<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
WISMER*MARTIN, INC.
(Name of small business issuer in its charter)
WASHINGTON 7373 91-1196514
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
N. 12828 NEWPORT HIGHWAY
MEAD, WASHINGTON 99021
(509) 466-0396
(Address and telephone number of principal executive offers)
N. 12828 NEWPORT HIGHWAY
MEAD, WASHINGTON 99021
(Address of principal place of business or intended principal place of business)
RONALD L. HOLDEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
WISMER*MARTIN, INC.
N. 12828 NEWPORT HIGHWAY
MEAD, WASHINGTON 99021
(509) 466-0396
(Name, address and telephone number of agent for service)
-----------------------
COPY TO:
LAWRENCE R. SMALL
PAINE, HAMBLEN, COFFIN, BROOKE & MILLER
717 WEST SPRAGUE AVENUE, SUITE 1200
SPOKANE, WASHINGTON 99204-0464
(509) 455-6000
-----------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF DOLLAR AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
UNIT(1) PRICE
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value per share. . . . ******* ******* ******* $1,293.10
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Estimated at **** solely for the purpose of calculating the registration fee
pursuant to Rule 457.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion
_______________, 1995
***** SHARES
WISMER*MARTIN, INC.
COMMON STOCK
Prior to this offering, there has been only a limited public market
for the Common Stock of the Company. The public offering price will be ____
per share. See "Determination of Offering Price" for the factors considered in
determining the public offering price.
Following this offering, the current executive officers and directors
of the Company will beneficially own or have voting control over approximately
50% of the Common Stock. See "Risk Factors--Concentration of Ownership" and
"Security Ownership of Certain Beneficial Owners and Management."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PRICE PROCEEDS
TO UNDERWRITING DISCOUNTS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Per Share. . . . . . . . ***** $-0- *****
--------------------------------------------------------------------------------
Total . . . . . . . . . ***** $-0- *****
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<FN>
(1) The services of an underwriter, broker, dealer or finder have not been
engaged for the offering. No discounts, commissions or fees for such
services will be incurred in connection with the offering. See
Prospectus "Use of Proceeds."
(2) Before deducting expenses of the offering estimated at $120,000 for
audit and legal fees.
</TABLE>
THE DATE OF THIS PROSPECTUS IS ______________, 1995.
<PAGE>
ADDITIONAL INFORMATION
THE COMPANY HAS FILED A REGISTRATION STATEMENT ON FORM SB-2 UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), WITH RESPECT TO THE
SHARES OF COMMON STOCK OFFERED HEREBY WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"), IN WASHINGTON, D.C. THIS PROSPECTUS DOES NOT
CONTAIN ALL OF THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT AND THE
EXHIBITS AND SCHEDULES THERETO. FOR FURTHER INFORMATION WITH RESPECT TO THE
COMPANY AND THE COMMON STOCK OFFERED HEREBY, REFERENCE IS MADE TO THE
REGISTRATION STATEMENT AND THE EXHIBITS AND SCHEDULES FILED HEREWITH.
STATEMENTS CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR
ANY OTHER DOCUMENT REFERRED TO ARE NOT NECESSARILY COMPLETE, AND IN EACH
INSTANCE REFERENCE IS MADE TO THE COMPANY OF SUCH CONTRACT OR OTHER DOCUMENT
FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH SUCH STATEMENT BEING
QUALIFIED IN ALL RESPECTS BY SUCH REFERENCE. A COPY OF THE REGISTRATION
STATEMENT MAY BE INSPECTED WITHOUT CHARGE AT THE OFFICES OF THE COMMISSION IN
WASHINGTON, D.C. 20549, AND COPIES OF ALL OR ANY PART OF THE REGISTRATION
STATEMENT MAY BE OBTAINED FROM THE PUBLIC REFERENCE SECTION OF THE COMMISSION AT
450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549, AND AT 5757 WILSHIRE BOULEVARD,
SUITE 500 EAST, LOS ANGELES, CALIFORNIA 90036, UPON THE PAYMENT OF THE FEES
PRESCRIBED BY THE COMMISSION.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 upon payment of the prescribed fees.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated herein by
reference into such documents). Requests for such documents should be submitted
in writing to the Company at its principal executive offices at 12828 N. Newport
Highway, Mead, Washington 99021 or by telephone at (509) 466-0396 to the
attention of Douglas A. Willford, Chief Financial Officer.
2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PRICE RANGE OF THE COMMON STOCK AND DIVIDEND POLICY. . . . . . . . . . . . . 11
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . 13
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . 39
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . 41
TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . . . . 42
DETERMINATION OF OFFERING PRICE. . . . . . . . . . . . . . . . . . . . . . . 43
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . F-1
UNTIL ______, 1995 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3
<PAGE>
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Wismer Martin develops, markets, installs and supports computer systems which
automate physician offices, group practices, hospitals, and managed care
organizations. The Company believes that it is one of the leading providers of
practice management systems and healthcare information networks. The Company's
SM*RT Net suite of products is designed to provide connectivity utilizing
industry standard data formats for all network participants, including
physicians, hospitals, labs, imaging centers, IPA's, PPO's, HMO's, employers,
third party payors, suppliers and other entities. The Company's SM*RT Practice
product, is designed to manage the financial, administrative and practice
management requirements of group medical practices, and is fully-integrated with
SM*RT Net. In addition, the Company's hospital information system solution,
sold under the name ADDvantage, is designed to provide a complete integrated
application to automate the small to mid-size hospital. These three product
solutions provide the Company's clients with the necessary technology
infrastructure to meet the demands of today's rapidly changing healthcare
environment. The Company also sells hardware, training and installation
support, forms and supplies, and software and hardware maintenance services.
The Company's strategy is to offer its practice management and networking
products to physicians, hospitals, payors, and managed care organizations which
are seeking to create an integrated delivery network in their market area.
Rather than simply providing a hardware or software product, Wismer Martin
offers a complete network solution including a services component which takes
the client from the planning through implementation. The Company's hospital
strategy is to offer its HIS applications solution to the small to mid size
hospital seeking a low cost system which requires few data processing resources
to manage. The Company has installed more than 1,600 practice management
systems serving over 3,800 physicians in several medical specialties ranging in
practice size from one to more than 30 physicians. The Company has installed
two major health information payor sponsored networks which span the states of
Washington and Alaska and is in the process of installing two hospital sponsored
networks in the states of Kentucky and Tennessee. The Company's hospital client
base includes more than 65 hospitals ranging in size from 50 bed rural community
hospitals to major urban medical centers with more than 400 beds.
The Company believes that, due to the ongoing pressures on healthcare providers
from managed care, the demand for healthcare information networks will increase
and continue for the next several years and that these opportunities will drive
the sales of practice management systems and hospital systems which can be
effectively linked to such networks. A major new opportunity within the
practice management market is the patient medical record which the Company is
addressing through its Smart Care product offering under development. The
Company's business strategy is to package its various product lines together
with services offerings to meet the needs of this growing market.
The Company markets its products and services through a direct sales force
consisting of 10 individuals and devotes significant resources to developing and
maintaining relationships with existing customers and practice management
consultants. In addition, the Company markets its products and services through
larger strategic partners such as hardware and communications vendors. In the
fiscal year 1994, systems upgrades, add-on software and hardware, software and
hardware maintenance services, forms and supplies, and other services to
existing customers accounted for approximately 40% of total net revenues.
As part of its business strategy, in February 1994, the Company acquired 100% of
the outstanding stock of Integrated Health Systems, Inc. (IHS), a developer of
software solutions for small to mid-size hospitals which is located in La Jolla,
California and previously related to Wismer Martin through common ownership.
The acquisition provided the Company with a healthcare provider client base,
hospital information systems expertise and enhanced services which are now
available to healthcare information network clients. IHS focuses on the
development and marketing of products which are designed for the hospital and
non-physician enterprise markets.
--------------------------------------------------------------------------------
4
<PAGE>
--------------------------------------------------------------------------------
RESTRUCTURING PROJECT
During the second quarter of the current fiscal year the Board of Directors
initiated significant changes in the management of the Company. The new
management has realigned the Company's organization and cost structure. The
foundation for the restructuring is a plan to more fully support the Company's
plan to transition the Company away from its historical dependence on small
practice management system sales. The Company will focus on large group
practices, hospitals and other healthcare providers and payors who are
developing networks, while maintaining its existing customer base. In addition,
the Company's effort to reduce costs since the beginning of the third fiscal
quarter has resulted in an annualized reduction of over $2,000,000 from direct
overhead expense. These cost reductions were achieved by the closing of non-
essential field offices, reduction of personnel in practice management areas
which did not contribute to the direct support of existing clients, and by
reorganization of the Company to eliminate unneeded layers of management. There
are no significant restructuring costs. The Company now has three business
units; Practice Management, Healthcare Information Networks, and Hospital
Information Systems, each led by a Business Unit Manager. The sales organization
has been consolidated and centralized within each business unit. It is
anticipated that this project will continue for the next several months as each
business unit examines its operations for additional gains in efficiency. The
Company believes that with the reduced cost structure, highly centralized
operations, and increased focus on growth market areas (particularly hospitals,
PHO's, MSO's, and Payors), the Company can return to profitability in the final
quarter of this fiscal year ending June 30, 1995.
GTE RELATIONSHIP
By letter agreement dated May 25, 1995, Wismer Martin and GTE Data Services
("GTE") agreed that GTE would participate in a technical review of Wismer
Martin's product and network services. The purpose of the review is to evaluate
the potential for forming a teaming alliance between the two firms for the joint
offering of products and services to the healthcare market. Such a cooperative
working relationship would result in the development and implementation of
Healthcare Information Networks on both a regional and national basis. GTE
would provide clients the necessary technical infrastructure to operate the
communications network, while Wismer Martin would provide the software and
implementation services. This arrangement would provide Wismer Martin with a
partner who has a large national marketing and sales presence as well as the
financial resources to assume responsibility for large scale projects. GTE
completed its technical due diligence on or before June 30, 1995. GTE also
provided Wismer Martin with analytical and technical expertise during the period
in which GTE conducted its due diligence review. The business activities of
both parties as described in that letter agreement have been completed and the
parties have not entered into any further agreements or alliances as yet.
As used herein, each of the terms "Wismer Martin" and the "Company" refers to
Wismer*Martin, Inc., a Washington corporation, and its wholly-owned subsidiary,
Integrated Health Systems, Inc. The Company's executive offices are located at
12828 N. Newport Hwy., Mead, WA 99021, and its telephone number at that location
is (509) 466-0396
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
THE OFFERING
Common Stock offered by the Company. . . . . . . . . . . . ***** shares
Common Stock to be outstanding after the offering . . . . ***** shares (1)
Use of proceeds . . . . . . . . . . . . . . . . . . . . . Reduction of long-
term debt, provide
working capital and
other general
Corporate purposes.
See "Use of
Proceeds".
Over-the-Counter Market symbol . . . . . . . . . . . . . . WSMM
(1) Based on shares issued and outstanding as of June 30, 1995, assuming the
maximum number of shares are sold.
--------------------------------------------------------------------------------
Summary Consolidated Financial Data
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the nine months
-------------------
ended For the fiscal years ended June 30,
----- -----------------------------------
March 31, 1995 1994 1993
-------------- ---- ----
(Restated) (Restated)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenues $7,830 $14,397 $8,311
Costs and expenses $9,373 $13,242 $8,182
Income (loss) from operations ($1,542) $1,155 $129
Net income (loss) ($1,482) $698 $4
Net income (loss) per share ($0.15) $0.07 nil
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1995
-----------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $104
Working capital (deficit) ($2,463)
Software development costs, net $2,500
Total Assets $7,115
Long-term debt, less current maturities $4,070
Stockholders' equity (deficit) (1) ($1,899)
-----------------------
<FN>
(1) Includes a reduction of $2,533,308 excess purchase price of acquired
subsidiary.
</TABLE>
--------------------------------------------------------------------------------
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
GTE PARTNERSHIP. The creation of a strategic partnership with a
larger firm with a national presence is considered a key part of the Company's
overall business strategy. Such a partnership is vital in order to move quickly
to capture market share for network business and to enable the Company to win
large scale contracts. While current discussions between the Company and GTE
indicate a working relationship could be formalized, there are no assurances
that a agreement satisfactory to the two firms can be developed or, that if such
a partnership is defined and a formal agreement signed, that the partnership
will result in new and significant revenues to the Company.
RESTRUCTURING PROJECT; FUTURE OPERATING RESULTS. The Company effected
significant cost reductions together with organizational changes designed to
improve efficiency and more effectively focus upon new market areas during the
third quarter of the current fiscal year. There can be no assurance that this
restructuring project, as it continues will not have an adverse effect upon the
Company's operations, particularly during the initial stages of the project.
LONG SALES CYCLE. The major portion of new growth over the next few
years for the Company is projected to result from new health information network
sales. The sales cycle for the Company's network products and services is
typically 6 to 12 months from initial contact to contract execution. During this
period, the Company expends substantial time, effort and funds preparing a
contract proposal and negotiating the contract. Any significant or ongoing
failure by the Company to achieve a signed contract after expending such time,
effort and funds could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON PRINCIPAL PRODUCT; MARKET ACCEPTANCE; NEW PRODUCT
DEVELOPMENT. The Company's future success and financial performance will depend
in large part on the Company's ability to continue to meet the increasingly
sophisticated needs of its customers through the timely development and
successful introduction of new and enhanced versions of its SM*RT Practice and
SM*RT Net product lines and other complementary products. Product development
focused on enhancing existing products or introducing new products, such as
SM*RT Care has inherent risks, and there can be no assurance that the Company
will be successful in its product development efforts or that the market will
continue to accept the Company's existing or new products. The Company has
historically expended a significant amount of its net revenues on product
development and believes that significant continuing product development efforts
will be required to sustain the Company's growth. There can be no assurance that
the Company will successfully develop, introduce and market new products or
product enhancements, or that products or product enhancements developed by the
Company will meet the requirements of healthcare providers and achieve market
acceptance. See "Business -- Products and Services" and "--Product Development."
COMPETITION; CONSOLIDATION OF THE HEALTHCARE INDUSTRY. The market for
community-wide and enterprise-specific healthcare information systems is
intensely competitive. Many of the Company's competitors have significantly
greater financial, technical and marketing resources than the Company and can be
potentially more effective in selling to the larger sales prospect. Furthermore,
other major information management companies may enter the market in which the
Company competes. There can be no assurance that future competition will not
have a material adverse effect on the Company's business, financial condition
and results of operations. Competitive pressures and other factors, such as new
product introductions by the Company or its competitors, or the entry into new
geographic markets, may result in significant price erosion that could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Many healthcare providers are consolidating to create larger
healthcare delivery enterprises with greater regional market power. As a result,
these enterprises have greater bargaining power, which may lead to price erosion
of the Company's system. The Company's failure to maintain adequate price levels
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company believes that once
a healthcare provider has chosen a particular healthcare information system
vendor, such provider will continue to rely on that vendor for its future
information system requirements. As the healthcare industry undergoes further
consolidation, each sale of the Company's system assumes even greater importance
to the Company's business, financial condition and results of operations. The
Company's inability to make initial
7
<PAGE>
sales of its system to healthcare providers that are replacing or substantially
modifying their healthcare information systems could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Industry Background," "--Target Market," "--Sales and
Marketing" and "--Competition."
FINANCIAL CONDITION AND LIQUIDITY. At March 31, 1995, the Company has
a capital deficit of $1.9 million, negative working capital of $2.5 million and
incurred a significant net loss of $1.5 million from operations for the nine
month period then ended. Additionally, the Company has modified its credit
agreement with the bank as a result of covenant violations (see Note 5 of "Notes
to Consolidated Financial Statements"). During fiscal 1995, management
realigned the Company's organization and instituted a cost reduction program
which included the closing of non-essential field offices and a reduction in
personnel that were in place to support a higher level of sales which were not
achieved. Additionally, management is concentrating its efforts on moving the
Company away from its initial focus on small regional physician practices to a
focus on large group practices, hospitals and other healthcare providers and
payors who are developing networks. The Company intends to fund these efforts
by forming strategic alliances with the large users of the Company's software
products and with monies raised from this offering. Management believes that
with this reduced cost structure, highly centralized operations, and increased
focus on growth market areas (particularly Hospitals, PHO's, MSO's and Payors),
the Company can return to profitability. Should future markets for the
Company's product not develop as projected, management intends to implement
further cost reduction measures, seek external funding from strategic alliance
partners and further leverage the Company's asset base which includes its
current office facilities. Although the Company believes that its operating
plan and efforts to obtain other financing sources will be adequate to meet its
fiscal 1996 working capital needs, there can be no assurance that the Company
may not experience liquidity problems because of adverse market conditions or
other unfavorable events. See Note 2 to "Consolidated Financial Statements."
VARIATION IN QUARTERLY RESULTS OF OPERATIONS; HISTORY OF LOSSES. The
Company's quarterly results of operations have historically varied depending on
such factors as the timing of revenue recognition from system installations and
the variability of operating expenses. The Company's sales of additional
software and services and additional hardware have in the past fluctuated
significantly and may continue to do so in the future. These sales tend to be
unpredictable in nature and vary greatly in dollar amount. For each quarterly
period in 1993, 1994 and 1995, the components of gross margin by revenue
category have varied, and may continue to vary significantly, based on the
Company's performance on individual installation contracts, the amount of
support and maintenance services required during a particular quarter and sales
of additional hardware. A significant portion of the Company's operating
expenses are relatively fixed and are based primarily on revenue forecasts. In
particular, sales and marketing expense is based on the expectation that such
expenditures will result in revenues in future periods. To the extent revenue
targets in any particular quarter are not achieved, the Company may not be able
to adjust expenses accordingly. Fluctuations in the Company's results of
operations may significantly affect the market price of the Common Stock. Since
its incorporation in 1981, the Company has from time to time incurred annual
operating losses. Although the Company achieved profitability for the fiscal
years 1990, 1991, 1992, 1993, and 1994, profitability varied considerably during
that time period. The Company incurred a significant net loss of $1.5 million
for the nine month period ended March 31, 1995 and is expected to incur a loss
for the entire current fiscal year. This loss was sustained due to a decrease in
new network sales in tandem with increased costs incurred in anticipation of
implementation of new network clients. Therefore, there can be no assurance that
the Company will consistently be profitable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations." See, also, "Consolidated Financial Statements."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY RIGHTS.
The Company's success is heavily dependent on its proprietary software. The
Company's software is not patented and existing copyright laws offer only
limited practical protection. The Company relies largely on its license
agreements with clients and its own security systems, confidentiality procedures
and employee nondisclosure agreements to maintain the trade secrecy of its
products. There can be no assurance, however, that the legal protections and
precautions taken by the Company will be adequate to prevent misappropriation of
the Company's technology. In addition, these protections do not prevent
independent third-party development of functionally equivalent or superior
technologies or services. The Company does not believe that its operations or
products infringe on the intellectual property rights of others. See "Business
-- Intellectual Property" and "--Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL. The Company depends to a significant
extent on key management and technical personnel. The Company's growth and
future success will depend in large part on its ability to attract, motivate and
retain highly qualified personnel, in particular, trained and experienced
professionals capable of
8
<PAGE>
developing, selling and installing complex healthcare information systems.
Competition for such personnel is intense and there can be no assurance that the
Company will be successful in hiring, motivating or retaining such qualified
personnel. The loss of key personnel or the inability to hire or retain
qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. During the months of
February and March, 1995, several executive officers with sales and technical
responsibilities resigned. Stanley T. Hatch, President and CEO resigned and his
duties were assumed by Ronald L. Holden, the Chairman of the Board of Directors
and CEO. Robert M. Wilson, CFO and COO resigned and his duties were divided
between John F. Perez, currently President and COO and Douglas A. Willford,
CFO. Michael J. Magliaro, VP of Healthcare Information Networks resigned and
his duties were assumed by William E. Campbell III, Executive VP for Corporate
Development. Beverly J. Hatch, VP, Product Management resigned and her duties
were assumed by Gary J. Peterson, VP HIN Products. These resignations were
anticipated by the Company and related, in part, to the restructuring project
that was being prepared. These resignations, in the opinion of the Company,
did not, nor will they, have a material adverse effect upon the Company. See
"Business: Marketing and Sales " and "Business: Employees."
PRODUCT LIABILITY. The Company's system provides information that
relates to healthcare enterprise operations. Any failure by the Company's system
to provide accurate and timely information could result in claims against the
Company. The Company maintains a $1,000,000 errors and omissions insurance
policy to protect against claims associated with the use of its products, but
there can be no assurance that its insurance coverage would adequately cover any
claim asserted against the Company. A successful claim brought against the
Company in excess of its insurance coverage could have a material adverse effect
on the Company's business, financial condition and results of operations. Even
unsuccessful claims could result in the Company's expenditure of funds in
litigation and management time and resources. There can be no assurance that
the Company will not be subject to product liability claims, that such claims
will not result in liability in excess of its insurance coverage or that the
Company's insurance will cover such claims or that appropriate insurance will
continue to be available to the Company in the future at commercially reasonable
rates.
UNCERTAINTY IN HEALTHCARE INDUSTRY; GOVERNMENT HEALTHCARE REFORM
PROPOSALS. The United States Food and Drug Administration (the "FDA") has
promulgated a draft policy for the regulation of certain computer products as
medical devices under the 1976 Medical Device Amendments to the Federal Food,
Drug and Cosmetic Act (the "FDC Act"). To the extent that computer software is a
medical device under the policy, the manufacturers of such products could be
required, depending on the product, to (i) register and list their products with
the FDA, (ii) notify the FDA and demonstrate substantial equivalence to other
products on the market before marketing such products, or (iii) obtain FDA
approval by demonstrating safety and effectiveness before marketing a product.
In addition, such products would be subject to the FDC Act's general controls
including those relating to good manufacturing practices and adverse experience
reporting. In the draft policy, the FDA announced that it was not aware of any
computer product that is not a component, part or accessory of another device
that would require FDA approval prior to marketing. Although it is not possible
to anticipate the final form of the FDA's policy with regard to computer
software, the Company expects that, whether or not the draft is finalized, the
FDA is likely to become increasingly active in regulating computer software that
is intended for use in healthcare settings. This may become a particular
concern as the Company's network products begin to support clinical data
transactions and our medical records product, SM*RT Care is brought to market.
The FDA, if it chooses to regulate such software, can impose extensive
requirements governing pre- and post-market conditions such as device
investigation, approval, labeling and manufacturing. The FDA currently regulates
the imaging capability that the Company is proposing to license from a third
party. See "Business - Product Development."
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare facilities. During the past several years, the healthcare industry
has been subject to an increase in governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. In addition,
increasing consolidation of healthcare entities and competition for markets is
creating pricing pressures on both healthcare facilities and their suppliers.
Healthcare facilities may react to these pressures and the uncertainty surround-
ing such changes by curtailing or deferring investments, including those for the
Company's system and related services. Even if capital investments are not
curtailed or deferred, the cost containment measures that healthcare providers
are instituting in the face of uncertainty result in greater selectivity in the
allocation of capital funds. Such selectivity could have an adverse effect on
the Company's ability to sell its system and related services. The Company
cannot predict with any certainty what impact, if any, such proposals or
healthcare reforms might have on its business, financial condition and results
of operations.
9
<PAGE>
CONCENTRATION OF OWNERSHIP. Following this offering, the current
executive officers and directors of the Company will beneficially own or have
voting control over approximately 50% of the Common Stock. Accordingly, these
individuals will have the ability to influence the election of the Company's
directors and effectively control most corporate actions. This concentration of
ownership may also have the effect of delaying, deterring or preventing a change
in control of the Company.
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to
this offering, there has been a public market for the Common Stock but the
number of transactions have been limited. There can be no assurance that a more
active trading market will develop or be sustained. The public offering price
will be determined by the Board of Directors, and may not be indicative of the
market price of the Common Stock after this offering. The trading price of the
Common Stock could also be subject to significant fluctuations in response to
variations in quarterly results of operations, announcements of technological
innovations or new products by the Company or its competitors, governmental
regulatory action, other developments or disputes with respect to proprietary
rights, general trends in the industry and overall market conditions, and other
factors.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of Common Stock in the public
market after this offering could adversely affect the market price of the Common
Stock. The **** shares to be issued in this offering will be freely tradable
without restriction. See "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS; DILUTION. The Company has not paid any cash
dividends on the Common Stock and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. See "Dividend Policy." Purchasers
of the Common Stock offered hereby will incur immediate substantial dilution in
the net tangible book value per share of Common Stock. See "Dilution."
THE COMPANY
Wismer*Martin develops, markets, and supports computer systems which
automate physician offices, group practices, hospitals, and managed care
organizations. The Company believes that it is one of the leading providers of
practice management systems and healthcare information networks. The Company's
SM*RT Net suite of products is designed to provide connectivity utilizing
industry standard data formats for all network participants, including physi-
cians, hospitals, labs, imaging centers, IPA's, PPO's, HMO's, employers, third
party payors, suppliers and other entities. The Company's SM*RT Practice
product, is designed to manage the financial, administrative and practice
management requirements of group medical practices, and is fully-integrated with
SM*RT Net. In addition, the Company's hospital information system solution,
sold under the name ADDvantage, is designed to provide a complete integrated
application to automate the small to mid-size hospital. These three product
solutions provide the Company's clients with the necessary technology infra-
structure to meet the demands of today's rapidly changing healthcare environ-
ment. The Company also sells hardware, training and installation support, forms
and supplies, and software and hardware maintenance services.
Wismer*Martin, Inc. ("Wismer Martin" or the "Company") was formed to
develop, market and support microcomputer practice management systems and
related services designed for the medical and dental professions. The Company
was founded as a sole proprietorship in February of 1980 and was incorporated on
November 29, 1982 under the laws of the State of Washington as Professional
Software Associates, Inc. The Company changed its name to Wismer*Martin, Inc.
effective August 1, 1985. The Company's principal executive offices are located
at N. 12828 Newport Highway, Mead, Washington, 99021. Its telephone number at
that location is (509) 466-0396.
On September 12, 1991, National Healthtech Corporation (National
Healthtech) acquired 1,714,286 shares of the Company's common stock from the
founders of the Company, Glen and Judith Martin (the Martins). On January 31,
1992, National Healthtech acquired the remaining 2,868,414 shares of common
stock held by the Martins at that time.
On June 10, 1993, National Healthtech sold 4,582,700 shares of common
stock of Wismer Martin to Ronald L. Holden, a former director and stockholder of
National Healthtech. At June 30, 1994, Mr. Holden owned of record 4,582,700
shares of common stock. Mr. Holden is the Chairman of the Board of Directors of
Wismer Martin.
10
<PAGE>
On February 10, 1994, the Company acquired all of the outstanding
shares of common stock of Integrated Health Systems, Inc., a California
corporation (IHS). IHS is in the business of developing and licensing software
programs for hospitals and related entities. The Company issued convertible
subordinated debentures having a face value of $2,500,000 in exchange for the
shares of common stock. IHS's major stockholder was Mr. Ronald Holden, who is
also a major stockholder of the Company (see "Security Ownership of Certain
Beneficial Owners and Management").
USE OF PROCEEDS
The net proceeds to the Company from the sale of the ***** shares
of Common Stock offered by the Company, after deducting estimated offering
expenses, are estimated to be approximately *****. The principal reasons
for this offering are to obtain additional equity capital to finance the
Company's current liquidity needs and ongoing operations and to eliminate
$2,500,000 of Convertible Subordinated Debentures. The Company has a line of
credit with Seafirst Bank with a borrowing limit of $500,000. The interest
rate is the Bank's prime rate plus 3%. The line of credit expires June 30, 1996
and the Company intends to use proceeds from this offering to repay the
indebtedness. The amount of the indebtedness on July 26, 1995 was approximately
$500,000. The Company expects to use the balance of the net proceeds received
from the shares for general corporate purposes, including working capital. The
net proceeds of this offering will be invested in short term, investment-grade,
interest bearing securities until required to meet the Company's financial
requirements.
PRICE RANGE OF THE COMMON STOCK AND DIVIDEND POLICY
The Common Stock of the Company is traded in the over-the-counter
market. The following table sets forth the price range of the high and low bid
quotations per share of the Common Stock for the periods indicated, as reported
by Spokane Quotation System, Inc., Spokane, Washington. The prices reported
reflect inter-dealer prices, without regard to retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions. The bid and
asked prices per share of the Common Stock at July 25, 1995 were $0.50 and
$0.875, respectively. At such date, 9,847,625 shares of Common Stock were
issued and outstanding.
<TABLE>
<CAPTION>
Fiscal Year High Low
----------------- -------- -------
<S> <C> <C> <C>
1995 First Quarter $2.25 $1.50
Second Quarter $2.50 $1.50
Third Quarter $2.25 $0.75
1994 First Quarter $0.50 $0.32
Second Quarter $2.00 $1.50
Third Quarter $3.25 $2.50
Fourth Quarter $2.25 $1.75
1993 First Quarter $0.63 $0.50
Second Quarter $0.63 $0.38
Third Quarter $0.50 $0.28
Fourth Quarter $0.50 $0.28
</TABLE>
As of June 30, 1995, there were approximately 1,000 holders of record of
the Company's Common Stock.
The Company has never declared or paid any dividend on its Common Stock and
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
fund the development and growth of its business.
11
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company
as of March 31, 1995.
<TABLE>
<CAPTION>
March 31, 1995
--------------------
<S> <C>
Long-term liabilities (1) $4,069,668
Stockholders' equity
Common Stock, $.001 par value 20,000,000 shares authorized; 9,848
9,847,625 shares issued and outstanding;
Additional paid in capital 1,203,809
Excess purchase price of acquired subsidiary (2,533,308)
Retained earnings (deficit) (578,928)
--------------------
Total Stockholders' equity (deficit) (1,898,579)
--------------------
Total Capitalization $2,171,089
--------------------
--------------------
<FN>
(1) The holders of the Company's Convertible Subordinated Debentures due 1999 have provided
the Company with an expression of intent to tender their debentures as payment for shares
of common stock provided for in this offering.
</TABLE>
DILUTION
The net tangible book value of the Company's Common Stock as of March 31,
1995 was approximately ($4,570,654) or ($0.46) per share. Net tangible book
value per share represents the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
the offering made hereby and the pro forma net tangible book value per share
of Common Stock immediately after completion of the offering. After giving
effect to the sale of the ****** shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds therefrom,
the pro forma net tangible book value of the Company as of March 31, 1995
would have been approximately ****** or *** per share. This represents an
immediate increase in net tangible book value of *** per share to existing
shareholders and an immediate decrease in net tangible book value of *** per
share to purchasers of Common Stock in this offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share . . . . . . . . . . . . . . . . . . ***
Net tangible book value per share as of March 31, 1995. . . . . . . . . ($0.46)
Increase per share attributable to new investors . . . . . . . . . . . . ***
-----
Pro forma net tangible book value per share after the offering. . . . . . . ***
Net tangible book value dilution per share to new investors . . . . . . . . ***
</TABLE>
12
<PAGE>
The following table sets forth as of March 31, 1995 the difference between
the existing shareholders and the purchasers of shares in this offering (at an
assumed initial public offering price of $1.25 per share) with respect to the
number of shares purchased from the Company, the total consideration paid to the
Company, and the average consideration per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------- ------------------- -------
NUMBER PERCENT AMOUNT PERCENT CONSIDERATION
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 9,847,625 ***** $1,213,657 ***** $0.123
New Investors ***** ***** ***** ***** *****
--------- ----- ---------- -----
Total ***** 100.0% ***** 100.0%
---------- ------ ---------- ------
---------- ------ ---------- ------
</TABLE>
PLAN OF DISTRIBUTION
The Company has not engaged an underwriter. The offering will be conducted
solely by executive officers of the Company as associated persons of the Company
in accordance with the provisions of Rule 3a4-1. Officers will not receive any
additional compensation for performing these services. Employees of the Company
and existing shareholders will be provided with a Prospectus and the Company
anticipates that a significant number of the shares will be purchased by
employees and shareholders. A specific number of shares will not be reserved
for employee purchasers. The Offering will terminate on Friday November 10,
1995 unless the Company, at its option, extends the offering for an
additional period of time. There is no requirement to purchase any minimum
number of shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Wismer*Martin, Inc. ("Wismer Martin" or the "Company") was formed to
develop, market, install and support microcomputer practice management systems
and related services designed for the medical and dental professions. The
Company was founded as a sole proprietorship in February of 1980 and was
incorporated on November 29, 1982 under the laws of the State of Washington as
Professional Software Associates, Inc. The Company changed its name to
Wismer*Martin, Inc. effective August 1, 1985. The Company's principal executive
offices are located at N. 12828 Newport Highway, Mead, Washington, 99021.
The Company derives revenue from systems sales and maintenance, forms and
other services. systems sales include sales of physician practice management
systems, health information networks, and hospital information systems to new
customers and sales of system upgrades and add-ons to existing customers.
Systems sales to new customers include software licensing, hardware, installa-
tion, training, and support contracts for software and hardware maintenance.
System upgrades include hardware, installation, software licensing and training.
System add-ons include additional peripheral hardware and installation and
software licensing.
Maintenance, forms and other services revenues include software and
hardware maintenance contracts and sales of forms and supplies. Other services
revenues include sales of the Company's EDI services which are processed through
Equifax and installation, training and support not otherwise covered under
maintenance contracts. Software maintenance represents revenues derived from
maintenance agreements providing customers
13
<PAGE>
with updates and enhancements developed by the Company and access to the
Company's toll-free telephone support service. Hardware maintenance represents
revenues derived from maintenance agreements serviced by Digital Equipment Corp.
for repairs and preventative maintenance to the hardware. Both hardware and
software maintenance are optional to the customer. The Company provides software
maintenance to more than 90% of its customers and hardware maintenance to more
than 20% of its customers under software and hardware maintenance contracts. In
1994, system upgrades, add-on software, software and hardware maintenance, forms
and supplies and other services accounted for approximately 40% of total net
revenues.
Previously issued statements of operations and cash flows for the years
ended June 30, 1994 and 1993 did not reflect the results of operations and cash
flows for IHS from June 10, 1993, the date on which Mr. Holden obtained
control of both companies, to February 10, 1994, and accordingly have
been restated. The effect of this restatement was to increase net sales
by $3,002,359 and $426,621 and decrease net income by $22,836 and $10,472 for
fiscal 1994 and 1993, with no effect on earnings per share as previously
reported.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the amounts in
the Company's consolidated statement of operations along with the annualization
of the operations for the nine months ended March 31, 1995.
<TABLE>
<CAPTION>
Fiscal Years Ended
Annualized Nine Months June 30,
March 31, Ended March -------------------------------------
1995 31, 1995 1994 1993
-----------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales:
Software license fees $2,865,409 $2,149,057 $5,547,487 $2,631,978
Equipment, software and supplies sales 2,560,203 1,920,152 2,829,889 2,967,502
Software & hardware maintenance contracts 3,839,672 2,879,754 3,513,831 2,638,019
Service revenue 2,873,296 2,154,972 3,777,885 993,995
Discounts (1,697,949) (1,273,462) (1,271,842) (920,437)
-----------------------------------------------------------------------
Net sales 10,440,631 7,830,473 14,397,250 8,311,057
-----------------------------------------------------------------------
Operating expenses:
Cost of software license fees 612,825 459,619 567,058 324,633
Cost of equipment, software and supplies 1,868,015 1,401,011 2,542,421 2,516,856
Cost of support and operations 2,930,113 2,197,585 3,965,059 2,100,261
Selling and marketing 2,527,471 1,895,603 1,994,340 1,195,663
Product research, development & enhance-
ments 2,516,829 1,887,622 1,270,656 678,972
Less: amount capitalized related to
enhancements (1,717,236) (1,287,927) (1,018,308) (652,357)
General and administrative 3,759,085 2,819,313 3,921,134 2,018,322
-----------------------------------------------------------------------
Total operating expenses 12,497,102 9,372,826 13,242,360 8,182,350
-----------------------------------------------------------------------
Operating income (loss) (2,056,471) (1,542,353) 1,154,890 128,707
-----------------------------------------------------------------------
Other income (expense):
Interest income 27,060 20,295 28,180 35,140
Interest expense (402,112) (301,584) (192,407) (147,339)
-----------------------------------------------------------------------
Income (loss) before income taxes &
cumulative effect of change in accounting
principle (2,431,523) (1,823,642) 990,663 16,508
Income tax provision (benefit) (455,788) (341,841) 265,107 12,191
-----------------------------------------------------------------------
Income (loss) before cumulative effect of change
in accounting principle (1,975,735) (1,481,801) 725,556 4,317
Cumulative effect of change in accounting
principle - - 27,479 -
Net income (loss) $(1,975,735) $(1,481,801) $ 698,077 $ 4,317
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
ANNUALIZED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
On February 10, 1994, the Company acquired all of the outstanding shares of
common stock of Integrated Health Systems, Inc., a California corporation (IHS).
IHS is in the business of developing and licensing software programs for
hospitals and related entities. The Company issued convertible subordinated
debentures having a face value of $2,500,000 in exchange for the shares of
common stock. IHS's major stockholder was Mr. Ronald Holden, who is also a
major stockholder of the Company. Due to Mr. Holden's common control of both
companies, the acquisition has been accounted for as a combination of entities
under common control, similar to a pooling of interests. The financial
statements have been retroactively restated to present Wismer*Martin, Inc. and
Integrated Health Systems, Inc. on a combined basis effective as of June 10,
1993, the date on which Mr. Holden initially had
14
<PAGE>
common control of both companies. As a result of including IHS as of June 10,
1993 rather than July 1, 1992, many of the increases between 1993 and 1994 are
the result of the inclusion of IHS for the entire fiscal year 1994, while only
being included for 20 days in 1993.
At the date of acquisition, the purchase price of $2,500,000 exceeded the
historical cost basis of the net assets of IHS by $2,533,308. Due to the common
control of the companies, the excess purchase price was recorded as a reduction
of stockholders' equity. The results of operations of IHS are included in the
consolidated financial statements since June 10, 1993, the date common control
by Mr. Holden began.
NET SALES
Software license fees decreased by $2,682,000. Of this amount, approxi-
mately $1,425,000 resulted from fewer PHN "network" sales during the fiscal year
ended June 30, 1994 ("1994") as compared to the annualized nine month period
ended March 31, 1995 ("1995"). The remaining $1,257,000 decrease was the result
of fewer software license fee transactions for hospital information systems
during 1995 as compared to 1994.
Equipment, software and supplies sales decreased by $270,000, or about 10%,
due to a decrease in the volume of sales of personal computer hardware ("equip-
ment").
Software and hardware maintenance contract revenue increased by $326,000
primarily due to an increase in the number of the Company's customers who signed
support contracts during 1995.
Service revenue decreased by $905,000. Network marketing services provided
to customers increased by approximately $272,000, while the Company experienced
a decrease ($1,177,000) in the volume of custom modifications and installation
services provided to hospital customers. This latter decrease coincides with
the volume decrease in new software license fee sales to hospital customers.
Discounts increased by $426,000 as a result of the master licenses sold to
two network customers in 1994 (see discussion below "Fiscal Year Ended June
30, 1994 Compared to Fiscal Year Ended June 30, 1993" for Software License
Fees). Since the Company distributes copies of the software on behalf of its
network customers who have purchased master licenses, the Company records a
sale for the list price of the software, and a corresponding amount as a
discount (since no additional license fees are due to the Company).
OPERATING EXPENSES
Cost of software license fees represents the amortization of capitalized
software development costs. The amortization of capitalized software develop-
ment costs increased by 8% from 1994 to 1995, which resulted from additional
enhancements which were completed during 1995.
The cost of equipment, software and supplies sold decreased by 27%.
Approximately 10% of the decrease represents a volume decrease, while the
balance of the decrease (17%) resulted from the Company's ability to negotiate
better discounts on computer hardware (equipment) from wholesale distributors
than it was previously able to obtain directly from the manufacturer. Wholesal-
ers, able to obtain greater volume discounts than the Company, are willing to
pass on a large enough discount to enable the Company to purchase computer
equipment at a lower price than the Company can obtain direct from the manufac-
turer.
Cost of support and operations includes: non-technical personnel who answer
customer support calls, the cost of third-party hardware maintenance contracts,
technical personnel who load Company and third-party software on computer
systems and assist with technical issues associated with customer support, and
personnel who perform consulting services for customers. Cost of support and
operations decreased by 26% from 1994 to 1995. This is the result of a decrease
of approximately 20 employees in this area. Of the 20 employees, approximately
5 were transferred to "Product research, development and enhancements." The rest
of the reductions came through attrition, and were not replaced. Many of the
employees that left were technical personnel who are no longer needed due to:
(1) a reduction in new sales of software license contracts (and thus a reduction
in the number of personnel required for installation), and (2) product improve-
ments which have reduced the need for technical personnel to assist with
software support.
15
<PAGE>
Selling and marketing expenses increased by or 27% from 1994 to 1995. This
increase in expense was due to the addition of personnel in the sales and
marketing area, which occurred during the first six months of the fiscal year.
A significant number of these employees were subject to termination in January,
1995 as part of the Company's cost reduction efforts (see "Liquidity" below).
Based on these terminations, and voluntary resignations, selling and marketing
expenses are expected to decline from the level established during the first
nine months of this year.
Product research, development and enhancement costs represent costs
associated with enhancements to, and maintenance of, existing software and
research and development expenses. These costs which relate to enhancement of
technologically feasible products are capitalized and amortized beginning when
the product is available for general release to the customer on a straight-line
basis over the remaining economic life of the products, which is estimated to be
three (3) to five (5) years. Product research, development and enhancement
costs increased $1,246,000, or 98%, from 1994 to 1995. This is the result of
adding approximately 20 employees to new product development efforts. The
Company expects the new products being developed will be ready for release
between July 1995 and January 1996. Research and development expenses will
remain at the current period's expense level for the remainder of the fiscal
year ending June 30, 1995.
The amount of product research, development and enhancement expenses
capitalized for 1995 increased by $714,000 as compared to 1994.This is a 71%
increase over the prior year, and is approximately 60% of the increased
expenditures noted above as "Product research, development and enhancement
expenses." The increase in capitalized software development costs results from
the increase in personnel (noted above under "Product research development and
enhancement costs") performing product development.
The increase in product, research and enhancement expenses as well as
the increase in capitalized software development costs reflects the Company's
commitment to the continuing development of SM*RT Link and its integration
with SM*RT Practice as well as the enhancement of the IHS product line. The
Company is currently developing SM*RT Care, a second-generation software
product in which the patient is the core element of the system. SM*RT Care
will incorporate patient demographics, insurance information, managed care
capabilities as well as a seamless SM*RT Link interface. The Company is
nearing completion in its development of Radiology, Clinical and Nursing
Information Systems, which are part of the Integrated Health Systems product
line being offered to hospitals. These products have been developed
utilizing a "client/server" architecture running on local PC networks, which
the Company expects to increase the marketability of the entire Integrated
Health Systems product line.
General and administrative expenses decreased by $147,000, or 4%. This
reduction reflects the commencement of the Company's efforts to control
overhead expenses, such as executive salaries and rent expense, as
specifically identified in the section "Financial Condition and Liquidity."
General and administrative expenses are expected to decline further in the
fourth quarter of 1995.
Interest expense has increased $210,000 from 1994 to 1995. The increase in
interest expense resulted from (1) the issuance of $2,500,000 in convertible
subordinated debentures on February 10, 1994 which increased interest expense by
approximately $107,000 for 1995 as compared to 1994; and (2) increased borrowin-
gs on the Company's line of credit (notes payable to bank) added an additional
$103,000 in interest expense.
During 1995, the Company reported an income tax benefit of approximately
$456,000 as compared to an income tax provision of $265,000 in 1994. The 1995
benefit is primarily due to the creation of net operating loss carryforwards
resulting from the 1995 net operating loss which the Company believes will be
available to offset the future reversal of temporary differences created by
Software Development Costs and other items which give rise to deferred tax
liabilities. The remaining net deferred tax asset is offset 100% by a
valuation allowance as management could not determine that it was more likely
than not that this asset would be realized.
The factors discussed above resulted in an annualized net loss of approxi-
mately $1,976,000, during 1995, as compared to net income of $698,000 during
1994.
16
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1993
NET SALES
Software license fees increased by $2,916,000 during the fiscal year
ended June 30, 1994 ("1994") as compared to the year ended June 30, 1993
("1993"). The primary reason for the increase was the signing of two regional
"network" contracts which generated approximately $1,675,000 inadditional
software license fee revenues for the Company. These contracts gave the
customers (insurance providers) unlimited use of certain of the Company's
software products within specified geographical regions of Washington and
Alaska. The remaining $1,241,000 is the result of the inclusion of IHS in the
results of operations for the full fiscal year 1994, as compared to only 20
days (June 10, 1993 - the date common control was established between W*M and
IHS - to June 30, 1993) for fiscal year 1993.
Equipment, software and supplies sales decreased by $138,000, or
about 5%, due to a decrease in the prices the Company was able to charge for
personal computer hardware ("equipment").
Software and hardware maintenance contract revenue increased by
$876,000, or 33% primarily due to an increase in the number of the Company's
customers who signed support contracts during 1994.
Service revenue increased by $2,784,000. Network marketing services
provided to customers increased by approximately $920,000, while the
inclusion of IHS for the full fiscal year 1994 added $1,864,000 in additional
service revenues.
Discounts increased by $351,000 due to discounts required as a result
of the master licenses sold to two large customers, noted above under
"Software license fees." Since the Company distributes copies of the
software on behalf of its network customers who have purchased master
licenses, the Company records a sale for the list price of the software, and
a corresponding amount as a discount (since no additional license fees are due
to the Company).
OPERATING EXPENSES
Cost of software license fees represents the amortization of
capitalized software development costs. The amortization of capitalized
software development costs increased by $242,000 from 1993 to 1994. This
increase is the result of additional enhancements that were completed during
1994. Of the total increase, $212,000 came from new products being developed
to add to the IHS product line.
Cost of equipment, software and supplies sold increased by $26,000 or
1% from 1993 to 1994 as a result of a slight increase in the volume of
hardware sales.
Cost of support and operations increased $1,865,000 from 1993 to
1994. Of this increase $1,796,000 is the result of the additional cost of
support and operations for IHS for a full year (1994) as compared to only 20
days of expense in 1993. Cost of support and operations for W*M only
increased $69,000 or 4% (as a percentage of W*M-only expenses), during this
period.
Selling and marketing expenses increased by $799,000 or 67% from 1993
to 1994. $384,000 of this increase is the result of the additional cost of
support and operations for IHS for a full year (1994) as compared to only 20
days of expense in 1993. The increase in selling and marketing expenses for
W*M ($415,000 or 36% of W*M-only expenses) is due to an increase in sales
staff from the prior year.
Product research, development, and enhancement expenses increased by
$592,000 from 1993 to 1994. $354,000 of this increase is the result of the
additional cost of support and operations for IHS for a full year (1994) as
compared to only 20 days of expense in 1993. The increase in expenses for
W*M were $238,000 or 35% (as a percentage of W*M-only expenses), and is due
to an increase in the number of technical personnel recruited for product
development and enhancement. The Company has increased the number of staff
to concentrate on enhancing existing products to take advantage of the
technological changes in computer hardware as well as significantly enhancing
the functionality of its software products.
17
<PAGE>
The costs capitalized for software enhancements increased by $351,000
or 54% from 1993 to 1994. $267,000 of this increase is the result of the
inclusion of capitalized development and enhancements for IHS 1994 (IHS had
no capitalized research, development and enhancement expenses in 1993). The
increase in expenses capitalized for W*M were $84,000 or 13% (as a percentage
of W*M-only expenses), and is due to the Company's increased efforts in
enhancing the SM*RT Link product and its SM*RT Practice product. Costs
associated with enhancements are capitalized and amortized over three to five
years. Research and development costs are expensed as incurred.
General and administrative expenses increased by $1,888,000 or 94%
from 1993 to 1994. $1,762,000 of this increase is the result of the
additional cost of general and administrative expenses for IHS for a full
year (1994) as compared to only 20 days of expense in 1993. W*M's expenses
only increased 6.7% during the same period.
Interest expense increased by approximately 31% from $147,339 in
fiscal 1993 to $192,407 in fiscal 1994. This increase was a result of the
interest incurred on the subordinated convertible debentures which were
outstanding from February 10, 1994 through June 30, 1994.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109),
effective July 1, 1993. The cumulative effect of adopting SFAS No. 109 in
fiscal 1994 was a charge to operations of $27,479. SFAS No. 109 requires a
company to recognize deferred tax assets and liabilities for the expected
future income tax consequences of events that have been recognized in a
company's financial statements. Under this method, deferred tax liabilities
and assets are determined based on the temporary differences between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the temporary
differences are expected to reverse. During the fiscal year ended June 30,
1993, the Company accounted for income taxes as required by Statement of
Financial Accounting Standards No. 96. The income tax provision increased
from $12,191 in fiscal 1993 to $265,107 as a result of the increase in income
from operations.
The various factors discussed above resulted in net income of
approximately $698,000 during 1994 compared to net income of approximately
$4,000 during 1993.
FINANCIAL CONDITION AND LIQUIDITY
GENERAL
During the nine month period ended March 31, 1995, cash and cash equiva-
lents decreased approximately $484,000. The single largest use of the Company's
cash during 1995 was to invest in the Company's software development efforts.
This overall decrease in the Company's cash position was the result of cash
provided by operating activities of $188,000; cash used in investing activities
of $1,683,000 and cash provided by financing activities of $1,011,000. The
significant components of cash provided by operating activities include the net
loss for the period of $1,482,000 (adjusted for noncash items including
depreciation and amortization of $928,000, provision for bad debts of $255,000,
and deferred income tax benefit of $342,000); a decrease in trade receivables of
$820,000, a decrease in inventories of $358,000, and a decrease in accrued
expenses of $362,000. Significant components of cash used in investing
activities included the purchase of $325,000 of new equipment and $1,288,000
invested in software development costs. Cash provided by financing activities
primarily represents $122,000 received through the issuance of common stock and
$959,000 borrowed under the Company's operating line of credit.
During the year ended June 30, 1994, cash and cash equivalents increased
approximately $386,000. The single largest use of the Company's cash during
1994 was to invest in the Company's software development efforts. This overall
increase in the Company's cash position was the result of cash provided by
operating activities of $1,776,000; cash used in investing activities of
$1,775,000 and cash provided by financing activities of $385,000. The
significant components of cash provided by operating activities include the
fiscal 1994 net income of $698,000 (adjusted for noncash items including
depreciation and amortization of $948,000, provision for bad debts of $115,000,
and deferred income tax provision of $229,000); a decrease in unbilled costs and
expenses of $544,000, an increase in inventories of $314,000, and a decrease in
deferred revenues of $617,000. Significant components of cash used in investing
activities included the purchase of $737,000 of new equipment and $1,018,000
invested in software development costs. Cash provided by financing activities
primarily represented
18
<PAGE>
$191,000 received through the issuance of long term debt, $500,000 received
through the issuance of subordinated debentures and a net repayment of $358,000
on the Company's operating line of credit.
During the year ended June 30, 1993, cash and cash equivalents
increased approximately $141,000. The single largest use of the Company's
cash during 1993 was to invest in the Company's software development efforts.
This overall increase in the Company's cash position was the result of cash
provided by operating activities of $967,000; cash used in investing
activities of $615,000 and cash used in financing activities of $211,000.
The significant components of cash provided by operating activities include
the fiscal 1993 net income of $4,000 (adjusted for noncash items including
depreciation and amortization of $633,000 and the provision for bad debts of
$391,000); an increase in trade receivables of $438,000, an increase in
accounts payable of $323,000, a decrease in accrued expenses of $225,000 and
an increase in deferred revenues of $165,000. Significant components of cash
used in investing activities included the purchase of $145,000 of new
equipment, $652,000 invested in software development costs and $182,000 cash
obtained through the acquisition of IHS. Cash used in financing activities
primarily represented a net repayment of $169,000 on the Company's operating
line of credit.
To date, the Company's primary sources of liquidity have been
internally generated funds, the sale of the subordinated convertible
debentures and its operating line of credit, of which $958,900 was
outstanding at March 31, 1995 ($500,000 of this balance was re-paid by the
Company on April 21, 1995). On a short-term basis, the Company's liquidity
is dependent on the success of this offering, continued availability of the
line of credit with the bank (see below), software and hardware maintenance
contracts which provide over $300,000 in monthly revenues, and continued
sales to new customers as well as upgrade sales to existing customers. See
the discussion of the Company's contingency plans below. On a long-term
basis, liquidity will also be enhanced by the successful completion of this
offering (the Company will no longer be required to make interest payments on
the debentures and will not have to use its cash to pay off these notes in
the next four years). Other long-term measures being considered to further
develop liquidity are: the sale or refinancing of the Company's office
building in Spokane, Washington (having equity of approximately $1 million)
and discussions with GTE indicate a possible alliance between the two firms
which would provide increased opportunities for future sales, the development
of strategic alliances and joint venture partners (see "Sales and Marketing
Plans -- Strategic Partners"), and potential funding of future software
development efforts.
During fiscal 1995, management realigned the Company's organization and
instituted a cost reduction program which included the closing of non-essential
field offices and a reduction in personnel that were in place to support a
higher level of sales which were not achieved. Additionally, management is
concentrating its efforts on moving the Company away from its initial focus on
small regional physician practices to a focus on large group practices,
hospitals and other healthcare providers and payors who are developing networks.
The Company intends to fund these efforts by forming strategic alliances with
the large users of the Company's software products and with monies raised from
the Company's proposed stock offering (see below, and "Notes to Consolidated
Financial Statements," Notes 2 and 14). Management believes that with this
reduced cost structure, highly centralized operations, and increased focus on
growth market areas (particularly Hospitals, Physicians Hospital Organizations
(PHO's), Medical Services Organizations (MSO's) and Payors, the Company can
return to profitability.
The savings achieved from the above restructuring program are as follows:
1. Laid-off 30 employees in mid-January, eliminating over $70,000 in
salaries and benefits per month.
2. Fourteen employees have voluntarily left the Company between March and
June 1995, and will not be replaced, eliminating over $55,000 per
month in salaries and benefits.
3. Five senior management terminations resulted in the elimination of
$35,000 per month in salaries and benefits.
4. Sub-leased 5,000 square feet of the Company's leased office space in
La Jolla, resulting in $8,000 in monthly sub-rent income.
5. Closed three branch offices, eliminating $5,800 in monthly rent
expense.
Although the Company believes that its operating plan and efforts to obtain
other financing sources will be adequate to meet its fiscal 1996 working capital
needs, there can be no assurance that the Company may not experience liquidity
problems because of adverse market conditions or other unfavorable events. The
measures
19
<PAGE>
above, if successful as a whole, should be adequate for the Company's short-term
and long-term liquidity needs.
If, however, the Company is unsuccessful in its efforts to raise capital
and reduce debt through the successful completion of this offering, alternative
measures will have to be taken by the Company in order to ensure that the
remaining sources of liquidity are not exceeded by cash requirements. Alterna-
tive measures that would be considered would rely heavily on further expense
reductions, principally in the form of salaries and benefits, in the areas of
product development and enhancements, and network (PHN) sales staff. While many
of these expenditures enhance the Company's long-term growth potential, they do
not provide short-term liquidity. The Company would also look to reduce
overhead expenses while seeking to preserve the customer base which provides
software and hardware maintenance contracts (a source of high-margin revenues).
Management believes that, should they become necessary, these cost-reduction
efforts will be successful in reducing expenditures to match the Company's
reduced availability of liquidity until the Company has the opportunity to take
advantage of its long-term liquidity opportunities. See specific discussions
below regarding the "Line of Credit" and the "Public Offering."
LINE OF CREDIT
As of December 31, 1994, the Company was not in compliance with certain
of its loan covenants, specifically relating to Minimum Tangible Net Worth.
As a result, the Company and the bank entered into a Third Amended Business
Loan Agreement which extended the time to cure the default to June 30, 1995
(see "Notes to Consolidated Financial Statements," Note 5). The significant
features of the modified revolving line of credit is as follows: (1) $500,000
of the amount outstanding was converted to a term loan due June 30, 1995
(which was paid by the Company on April 21, 1995), (2) the revolving line of
credit was reduced to $500,000 (the balance is approximately $500,000 on July
26, 1995), and (3) the rate of interest was increased to the bank's prime
rate plus three percent (3%), (4) the Company must raise $1,000,000 of
additional cash (through this offering, sale of building, or signing of new
contracts) and (5) in addition to (4) above, the Company must reduce it's
Convertible Subordinated Debentures by $1,000,000. This commitment expires
on June 30, 1996. The line of credit is collateralized by the Company's
accounts receivable, inventories, property and equipment. In June, the Company
obtained a waiver from the bank extending the period for compliance through
August 31, 1995. As part of the extension granted by the bank until August 31,
1995, the bank and the Company agreed to enter into a Second Modification to
Third Amended Business Loan Agreement which establishes the following debt
covenants:
<TABLE>
<CAPTION>
Previous Proposed Actual Actual
Requirement Requirement March 31, 1995 June 30, 1995
------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Minimum Tangible Net
Worth:
By 6/30/95 $3,000,000 $1,101,000 $1,410,000
By 9/30/95 $2,150,000
By 12/31/95 $2,400,000
By 3/31/96 $2,750,000
By 6/30/96 $3,000,000
Minimum Trading Capital 2.5:1.0 Not Applicable 0.98:1.0 0.82:1.0
Maximum Leverage:
By 6/30/95 2.0:1.0 5.5:1.0 4.0:1.0
By 9/30/95 2.5:1.0
By 12/31/95 2.5:1.0
By 3/31/96 2.0:1.0
By 6/30/96 2.0:1.0
Debt Coverage Ratio:
By 6/30/95 2.0:1.0 (1.57):1.0 1.64:1.0
By 9/30/95 4.0:1.0
By 12/31/95 4.0:1.0
By 3/31/96 4.0:1.0
By 6/30/96 4.0:1.0
Maximum Capital $2,000,000 $400,000/Quarter $1,613,000 for the $2,100,000 for
Expenditures Annually beginning with the nine months ended the year ended
Quarter Ending March 31, 1995 June 30, 1995
September 30,
1995
</TABLE>
In the event the proposed requirements above are not met, the
outstanding balance due to the bank will be due on demand. Management
believes the Company can either restructure the debt or repay the amounts due
from the proceeds of that offering or alternatively, operating cash flows or
the proceeds from the sale or refinancing of the of the Company's office
building.
PUBLIC OFFERING
As part of management's efforts to provide additional liquidity for the
Company, and as requested by the bank (see above), the Board of Directors has
approved the sale of the Company's common stock as evidenced by this offering.
While there can be no assurance that any public offering of securities will be
successful, based upon Mr. Holden's past experience and his existing
relationships with individuals and organizations experienced with investments
in companies such as Wismer Martin, management believes that it is likely to
achieve at least the minimum capitalization required by the bank covenants,
without the use of an underwriter, broker, dealer or finder. Management will
use many of the same techniques that these professionals use, such as
advertisements in major financial publications (such as The Wall Street Journal
and Investor's
20
<PAGE>
Business Daily), mailings to existing shareholders as well as posting of the
offering on a variety of national on-line services. No investor is legally
committed to purchase the shares of common stock of the Company and therefore
there is no guarantee that any shares of common stock of the Company will be
sold in this offering.
Should this offering by the Company be unsuccessful, then the Company is at
risk of being unable to meet its short-term debt requirements that would be
necessitated by the cancellation of the line of credit by the bank (resulting
from the Company not meeting its loan covenants discussed above). If the
Company is unable to further re-negotiate the line of credit, management
believes the debt can be converted to a note payable and satisfied from
future operating cash flows or satisfied from the proceeds of the sale or
refinancing of the Company's office building. Otherwise, the bank may
foreclose on the Company's office building in order to satisfy the balance
outstanding on the line of credit.
BUSINESS
Wismer Martin is engaged in the business of developing, marketing,
installing and supporting practice management systems, hospital information
systems and products supporting Healthcare Information Networks (HIN's). Rather
than simply providing a hardware or software product, Wismer Martin offers a
complete network information system which is a primary component in managed
competition healthcare distribution systems and community health information
networks. The Company believes that it is one of the nation's leading providers
of physician practice management systems, both in terms of revenues and number
of physicians served. In addition, the Company has implemented two of the
largest HIN projects in the country with networks installed which span the
states of Washington and Alaska. The Company's hospital information system is
installed in more than 65 hospitals across the country and is the only IBM
AS/400 solution available which provides a fully integrated financial, clinical,
and administrative application for the small to mid-size hospital. The Company
also sells hardware, peripherals, training and installation support, forms and
supplies, and software and hardware maintenance services. The Company's product
offerings provide the flexibility required to support the single physician
office to large group practices, the small community hospital to the large
urban medical center, the small rural PHO network to a state-wide HIN linking
thousands of participants.
INDUSTRY BACKGROUND
The Company estimates that there are over 570,000 physicians in private
practice and approximately 196,000 medical practices in the United States. In
addition, there are approximately 6500 hospitals of which approximately 1/3 are
chained owned or operated and 100 major HMO's and insurance payors. The economic
pressures and information demands upon physicians, hospitals, and payors have
increased significantly during the past decade. At the same time, the increased
power and decreased cost of computers have made computers an effective informa-
tion processing solution for a broader range of clients. Approximately 70% of
physician practices and over 95% of hospitals now use computers or computer
services for at least some of their information processing requirements.
The demand for more comprehensive and accurate information processing
solutions is expected to continue. Healthcare cost containment efforts have
greatly increased the amount and complexity of required information. At the
same time, increased competition has resulted in a greater focus on demonstrat-
ing the quality of care delivered to patients. The Company's proprietary
practice management, hospital, and network systems help providers, suppliers,
and payors reduce the costs and improve the quality of delivering healthcare
services by automating patient care and administrative processes, ensuring
timely access to relevant information, streamlining the storage and retrieval of
information, and matching patient needs with available resources.
The ongoing pressure to contain healthcare costs is also changing the
structure of healthcare providers and their system requirements. In the private
sector, managed care techniques such as HMO's and PPO's have become significant
components of the healthcare system. In addition, the number of third-party
payor organizations has increased. At the same time, federal and state
governments, which are estimated to be responsible for approximately 30% of
physician claims for patient charges as a result of Medicare, Medicaid and other
programs, have imposed pricing and reimbursement regulations that significantly
complicate billing procedures and increase the information that a medical
practice or hospital must maintain with respect to their patients. Furthermore,
healthcare payors are increasingly transferring the economic risk of healthcare
delivery to providers by shifting from the traditional fee-for-service reim-
bursement model to managed care reimbursement models, such as payment based on
capitation. Under capitation, providers are paid an annual fixed fee per
individual to deliver all healthcare services required by that individual. This
reimbursement model encourages healthcare providers to modify their emphasis
from not only treating illness, but also to maintaining wellness. The expansion
in the number of managed care and third-party payors organizations, as well as
additional governmental regulation and
21
<PAGE>
changes in reimbursement models, has greatly increased the complexity of
financial management and clinical methods impacting physicians and hospitals.
Other factors also are increasing the demand for more comprehensive and
accurate information systems. The growing administrative burdens placed on
physician offices and hospitals have caused physicians to join together in group
practices and hospitals to merge with chains or other hospitals to share
administrative costs and achieve economies of scale. The Company believes that
the movement to group practices, hospital chains or alliances, and the
combination of hospitals and physicians into PHO's has accelerated the trend
toward automation as these larger scale organizations require the greater
efficiency and productivity of an automated system. Not only has there been a
movement toward group practices, more recently group practices have been
combining to form larger group practices. In addition, hospital are buying
and/or managing physicians practices and networking them into one common system.
The general increase in the size and complexity of healthcare provider organiza-
tions has also resulted in a greater need for analysis of data and production of
timely management information reports which allow physicians and other healthca-
re providers to reach informed conclusions regarding the quality and appropri-
ateness of various procedures and practices.
Technological advances have made more comprehensive, cost-effective
computer solutions available. While early systems concentrated principally on
patient billing and collection activities with clinical systems seen primarily
only in the mid-size to large hospital, systems are now available which record
and store clinical information, automate the processing of insurance and third-
party claims, and integrate the operations of physician practices with larger
healthcare organizations such as hospitals, HMO's and MSO's. The Company
believes that these various factors will cause medical practices and hospitals
to seek additional and more comprehensive computer-based solutions to their
information processing needs.
STRATEGY
Wismer Martin's objective is to be the leading provider of healthcare
information networks with associated hospital and physician applications. Wismer
Martin's products and services are designed to improve the ability of integrated
delivery networks to manage data and achieve success in their market area under
the demands of managed care. The Company's strategy includes the following key
elements:
- PROVIDE ELECTRONIC LINKAGES FOR EMERGING INTEGRATED NETWORKS OF HEALTH CARE
DELIVERY ORGANIZATIONS. The Company's strategy is to provide a
comprehensive technology platform for the integration of diverse
information systems into a unified network which supports the acquisition,
transfer, and security of financial, clinical, and, messaging data over a
geographic area served by a health care delivery organization. In addition,
the Company will provide business services solutions including, marketing,
affiliation, design, and planning services which enable the client to
develop and implement a communication network which mirrors their business
objectives and organization.
- PROVIDE SOPHISTICATED, COMPREHENSIVE APPLICATION SYSTEMS FOR THE PHYSICIAN
GROUP PRACTICE AND SMALL HOSPITAL SETTINGS. The Company's strategy is to
provide easy-to-use yet comprehensive medical practice management and
hospital software which provides a full range of administrative, financial,
clinical, and managed care functionality to meets the needs of the U.S.
market. The Company believes these applications address the needs of
patients, physicians, hospitals, and payors to increase efficiency and
reduce overall costs.
- LEVERAGE EXISTING CUSTOMER BASE. The Company's strategy is to maximize
revenues from its existing customers. In 1994, system upgrades, add-on
software and hardware, software and hardware maintenance, forms and
supplies and other services to existing customers accounted for
approximately 40% of total new revenues. The Company believes through more
sophisticated marketing, new support programs, and partnerships with other
suppliers that this may be increased to more than 50% of future revenues.
In addition, the Company believes that the existing customer base will be
the first and best market for the new Smart Care product, when it is
available.
- IMPROVE DIRECT SALES ORGANIZATION. The Company believes a direct sales
organization, whether in at the individual client level or in concert with
a strategic partner is the most effective way to market its products and
services. The Company's strategy is to improve its direct sales
organization to be able to market to larger of health care organizations,
payors, and consultant firms. The Company currently has separate
22
<PAGE>
groups within each business unit which focus on new systems sales, sales
to existing clients, and sales to hospital and other large healthcare
providers.
- MARKET THROUGH STRATEGIC PARTNERSHIPS. The Company believes that, even
with an improved direct sales force, many opportunities may not be
available to the Company simply due to our size, location, or lack of
penetration within a given market area. To remove this obstacle to growth
it is necessary to establish strategic partners such as hardware vendors,
software vendors, system integrators, and telecommunications vendors who
have wide market penetration, relationships, and the financial resources to
fund marketing and implementation efforts in pilot programs to establish a
presence in certain markets. The Company already has such relationships
established with its hardware vendors, Digital Equipment Corporation and
IBM, and is working to establish such relationships with systems
integrators and telecommunications firms.
- EXPAND MARKET PENETRATION THROUGH NEW PRODUCT OFFERINGS. The Company's
strategy to expand market share and penetration is based on expansion both
vertically within the existing client base and horizontally in other vendor
client bases by the development and sales of new product offerings which
either complement our current offerings or fill needs not satisfied by
other vendors. In the highly competitive and technology driven market the
Company operates in, new product development historically has driven growth
and the demand for new products and technology is accelerating with the
market forces present due to managed care. In this area, the Smart Net
suite of products and the Smart Care product will provide the means to
increase its client base and improve its position in the market for the
foreseeable future. In addition, the Company will continue to add new
modules to its Smart Practice product to keep its functionality current and
competitive.
SALES AND MARKETING PLANS
MARKETING
As a part of the Company restructuring project, Sales and Marketing plans
were realigned to be consistent with the Company strategy to focus on marketing
to larger healthcare organizations. Currently the Company has little presence
or name recognition outside of those areas where direct sales activities have
resulted in concentrations of installed clients, principally in the west and
southeast. In order to promote market awareness of the Company's products and
services on a national basis, formal and consistent effort needs to be conducted
on a number of fronts. To develop and conduct this strategy the Company will
recruit and hire an experienced Director of Marketing who will utilize a
combination of inside and outside resources to accomplish the plan. Each
business unit will own dedicated resource(s) who will execute strategies under
the direction of the Director of Marketing with specialized skills such as
graphic design and video production obtained from outside the Company. The
Director of Marketing will also establish and manage programs with its strategic
partners. Various activities will be encompassed in the marketing effort to
increase its presence in the marketplace including: advertisements, magazine
articles, conventions, seminars, consultants, direct mail, newsletters, and
joint marketing with strategic partners. The purpose of these activities will be
threefold; increase market awareness of Wismer Martin products and services on a
national basis, develop feeder sources for new business, and retain existing
clients by involving them in Wismer Martin activities.
STRATEGIC PARTNERS
In order to provide access to an increasing number of larger opportunities
it will be necessary for the Company to exploit to the greatest extent its
partnerships with other providers who have sales coverage on a national basis.
In addition, such partners can assist the Company with opportunities where our
relatively small size might be a barrier to obtaining the business. The Company
currently has established relationships with IBM, Digital Equipment Corp., and
Microsoft. The Company has just signed a letter of intent with GTE to exchange
information for the purpose of analyzing the potential alignment between the two
firms to jointly market and implement large scale Healthcare Information
Networks on a national basis. GTE is presently conducting its technical due
diligence.
Specifically our relationships with IBM, Digital Equipment Corp. and
Microsoft have been based on a reseller relationship. In the case of IBM this
relationship is referred to as a "Business Partner", for Digital a "Goldkey
Partner" and Microsoft a "Solutions Provider." These relationships provide the
firm with discounts on equipment and software for resale to our clients and for
our internal use. Our partners extend us various
23
<PAGE>
advantageous credit terms for the purchase of their equipment and software. In
addition, we receive advance information as to new products and access to and
training on those products for inclusion with our product offerings. We are
provided with special support assistance from our partners for technical,
configuration, and pricing information required. We have obtained marketing
assistance both in dollars and services from these partnerships and we receive
sales leads from their direct sales forces. We also are invited to various
conferences and sessions sponsored by these partners where we have the
opportunity to exhibit our products. We are included in directories published
by each partner which detail our offerings. Such directories are used by the
partners direct sales force to generate leads for the company as well as
distributed widely to end users of our partners equipment and software. We are
allowed by each partner to use their logo and name in printed materials and
advertisements to publicize our special relationship with our partners. We are
certified by each partner and are allowed to advertise our certification as a
legitimate and knowledgeable supplier of their equipment and software. We have,
where appropriate, jointly bid with our partners on new business.
NEW ACCOUNT SALES
In the past the Company has focused primarily on the single or small group
practice and on the small rural hospital market. Our plan going forward is to
sell to larger organizations with an emphasis on selling "bundles" of products
and services to these larger organizations including geographic site licenses.
These organizations include:
- INSURANCE PAYORS
- SPECIALTY MSO'S
- PHO'S
- LARGE GROUP PRACTICES
- HOSPITAL CHAINS
- STRATEGIC PARTNERS
In order to maximize these sales opportunities, which often require six
months to a year to close, it will be necessary to increase the quality of our
sales staff. Initial creation of opportunities will be driven by direct mail and
call prospecting with additional opportunities to come from the effect of the
marketing plan detailed above. The Company will continue to market its products
to the single physician or small group practice but will only do so when the
cost of sales can be kept low through remote demos or referrals.
EXISTING CLIENT SALES
It is expected that the current inside sales staff will be sufficient to
cover the installed client base and deliver the revenues needed to grow the
business. This group will receive additional training in telemarketing in the
coming months to improve their success rate. This group will sell add-on modules
and system upgrades and services into the 1600 physician practices and 66
hospital client base. At the present 300 of the 1600 SM*RT Practice clients have
upgraded leaving 1300 or approximately $3,000,000 in upgrade revenues to be
obtained through continuing sales efforts for Version 5.0. The major physician
client base add-on opportunities are Dr. Dialer, Scheduler, and Electronic
Claims. The major hospital client base opportunities are clinical applications
including the new client server Radiology Management System. The activities of
this group are supported by user groups held throughout the country as well as
direct mail campaigns conducted both via invoice "stuffers" as well as separate
mailings.
PRODUCTS AND SERVICES
PRACTICE MANAGEMENT SYSTEMS
SM*RT-Registered Trademark- PRACTICE SYSTEM
Historically, Wismer Martin's core product has been its practice management
software, SM*RT Practice. The SM*RT Practice System includes software applica-
tions which automate the financial, administrative, practice management, and
clinical information requirements of medical group practices. The System is
modular to facilitate the addition of new applications. The SM*RT Practice
system modules are designed to collect process, report and electronically
transmit data. To meet the needs of different size practices, the SM*RT Practice
System operates on Novell PC-based LANS which support the latest in Intel Dual
Pentium file servers capable of serving up to hundreds of physicians in a single
group practice. Smaller practices utilize the Intel 486 technology for process-
ing.
24
<PAGE>
Management believes the SM*RT Practice System meets the information
requirements of the vast majority of all medical specialties and practices in
the United States. The price of the SM*RT Practice System depends upon a number
of factors, include size of physician practice and number of system users, and
ranges from approximately $12,000 to $500,000. The SM*RT Practice System
includes a software license, hardware, installation and training, and a limited
warranty on hardware through the manufacturer's warranty and 1 year free on-site
maintenance included in the price of the hardware.
The SM*RT Practice software include basic business applications modules as
standard features, as well as advanced application modules for an additional
fee. The modules include:
SM*RT PRACTICE MODULES CAPABILITIES
---------------------- ------------
FINANCIAL APPLICATIONS
Insurance Billing. . . . . . . . . Process and prints insurance claim
forms. Tracks aging of all claims and
provides re-bill options for delinquent
claims. Coordinates billings for
supplemental carriers.
Patient Billing. . . . . . . . . . Process and prints patient statements.
Supports true cycle billing. Family,
individual patient, and open item
statement billing.
Managed Care Tracking. . . . . . . Tracks expected reimbursement and risk
pools; provides the information to
evaluate profitability of managed care
contracts.
Collections. . . . . . . . . . . . Allows for automated collections
letters, statement dunning messages, and
full range of collection reports and
audits.
PlanForm . . . . . . . . . . . . . Enables custom designing of statements,
labels and specialty forms.
ADMINISTRATIVE APPLICATIONS
Word Processing Integration. . . . Provides linkage to industry standard
word processors for correspondence.
Notes & Attributes . . . . . . . . Tracks and reports patient notes and
user define data elements.
Patient Recall . . . . . . . . . . Tracks, reports and sends reminders for
patient exams.
Practice Management Applications
Referral Tracking. . . . . . . . . SM*RT tracks referring doctors or other
sources. Complies with regulatory
requirements for claim data. Tracks
patient and dollar value of referred
patient by source.
Filter - Report Generator. . . . . Enables the practice to customize
reports beyond the standard reports.
System Reporting . . . . . . . . . System reporting include; accounting,
transactional, clinical, recall,
referral, trend analysis, management,
and graphical.
ADVANCED FEATURES
Electronic Linkage . . . . . . . . Custom HIS interfaces.
AutoPost . . . . . . . . . . . . . Electronic claim remittance. Takes
carrier data for paid claim and post to
the patient account in a open item
format automatically.
Appointment Scheduler. . . . . . . Eliminates the appointment book and
gives immediate access to the healthcare
providers daily, weekly, and monthly
schedules. Tracks appointment
cancellations and provides full
reporting.
Dr. Dialer . . . . . . . . . . . . An automated appointment reminder system
which dials patients at home using a
digitized voice system and patient
input/response via touch-tone keys.
Dr. Chart. . . . . . . . . . . . . Electronic patient medical record
system. Tracks patient histories, lab
results, health maintenance,
medications, and encounter information.
Available through third party
relationship.
EZ-CAP . . . . . . . . . . . . . . Provides complete management of
capitated reimbursement contracts for
group practice or IPA. Provides
projected, actual, and variance reports
for management. Transmits claims to
carriers or via EMC. Integrated with
SM*RT Practice. Available through third
party relationship.
25
<PAGE>
Electronic Media Claims (EMC). . . EMC will edit the claims for data
elements and electronically submit
edited claims to carriers or to
electronic clearing houses. The Company
utilizes Equifax as the national
clearing house for all client EMC.
NEW PRACTICE MANAGEMENT PRODUCT DEVELOPMENT
The Company expects to release in January of 1996 a completely new module,
called SM*RT Care. SM*RT Care is an on line medical record completely integrated
with the current SM*RT Practice and Net Suite products. SM*RT Care is being
developed using client server technology and will run either on a Intel based PC
or Digital Equipment Corp. Alpha minicomputer. SM*RT Care will operate as a
front end to SM*RT Practice and will provide the single physician or large group
practice with a graphical user interface to input and access all patient data
for a latitudinal and longitudinal medical record.
HEALTH INFORMATION NETWORK SYSTEMS
SM*RT NET SUITE
In the past two years the Company has developed and implemented a new
product line now marketed under the name of SM*RT Net. The SM*RT Net Suite was
designed to address the need for electronic exchange of information across the
network. Its objective is to streamline common, intra-organization communication
practices and processes. Specifically, the product suite enables organizations
such as, but not limited to, physician practices, hospitals, payors and allied
care providers to electronically exchange a common and standardized set of
information transactions related to the approval and delivery of patient care.
The breadth of information transactions exchanged are dependent upon the type
and variety of organizations participating in the network. The product is
completely scaleable from small local networks with dozens of participants to
state-wide networks which service thousands of providers and multiple payors.
Wismer Martin's SM*RT Link provides a true interactive interface for all
networked participants, including physicians, hospitals, labs, imaging centers,
IPA's, PPO's, HMO's, employers, third party payors, supplies and other entities.
The distributed hub strategy facilitating this communication capability uses a
distributed processing platform to permit economical incremental growth without
degradation of communication performance. Strict adherence to HL7 (Health Level
7) protocols ensures compatibility, as well as efficient and swift integration
with other healthcare products supporting this clinical communication standard.
The various modules of the SM*RT Net Suite include:
SM*RT NET MODULES CAPABILITIES
----------------- ------------
SM*RT Net Hub . . . . . . . . SM*RT Net Hub provides a true interactive
electronic interface between all participants
in a Healthcare Information Network (HIN),
including physicians, hospitals,
laboratories, imaging centers, IPA's, PPO's,
HMOs, employers, third party payors,
suppliers and other entities. Practices can
transmit patient referrals and demographics
and receive admit/discharge data, scheduling
information, lab and test results, pre-
authorizations and claims status, as
examples. The HUB computer facilitating this
communication capability utilizes a
distributed processing platform to permit
economical incremental growth without
degradation of communications performance.
The HUB supports a variety of communication
links and protocols, including TCP/IP, LU6.2,
and SNA. Strict adherence to HL7 (Health
Level 7) protocols ensures compatibility, as
well as efficient and swift integration's
with other healthcare products supporting
this clinical communication. The Net Hub
modules currently supports a wide range of
financial, clinical and other transaction
types.
SM*RT Net Link . . . . . . . . The SM*RT Net Link module is a Netware
loadable software module which manages the
sending and receiving of messages between a
HUB running SM*RT Net Hub software and a
single
26
<PAGE>
SM*RT Link workstation. This module includes
a full CUI user interface.
SM*RT Lan Link . . . . . . . . The SM*RT Net Lan Link module is a Netware
loadable software module which manages the
sending and receiving of messages between a
HUB running SM*RT Net Hub software and Novell
File Server. This module includes a full CUI
user interface and sends and receives
messages directly to the individual user
workstation.
SM*RT IS Link . . . . . . . . The SM*RT Net Lan Link module is a Netware
loadable software module which manages the
sending and receiving of messages between a
HUB running SM*RT Net Hub software and a
minicomputer or mainframe running a third
party application.
SM*RT Link IDK . . . . . . . . The SM*RT Link IDK module is a set of C
Language routines which are provided to 3rd
party vendors for use in integrating their
application with the SM*RT Net Suite.
SM*RT Net Hub's development is driven by the strategy for creating
successful fee-for-service and managed care hospital-physician network feeder
systems, it goes well beyond the scope of a system interface engine or platform.
Capabilities include data distribution protocols, security and patient referral
tracking capability. This built-in marketing "intelligence" will provide the
capability of tracking all referral transactions: i.e. understanding who the
true referral source of the patient is.
SM*RT Net Hub is completely integrated with SM*RT Practice, permitting ease
of operation with consistent menu driven screens and the automatic updating of
practice computer files. Without this specific programming integration, the
transfer of information among providers merely generates a print/text file,
which normally must be re-keyed into the practice computer system files. This
integration is obviously crucial in creating a seamless network.
NEW SM*RT NET SUITE PRODUCT DEVELOPMENTS
SM*RT Net Hub development plans include full integration with the SM*RT
Care product to be completed this year. The next product release for SM*RT Net
Suite is scheduled for July of 1995. Included in that release is Patient
Activity Index module which will permit accessing patient financial, clinical,
and other information from all points of the network as if the data was
contained in a single database.
HOSPITAL INFORMATION SYSTEMS
The ADDvantage Hospital Information System provides a comprehensive, fully
integrated application including financial, administrative, clinical, and
managed care modules to support the needs of the hospital from 50-300 beds. The
System has been developed, enhanced, and expanded over the past 12 years and
operates on the fastest selling minicomputer system ever developed; the IBM
AS/400. The System is completely modular but is usually purchased in core
groups. The ADDvantage System is designed to work for a single hospital or in a
multi-hospital setting where certain administrative functions, such as medical
records are shared between institutions.
ADDVANTAGE SYSTEM MODULES CAPABILITIES
FINANCIAL APPLICATIONS
Patient Billing. . . . . . . . . . Complete insurance billing module
including payor logs and managed care
processing.
Accounts Receivable. . . . . . . . Statement processing and Collections
follow-up. Payment and adjustment
posting with full account inquiry.
Accounts Payable . . . . . . . . . Controls vendor invoices and payments.
Includes master file maintenance,
transaction processing and reporting.
General Ledger . . . . . . . . . . Provides flexible financial management
including user defined reporting based
on current year, current budget, and
historical data.
Patient Registration . . . . . . . One process manages all types of patient
registrations, from pre-admission to
discharge.
27
<PAGE>
Materials Management . . . . . . . Manages purchasing, receipts,
requisitions, transfers, Cart/Par level,
lost charges, vendors statistics,
physical inventory, and reporting.
Payroll/Personnel. . . . . . . . . Provides complete management of payroll,
personnel, benefits administration,
payroll budgeting, licensure tracking
and education administration.
DRG OptiMiser. . . . . . . . . . . Operates in tandem with Medical Record
Abstracting Module to optimize DRG
assignment for each patient encounter to
ensure data quality and optimum
allowable reimbursement.
Cost Accounting . . . . . . . . . Provides complete cost tracking
utilizing step down methodology by use
of RVU's or actual costs. Provides cost
accounting information at multiple
levels of the organization.
Fixed Assets . . . . . . . . . . . Complete property management modules
with automatic depreciation calculation
via ARSC or MACRS. Maintains three tax
books; internal, state, and federal.
CLINICAL APPLICATIONS
Clinical Information System. . . . Provides a GUI based view of all
clinical data in the IHS Clinical
Modules via numeric and graphical
representation.
Quality Utilization/Management . . Complete Quality Utilization management,
physicians maintenance, infection
control, and risk management
capabilities.
Radiology Management . . . . . . . Departmental management module including
orders, scheduling, result reporting,
film tracking, and management
statistics.
Pharmacy Management. . . . . . . . Departmental management module including
orders, medication administration, drug
interactions, and patient profile.
Laboratory Management. . . . . . . Departmental management module including
orders, result entry, on line instrument
interfaces for all laboratory
departments.
Clinical Documentation System. . . Multi-disciplinary module which supports
assessments, care plans, flowsheets, and
progress notes. Provides standard care
plans and clinical pathways.
ADMINISTRATIVE APPLICATIONS
Resource Scheduling. . . . . . . . Complete multi-resource scheduler for
hospital and clinic departments.
Executive Information System . . . GUI based executive decision support
module which presents in graphical form
all relevant key indicators for hospital
operations with a focus on managed care
indicators.
Order Communications . . . . . . . Hospital wide order entry module with
direct data entry or menu selection.
Includes complete order explosion
capability.
Medical Records . . . . . . . . . Complete departmental module including
patient index, abstracting, DRG/Case mix
reporting, chart deficiency, and chart
locator.
NEW ADDVANTAGE SYSTEM PRODUCT DEVELOPMENTS
In the past year the Company has begun a major technology shift away from
terminal based applications to client server applications utilizing the IBM
AS/400 as a database server with a PC Lan as a front end providing clients with
a GUI interface. The first two applications marketed using this new technology
are the Clinical Information System and Radiology Management System completed
during this fiscal year. In the next fiscal year it is planned to extend this
technology to the Clinical Documentation System.
28
<PAGE>
PRODUCT RESEARCH, DEVELOPMENT AND ENHANCEMENT
The computer industry is characterized by rapid technological change
in computer hardware, operating systems and software. To keep pace with this
change, Wismer Martin maintains an aggressive program of new product
development. The Company dedicates considerable resources to further enhance
its existing products and to create new products and technologies. For the
nine months ended March 31, 1995 and for the fiscal years ended June 30, 1994
and 1993, the Company expended $1,887,622, $1,265,464 and $678,972,
respectively, on product research, development and enhancements. Of the
expended amounts, $1,287,927, $1,018,308 and $652,357 related to enhancements
which were capitaized during the nine months ended March 31, 1995 and for the
years ended June 30, 1994 and 1993, respectively. These capitalized costs
represent amounts expended after a product's technological feasibility has
been estabished and before the product is ready for sale. The Company
anticipates that future product research and development will approximate 15%
of product sales provided that the Company has the necessary liquidity to
fund these development efforts.
MARKETING AND SALES
The Company's products are currently distributed nationally through a
direct sales force of 5 sales representatives with an additional 5 employees
dedicated to inside sales to existing clients. Products typically are installed
on a turnkey basis, which includes installation of a respective software
application customized to the needs of the end-user practitioner's specialty and
practice, proper hardware configuration, patient account conversion, classroom
training, customer support and hardware/software system maintenance. The
Company services its distribution network from corporate headquarters in Mead
(Spokane), Washington; and from branch offices located in Seattle, Washington;
and La Jolla, California.
The Company's revenues are derived primarily from the sale of healthcare
information systems, from the licensing of proprietary software to purchasers of
these systems, from the provision of software and hardware maintenance services
and from the sale of paper forms and related supplies. Sales are made
nationwide. Under the terms of the Company's current licensing arrangements,
end-users of its proprietary software pay an annual software maintenance fee.
Additional maintenance fees are imposed for added work stations or additional
data bases. End-users may also elect to purchase software upgrading, technical
support and toll free customer support service from the Company. The Company
also provides end-users with hardware maintenance service, which is charged
separately. Revenue from the licensing of fixed fee multi-site license
arrangements which provide the customer with the right to reproduce additional
copies of the software and for which the Company has insignificant future
obligations are recognized upon delivery of the master copy of the software.
Revenue from the granting of exclusivity arrangements is recognized over the
period covered by the agreement. Installation revenues on long-term
installation contracts are recognized under the percentage-of-completion method
of accounting whereby revenues earned and related costs are recorded based upon
the relationship that total costs incurred bear to total estimated contract
costs. Services and other revenues are recognized pro rata over the period in
which the service is to be provided. (See Note 1 to the Consolidated Financial
Statements)
CUSTOMERS
The Company has installed more than 1600 physician practice management
systems, serving over 3700 physicians in more than 30 medical specialties
ranging in practice size from one to more than 30 physicians. The Company
markets its product to substantially all major specialties including family
practice, orthopedics, obstetrics and gynecology, internal medicine and
cardiology. Company has installed its hospital systems in 66 hospitals ranging
in size from 20 beds to 400 beds. The Company's hospital system has been shown
to meet the needs of the small rural community hospital as well as the large
urban medical center. The Company has installed its HIN products in three state
wide networks, sponsored by Blue Cross of Washington, Blue Cross of Alaska, and
Blue Shield of Eastern Washington, which encompass Washington and Alaska and
which have 370 client participants. The Company is in the process of
installation of its HIN products for two hospitals on the east coast which will
link multiple hospitals, payors, and hundreds of physicians. The Company
believes that an increasing portion of its sales are likely to be made to
hospitals and other large healthcare providers and has refocused its sales
efforts to address this market opportunity. 70% of the installed client base is
located in eight states. Blue Cross of Washington and Alaska accounted for 22%
of the Company's total revenues for the period ended March 31, 1995.
29
<PAGE>
Not shown but to be included as an exhibit on page 29 of the printed prospectus
will be a map of the continental United States which shows a total by state of
the number of Wismer Martin practice management, hospital, hospital network, and
payor network clients by those categories. These categories are abbreviated and
shown in a legend as P=Practice Management, H=Hospital, PN=Payor Network, HN=
Hospital Network. The data presented for each state on the map is as follows:
Alaska P=54 Ohio P=9, H=1
Alabama P=31 Oklahoma P=21
Arkansas P=3 Oregon P=95, H=3
Arizona P=50, H=1 Pennsylvania P=19, H=1
California P=98, H=24 South Carolina P=6
Colorado P=2, H=2 South Dakota P=5
Connecticut P=1, H=2 Tennessee P=55, H=1, HN=12
Wash, D.C. P=2 Texas P=15, H=1
Florida P=35, H=4 Utah P=39
Georgia P=55 Virginia P=15
Hawaii P=2 Washington P=594, H=4, PN=285
Iowa P=1 West Virginia P=8
Idaho P=103, H=1 Wyoming P=1
Illinois P=11, H=3
Indiana P=10, H=8
Kansas P=1
Kentucky P=122, H=1, HN=12
Louisiana P=17, H=2
Maine P=1
Maryland P=9, H=1
Michigan P=7, H=4
Minnesota P=1, H=1
Missouri P=16, H=1
Mississippi P=20
Montana P=16, H=1
North Carolina P=10
New Jersey P=8
New Mexico P=8, H=1
Nevada P=3, H=2
New York P=1
30
<PAGE>
SUPPORT SERVICES
As of May 31, 1995, the Company had approximately 60 employees providing
hardware and software maintenance, systems installation, training and support.
Support teams assist customers throughout the course of their relationship with
the Company, providing services which include installation planning,
installation, ongoing training and support.
The Company provides software maintenance to over 90% of its customers and
hardware maintenance to more than 20% of its customers under software and
hardware maintenance contracts. These services include software enhancements,
phone support, hardware repair, and field support.
The Company believes that support is critical to the successful
installation and ongoing operation of its systems and it has dedicated
substantial resources to customer support. The Company's hotline telephone
services are available seven days per week. Hotline services personnel answer
general questions about the system and solve operational difficulties. In-house
technical and research and development staff support the hotline staff on
operational questions which are more complex and require additional technical
expertise.
HARDWARE AND PERIPHERALS
As part of its complete product offerings, the Company sell computers,
terminals, printers, modems and other peripherals. Many clients require
additional peripherals or other upgrades to their hardware configurations as
their needs grow. The ADDvantage system operates on the IBM AS/400 minicomputer
and the SM*RT product lines operate on PC technology utilizing Intel processors.
The Company maintains VAR relationships with IBM and Digital Equipment
Corporation for resales of their equipment. The Company typically purchases
hardware under agreements which expire annually. These agreements are typically
renewed in the ordinary course of business and the Company has no reason to
believe that the agreements will not be renewed. The Company believes that its
relationships with its vendors are good. The Company generally seeks to
maintain a minimum amount of inventory and places order with its vendors upon
receipt of a firm order from a client. The Company is currently evaluating the
feasibility of outsourcing all sales, installation, and support of hardware sold
with its software offerings to its vendor partners. Since the evaluation
process is incomplete, there is no known trend that would provide management
with a reasonable basis for estimating the impact of this proposal. However, if
put into place, this "outsourcing" would reduce the Company's revenues and costs
but improve profit margins.
FORMS AND SUPPLIES
The Company currently maintains relationships with two forms companies,
Printed Systems, Inc. and Data Documents, Inc. which provide standard and custom
forms to our clients. In 1994, sales of forms and supplies represented
approximately 5% of revenues for the Company. The Company plans to outsource
the sales of forms and supplies to our outside partners including the billing
process in the next few months.
ELECTRONIC CLAIMS CLEARING HOUSE
The Company currently maintains a relationship with Equifax for electronic
transmission and clearing of insurance claims for our clients on a national
basis. The Company receives a percentage of the revenues collected by Equifax
which were approximately 2% of total revenues.
PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies primarily on a
combination of copyrights and trade secret laws to establish its proprietary
interest and maintain the confidentiality of its software products.
The Company has copyrighted its software programs and has a trademark with
respect to the ADDvantage and "SM*RT" symbols used in the promotion and
marketing of its systems. The Company has no patents or patents pending, nor
has it filed any patent applications with respect to its practice management
systems. Based upon management's own assessment, the Company does not believe
it is in violation of any existing patents, patents pending or copyrights with
respect to its systems.
31
<PAGE>
The Company retains ownership rights to all software it develops. All
software is licensed to users and provided in object code pursuant to executed
license agreements. These agreements contain restrictions on disclosure and
transferability.
COMPETITION
The market for the Company's systems and services is highly competitive.
The Company believes that the principal competitive factors in this market are
ongoing system service and support, flexibility, price, ease-of-use and
compatibility of the system, the potential for product enhancements, customer
satisfaction, vendor reputation and financial stability. The industry is
fragmented and includes numerous competitors, none of which the Company believes
dominates the overall markets for the Company's product and services offerings.
The Company believes its principal competitive advantages are the features and
capabilities of its products and services, the high level of customer support
and its pricing methods.
The Company's principal competitors include other practice management
companies, hospital information systems companies, and HIN companies where
price competition is a significant factor. In addition, the Company believes a
significant and growing factor are those competitors which have greater
financial, development, technical, marketing and sales resources than the
Company. These larger competitors have a distinct advantage in pursuing the
larger contracts which are resulting as a part of the ongoing consolidation of
healthcare providers. In addition, as the market for the Company's product and
services develops, additional competitors may enter the market and competition
will intensify. There can be no assurance that the Company will be able to
compete successfully with its competitors in the future. See "Risk Factors --
Competition".
PRODUCTION
Production of the Company's software products involves duplication of disks
and tapes and printed user manuals. The purchase of blank disks and transfer of
the software programs onto these media for distribution to customers is
performed by the Company. Media for the Company's products include 5 1/4"
floppy disks, 3 1/2" micro-diskettes and magnetic tape are available from
multiple sources. User manuals for the Company's products and the packaging
materials are produced to the Company's specifications by outside sources. To
date, the Company has not experienced any material difficulties or delays in
production of its software and documentation.
The Company is not engaged in the business of manufacturing the hardware
components of its practice management systems, but purchases such components
from reputable third-party manufacturers. To date, the Company has not
experienced any material difficulties or delays purchasing hardware components.
The Company does not carry significant inventories of paper products.
Under existing arrangements with its paper products suppliers, the Company
places advance orders for such products and is invoiced upon delivery.
EMPLOYEES
As of May 31, 1995, the Company and its subsidiary had 120 employees, of
whom 33 were in software design and development, 14 in marketing and sales, 45
in customer support, 15 in installation, and 13 in administration. The Company
believes that its future success is dependent in part upon its ability to
continue to attract and retain highly skilled technical, marketing and
management personnel.
None of the Company's employees is subject to a collective bargaining
agreement and the Company has never experienced a work stoppage.
32
<PAGE>
PROPERTIES
The Company's headquarters are housed in a 17,500 square foot Company-owned
building in Mead (Spokane), Washington. Additionally, the Company leases office
space in the following cities:
<TABLE>
<CAPTION>
Monthly Lease
Location Rental Expiration Date
-------- ------ ---------------
<S> <C> <C>
N. 10220 Nevada Spokane, Washington $1,890 September 30, 1995
6912 - 220th S.W.
Mountlake Terrace, Washington $4,184 July 30, 1997
7007-220th St. S.W.
Mountlake Terrace, Washington $157(2) June 30, 1995
3030 S.W. Moody
Portland, Oregon $1,303 November 30, 1995
ARCO Center, 300 Oceangate
Long Beach, California $4,481(1)(2) October 1, 1995
4275 Executive Square
La Jolla, California $6,707(1) June 30, 1998
<FN>
(1) The monthly lease amount is shown net of sublease income.
(2) This lease will not be renewed.
</TABLE>
Management believes that these existing facilities are adequate for
present and future operating needs.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, nor
is any of its property subject to any material pending legal proceedings.
33
<PAGE>
MANAGEMENT
DIRECTORS
The current directors of the Company are listed below:
Name Age Term Served and Experience
---- --- --------------------------
Ronald L. Holden 49 Director of the Company since October 18, 1991
and Chairman of the Board of Directors since
February 13, 1992. Chief Executive Officer of
the Company since January 4,1995. President
and a member of the Board of Directors of
National Healthtech Corporation from 1990 to
1993.
Glen E. Martin 51 Director of the Company since November 1982.
Co-founder of the Company. Chairman and Vice-
President of August Systems, Inc. since
November, 1992. Executive Vice President from
May, 1988 to October, 1992.
Clarence H. Barnes, Ph.D. 53 Director of the Company since November, 1989.
Dean, School of Business Administration,
Gonzaga University, Spokane, Washington, 1980-
Present.
Larry R. Eidemiller, M.D. 54 Director of the Company since November, 1989.
Partner, Surgical Associates, Portland, Oregon,
1980-Present. Chief of Surgery, Good Samaritan
Hospital, Portland, Oregon, 1985-Present.
John F. Perez 47 Director of the Company since July 13, 1993.
President of the Company since March 15, 1995.
Chief Executive Officer of Integrated Health
Systems, Inc., a subsidiary of the Company from
July 1993 until Present. Chief Executive
Officer of Software Technology Services from
June, 1990 to June, 1993.
William D. Engel 60 Director of the Company since March 15, 1995.
President and Chief Executive Officer of
Logica, Inc. (the U.S. subsidiary of Logica
plc) since September 1993. Prior to that date,
Mr. Engel was a division executive at Dynatech
Corporation.
Each director is elected annually for a one-year term, to serve until the
next annual meeting of shareholders and until their respective successors are
elected and qualified, or their earlier resignation or removal.
The Audit Committee consists of Messrs. Holden and Barnes. The Audit
Committee's principal functions are to review the audited financial statements
and recommend the selection of auditors to the Board of Directors.
The Compensation Committee consists of Messrs. Holden, Perez, Barnes and
Eidemiller. The Compensation Committee's principal functions are to make
recommendations to the Board of Directors concerning executive management's
compensation program.
The Board of Directors does not maintain a Nominating Committee or a
committee performing similar functions.
DIRECTOR COMPENSATION
Currently, non-employee directors receive $1,000 per Board meeting
attended, or Committee meeting attended that is not held as an adjunct to a
Board meeting and are reimbursed for travel expenses actually incurred in
attending such meetings. The Company does not pay any other cash compensation
to directors for serving in such capacity. Each non-employee director also has
received a warrant for the purchase of 5,000 shares of Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management."
34
<PAGE>
EXECUTIVE OFFICERS
The current executive officers of the Company are listed below:
Name Age Position and Term Served
---- --- ------------------------
Ronald L. Holden 49 Chief Executive Officer since January 4, 1995.
He has been Chairman of the Board of Directors
since February 13, 1992. He was President and
a member of the Board of Directors of National
Healthtech Corporation from 1990 to 1993.
John F. Perez 47 President and Chief Operating Officer since
March 15, 1995. Chief Executive Officer of
Integrated Health Systems, Inc., a subsidiary
of Wismer*Martin, from July, 1993 until
present. Prior to that he was CEO of Software
Technology Services providing programming and
product development in the healthcare industry
William E. Campbell III 41 Executive Vice President - Corporate
Development since January 4, 1995. Mr.
Campbell was a senior associate for Booz, Allen
& Hamilton for several years providing
operational and technology consultation to
healthcare organizations before becoming an
employee of the Company on April 1, 1994
Douglas A. Willford 39 Chief Financial Officer since January 4, 1995.
Mr. Willford has served as CFO of Integrated
Health Systems, Inc. (a subsidiary of
Wismer*Martin) since July, 1993. Prior to that
date, served as CFO for a hospital and two
healthcare management organizations.
Officers serve at the discretion of the Board of Directors.
OTHER SIGNIFICANT EMPLOYEES
Name Age Position and Term Served
---- --- ------------------------
James M. Evers 43 Vice President, Sales and Marketing singe July
17, 1995. Since 1976 Mr. Evers has held key
sales and sales management positions, both
regionally and nationally, within the
Healthcare Industry for Medic Computer Systems,
Baxter Travenol, Compucare, EDS and NCR
Corporation.
Richard J. Williams. . . . 38 Vice President, Practice Management since April
1, 1995. Employed by the Company since
September 1990 in a variety of roles including
Director of Client Sales, Manager of Sales
Support, and Support Representative.
Susan Orchanian. . . . . . 29 Vice President, Hospital Information Systems
since April 1, 1995. Ms. Orchanian previously
served as the Director of Client Services for
Integrated Health Systems and as the Director
of Product Management from February 1992 until
March of 1995. Prior to that date, Ms.
Orchanian was employed by Meditech, Inc. as an
Applications Consultant from 1988 until 1992.
Gary J. Peterson . . . . . 38 Vice President, HIN Products since March 15,
1995. Employed by the Company since October
1991 as Product Manager of HIN Products. Prior
to his employment at Wismer, Mr. Peterson
served as Director of Programming and
Development for Cascade Software from 1986
until 1991.
35
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents information regarding the aggregate
compensation for the fiscal years ended June 30, 1993 and 1994 paid or accrued
for (i) the Chief Executive Officer of the Company and (ii) the four other most
highly paid executive officers of the Company. Projected compensation for the
current fiscal year is included.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Annual Compensation
Fiscal --------------------------------------------
Year Long Term
Ended Other Compensation
Name and Principal Position June 30, Salary Bonus Compensation Awards Options
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ronald L. Holden: 1995 (1)$140,000 $ -0- (1)$60,000 -0-
Chairman of the Board 1994 $ 54,250 $ -0- (1)$60,000 -0-
Chief Executive Officer 1993 $ -0- $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
John F. Perez: (2) 1995 $120,000 $ -0- $ -0- 200,000
President & Chief Operating 1994 $ 46,600 $ -0- $ -0- -0-
Officer 1993 $ -0- $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
William E. Campbell III(3) 1995 $ 95,000 $ -0- $ -0- 200,000
Executive Vice President 1994 $ 23,750 $ -0- $ -0- -0-
Corporate Development 1993 $ -0- $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
Douglas A. Willford(4) 1995 $ 90,000 $ -0- $ -0- 100,000
Executive Vice President 1994 $ 36,890 $ -0- $ -0- -0-
Chief Financial Officer 1993 $ -0- $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
Stanley T. Hatch:(5) 1995 $18,676 $ -0- $ -0- -0-
1994 $ 73,164 $108,900 (9)$79,200 -0-
1993 $ 70,350 $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
Robert M. Wilson:(6) 1995 $18,367 $ -0- $ -0- -0-
1994 $ 65,520 $ 62,000 $ -0- -0-
1993 $ 63,000 $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
Beverly J. Hatch:(7) 1995 $12,712 $ -0- -0- -0-
1994 $ 56,784 $ 69,000 (9)$ 6,600 -0-
1993 $ 54,600 $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
Michael J. Magliaro, Jr.:(8) 1995 $23,970 $ -0- $ -0- -0-
1994 $ 74,880 $ 49,400 $ -0- -0-
1993 $ 42,000 $ -0- $ -0- -0-
------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The compensation for Mr. Holden for 1994 represents compensation
received from Integrated Health Systems, Inc. from the date of
acquisition, February 10, 1994, through the fiscal year ending June 30,
1994. The other compensation represents consulting fees received from
the Company for the fiscal year ending June 30, 1994. Mr. Holden was
engaged by the Company beginning July 1, 1993. Mr. Holden became the
Chief Executive Officer of the Company on January 4, 1995. The
compensation for Mr. Holden for 1995 represents his actual projected
salary for the entire fiscal year.
(2) The compensation for Mr. Perez for 1994 represents compensation received
from Integrated Health Systems, Inc. from the date of acquisition,
February 10, 1994, through the fiscal year ending June 30, 1994. Mr.
Perez became the President and Chief Operating Officer of the Company on
March 15, 1995. The compensation for Mr. Perez for 1995 represents his
actual projected salary for the entire fiscal year.
(3) The compensation for Mr. Campbell for 1994 represents compensation
received from Integrated Health Systems, Inc. from April 1, 1994,
through the fiscal year ending June 30, 1994. Mr. Campbell became an
Executive Vice President of the Company on January 4, 1995. The
compensation for Mr. Campbell for 1995 represents his actual projected
salary for the entire fiscal year.
36
<PAGE>
(4) The compensation for Mr. Willford for 1994 represents compensation
received from Integrated Health Systems, Inc. from the date of
acquisition, February 10, 1994, through the fiscal year ending June 30,
1994. Mr. Willford became the Vice President and Chief Financial
Officer of the Company on January 4, 1995. The compensation for Mr.
Willford for 1995 represents his actual projected salary for the entire
fiscal year.
(5) Mr. Hatch is no longer an executive officer, director or employee of the
Company. Mr. Hatch resigned as a director on January 4, 1995. Mr.
Hatch was an executive officer and employee of the Company until March
15, 1995.
(6) Mr. Wilson is no longer an executive officer of the Company. Mr. Wilson
was an executive officer and employee of the Company until May 4, 1995.
(7) Ms. Hatch is no longer an executive officer or employee of the Company.
Ms. Hatch was an executive officer and employee of the Company until
March 15, 1995. Ms. Hatch is the spouse of Mr. Hatch.
(8) Mr. Magliaro is no longer an executive officer or employee of the
Company. Mr. Magliaro was employed by the Company from December 1, 1992
until March 15, 1995.
(9) Represents the amount of compensation attributable to the exercise of
stock options. The amount represents the difference between the fair
market value of the common stock and the exercise price paid for the
common stock.
</TABLE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted during the fiscal year ended
June 30, 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents stock options exercised by the Company's
Chief Executive Officer and the Company's executive officers during fiscal year
1994, and the value of all unexercised options at year-end. The value of "in-
the-money" options refers to options having an exercise price which is less than
the market price of the Company's stock on June 30, 1994. Options granted to
Robert M. Wilson and Michael J. Magliaro, Jr. expired following their
termination in 1995 and are not included.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Value of Unexercised
In-the-Money Options
Number of Unexercised at Fiscal Year End ($)
Shares Acquired on Value Options at Fiscal Year End Exercisable/
Name Exercise (#) Realized($) Exercisable/Unexercisable Unexercisable
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stanley T. Hatch 240,000 $360,000 480,000 / -0- $720,000 / $ -0-
----------------------------------------------------------------------------------------------------------------
Beverly J. Hatch 20,000 $ 30,000 80,000 / -0- $100,000 / $ -0-
----------------------------------------------------------------------------------------------------------------
Steven G. Anderson 33,333 $ 50,000 83,334 / -0- $125,001 / $ -0-
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
The options are generally exercisable for a three-year period and expire:
i) immediately upon termination of the employee for cause, ii) sixty days after
termination without cause, or iii) ninety days after death or disability of the
employee.
BENEFIT PLANS
The Board of Directors of the Company, in their discretion, may grant
options to purchase shares of common stock of the Company to key employees. The
number of shares covered by the option is determined by the directors. The
exercise price is set by the directors at not less than the fair market value of
the shares on the date at which the option is granted.
The Company does not have any other stated compensatory employee benefit
plans.
37
<PAGE>
CERTAIN TRANSACTIONS
1994 CONVERTIBLE SUBORDINATED DEBENTURES.
On February 10, 1994, the Company acquired all of the outstanding shares of
Common Stock of Integrated Health Systems, Inc., a California corporation
("IHS"). The business of IHS has been described in the section of this
prospectus entitled "Business" and is included in the discussion set forth in
"Management's Discussion and Analysis." The acquisition price was comprised
entirely of the issuance by the Company of Convertible Subordinated Debentures
having a face value of Two Million Five Hundred Thousand Dollars ($2,500,000).
The amount of the consideration for the transaction was determined by
negotiation between the parties. The Debentures are due January 31, 1999, with
interest accruing at the rate of seven percent (7%) per annum. The holder of
the Debenture has a right of conversion.
500 shares of IHS were issued and outstanding at the time of the
transaction. Ronald L. Holden, a director and now Chief Executive Officer of
the Company owned 377 shares of record and beneficially. The remaining 123
shares were owned of record by him but were subject to option granted by him to
key employees of IHS. Mr. Holden received a Debenture having a face amount of
One Million Eight Hundred Eighty-Five Thousand Dollars ($1,885,000) in exchange
for the 377 shares. Mr. John F. Perez, a director and now President of the
Company, following the exercise of the option issued to him by Mr. Holden for 50
shares received a Debenture in the face amount of Two Hundred Fifty Thousand
Dollars ($250,000). Mr. Douglas A. Willford, now the Executive Vice President
and Chief Financial Officer of the Company, following the exercise of the option
to purchase 12 shares issued to him by Mr. Holden, was issued a Debenture in the
amount of Sixty Thousand Dollars ($60,000). The remaining outstanding shares of
Common Stock of IHS were subject to options issued by Mr. Holden to persons who
are not directors or executive officers of the Company. The total amount of
Debentures issued by the Company to those persons is Three Hundred Five Thousand
Dollars ($305,000).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1995,
and as adjusted to reflect the sale of shares offered hereby (a) by each person
who is known by the Company to beneficially own more than five percent of the
Common Stock, (b) by each executive officer named in the Summary Compensation
table and each director of the Company, and (c) by all executive officers and
directors of the Company as a group. Shares not outstanding but deemed
beneficially owned by virtue of the right of an individual or group to acquire
them within 60 days are treated as outstanding only when determining the amount
and percentage owned by such individual or group. Unless otherwise noted, each
person or group identified has sole voting and investment power with respect to
the shares shown. Common Stock is the only class of shares issued by the
Company.
<TABLE>
<CAPTION>
Number of Shares Percent Percent
Name and Address Beneficially Owned Before After
---------------- ------------------ ------ -----
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Ronald Holden ((1))
N. 12828 Newport Highway 6,090,700 53.64% 45.60%
Mead, WA 99021
Clarence H. Barnes, Ph.D. ((2))
W. 614 17th Street 27,000 Less than 1% Less than 1%
Spokane, Washington 99203
Glen E. Martin ((3))
West 1406 Elmwood Court 368,333 3.62% 3.02%
Spokane, Washington 99218
Larry R. Eidemiller, M.D. ((4))
5051 S.W. Downs View Court 5,000 Less than 1% Less than 1%
Portland, Oregon 97221
John Perez ((5))
4275 Executive Square, Suite 550 400,000 3.90% 3.27%
La Jolla, CA 92037
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C> <C>
William E. Campbell III (6)
1336 98th Ave. N.E. 201,000 2.00% 1.67%
Bellevue, Washington 98004
Douglas A. Willford (7)
5816 N. Drumheller 148,000 1.48% 1.23%
Spokane, Washington 99205
All executive officers and directors
as a group 7,240,033 58.14% 50.14%
OTHER HOLDERS OF MORE THAN FIVE PERCENT
Stanley T. Hatch 958,500 9.73% 8.09%
North 1619 Westpoint Road
Spokane, Washington 99201
<FN>
(1) Mr. Holden received a debenture in the amount of $1,885,000 on February 10,
1994. The debenture can be converted to common stock at a conversion price
of $*** per share after this offering. If the total debenture were
converted, Mr. Holden would be entitled to ****** shares of common stock
in addition to his current holdings of 4,582,700 shares of common stock.
The shares reflected above include the 4,582,700 shares currently held plus
the ****** shares for which Mr. Holden is deemed to be the beneficial
owner. The percentages reflect the percentage ownership based upon the
total outstanding stock at March 31, 1995 of 9,847,625 plus the ******
shares assumed to be converted by Mr. Holden.
(2) Dr. Barnes holds a stock purchase warrant that allows him to purchase 5,000
shares of the Company's common stock. The shares reflected above include
22,000 shares currently held plus the 5,000 shares for which Dr. Barnes is
deemed to be the beneficial owner. Dr. Barnes' ownership is based upon the
total outstanding stock at March 31, 1995 of 9,847,625 plus the 5,000
shares assumed to be exercised by Dr. Barnes and yields a percentage of
less than one percent.
(3) Mr. Martin purchased a debenture in the amount of $200,000 on August 26,
1993. The debenture can be converted to common stock at a conversion price
of $.60 per share. Mr. Martin holds a stock purchase warrant that allows
him to purchase 5,000 shares of the Company's common stock. If the
debenture was converted and the stock purchase warrant was exercised, Mr.
Martin would be entitled to 338,333 shares of common stock in addition to
his current holdings of 30,000 shares of common stock. The shares
reflected above include the 30,000 shares currently held plus the 338,333
shares for which Mr. Martin is deemed to be the beneficial owner. The
percentages reflect the percentage ownership based upon the total
outstanding stock at March 31, 1995 of 9,847,625 plus the 338,333 shares
assumed to be exercised by Mr. Martin.
(4) Dr. Eidemiller holds a stock purchase warrant that allows him to purchase
5,000 shares of the Company's common stock. The shares reflected above
reflect the 5,000 shares for which Dr. Eidemiller is deemed to be the
beneficial owner. Dr. Eidemiller's ownership is based upon the total
outstanding stock at March 31, 1995 of 9,847,625 plus the 5,000 shares
assumed to be exercised by Dr. Eidemiller and yields a percentage less than
one percent.
(5) Mr. Perez received a debenture in the amount of $250,000 on February 10,
1994. The debenture can be converted to common stock at a conversion price
of $*** per share after this offering. If the total debenture were
converted, Mr. Perez would be entitled to ****** shares of common stock.
Mr. Perez also holds current stock options that allow him to purchase
200,000 additional shares of the Company's common stock. The shares
reflected above include the ****** shares for which Mr. Perez is deemed to
be the beneficial owner for the assumed conversion of the debenture and the
exercise of Mr. Perez's stock options. Mr. Perez's ownership is based upon
the total outstanding stock at March 31, 1995 of 9,847,625 plus the ******
shares assumed to be converted by Mr. Perez.
(6) Mr. Campbell holds current stock options that allows him to purchase
200,000 additional shares of the Company's common stock. If the stock
option were exercised, Mr. Campbell would be entitled to 200,000 shares of
common stock in addition to his current holdings of 1,000 shares. The
shares reflected above include the 1,000 shares currently held plus the
200,000 shares for which Mr. Campbell is deemed
39
<PAGE>
to be the beneficial owner. Mr. Campbell's ownership is based upon the
total outstanding stock at March 31, 1995 of 9,847,625 plus the 201,000
shares assumed to be exercised by Mr. Campbell.
(7) Mr. Willford received a debenture in the amount of $60,000 on February 10,
1994. The debenture can be converted to common stock at a conversion price
of $*** per share after this offering. If the total debenture were
converted, Mr. Willford would be entitled to ****** shares of common
stock. Mr. Willford also holds current stock options that allow him to
purchase 100,000 additional shares of the Company's common stock. The
shares reflected above include the ****** shares for which Mr. Willford is
deemed to be the beneficial owner for the assumed conversion of the
debenture and the exercise of Mr. Willford's stock options. Mr. Willford's
ownership is based upon the total outstanding stock at March 31, 1995 of
9,847,625 plus the ****** shares assumed to be converted by Mr. Willford.
</TABLE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.001 per share. The following summary description
of the Common Stock is qualified in its entirety by reference to the Company's
Articles of Incorporation, as amended (the "Articles") and Bylaws, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
As of June 30, 1995, there were 9,847,625 shares of Common Stock outstand-
ing, held of record by approximately 1,000 shareholders. Holders of Common Stock
are entitled to one vote per share on all matters submitted to a vote of
shareholders, to the extent a vote of shareholders is required or permitted
under the Washington Business Corporation Act. Holders of Common Stock are not
entitled to cumulative voting in the election of directors. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of liabili-
ties. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. All the
40
<PAGE>
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of this offering will be, fully paid and nonassess-
able.
ANTI-TAKEOVER PROVISIONS
The Company is subject to the Washington Business Corporation Act, which
contains provisions that have the effect of discouraging non-negotiated takeover
attempts. Section 23B.17 of the Act (Chapter 23B.19 RCW) generally prohibits
any "significant business transaction" within five years of the date a person
acquired ten percent or more of the outstanding voting shares of a company,
unless the transaction first receives the approval of a majority of the
disinterested directors prior to the time the ten percent ownership threshold is
crossed. Also, pursuant to Section 23B.17 of the Act, Washington imposes a
"fair price" restriction on corporations with 300 or more record holders of its
shares. This statute provides, subject to certain exceptions, that specified
change-of-control transactions between a company subject to its provisions
(which include the Company) and an "interested shareholder" (defined as a person
or affiliated group beneficially owning twenty percent or more of the Company's
outstanding voting stock) will be prohibited unless a majority of disinterested
directors determine the price offered by the interested shareholder to be fair,
or unless two-thirds of the shareholders of each voting group entitled to vote
separately on the transaction (not including the interested shareholder) approve
such change-of-control transaction.
The Company's articles of incorporation and bylaws do not contain any
similar provisions which may have the effect of discouraging non-negotiated
takeover attempts by delaying or preventing changes-in-control of management of
the Company.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Company's Articles contain provisions indemnifying directors and
officers of the Company to the fullest extent permitted by law. The Company has
also entered into indemnification agreements pursuant to which it has agreed,
among other things, to advance funds to a director for the payment of expenses
incurred in litigation. In addition, the Articles contain provisions limiting
the personal liability of directors to the Company or its shareholders to the
fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company is aware that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is
TranSecurities International, Inc., 2510 N. Pines, Spokane, Washington 99206-
7624.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been only a limited public market for the
Common Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
Upon completion of this Offering for the maximum number of shares, the
Company will have ****** shares of Common Stock outstanding (assuming no
exercise after March 31, 1995 of any outstanding options granted under the
Company's stock option plan, no exercise after March 31, 1995 of any outstanding
warrants granted to the Company's non-employee directors, and no conversion
after the completion of the Offering of any remaining outstanding Debentures).
Of these shares, the ****** shares sold in this Offering will be freely
tradable without restriction, except for any shares purchased by an existing
"affiliate" of the Company or by an individual or entity subject to a contractu-
al restriction on resale. The number of shares eligible for immediate sale in
the public market on the date of this Offering without restriction cannot be
determined.
Restricted securities and securities held by affiliates may be sold only if
registered under the Securities Act of 1933 or if they qualify for an exemption,
including an exemption pursuant to Rule 144.
41
<PAGE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
within the meaning of Rule 144 for at least two years, including the holding
period of any prior owner except an affiliate, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then-outstanding shares of Common Stock and (ii) the average weekly
trading volume of the Common Stock in the over-the-counter market during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public informa-
tion about the Company. Any person (or persons whose shares are aggregated) who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who owns restricted securities that were purchased
from the Company (or any affiliate) at least three years previously, will be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
DETERMINATION OF OFFERING PRICE
The public offering price for the shares of Common Stock being offered has
been determined by the Board of Directors. Prior to this offering, however,
there has been only a limited public market for the Common Stock of the Company.
The Board of Directors considered the market price for the Common Stock during
the first five months of 1995 prevailing conditions in the securities markets,
the Company's position in the industry, and the Company's current financial
position.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby and certain
legal matters relating to the Offering have been passed upon for the Company by
Paine, Hamblen, Coffin, Brooke & Miller, Spokane, Washington.
EXPERTS
The consolidated financial statements of the Company and subsidiary as of
March 31, 1995 and June 30, 1994 and for the nine months ended March 31, 1995
and years ended June 30, 1994 and 1993 included in this Prospectus and in the
Registration Statement, have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
CHANGE OF ACCOUNTANTS:
Coopers & Lybrand, LLP, was engaged to perform the audit of the Company's
financial statements for the fiscal years ended June 30, 1993 and June 30,
1994.Without prior discussion with the Company, Coopers & Lybrand, LLP ("Coo-
pers") informed the Company on March 28, 1995 that the client-auditor relation-
ship between the Company and their firm had ceased as of that date and that
Coopers would not consent to the use of the audit reports issued by Coopers for
the fiscal years ended June 30, 1993 and June 30, 1994 in any future filings
with the Securities and Exchange Commission. The Board of Directors of the
Company had not considered or contemplated any decision to change accountants;
in fact, the shareholders of the Company, at the Company's request, had ratified
the selection of Coopers as independent public accountants for the fiscal year
ended June 30, 1995 at the Annual Meeting of Shareholders held March 21, 1995.
The Company does not believe that there were any disagreements with Coopers
concerning any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures. Coopers, however, advised the
Company on April 10, 1995 that, events should have been reported by the Company
on Form 8-K pursuant to Item 304(a)(1)(iv)(B)(3) of Regulation SB. Although its
reports on the June 30, 1994 and June 30, 1993 financial statements were not
modified or qualified, Coopers stated that, if its 1994 report had been
reissued, consideration would be given to the Company's ability to continue as a
going concern which could result in a modification of the 1994 report. Coopers
said that it had not carried out sufficient procedures prior to its resignation
to conclude as to whether a modification of the 1994 report would be required.
Coopers also noted that it had made certain inquiries in connection with the
issuance of the Form 10-QSB for the quarter ended December 31, 1994, particu-
larly as to the realizability of the deferred tax asset recorded at December 31,
1994 in view of the significant loss recorded for the quarter and six months
then ended. There were no other items identified by
42
<PAGE>
Coopers which would have caused them to refuse to reissue their reports on the
financial statement for the fiscal years ended June 30, 1994 and June 30, 1993.
The Company and Coopers agree that Coopers had not been requested to perform,
nor had it performed, any procedures which might have assisted the Company in
reaching an appropriate conclusion regarding the Form 10-QSB.
On April 26, 1995, the Company engaged BDO Seidman, LLP as its independent
public accountants. No discussions regarding the opinion of BDO Seidman, LLP on
accounting matters or financial reporting issues occurred prior to their
engagement as the Company's independent certified public accountants.
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants . . . . . . . . . . F-2
Consolidated Balance Sheets at March 31, 1995 and June 30, 1994. . . . F-3
Consolidated Statements of Operations for the nine months ended
March 31, 1995 and for the years ended June 30, 1994 and 1993. . . . . F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
for the nine months ended March 31, 1995 and for the years ended
June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1995 and for the years ended June 30, 1994 and 1993. . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Wismer*Martin, Inc.
Mead, Washington
We have audited the accompanying consolidated balance sheets of
Wismer*Martin, Inc. as of March 31, 1995 and June 30, 1994, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the nine month period ended March 31, 1995 and the years
ended June 30, 1994 and 1993. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wismer Martin,
Inc. as of March 31, 1995 and June 30, 1994, and the results of their operations
and their cash flows for the nine month period ended March 31, 1995 and the
years ended June 30, 1994 and 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company acquired Integrated Health Systems, Inc. in 1994 in a transaction
accounted for as a combination of entities under common control. The
consolidated statements of operations and cash flows for the years ended June
30, 1994 and 1993 have been restated to include the results of Integrated
Health Systems, Inc.'s operations and cash flows subsequent to the date of
common control.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
BDO Seidman, LLP
Spokane, Washington
June 2, 1995
F-2
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
---------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 104,081 $ 588,349
Trade receivables, net of allowance for doubtful
accounts of $278,074 and $176,362 (Note 5) 1,732,537 2,807,368
Unbilled costs and expenses 190,251 166,354
Inventories (Note3) 267,370 625,018
Prepaids and other assets 186,988 199,152
------------- -------------
Total current assets 2,481,227 4,386,241
Property, plant and equipment, net (Notes 4, 5 and 6) 1,948,528 1,962,445
Software development costs, net of accumulated amortization
of $1,338,617 and $878,999 2,500,469 1,672,161
Other assets, net of accumulated amortization
of $171,468 and $75,836 184,606 209,282
Deferred income taxes (Note 8) -- 248,044
------------- -------------
Total assets $ 7,114,830 $ 8,478,173
------------- -------------
------------- -------------
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Notes payable to bank (Note 5) $ 958,949 $ --
Accounts payable 1,082,117 1,097,500
Accrued wages and related taxes 341,358 524,455
Other accrued liabilities 151,268 330,449
Deferred revenue 2,318,510 2,231,801
Long-term debt, due within one year (Note 6) 62,234 64,465
Obligations under capital leases, due within one year (Note 7) 29,305 20,164
------------- -------------
Total current liabilities 4,943,741 4,268,834
Other liabilities 93,201 138,740
Long-term debt, due after one year (Note 6) 900,746 949,617
Convertible subordinated debentures (Note 9) 3,000,000 3,000,000
Obligations under capital leases, due after one year (Note 7) 75,721 69,625
Deferred income taxes (Note 8) -- 589,885
------------- -------------
Total liabilities 9,013,409 9,016,701
Capital deficit: (Notes 9 and 10)
Common stock, $.001 par value 20,000,000 shares authorized:
9,847,625 and 9,362,625 shares issued and outstanding 9,848 9,363
Additional paid-in capital 1,203,809 1,082,544
Excess purchase price of acquired subsidiary (Note 1) (2,533,308) (2,533,308)
Retained earnings (deficit) (578,928) 902,873
------------- -------------
Capital deficit (1,898,579) (538,528)
------------- -------------
Total liabilities and capital deficit $ 7,114,830 $ 8,478,173
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Fiscal Years Ended
Ended June 30,
March 31, 1995 1994 1993
-------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Net sales:
Software license fees $ 2,149,057 $5,547,487 $2,631,978
Equipment, software and supplies sales 1,920,152 2,829,889 2,967,502
Software and hardware maintenance contracts 2,879,754 3,513,831 2,638,019
Service revenue 2,154,972 3,777,885 993,995
Discounts (1,273,462) (1,271,842) (920,437)
------------------------------------------
Net sales 7,830,473 14,397,250 8,311,057
------------------------------------------
Operating expenses:
Cost of software license fees 459,619 567,058 324,633
Cost of equipment, software and supplies sold 1,401,011 2,542,421 2,516,856
Cost of support and operations 2,197,585 3,965,059 2,100,261
Selling and marketing 1,895,603 1,994,340 1,195,663
Product research, development and enhancements 1,887,622 1,270,656 678,972
Less: amount capitalized related to enhancements (1,287,927) (1,018,308) (652,357)
General and administration 2,819,313 3,921,134 2,018,322
------------------------------------------
Total operating expense 9,372,826 13,242,360 8,182,350
------------------------------------------
Operating income (loss) (1,542,353) 1,154,890 128,707
Other income (expense):
Interest income 20,295 28,180 35,140
Interest expense (301,584) (192,407) (147,339)
------------------------------------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (1,823,642) 990,663 16,508
Income tax expense (benefit) (Note 8) (341,841) 265,107 12,191
------------------------------------------
Income (loss) before cumulative
effect of change in accounting principle (1,481,801) 725,556 4,317
Cumulative effect of change in accounting
principle (Note 8) - 27,479 -
------------------------------------------
Net income (loss) $(1,481,801) $ 698,077 $ 4,317
------------------------------------------
------------------------------------------
Net income (loss) per share:
Income (loss) before cumulative
effect of change in accounting principle $ (0.15) $ 0.07 Nil
Cumulative effect of change in accounting principle - Nil -
------------------------------------------
Net income (loss) per share $ (0.15) $ 0.07 Nil
------------------------------------------
------------------------------------------
Weighted average common shares outstanding 9,893,346 9,423,845 9,198,191
------------------------------------------
------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND THE YEARS ENDED JUNE 30, 1994
AND 1993
<TABLE>
<CAPTION>
Excess
Common Stock Additional Purchase Price Retained
------------ Paid-In of Acquired Earnings
Shares Amount Capital Subsidiary (Deficit) Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1992 9,039,293 $ 9,039 $ 986,518 $ - $ 167,171 $ 1,162,728
Issuances of common stock for
exercise of stock options 16,667 17 4,150 4,167
Net income (restated) 4,317 4,317
---------- ----------- ------------ ------------ ----------- ------------
Balances at June 30, 1993 (restated) 9,055,960 9,056 990,668 - 171,488 1,171,212
Issuances of common stock for
exercise of stock options, after tax
effect 306,665 307 91,876 92,183
Issuance of convertible
subordinated debentures for
common stock of acquired subsidiary (2,500,000) (2,500,000)
Retained deficit of acquired
subsidiary at acquisition (33,308) 33,308 -
Net income (restated) 698,077 698,077
---------- ----------- ------------ ------------ ----------- ------------
Balances at June 30, 1994 9,362,625 9,363 1,082,544 (2,533,308) 902,873 (538,528)
Issuances of common stock for
exercise of stock options, after tax
effect 485,000 485 121,265 121,750
Net loss (1,481,801) (1,481,801)
---------- ----------- ------------ ------------ ----------- -------------
Balances at March 31, 1995 9,847,625 $ 9,848 $ 1,203,809 $ (2,533,308) $ (578,928) $ (1,898,579)
---------- ----------- ------------ ------------ ----------- -------------
---------- ----------- ------------ ------------ ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WISMER*MARTIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
Nine Months Ended -------------------
March 31, 1995 1994 1993
--------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,481,801) $ 698,077 $ 4,317
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 927,624 948,219 633,041
Provision for bad debts 254,656 115,113 391,293
Loss on property, plant and equipment disposal -- 19,090 --
Cumulative effect of accounting change -- 27,479 --
Deferred income taxes (341,841) 229,286 27,836
Change in operating assets and liabilities, net of acquired business:
Trade receivables 820,175 (62,938) (438,247)
Unbilled costs and expenses (23,897) 543,809 102,700
Inventories 357,648 (314,319) 88,033
Prepaids and other assets 12,164 (51,956) (33,222)
Income tax receivable -- 32,804 --
Accounts payable (15,383) 86,265 323,049
Accrued wages and related taxes (183,097) 118,582 (125,930)
Other accrued expenses (179,181) (34,727) (99,744)
Income taxes payable -- -- (71,000)
Deferred revenue 86,709 (617,328) 164,905
Other liabilities (45,539) 38,740 --
------------ ------------ ------------
Net cash provided by operating activities 188,237 1,776,196 967,031
------------ ------------ ------------
Cash flows from investing activities
Cash acquired from purchase of subsidiary -- -- 181,970
Proceeds from disposition of property, plant and equipment -- 2,500 --
Purchase of property, plant and equipment (324,752) (737,172) (144,971)
Additions to software development costs (1,287,926) (1,018,308) (652,357)
Purchase of other assets (70,956) (22,099) --
------------ ------------ ------------
Net cash used in investing activities (1,683,634) (1,775,079) (615,358)
------------ ------------ ------------
Cash flows from financing activities
Payment of debt obligations (51,102) (31,419) (28,353)
Proceeds from issuance of common stock 121,750 92,183 4,167
Proceeds from long term debt -- 191,099 --
Proceeds from subordinated debentures -- 500,000 --
Payments under capital lease obligations (18,468) (9,959) (16,944)
Net proceeds (payments) on note payable to bank 958,949 (357,327) (169,361)
------------ ------------ ------------
Net cash provided (used) by financing activities 1,011,129 384,577 (210,491)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (484,268) 385,694 141,182
Cash and cash equivalents at beginning of period 588,349 202,655 61,473
------------ ------------ ------------
Cash and cash equivalents at end of period $ 104,081 $ 588,349 $ 202,655
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 351,078 $ 97,380 $ 127,037
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ -- $ 33,800 $ 50,000
------------ ------------ ------------
------------ ------------ ------------
Noncash financing activities:
Equipment acquired under capital lease $ 33,705 $ 70,850
------------ ------------
------------ ------------
Issuance of subordinated debentures for acquisition of
Integrated Health Systems, Inc. $ 2,500,000
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
1. COMPANY ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONSOLIDATION
Wismer Martin, Inc. ("the Company") develops and markets healthcare
computer systems and related services. The consolidated financial
statements include the accounts of the Company and its subsidiary. All
significant intercompany accounts and transactions have been eliminated.
On September 12, 1991, National Healthtech Corporation (National
Healthtech) acquired 1,714,286 shares of the Company's common stock from
the founders of the Company. On January 31, 1992, National Healthtech
acquired the remaining 2,868,414 shares of common stock held by the
founders of the Company. On June 10, 1993 National Healthtech sold all of
its ownership of common stock to Mr. Ronald Holden. Mr. Holden is the
Chairman of the Board of Directors of the Company and until June 30, 1993
was a director and stockholder of National Healthtech.
On February 10, 1994, the Company acquired all of the outstanding shares of
common stock of Integrated Health Systems, Inc. , a California corporation
(IHS). IHS is in the business of developing and licensing software
programs for hospitals and related entities. The Company issued
convertible subordinated debentures having a face value of $2,500,000 in
exchange for the shares of common stock (see Note 9). IHS's major
stockholder was Mr. Ronald Holden, who is also a major stockholder of the
Company. Due to Mr. Holden's common control of both companies, the
acquisition was accounted for as a combination of entities under common
control whereby balance sheet amounts were recorded at their historical
bases. Previously issued statements of operations and cash flows for the
years ended June 30, 1994 and 1993 did not reflect the results of
operations and cash flows for IHS from June 10, 1993, the date on which
Mr. Holden obtained control of both companies, to February 10, 1994, and
accordingly have been restated. The effect of this restatement was to
increase net sales by $3,002,359 and $426,621 and decrease net income by
$22,836 and $10,472 for fiscal 1994 and 1993, with no effect on earnings
per share as previously reported.
At the date of acquisition, the purchase price of $2,500,000 exceeded the
historical cost basis of the net assets of IHS by $2,533,308. Due to the
common control of the companies, the excess purchase price was recorded as
a reduction of stockholders' equity.
CASH EQUIVALENTS
Investments with remaining maturities at purchase of three months or less
are considered to be cash equivalents for purposes of the statement of cash
flows.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company places its cash and temporary cash investments
with high credit worthy institutions. At times such investments may be in
excess of the FDIC insurance limit. The Company develops and sells its
products exclusively to enterprises in the health care industry. These
enterprises include physician practice groups, hospitals, insurance payors
and joint ventures between some or all of these entities (often known as
HMO's, PPO's, IPA's and HIN's). Trade receivables are primarily from
customers in the health care industry. For the nine month period ended
March 31, 1995 and the year ended June 30, 1994, the Company had sales of
$1,720,486 and $1,978,386 to one customer (an insurance payor). For the
fiscal year ended June 30, 1993, no single customer accounted for more than
10% of the Company's revenues. At March 31, 1995 and June 30, 1994 ,
$841,806 and $855,000 of these respective amounts are included in accounts
receivable.
F-7
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
INVENTORIES
Inventories are carried at the lower of first-in, first-out (FIFO) cost or
net realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation and
amortization, which includes the amortization of assets recorded under
capital leases, are provided over the lesser of the estimated useful lives
of the respective assets or the lease term (including extensions in the
case of leased assets and leasehold improvements), using the straight-line
method.
SOFTWARE DEVELOPMENT COSTS
Computer software development costs incurred subsequent to establishing
technological feasibility of the resulting product or enhancement and
until the product is available for general release to customers are
capitalized and recorded at the lower of unamortized cost or net
realizable value. Net realizable value is determined based on
estimates of future revenues to be derived from the sale of the software
product reduced by costs of completing and disposing of that product.
Capitalized costs are amortized based on current and anticipated future
revenues for each product or enhancement with an annual minimum equal to
straight-line amortization over the remaining estimated economic life of
the product or enhancement (three to five years). For the nine month
period ended March 31, 1995 and the years ended June 30, 1994 and 1993,
amortization of software development costs was $459,618, $424,885 and
$327,028. Amortization of capitalized software development costs are
included in the Consolidated Statements of Operations in the line item
"Cost of software license fees."
OTHER ASSETS
Other assets, consisting primarily of goodwill and deferred financing fees,
are carried at cost. Financing fees are amortized over the respective term
of the loan agreement using the interest method. Goodwill represents the
excess of cost over the fair value of the net assets acquired and is being
amortized on a straight-line basis over three years.
REVENUE RECOGNITION
SOFTWARE LICENSE FEES
The Company has established its revenue recognition policy in accordance
with the provisions of the American Institute of Certified Public Accounta-
nts' Statement of Position 91-1 "Software Revenue Recognition." Revenue
from the sale of internally-developed software is recognized when the
software has been delivered to the customer and collection is deemed
probable. In some cases, customers are sold fixed-price, multi-site
licenses which permit the marketing or use of multiple copies of the
Company's software for a single fee (usually limited geographically).
In these cases, the software licensee fee is recognized as revenue when
the master copy of the software is delivered to the customer and are not
contractually tied to subsequent sales by the licensee and are not
refundable. The cost to distribute additional copies of the software is
insignificant.
Software license agreements may include the sale of hardware, third-party
software and supplies as well as support services and installation and
training. Each of these are separately stated and priced in the contract,
and the revenues from these are separately accounted for under the finan-
cial captions of "Equipment, software and supplies sales," "Software and
hardware maintenance contracts," and "Service revenue," respectively.
F-8
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
Service obligations are separately stated and priced in each contract
and the Company accounts for these service obligations separately (see
"Service revenue" below). Any remaining vendor obligations at the time
the software is delivered are insignificant, and the revenues associated
with any remaining obligations are deferred until those obligations have
been satisfied. Support contracts begin immediately after installation.
Cost of sales associated with the sale of internally-developed software
consists of the amortization of software development costs, which is
included in the income statement under the caption "Cost of software
license fees."
Deposits received for software license fees from customers in advance of
revenue recognition are included in the balance sheet under the caption
"Deferred revenue." Amounts that have been recognized as revenue, but are
not yet due are included in the balance sheet caption "Unbilled costs and
expenses."
EQUIPMENT, SOFTWARE AND SUPPLIES SALES
Revenues from third-party hardware (personal computers and peripherals),
third-party software (popular networking and word processing software) and
supplies (forms and envelopes for billing purposes) are separately stated
in contracts for the license of the Company's software products, and are
recognized when the related hardware, software and supplies are delivered
to the customer. The cost of equipment, third-party software and supplies
sales are included in the income statement under the caption "Cost of
equipment, software and supplies sold."
Deposits received for equipment, third-party software and supplies from
customers in advance of delivery are included in the balance sheet caption
"Deferred revenue" and are recognized upon delivery.
SOFTWARE AND HARDWARE MAINTENANCE CONTRACTS
Fees for software support are separately stated and priced in each customer
contract. The revenues from these contracts are deferred and recognized on
a straight-line basis over the period covered by the contract (payments are
typically made either quarterly or annually).
Maintenance contracts for hardware outside of the original manufacturer's
warranty are written between the customer and the Company and are priced at
market rates. The Company then sub-contracts with a third-party vendor (at
a discount from market rates) specializing in on-site hardware maintenance
for the same coverage as the Company has contracted with its customers.
Revenues and the corresponding third-party contract expenses are deferred
and amortized on a straight-line basis over the term of the contract
(usually one year). The cost of the third-party maintenance contracts is
included in the income statement under the caption "Cost of support and
operations."
The Company invoices customers in advance for software and hardware
maintenance contracts. The unamortized balance of amounts invoiced for
software and hardware maintenance contracts are included in the balance
sheet caption "Deferred revenue," while the unamortized cost of third-party
hardware maintenance contracts is included in the caption "Prepaids and
other assets."
SERVICE REVENUE
Revenues resulting from Company personnel providing installation, training,
custom modification programming, and network consulting services are
recorded as "Service revenue." These services are not essential to the
functionality of any other element of the transaction and are separately
stated and priced such that the total contracts price will vary based on
whether or not these services are purchased from the Company. When
collectibility is deemed probable, the revenue from these services is
deferred and recog-
F-9
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
nized as the services are performed. In some cases, installation and
training services are contracted on a fixed-fee basis. In these cases, the
revenues are deferred and recognized under the percentage-of-completion
method. Any losses on these type of contracts are recorded as soon as they
are foreseen.
Contracts for service revenue frequently permit billings to customers (and
payments to be received by the Company) in advance of the services being
rendered (this is always the case in fixed-fee installation contracts).
These unearned service revenues are included in the caption "Deferred
revenue."
Cost of support and operations includes: non-technical personnel who answer
customer support calls, the cost of third-party hardware maintenance
contracts, technical personnel who load Company and third-party software on
computer systems and assist with technical issues associated with customer
support, and personnel who perform consulting services for customers.
DISCOUNTS
Discounts are determined at the time of contract signing and are recorded
concurrently with the recording of revenue. Any cost associated with
returns and exchanges are insignificant and are recorded as incurred. The
company provides no warranties which are not supported by third-party
contracts or software support contracts.
FEDERAL INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), effective
July 1, 1993. The cumulative effect of adopting SFAS No. 109 in fiscal
1994 was a charge to operations of $27,479. SFAS No. 109 requires a
company to recognize deferred tax assets and liabilities for the expected
future income tax consequences of events that have been recognized in a
company's financial statements. Under this method, deferred tax liabili-
ties and assets are determined based on the temporary differences between
the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. During the fiscal year
ended June 30, 1993, the Company accounted for income taxes as required by
Statement of Financial Accounting Standards No. 96.
NET INCOME (LOSS) PER SHARE
The computation of net income (loss) per share in each period is based on
the weighted average number of common shares outstanding. When dilutive
stock options, debentures and warrants are included as share equivalents
using the treasury stock method, fully diluted net income (loss) per common
share is not materially different from primary net income (loss) per common
share. At March 31, 1995, the Company had options outstanding to purchase
270,001, shares of its common stock, which were considered dilutive.
2. FINANCIAL CONDITION AND LIQUIDITY:
As shown in the accompanying consolidated financial statements at March 31,
1995, the Company has a capital deficit of $1.9 million, negative working
capital of $2.5 million and incurred a significant net loss of $1.5 million
from operations for the nine month period then ended. Additionally, the
Company has modified its credit agreement as a result of covenant viola-
tions (See Note 5).
During fiscal 1995, management realigned the Company's organization and
instituted a cost reduction program which included the closing of non-
essential field offices and a reduction in personnel that were in
F-10
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
place to support a higher level of sales which were not achieved.
Additionally, management is concentrating its efforts on moving the Company
away from its initial focus on small regional physician practices to a
focus on large group practices, hospitals and other healthcare providers
and payors who are developing networks. Management believes that with this
reduced cost structure, highly centralized operations, and increased focus
on growth market areas (particularly Hospitals, Physicians Hospital
Organizations (PHO's) , Medical Services Organizations (MSO's) and Payors,
the Company can return to profitability.
As discussed in Note 14, part of management's plan to fund these efforts
and provide additional liquidity for the Company includes a proposed sale
of additional shares of the Company's common stock. Management believes
that the Company will be able to raise no less than the $500,000 without
using an underwriter, broker, dealer or finder.
Should future markets for the Company's product not develop as projected or
the public stock offering be unsuccessful, the Company may be unable to
meet its short term debt requirements and not be in compliance with
covenants contained within its credit agreement (see Note 5). Should the
Company fail to comply with these covenants or be unable to renegotiate the
terms of the agreement, the Company is at risk that the bank will foreclose
on the Company's office building in order to satisfy the outstanding
obligation. In the event that the offering is unsuccessful, management
believes the short term liquidity needs of the Company can be satisfied
by reducing or ceasing costs associated with new product development
and attempting to refinance the debt encumbering the Company's office
building. On a longer term basis, management intends to continue to seek
the sale of the Company's office building and to enter into joint venture
arrangements with strategic alliance partners who can provide additional
capital required for new product development.
Although the Company believes that its operating plan and efforts to obtain
other financing sources will be adequate to meet its fiscal 1996 working
capital needs, there can be no assurance that the Company may not experi-
ence liquidity problems because of adverse market conditions or other
unfavorable events.
3. INVENTORIES:
Inventories at March 31, 1995 and June 30, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Hardware held for sale. . . . . . . . . . . . . . $240,941 $591,298
Software. . . . . . . . . . . . . . . . . . . . . 12,859 20,222
Supplies. . . . . . . . . . . . . . . . . . . . . 13,570 13,498
-------- --------
$267,370 $625,018
-------- --------
-------- --------
</TABLE>
F-11
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at March 31, 1995 and June 30, 1994 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Building and building improvements . . . . . $ 649,551 $ 649,551
Furniture and fixtures . . . . . . . . . . . 536,536 497,177
Computer systems and related equipment . . . 2,298,686 1,959,905
Land and site improvements . . . . . . . . . 248,020 248,020
Leasehold improvements . . . . . . . . . . . 57,920 51,307
Equipment under capital lease . . . . . . . 146,250 172,546
----------- -----------
3,936,963 3,578,506
Accumulated depreciation and amortization . (1,988,435) (1,616,061)
----------- -----------
$1,948,528 $1,962,445
----------- -----------
----------- -----------
</TABLE>
Accumulated amortization of the telephone and computer equipment under
capital lease amounted to $45,368 and $80,372 at March 31, 1995 and June
30, 1994.
5. NOTES PAYABLE TO BANK:
Pursuant to the terms of an amended credit agreement with Seattle First
National Bank (Seafirst), the Company had a line of credit with a maximum
availability of $1,200,000 at March 31, 1995. Advances received under the
line of credit, which totaled $851,049 at March 31, 1995 bear interest at
the bank's prime rate plus 2% (11% at March 31, 1995) and are collateral-
ized by the Company's accounts receivable and inventories. The credit
agreement contains various restrictive covenants. At March 31, 1995, the
Company was not in compliance with the minimum tangible net worth require-
ments, the debt to equity ratios, and the minimum trading capital require-
ments and ratios.
On April 11, 1995, the Company entered into a modification of the amended
credit agreement. Under the terms of the amended credit agreement are as
follows: (1) $500,000 of the amount outstanding was converted to a term
loan due June 30, 1995 (which was paid by the Company on April 21, 1995),
(2) the maximum availability under the credit agreement was reduced to
$500,000 ($347,951 outstanding at May 31, 1995). This commitment expires
on June 30, 1996. The modification agreement also provided that the
interest rate for advances was changed to the bank's prime rate plus 3%,
compliance with the financial covenants was waived until June 30, 1995. In
June, 1995, the bank granted an extension of time to meet the debt cove-
nants until August 31, 1995, and the line of credit agreement was further
collateralized by the Company's office building. In addition, the modifi-
cation requires the Company to raise cash of $1,000,000 and convert
$1,000,000 of convertible subordinated debt to equity by August 31, 1995
(See Note 14).
Also included in notes payable at March 31, 1995 is $107,900 owed by IHS to
Seafirst pursuant to terms of a promissory note, in the original amount of
$185,000. The promissory note requires monthly principal payments of
$15,420 plus interest based on Seafirst's prime rate plus 2.5% (11.5% at
March 31, 1995) and is secured by accounts receivable. The note matures in
October, 1995.
F-12
<PAGE>
WISMER*MARTIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----
6. LONG-TERM DEBT:
Long-term debt at March 31, 1995 and June 30, 1994 is summarized as
follows:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
---------- ----------
<S> <C> <C>
Mortgage payable to U.S. Bancorp Mortgage Company in
monthly installments of $4,536, including interest at 3.0%
over the average discount rate of 26-week U.S. Treasury
bills (adjusted semi-annually - 9.0% at March 31, 1995),
maturing in November, 1998 (A) $ 427,173 $ 438,721
Note payable to the Greater Spokane Business Development
Association and the Small Business Administration in
monthly installments of $4,162, including interest at
9.896%, maturing in October, 2008 (B) 353,814 362,799
Escrow contract payable to Adept Escrow, Inc. in annual
installments of $6,000, including interest at 9.0%, and
maturing in July, 1998, collateralized by land 17,975 21,995
Note payable to Seattle First National Bank in monthly
installments of $3,912, including interest at 8.25%, and
maturing in May, 1999, collateralized by telephone system 162,114 188,663
Other 1,904 1,904
---------- ----------
962,980 1,014,082
Less amount due within one year 62,234 64,465
---------- ----------
Amount due after one year $ 900,746 $ 949,617
---------- ----------
---------- ----------
<FN>
(A) This mortgage payable is collateralized by a deed of trust on the Company's
headquarters land and building, and is personally guaranteed by Glen and
Judith Martin.
(B) This note payable is collateralized by substantially all the Company's
property, plant and equipment, subordinated to the first position of U.S.
Bancorp Mortgage Company and Seattle First National Bank, and is personally
guaranteed by Glen and Judith Martin.
</TABLE>
Principal payments on long-term debt as contractually committed at March 31,
1995 are due as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
1996 $ 62,234
1997 76,313
1998 81,396
1999 86,771
2000 50,407
Thereafter 605,859
--------
$962,980
--------
--------
</TABLE>
F-13
<PAGE>
7. OBLIGATIONS UNDER CAPITAL LEASES:
The Company has entered into various lease contracts for computer
equipment, which are accounted for as capital leases. The capital lease
obligations are payable in monthly installments. The future annual minimum
lease payments required under these capital leases are as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
1996 $ 44,820
1997 36,341
1998 32,101
1999 25,565
2000 2,402
--------
141,229
Less amount representing interest (36,203)
--------
Present value of net minimum lease payments 105,026
Less amount due within one year (29,305)
--------
Amount due after one year $ 75,721
--------
--------
</TABLE>
8. INCOME TAXES:
For the nine month period ended March 31, 1995 and the years ended June 30,
1994 and 1993 the major components of the Company's income tax expense
(benefit) are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
State $ - $ 3,690 $ 965
Federal - 32,131 (16,610)
Deferred:
Federal (341,841) 229,286 27,836
-------- -------- --------
$(341,841) $ 265,107 $ 12,191
-------- -------- --------
-------- -------- --------
</TABLE>
F-14
<PAGE>
The annual tax provision (benefit) is different from the amount which would
be provided by applying the statutory federal income tax rate to the
Company's income before income tax expense (benefit). The reasons for
these differences are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) at the
federal statutory rate $(620,038) (34.0) $336,825 34.0 $5,613 34.0
Provision for state income taxes - - 3,690 .4 965 5.8
Amortization of intangibles 23,644 1.3 3,584 .4 2,999 18.2
Research and development
tax credit - - (68,780) (6.8) (419) (2.5)
Effects of alternative minimum
tax rate differential and
surtax exemption - - (17,776) (1.8) 2,501 15.2
Change in valuation
allowance 287,104 15.7 (27,441) (2.7) - -
Other, net (32,551) (1.7) 35,005 3.2 532 3.1
-------------------------------------------------------------------------
Income tax provision (benefit) $(341,841) (18.7) $265,107 26.7 $12,191 73.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
The components of the deferred tax provision (benefit) for the nine month
period ended March 31, 1995 and the years ended June 30, 1994 and 1993 are
due to the following temporary differences as offset by the utilization of
net operating loss carryforwards and research and development credits:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Software development costs $281,624 $201,764 $110,612
Depreciation 14,448 (2,535) (251)
Accrued vacation pay (44,352) (12,696) 6,900
Inventory obsolescence reserve 8,174 17,716 (35,779)
Change in valuation allowance 287,104 6,559 -
Other (31,052) (10,712) (4,470)
---------- --------- --------
515,946 200,096 77,012
Utilization (benefit) of net operating loss
carryforwards and credits (857,787) 29,190 (49,176)
---------- --------- --------
$ (341,841) $ 229,286 $ 27,836
---------- --------- --------
---------- --------- --------
</TABLE>
F-15
<PAGE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at March 31, 1995 and June 30, 1994 were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
--------- ---------
<S> <C> <C>
CURRENT:
Allowance for doubtful accounts $ 94,546 $ 43,420
Inventory obsolescence reserve 22,427 30,601
Accrued liabilities 78,650 34,298
Net operating loss carryforwards - 95,827
Tax credit carryforwards - 77,898
Valuation allowance (195,623) (34,000)
--------- ---------
$ - $ 248,044
--------- ---------
--------- ---------
NON-CURRENT:
Capitalized software development costs $(850,159) $(568,535)
Property, plant and equipment (122,537) (108,089)
Accrued liabilities 32,665 52,739
Amortization of intangibles 34,000 34,000
Net operating loss carryforwards 923,681 -
Tax credit carryforwards 107,831 -
Valuation allowance (125,481) -
--------- ---------
$ - $(589,885)
--------- ---------
--------- ---------
</TABLE>
The Company has recorded a 100% valuation allowance on the deferred tax
asset since management could not determine that it would be more likely
than not that its net operating losses and credits in excess of deferred
tax liabilities would be realized. The valuation allowance related to the
deferred tax assets increased by $287,000 and $34,000 during the nine month
period ended March 31, 1995 and the year ended June 30, 1994.
At March 31, 1995, for income tax purposes, the Company had net operating
loss carryforwards of approximately $3,002,000 and $2,488,000 available to
offset regular and alternative minimum taxable income, respectively. For
financial statement purposes, these net operating losses were used to the
extent necessary to offset temporary differences and reduce deferred tax
liabilities. The net operating loss carryforwards expire principally in
2009.
At March 31, 1995, for income tax and financial statement purposes, the
Company had research and development tax credit carryforwards of approxi-
mately $108,000 available to offset future income taxes payable. The tax
credit carryforwards begin to expire in 2006.
During the year ended June 30, 1994, for income tax purposes, the Company
deducted approximately $101,000 associated with the exercise of certain
non-qualified stock options. For financial statement purposes, the tax
benefit of $14,850 associated with the non-qualified options deduction has
been recorded as additional paid-in capital.
F-16
<PAGE>
9. CONVERTIBLE SUBORDINATED DEBENTURES:
On August 26, 1993, the Company issued convertible subordinated debentures
with a face value of $500,000 in exchange for cash. The debentures are due
August 31, 1998. Interest accrues on the outstanding principal of the
debenture at the rate of 7% per annum and is payable semi-annually on
February 28 and August 31 during the term of the debenture. The debenture
allows the holder to convert in whole or part the outstanding balance into
shares of the Company's common stock at any time during the term of the
debenture at a fixed conversion price of $.60 per common share. The
Company may, at its option, call the outstanding principal amount of the
debentures for redemption at any time after December 31, 1993.
On February 10, 1994, the Company issued convertible subordinated
debentures with a face value of $2,500,000 in exchange for all the out-
standing stock of IHS (see Note 1). The debentures are due January 31,
1999. Interest accrues on the outstanding principal of the debenture at
the rate of 7% per annum and is payable semi-annually on January 31 and
July 31 during the term of the debenture. The debenture allows the holder
to convert in whole or part the outstanding balance into shares of the
Company's common stock at any time during the term of the debenture at a
fixed conversion price of $3.23 per common share.
The above conversion rates are subject to adjustment if (a) the Company
pays a dividend or makes a distribution of common shares (b) the Company
consolidates or merges into another corporation or (c) sells any common
shares (excluding existing stock bonus and option plans) for less than the
conversion price if the cumulative value of these transactions exceeds
$100,000.
10. COMMON STOCK:
a. STOCK OPTION PLAN
The Company has a non-qualified stock option plan for the granting of
options to certain key employees. The option exercise price, which is
determined by the Board of Directors, is generally based on the fair
market value at the date granted.
Outstanding options granted pursuant to the non-qualified stock option
plan are as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares $ Per Share
--------- ------------
<S> <C> <C>
Outstanding, July 1, 1992 1,371,667 .25 - .75
Granted 200,000 .50
Exercised (16,667) .25
Canceled (110,000) .25
---------
Outstanding, June 30, 1993 1,445,000 .25 - .75
Exercised (306,665) .25 - .35
Canceled (73,333) .25 - .50
-------
Outstanding, June 30, 1994 1,065,002 .25 - .75
Granted 525,000 1.60 - 1.75
Exercised (485,000) .25 - .35
Canceled (290,001) .25 - .75
--------
Outstanding, March 31, 1995 815,001 .25 - 1.75
-------
-------
Exercisable, March 31, 1995 795,001 .25 - 1.75
-------
-------
</TABLE>
F-17
<PAGE>
These options generally expire (i) immediately upon termination of the
employee for cause, (ii) sixty days after termination without cause,
or (iii) ninety days after death or disability of the employee. All
options expire three years from the date they become exercisable.
b. RESTRICTED STOCK BONUS PLAN
The Company also has a restricted stock bonus plan for employees under
which shares of common stock may be granted to employees at the
discretion of the Board of Directors. Shares issued pursuant to this
plan are restricted for three years from the date of grant and, in the
event of termination, the Company may repurchase these shares at the
greater of (i) the book value of said shares as of the purchase date
or (ii) the repurchase value of said shares as determined by the Board
of Directors at the time said shares were issued. This restriction
feature results in unearned stock compensation when the shares are
granted. The shares are earned by the employee over a three-year
period from the date of grant. The Company amortizes this unearned
compensation over the restrictive period. No shares were issued under
this plan during the nine month period ended March 31, 1995 or the
years ended June 30, 1994 and 1993.
c. COMMON STOCK PURCHASE WARRANTS
During fiscal 1994, the Company issued warrants to purchase up to
15,000 shares of common stock. The warrants were issued to three
directors of the Company. The warrants may be exercised at any time
prior to February 9, 1996. The exercise price of the warrants is
$3.23 per share of common stock.
11. COMMITMENTS:
The Company leases certain buildings and office space under noncancellable
operating leases which expire at various dates through June 1998, with
options to renew through June 2003. Additionally, the Company subleases an
office building to an unrelated third party. The Company also maintains a
lease where a free rent period was granted. The accompanying statements of
income reflect rent expense on a straight-line basis over the term of the
lease. An obligation of approximately $118,070 representing pro rata
future payments is reflected in the accompanying balance sheet at March 31,
1995. Total rent expense for the nine month period ended March 31, 1995
and the years ended June 30, 1994 and 1993 was $254,654, $183,373 and
$167,786, respectively.
Future minimum lease payments, net of sublease rent income, required under
all operating leases are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
1996 $297,048
1997 251,770
1998 201,530
--------
$750,348
--------
--------
</TABLE>
12. EMPLOYEE BENEFIT PLAN:
Substantially all of the employees of IHS are covered by a 401(k) defined
contribution benefit plan. The plan provides for employee tax-deferred
contributions of up to 15% of eligible compensation. IHS
F-18
<PAGE>
matches 50% of employee contributions with a maximum contribution of 3% of
the employees' eligible compensation. For the nine month period ended
March 31, 1995 and the year ended June 30, 1994, IHS made contributions to
the benefit plan of approximately $18,000 and $21,000.
13. RELATED PARTY TRANSACTIONS:
On September 17, 1990, the Company entered into an agreement with August
Systems, Inc. (ASI), which is owned and operated by Judith Martin, a
stockholder of the Company. Pursuant to this agreement, the Company has
agreed to provide ASI a perpetual right to sublicense the source copy of
SM*RT Practice, the Company's practice management software, including all
of its related modules and user/technical documentation. Additionally, ASI
agrees to pay the Company a 10% royalty on sales of ASI's Patient Account-
ing System product up to a maximum royalty of $100,000. During the nine
month period ended March 31, 1995 and the years ended June 30, 1994 and
1993, the Company did not make any sales or receive any royalty payments
from ASI.
During the year ended June 30, 1994, the Company had sales of approximately
$71,254 to a stockholder.
The Chairman of the Board and Chief Executive Officer has received in
addition to his salary a consulting fee in the amount of $45,000 for the
nine month period ended March 31, 1995, and $55,000 for the year ended
June 30, 1994.
14. PROPOSED STOCK OFFERING:
The Company intends to file a registration statement with the Securities
and Exchange Commission to register approximately **** shares of the
Company's stock at an estimated total offering price of $****.
F-19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has entered into indemnification agreements with each of its
directors in which the Company agrees to indemnify and hold harmless the
director to the fullest extent permitted by applicable law against any and all
reasonable attorney's fees and all other reasonable expense, cost, liability and
loss paid or reasonably incurred by such director or on his or her behalf in
connection with any threatened, pending or completed action, suit or proceeding,
or any inquiry or investigation not initiated by the director that he or she
believes in good faith might lead to the institution of any such action, suit or
proceeding (each such threatened, pending or completed action, suit, proceeding,
inquiry or investigation, a "proceeding"), relating to any event or occurrence
relating to the fact the director is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
or by reason of any action or inaction by the director in such capacity. The
Company is required to reimburse a director for expenses incurred within two
days following the receipt of a written request for reimbursement, provided that
the director agrees to repay any amount paid or advanced to the extent that it
is ultimately determined that the director is not entitled to such
reimbursement. The Company must indemnify a director for other amounts for
which a director may be responsible, defined as "resolution costs" in the
agreement, within 30 days of a written request from a director unless, within
that 30-day period, the Board of Directors, by a majority vote of a quorum
consisting of directors who are not parties to a proceeding as defined in the
agreement, determines that the director is not entitled to indemnification or
the Board of Directors refers the indemnification request to independent legal
counsel. If reference is made to an independent legal counsel, then such
counsel must advise the Company within 45 days whether indemnification should be
allowed.
(i) in the case of conduct in his own capacity with the Company, he
reasonably believed his conduct to be in the Company's best interests, or
(ii) in all other cases, he reasonably believed his conduct to be at least not
opposed to the Company's best interests. Article X of the Bylaws further
provides a procedure for indemnification pursuant to which indemnification shall
be made if a director meets the standard of conduct set forth in Article X and
there is a determination by a majority vote of a quorum of the Board of
Directors (not parties to such proceeding) to authorize indemnification, or by
majority vote of a committee of the Board of Directors consisting solely of two
or more directors not at the time parties to such proceeding, or by a written
opinion by independent legal counsel, or by the Shareholders.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article X of the Company's Bylaws (Exhibit 3.2 hereto)
provides that the Company shall indemnify its directors to the maximum extent
permitted by applicable law, and that the Company may indemnify its directors to
the full extent permitted by applicable law, or to such lesser extent as the
Company's Board of Directors may determine.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's personal liability to the corporation or its
shareholders for monetary damages for conduct as a director, except in certain
circumstances involving intentional misconduct, a knowing violation of law, self
dealing, illegal corporate loans or distributions or any transaction from which
the director personally
II-1
<PAGE>
received a benefit in money, property or services to which the director is not
legally entitled. Article XIV of the Company's Amended Articles of
Incorporation (Exhibit 3.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the Company and its shareholders.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Company in connection with the sale of the shares of Common Stock being
registered hereby. All the amounts shown are estimated, except the SEC
registration fee.
SEC registration fee . . . . . . . . . . $ 750
Blue Sky fees and expenses . . . . . . . 3,000
Printing and engraving expenses. . . . . 12,000
EDGAR filing expenses. . . . . . . . . . 800
Legal fees and expenses. . . . . . . . . 35,000
Auditors' accounting fees and expenses . 85,000
Transfer Agent and Registrar fees. . . . 1,000
Miscellaneous expenses . . . . . . . . . 10,000
-------
Total. . . . . . . . . . . . . . . . $147,550
-------
-------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period March 31, 1992 through March 31, 1995, the Company has
issued the following unregistered securities:
# OF PRICE SALE
DATE TITLE SHARES PER SHARE AMOUNT
---- ----- ------ --------- ------
6/9/92 Common stock 16,667 $ 0.25 $ 4,166.75
8/8/92 Common stock 16,667 0.25 4,166.75
8/8/92 Common stock 33,333 0.25 8,333.25
6/30/94 Common stock 240,000 0.25 60,000.00
6/30/94 Common stock 33,333 0.25 8,333.25
6/30/94 Common stock 20,000 0.25 5,000.00
6/30/94 Common stock 6,666 0.35 2,333.10
6/30/94 Common stock 3,333 0.25 833.25
6/30/94 Common stock 3,333 0.25 833.25
9/30/94 Common stock 480,000 0.25 120,000.00
10/10/94 Common stock 5,000 0.35 1,750.00
------- -----------
858,332 $215,749.60
------- -----------
------- -----------
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933.
ITEM 27. EXHIBITS
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Articles of Incorporation of Professional
Software Associates, Inc. filed as Exhibit 3.1 of Small Business
Issuer's Form 10 filed as of May 19, 1989, is incorporated by
reference.
3.2 Articles of Amendment of the Articles of Incorporation of
Professional Software Associates, Inc., filed as Exhibit 3.1 of
Small Business Issuer's Form 10 is incorporated herein by
reference as of May 19, 1989.
3.3 Articles of Amendment of Wismer-Martin, Inc. filed as Exhibit
3.2 of Small Business Issuer's Form 10 is incorporated herein by
reference as of May 19, 1989.
3.4 Bylaws of the Company as currently in effect, filed as Exhibit
3.2 of Small Business Issuer's Form 10-K for the quarter ended
June 30, 1993, is incorporated herein by reference.
4.1 1993 Debenture Purchase Agreement between Wismer*Martin, Inc.
and Glen and Judy Martin. Filed August 2, 1995.
4.2 1993 Debenture Purchase Agreement between Wismer*Martin, Inc.
and Gertrude L. Holden. Filed August 2, 1995.
4.3 1993 Debenture Purchase Agreement between Wismer*Martin, Inc.
and MSC Services Corporation. Filed August 2, 1995.
4.4 1993 Debenture Purchase Agreement between Wismer*Martin, Inc.
and Specialists Associates Profit-Sharing Trusts (Segregated
Account - William Knapp, M.D.). Filed August 2, 1995.
4.5 1993 Debenture Purchase Agreement between Wismer*Martin, Inc.
and Thomas E. Holden. Filed August 2, 1995.
4.6 1993 Debenture Purchase Agreement between Wismer*Martin, Inc.
and Harry Holden. Filed August 2, 1995.
4.7 Convertible Subordinated Debenture isssued by Wismer*Martin, Inc.
to Maureen Theresa Holden, due August 31, 1998.
4.8 1994 Stock and Stock Option Purchase Agreement between Ronald L.
Holden, The Independent Investment Company, PLC, John Perez and
Mary B. Perez, Doug Willford and Jennifer B. Willford, Susan
Orchanian, Mike Barnes and
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
Melinda Barnes, Bob Heckmann, Carolyne J. Walton and Integrated
Health Systems, Inc., filed as Exhibit 2 to Small Business
Issuer's Form 8-K dated as of February 10, 1994, is incorporated
herein by reference.
4.9 1994 Specimen Convertible Subordinated Debenture, filed as
EXHIBIT 2 to Small Business Issuer's FORM 8-K, dated February
10, 1994, is incorporated herein by reference.
5.1 Opinion of Paine, Hamblen, Coffin, Brooke & Miller. Filed
June 12, 1995.
10.1 Master Services Agreement, License Agreement and Software
Support and Update Agreement between Wismer*Martin, Inc. and
Blue Cross of Washington and Alaska.
10.2 Debenture Purchase Agreements (contained in Exhibits 4.1, 4.2,
4.3, 4.4, 4.5, and 4.6.). Filed August 2, 1995.
10.3 1994 Stock and Stock Option Purchase Agreement (contained in
Exhibit 4.8).
10.4 Specimen Non-Qualified Stock Option Plan of Small Business
Issuer, filed as Exhibit 10.10 of Small Business Issuer's Form
10-K for the quarter ended June 30, 1993, is incorporated herein
by reference.
11.1 Statement re: Computation of earnings per share (contained in
Accounting Policies Statement footnote on page F-10 hereto).
Filed June 12, 1995
16.1 Letter on changes in certifying accountant filed as the sole
Exhibit to Small Business Issuer's Form 8-K dated as of April
12, 1995 is incorporated herein by reference.
21.1 Subsidiaries of Small Business Issuer. Filed June 12, 1995
23.1 Consent of Counsel. Filed August 2, 1995.
23.1A Consent of Experts.
24.1 Power of Attorney. Filed June 12 1995
27.1 Financial Data Schedule. Filed June 12, 1995
------------------
ITEM 28. UNDERTAKINGS
The Company hereby undertakes as follows:
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Company will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Spokane, State of Washington, on the 12th day of
August, 1995.
WISMER*MARTIN, INC.
By: /s/
-------------------------------------------------
Ronald L. Holden
Chairman of the Board and Chief Executive Officer
Small Business Issuer
By Power of Attorney
SIGNATURE TITLE DATE
--------- ----- ----
/s/
------------------------ Chairman of the board, August 12, 1995
Ronald L. Holden Chief Executive Officer
by Power of Attorney and Director (Principal
Executive Officer)
/s/
------------------------ President and Director August 12, 1995
John F. Perez
by Power of Attorney
/s/
------------------------ Executive Vice President August 12, 1995
Douglas A. Willford and Chief Financial
Officer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/
------------------------ Director August 12, 1995
Glen E. Martin
by Power of Attorney
/s/
------------------------ Director August 12, 1995
Clarence H. Barnes, Ph.D.
by Power of Attorney
/s/
------------------------ Director August 12, 1995
Larry R. Eidemiller, M.D.
by Power of Attorney
/s/
------------------------ Director August 12, 1995
William D. Engel
by Power of Attorney
II-6
<PAGE>
LICENSE AGREEMENT
This Agreement made as of January 25, 1994, is made and entered into by and
between Wismer*Martin, a Washington for profit corporation ("W*M") and Blue
Cross of Washington and Alaska and its Affiliates, ("BCWA"), a Washington
nonprofit corporation. BCWA intends to use the products of W*M to facilitate the
BCWA and HealthPlus goal of creating a broad geographic network of providers
under an Alaska fee for service and a Washington managed care environment, with
significant productivity, service level improvements and cost reductions in
administrative and clinical expense. Certain terms used in this Agreement are
specially defined in Section 7. In consideration of the promises contained
herein and other good and valuable consideration, W*M and BCWA agree as follows:
SECTION 1 SOFTWARE LICENSE
1.1 SOFTWARE DESCRIPTION
The Software licensed by this Agreement includes all present and future
versions of SM*RT Hub, SM*RT Link and SM*RT Practice Software modules and all
components and computer programs for those named systems as more particularly
identified in Section 7
1.2 License
W*M hereby grants for the prepaid fee described below, to BCWA and its
Affiliates, an exclusive (except as otherwise provided in this Agreement),
royalty free, multi-site perpetual license for the above described Software to
do the following in perpetuity:
(a) use the Software stated in Section 1.1 on an unlimited number of
computers;
(b) sublicense participating and non-participating providers, hospitals,
payors, allied health professionals and other Third Parties in the entire State
of Alaska to use the Software on an unlimited number of those computers, and
have the right to duplicate, install, train and support the Software for end
users;
(c) sublicense participating HealthPlus and BCWA Medicaid providers,
hospitals, allied health professionals and others directly involved with patient
treatment or services in the entire State of Washington, except for the MSC 14
county area, to use the Software on an unlimited number of those computers, and
have the right to duplicate, install, train and support the Software for end
users;
(d) make and keep a reasonable number of copies of the Software;
<PAGE>
(e) use the Software for providing Professional Services by both
participating and non-participating providers and other Third Parties in the
entire state of Alaska; and for supporting HealthPlus, other BCWA Affiliate's
business and Medicaid business activities in the entire state of Washington,
except for the MSC 14 county area;
(f) make, use and distribute copies of the Software in connection with the
exercise of the rights granted under (a), (b), (c), (d), (e) (f) (g) or (h)and
that BCWA may distribute this Software for a fee or not, as BCWA elects. During
the term of this Agreement, W*M cannot sell or license the Software modules
stated in Section I.1, or its network planning, affiliation and implementation
services to anyone for use in the specified geographic areas covered under this
Agreement prior to extending to BCWA the first right of refusal, as defined
below, and;
(g) the option to further license this Software for Oregon and/or Idaho
under these terms and conditions for a fee to be negotiated at the time of the
exercise of this option;
(h) run Proprietary Data, Transactions and Software and Third Party
Software through W*M Software.
1.3 Delivery
Upon the Delivery Date, W*M shall deliver to BCWA, to specified delivery
sites in the states of Alaska and Washington, sufficient copies of the system
manuals and technical and user documentation necessary for a complete
description of the SM*RT Hub, SM*RT Link and SM*RT Practice Software modules and
all components and computer programs for the named systems. Such manuals and
documentation will, when used as a reference, provide sufficient instruction for
BCWA to operate the Software and any updates to the Software. W*M will deliver a
sufficient number of executable versions of the Software to BCWA in machine
readable format (either magnetic tape, diskette, or disk cartridge).
1.4 Performance
The Software shall perform in accordance with and at the level described in
the specifications, representations and documentation provided on the Delivery
Date, and in accordance with Attachment C and Attachment D. All deliverables
will require acceptance and sign-off. Acceptance by BCWA of Software
deliverables does not waive compliance to network performance criteria.
The network shall perform in accordance with the network performance
criteria to be established by BCWA and W*M within ninety (90) days of the
signing of this contract. The network performance criteria will become a
benchmark against which the network
Page 2
<PAGE>
will periodically be measured, and performance of the network will be measured
for acceptability at the end of each phase of the project. Acceptance by BCWA,
as called out in Attachment B, does not waive the performance criteria.
1.5 OTHER SERVICES PROVIDED
1.5.1 RIGHT OF FIRST REFUSAL
W*M grants to BCWA the option of right of first refusal for supplemental
exclusive and unlimited Software license and services for use by BCWA in support
of any and all providers and other parties' activities in the State of
Washington. Upon written notification to BCWA by W*M of a significant and
verifiable expression of interest by a bona fide prospective W*M client in the
State of Washington for W*M proprietary software stated in Section 1.1 and 1.2,
BCWA must notify W*M of its intent to exercise this option within fifteen (15)
business days of verification of the stated interest. If BCWA does not so notify
W*M, W*M will be free to market the license for non-HealthPlus and non-BCWA
Medicaid to that bona fide provider or payor in the State of Washington.
1.5.2 AFFILIATION PLANNING AND SUPPORT
W*M agrees to provide BCWA with provider affiliation program planning and
implementation support which includes Software implementation, user training and
ongoing Software support, as described in Attachment A. W*M agrees to provide an
adequate number of qualified personnel to perform these services and will
designate an Implementation Coordinator to be the primary point of contact for
BCWA during installation, implementation and training. The Implementation
Coordinator will provide consultation on use of the system, assist in diagnosis
of system problems or malfunctions, provide consultation on Software restart
and/or data recovery, and issue corrections, enhancements or revisions to
Software provided under this Agreement. As long as the support agreement with
BCWA is in effect, toll free telephone support must be provided by W*M and the
support response time will equal or better those times represented by W*M in
Attachment C. W*M will keep data on the support times available for review by
BCWA for a rolling six months back from the date of the request for review.
1.5.3 Support and Maintenance
BCWA will purchase support and maintenance for one copy of the Software
used to support the Metro Hub/routing functions. Use of the Software requires
that any and all end users contract with a W*M authorized dealer under a
separate agreement for support of the Software products. The end user shall
protect the Intellectual Property Rights of W*M as per the terms of that
agreement. W*M shall continue to make timely enhancements and upgrades to the
Software to meet the needs of a large, regional network, as long as the support
agreement with BCWA is in effect. W*M's
Page 3
<PAGE>
representations that it will continue to make enhancement and upgrades of the
Software are material to and are relied upon by BCWA and are crucial to BCWA's
decision to license the Software.
As long as the support agreement with BCWA is in effect, toll free
telephone support must be provided by W*M and the support response time will
equal or better those times represented by W*M in Attachment C. W*M will keep
data on the support times available for review by BCWA for a rolling six months
back from the date of the request for review.
1.6 Key Personnel
The following W*M people are identified as key personnel for providing
support to BCWA and the providers who will be using the Software:
Jim McHaney
Dave Belt
Joe Peterson
These key personnel are qualified to perform the services called for in
this Agreement and will not be removed by W*M from support without prior written
consent by BCWA, which approval will not be unreasonably withheld. The failure
by W*M to provide any of these personnel to perform W*M obligations under this
Agreement shall be a material breach of this Agreement by W*M.
1.7 THIRD PARTY SOFTWARE
BCWA's license of or other right to use any Third Party Software will be
derived from a separate agreement between BCWA and the supplier.
1.8 OWNERSHIP
1.8.1 SOFTWARE
W*M reserves all of its right, title and interest in and to the Software
and any and all Intellectual Property Rights associated with the Software.
Except for the license granted under Section 1, no right, title or interest in
or to the Software or any Intellectual Property Right associated with the
Software is transferred to BCWA under this Agreement.
BCWA reserves all its right, title and interest in any of its Proprietary
Data, Transactions and Software and any and all Intellectual Property Rights
associated with the transmission of its Proprietary Data, Transactions and
Software across the network. No
Page 4
<PAGE>
right, title or interest in or to the Proprietary Data, Transactions and
Software or any Intellectual Property Right associated with the Proprietary
Data, Transactions and Software is transferred to W*M under this Agreement.
1.8.2 SOURCE CODE
W*M and BCWA agree to enter into a separate source code agreement within 60
days of signing of the License Agreement.
1.9 COMPENSATION
1.9.1 LICENSE FEE
BCWA shall pay W*M in accordance with the following schedule: The total one
time price for the license in Section 1.2 shall be $1,500,000, payable in two
installments in accordance with Attachment A and sAttachment B. The second
installment of the license fee will be made upon final acceptance and completion
of sign-off of the Software and deliverables, and successful completion of Phase
I and Phase II. In addition, BCWA will pay W*M additional fees totaling
approximately $750,000 for affiliation planning, and implementation support, as
stated in Section 1.5.2 and as referenced at Attachment A
BCWA or the end user will pay Wismer*Martin an estimated amount not to
exceed $540,000 for Sm*rt Link installation, training and support for the
territory defined in 1.2.b and 1.2.c and Sm*rt Practice support for the
territory defined in 1.2.b. Activities will be charged against this account
based on the following estimated schedule per installation (per site):
<TABLE>
<CAPTION>
Sm*artLink Sm*rtPractice
---------- -------------
<S> <C> <C>
Installation and Training $240
First Year Support $180 $1,313
</TABLE>
Robert Blettenberg will provide written approval all proposals under this
account per above schedule.
Wismer*Martin will be paid as the sites are installed.
The one time fee for the expanded license, as stated in Section l.S. 1, by which
W*M grants BCWA the first right of refusal for the exclusive unlimited licensing
of the designated W*M proprietary Software modules and services, is $1,000,000.
BCWA may later elect to license SM*RT Link and Hub only for $700,000. SM*RT
Practice may be licensed for $300,000. W*M shall prepare separate invoices for
amounts due from the Affiliates for payment of amounts due pursuant to this
Section. Such invoices shall be determined by both Parties at the time W*M shall
make a claim for payment.
Page 5
<PAGE>
1.9.2 MANNER OF PAYMENT
BCWA shall pay W*M the amount specified in this Agreement without
deduction, withholding or offset, on or before the date the amount is due, via
wire transfer to W*M account 67420000, ABA# 125000024, Institution Seafirst
Bank, West 601 Riverside, Spokane, WA 99210 or such other location as W*M may
specify.
1.10 Taxes
BCWA's liability under this section shall be limited to sales, use, excise
or any other tax (other than taxes imposed upon W*M's net or gross income) as
are effective on the date of execution of this Agreement.
1.11 SCHEDULES OF DELIVERABLES BY W*M
BCWA and W*M recognize that Attachment A, the Wismer*Martin Project
Work, Plan Deliverable~ and Fee Schedule, has not been fully defined and
scheduled, and will prepare within 60 days a final definition of the
Deliverables and Deliverables schedule C~\ which will include, but not be
limited to those tasks and end products described in 1 n ~ Attachments A-1 and
A-2. This new definition of the Deliverables and schedule of the Deliverables
will constitute the Deliverables and be subject to the Acceptance Criteria
process in Attachment B. Upon acceptance of the work plan, BCWA will reconcile
and pay W*M for amounts earned to date. The schedule of Affiliate payments will
be included as part of the work plan and paid over Phases I through III.
SECTION 2. TERMINATION
2.1 TERMINATION BY W*M
W*M may terminate the licenses granted hereunder only upon the occurrence
of any of the following:
(a) BCWA shall fail to cure, within 30 days after specific written
notice from W*M, any breach or default under this Agreement;
(b) the making by BCWA of any general assignment or general
arrangement for the benefit of creditors;
(c) the filing by or against BCWA of a petition to have BCWA adjudged
bankrupt or of a petition for reorganization or arrangement under any law
relating to bankruptcy (unless in the case of a petition filed against BCWA, the
same is dismissed within sixty (60) days);
Page 6
<PAGE>
(d) the appointment of a trustee or receiver to take possession of
substantially all BCWA's assets or of BCWA's interest in this Agreement if
possession is not restored to BCWA within thirty (30) days thereafter, or;
(e) the attachment, execution or other judicial seizure of
substantially all BCWA's assets or of BCWA's interest in this Agreement, if such
seizure is not discharged within thirty (30) days thereafter.
2.2 EFFECT OF TERMINATION
Except in the event that W*M shall terminate BCWA for failure to make the
initial Phase I license payment pursuant to this Agreement, no termination by
W*M of this Agreement shall have the effect of terminating or otherwise
interfering with the rights of persons to whom BCWA has properly sublicensed the
Software to continue to use the Software pursuant to their sublicense
agreements.
In the event that BCWA shall have failed to make the initial Phase I
license payment pursuant to this Agreement, then the licenses granted hereunder
shall immediately terminate and BCWA shall cease to use the Software. In such
event BCWA shall, within twenty (20) days after the termination, return to W*M
all copies of the Software or provide written certification under oath by an
authorized corporate officer that BCWA has destroyed the Software and any copies
of the Software in its possession or control.
In the event of a breach by BCWA other than a failure to make the initial
Phase 1 license payment, BCWA shall have no further authority to enter new
sublicenses or otherwise undertake new activity pursuant to the rights granted
under Section 1. BCWA shall, however, have the right to carry on with such
exercise of rights pursuant to Section 1 as may be necessary to comply with
sublicense and related agreements in existence at the time of termination.
2.3 W*M'S OTHER REMEDIES PRESERVED
Except as specified in this Section 2, W*M shall be entitled to pursue any
remedies to which it is legally entitled by virtue of a breach by BCWA, except
as limited by Paragraph 6.6 (Choice of Law) and Paragraph 6 7 (Mediation).
2.4 TERMINATION BY BCWA
BCWA may terminate this Agreement upon the occurrence of any of the
following:
(a) W*M shall fail to cure, within 30 days after specific written
notice from BCWA, any breach or default under this Agreement, including failure
of acceptance as stated at Attachment B;
Page 7
<PAGE>
(b) the making by W*M of any general assignment or general
arrangement for the benefit of creditors;
(c) the filing by or against W*M of a petition to have W*M adjudged
bankrupt or of a petition for reorganization or arrangement under any law
relating to bankruptcy (unless in the case of a petition filed against W*M, the
same is dismissed within sixty (60) days);
(d) the appointment of a trustee or receiver to take possession of
substantially all W*M's assets or of W*M interest in this Agreement if
possession is not restored to W*M within thirty (30) days thereafter; or
(e) the attachment, execution or other judicial seizure of
substantially all W*M assets or of W*M's interest in this Agreement, if such
seizure is not discharged within thirty (30) days thereafter.
2.5 EFFECT OF TERMINATION BY BCWA
In the event that BCWA shall terminate this Agreement for cause, the
license granted to BCWA hereunder shall nevertheless continue in force in
perpetuity except that BCWA shall have no right to grant sublicenses of the
Software to Persons or entities who have not received a sublicense of the
Software prior to termination of this Agreement
2.6 BCWA's Other Remedies Presented
Except as specified in the Section 2, BCWA shall be entitled to pursue any
remedies to which it is legally entitled by virtue of a breach by W*M, except as
limited by Paragraph 6.6 (Choice of Law) and Paragraph 6.7 (Mediation).
SECTION 3. WARRANTY AND REMEDIES
3.1 WARRANTY
W*M warrants that it has full power and authority to grant the rights
granted by this Agreement to BCWA without the consent of any other Person; and
that THE USE by BCWA of the products and services called for and granted under
this Agreement will not in any way constitute an infringement or other violation
of any copyright, trade secret, trademark patent, invention, proprietary
information, non-disclosure or other rights of any Third Party.
W*M warrants that the Software will function in accordance with the
specifications, representations and documentation provided at the Delivery Date,
and in accordance with Attachment C and Attachment D. In the event of a conflict
between Attachment C and/or D and the documentation, the Attachments control.
W*M agrees to remedy any Defect in W*M Software reported in writing by BCWA W*M
further agrees
Page 8
<PAGE>
to provide BCWA with all updates or amendments to the W*M Software, which W*M
makes generally available to other customers, as long as the support agreement
with BCWA is in effect. The warranty does not apply to any noncompliance caused
by use of goods, services or other items furnished by anyone other than W*M or
use of Software on hardware other than the hardware for which the Software were
designed
3.2 Remedies
Upon written notice by BCWA to W*M of any Defect in the Software, W*M shall
correct that Defect within 30 days. Failure to correct shall be deemed a breach
of contract.
SECTION 4. PROTECTION OR INTELLECTUAL PROPERTY RIGHTS
4.1 PROTECTION OF SOFTWARE
BCWA shall take reasonable effort to prevent unauthorized use of the
Software and to preserve and protect W*M's Intellectual Property Rights therein.
BCWA shall not transfer, disclose or otherwise make available any of the
Software to any Person other than to BCWA's employees, Affiliates or other Third
Parties who need access to the same for the purposes specified in Section 1. In
addition BCWA shall keep current, complete and accurate records of the location
of each copy of the Software (including, but not limited to, any modified or
merged versions) for all copies sublicensed by BCWA or its Affiliates. BCWA
shall permit W*M, at W*M option, to affix a logo, "Software Licensed By
Wismer*Martin, Inc., Mead, Washington", or similar wording on each copy of the
Software operated or utilized by BCWA or its Affiliates.
4.2 CONFIDENTIAL INFORMATION
Each Party shall (a) use the other Party's Confidential Information solely
for the purposes of performing this Agreement; (b) disclose the other Party's
Confidential Information only to those of its employees or Affiliates that need
to know the same for the purposes of performing this Agreement; and (c) inform
its employees with access to the other Party's Confidential Information that
such Confidential Information is confidential and proprietary to the other Party
and is subject to this Agreement. Each Party shall preserve and protect the
other Party's Confidential Information. Without limiting the generality of the
foregoing, each Party shall keep the other Party's Confidential Information
confidential, under access and use restrictions, at least as stringent as those
applied by such Party to its own information of similar value.
SECTION 5. INDEMNITY
W*M shall save, defend and indemnify and hold harmless, including but not
limited to all reasonable expense and costs of investigation, litigation, and
all reasonable attorney fees, BCWA against any Third Party claim arising out of
the infringement by the Software
Page 9
<PAGE>
of any Intellectual Property Right of any Third Party under the laws of the
United States arising out of or in connection with the exercise of the license
set forth in Section 1, the use of the Software
SECTION 6. MISCELLANEOUS
6.1 COMPLIANCE WITH LAWS
In performing this Agreement and exercising its rights under this
Agreement, each party shall comply with all applicable laws, regulations, rules,
orders and other requirements, now or hereafter in effect, of any governmental
authorities having jurisdiction over Software performing these or similar
functions. W*M agrees to provide modifications and upgrades to the Software as
necessary to meet all applicable laws, regulations, rules, orders and other
requirements of any governmental authorities having jurisdiction over Software
performing these or similar functions. W*M commits to meeting all federal and
state requirements regarding confidentiality of medical information.
6.2 No Waiver
The failure of either Party to insist upon or enforce strict performance by
the other Party of any provision of this Agreement or to exercise any right
under this Agreement shall not be construed as a waiver or relinquishment to any
extent of the Party's right to assert or rely upon any provision of right of
this Agreement in that or any other instance; rather, the provision or right
shall be and remain in full force and effect.
BCWA's acceptance of documentation does not amend this Agreement or
otherwise alter W*M obligation to deliver Software that functions in accordance
with the specifications as set out in Section 3.1 and Attachments C and D.
6.3 Notices
Any notice, request, approval or other communication under this Agreement
will be deemed given if given in writing and delivered in person, by facsimile,
or by first-class US Mail, properly addressed with the required postage paid, to
the intended recipient at the recipient's address specified below:
Wismer*Martin:
W*M
President and C.E.O.
N. 12828 Newport Hwy.
Mead, WA 99021 -9988
Page 10
<PAGE>
Blue Cross of Washington and Alaska:
BCWA
President and C.E.O.
7001 220th St. SW
Mountlake Terrace, WA 9~043-2124
6.4 No Assignment
BCWA may assign this Agreement or its rights thereto to any of its
subsidiaries, Affiliates, joint ventures or other operation in which BCWA has a
50% or greater interest, whether currently in existence or comes into existence
at any time in the future. No other assignment is permitted. Neither Party,
other than set forth herein, shall (by contract, operation of law or otherwise)
assign this Agreement or any right or interest in this Agreement without the
prior written consent of the other Party, which consent will not be unreasonably
withheld. Any assignment not consented to by the other Party will be void. W*M
shall not pledge or encumber all or any part of the Software. Subject to the
foregoing restriction on assignment, this Agreement is fully binding upon,
inures to the benefit of and is enforceable by the successors, assigns and legal
representatives of the Parties.
6.5 Entire Agreement
The Parties agree that the Attachments are incorporated as part of this
Agreement and that BCWA relied in its entirety upon Attachment C and Attachment
D, that each such representation is material to BCWA's decision to enter into
this Agreement, that this Agreement sets forth the entire agreement of the
Parties, and supersedes any and all prior agreements (including, without
limitation, any Letter of Commitment and excluding any non-disclosure
agreements) related to the subject matter hereof. No amendment or modification
of this Agreement shall be valid unless set forth in a written instrument signed
by both Parties.
6.6 CHOICE OF LAW
This Agreement shall be interpreted, construed and enforced in accordance
with, and its performance shall be governed by, the laws of the State of
Washington, without reference to its conflict of law principles, except to the
extent preempted by the laws of the State of Washington.
6.7 MEDIATION AND DISPUTE RESOLUTION
Any dispute arising out of this Agreement which remains unresolved after
administrative procedures and voluntary mediation shall be submitted by either
party to mediation and mandatory dispute resolution pursuant to the procedure
set forth by the American Arbitration Association in the city of Seattle,
Washington under the commercial
Page 11
<PAGE>
rules then in effect for that Association. Each Party shall appoint one
arbitrator who shall have knowledge of and at least ten year's experience in
large-scale data processing technology and management. The two appointed
arbitrators shall select a third arbitrator who shall be an attorney with
experience in computer software licensing law. If a Party has not appointed its
arbitrator within thirty (30) days of receipt of notice of Intent to Arbitrate,
the Association shall make such appointment within thirty (30) days of such
failure. The award rendered by the arbitrators in favor of the prevailing party
shall include costs of arbitration, reasonable attorney's fees, and reasonable
court costs for expert and other witnesses, and judgment of such award may be
entered in the Superior Court of the State of Washington for King County;
provided however, that nothing is this Agreement shall be deemed as preventing
either party from seeking injunctive relief (or any other provisional remedy
from the courts) as necessary to protect either Party's name, proprietary
information, trade secrets, know-how or any other proprietary rights. All travel
costs associated with the proceeding shall be borne by the Party incurring the
cost.
SECTION 7. DEFINITIONS
"Affiliate" of a Person means a person that directly or indirectly
controls, is controlled by or is in common control with such person. For the
purposes of this definition, "control" of a Person and, with correlative
meanings, the Terms "controlled by" and "control with" means the possession of
the power to direct the management and policies of a Person, whether through the
ownership of voting stock of such Person, by contract or otherwise. As of the
date of execution of this Agreement. Affiliates of BCWA include: HealthPlus,
Washington-Alaska Group Services, Inc.; States West Life Insurance Company;
NCAS-Northwest, Inc.; Group Services, Inc.; and Service First Intermediary,
Inc., and any future corporations or joint VENTURES.
"ATTACHMENT" means the following, which are incorporated as part of this
Agreement: Attachment A is the Wismer*Martin Project Work Plan Deliverables and
Fee Schedule; Attachment A-l is a version of that work plan and Attachment A-2
is also another version of that work plan, Attachment B is the Acceptance
Criteria; Attachment C is the Response to Questionnaire; Attachment D is Other
Marketing Materials.
"CONFIDENTIAL INFORMATION" means any information identified as
confidential. Notwithstanding the foregoing, the term "Confidential Information"
shall not include any information that (a) was known by the RECEIVING PARTY
prior to receiving the same directly or indirectly from or in connection with
the disclosing Party, and without any restriction as to use or disclosure, (b)
is independently developed or acquired by the receiving Party without use of the
Confidential Information, or (c) is or becomes a part of the public domain
through no fault or action of the receiving Party.
"DEFECT" means that the Software does not perform in accordance with the
specifications, representations and documentation, including Attachments C and
D.
Page 12
<PAGE>
"DELIVERY DATE" means a mutually agreed upon date that is subsequent to
W*M's receipt of the payment specified in Section 1.8.
"DELIVERABLES" ALL work performed, all Software, all services provided, all
components of the License Agreement are considered deliverables. All
deliverables will go through an acceptance process and require sign-offby BCWA
in order to be deemed accepted.
"INTELLECTUAL PROPERTY RIGHT" means any patent, copyright, trade secret or
other proprietary right.
"PERSON" means any individual, partnership, corporation, trust, association
or other entity.
"PROFESSIONAL SERVICES" means any or all of a variety of services related
to the installation, customization, training, maintenance or use of all or any
portion of the Software.
"PROPRIETARY DATA, TRANSACTIONS AND SOFTWARE" means any and all data,
transactions or software belonging to or managed by BCWA, any and all data,
transactions and software containing BCWA proprietary data, transactions and
software used by BCWA proprietary software or third party software.
"SOFTWARE" means the Software modules or any computer program or system
that is based on, incorporates, includes or uses the Software modules. The
Software is the executable version of Software products designed and developed
by W*M along with any physical embodiments of such Software products and related
documentation for all present and future versions of what is currently known as
SM*RT Hub, SM*RT Link and SM*RT Practice (which includes Autopost and Electronic
Claims Submission) Software modules and all components and computer programs for
those named systems.
"THIRD PARTY" means a Person other than a Party.
"THIRD PARTY SOFTWARE" means the executable versions of Software products
designed and developed by a Third Party, purchased and resold by the Third Party
supplier either directly from supplier or through W*M, along with any physical
embodiments of such Software products and related documentation.
Page 13
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first written above.
W*M:
WISMER*MARTIN
By S.T. Hatch
--------------------------------------
President and C.E.O.
N. 12828 Newport Hwy.
Mead, WA 99021-9988
BCWA:
BLUE CROSS OF WASHINGTON AND ALASKA
By Betty Woods
--------------------------------------
President and C.E.O.
7001 220th St., SW
Mountlake Terrace, WA 98043-2124
Page 14
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
PROJECT WORK PLAN, TO INCLUDE IMPLEMENTATION
SCHEDULE
-------------------------------------------------------------------------------
Initial Affiliation Plan 11/18/93 04/15/94
Description: Plan for signing of selected
providers in Alaska and HealthPlus providers.
Includes resource requirements including BC
and W*M personnel, sales goals and benchmarks.
-------------------------------------------------------------------------------
Initial Marketing Plan 11/18/93 02/08/94
Description: Plan for marketing of Alaska (Complete)
Network and implementation of Washington
Network. Inclueds key strategies, objectives,
critical to success issues. Budgets, timelines
and marketing communications programs are
included.
-------------------------------------------------------------------------------
Installation, Support Plan 01/05/94 04/15/94
Description: Includes project strategy for
Washington and Alaska by Phase. Project
schedule includes task descriptions, Gantt and
PERT charts. Complete project procedures and
policies pertaining to accounting interface as
well as installation and training coordination
to BCWA.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ACCOUNTING POLICIES AND PROCEDURES
FOR THE WORK PLAN
-------------------------------------------------------------------------------
Policies 01/05/94 3/30/94
Description: Invoiceing, product delivery,
scheduling udates, change orders, change
request impact assessment and change order,
issue resolution.
-------------------------------------------------------------------------------
04/07/94
1
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERALES START DATE FINISH DATE
-------------------------------------------------------------------------------
Equipment for Providers 11/18/93 03/15/94
Description: Standard definition and (Complete)
pricing. Minimum and recommended
configurations.
-------------------------------------------------------------------------------
Installation Costs 11/18/93 03/15/94
Description: Standard pricing matrix (Complete)
for all Link and Smart Pratice
installation services
-------------------------------------------------------------------------------
Link Support Costs 11/18/93 03/15/93
Description: Standard pricing for (Complete)
Link annual support
-------------------------------------------------------------------------------
Inventory of Installed Base 01/05/94 04/08/94
Description: Complete inventory
of all equipment installed at a provider
site that has been purchased by BCWA.
This will be delivered after each
installation in the form of product
description and serial number.
-------------------------------------------------------------------------------
HUB INSTALATION
-------------------------------------------------------------------------------
Washington Master (Complete)
BCWA
-------------------------------------------------------------------------------
Alaska (Complete)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
DEMO SITES ON LINK
Description: Affiliate demonstratin sites
in two networks. Obtain key specialist referral
sites from each demo site and complete circle
of most important referral patterns. Install,
train and support.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATACHMENT A
PHASE I, Page 3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELVERALES START DATE FINISH DATE
-------------------------------------------------------------------------------
HealthPlus
-------------------------------------------------------------------------------
5 Sites 12/93 06/30/94
-------------------------------------------------------------------------------
Referral Sites (58) 02/94 06/30/94
-------------------------------------------------------------------------------
Alaska 01/94 06/30/94
-------------------------------------------------------------------------------
Anchorage 4
-------------------------------------------------------------------------------
Fairbanks 2
-------------------------------------------------------------------------------
Juneau 1
-------------------------------------------------------------------------------
Referal Sites (35)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PARTICIPATION IN APPROVAL OF NETWORK 01/25/94 04/25/94
PERFORMANCE CRITERIA (Reliability,
Availability, Serviceability, Speed
and Cost Effectivenss)
-------------------------------------------------------------------------------
APPROVAL POLICIES AND PROCEDURES
AGREEMENT
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Network Change and/or Administration 05/01/94
Procedures
Description: Procedures and standards
will be developed for related items
below. These procedures will include
provisions for coordination with and
between the EWHIN network.
*Help Center *Change Control
*Directory Admin *Security
*Coordination *Server Upgrades
(Note: Item 4I for internal tracking)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
3
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 4
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NEWWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Participation in Software, Q 2, 1994
Network and Administration User
Groups Description: Technology
and Administration representatives
will be selected for BCWA/W*M
planning teams. The groups will
act as a steering committee for
technology change and procedure change
for all users of the network.
(Note: Item 4H for internal tracking)
-------------------------------------------------------------------------------
ACCEPTANCE OF TECHNOLOGY
DELIVERABLE IN PROCESS
-------------------------------------------------------------------------------
Frame/Relay Network 12/08/93 02/94
Description: Certification of (Complete)
this network protocol based on
published WAN standards. The service
should be installed and provide hub
service over a local exchange company's
network. Results to be provided in letter
form.
(Note: This is item 4A for internal tracking)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Certification of 32 port capability x.25 12/08/93 04/30/94
(Note: This is itme 4K for internal tracking)
-------------------------------------------------------------------------------
IP TCP/IP Addressing for the Network 12/08/93 02/94
(Note: 4L for internal tracking) (Complete)
-------------------------------------------------------------------------------
Wismer*Martin Support of Full Test of all 12/08/93 03/31/94
Products and Capabilities
(Practice, Link, Hub)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
4
<PAGE>
WISMER*MARTIN PROJET WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 5
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTH CARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Certification of X.25 Packet 12/08/93 04/05/94
Network Description: Certification of (Complete-
network protocaol. Laboratory testing should recertified)
include X.25 being transmitted through a local
exchange company's services. Results to be
provided in letter form.
(Note: This is itme 4B for internal tracking)
-------------------------------------------------------------------------------
LAN Support for SM*RT Link 04/08/94
Description: Provide ability for Link access
to operate network on a NewWare LAN.
Certification results to be provided in letter
form.
(Note: Item 4C for internal tracking)
-------------------------------------------------------------------------------
Link/Man Management Software 04/08/94
Description: Phase I Adding, Deleting or Phase I
Updating Users: LINK.INI; Router Table
Editing; Welcome Banner Editing/Saving. 06/30/94
Phase II Global table updating. Fom the LinkMan Pahse II
application modify exisitin tables and havae the
updates propagated to all other Hubls. Link/Man
should propagate and update any new users and/or
router information to the necessary HUB's
automatically. It should also propagate and update
any changes or deletions of users and/or router
information automatically.
(Note: Item 4N for internal tracking)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
5
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 6
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTH CARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Report on Certification Results of Netframe 03/31/94
Platform Description: Netframe could be the (Complete)
platform of choice (cost savings, redundancy,
mirrored database and viable back-up option.)
Testing of SM*RT Link on platform require for
existing BCWA server base and all new client
server business applications. Certification
results to be provided in letter form.
(Note: Item 4D)
-------------------------------------------------------------------------------
Wismer*Martin support of BCWA Testing of 06/94
Compaq Platform Description: Compaq
would be platform of choice should Netframe
not complete certification. W*M will provide
support of BCWA testing process.
(Note: Item 4E)
-------------------------------------------------------------------------------
Deliver Technical and User Documentation 02/15/94
-------------------------------------------------------------------------------
BCWA Training on Link, HUB, and Practice
Description: Provide training for various 03/31/94
BCWA staff and documentation on all products BCWA date
and services. Provide training schedule 04/01/940 -
and operational documentation for Hubs and changed to
NLM. (Note: Item 4G) fall into Q1
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
6
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 7
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTH CARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
SM*RT LINK MESSAGE SET DEVELOPMENT
-------------------------------------------------------------------------------
1A Claims Status Description: Q 2 1994
Message set to query status of Step 1
submitted claims and provide
response. Could be lin itme level.
Step 1 specification planning meeting No later than
needed to include W*M, BCWA and MSC. Q 3, 1994
Step 2 dependent upon outcome of Step 2
planning meeting
-------------------------------------------------------------------------------
1B Eligibility Done
-------------------------------------------------------------------------------
1F Employer Electronic Enrollment 03/94
Description: HL7 specification to
support transport through WHIN so
BCWA can create message and route
messages consistent with the rest of
the network. To support Group Insight
-------------------------------------------------------------------------------
3A Results Reporting Description: 03/94 **
Message set for sending lab results
to ordering physician.
-------------------------------------------------------------------------------
3B Patient Referrals Description: 03/94**
Message set for sending demographics (Complete)
and unsurance information to referred
to physician.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
** Subject to change as additional participants cone on-line and Advisory Boards
are established to assist in priortization of message set development
priorities.
7
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 8
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
MARKETING
-------------------------------------------------------------------------------
Corporate Identiy 01/18/94 02/18/94
Description: Create (Completer)
distinct identiy for networks.
Conforms with both BCWA and national
association guidelines. Includes
approprate useage guidelines.
-------------------------------------------------------------------------------
Provider Communications Program 02/08/94 03/07/94
Concept Through Copy Description: (Complete)
Program to introduce new networks to
providers. Includes concept of
marketing communication materials and
copy to be reviewed, edited and
approved for publication.
-------------------------------------------------------------------------------
Affiiation Marketing Program, Concept 02/08/94 03/07/94
Through Copy Description: Sales Lead (Complete)
Generation Program, designed to
accelerate sales process, by pre
qualifying prospect and by providing
decision amking sales material
-------------------------------------------------------------------------------
Develop Provider Database 11/18/93 03/07/94
Description: Marketing database of (Complete)
targeted providers in Alaska and
HealthPlus providers in Washington.
Used for marketing and tracking.
-------------------------------------------------------------------------------
Establish Initial Protocol for 01/25/94 04/15/94
Exceptions To Product Intro Timeline
Description: Written method of
handling new opportunities which
don't conform to existing product
introduction timelines
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
8
<PAGE>
WISMER*MARTIN WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 9
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Plan and Install Telemagic Tracking 01/18/94 04/10/94
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PHASE II AFFILIATION PLAN HEALTHPLUS 01/18/94 04/15/94
(17) MEDICAID (6) ALASKA (3 CITY)
DESCRIPTION: Plan for affiliation of
17 HeathPlus and 6 Medicaid clinics
and referral sites (105) total sites)
and achieving 30 percent critical
mass (51) total sites) in three city
urban areas in Alaska. Includes
resources requirements, sales goals
and benchmarks.
-------------------------------------------------------------------------------
PARTICIPATION IN TESTING OF NETWORK 05/30/94 06/30/94
TO ENSURE PERFORMANCE CRITERIA ARE MET
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
9
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE II
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
INSTALLATION
Description: Complete installation
and training of Phase II sites
-------------------------------------------------------------------------------
Health Plus and Medicaid Replace/Enhance 04/01/94 09/30/94
23 Terminal Sites
(105 Links)
-------------------------------------------------------------------------------
Alaska Critical Mass in 3 Cities (51 Links) 04/01/94 11/15/94
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SM*RT LINK MESSAGE SET DEVELOPMENT
-------------------------------------------------------------------------------
1E Electronic Notes 06/94
Description: Specification complete - to be
provided by BCWA. Compliant with HL7 v2.2.
-------------------------------------------------------------------------------
2A Eligibility Message Set to Include 06/94
the Data in the ASC X12 Standards for
Eligibility Inquiry #270 and #271 for
Fielded Data (Note: Dependent upon
stability of ASC X12N release)
-------------------------------------------------------------------------------
2B On-line Message Priority 06/94
Description: Provides the capability
to identify, at the Hub level,
"immediate mode" messages and assign
them to a priority queue so they can
be processed ahead of "deferred mode"
messages
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
10
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE II, Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
3C Appointment Request/Acknowledgment 09/94**
Description: Intended to provide
ability for referring physician to
request appointment and referred to
physician to acknowledge and provide
appointment date/time.
(Dependent on HL7 specification)
-------------------------------------------------------------------------------
3F Pharmacy Order Entry Description: 09/94**
Intended to provide physicians the
ability to electronically order
prescriptions from participating
pharmacy entities. Dependent upon
pharmacy participation and
integration capabilities with
pharmacy system to SM*RT Link.
(Dependent on HL7 specification, also)
-------------------------------------------------------------------------------
3G Supplies Order Entry Description: 09/94**
Intended to provide participating
entities an electronic ordering
capability to participating vendors.
Initial thought was forms and
supplies.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
MARKETING
-------------------------------------------------------------------------------
Marketing Plan Update Quarterly 07/01/94 06/15/95
Meeting Description: Formal
quarterly meeting to assess marketing
goals and programs, establish
benchmarks and plan future activity.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
** Subject to change as additional participants come on-line and Advisory
Boards are established to assist in prioritization of message set development
priorities.
11
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE II, Page 3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
AFFILIATION PLAN PHASE III
Description: Plan for affiliation of remaining
targeted providers in two networks (total 990
sites in Washington and 170 sites in Alaska).
Includes resource requirements, sales goals and
benchmarks. Also begins planning process for expansion
of network, if appropriate.
-------------------------------------------------------------------------------
HealthPlus - Remainder Network 06/01/94 09/15/94
- Clarify and confirm remaining
scope of implementation
-------------------------------------------------------------------------------
Alaska - Rural Areas 06/01/94 09/15/94
- Clarify and confirm remaining
scope of implementation
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PARTICIPATION I TESTING OF NETWORK TO 08/30/94 09/30/94
ENSURE PERFORMANCE CRITERIA ARE MET
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
12
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE III
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
COMPLETE NETWORK EXPANSION
-------------------------------------------------------------------------------
Support New HealthPlus Clinics and 10/01/94 06/30/95
Providers Description: Affiliate,
install, train and support new
HealthPlus clinics as they sign
contracts
-------------------------------------------------------------------------------
Installations, Training Complete 10/01/94 06/30/95
Description: Complete installation
and training of 990 sites for
HealthPlus and 170 sites for Alaska
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
AFFILIATION TRANSITION PLAN 08/30/94 09/30/94
HEALTHPLUS 990 SITES
ALASKA 170 SITES
Description: Develop affiliation
program transition plan to BCWA
leadership.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SM*RT LINK MESSAGE SET DEVELOPMENT
-------------------------------------------------------------------------------
1C Electronic Claims X.12 837 Set 12/94
Description: Capability exist now Step 1
through SM*RT Practice; may wish to
use different transport mechanism for Q2 1995
ECC. Step 1 -specification planning Step 2
meeting needed to include, at a
minimum, W*M, BCWA and MSC. Step 2
-Provide Different Transport
Mechanism (Dependent upon outcome of
planning meeting)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
13
<PAGE>
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE III, Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
1D Electronic Remittance 12/94
Description: Capability exist Step 1
now through SM*RT Practice; may
wish to use different transport Q2 1995
mechanism for ERA. Step 1 - Step 2
specification planning meeting
needed to include, at a minimum,
W*M, BCWA and MSC. Step 2 -
Provide Different Transport
Mechanism (Dependent upon outcome
of planning meeting)
-------------------------------------------------------------------------------
3D Request for Information 12/94**
Description: A message set that
will allow participating
entities, typically physicians,
to request information about a
patient from other participating
entities. This data could be
general in nature or specific to
date of service, procedure
(CPT4), diagnosis (ICD9), etc.,
or could be demographic or
eligibility related (not intended
for eligibility request, however)
(Dependent upon HL7 specification)
-------------------------------------------------------------------------------
3E Consent to Release Information 12/94**
Description: Creation of a
message set to contain data
elements contained in healthcare
providers paper consent forms.
It is not intended to be a legal
replacement for the paper form,
but a metaphor of the paper form
to indicate that the signed legal
document is on file and is
effective. (Dependent upon HL7
specification)
-------------------------------------------------------------------------------
PARTICIPATION IN TESTING OF NETWORK TO 05/30/94 06/30/95
ENSURE PERFORMANCE CRITERIA ARE MET
-------------------------------------------------------------------------------
** Subject to change as additional participants come on-line and Advisory
Boards are established to assist in prioritization of message set development
priorities.
14
<PAGE>
WASHINGTON HEALTHCARE INFORMATION NETWORK
ALASKA HEALTHCARE INFORMATION NETWORK
AFFILIATION FEE SCHEDULE
APRIL 11, 1994
Payments for affiliation are scheduled at the beginning and completion of each
phase
WASHINGTON
<TABLE>
<CAPTION>
Phase I Sites Begin Payment Total Payment by
------- ----- ----- -------- ----------------
Complete Phase
--------- ------
<S> <C> <C> <C> <C>
I 63 Dec '93 $100,000 $150,000 (30%)
June 30, '94 $ 50,000
II 105 April 1, '94 $100,000 $150,000 (30%)
Oct 1, '94 $ 50,000
III 822 Oct 1, '94 $150,000
June 30, '95 $ 50,000 $200,000 (40%)
ALASKA
Phase I Sites Begin Payment Total Payment by
------- ----- ----- -------- -----------------
Complete Phase
-------- ------
<S> <C> <C> <C> <C>
I 42 Jan 1, '94 $37,500 $75,000 (30%)
June 30, '94 $37,500
II 9 April, '94 $37,500 $75,000 (30%)
Nov 15, '94 $37,500
III 119 Oct 1, '94 $75,000 $100,000 (40%)
June 30, '95 $25,000
TOTAL SITES TOTAL PAYMENTS
Washington 990 Washington $500,000
Alaska 170 Alaska $250,000
--- --------
GRAND TOTAL 1,160 GRAND TOTAL $750,000
</TABLE>
<PAGE>
LICENSE AGREEMENT
between Wismer*Martin and Blue Cross of Washington and Alaska
AMENDMENT 1
The License Agreement, dated January 25, 1994, is hereby amended as follows:
1. Section 1.9.1, LICENSE FEE, is modified as follows:
The fee for Sm*rtLink Installation and Training is changed from $100 per site to
$240 per site.
BLUE CROSS OF WASHINGTON AND ALASKA WISMER MARTIN
By Betty Woods By ST Hatch
-------------------- -------------------
President and C.E.O. President and C.E.O.
7001 220th Street S.W N. 12828 Newport Hwy
Mountlake Terrace, WA 98043-2124 Mead, WA 99021-9988
Date 6/8/94 Date
-------------------- -------------------
<PAGE>
LICENSE AGREEMENT
between Wismer*Martin and Blue Cross of Washington and Alaska
AMENDMENT 2
The License Agreement dated January 25, 1994, is hereby amended as follows:A
1. Section 2.5, EFFECT OF TERMINATION BY BCWA, is replaced by the following:
"In the event that BCWA shall terminate this Agreement for cause, the license
granted to BCWA hereunder shall nevertheless continue in force in perpetuity."
BLUE CROSS OF WASHINGTON AND ALASKA WISMER MARTIN
By Betty Woods By ST Hatch
------------------------------- -------------------
President and C.E.O. President and C.E.O.
7001 220th Street S.W N. 12828 Newport Hwy
Mountlake Terrace, WA 98043-2124 Mead, WA 99021-9988
Date 6/8/94 Date
------------------------------ ----------------
<PAGE>
MASTER SERVICES AGREEMENT
1. PARTIES TO THIS AGREEMENT. The parties to this Master Services
Agreement are Blue Cross of Washington and Alaska, a Washington corporation,
with a principal place of business at 7001 - 220th St. S.W., Mountlake Terrace,
Washington ("Client") and Wismer Martin, Inc., having its principal place of
business at North 12828 Newport Highway, Mead, WA 99021 ("Contractor").
2. PURPOSE OF THIS AGREEMENT. Contractor is in the business of providing
consultant with expertise in design, development, implementation, programming,
training, project management and services related to data processing, data
management and systems design and implementation. Client has a need from time to
time for consultants to perform technical services in the areas of Contractor's
expertise. Contractor and Client enter into this Master Services Agreement to
govern the terms and conditions under which Contractor's consultants shall
perform services for Client.
3. SCOPE OF WORK; PRIOR APPROVAL CONTINGENCY. Client performs data
processing and programming functions that involve management, accounting,
billing and data processing of health plans administered by Client. Client
administers private plans as well as plans sponsored by one or more governmental
agencies. Client's consultants may perform work on any of the plans that Client
administers. Where the nature of the plan requires that this Master Services
Agreement be approved by a prime contractor, governmental agency or
intermediary, this Master Services Contract is expressly conditioned upon such
approval. In the event that such approval is denied, Client, at its sole option,
may declare this Master Services Agreement terminated, as of the date of such
denial. In that event, Client will be liable to Contractor only for services
performed prior to the date of termination.
4. RELATIONSHIP BETWEEN THE PARTIES.
(a) INDEPENDENT CONTRACTOR. At all times during the course of this
Agreement, the relationship between the parties shall be that of customer and
independent contractor. This Agreement does not creates any relationship of
agency, partnership or legal representative between the parties. Contractor acts
at all times as an independent contractor and is not authorized to make any
contract, agreement, warranty or representation on behalf of Client.
(b) NO THIRD PARTY BENEFICIARY. Contractor and Client are the sole
parties to this Agreement. Contractor's employees ("consultants") who shall be
performing work for Client are not parties to this Agreement and are not
beneficiaries of any rights pursuant to this Agreement. Contractor shall be
solely responsible for the payment of compensation to consultants assigned to
perform services under this Master Services Agreement. Contractor shall inform
consultants that the provisions of any employee benefits plan or policy
maintained by Client for its employees are not applicable to the consultants.
The Client shall not be responsible for payment of workmen's compensation,
disability, or other similar benefits, unemployment or other similar insurance
or for withholding, income, or other similar taxes or social security for
consultants. Such responsibilities shall be solely that of the Contractor.
(c) OFFERS OF EMPLOYMENT TO CONSULTANTS. Client agrees that it will
not offer permanent employment to consultants while consultants are performing
work for the Client nor for a period of ninety (90) days after completion of a
work assignment, unless Client has obtained permission from Contractor to offer
employment to the consultant. If Contractor charges a fee or commission for
granting permission for Client to hire a consultant, then the terms, conditions
and amount of such fee shall be attached as an addendum to this Master Services
Agreement. Any such terms and conditions shall contain an unconditional
obligation of Contractor to reimburse any such fee to Client if the consultant
declines employment or leaves or is terminated for any reason whatsoever within
six months of commencing employment for Client.
5. GENERAL DUTIES OF THE PARTIES.
<PAGE>
(a) DUTIES OF CONTRACTOR. CONTRACTOR shall provide qualified,
experienced consultants who will be able to perform the tasks stated in any
written work assignment accepted by Contractor. Contractor shall follow the
invoicing and report procedures stated in this Services Agreement and maintain
such books and records as required by this Agreement. Contractor shall at all
times comply with such government regulations as to maintain its eligibility as
a government subcontractor.
(b) GENERAL DUTIES OF CLIENT. Client shall provide suitable work
space and day-to-day supervision of consultants. Client shall provide the
computer time, security arrangements and materials necessary for the consultant
to fulfill consultant's work assignment.
6. PROVISIONS CONCERNING WORK ASSIGNMENTS.
(a) SPECIFICATION OF WORK ASSIGNMENTS. Work assignments for
consultants shall be specified in a work assignment form in the format attached
to this Master Services Agreement as Exhibit 2. The form shall state the
consultant's name, hourly rate and expected duration of each consultant's
services. The form shall contain a complete description of the task to be
performed by each consultant and the documentation, if any, to be produced. The
work assignment form shall designate an employee of Client who shall supervise
each consultant. The form shall also designate whether, and to what extent, any
expenses, including travel expenses, shall be paid by Client.
(b) CONTINUATION OF CONSULTANT'S SERVICES. Client may provide for
continuation of a consultant's work assignment by giving Contractor a written
notice of continuation fifteen (15) days in advance of the expiration of any
consultant's work assignment. The notice of continuation shall state the
expected duration of the period of continuation.
(c) REDUCTION IN DURATION OF WORK ASSIGNMENT. Client may reduce the
duration of a work assignment by giving Contractor fifteen (15) days advance
written notice of a desired termination date.
(d) TERMINATION OF CONSULTANT BY CLIENT. Client may terminate any
consultant who, in the Client's sole discretion, is performing unsatisfactorily.
Termination shall be effective on the same day that Client notifies Contractor
that the consultant is unsatisfactory.
(e) WITHDRAWAL OF CONSULTANT BY CONTRACTOR. Contractor may withdraw a
consultant due to resignation or hardship to the consultant.
(f) REPLACEMENT OF CONSULTANT BY CONTRACTOR. Contractor shall
promptly replace any consultant that has been terminated by Client or withdrawn
by Contractor. Client may interview any replacement and shall have the right to
reject any replacement which, in Client's sole discretion, does not meet the
technical and experience requirements to perform the work assignment. Contractor
shall provide replacement consultants as soon as possible after notification of
termination or notification of withdrawal of a consultant. In no event will
Contractor provide consultants to the Client for its consideration later than
five (5) working days after a consultant is terminated or withdraws. Client at
all time retains the right to replace the terminated or withdrawn employee from
any other source.
(g) WEEKLY STATUS REPORTS. Contractor shall require each consultant
to provide Client with weekly status reports concerning the work performed by
each consultant. The status reports shall include a description of each
consultant's activities and accomplishments including, but not limited to, the
<PAGE>
current status and progress of the consultant since last report, any actual or
anticipated problem areas and planned activities for the succeeding reporting
period. At Client's request, Contractor shall hold status meetings with Client
to review status reports.
(h) CLIENT'S SAFETY. SECURITY AND WORK REGULATIONS. Consultants shall
at all times abide by Client's safety, security and work regulations. Unless
otherwise agreed in writing, consultant shall observe the working hours, rules
and holiday schedules applicable to the location where the consultant is
working.
7. FEES, EXPENSES AND TAXES.
(a) COMPUTATION OF FEES. Fees shall be computed by multiplying the
hourly rate of each consultant stated in a work assignment form by the number of
hours a consultant has worked. Any overtime authorized by the Client shall be
charged at the same hourly rate as regular time. Thirty (30) days written notice
will be given prior to any rate increase for any consultant, but no increase
shall occur during the first one hundred eighty (180) days of a consultant's
work assignment and not more often than each one hundred eighty ( 180) day
period thereafter.
(b) EXPENSES. Any expenses to be charged Client shall be detailed in
the work assignment. No other expenses shall be charged unless Contractor has
obtained advance written authorization from the Client for such expense. Any
expenses authorized in a work assignment form shall state either the amount of
the expense or the method by which the amount is calculated. Contractor shall
require consultants to provide receipts for any out-of-pocket expenses for which
reimbursement is authorized in the work assignment form.
(c) TAXES. The fees and expenses charged by Contractor are exclusive
of any sales taxes. Client shall be responsible for all taxes in relation to
Contractor's charges, except for taxes measured by Contractor's gross or net
income.
(d) CHARGES FOR CANCELED OR DELAYED WORK. In the event that a
consultant arrives at the Client's site to begin a scheduled assignment and the
work has been either canceled or delayed through no fault of Contractor or
consultant, Contractor reserves the right to charge Client 8 hours of
consultant's time for the cancellation or delay. The charge stated in this
paragraph shall not apply if the Client notifies Contractor 48 hours in advance
that a work assignment day has been rescheduled.
8. INVOICING, PAYMENT AND ACCOUNTING.
(a) INVOICING AND APPROVAL PROCEDURE. Contractor shall provide Client
with an invoice no more frequently than on a weekly basis. The invoice will
contain sufficient detail so that the client can identify each consultant, the
rate charges, the hours worked, and the consultant's supervisor. Each invoice
shall identify the amount and nature of any expenses charged to Client. Invoices
will also identify the nature of any adjustments relating to cancellation or
alteration of work assignments, termination or withdrawal of consultant or
resulting from rate increases.
(b) APPROVAL PROCEDURE. Client's designee shall review and approve
the charges shown on the invoice. Should there be any discrepancy between the
charges shown on the invoice and the Client's records, Client shall notify
Contractor, identifying the discrepancy, within ten (10) days after receipt of
the invoice. The invoice shall be adjusted so that Contractor's records and
Client's records agree. Client shall pay the invoice as adjusted.
<PAGE>
(c) TIME FOR PAYMENT. The Client shall pay Contractor the invoiced
amount, or adjusted invoice amount, within thirty (30) days from receipt of the
invoice.
(d) MAINTENANCE OF. AND ACCESS TO RECORDS. Contractor shall require
consultants to maintain adequate records of their time and expenses, including
submission of receipts for out-of-pocket expenses to be charged to Client.
Contractor shall maintain books, records and documents evidencing the work
performed, and costs and expenses associated with, each consultant's work for
Client for a period of three years from the date that such work is concluded.
Contractor shall provide Client with access to such books and records at any
time during reasonable business hours during the three year holding period.
Contractor also agrees to provide access to such books and records to the
designee of any governmental agency, entity or prime contractor whose approval
is necessary for this Master Services Agreement and reasonably to assist any
such examiner in the examination and assessment of such records.
9. WARRANTIES. Contractor warrants that consultants supplied to Client
shall be competent and experienced in the tasks stated in the work assignment
form. Contractor warrants that each Consultant shall perform the duties stated
in the work assignment form in an efficient and workmanlike manner and shall
abide by Client's work, safety and security regulations. Contractor warrants
that each such consultant is not prohibited by any agreement, judgment or other
legal disability from performing the work stated in the work assignment form.
Contractor warrants that any programs, documentation, software, technology or
invention that a consultant creates for Client or supplies to Client does not
infringe on any patent, rights or copyrights of any person.
10. DISCLAIMER OF WARRANTY. There are no express or implied warranties,
including implied warranties of merchantability and fitness for a particular
purpose, that are not specified in this Agreement or any schedule or form
incorporated into this Agreement.
11. PROPRIETARY PROVISIONS.
(a) CONFIDENTIALITY. During the confidential relationship established
by this Agreement, the Client may communicate to Contractor or to consultants
certain information to enable consultants to render the services provided in a
work assignment pursuant to this Agreement. Consultant shall (1) treat, and
obligate its consultants to treat, as secret and confidential all such
information whether or not identified as secret and confidential; (2) not
disclose any such information or make available any reports, recommendations
and/or work product which Contractor produces for the Client to any person,
firm, or corporation, or use it in any manner whatsoever. Contractor will
instruct consultants as to the requirements set forth in this provision and
require its consultants to sign Client's confidentiality agreement. The
obligations set forth in this paragraph shall survive the termination of this
Agreement.
(b) RIGHTS IN CREATIONS. Unless otherwise specified in writing, all
technology, inventions, work product, knowhow, software, programs or any other
thing created by consultant while consultant is performing a work assignment
shall be the sole property of the Client and Client shall have all patent rights
and copyright rights associated with such work product.
(c) RIGHTS IN DATA. Any data generated by Contractor or Contractor's
consultants pursuant to a work assignment for Client shall be the sole property
of Client. Contractor agrees that Client shall at all times have access to all
data that Contractor acquires or utilizes pursuant to its consultants' work
assignment for Client.
<PAGE>
12. INDEMNITY PROVISIONS.
(a) NEGLIGENCE. Contractor will defend at its own expense and will
indemnify and hold Client harmless from all claims, suits, proceedings or
actions asserted or brought against Client arising out of the negligent conduct
of a consultant retained pursuant to this Agreement.
(b) NONCOMPETE. Contractor shall defend at its own expense and will
indemnify and hold Client harmless from all claims, suits, proceedings or
actions asserted or brought against Client based upon a claim that any
consultant's work under a work assignment was in violation of any agreement
between Consultant and any person, firm or corporation.
(c) INFRINGEMENT. Contractor will defend at its own expense and will
indemnify and hold Client harmless from all claims, suits, proceedings or
actions asserted or brought against Client based on a claim that any work
performed or work product or technology developed by a consultant for Client
infringes any United States or Canadian copyright or patent and shall pay all
damages finally awarded against Client arising out of such claims, suits, or
proceedings.
(d) PERSONAL INJURY OR PHYSICAL DAMAGE. Contractor shall be
responsible for and will indemnify and hold Client harmless from claims for
injury caused by a consultant to the extent of any personal injury or physical
damage to property of the Client, Client's employees or any other person, to the
extent of the insurance coverages required by this Agreement.
13. INSURANCE. Contractor shall carry the following minimum insurance
coverage in a form reasonably acceptable to the Client during the term of this
Agreement:
(a) Employer's liability insurance or workers compensation insurance
as required by laws of the state in which the work is to be performed.
(b) Comprehensive automobile liability insurance with bodily injury
limits of $500,000 each accident, and property damage with a limit of $500,000
each accident.
(c) Comprehensive general liability and property damage insurance
including operations, protective, and contractual liability coverages with
bodily injury limits of $500,000 each occurrence, $1 million aggregate
operations, and $1 million aggregate contractual.
Contractor agrees to provide Client with certificates evidencing such
insurance upon Client's request. Contractor shall name the Client as an
additional insured, and shall state that such insurance is primary and any
insurance by the Client is excess and noncontributing with such primary
insurance, and shall waive all rights of subrogation against the Client. Failure
of Contractor to provide continuous insurance coverages as provided in this
Agreement shall permit the Client to charge back against Contractor's invoices
the cost or reasonable estimate of the cost of Client's actual purchase of like
protection plus the value of any claims actually paid by the Client which would
not have been paid by the Client had Contractor obtained such insurance
coverage.
14. EXCUSABLE DELAYS. Neither party shall be liable to the other for any
delay or failure to perform under this Agreement if the delay or failure to
perform is due to acts of God, civil or military authority, acts of war, riots,
or insurrections. The party experiencing a delay caused by one of these events
shall immediately notify the other party of the delay and the reason for the
delay. Such notice shall be in writing.
<PAGE>
15. TERM AND TERMINATION. This Agreement shall commence on the Effective
Date designated; this Agreement and shall continue in full force and effect
until the Agreement is terminated in accordance with this paragraph. Client may
terminate this Agreement by thirty (30) days advance written notice of
termination to Contractor. The termination notice shall state the termination
date, which date shall be at least thirty (30) days following written receipt by
Contractor of the termination notice. Client may reduce the duration of a work
assignment pursuant to this Agreement as stated in paragraph 6 of this
Agreement. Contractor may terminate this Agreement upon thirty (30) days advance
written notice provided, however, that existing work assignments shall continue
until terminated according to their terms.
16. GOVERNING LAW. This Agreement is made under and shall be construed
according to the laws of the State of Washington.
17. COMPLETE AGREEMENT. This Agreement, together with all work assignment
forms, schedules, exhibits and attachments, constitutes the entire agreement
between the parties. There are no other agreements, written or oral with respect
to the subject matter of this Agreement.
18. MODIFICATION AND WAIVER. No modification or waiver of this Agreement
or any of its provisions shall be binding upon the parties to this Agreement
unless made in writing and duly signed by both parties. Any failure or delay of
either party to enforce a provision of this Agreement shall in no way be
construed as a waiver of such provision.
19. ASSIGNMENT. Neither party shall assign this Agreement or any of its
rights or obligations under this Agreement without prior written consent of the
other party, except that the Client may assign this Agreement or its rights
under this Agreement, without Contractor's consent, to any of its subsidiaries
or affiliated companies.
20. SEVERABILITY. If any provision of this Agreement is in conflict
with any statute or rule of law or is held invalid as applied to any person or
circumstance then such provision shall be deemed inoperative to the extent of
such conflict or invalidity, will be deemed modified to conform to such statute
or rule of law and such conflict or invalidity shall not affect the other terms,
conditions or applications of this Agreement.
21. HEADINGS. The headings in this Agreement are for the purposes of
references only and shall not in any way limit or affect the meaning or
interpretation of any of the terms in this Agreement.
22. RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies stated in this
Agreement are cumulative and not exclusive.
23. NOTICES. All notices and other official communications under this
Agreement shall be in writing and shall be sufficiently given if delivered
personally or mailed by first class mail, proper postage prepaid to:
Blue Cross of Washington and Alaska
7001 - 220th St. S.W.
Mountlake Terrace, WA 98043-2124
Attn: Senior Vice President, Shared Services
<PAGE>
Or To:
Wismer Martin, Inc.
North 12828 Newport Highway
Mead,WA 99021
Attn: Mr. Bill Campbell
The person designated by each party for notice purposes shall also be the
employee of each of the parties responsible as a contact person concerning the
administration and enforcement of this Agreement.
24. AUTHORIZED SIGNATOR. The signator on behalf of each party warrants
that he or she has authority to bind that party to this Agreement and to execute
this Agreement on behalf of that party.
25. EFFECTIVE DATE. This Agreement is effective as of the date of the last
party to execute it.
BLUE CROSS OF WASHINGTON AND ALASKA
By Tim Frazier
---------------
Its Sr VP/GM
---------------
Dated 3/21/95
-------------
WISMER MARTIN, INC.
By W.E. Campbell
----------------
Its Ecec. VP, Corp. Dev.
---------------------
Dated 4/06/95
-----------
<PAGE>
EXHIBIT 2
WORK ASSIGNMENT NO. 1
TO
MASTER SERVICE AGREEMENT BETWEEN
BLUE CROSS OF WASHINGTON AND ALASKA
AND
WISMER MARTIN ("CONTRACTOR")
SCOPE OF WORK:
The work to be performed under this Work Assignment is to provide
installation, training, hardware, hardware maintenance, and Wismer Martin
software maintenance to the providers affiliated by the Washington Healthcare
Information Network (WHIN) follows. The work undertaken at each provider site
will be determined by a work order checklist to be provided to Wismer Martin
by the WHlN Network Project Manager.
1. a. Assemble the WHIN communications server by installing the NIC, configuring
I/O and RAM addressing to ensure there are no conflicts with pre-existing
networks or other devices, as identified in the Site Survey.
b. Stage the WHIN communications server by:
- testing that the hardware is functional using the vendor's diagnostics
- formatting and partitioning the server disk drives according to the
correct configuration provided by WHIN
- loading Novell NetWare 3.12 onto the server and configuring NetWare to the
- appropriate configuration
- loading IPX addresses and IP addresses assigned by WHIN and enabling
SNMP agents
- loading all Wismer Martin software applicable to the end
user
- unpacking MS DOS software to the server's DOS partition as well as the
network partition.
c. Ship the WHIN communications server to WHIN Network Services one-two weeks
prior to client installation date unless otherwise agreed to by the
parties.
d. Confirm the WHIN communications server meets the minimum standard
requirement and install the WHIN communications server and network
concentrator at the designated client site.
e. System test the communications server, LAN server and Link workstations to
ensure that end user's environment functions correctly.
2. Contact WHIN NCC prior to leaving for the client site and upon arrival at the
client site.
3. Install LAN Workplace for DOS on designated work stations, add IP address
labels to workstation, load appropriate ICONs on the workstation and load the
appropriate profile.
PAGE 1
EXHIBIT 2
<PAGE>
WORK ASSIGNMENT NO. 1
4. Install the SM*RT Link workstation, provide client startup services,
configure the SM*RT Link workstation memory and educate the client on one
compliant PC workstation.
5. Load SM*RT Link for LAN software on the designated LAN server (includes
SM*RT LANLink and SM*RT Link).
6. Activate all SNMP diagnostics, verify connectivity to the network which
includes a call to WHIN NCC to verify the connection and obtain WHIN NCC
acceptance of the installation. (WHIN NCC will "ping" serial and Ethernet
interface and each workstation).
7. Provide onsite systems administrator training for client's environment to
designated client system administrator, including the following topics:
(1) Network Overview - current configuration
a. ISLink
b. LANLink
c. SM*RT Link
d. Directory structure on the server
e. Link location
f. Data file locations
g. Trace message file through the server
h. INI's
(2) Backup/Recovery/Restart
(3) Initializing the system
a. Workstation shell
b. STARTUP.NCF (Walk-through all line items, including switches)
c. AUTOEXEC.NCF (Walk-through all line items, including switches)
(4) Installing and upgrading of LANLink/ISLink
(5) LinkMan and LinkMon
a. How they work
b. Why they are important
8. Provide the following information to the WHIN Network Project Manager:
On a 3.5" diskette, provide a soft copy of:
AUTOEXEC.NCF
STARTUP.NCF
MSD run on the workstation with name of User machine, site/company
name, address, phone number, IP address of machine, if applicable.
Page 2
EXHIBIT 2
<PAGE>
WORK ASSIGNMENT NO. 1
Map of the location of the server and router (hand-drawn)
9. Notify WHIN NCC when leaving the site.
10. Complete the Installation Satisfaction Certificate and mail original to WHIN
NCC.
11. Provide SM*RT Link training.
12. Provide the appropriate hardware according the Site Survey and listed in
Attachment A, attached hereto and incorporated herein by reference.
13. When server and workstation hardware maintenance is purchased, provide
maintenance as follows:
a. Onsite Maintenance: provide labor, parts and services to maintain the
server and workstation equipment at the location specific WHIN provider
in good working order. Respond to requests for remedial maintenance in a
prompt and commercially reasonable manner. Initial diagnostic response
will be within four (4) hours, with a technician onsite within eight (8)
business hours thereafter. Maintenance services shall be available
between 8:00 a.m. and 5:00 p.m. local time, Monday through Friday,
excluding holidays.
b. Parts: All parts that are replaced on an exchange basis shall become the
property of Contractor. Parts provided in performance of the services may
be new or refurbished parts which are functionally equivalent to new
parts and may be from sources other than the original equipment
manufacturer. These parts, however, shall be fully warranted and covered
under this maintenance service.
c. Excluded Services: The services performed as a result of any of the
following conditions are not covered by this Agreement and may be subject
to additional charges for labor, transportation and parts, provided that
such charges are pre-approved by the WHIN Project Manager before
incurring such charges: alterations to equipment not authorized in
writing by WHlN, accident, neglect, power surge or failure, operating
environment which does not match the operating environment recommended by
WHIN or the use of supplies or accessories which are not in conformance
with the equipment manufacturer's published specifications, site surveys,
not trouble-found calls, maintainability inspections or any events other
than fair wear and tear.
14. Provide first year support for the Wismer Martin software.
Page 3
<PAGE>
EXHIBIT 2
WORK ASSIGNMENT NO. 1
CONTRACTOR RESPONSIBILITIES:
1. Provide installers well versed in the technology, who are bonded and who are
professional in appearance.
2. Coordinate with the WHIN Network Project Manager, regarding installation
schedules.
PRICE:
The fixed price for this Work Assignment is based on the prices listed in
Attachments A and B attached hereto and incorporated into this Agreement by
reference, and do not include reasonable and actual travel and living expenses
or shipping and handling charges. WHIN will pay for reasonable and actual living
expenses for the installers based on WHIN expense reimbursement guidelines and
$0.29 per mile for mileage outside a fifty (50 mile radius of the Seattle/Tacoma
International Airport). Expenses will be invoiced separately and will be
accompanied by copies of receipts.
PROJECT REPORTING:
Contractor personnel shall take technical direction and leadership from the WHIN
Network Project Manager, who will be coordinating installations with the site
contacts, other vendors and the installers. Any deviation from the project plan
or problems encountered which cannot be remedied by the installer must result in
immediate notification to the affected parties.
WISMER MARTIN BLUE CROSS OF WASHINGTON & ALASKA
By W.E. Campbell, III By Tim Frazier
------------------- ------------
Title: Exec. VP, Corp. Dev. Title: Sr. VP/GM
------------------- ------------
Date: April 5, 1995 Date: 4/7/95
------------------- ------------
Page 4
<PAGE>
ATTACHMENT A.1
HARDWARE AND SOFTWARE CONFIGURATIONS
BCWA PRICING
SM*RT LINK WORKSTATION CONFIGURATIONS
Surplus Workstations
--------------------
486/33SX CPU, 8MB RAM, 170MB IDE HARD DRIVE, $1,640
System includes:
3 full-size ISA expansion slots
2 front panel storage bays
2 internal storage bays
125-Watt power supply
128KB cache
1.44MB (3.5" floppy drive)
SVGA adapter
1MB VRAM
14" SVGA Non-Interlaced 1024x768, .28 mm Color Monitor
2 serial ports
1 parallel port
FDD/IDE disk controller
101 keyboard
2 button mouse
MS/DOS 6.x
MS Windows 3.1 (media not included
1 year onsite, 2 years depot warranty
Low-End Configuration
---------------------
486/33SX CPU, 8MB RAM, 250MB IDE HARD DRIVE, $1,695
System includes:
3 full-size ISA expansion slots
2 front panel storage bays
2 internal storage bays
125-Watt power supply
128KB cache
1.44MB (3.5" floppy drive)
SVGA adapter
lMB VRAM
14" SVGA Non-Interlaced 1024x768, .28 mm Color Monitor
2 16550 serial ports
1 parallel port
FDD/IDE disk controller
101 keyboard
2 button mouse with mouse pad $ 9
APC Surge Suppresser 7 outlet $ 30
MS/DOS 6.x
<PAGE>
ATTACHMENT A.1
HARDWARE AND SOFTWARE CONFIGURATIONS
BCWA PRICING
MS Windows 3.1 (media not included
1 year onsite, 2 years depot warranty TOTAL $1,734
Middle Configuration
--------------------
486/66HZ CPU, 128KB INTERNAL CACHE, 8MB RAM, 270MB HARD $1,941
DRIVE, System includes:
3 ISA slots total (2 full size, 1 half size)
125-Watt, 110/220V switchable power supply
1.44MB Slim Height diskette drive (3.5" floppy drive)
Integrated S3 Trio 32-bit graphics accelerator with
lMB DRAM
14" VGA Color Monitor
2 buffered 16550-compatible serial ports
1 parallel ECP/EPP
1 graphics port
1 keyboard port
1 mouse port
Enhanced Local Bus IDE
Plug and Play integration
101 Keyboard
2 button mouse with mouse pad
Panamax Max-6 Surge Suppresser
Flash ROM BIOS
MS/DOS 6.x
MS Windows for Workgroups 3.11 pre-installed
1 year onsite, 2 years depot warranty
High End Configuration
----------------------
VENTURIS 560 PENTIUM, 256KB INTERNAL CACHE, 8MB RAM, 270 MB HARD $2,447
DRIVE, System includes:
14" VGA Color Minotor
Integrated S3 Trio 864 64-bit graphics accelerator with
lMB DRAM
3 Slot total (1 ISA full size, 1 PCI/ISA full size, 1 PCI half size)
125-Watt, 110/220V switchable power supply
1.44MB Slim Height diskette drive (3.5" floppy drive)
2 buffered 16550-compatible serial ports
1 graphics port
1 parallel ECP/EPP
1 keyboard port
1 mouse port
ATTACHMENT A.1
<PAGE>
HARDWARE AND SOFTWARE CONFIGURATIONS
BCWA PRICING
Enhanced Local Bus IDE
Plug and Play integration
101 Keyboard
2 button mouse with mouse pad
Panamax Max-6 Surge Suppresser
Flash ROM BIOS
MS/DOS 6.x
MS Windows for Workgroups 3.11 pre-installed
1 year onsite, 2 years depot warranty
<PAGE>
ATTACHMENT A.1
HARDWARE AND SOFTWARE CONFIGURATIONS
BCWA PRICING
SM*RT LANLINK/INLINK COMMUNICATION SERVER CONFIGURATIONS
Low-End Configuration
----------------------
486/33MHZ VENTURIS FULL PROFILE. System Includes $3,670
4 full size and 1 half size ISA expansion slots
3 front panel storage bays
3 internal storage bays
200 Watt power supply
256KB internal cache
16MB RAM
1.44MB 3.5" diskette drive
512KB VGA Card
14" VGA/Monocrome 640 x 480 Monitor
2 buffered 16550-compantible serial ports
1 parallel ECP/EPP port
FDD/IDE disk controller
550MB IDE hard drive
101 keyboard
2-button mouse with mouse pad
American Power Supply UPS 600
3C509 Network Card
MS DOS 6.2
MS Windows for Workgroups 3.11
3-year onsite warranty
Middle Configuration
--------------------
486/66HZ PRIORIS XL FULL TOWER. System includes: $3,770
4 EISA
1 EISA/PCI
2 PCI Expansion Slots
3 front panel storage bats
4 internal storage bays
300 Watt power supply
256KB cache
24MB RAM
1.44MB 3.5" diskette drive
5.25" 600MB double-speed SCSI CD-ROM Drive
Video Adapter
Graphics accelerator with 512 KB RAM
14" VGA/Monocrome 640 x 480 Monitor
<PAGE>
ATTACHMENT A.1
HARDWARE AND SOFTWARE CONFIGURATIONS
BCWA PRICING
2 buffered 16550-compatible serial ports
1 parallel ECP/EPP port
FDD/IDE disk controller
Fast SCSI-2 and SCSI-2 Integrated Controllers
2 -535MB SCSI hard drives (mirrored)
3C509 Network Card
101 keyboard
2-button mouse with mouse pad
American Power Supply UPS 600
MS DOS 6.2
MS Windows for Workgroups 3.11
3-year onsite warranty
High-End Configuration
----------------------
486/100 IIZ PRIORIS MTE MEDIUM TOWER. System includes $4,170
5 EISA
1 EISA/VESA Expansion Slots
3 front panel storage bays
1 intemal storage bays
260 Watt power supply
256KB cache
32MB RAM
1.44MB 3.5" diskette drive
SVGA Video Adapter 512KB
14" VGA/Monocrome 640 x 480 Monitor
2 buffered 16550-compatible serial ports
1 parallel ECP/EPP port
FDD/IDE disk controller
SCSI host bus adapter
2-535 MB SCSI hard drives (mirrored)
3C509 Network Card
101 keyboard
2-button mouse with mouse pad
American Power Supply UPS 600
MS DOS 6.2
MS Windows for Workgroups 3.11
3-year onsite warranty
LINE ITEM WARDWARE PRICING
MOTOROLA MODEM WITH MNP AND CABLE $ 473
High speed modem which processes 198.2, 9600, 4800, 2400
300 bps of serial asynchronous data or 9600, 4800, 2400, or
<PAGE>
ATTACHMENT A.1
HARDWARE AND SOFTWARE CONFIGURATIONS
BCWA PRICING
1200 bps synchronous data for transmission over dial-up telephone network for
2- or 4-wire lines (4-wire operation per V.33 only). In 9600 bps trellis mode,
near- and far-end echo canceling combined with 8-state, 2-dimensional trellis
coded modulation to maximize performance on reduced line quality.
535MB SCSI Hard Drive $ 500
American Power Supply UPS 600 $ 270
SMC Ethernet Hub, 12 Port, TP Concentrator $ 500
HARDWARE MAINTENANCE OPTIONS
3-year onsite DEC hardware maintenance $ 315
SOFTWARE
LAN Workplace for DOS License $ 199
QEMM License $ 60
Carbon Copy Plus License $ 121
PROCOMM+ $ 70
Novell Netware 3.12 license for 5 users $ 579
for 10 users $1,250
BLUE CROSS OF WASHINGTON AND ALASKA WISMER MARTIN
By: Tim Frazier By: WE Campbell III
---------------- ---------------------
Title: SR VP / GM Title Exec VP/Corp Dev
--------------- -------------------
Date: 4/7/95 Date: 4/6/95
---------------- -------------------
<PAGE>
ATTACHMENT B.1
PRICING FOR
WISMER MARTIN INSTALLATION SERVICES
These prices are valid through June 30, 1995
1. WHIN Communications Server:
a. Assemble the WHIN communications server by installing the
NIC, configuring I/O and RAM addressing to ensure there are no
conflicts with pre-existing networks or other devices as identified
in the Site Survey (SOW #la) $300
b. Stage the communications server by (SOW #lb): part of (a)
- testing that the hardware is functional using vendor's
diagnostics
- formatting and partitioning the server disk
- loading Novell 3.12 onto the server and configuring NetWare
- loading IPX address and enabling SNMP agents
- loading LANLink, ISLink and/or Link Wismer Martin software
- unpacking MS DOS software to server's DOS partition and network
partition
- ship communications server to BCWA Network Services (shipping
charges are additional)
c. Install WHIN communications server and network concentrator at
Provider site (SOW #ld, 2) $ 50
d. Verify connectivity and system test, including call to BCWA NCC to
verify connection (SOW#le, 6, 8, 9, 10) $250
2. Stage the SM*RT Link workstation and provide clientstartup services as
follows (SOW #2, 4, 6, 8, 9, 10): $140
a. Stage SM*RT Link workstation by
- testing that the hardware is functional using vendor's diagnostics
- loading MS DOS on the PC
- loading of remote modem access application software
- loading SM*RT Link on the PC
- loading appropriate third party software (Carbon Copy, QEMM, etc.)
- shipping PC to client site (shipping charges are additional)
b. Client Startup Services provided at client site:
- unpacking and physically assembly of hardware
- power-up testing
- configuration of the operating system and user interface
<PAGE>
ATTACHMENT B.1
PRICING FOR
WISMER MARTIN INSTALLATION SERVICES
3. Install LAN Workplace for DOS on workstation, add IP address
to workstation, load appropriate ICONs and profile $125
4. Load SM*RT Link for LAN on designated LAN server
(includes SM*RT LANLink and SM*RT Link) (SOW #5) $150
5. Provide access to SM*RT Practice on 1 PC $ 80
(For existing SM*RT Practice users where we are installing new
Link access)
6. Provide up to 1 hour of onsite systems administrator training (SOW #7) $125
7. Provide WM classroom SM*RT Link training for up to 2 people (SOW #11) $100
8. Provide WM classroom SM*RT Link training for more than 2 people, per $ 50
person (SOW #11)
9. Provide onsite classroom SM*RT Link training at client site for up to 8
students as follows (travel and living expenses invoiced separately)
(SOW #11):
First 1/2-day session, including 1 trainer $400
Each additional 1/2-day session, 1 trainer $350
Each additional trainer for additional groups of up to 8 students, per
session session $350
10. DEC 3 year onsite hardware maintennce for each piece of hardware where
the warranty is not included as part of the price (SOW #13) $315
11. Provide first year support as follows (SOW #14):
SM*RT Link for 1 PC $180
SM*RT Link for up to 5 Pcs $215
SM*RT Link for up to 10 Pcs $312
SM*RT Link for up to 20 Pcs $349
SM*RT Link for more than 20 Pcs $368
SM*RT LANLink $135
SM*RT ISLink $608
<PAGE>
ATTACHMENT B.1
PRICING FOR
WISMER MARTIN INSTALLATION SERVICES
BLUE CROSS OF WASHINGTON AND ALASKA WISMER MARTIN
By: Tim Frazier By: WE Campbell III
------------------------- -------------------
Title: Sr VP/ GM Title: Exec VP Corp Dev
------------------------- -------------------
Date: 4/7/95 Date: 4/6/95
------------------------- -------------------
<PAGE>
WORK ORDER CHECKLIST
FOR
__________________________________________
_____ASSEMBLE AND STAGE WHIN COMMUNICATIONS SERVER
_____SHIP WHIN Communications Server to WHIN NCC
_____CONTACT WHIN NCC prior to leaving for client site and upon arrival at
client site
_____CONFIRM CONFIGURATION of Communications Server and INSTALL it and the
network concentrator at client site
_____Load SM*RT Link for LAN on the designated LAN server(includes SM*RT Link
and SM*RT LANLink)
____INSTALL LAN Workplace for DOS on designated workstation, ADD IP ADDRESS
labels to workstation, load appropriate ICONs on workstation, and load
appropriate profile.
____INSTALL SM*RT Link workstation, PROVIDE client startup services, CONFIGURE
the workstation memory and educate the client on one compliant PC
workstation
_____Activate all SNMP diagnostics, verify connectivity to the network,
including a call to WHIN NCC to verify the connection, and obtain WHIN NCC
acceptance of the installation.
_____System test the communications server, LAN server and Link workstation(s)
_____PROVIDE onsite systems administrator training
_____PROVIDE documentation to the WHIN Network Project Manager
_____Notify WHIN NCC when leaving site
_____PROVIDE SM*RT Link training(___students,_____ trainers)
______WM classroom training
______Onsite classroom training at client site
_____PROVIDE server and workstation hardware maintenance
_____PROVIDE first year support for:
SM*RT Link for 1 PC ____SM*RT LANLink
SM*RT Link for up to 5 Pcs ____SM*RT IS Link
SM*RT Link for up to 10 PCs
SM*RT Link for up to 20 PCs
______PROVIDE the following hardware:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
<PAGE>
LICENSE AGREEMENT
BETWEEN
WISMER MARTIN("WM") AND BLUE CROSS OF WASHINGTON AND ALASKA ("BCWA")
AMENDMENT 4
The following documents are attached hereto, incorporated herein and made a
part of this Amendment to the Master License Agreement, dated January 25,
1994, by reference:
Exhibit A Wismer Martin's Policies and Procedures for On-Going
Development of the SM*RT Net Suite of Products, dated March 8,
1995
Exhibit B Sample List of Historical and Current Functionality
Exhibit C Attachment A to the Master License Agreement, dated January 25,
1994
Exhibit D Defect Control Sheets #24, #26, #46, #54, #56, #57, #59, #61
Exhibit E Letter of Understanding signed by Tim Frazier and Ron Holden,
dated April 13 1995
Exhibit F HealthPlus and Alaska "Best Offer" Group
1. a. To preserve the intent behind the License Agreement signed by both
parties, dated January 25, 1994 ("Master License Agreement") with regard to
meeting the needs of and supporting a large, regional network, as specified
in Section 1.5.3, Support and Maintenance, the parties hereby agree to
implement an Enhancement Identification and Ongoing Development Process
(the "Process"), as referenced in "Wismer Martin's Policies and Procedures
for On-Going Development of the SM*RT Net Suite of Products," attached
hereto as Exhibit A. Exhibit B contains a sample list of historical and
current functionality.
b.BCWA is providing and/or selling a license to the WM products to the BCWA
network community. As such, that community relies upon BCWA to ensure
development and enhancements continue to support their needs. WM's
representations contained in Exhibit A and in the Master License Agreement
that it will continue to make enhancements and upgrades of the Software
sufficient to support the needs of a large, regional healthcare information
network are material to and are relied upon by BCWA in the discharge of its
commitment to the network community.
c. The Process must provide flexibility; enhance the speed with which
enhancements and upgrades can be brought to market, while continuing to
increase the robustness of the SM*RT Net architecture; meet the evolving
needs of new network technology; and improve the quality of the SM*RT Net
suite of products.
d. Considering the foregoing the parties hereby agree to delete the
following deliverables from Attachment A to the Master License Agreement
(attached hereto as Exhibit C). BCWA may or may not introduce these
deliverables into the Process at a later date.
#40 Eligibility Message Set
#42 Appointment Request/Acknowledgment (page 11)
#43 Pharmacy Order Entry (page 11)
Page 1
<PAGE>
LICENSE AGREEMENT
BETWEEN
WISMER MARTIN("WM") AND BLUE CROSS OF WASHINGTON AND ALASKA ("BCWA")
AMENDMENT 4
#44 Supplies Order Entry (page 11)
#51 Electronic Claims (Steps 1 and 2) (page 13)
#52 Electronic Remittance (Steps 1 and 2) (page 14)
#53 Request for Information (page 14)
#54 Consent to Release Information (page 14)
e. The following deliverables are hereby removed from Attachment A and made a
part of the new Process. These must be delivered to BCWA for Certification
testing on or before the dates listed below:
#25 Claims Status (page 7) 10/95
#41 Online Message Priority (page 10) 3/96
f. Attachment A task #13, Participation in Software, Network and Administration
User Groups is replaced as follows:
(1) Wismer Martin will be invited, as appropriate, by BCWA to attend Software
User Groups.
(2) Participation in Network User Groups is replaced with the new Process,
referenced above.
(3) Administration User Groups will be scheduled as needed by BCWA or Wismer
Martin.
g. With the Certification, delivery and placement into escrow of Release 2.0,
Attachment A tasks #37, #47, and #55 will be closed. Network performance
criteria testing will occur in Wismer Martin's Quality Assurance testing and in
BCWA Certification testing.
h. The following changes and Attachment A deliverables have been moved into an
interim release to be made available for Certification testing on June 30, 1995.
General release is targeted for 30 days later.
Enhanced Addressing
#20 LinkMan (Attachment A, page 5)
Defect #24, Directory Name*
Defect #36, Eligibility Printed Message*
Defect #56, On-Demand Transmission*
Defect #59, Required Field Editting*
Defect #61, Extraneous Data in Notes Segment*
' *See Exhibit Detached hereto
Page 2
<PAGE>
LICENSE AGREEMENT
BETWEEN
WISMER MARTIN("WM") AND BLUE CROSS OF WASHINGTON AND ALASKA ("BCWA")
AMENDMENT 4
i. The following changes will be made in the next general release following
the Interim June 30 release, no later than October, 1995. This is not an
all-inclusive list of the functionality of this release. The release
functionality will be determined by both parties no later than August 1, 1995
and will include resolution of any and all outstanding defects from the June
30 release.
Defect #46, LANLink Connection* (disconnect function to be delivered
in Release 2.0)
Defect #54, Certification of Hayes Modem*
Defect #57, Provider's Carriers Don't Match Carriers' Plans*
Multiple Locations for Physicians' Table
j. Training for any new releases will occur after Wismer Martin's Quality
Assurance testing and before Certification of the new release by BCWA.
Training materials will be of a form sufficient for general publication and
review of the release documentation and training materials will be a part of
the Certification process.
2. a. Based on the letter of understanding, dated April 13, 1995 signed by both
parties (attached hereto as Exhibit E), the Master License Agreement and
Attachment A to the Master License Agreement are hereby amended as follows
as they relate to Phase III affiliation:
b. The following tasks are deleted on page 13 of Attachment A:
#48 Support New HealthPlus Clinics and Providers
#49 Installations, Training Complete
#50 Affiliation Transition Plan for 990 HealthPlus sites and 170 Alaska
sites
c. The following tasks now represent Phase III affiliation for HealthPlus,
Medicaid, and Alaska through June 30, 1995 and replace #48, Support New
HealthPlus Clinics and Providers:
(1) Up to 60 hours per week for Phase III HealthPlus affiliation targeted at
the "best offer" group and Providence clinics (see Exhibit F).
(2) Up to 40 hours per week targeted at 170 Alaska sites
(3) Up to 10 hours per week of onsite training to selected, currently
installed clients to encourage network utilization.
(4) Up to 20 hours per week of site visits to selected, currently installed
clients to: - analyze business process changes that would optimize network
utilization
Page 3
<PAGE>
LICENSE AGREEMENT
BETWEEN
WISMER MARTIN("WM") AND BLUE CROSS OF WASHINGTON AND ALASKA ("BCWA")
AMENDMENT 4
- document findings
(5) Up to 8 hours per week of W. E. Campbell III's time to visit selected
clients.
d. Provisions for installation, training and support for the Phase III sites
remain the same as stated in the Master License Agreement and will be moved
to a Work Assignment under the terms and conditions of the Master Services
Agreement, dated March 21, 1995. WM guarantees to provide these services for
Phase III upon request by BCWA. This will replace task #49, Installations,
Training Complete.
e. BCWA agrees to develop and implement the Affiliation Transition Plan,
replacing task #50, thereby reducing the second installment of the License
Fee. WM will provide BCWA with access to the below-identified staff members
between May 16, 1995 and June 30, 1995 for the purposes of interviewing,
reviewing draft copies of the Affiliation Transition Plan produced by BCWA,
and training of designated BCWA personnel. The total amount of time spent by
WM staff on these activities will not exceed 50 hours.
Patty Kingsmill
Pam Desario
Elaine Johnson
Steve Herbst
John Jacobsen
David Lind
Linda Moore
Shelley Thorson
f. WM guarantees that it will complete all remaining Attachment A
deliverables (Tasks #3, #4, and #23). As such, the second installment of the
License Fee stated in Section 1.9, Compensation, of the License Agreement,
dated January 25, 1994, has been modified as follows:
$750,000 Second installment
-525,000 Paid April 18, 1995
- 10.500 Withheld for Deletion of Affiliation Transition Plan
--------
$214,500 Remaining to be paid by BCWA
Page 4
<PAGE>
LICENSE AGREEMENT
BETWEEN
WISMER MARTIN ("WM") AND BLUE CROSS OF WASHINGTON AND ALASKA ("BCWA")
AMENDMENT 4
The remaining portion of the second installment of the License Fee is payable
as follows:
(1) $100,000 Upon Certification, Delivery, Release Technical Training and
Placement into Escrow of Release 2.0
(2) 12,500 Upon Certification, Delivery, Release Technical Training,
and Placement into Escrow of Directory Services - no later
than May 29, 1995
(3) $102,000 Upon Certification, Delivery, Release Technical Training,
-------- and Placement into Escrow of the June 30 Interim Release and
completion of all remaining Attachment A deliverables
$214,500
Note: Certification will be targeted by BCWA to occur
thirty (30) days after receipt of the software for
certification testing.
g. In Section 1.9.1, the following:
"BCWA or the end user will pay Wismer*Martin an estimated amount not to
exceed $540,000 for Sm*rt Link installation, training and support for the
territory defined in 1.2.b and 1.2.c and Sm*rt Practice support for the
territory defined in 1.2.b. Activities will be charged against this
account based on the following estimated schedule per installation (per
site):"
is replaced with:
"Charges for activities representing installation, training and support
will be charged against an account based on the following estimated
schedule per installation (per site):"
BLUE CROSS OF WASHINGTON AND ALASKA WISMER MARTIN
By: Tim Frazier By: W.E. Campbell III
------------------ ----------------------
Title:Senior VP Title:EX V.P. Wismer Martin
----------------- ---------------------
Date: 6-4-95 Date: 6-5-95
----------------- ---------------------
Page 5
<PAGE>
WISMER MARTIN'S POLICIES AND PROCEDURES
FOR ON-GOING DEVELOPMENT OF THE SIRTI NET SUITE OF PRODUCTS
Wismer Martin's business is enabling the electronic exchange of
healthcare information between participating members of Healthcare
Information Networks (HIN). Towards that end, we provide technology and
management service offerings to organizations who perform a variety of roles
within a network. OUR SM*RT NET SUITE OF PRODUCTS; SM*RT Net, SM*RT ISLink
SM*RT Link for LAN and SM*RT Link for PC, is our software technology offering
for the HIN environment. Our clients for this offering are those
organizations who perform the role of Network Operator within an
enterprise-based or community-based HIN. As part of a contractual
relationship, Wismer Martin will provide the Network Operator with a license
to some or all of the SM*RT Net suite of products for themselves and their
membership and, if requested, will assist the Network Operator in
implementing these products across its membership.
The SM*RT Net product offering is targeted at "networks" of
healthcare organizations that are looking to streamline common,
intra-organization communication practices and processes. Specifically, the
offering enables organizations such as, but not limited to, physician
practices, hospitals, payors and allied care providers to electronically
exchange a common and standardized set of information transactions related to
the approval and delivery of patient care. The breadth of information
transactions exchanged will be dependent upon the type and variety of
organizations participating in the network. Electronic exchange of these
information transactions will be predicated upon the existence of a common
telecommunications infrastructure and related administrative support services
that will be implemented and supported by an organization functioning within
the HIN as the Network OPERATOR. In this role, the Network Operator will] a)
establish and maintain electronic linkages between themselves and all other
organizations participating in the HIN, b) work with membership to identify
and prioritize common information and communication needs, and c) represent
these needs to Wismer Martin.
Our target market positions the SM*RT Net product offering at the
point of intersection of two dynamic and changing industries, healthcare and
telecommunications. In order to maintain pace with the rapid evolution in
business and technology, Wismer Martin is committed to on-going development
of this suite of products. Our objective is to ensure that this development
is consistent with the needs of our Network Operator clients and the emerging
HIN market. To achieve this objective, Wismer Martin monitors industry trends
and participates in standard setting organizations. In addition, we have
implemented a structured process for communicating with our clients about
their current and projected needs. We encourage our clients to actively
participate in this process.
Wismer Martin's ongoing development efforts are driven by our
clients' business opportunities and business problems. As such, our
procedures are designed to encourage interactions between Wismer Martin and
our clients and between our clients themselves. The purpose of these
interactions is to provide all of us with an understanding of a) new and
emerging opportunities and problems and their relative e priorities, b) the
implication of these opportunities and problems on the SM*RT Net product
offering, and c) the design of the optimal solutions within the offering.
We are interested in helping all of our clients address their
healthcare information exchange needs. Some of these needs will be common]y
experienced by our client base, either immediately or in the near term Our
standard product of offering is intended to provide solutions that have, or
will have, value to the majority of our clients. Product support fees will be
the primary vehicles to fund ongoing development efforts. Occasionally,
situations may arise where client priorities necessitate accelerated
development. If additional funding is required to accelerate our standard
development efforts in accordance with our clients' needs, Wismer Martin will
look to our client base to share in those costs.
We are also concerned about information exchange needs that are
unique to a small subset of our clients. We will pursue resolution of these
needs with those clients on a custom basis. Since these solutions will be
separate and distinct from our standard product offering, the costs of custom
development and the costs of
Page l ;3/8/95
<PAGE>
supporting the "customized product" will be the responsibility of those
clients who will benefit from the implemented solution, subject to
contractual terms which may be in place with those clients.
This document will outline Wismer Martin's procedures for
communicating with our clients about their business needs related to
electronic exchange of information, the implication of those needs on the
SM*RT Net product offering, and how the standard offering will be enhanced to
address those needs. Custom development efforts are outside of the scope of
this document and will be addressed on a case by case basis. Within this
document, our policies and procedures for achieving our development objective
will be presented as:
- Structure and Organizational Considerations
- Guidelines and Process Steps
STRUCTURE AND ORGANIZATIONAL CONSIDERATIONS
The SM*RT Net suite of products is an integrated set of offerings
that will allow healthcare organizations to electronically exchange a broad
range of information. This suite of products is packaged as a set of software
and supporting materials. The software is the implementation of a set of
required business functions within a specified technology environment. The
supporting materials are the documentation and other audio/visual aids that
are essential for quality assurance and certification testing, marketing,
delivery and support of each of these offerings--individually and as an
integrated set.
Wismer Martin's responsibility is to ensure that the SM*RT Net suite
of products meets the business and technology needs of current and future
clients. Within Wismer Martin, this responsibility rests within a PRODUCT
MANAGEMENT TEAM (PMT). The PMT is chaired by the PRODUCT MANAGER, who has
oversight responsibility for bringing the initial product and on-going
product enhancements to a state that they can be released to our clients.
Membership on the PMT includes the Vice President responsible for Product
Management as well as representatives from marketing/sales, engineering,
delivery operations and support services. Additional technology-related
expertise in areas such as telecommunications, imaging, telemedicine, etc.
may be required by the PMT. The PMT will acquire advisory services in these
areas and will look to a Product Advisory Council for recommendations as to
persons or vendors who can best provide this expertise. This committee meets
on a monthly basis to a) monitor progress of ongoing development efforts, b)
to evaluate and set priorities for future enhancements, and c) to establish
the schedule and content of future releases.
In order that the needs of our current clients are adequately
represented, Client Advocates and a Product Advisory Council support the
Product Management Team. Client Advocates are designated Wismer Martin staff
members who act as liaison between Wismer Martin and one or more Network
Operator clients. In this capacity, they report to the Product Manager. The
role of the Client Advocate is to act as the communication vehicle between
the client and the Product Manager, and ultimately the PMT. The scope of the
Client Advocates role is limited to product related requirements and issues.
On-going business and operational issues related to the client-Wismer Martin
relationship and related to the network at large are outside of the scope of
the Client Advocate role.
The PRODUCT ADVISORY COUNCIL (PAC) is an advisory body which is
comprised of representatives from each of our Network Operator clients and
the Wismer Martin Product Manager. The PAC is chaired by a client
representative who is selected by the PAC membership. The role of the PAC is
to provide recommendations to the PMT about emerging business and technology
requirements and about priorities for product enhancements. To accomplish
this role, the PAC may have two working groups, a business requirements
working group and a technology requirements working group. Each group would
be chaired by a representative from the PAC. The membership of each group
will be determined by the PAC. Client Advocates may work with each group in
an advisory capacity. The working groups will be a forum for the Network
Operators to communicate between themselves about their needs and to present
recommendations to the PAC. Product enhancement requests may be
Page 2 3/8/95
<PAGE>
the result of these communications. The PAC will meet on a quarterly
basis. The working groups will meet on either a monthly or quarterly basis,
as determined by the PAC.
GUIDELINES AND PROCESS
STEPS
Wismer Martin will manage the on-going development of the SM*RT Net
suite of products as a series of release segments projected into the future.
Each segment will consist of a defined set of enhanced capabilities. The
definition of near term releases segments will have a high level of
specificity. That level of specificity will decrease as the progression of
release segments extends into the future. Needed product enhancements,
whether identified by Wismer Martin or by the client, will be assigned to a
particular release segment, developed and released according to the following
guidelines:
l. Product releases will be made on a periodic basis, the frequency of which
will be determined by the PMT. At a minimum, the frequency of these releases
will be once a year and no more than 4 times a year. The frequency of
releases will be dependent upon the range of capability enhancements, the
time requirements for completing those enhancements, regulatory requirements
and resource availability for parallel development efforts.
2. The Product Advisory Council will make recommendations related to
enhancement priorities. The Product Management Team will assign enhancements
to product release segments. These assignments will consider a) business
problem magnitude, scope and priority, and b) logical groupings based upon
similarity of function and/or integrity of design.
There will always be at least one product release segment under development,
and maybe more than one depending upon he availability of design and
engineering resources. There may be any number of projected release segments.
The level of specificity defined for each projected release segment will vary
depending upon how close that release segment is to developed.
3. Development of product re]eases by Wismer Martin will be accomplished in
three stages: design, engineering and quality assurance/testing. At the
conclusion of the design stage, designs of software and supporting materials
will be presented to the Product Advisory Council for approval or revision
suggestions. The design, along with any suggestions, will then be presented
to the Product Management Team. This design review will allow Wismer Martin
and our clients to synchronize their efforts. During Wismer Martin's
engineering and quality assurance/testing phases, our client base can
accomplish any companion development and can prepare processes and/or
materials required for introducing the new release into their HIN.
4. Releases will be made in two stages, certification and general. The
certification release will be made to Network Operators after the enhanced
product capabilities have been developed and passed Wismer Martin's Quality
Assurance processes. The purpose of this release is to allow the Network
Operators to verify that the release conforms to specifications and performs
within their operating environment. The period of time required for
certification will be determined by the PAC, but must be reasonably set to
avoid development lag time for other in-process projected release segments.
The recommended period of time for certification is 30 days. If any problems
are identified during the certification process, these problems will be
resolved by Wismer and approved by the PAC prior to general release. Each
Network Operator must specifically approve general release of the product to
its membership.
Determining, what's in a release segment
-----------------------------------------
SM*RT Net product development efforts will be responsive to changing
requirements inherent to the dynamic nature of the healthcare and
telecommunications industries. These requirements will fall into two broad
categories; a) standards or regulatory changes, or b) emerging market or
client driven needs. Wismer Martin is committed to maintaining currency with
all standards and regulations that apply to capabilities that have been
Page 3 3/8/95
<PAGE>
implemented within the SM*RT Net Suite of products. As such, the
Product Manager will take responsibility for appropriately documenting all
relevant standards-based and regulatory changes as enhancement requests and
scheduling them within a release segment. This release segment will be no
later than the one which is pending design.
Emerging market or client driven need, may be proactively identified
by Wismer Martin, or may be brought to Wismer Martin's attention by our
clients' through the use of enhancement requests. In either case, these
requirements must be described and evaluated in terms of business problem(s)
that is to be solved and the magnitude and impact of that problem across our
client base.
The following process will facilitate productive, ongoing
communication between Wismer Martin and our clients in describing product
requirements and in defining the priority for development and release of
solutions which will address them. Key steps in this process are:
1. Enhancement requests can originate from Network Operators, from the PAC
working groups or from Wismer Martin. Client-driven requests should be
provided to a designated Client Advocate and to the Network Operator's
representative on the Product Advisory Council.
Product enhancement requests should be accompanied by a specification
document that a) defines the business or technology requirement(s) in
sufficient detail that Wismer Martin engineering staff can initially produce
a rough time estimate and can later produce a detailed design, b) explains
the value of that request to a HIN (in terms of increased benefit or
opportunity cost, c) approximates the scope and magnitude of HIN membership
that would derive benefit from that enhancement.
2. The Product Manager will review all enhancement requests. If additional
clarity is needed, supporting documentation may be requested. If the request
is not technically feasible, the Product Manager will document the rationale
for presentation to the requesting client and the PAC.
3. In preparation for the PAC meeting, the Product Manager will place each
enhancement request within a projected release segment or will place it in a
"to be determined" category. The Product Manager will also prepare, revise
or verify "high level" timeframe estimates for the next release segment to
be placed in development. This information will be communicated to the chair
of the PAC.
4. The assignment of enhancements to specific release segments will be reviewed
at the quarterly meeting of the PAC. The Product Manager will record
alternatives priority and grouping recommendations related to these segments
which were identified by the PAC.
5. At their monthly meeting,, the PMT will review the PAC's recommendations and
will take one or more of the following actions, which will be communicated to
the PAC.
a. approve the assignments of enhancements to specific release segments
b. re-assign one or more enhancements to alternative release segments (this
would include moving enhancement requests from the "to be determined"
category into a defined release segment)
c. change the scope of release segments to accommodate the development of a
significant enhancement
d. assign, revise or verify a projected release date for the next release
segment
6. The Product Manager or a client may initiate a change request related to any
enhancement that has been placed in a release segment or in the "to be
determined" category. This change request would reference the appropriate
enhancement and would identify a) whether that enhancement should be moved to
a different release segment or whether the scope of the enhancement request
should be changed, and b) the rationale for that change. This change request
would be accompanied with an updated specification document.
Page 4 3/8/95
<PAGE>
Change requests will be processed in the same manner as enhancement
requests, as outlined above.
Monitoring the development of a release segment
-----------------------------------------------
Development of a release segment will begin once it is approved by
the PMT. This development process will have three phases: design, engineering
and testing/certification. The design phase will be completed once the PAC
has reviewed and the PMT has approved a design of the software and the
supporting materials. The engineering phase will be completed when the Wismer
Martin Quality Assurance Team accepts developed software and supporting
materials from the engineering group(s). The testing/certification phase will
be completed when the chair of the PAC accepts the software and supporting
materials. Key steps in this process are:
1. The SM*RT Net development team will be responsible for documenting the
design of the software and all supporting materials so as to meet the
requirements outlined in the specification which accompanied the
enhancement request. This documentation will include an assessment of the
impact of this release segment on the overall architecture of the product.
Design completion will include project plans and timeframe estimates for
the engineering and testing phases of the release.
The design will be reviewed by a review team selected by the PAC. The Product
Manager will schedule a design review within 1-1 days of completion of
product design. The review team will either approve the design or suggest
design revisions. They will also suggest acceptance criteria and a
recommended time period for Network Operators to complete the certification
review process. These findings will be communicated to the PAC for approval.
The PMT will review the design, revision suggestions and the timeframe
estimates. They will give final approval for the design and will set a
projected release date.
The Product Manager will provide the PMT and Client Advocates with
development status updates on a monthly basis and will provide development
status updates to the PAC at its quarterly meeting. The Client Advocates will
provide status updates directly to the Network Operators.
5. Upon completion of the engineering phase, the release will be tested using
the testing scenario that was approved as part of the design process. If a
particular capability is developed that requires joint testing between
Wismer Martin and one or more of the Network Operator clients, it will be
scheduled and coordinated by a representative of the Wismer Martin Quality
Assurance department.
6. Upon completion of Wismer Martin testing, all software and supporting]
materials (in draft form) will be supplied to the Network Operator clients
for certification. Problems or issues encountered by the Network Operators
during certification should be recorded and respond to their designated
Client Advocate and their PAC representative, using a defect control
process in place within their organization. The Client Advocate will report
these issues to The Product Manager for resolution.
7. During the certification process, The Network Operators must record all
identified problems and issues and immediately reopen them to their
designated Client Advocate and to their PAC representative. At the
conclusion of the certification process, the Network Operators must insure
that all problems and issues have been recorded and respond. Along with
the final report, they should indicate whether they will require a
recertification process.
Throughout the certification process, the Product Manager will review
reported problems and issues with the chair of the PAC and the reporting
Network Operator(s). Based upon the severity or scope of these issues the one
or more of the following actions will be taken:
a. Resolve the problem and release updates to all Network Operators
Page 5 3/8/95
<PAGE>
b. Defer resolution of the problem until the conclusion of the certification
process
c. Schedule resolution of the problem into a subsequent release segment.
d. Put the certification process on hold until the release can be updated and
distributed
9. The Product Manager will review the findings from the certification
process with the chair of the PAC. The chair of the PAC will make a
recommendation to the PAC about the need for a recertification process.
Based upon recommendations from the PAC, the PMT will make one of the
following determinations, and communicate that to the PAC:
a. Resolve the identified problems/issues and make a general release. Resolution
may include moving an enhancement to a later release segment.
b. Resolve the identified problems/issue and do a recertification prior to a
general release
c. Resolve the identified problem/issues and make a general release to targeted
clients while helping other clients address their specific certification
problems/issues.
Page 6 3/8/95
<PAGE>
EXHIBIT B
TO
LICENSE AGREEMENT AMENDMENT 4
SAMPLE LIST OF HISTORICAL AND CURRENT FUNCTIONALITY
SM*RT Link Version 1.0.24 - delivered June, 1994
NEW COMMUNICATIONS PARAMETERS SCREEN
Network capabilities have been added which support communications being handled
by a network file server. This includes both DIAL-UP AND WAN CONNECTIONS.
MASTER PHYSICIAN TABLE - all physician input fields are validated from the
master physician table which must be set up by supervisor.
PHYSICIAN GROUPING which allows users to be excluded from using a physician ID.
REFERRAL TYPE FIELD ADDED to message preparation screen
REFERRAL TYPE TABLE ADDED to user-defined table section
CARBON COPY OPTION ACTIVATED in preparing messages - allows for copies of a
message to be sent to other providers
RESPONSE FORWARD option activated to allow for copies of a response message to
be sent to other providers
- "RESULTS QUERIES" MESSAGE TYPE ADDED to message section
- FULL HL7 INTERFACE ADDED as part of SM*RT Link integration
SM*RT Link Version l .l .0 - delivered September, 1994
-------------------------------------------------------
- COMMUNICATIONS CAN NOW BE HANDLED AT EITHER THE LOCAL FILE SERVER OR A REMOTE
FILE SERVER if the Network supports such a connection
- QUICK PREP SCREENS ADDED to message preparation - these are consolidated data
entry screens that are specific to the type of message which is being
prepared. Data entry fields have been grouped into separate areas ("boxes")
such as "Patient," "Subscriber," and "Diagnosis."
NEW ICON ON QUICK PREP SCREENS to allow expansion of the data group to the full
set of data elements related to that group. This function can also be
triggered by pressing [F9].
NEW SCREEN CONFIGURATION MENU OPTION located under the Configuration Menu
allows one to select the version of the Message Preparation screen desired
("comprehensive" or "condensed").
F3 FUNCTION KEY ACTIVATES A COPY FEATURE in the Subscriber screen and data
entry fields which copies information from the Patient record instead of the
Guarantor record.
If the PRINT REFERRAL OPTION in the Configuration menu is selected, one will
be prompted to print every referral sent.
<PAGE>
EXHIBIT B
TO
LICENSE AGREEMENT AMENDMENT 4
SM*RT Link Version 2.0.0 - to be delivered Spring, l995
--------------------------------------------------------
SM*RT Link runs in PROTECTED MODE which means the program has access to the
computer's memory above 1 MB and frees a program from the constraints of the
standard 640KB base memory.
ELECTRONIC MAIL CAPABILITY - a new message type E-Note has been added
DIRECTORY SERVICES INQUIRY - allows the user to search the Network provider
directory and obtain information to locate a provider on the network. Provider
Table maintenance can also be accomplished using this feature.
Expanded data for providers & destinations to enhance some of the print
functions.
FULL PHYSICIAN NAME AND CLINIC NAME, INCLUDING address AND phone numbers can
now be printed on the referrals. Destination ID, E-mail address or FAX number
may now be used to address a message.
PICK LIST SORTING - SM*RT Link uses "pick list" windows for editing validated
fields. These windows eliminate the need to maintain paper lists of tables or
codes which need to be entered into specific fields. The new feature allows the
user to switch between sorting pick lists by name or description.
INSURANCE DESTINATION MAPPING - Network addresses may now be entered into the
Insurance Company table. This provides automatic message addressing to multiple
insurance companies when doing batch imports from practice/record management
applications. It also provides default addressing during normal message
preparation.
LINKAGE MONITORING - monitors the activity of transactions on a SM*RT Link hub
which appear as individual files in a specified directory or as standard queue
files for a specified directory.
ELECTRONIC NOTES GATEWAY - allows the import/export of E-notes to other EMAIL
systems or the Internet and vice versa.
STATISTICS TRACKING provides for capturing statistics at the four entry points
into the information network. Statistics are placed into a database by month.
STANDARD COMMON INTERFACE FOR ALL NLMs
NLM VERSION CONTROL CHECKING
STANDARDIZED, LEVELED, REAL TIME DEBUGGING FOR ALL NLMs
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
PROJECT WORK PLAN, TO INCLUDE IMPLEMENTATION
SCHEDULE
-------------------------------------------------------------------------------
Initial Affiliation Plan Description: 11/18/93 04/15/94
Plan for signing of selected
providers in Alaska and HealthPlus
providers. Includes resource
requirements including BC and W*M
personnel, sales goals and
benchmarks.
-------------------------------------------------------------------------------
Initial Marketing Plan Description: 11/18/93 02/08/94
Plan for marketing of Alaska Network (Complete)
and implementation of Washington
Network. Includes key strategies,
objectives, critical to success
issues. Budgets, timelines and
marketing communications programs are
included.
-------------------------------------------------------------------------------
Installation, Support Plan 01/05/94 04/15/94
Description: Includes project
strategy for Washington and Alaska by
Phase. Project schedule includes task
descriptions, Gantt and PERT charts.
Complete project procedures and
policies pertaining to accounting
interface as well as installation and
training coordination to BCWA.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ACCOUNTING POLICIES AND PROCEDURES
FOR THE WORK PLAN
-------------------------------------------------------------------------------
Policies Description: Invoiceing, 01/05/94 03/30/94
product delivery, scheduling updates,
change orders, change request impact
assessment and change order, issue
resolution.
-------------------------------------------------------------------------------
04/07/94
1
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERALES START DATE FINISH DATE
-------------------------------------------------------------------------------
Equipment for Providers 11/18/93 03/15/94
Description: Standard (Complete)
definition and pricing. Minimum and
recommended configurations.
-------------------------------------------------------------------------------
Installation Costs Description: 11/18/93 03/15/94
Standard pricing matrix for all Link (Complete)
and Smart Pratice installation
services
-------------------------------------------------------------------------------
Link Support Costs Description: 11/18/93 03/15/93
Standard pricing for Link annual (Complete)
support
-------------------------------------------------------------------------------
Inventory of Installed Base 01/05/94 04/08/94
Description: Complete inventory of
all equipment installed at a provider
site that has been purchased by BCWA.
This will be delivered after each
installation in the form of product
description and serial number.
-------------------------------------------------------------------------------
HUB INSTALATION
-------------------------------------------------------------------------------
Washington Master (Complete)
BCWA
-------------------------------------------------------------------------------
Alaska (Complete)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
DEMO SITES ON LINK
Description: Affiliate demonstratin
sites in two networks. Obtain key
specialist referral sites from each
demo site and complete circle of most
important referral patterns.
Install, train and support.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATACHMENT A
PHASE I, Page 3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERALES START DATE FINISH DATE
-------------------------------------------------------------------------------
HealthPlus
-------------------------------------------------------------------------------
5 Sites 12/93 06/30/94
-------------------------------------------------------------------------------
Referral Sites (58) 02/94 06/30/94
-------------------------------------------------------------------------------
Alaska 01/94 06/30/94
-------------------------------------------------------------------------------
Anchorage 4
-------------------------------------------------------------------------------
Fairbanks 2
-------------------------------------------------------------------------------
Juneau 1
-------------------------------------------------------------------------------
Referal Sites (35)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PARTICIPATION IN APPROVAL OF 01/25/94 04/25/94
NETWORK PERFORMANCE CRITERIA
(Reliability, Availability,
Serviceability, Speed and Cost
Effectivenss)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
APPROVAL POLICIES AND PROCEDURES
AGREEMENT
-------------------------------------------------------------------------------
Network Change and/or Administration 05/01/94
Procedures Description: Procedures
and standards will be developed for
related items below. These
procedures will include provisions
for coordination with and between the
EWHIN network.
*Help Center *Change Control
*Directory Admin *Security
*Coordination *Server Upgrades
(Note: Item 4I for internal tracking)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
3
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 4
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Participation in Software, Network Q 2, 1994
and Administration User Groups
Description: Technology and
Administration representatives will
be selected for BCWA/W*M planning
teams. The groups will act as a
steering committee for technology
change and procedure change for all
users of the network. (Note: Item 4H
for internal tracking)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ACCEPTANCE OF TECHNOLOGY
DELIVERABLE IN PROCESS
-------------------------------------------------------------------------------
Frame/Relay Network Description: 12/08/93 02/94
Certification of this network (Complete)
protocol based on published WAN
standards. The service should be
installed and provide hub service
over a local exchange company's
network. Results to be provided in
letter form.
(Note: This is item 4A for internal tracking)
-------------------------------------------------------------------------------
Certification of 32 port capability 12/08/93 04/30/94
x.25 (Note: This is itme 4K for
internal tracking)
-------------------------------------------------------------------------------
IP TCP/IP Addressing for the Network 12/08/93 02/94
(Note: 4L for internal tracking) (Complete)
-------------------------------------------------------------------------------
Wismer*Martin Support of Full 12/08/93 03/31/94
Test of all
Products and Capabilities
(Practice, Link, Hub)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
4
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJET WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 5
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Certification of X.25 Packet 12/08/93 04/05/94
Network Description: (Complete-
Certification of network recertified)
protocaol. Laboratory
testing should include
X.25 being transmitted
through a local exchange
company's services.
Results to be provided in
letter form.
(Note: This is itme 4B for
internal tracking)
-------------------------------------------------------------------------------
LAN Support 04/08/94
for SM*RT Link Description: Provide
ability for Link access to operate
network on a NewWare LAN.
Certification results to be provided
in letter form.
(Note: Item 4C for internal tracking)
-------------------------------------------------------------------------------
Link/Man Management Software 04/08/94
Description: Phase I Adding, Phase I
Deleting or Updating Users: LINK.INI;
Router Table Editing; Welcome Banner 06/30/94
Editing/Saving. Phase II Global Pahse II
table updating. Fom the LinkMan
application modify exisitin tables
and havae the updates propagated to
all other Hubls. Link/Man should
propagate and update any new users
and/or router information to the
necessary HUB's automatically. It
should also propagate and update any
changes or deletions of users and/or
router information automatically.
(Note: Item 4N for internal tracking)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
5
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 6
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Report on Certification Results of 03/31/94
Netframe Platform Description: (Complete)
Netframe could be the platform of
choice (cost savings, redundancy,
mirrored database and viable back-up
option.) Testing of SM*RT Link on
platform require for existing BCWA
server base and all new client server
business applications. Certification
results to be provided in letter
form. (Note: Item 4D)
-------------------------------------------------------------------------------
Wismer*Martin support of BCWA Testing 06/94
of Compaq Platform Description:
Compaq would be platform of choice
should Netframe not complete
certification. W*M will provide
support of BCWA testing process.
(Note: Item 4E)
-------------------------------------------------------------------------------
Deliver Technical and User Documentation 02/15/94
-------------------------------------------------------------------------------
BCWA Training on Link, HUB, and 03/31/94
Practice Description: Provide BCWA date
training for various BCWA staff and 04/01/940 -
documentation on all products and changed to fall
services. Provide training schedule into Q1
and operational documentation for
Hubs and NLM. (Note: Item 4G)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
6
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE I, Page 7
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
SM*RT LINK MESSAGE SET DEVELOPMENT
-------------------------------------------------------------------------------
1A Claims Status Q 2 1994
Description: Message set to query status of Step 1
submitted claims and provide
response. Could be lin itme level. No later than
Step 1 specification planning meeting Q 3, 1994
needed to include W*M, BCWA and MSC. Step 2
Step 2 dependent upon outcome of
planning meeting
-------------------------------------------------------------------------------
1B Eligibility Done
-------------------------------------------------------------------------------
1F Employer Electronic 03/94
Enrollment Description: HL7
specification to support transport
through WHIN so BCWA can create
message and route messages consistent
with the rest of the network. To
support Group Insight
-------------------------------------------------------------------------------
3A Results Reporting Description: 03/94 **
Message set for sending lab results
to ordering physician.
-------------------------------------------------------------------------------
3B Patient Referrals 03/94**
Description: Message set for sending (Complete)
demographics and unsurance
information to referred to physician.
-------------------------------------------------------------------------------
** Subject to change as additional participants cone on-line and Advisory
Boards are established to assist in priortization of message set development
priorities.
7
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHEMTN A
PHASE I, Page 8
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
MARKETING
-------------------------------------------------------------------------------
Corporate Identiy Description: Create 01/18/94 02/18/94
distinct identiy for networks. (Completer)
Conforms with both BCWA and national
association guidelines. Includes
approprate useage guidelines.
-------------------------------------------------------------------------------
Provider Communications Program 02/08/94 03/07/94
Concept Through Copy Description: (Complete)
Program to introduce new networks to
providers. Includes concept of
marketing communication materials and
copy to be reviewed, edited and
approved for publication.
-------------------------------------------------------------------------------
Affiiation Marketing Program, Concept 02/08/94 03/07/94
Through Copy Description: Sales Lead (Complete)
Generation Program, designed to
accelerate sales process, by pre
qualifying prospect and by providing
decision amking sales material
-------------------------------------------------------------------------------
Develop Provider Database 11/18/93 03/07/94
Description: Marketing database of (Complete)
targeted providers in Alaska and
HealthPlus providers in Washington.
Used for marketing and tracking.
-------------------------------------------------------------------------------
Establish Initial Protocol for 01/25/94 04/15/94
Exceptions To Product Intro Timeline
Description: Written method of
handling new opportunities which
don't conform to existing product
introduction timelines
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
8
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
ATTACHMENT A
PHASE I, Page 9
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
Plan and Install Telemagic Tracking 01/18/94 04/10/94
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PHASE II AFFILIATION PLAN 01/18/94 04/15/94
HEALTHPLUS (17) MEDICAID (6) -------- ---------
ALASKA (3 CITY)
DESCRIPTION: Plan for affiliation
of 17 HeathPlus and 6 Medicaid
clinics and referral sites (105)
total sites) and achieving 30
percent critical mass (51) total
sites) in three city urban areas
in Alaska. Includes resources
requirements, sales goals and
benchmarks.
-------------------------------------------------------------------------------
PARTICIPATION IN TESTING OF NETWORK TO 05/30/94 06/30/94
ENSURE PERFORMANCE CRITERIA ARE MET
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
9
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
ATTACHMENT A
PHASE II
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
INSTALLATION
Description: Complete installation and training
of Phase II sites
-------------------------------------------------------------------------------
Health Plus and Medicaid 04/01/94 09/30/94
Replace/Enhance 23 Terminal Sites
(105 Links)
-------------------------------------------------------------------------------
Alaska Critical Mass in 3 Cities 04/01/94 11/15/94
(51 Links)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SM*RT LINK MESSAGE SET DEVELOPMENT
-------------------------------------------------------------------------------
1E Electronic Notes 06/94
Description: Specification
complete - to be provided by
BCWA. Compliant with HL7 v2.2.
-------------------------------------------------------------------------------
2A Eligibility Message Set to 06/94
Include the Data in the ASC X12
Standards for Eligibility Inquiry
#270 and #271 for Fielded Data
(Note: Dependent upon stability
of ASC X12N release)
-------------------------------------------------------------------------------
2B On-line Message Priority 06/94
Description: Provides the
capability to identify, at the
Hub level, "immediate mode"
messages and assign them to a
priority queue so they can be
processed ahead of "deferred
mode" messages
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
10
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE II, Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
3C Appointment Request/Acknowledgment 09/94**
Description: Intended to provide
ability for referring physician to
request appointment and referred to
physician to acknowledge and provide
appointment date/time. (Dependent on
HL7 specification)
-------------------------------------------------------------------------------
3F Pharmacy Order Entry Description: 09/94**
Intended to provide physicians the
ability to electronically order
prescriptions from participating
pharmacy entities. Dependent upon
pharmacy participation and
integration capabilities with
pharmacy system to SM*RT Link.
(Dependent on HL7 specification,
also)
-------------------------------------------------------------------------------
3G Supplies Order Entry Description: 09/94**
Intended to provide participating
entities an electronic ordering
capability to participating vendors.
Initial thought was forms and
supplies.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
MARKETING
-------------------------------------------------------------------------------
Marketing Plan Update 07/01/94 06/15/95
Quarterly Meeting
Description: Formal quarterly
meeting to assess marketing goals
and programs, establish
benchmarks and plan future activity.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
** Subject to change as additional participants come on-line and Advisory
Boards are established to assist in prioritization of message set development
priorities.
11
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE II, Page 3
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
AFFILIATION PLAN PHASE III
Description: Plan for affiliation of remaining
targeted providers in two networks
(total 990 sites in Washington
and 170 sites in Alaska). Includes resource
requirements, sales goals and benchmarks. Also
begins planning process for expansion of
network, if appropriate.
-------------------------------------------------------------------------------
HealthPlus - Remainder Network 06/01/94 09/15/94
- Clarify and confirm remaining scope
of implementation
-------------------------------------------------------------------------------
Alaska - Rural Areas 06/01/94 09/15/94
- Clarify and confirm remaining
scope of implementation
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PARTICIPATION I TESTING OF NETWORK 08/30/94 09/30/94
TO ENSURE PERFORMANCE CRITERIA ARE MET
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
12
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE III
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
COMPLETE NETWORK EXPANSION
-------------------------------------------------------------------------------
Support New HealthPlus Clinics and 10/01/94 06/30/95
Providers Description: Affiliate,
install, train and support new
HealthPlus clinics as they sign
contracts
-------------------------------------------------------------------------------
Installations, Training Complete 10/01/94 06/30/95
Description: Complete installation
and training of 990 sites for
HealthPlus and 170 sites for Alaska
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
AFFILIATION TRANSITION PLAN 08/30/94 09/30/94
HEALTHPLUS 990 SITES
ALASKA 170 SITES
Description: Develop affiliation program
transition plan to BCWA leadership.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SM*RT LINK MESSAGE SET DEVELOPMENT
-------------------------------------------------------------------------------
1C Electronic Claims X.12 837 Set 12/94
Description: Capability exist now Step 1
through SM*RT Practice; may wish to
use different transport mechanism for Q2 1995
ECC. Step 1 - specification planning Step 2
meeting needed to include, at a
minimum, W*M, BCWA and MSC. Step 2
- Provide Different Transport
Mechanism (Dependent upon outcome of
planning meeting)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
13
<PAGE>
EXHIBIT C
TO
AMENDMENT 4
TO THE MASTER LICENSE AGREEMENT
WISMER*MARTIN PROJECT WORK PLAN DELIVERABLES
ATTACHMENT A
PHASE III, Page 2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
HEALTHCARE INFORMATION NETWORK PLANNED PLANNED
WORK PLAN DELIVERABLES START DATE FINISH DATE
-------------------------------------------------------------------------------
1D Electronic Remittance Description: 12/94
Capability exist now through SM*RT Step 1
Practice; may wish to use different
transport mechanism for ERA. Step 1 Q2 1995
- specification planning meeting Step 2
needed to include, at a minimum, W*M,
BCWA and MSC. Step 2 - Provide
Different Transport Mechanism
(Dependent upon outcome of planning
meeting)
-------------------------------------------------------------------------------
3D Request for Information 12/94**
Description: A message set that will
allow participating entities,
typically physicians, to request
information about a patient from
other participating entities. This
data could be general in nature or
specific to date of service,
procedure (CPT4), diagnosis (ICD9),
etc., or could be demographic or
eligibility related (not intended for
eligibility request, however)
(Dependent upon HL7 specification)
-------------------------------------------------------------------------------
3E Consent to Release Information 12/94**
Description: Creation of a message
set to contain data elements
contained in healthcare providers
paper consent forms. It is not
intended to be a legal replacement
for the paper form, but a metaphor of
the paper form to indicate that the
signed legal document is on file and
is effective. (Dependent upon HL7
specification)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PARTICIPATION IN TESTING OF NETWORK TO 05/30/94 06/30/95
ENSURE PERFORMANCE CRITERIA ARE MET
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
** Subject to change as additional participants come on-line and Advisory
Boards are established to assist in prioritization of message set development
priorities.
14
<PAGE>
[Wismer*Martin, Inc. Letterhead]
Exhibit E to License Agreement Amendment 4
April 13, 1995
Mr. Tim Frazier
Senior Vice President & General Manager
Blue Cross of Washington and Alaska
7001 220th St. S.W.
Mountlake Terrace, Washington 98043-2124
Dear Tim;
This letter is to document our agreement related to the level of affiliation
support that will be provided to BCWA by Wismer Martin between the date of
signature of this document and June 30, 1995.
1) Operations management, as required, to prepare and track proposals for
Phase III HealthPlus affiliation, Phase III Alaska affiliation and KPS
Affiliation.
2) Sales - Activities would include phone calls to set up a demonstration
visit and, depending upon the level of interest, a demonstration visit.
- Up to 60 hours per week for Phase III HealthPlus affiliation targeted at
the "best offer" group and Providence clinics.
- Up to 40 hours per week of Phase III Alaska affiliation targeted at the
previously agreed upon number of sites.
- Up to 80 hours per week of KPS affiliation targeted at 100 sites.
3) Consulting activities
- Up to 10 hours per week of on-site training to selected, currently
installed clients to encourage network utilization.
- Up to 20 hours per week of site visits to selected, currently installed
clients to a) analyze business process changes that would optimize network
utilization and b) document findings.
- Up to 8 hours per week of W.E. Campbell III to visit selected clients.
In return for these services, BCWA shall pay Wismer Martin an amount of
$133,868.16. Of that amount, $58,868.16 will be due and payable according to the
terms outlined in the Kitsap agreement. The balance of $~5,000 will be due and
payable on June 30, 1995.
---------------------------------- -------------------------------
Tim Frazier Ron Holden
General Manager and Vice President Chief Executive Officer
Blue Cross of Washington & Alaska Wismer Martin, Inc.
<PAGE>
SOFTWARE SUPPORT UPDATE AGREEMENT
This Agreement, made this 2nd day of November, 1994 is between WISMER*MARTIN,
INC., a corporation duly organized and existing under the laws of the State of
Washington and having its principal place of business at North 12828 Newport
Highway, Mead, Washington 99021 (hereinafter called "WM") and BLUE CROSS OF
WASHINGTON AND ALASKA, duly organized and existing under the laws of the State
of Washington and having its principal place of business at 7001 220th Street
S.W., Mountlake Terrace, WA 98043-2124 (hereinafter called "BCWA").
WHEREAS WM and BCWA have entered into a Master License Agreement, dated January
25, 1994 (hereinafter called "Master License Agreement"), for the purpose of
providing a Healthcare Information Network in BCWA's business territory,
WHEREAS WM employs service personnel, and whereas these personnel are trained to
provide certain consulting, diagnostic, and problem solving services relating to
operation of computer systems; and whereas WM provides toll-free access to those
personnel,
WHEREAS WM has developed certain software products, and whereas WM will support
and correct errors in those software products and whereas WM periodically
develops enhancements and new releases of those software products,
WHEREAS BCWA desires access to those personnel for the consulting, diagnostic,
and problem solving services hereunder defined; and whereas BCWA desires to
obtain from WM software product corrections, enhancements, revisions, and new
releases,
NOW, THEREFORE, the parties hereby agree as follows:
DEFINITIONS
1. WM SOFTWARE means the executable versions of the software products designed
and developed by WM, as listed in the Master License Agreement, along with
any physical embodiments of such software products and related documentation.
2. THIRD PARTY SOFTWARE means the executable versions of software products
designed and developed by third parties, but purchased and resold to BCWA by
WM for use on the Healthcare Information Network, along with any physical
embodiments of such software products and related documentation.
3. BCWA SOFTWARE means software products purchased directly by BCWA from third
parties or designed and developed solely by BCWA or jointly by BCWA and WM
for use on the Healthcare Information Network.
4. SOFTWARE means the combination of WM SOFTWARE, THIRD PARTY SOFTWARE, AND BCWA
SOFTWARE.
Page 1
<PAGE>
SOFTWARE SUPPORT AND UPDATE AGREEMENT
ARTICLES
1. TAXES. BCWA shall pay any taxes or charges imposed by federal, state,
municipal or other governmental authorities relating to or arising out of
this transaction.
2. FREIGHT AND INSURANCE. BCWA shall pay any freight, transit, and insurance
charges on shipments from BCWA's place of business to WM arising out of the
services provided in this Agreement. WM shall pay any freight, transit, and
insurance charges from WM to BCWA'S place of business arising out of the
services provided under this Agreement.
3. TERM. The initial term of this Agreement shall be from April 25, 1994 to
April 25, 1995 inclusive. After the initial term, the Agreement shall
automatically renew on an annual basis unless terminated by either party with
thirty (30) days prior written notice.
4. PRICING. The pricing for one-full year of support is stated in Exhibit A. The
annual fee for the first year support (three months warranty and nine (9)
months of support) for hub functions under this Agreement is $3,555.00. After
the initial term the annual support fee will not increase by more than five
percent (5%) per year unless otherwise negotiated in good faith by the
parties. If no annual support fee is negotiated within thirty (30) days of
the annual renewal period, the then-current fee shall carry over to the next
period.
5. PAYMENT. Payment is due thirty (30) days after the date of an invoice.
6. RESPONSIBILITIES OF WM. During the term of this Agreement, WM agrees to
provide the following activities hereinafter called SERVICES.
1. Consulting on the use and operation of WM SOFTWARE.
2. Issuing enhancements, revisions, or versions of WM SOFTWARE, in an
executable machine-readable format, that are generally needed to
support or expand the Healthcare Information Network during the term
of the Master License Agreement, dated January 25, 1994.
3. Providing BCWA with implementation support which
includes Software implementation, user training and
ongoing Software support, as described in Attachment A to
the Master License Agreement. WM agrees to provide an
adequate number of qualified personnel to perform these
services and will designate an Implementation Coordinator
to be the primary point of Contact for BCWA during
installation, implementation and training. (Reference the
Master License Agreement, dated January 25, 1994, Section
1.5.2, Affiliation Planning and Support.)
Page 2
<PAGE>
SOFTWARE SUPPORT AND UPDATE AGREEMENT
4. Submitting updates to BCWA for acceptance testing.
5. Assisting BCWA in acceptance or regression testing, if required.
6. Assisting BCWA in diagnosing SOFTWARE problems or malfunctions.
7. Correcting any software errors in existing or new
versions of the SOFTWARE within thirty (30) days of
written notification from BCWA. (Reference the Master
License Agreement, dated January 25, 1994, Section 3.2,
Remedies.)
8. Aiding BCWA personnel in WM SOFTWARE restart and/or data recovery.
9. Providing on-site support at BCWA for major network outages if
required by BCWA.
10 Distributing WM SOFTWARE enhancements and updates for WHIN users
only upon BCWA authorization.
11. Providing updated procedures and documentation within one week of
acceptance by BCWA of the SOFTWARE corrections or updates.
Documentation includes, but is not limited to:
- User Documentation
- Administrative Documentation
- Installation Instructions
- Operational Instructions
- Diagnostic Information
- Change log, including the person making the change and the reason
for the change.
12. Providing an escalation list for priority problem calls which includes
names of people responsible for various products, their telephone and
pager numbers.
13. Conducting weekly telephone status meetings to review outstanding issues
and problems until such time as it is mutually agreed upon that these
meetings are no longer needed.
14. Publishing and distributing to BCWA product and equipment problem alerts.
15. Making WM personnel available for service calls during the hours of WHIN
and AHIN operation (twenty-four hours per day, seven days a week).
16. Providing support and maintenance services for a fee to End Users of the
WM SOFTWARE on the Healthcare Information Network.
Page 3
<PAGE>
SOFTWARE SUPPORT AND UPDATE AGREEMENT
17. Notifying BCWA when WM products have been certified for use with
other vendors' products.
18. Participating in technical and provider WHIN/AHIN advisory groups.
19. Providing design and business case analysis on new products, if required.
20. Ensuring that nothing is done to the WM SOFTWARE which would reduce
or degrade the capability and functionality of the WM SOFTWARE for
network users.
7. SUPPORT AND MAINTENANCE. WM shall continue to make timely enhancements and
upgrades to the WM SOFTWARE to meet the needs of the Healthcare Information
Network, as long as the Master License Agreement is in effect. WM's
representations that it will continue to make enhancement, upgrades,
versions and releases of the WM SOFTWARE are material to and are relied upon
by BCWA and are crucial to BCWA's business. (Reference the Master License
Agreement, dated January 25, 1994, Section 1.5.3, Support and Maintenance.)
8. INDEMNIFICATION. WM shall save, defend and indemnify and hold
harmless, including but not limited to all reasonable expense and
costs of investigation, litigation, and all reasonable attorney
fees, BCWA against any Third Party claim arising out of the
infringement by the WM SOFTWARE of any Intellectual Property Right
of any Third Party under the laws of the United States.
9. SUCCESSORS AND ASSIGNS. BCWA may assign this Agreement or its
rights thereto to any of its subsidiaries, Affiliates, joint
ventures or other operation in which BCWA has a 50% or greater
interest, whether currently in existence or comes into existence at
any time in the future. No other assignment is permitted. Neither
Party, other than set forth herein, shall (by contract, operation
of law or otherwise) assign this Agreement or any right or interest
in this Agreement without the prior written consent of the other
Party, which consent will not be unreasonably withheld. Any
assignment not consented to by the other Party will be void. This
Agreement is fully binding upon, inures to the benefit of and is
enforceable by the successors, assigns and legal representatives of
the Parties.
10. LEGAL CONSTRUCTION. The validity and effect of this Agreement
shall be determined in accordance with the laws of the State of
Washington. Venue for any action brought to enforce any provision
of this Agreement may be laid in King County, Washington. Any
dispute arising out of this Agreement which remains unresolved
after administrative procedures and voluntary mediation shall be
submitted by either Party to mediation and mandatory dispute
resolution pursuant to the procedure set forth by the American
Arbitration Association in the city of Seattle, Washington under
the commercial rules then in effect for that Association. Each
Party shall appoint one
Page 4
<PAGE>
SOFTWARE SUPPORT AND UPDATE AGREEMENT
arbitrator who shall have knowledge of and at least ten (10) years' experience
in large-scale data processing technology and management. The two appointed
arbitrators shall select a third arbitrator who shall be an attorney with
experience in computer software law. If a Party has not appointed its arbitrator
within thirty (30) days of receipt of notice of Intent to Arbitrate, the
Association shall make such appointment within thirty (30) days of such failure.
The award rendered by the arbitrators in favor of the prevailing party shall
include costs of arbitration, reasonable attorneys' fees, and reasonable court
costs for expert and other witnesses, and judgment of such award may be entered
in the Superior Court of the State of Washington for King County; provided
however, that nothing in this Agreement shall be deemed as preventing either
Party from seeking injunctive relief (or any other provisional remedy from the
courts) as necessary to protect either Party's name, proprietary information,
trade secrets, know-how or any other proprietary rights. All travel costs
associated with the proceeding shall be borne by the Party incurring the cost.
11. ENTIRE AGREEMENT. This Agreement shall constitute the only
contract between BCWA and WM covering purchase of the SERVICES.
However, if any inconsistencies exist between this Agreement and
the Master License Agreement, dated January 25, 1994, the terms and
conditions of the Master License Agreement will prevail. This
Agreement may not be modified or amended except by an agreement in
writing between the parties hereto. The failure of either party to
require the performance of any item or obligation of this Agreement
shall not prevent a subsequent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.
IN WITNESS WHEREOF, each party has executed this Agreement as a sealed
instrument as of the date first above written.
BLUE CROSS OF WASHINGTON AND ALASKA WISMER * MARTIN, INC.
By Timothy D. Frazier By S.T. Hatch
------------------ ------------------
Title Sr. VP/GM Title President/CEO
--------------- ---------------
Date 11/2/94 Date 11/14/94
--------------------- ----------------
Page 5
<PAGE>
EXHIBIT A.1
to
SOFTWARE SUPPORT AND UPDATE AGREEMENT
between
BLUE CROSS OF WASHINGTON AND ALASKA
and
WISMER*MARTIN
Pricing for the initial full year of support is as follows:
SM*RT Link $240.00
Hub SM*RT Products 4,500.00
The actual fee for the first year will be seventy-five percent (75%) of the
above amounts due to three (3) months of warranty and nine (3) months of
support.
BLUE CROSS OF WASHINGTON AND ALASKA WISMER * MARTIN, INC.
By Timothy D. Frazier By S.T. Hatch
------------------- --------------------
Title Sr. VP/GM Title President/CEO
----------------- -----------------
Date 11/2/94 Date 11/14/94
----------------------- ------------------
<PAGE>
EXHIBIT 23.1A
CONSENT OF INDEPENDENT
CERITFIED PUBLIC ACCOUNTANTS
Wismer*Martin, Inc.
Mead, Washington
We hereby consent to the use in the Prospectus contituting a part of
this Registration Statement of out report dated June 2, 1995, relating to
the consolidated financial statements of Wismer*Martin, Inc., which is
contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO Seidman, LLP
Spokane, Washington
August 12, 1995
