
The applicable rules and regulations of New York and New
Jersey provide specific limitations on the dollar amount of
expenditures which the Company may charge its Plans for service
and other fees. The balance of premiums must be remitted to the
provider, as capitation fees or fees for specific procedures.
Under Article 43 of the New York Insurance Law, a dental
expense indemnity corporation such as Dentcare may not disburse
for all expenses other than benefit payments more than 20% for
the first $1,000,000 of annual premiums, declining by 1% for each
additional $5,000,000 or fraction thereof of additional premiums
to 15%.
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Under the New Jersey Dental Plan Organization Act, IHS may
expend up to 20% of its income for general expenses, acquisition
expenses and miscellaneous taxes, licenses and fees.
The marketing, management, advertising, legal, accounting
and general administrative expenses charged by Healthplex to its
Plans are encompassed in the various expense limitations
described above.
In addition to regulation of the Company's business and
operations by statutes regulating prepaid dental plans and
fee-for-service dental plans, the practice of dentistry in the
United States is regulated by state statutes, rules and
regulations of state dental boards and voluntary associations. In
New York and New Jersey, respective Boards of Dental Examiners
regulate all dentists licensed to practice dentistry. Complaints
lodged against dentists regarding fitness to practice dentistry
are subject to review by the Board of Dental Examiners. These
Boards are authorized to withdraw a dentist's license if it deems
such action to be appropriate. Guidelines are also established
for dentists in connection with the manner in which they must
operate and advertise dental facilities.
Applicable regulations provide that a dentist can be denied
the right to act as a provider of dental services if the dentist
fails to meet the requisite standards pursuant to applicable
regulations and rules.
INSURANCE COVERAGE
Providers who contract with a Plan are required to maintain
malpractice insurance which provides coverage per individual
claim in an amount not less than $100,000 per person and $300,000
per year. In management's opinion this insurance coverage will
be sufficient to cover potential claims in light of the nature of
the services performed. Directors and officers of the Company
are covered by directors' and officers' indemnification
insurance. The Company also maintains customary casualty and
liability insurance.
COMPETITION
Management believes that its largest competitors are
traditional insurance carriers, including Aetna Life Insurance
and Annuity Company, Metropolitan Life Insurance Co., The
Prudential Insurance Company of America, The Guardian and
Connecticut General Insurance Company Corp.
Management believes that most dental insurance coverage in
New York and New Jersey, as well as in the rest of the United
States, is provided through indemnity insurance. To date, such
dental insurance coverage has obtained substantially greater
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market penetration than prepaid dental plans and is sponsored by
major insurance companies which have greater financial and other
resources than the Company. The Company believes that its
prepaid dental plans provide several advantages over traditional
indemnity or fee-for-service insurance programs.
Management believes that dental patients generally pay less
through prepaid dental plans than through indemnity insurance
companies since fee-for-service insurance, as customarily
provided by insurance carriers, generally has monetary limits on
its coverage and deductible amounts prior to coverage. In
addition, management believes that private dentists' charges are
generally higher than the co-payments charged by plan providers.
The Plans may also compete with HMOs which include dental
plans. In the New York and New Jersey areas, U.S. Healthcare,
Oxford and PruCare are currently offering prepaid dental plans.
There is no assurance that the prepaid and fee-for-service dental
plans of the Plans will obtain general market acceptance with
consumers, or that prepaid and fee-for-service dental plans will
be able successfully to compete against large commercial
insurance carriers.
EMPLOYEES
As of April 10, 1997, the Company had 63 full-time and six
part-time employees. Eight employees are engaged in electronic
data process services, five in managerial positions, three in
marketing and 53 in general, administrative and support
positions. The employees of the Company are not subject to
collective bargaining and the Company does not have a profit
sharing or retirement plan for employees. The Company believes
its labor relations are good.
Item 2. DESCRIPTION OF PROPERTY.
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The Company leases approximately 10,168 square feet of
executive and administrative offices in Uniondale, New York. The
lease expires on January 31, 2003. The base annual rent is
$240,190, plus real estate taxes, for the rental year ended
January 31, 1997, with an increase of 4% each rental year
thereafter during the term of the lease.
ITEM 3. LEGAL PROCEEDINGS.
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There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries is a party or by which any
of their properties is subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted during the fourth quarter of
fiscal 1996 to a vote of security holders.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS.
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The Company's Common Stock is traded in the over-the-counter
market under the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") under the symbol HPLX. The
following table sets forth the high and low bid prices in the
NASDAQ system for the Common Stock for each calendar quarter
indicated, as reported by NASDAQ. The prices represent
quotations between dealers and do not include certain mark-ups,
mark-downs or commissions, and do not necessarily represent
actual transactions.
Common Stock
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High Low
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Calendar 1996
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First quarter 1 1/4 25/32
Second quarter 3 1 1/8
Third quarter 2 5/16 1 11/32
Fourth quarter 1 5/8 1 1/16
Common Stock
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High Low
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Calendar 1995
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First quarter 1 9/32 1
Second quarter 1 1/2 7/8
Third quarter 1 11/16 1 1/16
Fourth quarter 1 1/8 3/4
Based upon information provided by the Company's transfer
agent, as of April 10, 1997, the Company had 124 stockholders of
record. The Company believes that there are in excess of 500
beneficial holders of the Company's Common Stock.
The Company has paid no dividends to date and it does not
anticipate paying dividends in the foreseeable future. It is
expected that the Company will retain earnings, if any, to
finance the development and expansion of its business.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS.
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For The Years Ended December 31, 1996 and 1995
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Results of Operations - Revenue Overview
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Revenue increased $1,111,756, or 9.8%, to $12,468,396 from
$11,356,640. Approximately $750,000 of the increase represented
an increase in revenue from the Company's administrative service
income business. Such increase is primarily the result of a full
year of servicing major groups added during 1995. The Company
continues to emphasize its administrative business through
focused marketing efforts targeting specific entities.
The following table illustrates the changes in revenue for the
years 1996 and 1995;
For the years ended Increase
December 31, 1996 1995 (Decrease)
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Service fee income $ 2,438,342 $ 2,253,903 $ 184,439
Administrative service 2,977,107 2,222,163 754,944
income ----------- ----------- ----------
Total service fee $ 5,415,449 $ 4,476,066 $ 939,383
income
Premium income 7,026,125 6,801,010 225,115
Sales-computer service 26,822 79,564 (52,742)
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Total $12,468,396 $11,356,640 $1,111,756
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Results of Operations - Gross Margin, Expenses and Income
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Gross margin on revenue increased $677,138, or 18.5%, to
$4,344,639 during 1996 as compared to $3,667,501 during 1995.
Contributing to this increase in gross margin was an increase
from service fee income of $666,753 due to the continuing
expansion of the administrative service business.
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The following table illustrates the changes in gross margin for
the years 1996 and 1995:
For the years ended Increase
December 31, 1996 1995 (Decrease)
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Service fee income $ 3,150,898 $ 2,484,145 $ 666,753
Premium income 1,174,351 1,142,819 31,532
Sales-computer 19,390 40,537 (21,147)
services ----------- ----------- ----------
Total $ 4,344,639 $ 3,667,501 $ 677,138
=========== =========== ==========
Selling, general and administrative expenses increased by
$416,511, or 11.3%, to $4,091,930 in 1996 from $3,675,419 in
1995, primarily as a result of $292,611 in increased payroll
related costs incurred to meet the demands of the expanding
administrative service business.
The amount reported for 1995 has been restated to increase rent
expense by $26,152 to conform to the accounting requirements for
leases with scheduled increases. (See Note 11 to the
Consolidated Financial Statements).
Pre-tax income increased by $266,731, or 403%, to $332,898 in
1996 from $66,167 in 1995, principally as a result of the
increase in administrative service business. The amount reported
for 1995 has been restated for the effect of the revision to rent
expense referred to above.
The provision for income taxes increased by $117,291, or 310%, to
$155,070 in 1996 from $37,779 in 1995. The amount reported for
1995 has been increased by $16,386 in the aggregate to (i)
include the effect of the rent expense restatement on deferred
income taxes; (ii) revise the effective income tax rate applied
to applicable temporary differences in the calculation of
deferred income taxes; and (iii) eliminate the effect of a
disclosed overaccrual for 1994 on the 1995 current provision.
(See Note 11 to the Consolidated Financial Statements). As
restated, the overall effective income tax rate for 1995 is
57.1%, due primarily to the high incidence of state income taxes
in such year. In 1996, the overall effective income tax rate is
46.6%, reflecting a more usual imposition of state income taxes.
As a result, net income, after a net restatement decrease of
$42,538 to $28,388 for 1995 increased by $149,440, or 526%, to
$177,828 in 1996.
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Liquidity and Capital Resources
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The Company's cash, cash equivalents and short term investments
increased by $92,987 from $1,132,498 at December 31, 1995 to
$1,225,395 at December 31, 1996. However, cash and cash
equivalents, exclusive of short-term investments, decreased by
$172,649 to $268,340. Earnings before depreciation and deferred
items amounted to $428,493 for the year ended December 31, 1996
and were the main components of the $432,932 of cash flows
provided by operating activities. In addition, these same
elements continue to be the Company's primary source of
liquidity.
The Company used $216,124 of the cash flows provided by operating
activities to increase its investment portfolio. In addition,
$135,903 was used to purchase additional computer equipment and
to make leasehold improvements to the office space, providing
more efficient use for the Company's expansion of business.
Additions to security deposits of $6,918 brought the total cash
used in investing activities to $328,001.
The Company used $174,930 to repay long-term debt and $100,000
was loaned to the Company's co-chief executive officers. (See
Note 5 to the Consolidated Financial Statements). Open market
purchases of treasury stock used $2,650 to bring the total used
in financing activities to $277,580.
The Company leases approximately 10,200 square feet of executive
office space in Uniondale, New York, on a ten-year lease that
expires in 2003. The Company currently is utilizing 100% of its
existing space and is contemplating the acquisition of additional
space at the same location. The existing lease provides for a
current base rental of $248,996, which increases by 4% annually
throughout the lease term, as well as additional escalations to
cover increases in real estate taxes. In 1996, the Company
revised its prior accounting for this lease to reflect the
required straight-line treatment for reporting rent expense.
While such restatement increased previously recognized rent
expense by $26,152 for 1995 and $74,273 for prior years, it had
no effect on cash balances.
The Company also restated its prior years' income tax expense,
also with no effect on cash and cash equivalents. (See Note 11
to the Consolidated Financial Statements).
The Company anticipates, based on management's internal forecasts
and assumptions, that cash flows from operations will be
sufficient to satisfy the Company's cash requirements for 1997.
The Company's receivable from Dentcare, together with interest
thereon, if any, can only be repaid with the approval of the New
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York State Insurance Department. As such, the Company has not
recognized any interest income on such loan since its inception.
Despite the illiquidity of this receivable, the Company believes
it will ultimately be repaid based on its assessment of
Dentcare's financial condition. (See Item 12, Certain
Relationships and Related Transactions, and Note 10 to the
Consolidated Financial Statements).
Impact of New Accounting Pronouncement
--------------------------------------
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", which became effective for fiscal
1996. SFAS No. 123 requires disclosures of stock-based
compensation arrangements with employees and encourages but does
not require cost of compensation to be measured by the fair value
of the equity instrument awards. Companies are permitted to
continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the instrument
awarded. The Company will continue to apply APB Opinion No. 25
to its stock-based compensation awards and will disclose the
required pro-forma effect on net income and earnings per share.
The stock options granted in 1996 are not considered compensatory
due to the conditions restricting their exercise. (See Note 9 to
the Consolidated Financial Statements).
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ITEM 7. FINANCIAL STATEMENTS.
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LIBERO & KAPPEL
CERTIFIED PUBLIC ACCOUNTANTS
57 Old Country Road, Westbury, New York 11590
Telephone (516) 333-5511 . Fax (516) 333-5621
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders of
Healthplex, Inc.
60 Charles Lindbergh Boulevard
Uniondale, New York 11553
We have audited the consolidated balance sheets of Healthplex,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders
equity and cash flows for the years then ended. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Healthplex, Inc. and Subsidiaries as of
December 31, 1996 and 1995, and the consolidated results of their
operations and cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Libero & Kappel
Libero & Kappel
Westbury, New York
March 21, 1997
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<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
ASSETS 1996 1995
------ ---- ----
(Restated)
(Note 11)
Current assets:
---------------
Cash and cash equivalents $268,340 $ 440,989
Investments-available for sale (Note 5) 957,055 691,509
Accounts receivable 420,482 426,459
Notes receivable - current portion
(Note 4) 51,793 17,050
Other receivables 28,978 22,933
10,655 0
Prepaid expenses --------- ---------
Total current assets 1,737,303 1,598,940
Fixed assets, net of depreciation
(Notes 2 & 3) 1,034,158 867,890
Note receivable - less current portion
(Note 4) 111,846 77,533
Investments-available for sale (Note 5) 633,936 758,243
Security deposits 31,056 24,138
Goodwill, less accumulated amortization
of $12,186 in 1996 and $10,832
in 1995 14,897 16,251
Other assets 17,610 7,278
Loan to Dentcare Delivery Systems, Inc. 515,820 515,820
(Note 10) ----------- -----------
$ 4,096,626 $ 3,866,093
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
-------------------
Accounts payable $ 411,437 $ 437,126
Current portion of capitalized lease
obligations (Note 6) 169,435 140,391
Accrued expenses and taxes 105,038 159,109
Due to Dentcare Delivery Systems, Inc. 164,694 134,199
132,045 52,686
Income taxes payable (Notes 2 & 7) ---------- ---------
Total current liabilities 982,649 923,511
Capitalized lease obligations, less
current portion (Note 6) 204,806 160,104
Deferred rent payable 117,369 100,425
Deferred income taxes payable 75,062 61,006
(Notes 2 & 7) --------- ---------
Total liabilities 1,379,886 1,245,046
Commitments and Contingencies (Notes 6, 8, 9 & 10)
Stockholders' equity:
Common stock $.001 par value,
authorized 20,000,000 shares; issued
3,586,682 in 1996 and 1995 3,587 3,587
Paid-in capital 1,971,328 1,971,328
Unrealized gain (loss) on
investments-available for sale
(Note 5) (40,236) 39,249
Retained earnings 784,711 606,883
2,650 0
Less: Treasury stock, 1,600 shares ----------- -----------
2,716,740 2,621,047
Total stockholders' equity ----------- -----------
$ 4,096,626 $ 3,866,093
=========== ==========
The accompanying notes are an integral part of the financial
statements.
-17-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
1996 1995
---- ----
(Restated)
(Note 11)
Revenues
--------
Service fee income (Note 10) $ 2,438,342 $ 2,253,903
Administrative service income 2,977,107 2,222,163
----------- -----------
Total service fee income 5,415,449 4,476,066
Premium income 7,026,125 6,801,010
Sales-computer services 26,822 79,564
----------- -----------
Total revenues 12,468,396 11,356,640
----------- -----------
Cost of Revenues
----------------
Direct expenses - related to 2,264,551 1,991,921
service fees
Dental expenses - related to 5,851,774 5,658,191
premium income
Cost of sales-computer services 7,432 39,027
----------- -----------
8,123,757 7,689,139
----------- -----------
Gross Margin on Revenues 4,344,639 3,667,501
------------------------ ----------- -----------
Selling, general and 4,091,930 3,675,419
administrative expense
Interest expense 49,605 39,293
----------- -----------
4,141,535 3,714,712
----------- -----------
Income (loss) from operations 203,104 (47,211)
Other income (expenses)
Interest income 99,270 104,041
Dividend income 15,591 16,492
Gain on sale of 4,600 0
securities
Miscellaneous 10,333 (7,155)
----------- -----------
Income before 332,898 66,167
income taxes
Provision for income taxes 155,070 37,779
(Notes 2, 7 & 11) ----------- -----------
Net income $ 177,828 $ 28,388
=========== ===========
Earnings per share (Note 2) $ 0.05 $ 0.01
=========== ===========
Weighted average number of 3,665,523 3,607,537
shares of common stock =========== ==========
outstanding
The accompanying notes are an integral part of the financial
statements.
-18-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
COMMON PAID-IN
STOCK CAPITAL
------ -------
Balance December 31, 1994,
--------------------------
as previously reported
---------------------- $ 3,587 $ 1,971,328
Adjustment (Note 11)
Net income for the year ended
December 31, 1995 0 0
Unrealized gain on investments 0 0
available for sale ------- -----------
Balance, December 31, 1995
-------------------------- 3,587 1,971,328
Purchase of treasury stock 0 0
Net income for the year
ended December 31, 1996 0 0
Unrealized loss on investments 0 0
available for sale ------- -----------
Balance, December 31, 1996 $ 3,587 $ 1,971,328
-------------------------- ====== ===========
UNREALIZED
GAIN (LOSS)
ON RETAINED
INVESTMENTS EARNINGS
----------- --------
Balance December 31, 1994,
--------------------------
as previously reported
---------------------- $ (71,934) $ 656,032
Adjustment (Note 11) (77,537)
Net income for the year ended
December 31, 1995 0 28,388
Unrealized gain on investments 111,183 0
available for sale ----------- --------
Balance, December 31, 1995
-------------------------- 39,249 606,883
Purchase of treasury stock 0 0
Net income for the year
ended December 31, 1996 0 177,828
Unrealized loss on investments (79,485) 0
available for sale ----------- ---------
Balance, December 31, 1996 $ (40,236) $ 784,711
-------------------------- =========== =========
TREASURY
STOCK TOTAL
-------- -----
Balance December 31, 1994,
--------------------------
as previously reported
---------------------- $ 0 $ 2,559,013
Adjustment (Note 11) (77,537)
Net income for the year ended
December 31, 1995 0 28,388
Unrealized gain on investments 0 111,183
available for sale --------- ----------
Balance, December 31, 1995
-------------------------- 0 2,621,047
Purchase of treasury stock (2,650) (2,650)
Net income for the year
ended December 31, 1996 0 177,828
Unrealized loss on investments 0 (79,485)
available for sale --------- ----------
Balance, December 31, 1996 $ (2,650) $2,716,740
-------------------------- ========= ==========
The accompanying notes are an integral part of the financial
statements.
-19-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
1996 1995
---- ----
INCREASE (DECREASE) IN CASH AND CASH (Restated)
EQUIVALENTS (Note 11)
Cash flows from operating activities:
Net income $ 177,828 $ 28,388
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of investments (4,600) 0
Depreciation and amortization 219,665 218,890
Deferred rent expense 16,944 26,152
Deferred income tax provision
(benefit) 14,056 (14,770)
(Increase) decrease in:
Accounts receivable 5,977 (77,331)
Other receivables (6,045) (3,216)
Prepaid expenses (10,655) 5,861
Other assets (10,332) 7,155
Increase (decrease) in:
Accounts payable (25,689) 49,279
Accrued expenses and taxes (54,071) (11,368)
Due to Dentcare Delivery
Systems, Inc. 30,495 14,089
Income taxes payable 79,359 16,412
--------- ---------
Net cash provided by operating activities 432,932 259,541
--------- ---------
Cash flows from investing activities:
Purchase of investments (362,928) 0
Proceeds from sale of investments 146,804 4,996
Capital expenditures (135,903) (163,242)
Repayment of notes receivable 30,944 5,387
Increase in security deposits (6,918) (7,756)
--------- ---------
Net cash used in investing activities (328,001) (160,615)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (174,930) (132,217)
Loans to officers (100,000) 0
Purchase of treasury stock (2,650) 0
--------- ---------
Net cash used in financing activities (277,580) (132,217)
--------- ---------
Net decrease in cash (172,649) (33,291)
Cash and cash equivalents at beginning of year 440,989 474,280
--------- ---------
Cash and cash equivalents at end of year $ 268,340 $ 440,989
========= =========
Supplemental disclosures of cash flows
Cash paid during the year for:
Interest $ 49,605 $ 39,293
========= =========
Income taxes $ 59,925 $ 51,560
========= =========
Non-cash investing and financing activities:
Unrealized gain (loss) on investments
available for sale $ (79,485) $ 111,183
========= =========
Acquisition of equipment under capitalized
leases $ 248,676 $ 163,470
========= =========
The accompanying notes are an integral part of the financial
statements.
-20-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1: NATURE OF BUSINESS
---------------------------
The Company and its subsidiaries furnish marketing, claims processing,
electronic data processing, printing, consulting and related services under
an exclusive agreement with a contractually affiliated dental plan service
corporation, Dentcare Delivery Systems, Inc. ("Dentcare"). The Company
operates its own plan through wholly-owned subsidiary, International
Healthcare Services, Inc. (together, "The Plans"). The Company also
provides services to other plans on an administrative services only basis.
OASYS Corporation (OASYS) is a wholly-owned subsidiary that markets
document imaging systems, including hardware and software components.
Most of the Company's business activity is with customers located in New
York and New Jersey. A significant portion of the revenues that the
Company reports are derived from the Plans. The Company has entered into
service agreements with the Plans, subject to provisions providing for
annual renewal. The termination of the service agreements would have a
material adverse effect on the business of the Company.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, International Healthcare Services, Inc.
and OASYS Corporation. All intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Allowance for Doubtful Accounts
-------------------------------
The Company's credit experience indicates its accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is
required.
Fixed Assets and Depreciation
-----------------------------
Property and equipment are carried at cost. Depreciation for financial
reporting purposes is provided on the straight-line basis over the
estimated useful lives of the assets.
Expenditures constituting maintenance and repairs are charged to operations
as incurred. Major expenditures, renewals and betterments are capitalized
and depreciated over their useful life. At the time properties are retired
or otherwise disposed of, appropriate adjustments are made in property
accounts and the gain or loss is reflected in operations.
-21-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------
Leases
------
Leases which transfer substantially all of the risks and benefits of
ownership are classified as capital leases, and assets and liabilities are
recorded at amounts equal to the lesser of the present value of the minimum
lease payments or the fair value of the leased properties at the beginning
of the respective lease terms. Such assets are depreciated in the same
manner as owned assets. Interest expense relating to the lease liabilities
is recorded to effect constant rates of interest over the terms of the
leases.
Leases which do not meet the above criteria are classified as operating
leases and the related rentals are charged to expense on the straight-line
method. Such method allocates the total base rentals (including scheduled
increases) evenly over the entire term of the lease. The amounts of rent
expense recognized in excess of the base rentals actually payable are
reported as deferred rent payable.
Goodwill
--------
Goodwill represents the excess of the cost to acquire one of the Company's
subsidiaries over the fair value of its net assets at acquisition and is
being amortized over a twenty-year period. Amortization expense charged to
operations was $1,354 in each of 1996 and 1995.
Treasury Stock
--------------
Treasury stock, acquired by the Company in the open market, is accounted
for at cost.
Revenue Recognition
-------------------
The Company derives revenues from the exclusive service agreements it has
entered into with the Plans. Under these agreements, the service fee
revenue permitted to the Company is determined by applicable state law (a
percentage of premium revenue of the applicable plan). Premium income and
administrative service are recognized on an as billed according to the
contracts with each group. Sales of computer service are recognized when
the sales is made.
Stock Options
-------------
The Company, consistent with generally accepted accounting principles,
accounts for stock options pursuant to the intrinsic value method specified
by Accounting Principles Board Opinion No. 25., "Accounting for Stock
Issued to Employees." Under this method, compensation cost is not
recognized as long as the exercise price of stock equals or exceeds the
fair value of the underlying stock on the date of grant. In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
which requires that the fair value of stock options be measured on the date
of grant using an applicable statistically-based, market-sensitive,
computerized financial model. However, this pronouncement allows companies
to continue to account for stock options under the previous intrinsic value
method as long as they disclose the pro-forma effects of the new method as
if it had been adopted. (See Note 9).
-22-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
---------------------------------------------------------------
Income Taxes
------------
The provision for income taxes includes federal and state taxes currently
payable and deferred taxes arising from the effects of temporary
differences between financial reporting and tax accounting income. These
temporary differences arise principally from the use of accelerated
depreciation methods for income tax accounting purposes and the straight-
lining of rent expense for financial reporting purposes.
Earnings Per Share
------------------
Earnings per share are computed based on the weighted average number of
shares of common stock outstanding during each year, including the dilutive
effect of outstanding stock options. In each year primary and fully
diluted earnings per share were equivalent.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 3: FIXED ASSETS
---------------------
1996 1995
---- ----
Fixed assets at December 31, consist of:
Furniture, fixtures and equipment $ 769,367 $1,094,516
Equipment under capitalized leases 1,218,141 969,465
Leasehold improvements 49,660 43,598
---------- ---------
2,037,168 2,107,579
Accumulated depreciation and
amortization, including $607,306 in 1996
and $478,005 in 1995 applicable to 1,003,010 1,239,689
capitalized leases. ---------- ----------
$1,034,158 $ 867,890
========== ==========
The annual depreciation rates used by the Company are as follows:
Furniture, fixtures & equipment 5 - 8 Years
Capitalized leased equipment 8 Years
Leasehold improvements 5 Years
Depreciation and amortization expenses charged to operations was $218,311
and $217,536 in 1996 and 1995, respectively.
-23-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------
NOTE 4: NOTES RECEIVABLE
-------------------------
1996 1995
---- ----
Notes receivable at December 31, consist of:
Secured installment note receivable from the
buyer of a former subsidiary, due in monthly
payments of $2,000 including interest at 10%,
through August 1, 1999. $ 77,527 $ 94,583
Unsecured installment notes receivable from
the Company's co-chief executive officers, due
in monthly payments of $2,778 plus interest at
prime plus 2%, through July 1, 1999. 86,112 0
-------- --------
163,639 94,583
Less: Current maturities 51,793 17,050
-------- --------
$111,846 $ 77,533
======== ========
NOTE 5: INVESTMENTS
--------------------
Investment securities consist of bond funds, United States Treasury Notes
and other governmental obligations with a maturity of more than three
months when purchased.
The Company's investment securities are classified as "available-for-sale."
Accordingly, unrealized gains and losses are excluded from earnings and
reported in a separate component of stockholders' equity. Realized gains
or losses are computed on specific identification of the securities sold.
Investment securities at December 31, consist of:
1996 1995
---- ----
Bond funds $ 857,125 $ 641,462
U.S. Treasury Notes 658,726 731,931
Other governmental obligations 75,140 76,359
---------- ----------
Total 1,590,991 1,449,752
Less: Portfolio classified as current 957,055 691,509
---------- ----------
Non-current portfolio $ 633,936 $ 758,243
========== ==========
The following is an analysis of investment securities available for sale
Balance at amortized cost $1,631,227 $1,410,503
Gross unrealized gains (losses) (40,236) 39,249
---------- ----------
$1,590,991 $1,449,752
========== ==========
-24-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 6: LEASES
---------------
The Company leases executive and administrative office space and equipment
under leases expiring at various dates through 2003. The Company has
classified its lease of executive and administrative office space as an
operating lease. This lease provides for an annual increase of 4%
throughout the entire term of the lease.
The Company capitalized its equipment leases and depreciates them over the
useful life of the assets. The corresponding lease obligations reflect the
present value of the future rental payments, discounted at the interest
rate implicit in the lease:
Future minimum lease payments for all leases at December 31, 1996 are as
follows:
Year Ending December 31, Operating Capitalized
------------------------ --------- -----------
1997 $ 248,996 $ 209,097
1998 258,956 139,673
1999 269,315 99,607
2000 280,088 10,878
2001 291,292 0
Subsequent years 315,919 0
---------- ----------
Total minimum lease payments: $1,664,566 459,255
---------------------------- ==========
Less amount representing interest 85,014
----------
Present value of net minimum lease payments 374,241
Less current portion of obligations under 169,435
capital leases ----------
Capitalized lease obligations, less current $ 204,806
portion ==========
The rent expense under the operating lease was $260,196 and $263,248 for
the years ended December 31, 1996 and 1995, respectively.
NOTE 7: INCOME TAXES
---------------------
The provision for income taxes consists of the following:
1996 1995
---- ----
Current:
Federal $106,871 $ 26,574
State 34,143 25,975
-------- --------
Total current 141,014 52,549
-------- --------
Deferred:
Federal 10,542 (11,078)
State 3,514 (3,692)
-------- --------
Total deferred 14,056 (14,770)
-------- --------
Total provision for income taxes $155,070 $ 37,779
======== ========
-25-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 7: INCOME TAXES - CONTINUED
---------------------------------
The provision for income taxes varies from the federal statutory income tax
rate due to the following:
1996 1995
---- ----
(Restated)
(Note 11)
Federal statutory rate applied to pre-tax income 34.0% 34.0%
State income taxes, net of federal tax benefit 7.5 22.2
Other, including the effect of non-taxable
income and non-deductible expense 5.1 0.9
----- -----
46.6% 57.1%
===== =====
The tax effects of temporary differences that give rise to deferred tax
assets (none of which required a valuation allowance at the beginning or
end of either year) and deferred tax liabilities at December 31, 1996 and
1995, as well as the components of the deferred income tax provision
(benefit) in each year are as follows:
Assets/(Liabilities) Provision/(Benefit)
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Assets (Non-current)
Deferred rent
payable $ 46,948 $ 40,170 $ (6,778) $ (10,461)
Liabilities
(Non-current)
Fixed assets (122,010) (101,176) 20,834 (4,309)
-------- -------- -------- ---------
Net deferred income
taxes $(75,062) $(61,006) $ 14,056 $ (14,770)
======== ======== ======== =========
NOTE 8: COMMITMENTS AND CONTINGENCIES
--------------------------------------
Concentration of Credit Risk
----------------------------
The Company maintains cash balances with several banks, which frequently
exceed federally insured limits and invests its cash primarily in U.S.
Government backed securities.
Concentrations of credit risk with respect to accounts receivable, with one
exception discussed below, are limited due to the large number of customers
comprising the Company's customer base. The Company does not require
collateral from its customers.
Major Customers
---------------
The Company's two largest customers accounted for approximately 20% and 18%
of total revenues in 1996 and approximately 20% and 20% of total revenues
in 1995. The Company has receivables from one customer which represents
approximately 23% and 17% of accounts receivable in 1996 and 1995,
respectively.
-26-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 8: COMMITMENTS AND CONTINGENCIES - CONTINUED
--------------------------------------------------
Employment Agreements
---------------------
On October 3, 1984, the Company entered into employment agreements with
Drs. Stephen J. Cuchel, Martin Kane and Bruce Safran, each a founder,
principal stockholder, executive officer and director of the Company.
These agreements may be terminated by either party upon thirty days written
notice. Pursuant to these agreements, Drs. Cuchel, Kane and Safran each
devote substantially all of their time and efforts to the business of the
Company.
Employee Benefit Plan
---------------------
The Company has adopted a 401(K) plan which allows employees to defer a
percentage of their wages. The plan requires the Company to match 25% of
employee deferrals up to 5% of the employee's wages. The Company's
matching contribution was approximately $13,000 in 1996 and $8,000 in 1995.
NOTE 9: STOCK OPTIONS
----------------------
The Company has stock options outstanding pursuant to the following four
stock option plans and one free-standing stock option agreement:
1985 Incentive Stock Option Plan
1985 Non-Qualified Stock Option Plan
1992 Stock Incentive Plan
1992 Director Stock Incentive Plan
1994 Non-Qualified Stock Option Agreement
Each of the four plans provide that exercise prices of options granted
thereunder must equal or exceed the fair value of the underlying stock at
the date of grant. Options under any plan can not be granted after ten
years from the date the plan was adopted. None of the options granted have
vesting requirements. In order to receive favorable treatment under
Section 422 of the Internal Revenue Code, shares issued upon exercise of
qualified options can not be sold by the optionee until the later of two
years from the date of grant or one year from the date of exercise. The
exercise price of qualified options granted to 10% or more shareholders may
not be less than 110% of the fair value of the underlying stock at the date
of grant. Such options may be exercised for a five-year period only.
No further options may be granted under the 1985 Plans. The only options
outstanding thereunder are 32,818 incentive options and 8,000 non-qualified
options, each exercisable at $0.6015625 per share through July 15, 2002.
There has been no grant, exercise, cancellation, forfeiture or expiration
of any options under these Plans during the two-year period ended December
31, 1996.
The 1992 Stock Incentive Plan provides for the grant of up to 1,500,000
qualifying and non-qualifying options. On November 28, 1995, 317,500
options outstanding at the beginning of the year and exercisable at prices
of $1.5762 and $1.73382 per share were canceled and reissued at exercise
prices of $1.089 and $1.1979 per share, with exercise terms of ten years
and five years, respectively.
-27-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9: STOCK OPTIONS - CONTINUED
----------------------------------
The 1992 Director Stock Incentive Plan provides for the grants of up to
500,000 non-qualifying options. On November 28, 1995, 55,000 options
outstanding at the beginning of the year and exercisable at $1.5762 were
canceled and reissued at an exercise price of $1.089 per share, exercisable
for ten years.
The 1994 Non-Qualified Stock Option Agreement granted to a consultant to
the Company a non-qualified option to purchase 8,000 shares of $1.5762 per
share, immediately exercisable and for a ten year period. On November 28,
1995, these options were canceled and reissued at an exercise price of
$1.089 per share, exercisable until November 27, 2005.
On June 11, 1996, 500,000 options were granted under the 1992 Stock
Incentive Plan at exercise prices of $1.6201 for 300,000 shares with a
ten-year exercise period and $1.7821 for 200,000 shares with a five-year
exercise period. However, these options are only exercisable in the event
of a sale or merger of the Company to or with an unaffiliated party.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation" requires
use of option valuation models that were not developed for use in valuing
employee and compensatory stock options. Under APB 25, because the exercise
price of the Company's stock options equals or exceeds the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
Pro-forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 1995: A risk free interest rate of 5.5%; a
dividend yield of 0.0%; a volatility factor of the expected market price of
the Company's common stock of 71%; and a weighted average expected life of
the options of 2 years. The conditional options granted in 1996 are not
susceptible of fair value measurement due to the impossibility of
qualifying their likelihood of being exercised; accordingly they are not
considered to be stock options giving rise to compensation expense as
defined by the Statement.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock options. However, if compensation cost had been determined on the
basis of the Statement for the options issued in 1995, net income and
earnings per share (both primary and fully diluted) would have changed as
follows:
As Reported Pro-Forma
----------- ---------
Net income (loss) $ 28,388 $ (112,284)
=========== ==========
Earnings (loss) per share $ 0.01 $ (0.03)
========== ==========
-28-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9: STOCK OPTIONS - CONTINUED
---------------------------------
A summary of option activity and related information for the years ended
December 31, 1996 and 1995 is as follows:
1996
---------------------------
Qualifying Weighted
and Non- Average
Qualifying Exercise
Options Price
---------- --------
Outstanding and
exercisable,
beginning of year 421,318 $1.07538
Canceled during year (1)
Granted during year (2) 500,000 1.68490
Exercised during year 0
-------- --------
Outstanding, end of year 921,318 $1.40617
======== ========
Exercisable, end of year 421,318 $1.07538
======= ========
Weighted average
fair value of
options granted
during the year:
Exercise price
equals market price at
date of grant N/A (2)
Exercise price
exceeds market price at
date of grant N/A (2)
All options granted
during the year N/A (2)
1995
---------------------------
Qualifying Weighted
and Non- Average
Qualifying Exercise
Options Price
---------- --------
Outstanding and
exercisable,
beginning of year 421,318 $1.53041
Canceled during year (1) (380,500) 1.63005
Granted during year (2) 380,500 1.12601
Exercised during year 0 0
------- --------
Outstanding, end of year 421,318 $1.07538
======= ========
Exercisable, end of year 421,318 $1.07538
======= ========
Weighted average
fair value of
options granted
during the year:
Exercise price
equals market price at $ 0.44
date of grant =======
Exercise price
exceeds market price at $ 0.41
date of grant =======
All options granted
during the year $ 0.43
=======
(1) These 380,500 options were canceled on November 28, 1995 and
immediately reissued at the lower exercise price.
(2) The 500,000 options granted on June 11, 1996 are only exercisable in
the event of a sale or merger of the Company to or with an
unaffiliated party. Their fair value is accordingly not susceptible of
measurement and they are not considered compensatory.
-29-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9: STOCK OPTIONS - CONTINUED
---------------------------------
The weighted average remaining life and exercise price of options
outstanding at the end of 1996 is as follows:
Weighted Average
--------------------
Number
of Options Remaining Exercise
Outstanding Life Price
----------- --------- --------
Options granted prior 40,818 5.5 yrs $0.60156
to 1995
Options granted in 1995 380,500 8.2 yrs 1.12601
-------
All options granted prior
to 1996, all of which are
exercisable 421,318 7.9 yrs 1.07538
Options granted in 1996,
none of which are
exercisable 500,000 7.5 yrs 1.68490
-------
All options outstanding 921,318 7.7 yrs 1.40617
=======
NOTE 10: DENTCARE DELIVERY SYSTEMS, INC.
----------------------------------------
During the years 1990 through 1992, the Company loaned to Dentcare a total
of $673,138 repayable with interest at 10% per year. In February 1994, in
connection with a regular periodic audit of Dentcare by the New York State
Insurance Department, Dentcare was required to seek reimbursement of
certain expenses paid by Dentcare to the Company during 1985 and 1986, and
which had subsequently been incorporated as part of the loan between the
Company and Dentcare. The Insurance Department agreed that this
reimbursement would be met by a reduction of the loan. On February 23,
1994, the Company and Dentcare agreed to this reimbursement. As a result of
such reimbursement totaling $157,318, the loan was adjusted to $515,820.
Subsequent audits for the years 1987 through 1992 were completed with no
reimbursements requested. An audit for the years 1993 through 1996 has been
scheduled for 1997.
Payment of principal and/or interest on the loan is subject to the approval
of the Superintendent of Insurance of the State of New York and the
availability of excess funds. Due to the uncertainty as to Insurance
Department approval of payment of the interest, the Company has elected to
defer the recognition of all interest income on the loan since inception.
The amount of interest not recognized was $51,582 for each of 1996 and 1995
and the cumulative balance thereof at December 31, 1996 is $314,817. The
Company will account for any interest payments as interest income when
designated interest payments are received from Dentcare. Notwithstanding
the uncertainty of future interest payments subject to regulatory approval,
the Company, based on its assessment of Dentcare's financial condition,
believes that the principal balance of the loan will ultimately be repaid;
accordingly no provision for impairment thereon has been made. When
repayments designated as principal are received, they will be so recorded.
Service fee income from this affiliate amounts to $2,438,342 and $2,253,903
in 1996 and 1995, respectively.
-30-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 11: RESTATEMENT
--------------------
The Company has restated its 1995 financial statements including the
opening balance of retained earnings for such year to correct the reporting
of deferred rent expense and income tax expense.
In previously issued financial statements, the Company reported its annual
rent expense as the cash amount actually due for such year, rather than on
the straight-line method required by Statement of Financial Accounting
Standards No. 13, "Accounting for Leases". (See Note 2). The effect of such
adjustment is an increase in rent expense of $26,152 applicable to fiscal
1995 and $74,273 applicable to prior years.
The Company has also restated the component amounts of current and deferred
income taxes for fiscal 1995 and prior years. The effect of a disclosed
overaccrual for 1994 previously reflected as a reduction of the 1995
current provision has been eliminated. The Company has also adjusted for
the effect on deferred taxes of the change in reported rent expense.
Lastly, the Company has corrected the effective income tax rate applied to
applicable temporary differences. The effect on the financial statements of
the above corrections and changes and the resulting decrease in net income
are as follows:
Fiscal Prior
1995 Years
---------- ----------
Rent expense $ 26,152 $ 74,273
---------- ----------
Income taxes:
Current:
Federal 23,781 (32,955)
State 2,913 0
---------- ----------
Total current 26,694 (32,955)
---------- ----------
Deferred:
Federal (6,616) 17,275
State (3,692) 18,944
---------- ----------
Total deferred (10,308) 36,219
---------- ----------
Total income taxes 16,386 3,264
---------- ---------
Net income $ (42,538) $ (77,537)
========== ==========
The above corrections applicable to fiscal 1995, which reduced net income
to $28,388, are reflected in the accompanying restated balance sheet and
income statements for 1995. The cumulative effect of $77,537 applicable to
all prior years is reported as an adjustment to the opening balance of
retained earnings at the beginning of fiscal 1995 on the statement of
stockholders' equity. The 1995 statement of cash flows has been restated as
if all applicable adjustments were made to the December 31, 1994 balance
sheet.
-31-
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------------
Estimated fair values of the Company's financial instruments are as follows
at December 31:
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ----- -------- -----
Cash and short-term
investment $1,225,395 $1,225,395 $1,132,498 $1,132,498
Long-term investments 633,936 633,936 758,243 758,243
Loan Receivable,
Dentcare Delivery
Systems, Inc. 515,820 515,820 515,820 515,820
Capitalized lease
obligations 374,241 374,241 300,495 300,495
The fair value of financial instruments classified as current assets or
liabilities approximate carrying value due to the short-term maturity of
the investment. For long-term investments, fair values are estimated based
on quoted market prices. The fair value of capitalized lease obligations is
based on the current rates at which the Company could borrow funds with
similar remaining maturities.
-32-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-----------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
-------------------------------------------------------
Each of the Directors serves from the date of his election until the
next annual meeting of stockholders and until his successor is elected and
qualified. Officers serve at the discretion of the Board of Directors.
Information concerning the executive officers and directors of the
Company are set forth below:
Name Age Office Held
---- --- -----------
Stephen J. Cuchel 58 Chairman of the Board,
Co-Chief Executive Officer
and a Director
Martin Kane 57 President, Co-Chief Executive
Officer and a Director
Bruce H. Safran 47 Vice President, Secretary and a
Director
George Kane 53 Vice President, Treasurer
and a Director
Philip J. Rizzuto 53 Vice President, Management
Information Systems and
a Director
Douglas L. King 55 a Director
John Forte 54 Vice President and Chief
Financial Officer
Dr. Stephen J. Cuchel has been Chairman of the Board, Co-Chief Executive
---------------------
Officer and a Director of the Company for more than the past five years.
He is a Director of IHS, President of the American Dental Research
Foundation, a partner in a group dental practice with Drs. George Kane and
Martin Kane, Assistant Professor at New York University Medical Center and
a lecturer at C.W. Post Long Island University. He is a member of the 9th
Dental Society, North Eastern Conference of Health, Welfare and Pension
Plans. He is also a member of the Board of Directors of the Health
Services Administration, Nassau and Suffolk counties. Dr. Cuchel received
a B.S. from Union College in 1960 and a D.D.S. from New York University
College of Dentistry in 1964. He has also completed post-graduate training
at New York Institute of Clinical Oral Pathology, and a residency at Long
Island College Hospital in Anesthesiology and Dentistry for Handicapped
Children.
-33-
<PAGE>
Dr. Martin Kane has been President, Co-Chief Executive Officer and a
---------------
Director of the Company for more than the past five years. He is also a
Director of IHS. He, with Drs. George Kane and Stephen Cuchel, operate a
group dental practice from four private offices in New York City and
environs. Between 1964 and 1976 he and Dr. Cuchel established various
dental offices in the New York metropolitan area. Dr. Kane received a B.S.
from City College of New York in 1960 and a D.D.S. from New York University
College of Dentistry in 1964. He is a member of the American Dental
Association, SED Professional Fraternity for Continuing Education,
Conference of Oral Medicine, North Eastern Conference of Health, Welfare
and Pension Funds and is dental care adviser to Local 1125 Retail Menswear
Union.
Dr. Bruce H. Safran has been a Secretary, Vice President and a Director
-------------------
of the Company for more than the past five years. His duties include
professional relations and the marketing of image services. He is also
President and a Director of IHS (having served since 1981). Dr. Safran is
licensed to practice dentistry in New York and New Jersey, was a solo
practitioner between 1974 and 1982 and occasionally serves as a dental
consultant to private dental offices. Dr. Safran attended Ohio State
University between 1967 and 1970, received a D.D.S. in 1974 from the
University of Maryland and an M.B.A. in 1989 from the University of New
Haven. He is a member of the American, New York State and Nassau County
Dental Societies, as well as the National Association of Dental Plans, the
Self-Insurance Institute of America, the Association of Managed Health Care
Organizations and the American Health Information Management Association.
Dr. George Kane has been a Vice President and a Director of the Company
---------------
since July 1984, and has been Treasurer of the Company since February 1988.
He is a Director and Vice President of IHS. Together with his brother,
Martin Kane, and Stephen J. Cuchel, Dr. Kane operates a group dental
practice from four offices in New York City and environs. He is a member
of the American Dental Association, SED Professional Fraternity for
Continuing Education, Academy of General Dentistry, American Endodontic
Society, American Society of Preventive Dentistry and Yonkers New York
Chamber of Commerce. He received his B.A. from The State University,
Rutgers, New Jersey in 1965 and a D.D.S. from New York University College
of Dentistry in 1969.
Philip J. Rizzuto has been a Director of the Company and Vice President
-----------------
of Management Information Systems since March 1990. He was a Director,
Chief Executive Officer, Secretary and Treasurer of the Healthplex Computer
Group from December 1987 until July 31, 1993. His duties include providing
technical support services for in-house computer and imaging systems and
providing market support for all products. Prior thereto, and at various
times since 1982, he was a self-employed consultant to the Company and to
other companies. From August 1982 through 1986, Mr. Rizzuto was a Director
and Vice President of Management Information Systems for AGS International,
Ltd., a privately-held concern. From 1981 to August 1982, Mr. Rizzuto was
a Senior Director of Information Systems for the New York City Transit
Authority. Mr. Rizzuto received his B.S., Cum Laude, in Computer
Technology in 1975 from New York Institute of Technology.
Douglas L. King has been a Director of the Company for more than the
---------------
past five years. Mr. King has also been President and Chief Executive
Officer of Smyth, Sanford and Gerard Reinsurance Intermediaries, Inc. and a
director of United States Surgical Corporation for more than the past five
-34-
<PAGE>
years. He is also President and Chief Executive Officer of C.C. King &
Co., Inc. Mr. King received his B.A. in 1963 from Stanford University, his
J.D. from Stanford University in 1966 and a Masters of Philosophy from the
University of London in 1968. He is a member of the Association of the Bar
of the State of California.
John Forte has been with the Company for more than the past five years
----------
and is a Vice President and Chief Financial Officer of the Company. Since
July 1991, Mr. Forte has served as a Vice President of the Company.
Mr. Forte received his A.A.S. from Brooklyn College, New York in 1962 and
his B.B.A. from the City College of New York in 1966. He is a Certified
Public Accountant and has been a member of the New York State Society of
Certified Public Accountants and A.I.C.P.A. since 1969. Mr. Forte also
maintains a private accounting practice for his own clients and devotes
approximately one day per week to such practice.
Drs. Martin Kane and George Kane are brothers.
Based on a review of the Forms 3 and 4, and any amendments thereto,
filed during the year ended December 31, 1996 by those individuals required
to file and furnish to the Company such reports and the written
representation furnished to the Company by each such individual that he is
not required to file a Form 5, the Company knows of no delinquent filing
of, or failure to file, any such Form which was required to be filed during
such year.
-35-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
----------------------
The Summary Compensation Table below sets forth the compensation for
services paid or accrued for services in all capacities during the last
three fiscal years by the Company and its subsidiaries to the two Co-Chief
Executive Officers and the other most highly compensated executive officers
whose annual compensation exceeded $100,000:
SUMMARY COMPENSATION
Annual Long Term
Compensation Compensation
------------ ------------
Name and Fiscal Options/ All other
Principal Position Year Salary SARs (No.) Compensation 1/
------------------ ------ ------ ---------- -------------
Stephen J. Cuchel,
Chairman of the 1996 $183,121 100,000 2/ $13,171
Board 1995 $158,445 65,000 3/ $12,000
Co-Chief 1994 $140,861 65,000 $ 7,158
Executive
Officer and a
Director
Martin Kane,
President, 1996 $183,121 100,000 2/ $10,168
Co-Chief 1995 $158,185 65,000 3/ $ 8,900
Executive 1994 $140,861 65,000 $ 7,676
Officer and a
Director
Bruce H. Safran,
Vice President, 1996 $150,207 100,000 2/ $ 8,589
Secretary and a 1995 $136,597 50,000 3/ $ 7,402
Director 1994 $128,112 50,000 $ 8,820
John F. Forte,
Vice President, 1996 $128,640 150,000 2/ $ 6,316
Chief Financial 1995 $103,290 25,000 3/ $ 6,468
Officer 1994 $ 98,600 25,000 $ 5,768
Philip J. Rizutto, 1996 $106,014 ---- $ 4,802
Vice President 1995 $ 99,999 25,000 3/ $ 5,244
and a 1994 $ 99,999 25,000 $ 5,244
Director
---------------------
1 Consists of (i) matching contributions to the Retirement Savings
Plan of the Company for the years 1996, 1995 and 1994 for each of Drs.
Cuchel ($1,171, $1,627, $1,701), Martin Kane ($1,268, $1,646, $1,701),
Safran ($1,187, $1,323, $1,418) and Philip J. Rizutto ($808, $1,250,
$1,250), and (ii) insurance premiums paid by the Company for the years
1996, 1995 and 1994 for each of Drs. Cuchel ($12,000, $12,000, $5,457),
Martin Kane ($8,900, $8,900, $5,975), Safran ($7,402, $7,402, $7,402), John
Forte ($6,316 $6,468, $5,768) and Philip J. Rizutto ($3,994, $3,994,
$3,994) on life insurance policies payable to beneficiaries respectively
designated by each insured.
2 These options were granted to the named executive in 1996.
3 These options were issued in 1995 in replacement of a like number
of options granted to the named executive in 1994.
-36-
<PAGE>
During 1996, the Company paid a director's fee of $12,000 to Mr.
Douglas King and $25,000 to Dr. George Kane for services as a director and
officer of the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
/ OPTION VALUES AT FISCAL YEAR END
-----------------------------------
During 1996, neither the co-Chief Executive Officers of the
Company nor any of the most highly compensated executive officers whose
annual compensation exceeded $100,000 exercised options to purchase Common
Stock of the Corporation.
The following table presents information regarding the number of
options to purchase the Company's Common Stock granted by the Company to
the named executive officers during the year ended December 31, 1996, the
percentage of each named executive officer's share of all such options
granted to all employees of the Company, the exercise price of each such
executive officer's options, and the expiration date of each such executive
officer's options.
-37-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
---------------------------------
No. of Percent of
Securities Total
Underlying Options Granted Exercise or
Options Granted to Employees in Base price Expiration
Name (#) Fiscal Year ($/Sh)1 1/ Date
---- --------------- --------------- ----------- ----------
Stephen J.
Cuchel 100,000 20.00 1.7821 June 10,
2001
Martin Kane 100,000 20.00 1.7821 June 10,
2001
Bruce H.
Safran 100,000 20.00 1.6201 June 10,
2006
John Forte 150,000 30.00 1.6201 June 10,
2006
----------------------
1 Consists of Incentive Stock Options which were granted to the
named executive officers on June 11, 1996. The options may only be
exercised upon (i) a Change of Control of the Company, (ii) the sale of all
or substantially all of the assets of the Company to an entity which is not
an Affiliate (as defined under Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of the Company, or (iii) the merger or
consolidation of the Company with or into an entity which is not an
Affiliate of the Company whereupon the Company is not the surviving entity.
A "Change of Control of the Company" shall be deemed to have occurred if
any person (including any individual, firm, partnership or other entity)
together with all Affiliates and Associates (as defined in Rule 12b-2
promulgated under the Exchange Act) of such person, but excluding (i) a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, (ii) an entity owned,
directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of the Company, (iii) the Company
or any subsidiary of the Company, or (iv) a person who, as of the date
hereof, is a 10% Owner of the Company (as defined above), is or becomes the
Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
common stock. In the case of Drs. Cuchel and M. Kane, the options are
exercisable for a period of five years from the date of grant and were
granted at 110% of the Formula Price. The options granted to Dr. Safran and
Mr. Forte are exercisable for a period of ten years and were granted at the
Formula Price. The "Formula Price" is equal to the average of the mean
of the closing bid and asked prices for the Company's Common Stock on
the National Association of Securities Dealers Automatic Quotation System
during the 20 trading days preceding the date of grant, eliminating from
such calculation the two high and two low bid and asked prices.
-38-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The following table sets forth the number and percentage of
shares of the Company's Common Stock, par value $.001 per share, held by
each director, by each executive officer named in the compensation tables
of Item 10, by each person known by the Company to own in excess of five
percent of the Company's Common Stock and by all directors and officers as
a group as of April 10, 1997.
Name and address of Shares Percent
Beneficial owner Beneficially Owned of Class
------------------- ------------------ --------
Stephen J. Cuchel (1) 519,918 14.27
Nassau Corporate Center I
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
Martin Kane (2) 499,400 13.67
Nassau Corporate Center I
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
Bruce H. Safran (3) 342,200 9.40
Nassau Corporate Center I
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
George Kane (4) 477,000 13.15
73 Gin Lane
Southampton, NY 11968
Douglas L. King (5) 23,000 0.63
535 Center Island Road
Oyster Bay, NY 11771
Philip J. Rizzuto (6) 132,818 3.64
Nassau Corporate Center I
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
All Directors and 2,019,336 51.65
Officers as a group
(seven persons)(7)
----------------------
(1) Includes 10,000 shares held in custody for certain members of Dr.
Cuchel's family; 65,000 shares which Dr. Cuchel may acquire upon exercise
of an Incentive Stock Option which is exercisable at a price of $1.1979 per
share. Does not include a conditional option, exercisable at a price of
$1.7821 per share, to acquire 100,000 shares of common stock which was
granted to Dr. Cuchel on June 11, 1996. See Item 10. Executive
Compensation.
(2) Includes 65,000 shares which Dr. Martin Kane may acquire upon
exercise of an Incentive Stock Option which is exercisable at a price of
$1.1979 per share. Does not include a conditional option, which is
exercisable at a price of $1.7821 per share, to acquire 100,000 shares of
Common Stock which was granted to Dr. Martin Kane on June 11, 1996. See
Item 10. Executive Compensation. George Kane and Martin Kane are brothers.
Each disclaims any voting or investment power over the shares of Common
Stock owned by the other.
-39-
<PAGE>
(3) Includes 50,000 shares which Dr. Safran may acquire upon exercise of
an Incentive Stock Option which is exercisable at a price of $1.089 per
share. Does not include a conditional option, exercisable at a price of
$1.6201 per share, to acquire 100,000 shares of Common Stock which was
granted to Dr. Safran on June 11, 1996. See Item 10. Executive
Compensation.
(4) Includes 45,000 shares which Dr. George Kane may acquire upon
exercise of an Incentive Stock Option which is exercisable at a price of
$1.1979 per share. George Kane and Martin Kane are brothers. Each
disclaims any voting or investment power over the shares of Common Stock
owned by the other.
(5) Includes 6,000 shares held in a trust of which Mr. King is a
one-third beneficiary; 10,000 shares which Mr. King may acquire upon
exercise of a Non-Qualified Stock Option which is exercisable at a price of
$1.089 per share; and 5,000 shares which Mr. King may acquire upon exercise
of a Non-Qualified Stock Option which is exercisable at a price of
$.6015625 per share.
(6) Includes 25,000 shares which Mr. Rizzuto may acquire upon exercise of
an Incentive Stock Option which is exercisable at a price of $1.089 per
share; and 32,818 shares which Mr. Rizzuto may acquire upon exercise of an
Incentive Stock Option which is exercisable at a price of $.6015625 per
share.
(7) Includes the shares and options referred to in Footnotes (1) through
(6) and 25,000 shares issuable to Mr. Forte upon exercise of an Incentive
Stock Option which is exercisable at a price of $1.089 per share. Does not
include conditional options to acquire 300,000 share of Common Stock
referred to in Footnotes (1), (2) and (3) above or a conditional option,
exercisable at a price of $1.6201 per share, to acquire 150,000 shares of
Common Stock which was granted to an officer (Mr. Forte) on June 11, 1996.
See Item 10. Executive Compensation.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
During the year ended December 31, 1996, the Company derived
revenues from Dentcare of $2,438,342.
Drs. Martin Kane, Stephen J. Cuchel, Bruce H. Safran and George
Kane are directors of IHS and Drs. Bruce H. Safran and George Kane are also
officers of IHS.
In July 1996, each of Drs. Stephen J. Cuchel and Martin Kane
borrowed the amount of $50,000 from the Company. Each loan is evidenced by
a promissory note payable by the borrower to the Company in 35 equal,
consecutive, monthly installments commencing in August 1996, with a final
payment due in July 1999, and bears interest at a rate per annum equal to
the current prime rate of interest plus two percent.
A loan in the principal amount of $515,820 is payable by
Dentcare to the Company. See Item 6. (Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources) and Note 9 to the Consolidated Financial Statements.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
--------------------------------------
Financial Statements
--------------------
The following financial statements are included in PART
-40-
<PAGE>
II, Item 7.
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1996 and December 31,
1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995
Consolidated Statement of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995
Notes to the Consolidated Financial Statements
Exhibits
--------
3.1 Certificate of Incorporation of the Company, as amended, incorporated
herein by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended 1987, Commission File No. 0-14236.
3.2 By-Laws of the Company incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-18, Commission
File No. 2-98215-NY.
10.1 Service Agreement, dated April 30, 1986, between the Company and
International Healthcare Services, Inc. ("IHS") incorporated herein
by reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended 1986, Commission File No. 0-14236.
10.3 Service Agreement between the Company and Dentcare Delivery Systems,
Inc. ("Dentcare") incorporated herein by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended 1986,
Commission File No. 0-14236.
10.4 Agreement, dated December 13, 1983, between Dentshield and
Dascit/White & Winston, Inc. incorporated herein by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-18,
Commission File No. 2-98215-NY.
10.5 General Agent Agreement, dated October 1983, between Dentshield and
The Only Company t/a Capital Marketing incorporated herein by
reference to Exhibit 10.6 to the Company's Registration Statement on
Form S-18, Commission File No. 2-98215-NY.
10.6 Incentive Stock Option Plan incorporated herein by reference to
Exhibit 10.10 to the Company's Registration Statement on Form S-18,
Commission File No. 2-98215-NY.
10.7 Non-Qualified Stock Option Plan incorporated herein by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-18,
Commission File No. 2-98215-NY.
10.8 Incentive Stock Compensation Plan incorporated herein by reference to
Exhibit 10.8 to the Company's Annual Report or Form 10-K for the year
-41-
<PAGE>
ended 1989, Commission File No. 0-14236.
10.9 Employment Agreement, dated October 3, 1984, as amended on October
17, 1985, between the Company and Martin Kane incorporated herein by
reference to Exhibits 10.14 and 10.25 to the Company's Registration
Statement on Form S-18, Commission File No. 2-98215-NY.
10.10 Employment Agreement, dated October 3, 1984, as amended on October
17, 1985, between the Company and Stephen J. Cuchel incorporated
herein by reference to Exhibits 10.15 and 10.25 to the Company's
Registration Statement on Form S-18, Commission File No. 2-98215-NY.
10.11 Employment Agreement, dated October 3, 1984, as amended on October
17, 1985, between the Company and Bruce H. Safran incorporated herein
by reference to Exhibits 10.17 and 10.25 to the Company's
Registration Statement on Form S-18, Commission File No. 2-98215-NY.
10.12 Agreement, dated August 30, 1985, among the Company and certain
individuals, regarding certain computer, telephone and printing
equipment incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-18, Commission File No. 2-98215-NY.
10.13 1992 Stock Incentive Plan, incorporated herein by reference to
Exhibit 4.7 to the Company's Registration Statement on Form S-8,
Commission File No. 33-56758.
10.14 1992 Director Stock Incentive Plan, incorporated herein by reference
to Exhibit 4.11 to the Company's Registration Statement on Form S-8,
Commission File No. 33-56758.
10.15 Lease Agreement between Reckson Associates and the Company dated as
of February 1, 1993, incorporated herein by reference to Exhibit
10.16 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1992, Commission File No. 0-14236.
10.16 Stock Purchase Agreement dated as of July 30, 1993 by and between the
Company and Compu-Lan, Inc., incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1993, Commission File No. 0-14236.
10.17 Non-Qualified Stock Option Agreement dated as of November 28, 1995
between the Company and Paul Osher, incorporated herein by reference
to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995, Commission File No. 0-14236.
10.18 Promissory Note in the amount of $50,000 dated July 2, 1996, executed
by Martin Kane in favor of the Company.
10.19 Promissory Note in the amount of $50,000 dated July 2, 1996, executed
by Stephen J. Cuchel in favor of the Company.
10.20 Form of Conditional Stock Option Agreement granted to Drs. Stephen
Cuchel, Martin Kane and Bruce H. Safran and Mr. John Forte on
June 11, 1996.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Public Accountants relating to the Company's
Registration Statement on Form S-8, Commission File No. 33-56758.
-42-
<PAGE>
27.1 Financial Data Schedule.
28.1 Flexible Benefits Cafeteria Plan of the Company and its affiliates
effective January 1, 1989 incorporated herein by reference to Exhibit
28.1 to the Company's Annual Report on Form 10-K for the year ended
1988, Commission File No. 0-14236.
28.2 Retirement Savings Plan of the Company effective January 1, 1989
incorporated herein by reference to Exhibit 28.2 to the Company's
Annual Report on Form 10-K for the year ended 1988, Commission File
No. 0-14236.
Reports on Form 8-K
-------------------
No report on Form 8-K was filed during the fiscal quarter ended
December 31, 1996.
-43-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HEALTHPLEX, INC.
By: /s/ Martin Kane
--------------------------
Martin Kane, President
Date: April 14, 1997
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen J. Cuchel Chairman of the Board April 14, 1997
--------------------- of Directors, Co-Chief
Stephen J. Cuchel Executive Officer and a
Director (Co-Principal
Executive Officer)
/s/ Martin Kane President, Co-Chief April 14, 1997
--------------------- Executive Officer and a
Martin Kane Director (Co-Principal
Executive Officer)
/s/ Bruce H. Safran Vice President, April 14, 1997
--------------------- Secretary and a
Bruce H. Safran Director
/s/ George Kane Vice President, April 14, 1997
--------------------- Treasurer and a
George Kane Director
/s/ Douglas L. King a Director April 14, 1997
---------------------
Douglas L. King
/s/ Philip J. Rizzuto Vice President and a April 14, 1997
--------------------- Director
Philip J. Rizzuto
/s/ John Forte Vice President and April 14, 1997
--------------------- Chief Financial Officer
John Forte
-44-
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Number Description
------------- -----------
10.18 Promissory Note
payable by Martin Kane
to the Company in the
original principal
amount of $50,000
10.19 Promissory Note
payable by Stephen J.
Cuchel to the Company
in the original
principal amount of
$50,000
10.20 Form of Stock Option
Agreement granted to
Drs. Stephen Cuchel,
Martin Kane and Bruce
H. Safran and Mr. John
Forte on June 11, 1996.
21.1 Subsidiaries of the
Company
23.1 Consent of Independent
Public Accountants
27.1 Financial Data Schedule
PROMISSORY NOTE Exhibit 10.18
-------------
Amount: $50,000.00 Date: July 2, 1996
FOR VALUE RECEIVED, the undersigned, Martin Kane (the "Borrower"), hereby
promises to pay to the order of Healthplex, Inc. ("Lender") at its
principal address located at 60 Charles Lindbergh Boulevard, Uniondale, New
York, or such other location as Lender may by notice specify, the principal
sum of $50,000.00, together with interest thereon as herein provided. The
principal amount hereof shall be payable in 35 equal monthly installments
of $1,388.89 each on August 1, 1996 and on the same day of each immediately
succeeding month thereafter and a final payment of $1,388.85 on July 1,
1999.
I. INTEREST.
This Note shall bear interest from the date hereof on the unpaid
principal amount hereof at a rate per annum equal to the prime rate as
publicly announced from time to time in the "Wall Street Journal" (Eastern
Edition), plus two percent. Accrued and unpaid interest shall be payable
on each day on which an installment of principal shall be payable.
II. PAYMENT.
(a) All payments shall be due on the dates specified above;
provided, however, that if a payment date occurs on a Saturday or Sunday,
or a holiday on which banks in the State of New York are not generally open
for business, such payment shall be due and payable on the next succeeding
business day.
(b) If the Borrower fails to pay any amount hereunder on the
date when due, the Lender shall notify the Borrower in writing of such
failure and the Borrower shall have 15 days from the date on which the
payment was due to pay the overdue amount (the "Grace Period"). If the
overdue amount is not paid within the Grace Period, the entire balance
outstanding under this Note shall, at Lender's option, be due in full,
payable on demand, and shall bear interest from the day when due until paid
in full at a per annum interest rate equal to two percent above the rate
specified in Section 1 above. No failure by the Lender timely to provide
the Borrower with notice as specified herein shall operate as a waiver of
the Borrower's responsibilities hereunder.
III. EXPENSES. The Borrower shall reimburse Lender on demand for
Lender's expenses, including but not limited to fees and expenses of
counsel, in connection with the enforcement of this Note.
IV. AMENDMENTS. This Note may be amended only by an instrument in
writing signed by Lender and the Borrower.
V. GOVERNING LAW. This Note shall be governed by and interpreted
in accordance with the laws of the State of New York.
VI. ADJUDICATION. The Borrower hereby irrevocably consents that any
legal action or proceeding against it arising out of or in any way
connected with this Note may be instituted in any state court or United
States Federal court located in Nassau or New York counties, State of New
York, and the Borrower hereby submits to the jurisdiction of such courts.
The Borrower further irrevocably consents to the service of process in any
such action or proceeding by the mailing of copies of such service by
registered or certified mail, postage prepaid, return receipt requested, to
the Borrower. The foregoing, however, shall not limit the right of Lender
to serve process in any other manner permitted by law or to commence any
legal action or proceeding or to obtain execution of judgment in any
appropriate jurisdiction.
VII. WAIVER. No failure on the part of Lender to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder preclude
any other or further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
VIII. NOTICES. Any notice hereunder shall be in writing and shall be
personally delivered or transmitted by registered or certified mail,
postage prepaid, return receipt requested, addressed to the party receiving
such notice at its address set forth on the first page hereof or such other
address as a party may by notice specify to the other party. Notices shall
be deemed effective on the date of delivery if personally delivered or on
the fifth day after mailing if delivered by mail.
IX. SEVERABILITY. If any term contained in this Note shall be held
by any court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect under any applicable law, the remaining terms
hereof shall not in any way be affected or impaired. All agreements
between the Borrower and the Lender are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness or otherwise, shall the amount paid or agreed
to be paid to the Lender for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum permissible amount paid or
agreed to be paid to the Lender under applicable law. If, for any
circumstances whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto the obligation to be
---- -----
fulfilled shall be reduced to the limit of such validity, and if from any
circumstance the Lender should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance
evidenced hereby and not the payment of interest. As used herein, the
term "applicable law" shall mean the law in effect as of the date hereof;
provided, however, that if there is a change in the law which results
in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date.
X. WAIVER OF PRESENTMENT, DEMAND AND PROTEST. The Borrower hereby
waives presentment, demand, protest, notice of protest, presentment for the
purpose of accelerating maturity and diligence in collection, and consents
that Lender may release, surrender, exchange or substitute any personal
property or other collateral security now held or which may hereafter be
held as security for the payment of this Note, and may extend the time for
payment or otherwise modify the terms of payment of ant part or the whole
of the debt evidenced hereby.
XI. ASSIGNMENT. This Note shall be binding upon the Borrower and its
successors and assigns. The Borrower shall not assign or transfer any of
its obligations hereunder without the prior written consent of Lender.
Lender may at any time assign or transfer its interest herein and the
transferee shall thereupon become vested with all of the rights and powers
given to Lender herein.
/s/ Martin Kane
--------------------
Martin Kane
PROMISSORY NOTE Exhibit 10.19
-------------
Amount: $50,000.00 Date: July 2, 1996
FOR VALUE RECEIVED, the undersigned, Stephen J. Cuchel (the "Borrower"),
hereby promises to pay to the order of Healthplex, Inc. ("Lender") at its
principal address located at 60 Charles Lindbergh Boulevard, Uniondale, New
York, or such other location as Lender may by notice specify, the principal
sum of $50,000.00, together with interest thereon as herein provided. The
principal amount hereof shall be payable in 35 equal monthly installments
of $1,388.89 each on August 1, 1996 and on the same day of each immediately
succeeding month thereafter and a final payment of $1,388.85 on July 1,
1999.
XII. INTEREST.
This Note shall bear interest from the date hereof on the unpaid
principal amount hereof at a rate per annum equal to the prime rate as
publicly announced from time to time in the "Wall Street Journal" (Eastern
Edition), plus two percent. Accrued and unpaid interest shall be payable
on each day on which an installment of principal shall be payable.
XIII. PAYMENT.
(a) All payments shall be due on the dates specified above;
provided, however, that if a payment date occurs on a Saturday or Sunday,
or a holiday on which banks in the State of New York are not generally open
for business, such payment shall be due and payable on the next succeeding
business day.
(b) If the Borrower fails to pay any amount hereunder on the
date when due, the Lender shall notify the Borrower in writing of such
failure and the Borrower shall have 15 days from the date on which the
payment was due to pay the overdue amount (the "Grace Period"). If the
overdue amount is not paid within the Grace Period, the entire balance
outstanding under this Note shall, at Lender's option, be due in full,
payable on demand, and shall bear interest from the day when due until paid
in full at a per annum interest rate equal to two percent above the rate
specified in Section 1 above. No failure by the Lender timely to provide
the Borrower with notice as specified herein shall operate as a waiver of
the Borrower's responsibilities hereunder.
XIV. EXPENSES. The Borrower shall reimburse Lender on demand for
Lender's expenses, including but not limited to fees and expenses of
counsel, in connection with the enforcement of this Note.
XV. AMENDMENTS. This Note may be amended only by an instrument in
writing signed by Lender and the Borrower.
XVI. GOVERNING LAW. This Note shall be governed by and interpreted
in accordance with the laws of the State of New York.
XVII. ADJUDICATION. The Borrower hereby irrevocably consents that any
legal action or proceeding against it arising out of or in any way
connected with this Note may be instituted in any state court or United
States Federal court located in Nassau or New York counties, State of New
York, and the Borrower hereby submits to the jurisdiction of such courts.
The Borrower further irrevocably consents to the service of process in any
such action or proceeding by the mailing of copies of such service by
registered or certified mail, postage prepaid, return receipt requested, to
the Borrower. The foregoing, however, shall not limit the right of Lender
to serve process in any other manner permitted by law or to commence any
legal action or proceeding or to obtain execution of judgment in any
appropriate jurisdiction.
XVIII. WAIVER. No failure on the part of Lender to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder preclude
any other or further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
XIX. NOTICES. Any notice hereunder shall be in writing and shall be
personally delivered or transmitted by registered or certified mail,
postage prepaid, return receipt requested, addressed to the party receiving
such notice at its address set forth on the first page hereof or such other
address as a party may by notice specify to the other party. Notices shall
be deemed effective on the date of delivery if personally delivered or on
the fifth day after mailing if delivered by mail.
XX. SEVERABILITY. If any term contained in this Note shall be held
by any court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect under any applicable law, the remaining terms
hereof shall not in any way be affected or impaired. All agreements
between the Borrower and the Lender are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness or otherwise, shall the amount paid or agreed
to be paid to the Lender for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum permissible amount paid or
agreed to be paid to the Lender under applicable law. If, for any
circumstances whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto the obligation to be
---- -----
fulfilled shall be reduced to the limit of such validity, and if from any
circumstance the Lender should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance
evidenced hereby and not the payment of interest. As used herein, the
term "applicable law" shall mean the law in effect as of the date hereof;
provided, however, that if there is a change in the law which results
in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date.
XXI. WAIVER OF PRESENTMENT, DEMAND AND PROTEST. The Borrower hereby
waives presentment, demand, protest, notice of protest, presentment for the
purpose of accelerating maturity and diligence in collection, and consents
that Lender may release, surrender, exchange or substitute any personal
property or other collateral security now held or which may hereafter be
held as security for the payment of this Note, and may extend the time for
payment or otherwise modify the terms of payment of ant part or the whole
of the debt evidenced hereby.
XXII. ASSIGNMENT. This Note shall be binding upon the Borrower and its
successors and assigns. The Borrower shall not assign or transfer any of
its obligations hereunder without the prior written consent of Lender.
Lender may at any time assign or transfer its interest herein and the
transferee shall thereupon become vested with all of the rights and powers
given to Lender herein.
/s/ Stephen J. Cuchel
------------------------
Stephen J. Cuchel
Exhibit 10.20
-------------
FORM OF
-------
1992 STOCK INCENTIVE PLAN
-------------------------
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
Awarded on June 11, 1996
------------------------
Healthplex, Inc., a Delaware corporation (the "Company"), has granted to
(the "Grantee") an option (the "Option") to purchase
-------- ------------
shares (the "Shares") of the Company's Common Stock, par value $.001 per
share, for a total purchase price (the "Option Price") of per Share;
-------
provided that such Option Price shall not be less than the fair market
value of the shares of Common Stock of the Company on the date the Option
was granted; and provided, further, that if the Grantee is the holder of
10% or more of the total combined voting power of all classes of stock of
the Company or its subsidiaries (a "10% Owner"), then the Option Price is
not less than 110% of the fair market value of the shares at the time the
Option is granted.2/ The Option has been granted pursuant to the
Healthplex, Inc. 1992 Stock Incentive Plan (the "Plan") and shall include
and be subject to all provisions of the Plan, which are hereby incorporated
herein by reference, and shall be subject to the following provisions of
this Agreement:
1. Term. The Option shall be exercisable at any time on or after
----
June 11, 1996 and prior to June 11, 2001; provided, however, that in no
event shall the Option be exercisable more than ten years after the date of
grant or more than five years after the date of grant if the Grantee is a
10% Owner.
2. Method of Exercise. At any time when the Option is exercisable
------------------
under the Plan and this Agreement, the Option shall be exercisable from
time to time by written notice to the Incentive Committee (the "Committee")
which shall:
a. state that the option is thereby being exercised, the
number of Shares with respect to the Option is being
exercised, each person in whose name any certificates for
the Shares should be registered and his or her address and
social security number;
b. be signed by the person or persons entitled to exercise the
Option and, if the Option is being exercised by anyone
other than the Grantee, be accompanied by proof
---------------------
2/ The Grantee is a holder of 10% or more of the total combined
voting power of all classes of stock of the Company or its Subsidiaries.
Accordingly, the Option Price for the Option granted hereunder is 110% of
the fair market value of the shares at the time the Option was granted, or
per Share, and the Option shall expire at midnight June 10, 2001.
--------
<PAGE>
satisfactory to counsel for the Company of the right of
such person or persons to exercise the Option under the
Plan and all applicable laws and regulations; and
c. contain such representations and agreements with respect to
the investment intent of such person or persons in form and
substance satisfactory to counsel for the Company.
Notwithstanding the foregoing, the aggregate value of shares of the
Company's Common Stock (valued at the Option Price) as to which the Option
shall be exercisable for the first time in any calendar year shall not
exceed $100,000.
3. Payment of Price. Upon exercise of the Option with respect to
----------------
any of the Shares as described above, the Company shall deliver a
certificate or certificates for those Shares to the specified person or
persons upon receipt of the full purchase price for those Shares: (i) by
certified or bank cashier's check, or (ii) in the discretion of the
Committee, by delivery of Shares with a fair market value equal to the
Option Price allocable to the portion of the Option exercised at the time
of exercise, or (iii) by a combination of the two preceding methods.
4. Transferability. The Option shall not be transferable by the
---------------
Grantee other than by will or by the laws of descent and distribution.
During the lifetime of the Grantee, the Option shall be exercisable
(subject to any other applicable restrictions on exercise) only by the
Grantee for his or her own account. Upon the death of the Grantee, the
Option shall be exercisable (subject to any other applicable restrictions
on exercise) only by the executor or administrator of the Grantee's estate.
5. Termination of Relationship. If the Grantee ceases to be an
---------------------------
officer or employee of the Company or any of its subsidiary or affiliate
corporations by reason of his or her death, disability, retirement,
resignation, replacement or any other reason (other than discharge for
cause or resignation without the written consent of the company or the
employer subsidiary or affiliate), then the Option or any unexercised
portion of the Option which otherwise is exercisable shall terminate unless
it is exercised within the three months after the date that the Grantee
ceases to be an officer or employee (but in no event after expiration of
the original term of the Option); provided that, if the Grantee ceases to
be such an officer or employee by reason of the Grantee's death, then the
three-month period shall instead be a six-month period; and provided,
further, that if the Grantee ceases to be such an officer or employee by
reason of the Grantee's disability, then the three-month period shall
instead be a one-year period. Upon the discharge of the Grantee for cause
or resignation without the written consent of the Company or the employer
subsidiary or affiliate, the Option shall immediately lapse.
6. Treatment as Incentive Stock Option. The Option shall be treated
-----------------------------------
as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended.
7. Restrictions on Exercise. (a) The Option is subject to all
------------------------
restrictions in this Agreement or in the Plan, including without limitation
the restrictions set forth in Section 7 of the Plan. As a condition of any
exercise of the Option, the Company may require the Grantee or his or her
successor to make any representation and warranties to the Company as may
be necessary to comply with any applicable law or regulation or to confirm
to the Company as may be necessary any factual matters reasonably requested
by counsel for the Company.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in the Plan, this Option may only be exercised upon (i) a
Change of Control of the Company, (ii) the sale of all or substantially all
of the assets of the Company to an entity which is not an Affiliate (as
defined under Rule 12b-2 of the General Rules and Regulations promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of the Company, or (iii) the merger or consolidation of the Company with or
into an entity which is not an Affiliate of the Company whereupon the
Company is not the surviving entity. For purposes of this Agreement, a
"Change of Control of the Company" shall be deemed to have occurred if any
person (including any individual, firm, partnership or other entity)
together with all Affiliates and Associates (as defined in Rule 12b-2
promulgated under the Exchange Act) of such person, but excluding (i) a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, (ii) an entity owned,
directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of the Company, (iii) the Company
or any subsidiary of the Company, or (iv) a person who, as of the date
hereof, is a 10% Owner of the Company (as defined above), is or becomes the
Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
common stock.
8. Adjustment of Option Price. Pursuant to the terms of the Plan,
--------------------------
the Option Price may be adjusted by the Committee or by the Board of
Directors in the event of any change in the outstanding shares of Common
Stock by reason of stock splits, stock dividends or any other increase or
reduction of the number of outstanding shares of Common Stock without
receiving consideration in the form of money, services or property or any
other recapitalization or merger, consolidation or other reorganization of
the Company.
9. Option Plan. The Grantee agrees to be bound by all of the terms
-----------
and conditions of the Plan, as the same may be amended from time to time in
accordance with the terms thereof, and, in the case of any conflict between
the terms of this Agreement and the terms of the Plan, the terms of the
Plan shall govern. Pursuant to the Plan, the Committee, or, in the absence
thereof, the Board of Directors, is vested with final authority to
interpret and construe the terms of the Plan, the options granted
thereunder and this Agreement and is authorized to adopt rules and
regulations for administering the Plan. A copy of the Plan in its present
form is available for inspection during business hours by the Grantee or
other persons entitled to exercise the Option at the Company's executive
offices.
10. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and governed by, the laws of the State of New York.
HEALTHPLEX, INC.
By:
--------------------
Name:
Title:
DATE OF GRANT: June 11, 1996
------------------
<PAGE>
ACCEPTANCE OF AGREEMENT
-----------------------
The Grantee hereby: (a) acknowledges receiving a copy of the Plan and
represents that he/she is familiar with all provisions of the Plan; and (b)
accepts this Agreement and the Option granted to him/her under this
Agreement, subject to all provisions of the Plan and this Agreement.
-----------------------------
Grantee's Signature
-----------------------------
Grantee's Social Security No.
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
---- ----------------------
International Healthcare, Inc. New Jersey
O.A.SYS. Corporation New York
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statement on Form S-8 (Registration No.
33-56758) pertaining to the 1992 Stock Incentive Plan, the 1992 Director
Stock Incentive Plan, the 1989 Incentive Stock Compensation Plan, the 1985
Nonqualified Stock Option Plan and the 1985 Incentive Stock Option Plan of
Healthplex, Inc., and the related prospectuses, of our report dated March
21, 1997 with respect to the consolidated financial statements included in
the Annual Report on Form 10-KSB for the year ended December 31, 1996.
Libero & Kappel
Certified Public Accountants
/s/ Libero & Kappel
----------------------------
Westbury, New York
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 268
<SECURITIES> 1,591
<RECEIVABLES> 584
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,737
<PP&E> 2,037
<DEPRECIATION> 1,003
<TOTAL-ASSETS> 4,097
<CURRENT-LIABILITIES> 983
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 2,713
<TOTAL-LIABILITY-AND-EQUITY> 4,097
<SALES> 12,468
<TOTAL-REVENUES> 12,468
<CGS> 8,124
<TOTAL-COSTS> 8,124
<OTHER-EXPENSES> 4,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 333
<INCOME-TAX> 155
<INCOME-CONTINUING> 178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
