As filed with the Securities and Exchange Commission on February 10, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 8090 11-2581812
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification
Number)
26 Harbor Park Drive
Port Washington, New York 11050
Telephone: (516) 626-0007
(Address and Telephone Number of Principal Executive Offices)
Bert E. Brodsky
Chief Executive Officer
National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, New York 11050
Telephone: (516) 626-0007
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Steven J. Kuperschmid, Esq. Dennis N. Berman, Esq.
Certilman Balin Adler & Hyman, LLP Sonnenschein Nath & Rosenthal
90 Merrick Avenue 1221 Avenue of the Americas, 24th Floor
East Meadow, NY 11514 New York, NY 10020
Telephone: (516) 296-7000 Telephone: (212) 768-6737
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: o _____
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
<PAGE>
statement for the same offering: o _____
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: o _____
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: o
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Registered Number of Shares to Offering Price Aggregate Offering Amount of
be Registered Per Share (1) Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock(2) 2,300,000 Shares $10.00 $23,000,000 $6,394
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants to
Purchase Common Stock (3) 200,000 Warrants $.001 $200 ----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying the
Representative's Warrants (4) $12.00 $2,400,000 $668
200,000 Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee: ---- ---- $25,400,200 $7,062
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Includes 300,000 shares of common stock that may be issued upon exercise of
a 45-day option granted to the Underwriters solely to cover
over-allotments, if any.
(3) No fee required pursuant to Rule 457(g) under the Securities Act.
(4) Pursuant to Rule 416 under the Securities Act, this Registration Statement
also covers such additional shares as may become issuable as a result of
the anti-dilution provisions contained in the Representative's Warrants.
------------------------
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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
ii
<PAGE>
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PUBLIC OFFERING
PROSPECTUS
----------------
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
2,000,000 SHARES
We Estimate That The Offering Price Of Our Shares Will Be
Between $8.00 and $10.00 Per Share.
This investment involves a high degree of
risk. See "Risk Factors," beginning
on page 7.
Proposed Trading Symbol:
NASDAQ National Market: NMHC
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Price Underwriting
To Discounts and
Public Commissions Proceeds
Per Share $8.37
Total $18,000, $1,260 $16,740,000
The underwriters have an option to purchase 300,000 additional shares
to cover over-allotments of shares.
The table above assumes an offering price of $9.00 per share.
Ryan, Beck & Co.
_______________, 1999
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Selected Financial Information . . . . . . . . . . . . . . . . . . . . . 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..27
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Certain Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 74
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . 78
Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . 79
Shares Eligible for Future Resale. . . . . . . . . . . . . . . . . . . . 82
Underwriting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . 85
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . F-1
------------------------------------
---------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS PROSPECTUS MAY
ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
-------------------------------------
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before deciding to invest in our shares. We
urge you to read this entire prospectus carefully including the "Risk Factors"
section which begins on page 8 and the consolidated financial statements and the
notes to those statements. An investment in these securities involves a high
degree of risk.
The information contained in this prospectus gives effect to certain
events which have not happened yet. In particular, this prospectus gives effect
to:
(a) a .1278447-for-one reverse split in our common stock;
(b) a reduction in the number of shares of common stock that
Health Card will have authority to issue from 200,000,000 to
25,000,000; and
(c) Health Card's election to be governed by certain recently
enacted provisions of New York State's Business Corporation
Law.
In addition, the information in this prospectus assumes that certain
other events do not happen. It is assumed throughout this prospectus that:
(a) the underwriters do not exercise an over-allotment option,
which gives them the rightto buy up to 300,000 shares from us;
and
(b) Ryan, Beck & Co., the underwriters' representative, does not
exercise the warrants to be granted to it to purchase up to
200,000 shares of common stock.
This prospectus includes forward-looking statements which involve known
and unknown risks and uncertainties or other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The words "believes," "anticipates," "plans,"
"expects," "intends," "estimates" and similar expressions are intended to
identify forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed under the heading "Risk
Factors."
In this "Prospectus Summary" section, "we," "our" and "ours" refer to
Health Card, and "you," "your" and "yours" refer to a purchaser of the shares of
Health Card offered by this prospectus.
The Company
We are a technological leader among independent companies providing
comprehensive prescription benefit management services. Our programs are
designed to:
contain the cost of prescription drugs, monitor the cost and
quality of prescription services, provide sophisticated
consulting services, and provide disease information services
1
<PAGE>
to sponsors of prescription benefit plans. Sponsors of prescription benefit
plans managed by us include managed care organizations, local governments,
unions, corporations and third party health care plan administrators. We focus
our marketing efforts on prospective sponsors with plans covering up to 100,000
participants, although we also seek and service sponsors with plans covering
less or significantly more plan participants. As of January 1, 1999, plans
managed by us covered over 430,000 eligible employees, retirees, members and
their dependents.
We provide sponsors with integrated prescription benefit management
services, including:
electronic point-of-sale pharmacy claims management, retail
pharmacy network management, mail pharmacy management, benefit
design consultation, preferred drug management programs, drug
review and analysis programs, consulting services, disease
information services, data access, reporting and information
analysis, and physician profiling.
See "Business."
We began our business as a provider of computerized prescription claims
processing services to sponsors. Subsequently, we grew to become a leading
independent provider of prescription benefit management services in the Long
Island, New York region. In 1995, our management began to redirect the focus of
our business, with the goal of becoming a leading national independent company
providing comprehensive prescription benefit management services. In particular,
we concentrated on (a) attracting a management team with significant industry
experience, (b) implementing a nationwide marketing effort and (c) enhancing our
information systems. During the period July 1, 1995 to January 1, 1999, our
network of participating pharmacies grew to over 42,000; during the same period,
the number of plan participants covered by sponsors' plans grew approximately
89% from approximately 230,000 to over 430,000. Revenues for the fiscal year
ended June 30, 1998 increased 40% as compared to revenues for the fiscal year
ended June 30, 1997. Revenues for the three months ended September 30, 1998
increased 55% as compared to revenues for the three months ended September 30,
1997.
As part of our business strategy, we intend to acquire complementary
companies and other strategic assets, in order to increase revenues, realize
operating efficiencies and expand the scope of our services. In addition, we
intend to
expand our sponsor base,
improve our information systems,
expand our consulting and disease information services, and
establish strategic relationships.
See "Risk Factors" and "Business."
2
<PAGE>
Prescription benefit management companies evolved to address the need for
efficient, cost-effective drug delivery mechanisms. Despite cost containment
efforts in the health care industry, continued advances in medical technology,
new drug development and increasing drug utilization have led to significant
increases in related health care costs, creating a need for more efficient
systems. Industry sources estimate that 1997 U.S. purchases for prescription
drugs totaled approximately $83 billion, of which purchases from retail outlets
were approximately $46 billion and purchases from mail order were approximately
$9.0 billion. Industry sources indicate that prescriptions managed by
prescription benefit management companies represent an increasing proportion of
such purchases.
We believe that the foregoing trends in the pharmaceutical industry will
foster greater consolidation within our industry, as many of the smaller
prescription benefit management companies will find it increasingly difficult to
address the sophisticated needs of health plan sponsors. We also believe there
is an increasing demand among these sponsors for comprehensive plan consulting
services and disease information services, as cost containment becomes more
dependent on improvements in the quality of care. Our consulting and disease
information services are being developed to address these needs through the use
of traditional prescription benefit management services combined with an
outcome-oriented focus and sophisticated information systems. See
"Business--Services-Consulting Services and Disease Information Services."
Our executive offices are located at 26 Harbor Park Drive, Port
Washington, New York 11050 and our telephone number is (516) 626-0007.
3
<PAGE>
The Offering
Common Stock Offered ...................2,000,000 shares
Common Stock Outstanding
After the offering....................7,312,497 shares(1)
Use of Proceeds..........................Future acquisitions, enhancement of
information systems, expansion of sales
and marketing efforts, and working
capital. See "Use of Proceeds."
Risk Factors.............................This.Offering involves a high degree of
risk and immediate and substantial
dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq National Market Symbol.. "NMHC"
(1) Excludes 300,000 shares issuable upon the exercise of the underwriters'
over-allotment option. Excludes 200,000 shares of common stock issuable
upon the exercise of the representative's warrants.
See "Underwriting-The Representative's Warrants."
4
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Information
Income Statement:
Three Months Ended
Years Ended June 30, September 30,
-------------------- --------------
1996 1997 1998 1997 1998
==== ==== ==== ==== ====
<S> <C> <C> <C> <C> <C>
Revenues $56,265,033 $71,288,411 $99,988,921 $20,114,066 $31,253,445
Cost of claims 50,799,422 64,176,942 91,230,939 18,338,909 27,736,990
=========== ============ ========== ========== ==========
Gross profit 5,465,611 7,111,469 8,757,982 1,775,157 3,516,455
Selling, general and
administrative 4,216,259 5,855,282 7,192,027 1,617,517 2,246,410
============ ============== ========= ========= =========
Operating income 1,249,352 1,256,187 1,565,955 157,640 1,270,045
Other income
(expense) 21,530 42,595 (180,507) 48,336 (62,611)
------ ------ --------- ------ --------
Income before income
taxes............. 1,270,882 1,298,782 1,385,448 205,976 1,207,434
Provision for income
taxes (benefit)... (185,275) (189,984) 569,000 85,000 502,000
--------- --------- ------- ------ -------
Net income $ 1,456,157 $ 1,488,766 $ 816,448 $ 120,976 $ 705,434
============ ============= ============ ============ ============
Earnings per common
share:
Basic $ 0.47 $ 0.46 $ 0.16 $ 0.02 $ 0.14
Dilut $ 0.35 $ 0.37 $ 0.16 $ 0.02 $ 0.14
Weighted average shares outstanding:
Basic $3,093,085 $ 3,258,459 4,966,885 4,952,957 4,971,578
Dilut $4,182,909 $ 4,008,481 4,969,166 4,961,211 4,971,578
</TABLE>
5
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1998
June 30, 1998 Actual As Adjusted (1)
---------------------- ------ ------------
Cash and cash
<S> <C> <C> <C>
equivalents $ 1,305,792 $ 1,873,376 $18,068,376
Working capital (8,658,324) (8,337,305) 7,857,695
(deficit)............
Total assets 18,343,900 21,204,548 38,899,548
Long-term debt (including
current portion)..... 9,742 6,336 6,336
Total stockholders' equity
(deficit)............ (2,006,282) (1,329,323) 16,365,677
</TABLE>
(1)Adjusted to give effect to the closing of the offering and the application of
the estimated net proceeds therefrom as if the offering had been consummated
on September 30, 1998.
Supplemental Data:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30,
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Retail pharmacy claims processed.......... 1,675,490 1,990,976 2,482,127 508,634 692,956
Mail pharmacy claims processed............ 29,453 62,618 131,513 23,068 43,581
Estimated Plan Participants 271,784 291,446 401,226 317,145 403,178
(at period end).........................
</TABLE>
6
<PAGE>
RISK FACTORS
An investment by you in the shares offered by this prospectus is
speculative and involves a high degree of risk. You should only purchase these
securities if you can afford to lose your entire investment. Before making an
investment, you should carefully consider the following risks and speculative
factors, as well as the other information contained in this prospectus. As
discussed in the Summary, this prospectus contains forward-looking statements
that involve risks and uncertainties. The words "believes," "anticipates,"
"plans," "expects," "intends," "estimates" and similar expressions are intended
to identify forward-looking statements. The actual results of our operations
could be significantly different from the information contained in those
forward-looking statements. Those differences could result from the risk factors
discussed immediately below, as well as factors discussed in other places in
this prospectus.
Working Capital Deficit; Possible Inability to Pay Pharmacies
The following table sets out our working capital deficits and
stockholders' deficits for the periods indicated in the first column.
<TABLE>
<CAPTION>
Period Ended Working Capital Deficit Stockholders' Deficit
------------ ----------------------- ---------------------
<S> <C> <C>
Year ended June 30, 1996 $ 7,530,351 $ 3,663,125
Year ended June 30, 1997 7,436,095 2,343,671
Year ended June 30, 1998 8,658,324 2,006,282
Three months ended September 30, 1998 8,337,305 1,329,323
</TABLE>
We believe that the net proceeds of the offering, together with our
existing capital resources and anticipated revenues from operations, will enable
us to maintain our current and planned operations for at least 24 months after
consummation of the offering. If our plans or assumptions change or prove to be
inaccurate, or if the net proceeds of the offering or cash flow prove to be
insufficient, we may seek to minimize cash expenditures and/or obtain additional
financing in order to support our plan of operations. However, we cannot assure
you that additional financing will be available when needed or on terms
acceptable to us, if at all. See "Risk Factors-Possible Need for Future
Acquisition Financing" and "Use of Proceeds."
Under our agreements with pharmacies in our pharmacy network, we are
generally required to reimburse them within a limited period of time after we
receive claims. We try to process claims promptly and obtain funds from sponsors
before reimbursing the participating pharmacies; still, we cannot assure you
that the sponsors will pay us on time. In the past, we have often not complied
with the payment schedule in our agreements with certain pharmacies. See
"Business-Services-Pharmacy Network-Pharmacy Relations". We do not believe that
there has been any material negative effect on our business resulting from any
such non-compliance and we believe our relationships with pharmacies are
generally good. Since November, 1997, we have generally been in substantial
compliance with the
7
<PAGE>
payment terms of our agreements with pharmacies. However, pharmacies may demand
strict adherence in the future to those payment terms; we cannot assure you that
we will remain in compliance with these agreements. If any sponsor fails to pay
us on a timely basis, we may be required to pay participating pharmacies before
being paid by that sponsor. In addition, if any sponsor fails to pay us at all,
we will still be liable to our participating pharmacies for reimbursements.
Lack of Participation by Pharmacies in our Pharmacy Network
The continuation of our services depends heavily on the participation
of pharmacies in our pharmacy network, which we cannot guarantee. If a
substantial portion of the pharmacies were to discontinue their arrangements
with us and/or we were unable to maintain a nationwide pharmacy network, we
could be unable to market our prescription benefit management services and
sponsors could discontinue their relationships with us. Consequently, we could
experience a loss of revenues, which could have a material adverse effect on our
business, operating results and financial condition.
Loss of One of Our Major Sponsors Would Significantly Impair Our Business
We depend on a small number of sponsors for a significant portion of
our revenue. See "Business-Sponsors." For the fiscal year ended June 30, 1998,
the following sponsors accounted for the percentage of revenue indicated in the
following table:
<TABLE>
<CAPTION>
Sponsor Percent of Revenues Number of Participants
<S> <C> <C>
Vytra Health Plans Long Island, Inc. 42% 166,840
Suffolk County 15% 38,893
</TABLE>
We provide prescription benefit management services to Vytra Health
Plans Long Island, Inc. (formerly known as ChoiceCare Long Island, Inc.) under
two separate arrangements. The first one renews annually from year to year
unless terminated by either party. Pursuant to a series of letters and
conversations between the parties, we also provide services to Vytra under a
second arrangement that began under a written agreement that, as amended,
expired in December 1998. We are in the process of negotiating a formal
amendment to the prior written agreement which we expect would, among other
things, renew and extend the term of the expired written agreement on a modified
basis. See "Business-Sponsors-Vytra." We cannot be certain that a definitive
agreement with Vytra will be signed, or that the agreement (if any) that is
signed will contain terms as favorable to us as the current arrangement. This
second arrangement accounted for approximately 33% of our revenues for the
fiscal year ended June 30, 1998. If we were to lose Vytra as a sponsor, or lose
a significant portion of Vytra's business, it would have a material adverse
effect on our business, operating results and financial condition. It is
possible that Health Card's cost of providing services under the second
arrangement could exceed the revenue received from Vytra thereunder.
Under the first arrangement we have committed to pay participating
pharmacies specified prices for certain drugs. We have verbally advised Vytra
that we have been paying less than the prices to which
8
<PAGE>
we have committed. Although Vytra has not objected, we cannot assure you that
Vytra will not object in the future, nor can we assure you that its objection
will not result in our losing the contractual relationship with Vytra under this
agreement, or all of its business. If we were to lose Vytra as a sponsor, or
lose a significant portion of Vytra's business, it would have a material adverse
effect on our business, operating results and financial condition. This
agreement accounted for approximately 9% of our revenues for the fiscal year
ended June 30, 1998.
We have been providing prescription benefit management services to
Suffolk County, a municipal corporation of the state of New York, since 1992. We
are currently providing services to Suffolk County under an oral agreement,
terminable by either party, the economic terms of which are otherwise
substantially similar to those of a written agreement that expired on December
31, 1998. In September, 1998, we received a Request for Proposal from Suffolk
County which had the effect of informing us that it had elected not to extend
the then-current agreement. We submitted a proposal in response to the request.
In February, 1999, Suffolk County provided us with a proposed amendment to the
written agreement which, among other things, would extend the term until
December 31, 1999. Neither party has signed the amendment as of the date hereof.
We cannot be certain that a definitive agreement with Suffolk County will be
signed, or that the agreement that is signed (if any) will contain terms as
favorable to us as the current arrangement. See "Business-Sponsors-Suffolk
County." If we were to lose Suffolk County as a sponsor, or lose a significant
portion of Suffolk County's business, it would have a material adverse effect on
our business, operating results and financial condition. The Suffolk County
agreement accounted for approximately 15% of our revenues for the fiscal year
ended June 30, 1998.
On December 1, 1997, we began providing prescription benefit management
services to Operating Engineers Trust Funds, IUOE Local 12, a construction
workers' union, covering approximately 40,000 plan participants. As of the date
of this prospectus, we are providing services to the Engineers Union pursuant to
an oral agreement. We cannot be certain that a definitive agreement with the
Engineer's Union will be signed, or that the agreement (if any) that is signed
will contain terms as favorable to us as the current oral agreement. For the
three months ended September 30, 1998, Operating Engineers accounted for
approximately 13% of our revenues.
If any of these sponsors choose to discontinue using our services, our
business, operating results and financial condition may be materially adversely
affected. If we lose any of these sponsors, we cannot assure you that we will be
able to replace them with additional sponsors. See "Risk Factors-Government
Regulations" and "Business-Sponsors".
Possible Violation of Confidentiality Agreements Could Cause the Loss of a Major
Sponsor or Otherwise Impair Our Business
We are a party to numerous agreements which contain confidentiality
provisions. Among these agreements are our agreements with Vytra and with our
rebate administrator, Foundation Health Pharmaceutical Services, d/b/a
Integrated Pharmaceutical Services. The confidentiality provisions prohibit us
from disclosing either the terms of the agreement or the existence of the
agreement. We have not obtained waivers of these confidentiality provisions from
any of the other parties to these agreements. Thus, the disclosure in this
prospectus which describes these agreements, and/or the filing of any such
agreement as an exhibit to the registration statement, may lead to a violation
of the terms of such agreement. Such a violation could in turn lead to a loss of
business or other material adverse effect on our
9
<PAGE>
business, operating results and financial condition.
Competition from Other Prescription Benefit Managers, Including Those Affiliated
with Drug Companies and Retail Pharmacy Chains, and the Effect of Sponsors
Administering Their Own Plans
We compete with numerous companies which provide the same or similar
services, such as:
Express Scripts, Inc./ValueRx National Prescription Administrators, Inc.
PCS Health Systems, Inc. Diversified Pharmaceutical Services, Inc.
Merck-Medco Managed Care, Inc. Advance Paradigm, Inc.
Provantage, Inc. MedImpact Health Care Systems, Inc.
Promark Holdings, Inc. Pharmaceutical Care Network
Consultec, Inc.
Our competitors include other independent prescription benefit
management companies, those affiliated with drug companies and those affiliated
with retail pharmacy chains. Some plan sponsors may prefer an unaffiliated
manager to assure that drugs are offered solely on the basis of cost and
efficacy of the drug.
In-house plan administration is an option for larger health maintenance
organizations (HMOs) or third party administrators, but has not generally been
done by sponsors of the size that we typically target. This potentially
decreases the market available for prescription benefit management companies,
but the decrease is generally in the large sponsors and would have more of an
impact on those of our competitors that target such large sponsors.
Many of our competitors have been in existence for longer periods of
time, are far better established than we are, have broader public recognition,
and/or have financial and marketing resources substantially greater than ours.
Some have more experienced management and have far more extensive facilities
than those which are now, or in the foreseeable future will become, available to
us. In addition, present and potential sponsors may find it desirable to perform
for themselves the services we render. We cannot assure you that we will remain
competitive or that we will successfully market prescription benefit management
services to existing and new sponsors. Furthermore, we cannot predict whether
consolidation and alliances within the prescription benefit management industry
will adversely impact the operations and prospects for independent prescription
benefit management companies like us. See "Business- Competition."
Changes in the Health Care Reimbursement System
The health care industry is subject to changing political, economic and
regulatory influences that affect the procurement practices and operations of
health care organizations. Our services are designed to function in the health
care financing and reimbursement system currently being used in the U.S. We
believe that the commercial value and appeal of our services may be adversely
affected if the current health care financing reimbursement system were to be
materially changed. During the past several years, the United States health care
industry has been subject to increased governmental regulation of (among other
things) reimbursement rates. We cannot predict what effect, if any, such factors
might have on our business, operating results and financial condition.
10
<PAGE>
Other regulatory or market-driven factors could also have unpredictable
effects on our business, operating results and financial condition. However, any
change that reduces our profitability either directly by reducing our fees or
compensation or indirectly by increasing our costs to do business, would
adversely effect our business, operating results and financial condition.
Consolidation and Alliances Among Sponsors and Health Care Providers
Over the past several years, insurance companies, HMOs and managed care
companies have experienced significant consolidation. Although consolidation is
much more common among HMO's and similar companies whose size is generally
beyond the current capacity of our resources, our sponsors have been and may
continue to be subject to consolidation pressures. Consolidation, alliances and
intense competition in the health care industry have caused us to lose sponsors
in the past. Although we may benefit from certain consolidations and alliances
in the industry, it is possible that we will lose sponsors as a result of
acquisitions and alliances, and that consolidations, alliances and related
activity will have a material adverse effect on our business, operating results
and financial condition. We cannot assure you that any new sponsors and any
renewal of current contracts will offset the revenues lost from sponsors
electing not to use our services as a result of a consolidation or alliance. See
"Business-Sponsors."
Furthermore, many health care providers are consolidating to create
integrated health care delivery systems with greater regional and national
market power. As a result, these merging systems could have greater bargaining
power, which may lead to erosion of prices for our services. Our failure to
maintain adequate margins could have a material adverse effect on our business,
operating results and financial condition.
Dependence On Our Chairman of the Board and Other Executive Management
We believe that our future success depends significantly upon the
continued services of our senior management, in particular Bert E. Brodsky,
Chairman of the Board, Chief Executive Officer and a director, and Gerald
Shapiro, Vice Chairman of the Board. The loss of the services of either Mr.
Brodsky or Mr. Shapiro and of other persons in senior management could have a
material adverse effect on our business, operating results and financial
condition. Upon the consummation of the offering, we will obtain a $1,000,000
key-person life insurance policy on Mr. Brodsky.
Our success is also partly dependent upon our ability to hire and
retain additional personnel. Qualified personnel are generally in great demand
in our business, and our inability to recruit them could have a materially
adverse effect on our business, operating results and financial condition. We
cannot assure you that we will be able to retain our current management or other
personnel, or that we will be able to attract and retain additional qualified
personnel in the future.
Dependence on Rebate Programs
Pursuant to an agreement with Foundation Health Pharmaceutical
Services, d/b/a Integrated Pharmaceutical Services, a rebate administrator, we
submit to Integrated claims for rebates relating to certain prescriptions filled
under plans that we administer. Integrated submits our rebate claims (along with
rebate claims of others) to the appropriate drug manufacturer. Currently, the
volume of claims we process may not be sufficient to enable us to obtain rebates
directly from drug manufacturers in the same amounts Integrated can obtain for
us. This agreement is terminable on 90 days prior notice by either party. If
Integrated terminates the agreement, that could have a material adverse effect
on our business, operating
11
<PAGE>
results and financial condition. However, it is likely that we could contract
with another administrator of comparable size and quality without appreciable
disruption. We cannot assure you that the Integrated agreement will not be
terminated. A more significant risk, economically, is that drug manufacturers
might cease to offer rebates on their products. Although we are unaware that any
such cessation is planned for the drugs subject to the rebate programs, and we
believe that abandonment of such programs is unlikely, we cannot be certain that
manufacturers will continue to offer rebates. If such rebate programs were to be
discontinued, it could have a material adverse effect on our business, operating
results and financial condition. Pursuant to our agreement with Integrated, we
have agreed to abide by the terms of Integrated's agreements with various drug
manufacturers. We have been provided with summaries of the rebate programs which
we understand to be the subject of those agreements, but have not been provided
with the complete agreements. Although we have not experienced any problems in
the past, we cannot assure you that the terms of those agreements will not have
a material adverse effect on our business, operating results and financial
condition.
Certain of our sponsors, including Vytra and Suffolk County, are
entitled to a portion of rebates received by us. Our participation in such
rebate programs and rebate sharing programs may expose us to investigation
and/or punishment under certain laws, rules and regulations including the
federal Anti- Kickback Statute and state referral prohibitions, one or more of
which may be violated by such conduct. See "Business--Government Regulation
Generally;" "Business--Anti-Kickback Regulation;" and "Business-Pharmacy
Regulations." Our failure to obtain certain rebates could cause us to be in
violation of agreements with certain sponsors and could negatively impact our
competitive ability. See "Risk Factors-Government Regulation."
Government Regulation
The health care industry is highly regulated at the federal, state and
local levels. These regulations include:
- federal Anti-Kickback law,
- anti-trust laws,
- Food and Drug Administration rules and regulations,
- the Employee Retirement Income Security Act of 1974 (ERISA),
- the laws of various states relating to health, insurance and
utilization review, and
- the laws of various states relating to the licensing and regulation of
professionals (including pharmacists), pharmacies and of independent
practice associations.
Violations of these laws, rules and regulations is punishable in a variety of
ways including criminal and/or civil penalties, injunctive relief and other
sanctions, including the loss of rights to participate in government funded
health care programs, including Medicare and Medicaid, and loss of licensure or
right to conduct business. Some violations may also give rise to claims for
damages by individuals for themselves or on behalf of the U.S. government.
Some aspects of our business may be subject to differing
interpretations of applicable laws, rules and regulations by the various
agencies responsible for their enforcement. We have not obtained, nor applied
for, any opinion of any regulatory or judicial authority that our business
operations and relationships are in compliance with applicable laws, rules and
regulations. We have reviewed our
12
<PAGE>
operations for areas of non-compliance and, to the extent practicable, we are
taking steps to comply with such laws, rules and regulations. We cannot assure
you that:
o such efforts have been or will be successful,
o our interpretation of the applicable laws, rules and
regulations will be correct, or
o the laws, rules and regulations and/or the
interpretation thereof will not change from time to
time.
As a result, we may be subject to punishment for violations of such laws, rules
and regulations by any one or more of the sanctions described above, any one of
which may have a material adverse effect upon our business, operating results
and financial condition. Moreover, if our practices are challenged in any
judicial or regulatory proceeding, regardless of the merits of such challenge,
the challenge and its related defense costs could have a material adverse effect
on our business, operating results and financial condition. See
"Business--Government Regulation Generally;" "Business-Anti-Kickback
Regulations;" "Business--Independent Practice Association Regulations;"
"Business-State Insurance Regulations;" and "Business--Pharmacy Regulations";
"Business-Utilization Review Regulations;" "Business--FDA Regulation;" and
"Business Regulation in Other States."
Insurance Regulations
We have arrangements with two sponsors under which we receive either a
maximum payment, or payments based on the number of participants enrolled in the
plan. Under such arrangements, we assume the financial risk that amounts we pay
to pharmacies on behalf of plan participants for prescription drug costs may
exceed the revenue we receive from the sponsor for our services. Under New York
law (and possibly the laws of other jurisdictions in which we do business), such
risk sharing arrangements may constitute engaging in the business of insurance
without a license. New York regulations permit risk sharing arrangements between
an HMO and an independent practice association (IPA) or provider. In order to
avail ourselves of this permitted structure, we have acquired an IPA and intend
to enter into all future risk sharing arrangements with HMOs and providers in
the name of the IPA. It should be noted, however, that our existing arrangement
with Vytra was not entered into by our IPA. We can not be sure that our past
non-compliance in this regard will not be investigated and/or punished by state
regulators. Moreover, we cannot be sure that we will succeed in getting Vytra or
any other HMOs or providers to accept our IPA as their contract partner.
In addition, risk sharing arrangements with a non-HMO sponsor may,
under certain circumstances, constitute enragement in the business of insurance.
We have one risk sharing arrangement with a sponsor that is not an HMO. While
that arrangement is not material to our business, we could be found to be
engaged in the business of insurance without a license and be subject to the
consequences thereof. See "Business-Insurance Regulations."
Anti-Kickback Regulations
The Criminal Penalties for Acts Involving Federal Health Care
Programs Act, commonly referred to as the Federal Anti-Kickback Statute
(the "Anti-Kickback Statute"), prohibits the knowing and willful
solicitation, receipt, offer or payment of any remuneration in return
for the ordering, arranging for or recommending the purchase or
ordering of an item or service for which payment is funded in whole or
in part by a United States government or state health care program.
Certain state laws contain similar
13
<PAGE>
provisions that may extend prohibitions to items or services that are paid for
by non-governmental third-party payors, as well as those who pay directly for
their own health care. Violation of the Anti-Kickback Statute constitutes a
felony and may also result in substantial civil penalties and exclusion from
participation in Medicaid and Medicare programs.
A fraud alert issued by the Office of the Inspector General ("OIG") of the
Department of Healthand Human Services in 1994 indicated that investigations may
be warranted in cases where cash payments are offered in exchange for, or based
on, prescribing or providing specific prescription products, especially if
payments are based on the volume or value of business generated for the drug
company. An investigation may also be called for if payments are given to a
patient, provider or supplier for changing a prescription or recommending or
requesting such a change, from one product to another, unless that payment is
fully consistent with a statutory safe harbor or other Federal program governing
the reporting of prescription drug prices. The practices identified in the fraud
alert were also condemned because they may pose a danger to patients as a result
of the offering or payment of remuneration interfering with a physician's
judgment in determining the most appropriate treatment for a patient, and
because they may increase the Federal government's costs of reimbursing
suppliers for products.
While we believe that our practices comply with the Anti-Kickback Statute
and do not violate the principles set forth in the fraud alert, we cannot assure
you that:
o our joinder in agreements between Integrated and various
pharmaceutical companies,
o our receipt of rebates derived from our relationship with
Integrated, whether or not passed on to current or future sponsors,
o our involvement with the therapeutic interchange program or
formulary management programs,
o our entering into future agreements with sponsors that receive all
or part of the funds used to obtain pharmacy benefit services directly
or indirectly from a federal health care program, or
o our use of Integrated's formulary along with the Pharmacy &
Therapeutics Committee's compilation of our suggested formulary, or o
any of the preceding activities, viewed independently or in
conjunction with each other
will not be challenged or found to violate the Anti-Kickback Statute or any
state's anti-kickback law and as a result be subject to one or more of the
punishments described above. See "Risk Factors-Government Regulations."
In the last few years, private citizens have commenced litigation,
known as Qui Tam actions, against health care providers and suppliers on behalf
of the Federal government alleging that such providers and suppliers filed false
claims with the Medicare and/or Medicaid programs. While the law on the issue is
still unsettled, if our activities with respect to pharmaceutical manufacturers'
rebates were challenged as a kickback in such a Qui Tam proceeding and
determined to form the basis for a false claim under the Anti-Kickback Statute,
we could be subject to substantial penalties and treble damages in addition to
the punishments described above. See "Risk Factors--Government Regulations." See
"Business--Anti-Kickback Regulations."
14
<PAGE>
Pharmacy Regulations
The laws of the State of New York (and possibly the laws of other
jurisdictions in which we do business) prohibit unlicensed persons from engaging
in the practice of pharmacy. While we believe that our business is the provision
of management and administrative services with respect to prescription benefit
plans and not the practice of pharmacy, we do engage in certain practices which
could be interpreted to involve the practice of pharmacy, for example,
maintenance of our Pharmacy & Therapeutics Committee. If our operations are
investigated by the New York State Department of Education (the agency charged
with regulating and licensing the pharmacy profession), we can give no assurance
that we would not be found to be practicing pharmacy without a license. In order
to preclude a finding that we are engaged in the unauthorized practice of
pharmacy, we applied to become a licensed pharmacy in New York. Although we have
been advised that our pharmacy license has been approved, we have not received
official documentation of that fact. We expect the pharmacy license to be issued
soon. There can be no assurance that the burdens of being a licensed pharmacy
will not outweigh the risks we are trying to avoid by becoming a licensed
pharmacy. We can not be sure that the Department of Education will not
investigate our activities and determine that we had been engaged in the
practice of pharmacy without a license and seek to impose punishments for our
past activities. See "Business-Government Regulations Generally;" and
"Business--Pharmacy Regulations."
In the course of its business, Health Card receives certain information
regarding the drug usage and inferred health status of plan participants. Some
of this information may be considered personally identifiable health information
(or similarly designated personal health information) under the laws of New York
(and under the laws of other states in which we do business and under proposed
federal legislation) and, as such, be entitled to certain privacy rights. We
share the information we receive with our sponsors. Our activities with regard
to this health information of plan participants could be found to violate the
laws, rules and regulations of various states regarding the confidentiality of
personally identifiable health information and subject us to one or more of the
punishments described in the introductory paragraphs of this Risk
Factor--Government Regulations. See "Business--Government Regulation Generally;"
and "Business--Pharmacy Regulations."
Professional Licensure Regulations
All states, including New York, regulate the practice of medicine,
nursing and other licensed health professions. Health Card's performance of
activities that would be deemed by a state's regulatory authority to constitute
the practice of medicine, nursing, or any other licensed health profession
without the proper license could result in various forms of punishment. We do
not believe that our activities as a pharmacy benefits manager, including but
not limited to providing disease information services, drug usage monitoring
programs, preferred drug management, and consulting services, constitute the
practice of medicine, nursing or any other licensed health profession. However,
we cannot assure you that a regulatory authority in New York, or any other state
in which we engage in such activities, would not assert a contrary position and
subject us to the punishments described above.
Independent Practice Association Regulations
We recently acquired an independent practice association in New York
State. We intend that this subsidiary will be the contracting party with respect
to any contracts with HMOs and providers that contain financial risk sharing
provisions. This subsidiary is subject to the regulatory authority of the New
York State Department of Health (the "DOH"), and its contracts with HMOs, and
providers would be subject
15
<PAGE>
to the DOH's contract drafting guidelines and will require submission to and
approval by the DOH. We cannot assure you that the DOH will approve the
arrangements between our IPA and HMO sponsor, in particular, our arrangement
with Vytra, or that any approval would be granted in a timely manner. There can
be no assurance that the DOH will not change its existing rules and regulations
or the interpretation of them, or that the DOH will not impose additional
regulatory constraints on prescription benefit management companies and IPAs.
Regulation as a Third Party Administrator
Some states regulate third party administrators and may require a
license to engage in prescribed activities. New York does not regulate or
license third party administrators. We have applied for licenses to become a
third party administrator in several other states and may be required to make
such applications elsewhere. To date, we have conducted our activities without
such licenses. We cannot be sure that we will be granted such licenses at this
time, if at all, or that we will not be subject to the punishments described
above, as a result of our past conduct.
Anti-trust Regulations
Retail pharmacies have instituted lawsuits against drug manufacturers
challenging brand drug pricing practices under various state and federal
anti-trust laws. These lawsuits contend that drug manufacturers have offered
discounts or rebates to pharmacy benefit management companies while precluding
retail pharmacies from the availability of the discounts and rebates. In one
lawsuit, the parties agreed that retail pharmacies would be eligible for similar
discounts should they demonstrate the ability to affect market share in the same
or similar manner as managed care entities. Although we have not been named a
party to that lawsuit, we could face increased competition from pharmacies and
pharmacy chains. Beyond these specific instances, federal and state anti-trust
laws and trade regulations permit enforcement not only by governmental entities
but also by any person injured in business by reason of any act prohibited by
such laws or regulations. Moreover, many of these laws entitle any person
threatened with loss or damage by anti-trust violations to obtain injunctive
relief. In addition, a successful anti-trust plaintiff may be entitled to treble
damages and attorneys' fees.
ERISA Regulations
It is possible that we could be restricted from commercial activities
and relationships with pharmacies, drug manufacturers and others, if those
relationships conflicted with fiduciary duties to plan members under ERISA
statutes and regulations. These restrictions would apply only if it were
determined that we are a fiduciary under ERISA. We could be considered a
fiduciary and be subject to applicable penalties under ERISA if it were found
that we:
have discretionary responsibility for part or all of a group
plan's administration,
or exercise authority or control over the management or
disposition of the plan's assets.
FDA Regulation
The United States Food and Drug Administration ("FDA") has asserted
general authority to regulate promotional activities performed and material
disseminated by drug companies or prescription benefit management companies that
are owned, influenced by or subject to contractual relationships with drug
companies. In January, 1998, the FDA published a draft guidance concerning
certain promotional
16
<PAGE>
practices performed by such prescription benefit management companies. Among the
practices discussed in the FDA's commentary to the draft guidance were the use
of product-specific financial incentives to influence drug selection and
prescribing decisions, disease information programs, and the use of specified or
preferred drug formularies. While Health Card is neither owned, nor directly
controlled or influenced by a drug company, due to its contractual relationship
with Integrated and its joinder in agreements between Integrated and various
drug companies, there can be no assurance that some of our activities may not be
subject to FDA review and regulation as set forth in the draft guidance. In such
event, some of our activities and Integrated's rebate program may require
modification or elimination. In addition, we cannot assure you that the FDA will
not seek to increase regulation pertaining to the prescription benefit
management industry even with respect to companies that are not owned or
directly controlled or influenced by drug companies.
Utilization Review Regulations
Under the Insurance Law and Article 49 of the Public Health Law of the
State of New York, the State of New York regulates utilization review, which is
defined as the review to determine whether health care services that have been,
are being or will be provided are medically necessary. Health care services
include the provision of pharmaceutical products. In some of our contracts, we
agree to provide services described in the contracts as "drug utilization
review" and "drug utilization management." We do not believe that the services
we provide to our sponsors involve making determinations as to the medical
necessity of pharmaceutical products provided; nor do we believe that we are
involved in review activities subject to the utilization review laws. However,
we cannot assure you that either the DOH or the New York Department of Insurance
would not find otherwise, and seek to enforce one or more of the punishments
described above.
Regulation of Pharmacy Benefit Management Companies; Regulations of
Other States
We have retained special counsel to advise us about health law
regulatory matters governed by New York State laws and federal laws. We have not
retained counsel, or obtained any advisory opinion from any state administrative
or regulatory agency, regarding the laws of any other state. While New York does
not regulate pharmacy benefit management companies, some states have considered
laws applicable to such companies or activities. We can not be sure that New
York or any other state will not assert regulatory authority over us or our
activities as a pharmacy benefit management company or otherwise, now or at any
time in the future; there is a further risk that if they do assert such
regulatory authority, we will not be permitted to conduct our activities in
those states as we currently conduct them, or at all. While we have no knowledge
of any violation of any other state's laws, rules or regulations (other than
with respect to becoming a third party administrator) and have not received
notice of any such violation, we cannot be sure that our activities in such
states are in compliance with all applicable laws, rules and regulations of such
states, and thus, our activities in those other states may subject us to the
punishments described above.
Risks Associated With Our Acquisition Strategy
Following the consummation of the offering, we intend to identify and
pursue acquisitions of complementary companies and strategic assets, such as
sponsor bases, products and technology. Increased
17
<PAGE>
competition for acquisition candidates may develop, in which event there may be
fewer acquisition opportunities available to us as well as higher acquisition
prices. There can be no assurance that we will be able to identify, acquire or
profitably integrate and manage additional companies or strategic assets, if
any, without substantial costs, delays or other operational or financial
problems.
If any such opportunity involves the acquisition of a business, we cannot be
certain that:
we will successfully integrate the operations of the acquired
business with ours,
all the benefits expected from such integration will be realized,
management's attention will not be diverted or divided, to the
detriment of current operations,
amortization of acquired intangible assets will not have a
negative affect on our cash flow or other aspects of our
business,
delays or unexpected costs related to the acquisition will not
have a detrimental effect on our combined business, operating
results or financial condition,
sponsor dissatisfaction with, or performance problems at, an
acquired company will not have an adverse effect on our
reputation, or
our respective operations, management and personnel will be
compatible.
In most cases, acquisitions will be consummated without seeking and obtaining
stockholder approval, in which case stockholders will not have an opportunity to
pass upon the merits of such an acquisition. Although we will endeavor to
evaluate the risks inherent in a particular acquisition, there can be no
assurance that we will properly ascertain or assess such risks. See
"Business-Business Strategy."
Possible Need for Future Acquisition Financing
We may be required to obtain additional financing for future
acquisitions. If our shares of common stock do not maintain a sufficient market
value, or if potential acquisition candidates are otherwise unwilling to accept
our common stock as part of the acquisition payment, we may be required to use
cash resources for our acquisition program. If we do not have sufficient cash,
our growth could be limited unless we can obtain additional capital through debt
or equity financings. We cannot assure you that we may be able to obtain
financing on commercially reasonable terms or at all. Furthermore, equity
financing will result in a dilution to our existing stockholders. The degree of
dilution may be significant. In the case of debt financing, we run the risks of
interest rate fluctuations and insufficiency of cash flow to pay principal and
interest, along with other risks traditionally associated with incurring
indebtedness. See, "Use of Proceeds."
Possible Adverse Effects of Authorization of Preferred Stock; Anti-takeover
Provisions
We intend to amend our Certificate of Incorporation before the offering
is consummated, to authorize the issuance of 10,000,000 shares of "blank check"
preferred stock. This kind of stock can be issued by the Board of Directors,
without stockholder approval, and with dividend, liquidation, voting and/or
other rights which could significantly diminish the voting power and other
rights of holders of our
18
<PAGE>
common stock. The "blank check" stock could also be used to discourage, delay or
prevent a change in control of our company. Although we have no intention to
issue any blank check stock now, we cannot predict whether we will issue it in
the future. The issuance of blank check stock could:
make removal of our management more difficult,
discourage hostile bids for control, in which our stockholders
might receive premiums for their shares of common stock,
dilute the rights of holders of common stock and the market
price for that stock, and
make a takeover more difficult.
Dependence on Related-Party Technology
Our relationship with a related third party that supplies a significant
portion of our information systems technology is described in the sections of
this prospectus entitled "Business - Information Systems" and "Certain
Transactions-Health Card's Relationship with Sandata." This affiliated party
also provides consulting services and leases computer hardware to us; the
termination of this relationship would have a material adverse effect on our
business, operating results and financial condition.
Control by Principal Stockholder
Prior to the offering, our President, Mr. Brodsky, and his affiliates
beneficially owned or controlled an aggregate of 83.8% of our issued and
outstanding common stock, including shares subject to existing options. Upon the
closing of the offering, Mr. Brodsky and his affiliates will collectively
beneficially own or control an aggregate of 60.9% of the shares of common stock
in the event the over-allotment option is not exercised and 58.5% of the shares
of common stock in the event the over-allotment option is exercised.
Accordingly, such holders, acting together, for as long as they own in the
aggregate in excess of 50% of the outstanding common stock, will have the
ability to significantly influence the election of our Board of Directors, the
approval of matters requiring approval of the Board of Directors, and decisions
on matters submitted to our stockholders for approval. The voting power of these
holders may discourage or prevent any proposed takeover of our company unless
the terms thereof are approved by such holders. See "Management" and "Principal
Stockholders."
Broad Discretion in Application of Proceeds
While we intend to use the net proceeds of the offering as described in
the "Use of Proceeds" section of this prospectus, we will have broad discretion
to adjust the application and allocation of such net proceeds in order to
address changed circumstances and opportunities. Our success will be
substantially dependent upon the discretion and judgment of our management with
respect to the application and allocation of the net proceeds. See "Use of
Proceeds."
Dependence on Information Systems
Our information systems constitute our primary resource for providing
integrated prescription
19
<PAGE>
benefit management services. Our on-line claims management system is an integral
part of our information systems. In addition, we obtain certain components of
our information systems from affiliated and unaffiliated third party vendors. We
expect that we will need to enhance these systems from time to time. The cost of
enhancements may be significant, and may require the significant use of our
operational resources, including personnel. We cannot assure you that any such
enhancements will be made without significant disruption of our business and/or
a material adverse effect on our business, operating results and financial
condition.
Year 2000
We cannot assure you that the systems of other companies on which our
systems rely will be Year 2000 compliant in a timely fashion. Other than the
foregoing, our management does not believe that we will have any material Year
2000 risks, either in terms of operational difficulties or expenses, although no
assurances can be made that our assessment is correct. See "Business-Year 2000."
No Current Public Market; Possible Volatility of Stock Price
There is presently no public market for our common stock and we cannot
assure you that an active public market will develop or be sustained after the
offering. Since there is currently no active public market, the offering price
may not bear any relationship to the actual value of our common stock. The
offering price per share of the common stock was determined by negotiations
between us and Ryan, Beck, and is not necessarily related to our asset value,
net worth or other established criteria of value, and may not be indicative of
the prices that will prevail in the public market. In addition, the stock market
has from time to time experienced price and volume fluctuations that are often
unrelated to the operating performance of particular companies. The market price
of our common stock, similar to that of securities of other growing companies,
may be highly volatile. The market price of the common stock could be subject to
significant fluctuations in response to our operating results and other factors,
and there can be no assurance that the market price of our common stock will not
decline below the offering price. See "Underwriting," "Description of
Securities" and "Financial Statements."
No Dividends
We have never paid any cash dividends on our common stock and do not
intend to pay any cash dividends in the foreseeable future. We anticipate
retaining any earnings which we may realize in the near future to finance our
growth.
Shares Eligible for Future Sale
Upon completion of the offering, we will have 7,312,497 shares of
common stock outstanding. The 2,000,000 shares of common stock sold in the
offering (plus any shares issued upon exercise of the over-allotment option)
will be freely tradeable without restriction under the Securities Act of 1933,
as amended (the "Securities Act"), except for any shares which may be purchased
by an "affiliate" of the Company. Except with regard to the over-allotment
option, our officers, directors and 5% stockholders
20
<PAGE>
and certain other of our existing stockholders have agreed not to, directly or
indirectly, offer to sell, sell, transfer, hypothecate or otherwise encumber any
shares of common stock or securities convertible into or exercisable for shares
of common stock for a period of nine (9) months following the date of this
prospectus without the prior written consent of Ryan, Beck. After nine (9)
months, all shares subject to the above restrictions above could be eligible for
sale in the public market pursuant to Rule 144 under the Securities Act, subject
to volume limitations and other restrictions contained in Rule 144, except that
1,713,118 shares will not be saleable until the full consideration has been
paid. In addition, as of the date of this prospectus, 5,312,497 shares of common
stock are eligible for sale in the public market without restriction. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
common stock from time to time. Sales of substantial amounts of common stock in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for the common stock and could impair
our ability to raise additional capital through an offering of our equity
securities. See "Shares Eligible for Future Sale."
Potential Adverse Effect of Representative's Warrants
Ryan, Beck will buy from us, for nominal consideration, warrants to
purchase an aggregate of 200,000 shares of common stock. For the term of the
warrants, the holders thereof will have, at nominal cost, the opportunity to
profit from a rise in the market price of the common stock without assuming the
risk of ownership, with a resulting dilution in the interest of other security
holders. As long as the warrants remain unexercised, our ability to obtain
additional capital might be adversely affected. Moreover, the holders of the
warrants may be expected to exercise them at a time when we would, in all
likelihood, be able to obtain any needed capital through a new offering of our
securities on terms more favorable than those provided by the warrants. See
"Underwriting--The Representative's Warrants."
Dilution
If you purchase common stock from the offering you will incur immediate
dilution of approximately $6.76 per share in the offering price. If we issue
additional common stock in the future, investors in the common stock pursuant to
the offering may experience further dilution. See "Dilution."
21
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by Health Card from the sale of
2,000,000 shares of common stock offered hereby are estimated to be $15,695,000
based on an assumed offering price of $9.00 per share. Net proceeds are
estimated after deducting underwriting discounts and commissions, and other
estimated expenses of the offering payable by Health Card.
Health Card anticipates that the net proceeds will be used as follows:
approximately $10,000,000 for future acquisitions,
$1,500,000 for enhancement of Health Card's information systems,
$250,000 for expansion of Health Card's sales and marketing
efforts, and
$3,945,000 for working capital.
Although Health Card is exploring acquisition opportunities, it has no
agreements or commitments with respect to any such opportunity, nor has Health
Card allocated any particular portion of the net proceeds for any specific
acquisition. The net proceeds from the offering will be invested in interest
bearing government securities and other short-term investment grade securities
until needed.
Health Card believes that the net proceeds, its existing capital
resources, and anticipated revenues from operations, will be sufficient to
enable it to maintain its current and planned operations for a period of at
least 24 months after consummation of the offering. If Health Card's plans
change or its assumptions change or prove to be inaccurate, or if the net
proceeds of the offering or cash flow prove to be insufficient (due to
unanticipated expenses or otherwise), Health Card may seek to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. However, we cannot assure you that additional financing will be
available when needed or on terms acceptable to Health Card. See "Risk
Factors-Possible Need for Future Acquisition Financing."
DIVIDEND POLICY
Health Card has not declared or paid any cash dividends in the past and
does not anticipate doing so in the foreseeable future. Health Card intends to
retain any earnings to finance its growth. Any future payments of dividends will
be at the discretion of the Board of Directors and will depend upon such factors
as the Board of Directors deems relevant. No assurance can be given that Health
Card will pay dividends in the foreseeable future.
DILUTION
The difference between (a) the offering price per share of common stock
and (b) the pro forma net tangible book value per share after the offering,
constitutes the dilution to investors in the offering. Net tangible book value
per share is determined by dividing the net tangible book value of Health Card
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock.
22
<PAGE>
As of September 30, 1998, the net pro forma tangible book value of
Health Card was $670,677, or $0.13 per share. Assuming an amount of net proceeds
as described in "Use of Proceeds" above, the pro forma net tangible book value
of Health Card as of September 30, 1998 would have been $16,365,677 or $2.24 per
common share. This amount represents:
immediate dilution of approximately $6.76 (75%) per share of
common stock to new investors, and
an immediate increase of approximately $2.11 per share of common
stock to current stockholders.
The following table illustrates the per share dilution to new investors:
Assumed offering price of common stock. .......... $ 9.00
Pro forma net tangible book value
before offering. . . . ........................ $ 0.13
Increase attributable to new investors ............ $ 2.11
Pro forma net tangible book value after
offering ................... $ 2.24
------
Total dilution to new investors (1)........................ $ 6.76
======
The following table sets forth the relative cost and ownership
percentage of the common stock offered hereby as compared to the common stock
outstanding immediately prior to the offering:
<TABLE>
<CAPTION>
Shares Purchased(1) Total Consideration Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Current stockholde 5,312,497 72.6%% $ 2,906,100(2) 13.9% $0.55
New investors 2,000,000 27.4% $18,000,000 86.1% $9.00
--------- ----- ----------- ----- ----
Total. 7,312,497 100% $20,906,100 100.0%
========= ==== ========== ====== =====
</TABLE>
(1) This figure excludes 200,000 shares of common stock issuable upon the
exercise of the representative's warrants and 300,000 shares of common
stock issuable upon exercise of the underwriters' over-allotment option.
See "Description of Capital Stock-Common Stock."
(2) Not reduced by notes receivable in the amount of $1,482,375 issued by
stockholders as payment for shares.
23
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1998, (i) the actual
capitalization of Health Card, (ii) the pro forma capitalization after giving
effect to the sale by Health Card of 340,919 shares of common stock for
$2,000,000 on October 23, 1998 and (iii) the pro forma capitalization as
adjusted to give effect to the application of the proceeds from the offering (at
an assumed price of $9.00 per share of common stock and net of discounts and
expenses). The table should be read in conjunction with Health Card's financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
As of September 30, 1998
<TABLE>
<CAPTION>
Pro Forma
Actual Pro forma As Adjusted(1)
<S> <C> <C> <C>
Current portion of long term debt $ 6,336 $ 6,336 $ 6,336
============ =============== ============
Long-term debt, net of current portion $ --- $ --- $ ---
--------------- --------------- ------------
Preferred Stock, $.10 par value,
10,000,000 shares authorized; none
issued and outstanding --- --- ---
Common Stock, $.001 par value,
25,000,000 shares authorized;
4,971,578 shares issued and outstanding (actual),
5,312,497 shares issued and outstanding (pro forma),
7,312,497 shares issued and
outstanding (pro forma as adjusted) . . . . . . . . . . . . . 4,972 5,313 7,313
Additional paid-in capital. 901,128 2,900,781 18,593,787
(Accumulated Deficit)...... (753,048) (753,048) (753,048)
Notes receivable-stockholders (1,482,375) (1,482,375) (1,482,375)
------------ ------------ -------------
Total stockholders' equity (deficit) . . . . . . . . . . . . (1,329,323) 670,677 16,365,677
----------- ------------- ------------
Total Capitalization.. $(1,329,323) $ 670,677 $ 16,365,677
============ ============ ============
</TABLE>
(1) This figure excludes 200,000 shares of common stock issuable upon the
exercise of the representative's warrants and 300,000 shares of common
stock issuable upon the exercise of the underwriters' over-allotment
option. See "Description of Capital Stock-Common Stock."
24
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables summarize certain selected financial information
for each of the years in the five year period ended June 30, 1998 and for the
three months ended September 30, 1997 and 1998 and provide certain supplemental
data. The income statement for the years ended June 30, 1996, 1997 and 1998 and
the selected balance sheet data as of June 30, 1997 and 1998 have been derived
from the audited financial statements of Health Card included elsewhere in this
prospectus. The income statement for the years ended June 30, 1994 and 1995 and
the selected balance sheet data as of June 30, 1994 and 1995 have been derived
from unaudited financial statements of Health Card which are not included in
this prospectus. The income statement for the three months ended September 30,
1997 and 1998 and the selected balance sheet data as of September 30, 1997 and
1998 have been derived from Health Card's unaudited interim financial
statements, included elsewhere in this prospectus, which in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position and
results of operations for the periods presented. The information contained in
this table should be read in conjunction with Health Card's Financial Statements
and the Notes thereto, and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" included elsewhere in this prospectus. The
statement of operations data for the three month period ended September 30, 1998
is not necessarily indicative of the results of operations that may be expected
for a full year.
25
<PAGE>
Income Statement:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended June 30, September 30,
1994 1995 1996 1997 1998
==== ==== ==== ==== ====
1997 1998
==== ====
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $38,751,636 $45,230,912 $56,265,033 $71,288,411 $99,988,921 $20,114,066 $ 31,253,445
Cost of claims 37,174,861 42,316,738 50,799,422 64,176,942 91,230,939 18,338,909 27,736,990
========== ============ =========== =========== ========== ========== ==========
Gross profit 1,576,775 2,914,174 5,465,611 7,111,469 8,757,982 1,775,157 3,516,455
Selling and general
administrative
expenses 1,792,037 3,394,577 4,216,259 5,855,282 7,192,027 1,617,517 2,246,410
========= ============ ============ =========== ========= ========= =========
Operating income
(loss) ........... $ (215,262) $ (480,403) $ 1,249,352 $ 1,256,187 $ 1,565,955 $ 157,640 $ 1,270,045
Other income
(expense)......... 1,585 17,723 21,530 42,595 (180,507) 48,336 (62,611)
------ ------ ------ ------ --------- ------ --------
Income before income
taxes (loss)...... (213,677) (462,680) 1,270,882 1,298,782 1,385,448 205,976 1,207,434
Provision for income
taxes (benefit)... 429 850 (185,275) (189,984) 569,000 85,000 502,000
--- --- --------- --------- ------- ------ -------
Net income (loss)... $ (214,106) $(463,530) $1,456,157 $1,488,766 $ 816,448 $ 120,976 $ 705,434
=========== ========== ============= ========== ============ ============= =============
Earnings per common
share:
Basic . . . . . . $( . . 0.09) $( 0.19) $ 0.47 $ 0.46 $ 0.16 $ 0.02 $ 0.14
Diluted. . . . . $(. . 0.09) $( 0.19) $ 0.35 $ 0.37 $ 0.16 $ 0.02 $ 0.14
Weighted average
number of common
shares outstanding:
Basic. . . . . . . . .2,459,748 2,447,057 3,093,085 3,258,459 4,966,885 4,952,957 4,971,578
Diluted 2,459,748 2,447,057 4,182,909 4,008,481 4,969,166 4,961,211 4,971,578
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30, September 30,
1994 1995 1996 1997 1998 1997 1998
==== ==== ==== ==== ==== ==== ====
Cash and cash
<S> <C> <C> <C> <C> <C> <C> <C>
equivalents $7,629 $30,629 $11,137 $ 1,782,597 $1,305,792 $ 604,916 $1,873,376
Working capital
(deficit) ........ (3,226,240) (5,760,534) (7,530,351) (7,436,095) (8,658,324) (8,263,228) (8,337,305)
Total assets 2,553,723 3,975,483 8,531,507 11,871,820 18,343,900 12,458,236 21,204,548
Long-term debt
(including current
portion) ---- 25,346 869,437 263,648 9,742 112,168 6,336
Total stockholders'
deficit .......... $(2,844,382) $(4,527,246) $(3,663,125) $ (2,343,671) $(2,006,282) $(2,336,626) $(1,329,323)
</TABLE>
26
<PAGE>
Supplemental Data(1):
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30,
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Retail pharmacy claims processed 1,675,490 1,990,976 2,482,127 508,634 692,956
Mail pharmacy processed claims 29,453 62,618 131,513 23,068 43,581
Estimated plan participants (at period end) 271,784 291,446 401,226 317,405 403,178
</TABLE>
(1) This data has not been audited.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Except for the historical information contained herein, the discussion
in this section and other parts of this prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of Health Card's plans, objectives, expectations and intentions. The
cautionary statements made in this section should be read as being applicable to
all related forward- looking statements wherever they appear in this section or
elsewhere in this prospectus. Actual results could differ materially from those
discussed herein due to competitive factors and other factors discussed under
"Risk Factors" and elsewhere in this prospectus.
National Medical Health Card Systems, Inc. (Health Card) is a
technological leader among independent companies providing comprehensive
prescription benefit management services. Health Card's programs are designed to
contain the cost of prescription drugs, monitor the cost and quality of
prescription services, provide sophisticated consulting services and provide
disease information services to sponsors of prescription benefit plans. Sponsors
of plans managed by Health Card include managed care organizations, local
governments, unions, corporations and third party health care plan
administrators. As of January 1, 1999, plans managed by Health Card covered over
430,000 eligible employees, retirees, members and their dependents. Plan
participants have grown from the approximately 230,000 members on July 1, 1995.
Health Card provides its sponsors with integrated prescription benefit
management services, including electronic point-of-sale pharmacy claims
management, retail pharmacy network management, mail pharmacy management,
benefit design consultation, preferred drug management programs, drug review and
analysis, consulting services, disease information services, data access,
reporting and information analysis and physician profiling. Health Card
currently has a pharmacy network of approximately 42,000 participating
pharmacies including retail chains and independent pharmacies, in addition to
several mail order pharmacies. Health Card derives revenues from claims
management services and includes, as revenues, the pharmaceuticals dispensed
through its pharmacy network.
Health Card has developed and is continuing to develop a comprehensive
prescription benefit database and performs meaningful outcome studies to develop
disease information programs to manage overall costs. Health Card believes that
these programs will serve as a growing source of
27
<PAGE>
revenue for Health Card.
Results of Operations
Three month period ended September 30, 1998 compared to the three month
period ended September 30, 1997
Revenues increased $11.2 million or approximately 55%, from $20.1
million for the three months ended September 30, 1997 to $31.3 million for the
three months ended September 30, 1998. The increase resulted primarily from a
$3.4 million increase in fees related to the increase in the number of plan
participants under an agreement with one of our major sponsors, and a $7.8
million increase resulting from an increase in the volume of claims processed
under Health Card's other plans.
Cost of claims increased $9.4 million or approximately 51%, from $18.2
million for the three months ended September 30, 1997 to $27.7 million for the
three months ended September 30, 1998. As a percentage of revenues, cost of
claims decreased from approximately 91% for the three months ended September 30,
1997 to approximately 89% for the three months ended September 30, 1998, due
primarily to increased profitability on the processing of claims under an
arrangement with Vytra (the "Prescription Arrangement") Prescription
Arrangement.
Gross profit increased $1.7 million, from $1.8 million for the three
months ended September 30, 1997 to $3.5 million for the three months ended
September 30, 1998, primarily as a result of the increase in revenue and
improved margins.
Selling, general and administrative expenses increased $629,000 or
approximately 39%, from $1.6 million for the three months ended September 30,
1997 to $2.2 million for the three months ended September 30, 1998. The increase
resulted primarily from a $300,000 one time bonus accrual to certain
officers/stockholders, a $90,000 compensation accrual to an officer/stockholder
and a $212,000 increase in compensation and benefits relating to time spent by
personnel required to process the additional claims and to expand Health Card's
sales and marketing efforts.
Other income decreased $111,000 from income of $48,000 for the three
months ended September 30, 1997 to a net expense of $63,000 for the three months
ended September 30, 1998, due to $227,000 of public offering expenses in June
and July 1998. This was offset by an $87,000 increase in interest accrued on a
loan due from an affiliate and a $29,000 increase in interest earned on short
term investments of excess cash balances
The provision for income taxes increased $417,000 from $85,000 for the
three months ended September 30, 1997 to $502,000 for the three months ended
September 30, 1998, as a result of increased taxable income.
Fiscal year ended June 30, 1998 compared to fiscal year ended June 30,1997
Revenues increased $28.7 million or approximately 40%, from $71.3 million
in fiscal 1997
28
<PAGE>
to $100 million in fiscal 1998. The increase resulted primarily from a $9.6
million increase in fees related to the increase in the number of plan
participants under the Prescription Arrangement, and a $19.1 million increase
resulting from an increase in the volume of claims processed under Health Card's
other plans.
Cost of claims increased $27 million or approximately 42%, from $64.2
million in fiscal 1997 to $91.2 million in fiscal 1998. As a percentage of
revenues, cost of claims increased from approximately 90% in fiscal 1997 to
approximately 91% in 1998, due primarily to a higher number of claims processed
under the Prescription Arrangement.
Gross profit increased $1.7 million, from $7.1 million for fiscal 1997
to $8.8 million for fiscal 1998, as a result of the increase in revenues offset
by the increase in cost of claims under the Prescription Arrangement.
Selling, general and administrative expenses increased $1.3 million or
approximately 23%, from $5.9 million in fiscal 1997 to $7.2 million in fiscal
1998. The increase resulted primarily from $881,000 of additional compensation
and benefits for personnel required to process additional claims and to expand
Health Card's sales and marketing efforts. In addition, $321,000 of the increase
resulted from increased administrative, marketing and consulting fees incurred
with related parties and $90,000 of marketing and consulting costs that were
incurred with a third-party consultant. As a percentage of revenues, selling,
general and administrative expenses decreased from 8.2% in fiscal 1997 to 7.2%
in fiscal 1998.
Other income decreased approximately $223,000, from income of $43,000
in fiscal 1997 to a net expense of $181,000 in fiscal 1998, due to $445,000 of
public offering expenses. This was offset by a $114,000 increase in interest
accrued on stockholder loans, a $30,000 increase in interest accrued on a loan
due from an affiliate and a $78,000 increase in interest earned on short term
investments of excess cash balances.
The provision for income taxes increased $759,000, from a benefit of
$190,000 in fiscal 1997 to an expense of $569,000 in fiscal 1998, as a result of
the increase in taxable income and a decrease in the deferred tax valuation
allowance in the 1997 period.
Fiscal year ended June 30, 1997 compared to fiscal year ended June 30, 1996
Revenues increased $15 million or approximately 27%, from $56.3 million
in fiscal 1996 to $71.3 million in fiscal 1997. The increase resulted primarily
from a $15 million increase in fees related to the increase in the number of
plan participants under the Prescription Arrangement.
Cost of claims increased $13.4 million or approximately 26%, from $50.8
million in fiscal 1996 to $64.2 million in fiscal 1997. As a percentage of
revenues, cost of claims remained unchanged at approximately 90%.
Gross profit increased $1.6 million, from $5.5 million in fiscal 1996
to $7.1 million in fiscal 1997, primarily as a result of the increase in
revenue.
29
<PAGE>
Selling, general and administrative expenses increased $1.7 million or
approximately 40%, from $4.2 million in fiscal 1996 to $5.9 million in fiscal
1997. The increase resulted primarily from an increase of $824,000 in software
development consulting costs, $636,000 in fees relating to an increase in
personnel performing sales and bookkeeping functions and $140,000 in increased
sales and marketing efforts. The increases are a result of an expanded customer
base and investments made by Health Card to expand Health Card's services
available to sponsors. As a percentage of revenues, selling, general and
administrative expenses increased from 7.5% in fiscal 1996 to 8.2% in fiscal
1997.
Other income increased $21,000, from $22,000 in fiscal 1996 to $43,000
in fiscal 1997, as a result of additional interest earned on overnight
investments.
The effective income tax rate remained unchanged at an approximate
benefit of 15%, due to the reduction of the deferred income tax valuation
allowance.
Liquidity and Capital Resources
As of June 30, 1997, and 1998 and September 30, 1998 Health Card had a
working capital deficiency of $7.4 million, $8.7 million and $8.3 million,
respectively.
Net cash provided by operating activities was approximately $1.2
million, $3.5 million, $922,000 and $1 million for the fiscal years ended June
30, 1996, 1997 and 1998 and the three month period ended September 30, 1998,
respectively. During fiscal 1998, net cash provided by operating activities
resulted primarily from net income and an increase in accounts payable offset by
an increase in accounts receivable and due to/from affiliates. The increases in
accounts receivable and accounts payable were due to an increase in the volume
of business. For the three month period ended September 30, 1998, net cash
provided by operating activities resulted primarily from net income, an increase
in claims payable and bonuses accrued to officers/stockholders offset by
increases in accounts receivable. Health Card has favorable terms with its
vendors. There can be no assurance that Health Card's favorable terms with its
vendors will continue in the future. It is anticipated Health Card could require
additional financing if these terms were to materially change. There can be no
assurance that Health Card could obtain additional financing at a rate or on
terms and conditions acceptable to Health Card. See "Risk Factors."
Net cash used in investing activities amounted to approximately
$387,000, $477,000, $416,000 and $476,000 for the fiscal years ended June 30,
1996, 1997 and 1998 and the three month period ended September 30, 1998,
respectively. These uses of cash resulted primarily from capital expenditures
and advances and payments of amounts due to/from stockholders.
Net cash used in financing activities amounted to approximately
$823,000, $1.2 million, $983,000 and $3,000 for the fiscal years ended June 30,
1996,1997 and 1998 and the three month period ended September 30, 1998,
respectively. These uses of cash resulted primarily from capital distributions
and repayment of debt.
In February 1998 Health Card entered into an agreement with a third
party for computer software products and professional services The agreement
requires Health Card to pay an initial
30
<PAGE>
license fee of $400,000, of which $100,000 was paid and $25,000 is due monthly
through February 1999, plus up to an additional $500,000 if certain milestones
are met, as defined. The agreement also provides for the annual payment of 18%
of the license fee, as defined, as a service maintenance fee.
In October 1998 the principal stockholder purchased 340,919 shares of
common stock for $2 million.
Health Card believes the increase in volume of business and
corresponding operating income will enable Health Card to meet its working
capital requirements. Health Card anticipates that the net proceeds of the
offering together with anticipated cash flow from operations will be sufficient
to satisfy Health Card's contemplated cash requirements for at least 24 months
following the completion of the offering. Additionally, effective June 1, 1998,
Health Card hired 11 programmers who previously provided the software
development consulting services to Health Card, which Health Card believes will
further increase cash flow. In the event that Health Card's plans change or its
assumptions prove to be inaccurate or the proceeds of the offering otherwise
prove to be insufficient to fund operations and implement Health Card's proposed
expansion strategy, Health Card could be required to seek additional financing
sooner than anticipated. See "Certain Transactions."
Other Matters
Inflation
Management does not believe that inflation has had a material adverse
impact on its net income.
Year 2000 Compliance
See "Business--Year 2000" for a discussion of Health Card's Year 2000
readiness.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No.130 ("SFAS No.130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No.131 ("SFAS No.131"),
Disclosures about Segments of an Enterprise and Related Information which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
31
<PAGE>
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas, and major customers. SFAS
No.131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Health Card's results of operations and
financial position will be unaffected by implementation of these new standards.
In February 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.132 ("SFAS No. l32"), Employers'
Disclosures about Pensions and Other Postretirement Benefits, which standardized
the disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 is not expected to materially impact
Health Card's current disclosures.
In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.133, Accounting for Derivative Investments
and Hedging Activities Income ("SFAS No. 133"), which requires the recording of
all derivative instruments as assets or liabilities measured at fair value.
Among other disclosures, SFAS No. 133 requires that all derivatives be
recognized and measured at fair value regardless of the purpose or intent of
holding the derivative. SFAS No. 133 is effective for financial statements for
periods beginning after June 15, 1999. Because of the recent issuance of this
standard, management has been unable to evaluate fully the impact, if any, the
standard will have on future financial statements.
BUSINESS
General
Health Card is a technological leader among independent companies
providing comprehensive prescription benefit management services. Health Card's
programs are designed to:
- contain the cost of prescription drugs,
- monitor the cost and quality of prescription services,
- provide sophisticated
- consulting services, and
- provide disease information services.
to sponsors of prescription benefit plans. Sponsors of prescription benefit
plans managed by Health Card include managed care organizations, local
governments, unions, corporations and third party health care plan
administrators. Health Card focuses its marketing efforts on prospective
sponsors with plans covering up to 100,000 participants, although it seeks and
services sponsors with plans covering less or significantly more plan
participants. As of January 1, 1999, plans managed by Health Card covered over
430,000 eligible employees, retirees, members and their dependents.
32
<PAGE>
Health Card provides sponsors with integrated prescription benefit
management services, including:
- electronic point-of-sale pharmacy claims management,
-retail pharmacy network management,
- mail pharmacy management,
- benefit design consultation,
- preferred drug management programs,
- drug review and analysis programs,
- consulting services,
- disease information services,
- data access,
- reporting and information analysis, and
- physician profiling
Each of these services is described in detail below under the heading
"Services."
Each plan participant receives an identification card which may be used
at any pharmacy participating in Health Card's pharmacy network. The card
entitles the plan participant to purchase prescription drugs and certain other
physician-prescribed items by paying a deductible and "co-payment" amount as
determined by the plan sponsor. As of January 1, 1999, the pharmacy network
included an aggregate of over 42,000 retail chain and independent pharmacies as
well as four mail order pharmacies. See "Business-Services."
Health Card assists each sponsor to establish the deductible and
"co-payment" amounts and the availability of benefits under its plan. Plans
generally cover (a) prescriptions for legend drugs (i.e., drugs which cannot be
dispensed without a prescription), (b) prescriptions requiring compounding of
ingredients (one of which is a legend drug) (c) prescribed insulin and
prescribed insulin syringes, and (d) needles and test strips. Items generally
excluded from coverage include diet supplements, over-the-counter drugs (whether
or not prescribed by a physician), medical appliances such as glucometers and
blood pressure monitors, bandages, heat lamps, experimental drugs, drugs
furnished by a hospital to inpatients, and blood and blood plasma.
Health Card attempts to contain the cost of sponsors' plans by
negotiating favorable pricing arrangements with pharmacies participating in its
pharmacy network. Health Card also provides additional cost management through
the real-time electronic communication of claims data and plan criteria between
those pharmacies and Health Card. The claims submission, review and approval
generally occur in a matter of seconds. See "Business-Information Systems."
Claims are processed through multiple reviews in order to:
- confirm plan conformity,
- verify plan participant eligibility,
- verify correct reimbursement, and
- conduct drug review and analysis.
Concurrently, information is sent by Health Card's information systems to the
pharmacist about:
33
<PAGE>
- drug interactions,
- premature refills of prescriptions,
- duration or duplication of therapy, and
- geriatric or pediatric precautions
(collectively referred to as "contraindications"), based on Health Card's
prescription claims history for the plan participant, FDA-approved standards and
Health Card's recommended drug and treatment guidelines.
The final claim approval or denial is immediately communicated by
Health Card to the pharmacy. If a claim is approved, the communication
establishes the claim for reimbursement and indicates the co-payment or
deductible to be charged to the plan participant.
Health Card participates in a rebate program with Foundation Health
Pharmaceutical Services, Inc. which does business under the name Integrated
Pharmaceutical Services. Through this program, Health Card receives rebates for
processed claims relating to certain drugs. A portion of the rebates received by
Health Card may be remitted to certain of Health Card's sponsors, depending upon
the terms of Health Card's agreement with each sponsor. Through rebates from
drug manufacturers, Health Card has increased its revenues. See
"Business--Services--Electronic Point- of-Sale Pharmacy Claims
Management--Rebate Administration."
Health Card's disease information services are designed to inform and
educate sponsors, plan participants, pharmacies and prescribing physicians about
drug and treatment guidelines for various diseases. Health Card prepares drug
and treatment guidelines for various diseases based on a review of
professionally prepared health care literature which is publicly available. In
compiling the drug and treatment guidelines, Health Card may also utilize
clinical guidelines that are issued by medical specialty boards and are
available to the public. The drug and treatment guidelines are reviewed by
medical and pharmacology experts and submitted to Health Card's Pharmacy &
Therapeutic Committee for review and approval. If approved, the drug and
treatment guidelines may be made available to interested sponsors and
physicians. Health Card believes that the use of disease information services
represents a market trend in the prescription benefit management industry. Its
use is designed to:
- meet sponsors' growing need for information to address cost
management pressures,
-enhance the quality, efficiency and cost-effectiveness of pharmacy
benefit utilization by plan participants, and
-reduce costs to sponsors.
In providing these services, Health Card may utilize its drug review and
analysis programs. These programs include a series of on-line reviews which
examine a plan participant's claims history for a number of contraindicated or
inappropriate dispensing patterns, among other things. Although Health Card has
only recently commenced disease information services and currently offers such
services to only one sponsor, Health Card believes that disease information
services will encourage physician and plan participant conformity with plans and
physician adherence to recommended drug and treatment guidelines. In turn, this
conformity should improve plan participant health care while reducing costs.
34
<PAGE>
Business Strategy
Health Card's competitors include independent prescription benefit
management companies affiliated with drug companies and prescription benefit
management companies affiliated with retail pharmacy companies. By contrast,
Health Card has developed its business without many of the constraints of those
competitors by focusing on information systems and consulting services. Health
Card therefore does not market any particular manufacturer's drugs as opposed to
certain of its competitors. Consequently, Health Card believes that its
information systems and consulting services are superior to that of many of its
competitors. Accordingly, it is well positioned to take advantage of the
increasing information and cost management needs of the prescription benefit
management services market.
Following the consummation of the offering, Health Card intends to
identify and pursue opportunities to acquire complementary companies and
strategic assets, which we will refer to frequently in this prospectus as
"acquisition opportunities." Health Card also plans to continue development of
its services and programs and expand its operations and sales with the goal of
becoming a leading national independent company providing comprehensive
prescription benefit management services. Over the past several years, Health
Card has focused on significantly expanding its management, marketing and
administrative infrastructure and data management capabilities. To support this
transition, Health Card also created distinct departments:
sales and marketing,
information services,
operations,
consulting services, and
financial.
See "Management" and "Certain Transactions."
Specifically, Health Card intends to take the following steps to
implement its strategy:
Pursue Strategic Acquisitions. Health Card intends to pursue
acquisition opportunities in order to increase its market share, realize
operating efficiencies and expand the scope of its services. Due to increasing
competition within the fragmented prescription benefit management services
market, Health Card believes that there are significant opportunities to:
- acquire or consolidate small to medium-sized companies and acquire
strategic assets that will
- expand Health Card's sponsor base,
- improve Health Card's information systems,
- expand Health Card's consulting and disease
- information services, establish strategic
- relationships, and allow it to realize additional
- economies of scale.
However, increased competition for acquisition candidates may develop, in which
event there may
35
<PAGE>
be fewer acquisition opportunities available to Health Card as well as higher
acquisition prices. There can be no assurance that Health Card or other
complementary companies or strategic assets acquired in the future will achieve
anticipated revenue and earnings. In most cases, acquisitions will be
consummated without seeking and obtaining stockholder approval, in which case
the stockholders of Health Card will not have an opportunity to pass upon the
merits of such an acquisition. See "Risk Factors -- Risks Associated with
Acquisition Strategy" and "Risk Factors -- Possible Need for Future Acquisition
Financing."
Expand Core Sponsor Base. Health Card believes that it will continue to
benefit from growth in the prescription benefit management services market. From
July 1, 1995 to January 1, 1999, the number of plan participants for which
Health Card provided prescription benefit management services grew approximately
93% from approximately 230,000 to over 434,000. Health Card intends to expand
its sponsor base by focusing its sales efforts on targeted markets throughout
the U.S. and through acquisition opportunities. See "Business-Sales and
Marketing."
Continue Improvements to Information Systems. Health Card's
computerized information systems, which includes the on-line real-time claims
management system, integrates many of the services offered by Health Card.
Health Card's information systems are network-based as compared to older
mainframe systems utilized by certain of its competitors. Mainframe systems
generally are comparatively slower to customize and change programs, and
generally do not allow for integration of services and programs on one system on
a timely and cost-effective basis. Conversely, the network platform typically
provides Health Card with flexibility to tailor its products to specified needs
of its sponsors. Health Card's system is scalable and intended to accommodate
the processing needs resulting from future growth. Nevertheless, Health Card
intends to continue to expand and adapt its information systems, both in
response to specific sponsor requests and based on Health Card's assessment of
market needs. See "Business-Information Systems," "Risk Factors-Dependence on
Information Systems" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Expand Consulting Services and Disease Information Services. Health
Card believes that consulting services and disease information services offer
significant opportunities for future growth. Health Card is integrating its
claims management services, information systems and the recommended drug and
treatment guidelines to create comprehensive consulting services and disease
information services for its sponsors.
Health Card believes that its disease information services will
encourage physicians and plan participants to act in conformity with plans, and
physicians to adhere to recommended drug and treatment guidelines, which, in
turn, should improve plan participant health while reducing the cost of care.
Health Card believes that through increased marketing of:
drug coverage management services,
disease information services,
formulary management (i.e., the types and brands of drugs
covered by a plan), and therapeutic interchange services
(i.e., substitution to lower cost therapeutically
36
<PAGE>
equivalent drugs),
Health Card can expand its sponsor base, expand the services provided to current
sponsors and solidify its relationships with current sponsors.
Establish Strategic Relationships. Health Card intends to pursue
strategic relationships with sponsors, drug manufacturers, pharmacies and others
to enhance the services it provides and to reduce the cost of health care. For
example, Health Card obtains certain rebates from manufacturers through
Integrated Pharmaceutical Services. Each potential strategic relationship will
be reviewed for possible regulatory problems. See "Risk Factors,"
"Business--Services--Electronic Point-of- Sale Pharmacy Claims
Management--Rebate Administration" and "Business--Government Regulation." Health
Card presently has a non-exclusive preferred relationship with Eckerd Health
Services d/b/a Express Pharmacy Services, one of the largest mail order
pharmacies in the U.S. Under the preferred relationship, Express Pharmacy acts
as a participating pharmacy and dispenses drugs to plan participants by mail.
See "Business--Services." Health Card has also engaged from time to time in
joint mailing programs with drug manufacturers designed to furnish information
to plan participants and prescribing physicians.
Industry Background
In response to escalating health care costs, cost containment efforts
in the health care industry have led to rapid growth in managed care and other
containment efforts. Despite these efforts, continued advances in medical
technology, new drug development and increasing drug utilization have led to
significant increases in health care costs. This has created a need for more
efficient, cost effective drug delivery mechanisms. Prescription benefit
management companies evolved to address this need. These companies created an
opportunity for plan sponsors to provide prescription drug benefits to their
plan members in a cost-effective manner through:
mail pharmacy services,
formulary management,
claims management, and
drug review and analysis
while often improving patient compliance with recommended drug and treatment
guidelines. Industry sources estimate that 1997 U.S. purchases for prescription
drugs totaled approximately $83 billion, of which purchases from retail outlets
were approximately $46 billion and purchases from mail order were approximately
$9 billion. Industry sources indicate that prescriptions managed by prescription
benefit management companies represent an increasing proportion of such
purchases.
Traditionally, prescription benefit management companies focused
primarily on cost containment by:
- managing prescription claims to reduce or eliminate duplication of
treatment (i.e., redundant drug therapies and other treatments),
-encouraging substitution of generics for branded medications,
- obtaining price discounts from participating pharmacies through a
pharmacy network, and
37
<PAGE>
- obtaining rebates from drug manufacturers.
Over the last several years, in response to increasing sponsor demand,
prescription benefit management companies have begun to develop sophisticated
computerized information systems which (a) help sponsors manage their
formularies and (b) analyze information and create reports, both of which allow
sponsors to make informed decisions about drug use and costs. Sponsors have also
increasingly focused on the quality and efficiency of care, emphasizing disease
prevention and health enhancement. Health Card (and its competitors) have
addressed these demands with a combination of traditional prescription benefit
management services and consulting services that exploit disease information
programs and sophisticated information systems.
Services
General
Sponsors retain Health Card to manage the prescription drug plans that
they maintain for the benefit of their plan participants. Health Card consults
with sponsors to assist them in customizing their prescription drug plans to
meet the particular sponsor's needs. Health Card has also developed and is
continuing to expand its consulting and disease information services to meet (a)
the growing needs of sponsors to address cost management pressures, and (b) the
increasing needs of plan participants, particularly those requiring costly
long-term and recurring therapies.
Health Card's claims management services are rendered through its
on-line real time computerize claims management system, which we sometimes refer
to in this prospectus as the "on-line claims management system." This on-line
claims management system reduces the administrative burdens of processing claims
and managing plan benefits for sponsors, plan participants and pharmacies.
Claims are typically submitted electronically to Health Card by pharmacies
participating in the pharmacy network. They are processed for plan participant
eligibility, plan coverage, any deductible limitations, co-payment amounts,
payment schedules and pharmacy eligibility. Using its on-line claims management
system, Health Card is able to provide an accurate benefit payment to the
pharmacy or plan participant.
The on-line claims management system manages the cost of the plan at
the point of service by confirming that:
only the negotiated discounts on prescription items will be paid to
participating pharmacies,
the submitted claim is in conformity with plan terms and conditions,
and the plan participant is eligible for benefits, and
pays any applicable deductible and co-payment amounts.
The data collected during the claims management process provides a basis for
reporting and analyses upon which recommendations are made to sponsors. These
recommendations are intended to assist them in lowering the costs of their plans
while improving quality and service. See "Business-Services--Data Access,
Reporting and Information Analysis."
38
<PAGE>
Electronic Point-of-Sale Pharmacy Claims Management
The Health Card and Claims Processing. Each sponsor's plan participant
is issued a health card which identifies the plan participant and the sponsor.
The card may be utilized at any one of over 42,000 (as of January 1, 1999)
pharmacies participating in Health Card's nationwide pharmacy network. The
health card allows the plan participant to purchase prescription drugs and other
physician-prescribed items, with the plan participant paying a deductible and
co-payment amount, if any, to the pharmacy. Each time a new sponsor is added,
Health Card provides pharmacies in the pharmacy network that serve the area in
which the new sponsor is located with documentation describing the use of the
health card, the sponsor and the summarized terms of the plan.
Plan participants present their health card together with a physician's
prescription to a participating pharmacy. The pharmacist, using standard
industry software, enters each claim on the pharmacy's computer; the claim is
electronically communicated to Health Card for on-line real time processing and
resolution. In the ordinary case where the prescription is for a drug listed on
the sponsor's formulary, the pharmacist is advised of the appropriate co-payment
to be collected from the plan participant and of the payment the pharmacy will
receive from Health Card. Health Card's on-line claims management system sends
appropriate messages regarding preferred drugs and contraindications, based upon
plan participants' existing claims history with Health Card. The prescription is
then dispensed by the pharmacist to the plan participant, who pays the
appropriate co-payment or deductible amount and signs a signature log maintained
by the participating pharmacy.
Plan participants are provided with a list of pharmacies participating
in Health Card's pharmacy network. Plan participants may alternatively choose to
fill prescriptions at a non-participating pharmacy. However, plan participants
who utilize non-participating pharmacies pay the full prescription amount, i.e.,
an amount generally in excess of the negotiated discount offered by pharmacies
in the pharmacy network. Both the plan participant and the pharmacy then
complete a direct reimbursement claim form, which is mailed to Health Card for
the allowable reimbursement amount to be paid to the plan participant.
Alternatively, the non-participating pharmacy may elect to immediately enroll in
Health Card's pharmacy network and participate in the on-line claims management
system. See "Business-Pharmacy Network."
Occasionally a plan participant's claim is rejected, based on plan
parameters, in which case the participant may be referred to the plan's sponsor
or to Health Card's customer service department. Also, on occasion a claim is
presented and the pharmacist is notified, during the course of processing the
claim, that prior authorization from the sponsor is needed before the claim can
be approved. In addition, mail order claims processing sometimes results in a
message to the pharmacist that a preferred drug is available for use in place of
the one prescribed. In such an event, the pharmacist must contact the physician
directly for permission to substitute the preferred drug; if such permission is
obtained, the pharmacist then contacts the plan participant to obtain his or her
permission to make a substitution. Although preferred drug messages are also
capable of being sent by Health Card's on-line claims management system to
retail pharmacists, to date no sponsor has asked Health Card to do so.
39
<PAGE>
Invoicing and Payments. Often, sponsors are charged an agreed fee for
each prescription filled plus an administrative fee for managing each claim.
Sometimes sponsors are charged an adjustable monthly fee or projected maximum
fee based on the number of plan participants, utilization, costs of drugs or
other criteria. Health Card provides flexibility of invoicing for its sponsors.
Sponsors pay Health Card; Health Card pays an individually negotiated
reimbursement to its participating independent and chain pharmacies. Plan
participants filing for direct reimbursement receive an allowable reimbursement
which is usually specified by the sponsor. See "Business-Services--Pharmacy
Network" and "Risk Factors - Working Capital Deficit; Possible Inability to Pay
Pharmacies."
Rebate Administration. Pursuant to an agreement dated January 1, 1996,
with Foundation Health Pharmaceutical Services, Inc., d/b/a Integrated
Pharmaceutical Services, Health Card submits claims for rebates from drug
manufactures relating to certain prescriptions to Integrated. This agreement is
terminable by either party with or without cause on 90 days prior written
notice. These claims are submitted quarterly. Integrated submits Health Card's
rebate claims (along with rebate claims of others) to the appropriate drug
manufacturer. Health Card receives a percentage of the total rebates received by
Integrated from drug manufacturers regarding products dispensed to Health Card's
sponsors' plan participants, with Integrated retaining a portion of the total
rebates as an administrative fee. Part of the projected aggregate rebate will be
paid to Health Card within 120 days after the end of each quarter, with the
balance reconciled by the parties through a series of offsets and credits, by
which the fees payable to Integrated by Health Card are off-set against the
amounts owed to Health Card by Integrated. As of the date of this prospectus,
the volume of claims processed by Health Card may not be sufficient to enable it
to obtain rebates directly from drug manufacturers in the same aggregate amounts
that could be obtained under the Integrated agreement.
Termination of the agreement with Integrated could have an adverse
effect on Health Card's business, operating results and financial condition. A
portion of the rebates received by Health Card may be required to be remitted to
certain of Health Card's sponsors, including Vytra and Suffolk County, depending
upon the terms of Health Card's agreement with each sponsor. See "Risk
Factors-Dependence on Rebate Programs," "Risk Factors -- Anti-Kickback
Regulations," and "Risk Factors--Pharmacy Regulations."
Health Card has signed joinder agreements, joining them to certain
agreements between Integrated and certain drug manufacturers, some of which
obligate Health Card to include certain drugs at specified levels in its
formulary in order to receive corresponding levels of rebates; certain of these
joinder agreements obligate Health Card to exclude certain drugs from its
formulary. Health Card has been provided with summaries of the rebate programs
which it understands to be the subject of these agreements, but has not been
provided with the complete agreements. See "Risk Factors--Dependence on Rebate
Programs" and "Business-Government Regulations Generally."
Pharmacy Network
Retail Pharmacy Network Management. A comprehensive nationwide network
of participating pharmacies is an essential element of Health Card's business
operations. Furthermore, certain of Health Card's sponsors, including Vytra,
require Health Card to contract with specified numbers of pharmacies in various
locations to serve plan participants. As of January 1, 1999 Health
40
<PAGE>
Card had a nationwide network of over 42,000 pharmacies, of which approximately
76% are retail chain pharmacies and 24% are independent pharmacies. In addition,
as of January 1, 1999 four mail order pharmacies participate in the pharmacy
network. See "Business-Services-Pharmacy Network-Mail Pharmacy Distribution and
Management."
As part of Health Card's cost containment efforts, Health Card contacts
selected participating pharmacies, plan participants and prescribing physicians
by mail to audit the validity of claims. The information requested includes:
copies of original prescriptions from participating pharmacies,
written confirmation from plan participants of their receipt of
prescribed drugs, and
physician verification of prescriptions for individual plan
participants.
Health Card also performs on-site audits of records of participating pharmacies.
Pharmacies are selected for an audit based upon parameters designed into Health
Card's computer programs. Additionally, Health Card may audit a pharmacy in
response to, among other things, a plan participant's or sponsor's complaint or
comments from customer service representatives of drug manufacturers.
Health Card enjoys long term relationships with many of the pharmacies
participating in its pharmacy network, as the following table indicates:
Pharmacy Year of Initiation
Rite Aid Corporation 1982
Eckerd Health Services 1983
CVS/Pharmacy, Inc. 1983
Genovese Drugstores, Inc. 1982
Furthermore, a significant portion of Health Card's cost of claims for recent
years originates with Genovese Drugstores, Inc. and CVS/Pharmacy, Inc.
Both the retail and mail order components of the pharmacy network are
managed by Health Card's on-line claims management system. See
"Business-Services-Electronic Point-of-Sale Pharmacy Claims Management."
Mail Pharmacy Claims Management. Mail pharmacy service is generally
used by plan participants as a cost effective means of minimizing the
inconvenience resulting from repeated trips to retail pharmacies to fill
prescriptions; this is especially common when a plan participant with a chronic
condition receives long-term drug therapy. In addition, the plan participant
saves money through a reduction in the number of co-payments and deductibles he
would have paid had the prescriptions been filled repeatedly at a retail
pharmacy. Further, with mail pharmacy service the sponsor is charged a lower
dispensing fee for prescription ingredients compared to those charged by a
retail pharmacy. Health Card presently has a non-exclusive preferred
relationship with Eckerd
41
<PAGE>
Health Services, d/b/a Express Pharmacy Services, one of the largest mail order
pharmacies in the U.S. In exchange for such preferred status, Health Card has
been granted favorable pricing based on volume and performance thresholds.
The agreement between Health Card and Express Pharmacy has an initial
term of three years ending on June 30, 1999 and is automatically renewable for
successive 12 month terms. Either party may terminate the agreement at the end
of the initial term or any successive term on 90 days prior written notice. The
agreement provides that Express Pharmacy will:
provide the covered drugs by mail to plan participants,
collect the appropriate co-payment, and
if required by the plan, collect any additional payment if a
brand drug is dispensed when a generic drug is available.
This agreement further provides that Health Card will reimburse Express Pharmacy
for approved claims within 45 days after the two week processing cycle in which
the claim occurs. See "Risk Factors" and "Business-Government Regulations
Generally."
As of January 1, 1999, four mail order pharmacies were participating in
Health Card's pharmacy network. Plan participants using a mail order pharmacy
mail in their prescriptions to the pharmacy. Claims submitted by mail order
pharmacies are managed using Health Card's on-line claims management system and
are subject to the same review and verification as those claims submitted by
retail pharmacies. If the claim is deemed eligible under the terms of the
appropriate plan, the participating mail order pharmacy mails the prescription
item to the plan participant. The mail order pharmacy typically covers the plan
participant's mailing costs through the use of prepaid envelopes (used by a plan
participant to submit his/her prescription) and typically pays to ship the
prescribed item to the plan participant.
Pharmacy Relations. According to Health Card's agreements with
pharmacies in the pharmacy network, Health Card is generally required to
reimburse participating pharmacies within a limited period of time from receipt
of claims by Health Card. Although Health Card endeavors to process claims
promptly and obtain funds from sponsors prior to reimbursing pharmacies, there
can be no assurance that sponsors will pay Health Card timely.
In the past, Health Card has often not complied with the payment
schedule set forth in its agreements with certain pharmacies. In particular, in
May, 1996, Health Card restructured $900,000 of outstanding overdue claims
payable to Genovese into a promissory note obligating Health Card to pay such
amount over 18 months. That note has been repaid in full. Health Card believes
that there has been no material negative affect on its business resulting from
any such non-compliance. Health Card believes that its relationships with
pharmacies are generally good. Since November, 1997, Health Card has generally
been in substantial compliance with the payment terms of its agreements with
pharmacies. However, there can be no assurance that Health Card will remain in
compliance with such agreements and pharmacies may demand strict adherence in
the future to the payment terms set forth in such agreements.
42
<PAGE>
In the event that any sponsor fails to pay Health Card on a timely
basis, Health Card may be required to pay participating pharmacies prior to
receiving funds from such sponsor. In addition, whether or not any sponsor fails
to pay Health Card at all, Health Card will be liable to its participating
pharmacies for reimbursement. The continuation of Health Card's services is
materially dependent upon the participation of pharmacies in Health Card's
pharmacy network; no assurance can be given that participation will continue. If
a substantial portion of the pharmacies were to discontinue their arrangements
with Health Card and/or Health Card was unable to maintain a nationwide pharmacy
network, Health Card could be unable to market its prescription benefit
management services and sponsors could discontinue their relationships with
Health Card. Consequently, Health Card could experience a loss of revenues which
could have a material adverse effect on its business, operating results and
financial condition. See "Risk Factors-Working Capital Deficit; Possible
Inability to Pay Pharmacies." See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Benefit Design Consultation
Health Card has a sales and marketing staff and pharmacists experienced
in prescription drug benefit plan design. Health Card assists sponsors in
defining their financial and employee-benefit objectives for their prescription
drug benefit plans and in developing a program to meet such objectives. Using
both sponsor-specific and general claims experience data, the sales and
marketing staff makes recommendations of benefit features such as:
levels of co-payments,
covered and excluded drugs,
generic substitution guidelines,
number of days supply of medication per prescription,
maximum benefit cost,
maximum plan participant out-of-pocket cost, and
coverage for prescription drugs dispensed by non-participating
pharmacies.
The staff also produces customized periodic reports, and disseminates publicly
available FDA approved or peer reviewed nationally recommended treatment data
regarding generic substitution guidelines. Once a plan design has been
implemented, the sales and marketing staff monitors plan performance
periodically and may recommend changes to the plan.
Preferred Drug Management
Almost all of Health Card's sponsors use its generic substitution and
preferred drug management programs. In administering preferred drug programs,
Health Card may recommend that a sponsor offer incentives so that a branded drug
with a lower cost than that initially prescribed is dispensed. Health Card
believes there are substantial savings to be realized by encouraging plan
participants to use generic instead of brand name drugs, since the cost of a
generic prescription drug can be as much as 95% (typically 40% to 60%) lower
than the cost of the therapeutically equivalent brand name prescription drug.
Through a generic substitution program, a plan participant pays a lower
co-payment than he would otherwise, and thereby benefits directly from the
savings. Through its preferred drug programs, Health Card encourages physicians
and plan participants to use drugs
43
<PAGE>
that are preferred by plan sponsors, usually for lower cost but sometimes for
efficacy. Health Card does this, typically, through contacts with physicians.
With a preferred drug program, typically the savings are distributed, for the
first year of the program, among the sponsor, the pharmacy, and Health Card;
starting with the second year, all of the savings are received by the sponsor.
This type of plan is most frequently used in connection with long-term
therapies.
Plan participants are encouraged by Health Card to use generic drugs by
a variety of methods. These methods include:
utilizing differential co-payments (that is, allowing a plan
participant accepting a generic drug to pay a lower co-payment than if
the same prescription were filled with the brand name drug),
eliminating the co-payment for generic drugs, and
offering a financial incentive to pharmacists to fill prescriptions
using generic drugs, when permitted by law, therapeutically
permissible and in all cases subject to the physician's prior
approval.
The differential co-payment is the method most commonly used by Health Card to
encourage acceptance of generic substitutes for brand name drugs. See "Risk
Factors -- Government Regulation Generally," "Risk Factors -- Anti-Kickback
Regulations" and "Risk Factors -- Pharmacy Regulations."
If a physician prescribes a specific drug and the prescription includes
a "dispense as written" ("DAW") notation, a pharmacist is not permitted to
substitute a generic drug without the physicians' consent. In such event, the
pharmacist must contact the physician directly for permission to substitute a
generic equivalent or a less expensive brand name drug. Depending on state law,
if no DAW notation is made, the pharmacist must obtain the consent of only the
plan participant to dispense a generic substitute. In New York, if no DAW
notation is made and the physician does not prohibit substitution, the
pharmacist is required to dispense the generic equivalent if it is available.
Other states may have different laws, rules and regulations. Health Card's
detailed quarterly reports to sponsors assist in determining if this program is
being utilized effectively. See "Business-Services-Data Access, Reporting
Information and Analysis."
Health Card also provides preferred drug management programs including
therapeutic interchange and formulary management. These programs are based upon
the effectiveness, quality and cost of specific drugs. Programs of interchange
or formulary inclusion are implemented to give sponsors lower cost with equal
quality. All chosen drugs are reviewed by Health Card's Pharmacy and
Therapeutics Committee in terms of their efficacy, quality (including side
effects) and cost. See "Business -- Consulting Services and Disease Information
Services."
44
<PAGE>
Drug Review and Analysis
Health Card's drug review and analysis services include prospective
reviews of potential claims and concurrent and retrospective reviews of
submitted claims. These include a series of on-line reviews which permit a
pharmacist filling a prescription to examine the plan participant's claims
history for:
drug interactions,
premature refills of prescriptions,
duration or duplication of therapy,
pregnancy and breast feeding precautions,
geriatric or pediatric precautions,
compliance with prescriptions, both as to dosage and timing, and
other contraindications.
Health Card transmits such information to the dispensing pharmacist for
information purposes only -- not to replace the prescribing physician's or the
dispensing pharmacist's professional judgment. Health Card's consulting
department retrospectively analyzes the drug utilization patterns of plan
participants for each sponsor. Health Card may then recommend changes in the
sponsor's plan design, preferred drug management, and disease information
systems initiatives to contain costs or to better serve the Plan participants.
See "Risk Factors -- Confidentiality of Patient Records," "Business --
Government Regulation," and "Business -- Patient Records."
Consulting Services and Disease Information Services
Prescription Benefit Plan Consulting. Health Card's consulting services
are designed to enable sponsors to enhance the quality of plan participants'
care while reducing related costs. Using data relating to the progression and
treatment of diseases, Health Card disseminates information regarding therapies
that are aimed at treating a disease in a cost-effective manner. Health Card's
information systems, which include a comprehensive database, allow Health Card
to provide (a) drug review and analysis, (b) appropriate reports and
information, and (c) disease information services. Health Card believes that
technology and information systems advances will allow for future integration of
health care claims information, including hospital, laboratory and clinical
costs (if the sponsor releases such information to Health Card and authorizes
Health Card's use of such information). Health Card further believes that
integration will enable it to assess outcomes on a statistical basis and based
on such statistical assessments to make recommendations regarding effective
prescribing practices. Health Card believes this should allow for improved
patient care while controlling therapy costs. See "Risk Factors --
Confidentiality of Patient Records."
Health Card has established a Pharmacy and Therapeutics Committee (the
"P&T Committee") comprised of physicians, pharmacists and other health care
professionals. This Committee's primary responsibility is to assist sponsors in
designing a well managed, therapeutically appropriate, cost-effective preferred
drug listing or "formulary". The goal of the
45
<PAGE>
P&T Committee is to enable sponsors to optimize plan participant care through
drug policy development and education. The P&T Committee meets quarterly and
performs the following functions:
provides information to sponsors to ensure that the covered drugs of
each plan reflect the current standard of medical practice and
pharmacology,
evaluates drugs for inclusion in a plan as a preferred drug,
analyzes current literature for safety, efficacy and
cost-effectiveness of covered drugs,
provides recommendations on drug therapy and utilization,
evaluates drug review and analysis programs and criteria by sponsors,
determines those drugs which require prior authorization from the
sponsor, and
reviews the associated guidelines for those drugs' proper use.
The P&T Committee currently consists of six members: Martin Edelstein,
M.D. and Paul Cohen, M.D., each of whom is a practicing physician and medical
school professor, Jack M. Rosenberg, a university professor of clinical pharmacy
and pharmacology, Joseph B. Laudano, a manager of medical affairs of a major
drug company, Howard G. Levine, a pharmacist, who is the Chairman of the Board
of an independent pharmacy group, and John Ciufo, who is Health Card's liaison
with the P&T Committee. Mr. Ciufo is the only member of the P&T Committee
otherwise affiliated with Health Card. Vytra has the right to designate one
member of the P&T Committee, but has not exercised its right. Each Committee
member must disclose his or her affiliation with any drug company; no current
Committee member besides Mr. Laudano has disclosed any such affiliation.
Disease Information Services. Through its disease information services,
Health Card provides information to sponsors that is intended to enable them to
enhance their prescription benefit plans and to improve the treatment of plan
participants with certain medical conditions. In providing disease information
services, based upon recommended drug and treatment guidelines, Health Card:
reviews and analyzes drugs prescribed and prescriptions dispensed,
recommends plan guidelines, and
conducts plan participant and physician profiling.
By analyzing plan participants' pharmacy claim patterns and health information
provided by prescribers and sponsors (when medical records are available to
Health Card), Health Card can provide information to sponsors and health care
providers, assisting in the early identification of patients whose care might be
improved through additional or alternative treatment or medication. Health Card
has developed disease information systems covering cardiovascular and
gastrointestinal conditions, migraines, diabetes, and asthma, among others.
Health Card's disease information services utilize the recommended drug
and treatment guidelines to create a series of mathematic formulae which are
then implemented in Health Card's
46
<PAGE>
computerized information systems. These formulae are periodically updated by
Health Card based upon its own assessments, changes in the drug and treatment
guidelines, and review of current medical literature.
Should the disease information services identify plan participants
"at-risk" for a particular disease, Health Card may provide the recommended drug
and treatment guidelines to sponsors, treating physicians and plan participants.
If requested by the sponsor, Health Card monitors a participant's compliance
with the recommended drug and treatment guidelines, including prescription
usage. If it appears, based upon Health Card's analysis of the participant's
claims history, that the recommended drug and treatment guidelines are not being
applied, Health Card may, if requested by the sponsor, contact the plan
participant or physician, via either telephone or letter, suggesting additional
options. Physician performance and adherence to the recommended drug and
treatment guidelines are monitored by using Health Card's information systems.
Health Card has developed disease information programs and is currently
marketing them. Health Card believes that sponsors' demand for these services
will grow as their needs for information to address cost containment increase.
Data Access, Reporting and Information Analysis
Data Access. Health Card's computerized information systems allow each
sponsor to access on-line data relating to the sponsor's plan. With this
capability, the sponsor is able to maintain and update plan participant
eligibility information and override denials of claims if it so chooses.
Reports. Sponsors receive quarterly executive reports and ad-hoc reports in
addition to the executive and billing reports which accompany invoices. The
quarterly executive reports provide:
financial and claims information,
information on age group utilization,
amounts spent on prescriptions,
most frequently dispensed drugs in terms of claims and dollar
amounts, information about retail pharmacy and mail order mix,
and information about generic and brand drug mix.
The billing reports indicate, by plan participants' names:
the prescriptions filled,
dates dispensed,
drugs dispensed, and
the dispensing pharmacies utilized by plan participants.
Based on these reports, Health Card representatives provide information and
assist sponsors regarding benefit design, cost containment initiatives, disease
information initiatives and formulary
47
<PAGE>
management.
Decision Support Systems. Health Card's proprietary computerized
HCFocus decision support tool is part of Health Card's report generation system
and utilizes Health Card's proprietary database. Sponsors can use HCFocus to
analyze particular information, including, among other things:
comparison of physician prescription practices for the same disease or
condition,
analysis and review of a plan participant's drug history,
analysis of the top drugs dispensed by number or dollar value,
analysis of generic drug for brand name drug substitution rates, and
analysis of the dispensing patterns of particular pharmacies.
Physician Profiling
Health Card will, at either a physician's or a sponsor's request,
analyze (i.e., profile) a physician's prescription history and consult with
either the physician or the sponsor about the physician's prescribing pattern.
Health Card might, for example, discuss alternatives based on the drug and
treatment guidelines to therapies that the physician regularly prescribes. This
practice is designed to enhance the therapeutic benefits received by the plan
participant and, where possible, to achieve cost savings. They are also designed
to promote conformity with plan benefits and the recommended drug and treatment
guidelines. Occasionally, Health Card merely provides the profile information
because the requesting party has not asked for information about alternative
therapies. Presently, Vytra is the only Health Card sponsor using the physician
profiling services, although Health Card anticipates that two more sponsors will
also be using this service starting some time in the second quarter of 1999.
Sponsors
Sponsors include managed care organizations, local governments, unions,
employers and third party health care plan administrators of prescription drug
programs. As of January 1, 1999, sponsors' plans covered over 434,000 plan
participants. As of January 1, 1999, Health Card had 226 sponsors, with
concentrations in the Northeast, Southeast and West Coast. Between May 1, 1998
and February 1, 1999 18 new sponsors began utilizing Health Card's services,
including, Longaberger Company, AFL-CIO Food and Beverage Dealers Trust Fund,
Guild-Times Benefit Fund, Baker, Confectionary, and Tobacco Workers (Local 102)
Welfare Fund, Musicians Local 802, and Teamsters Local 840.
In the event that any of these sponsors choose to discontinue using
Health Card's services, Health Card's business, operating results and financial
condition will be materially adversely affected. In the event of the loss of any
of these sponsors, there can be no assurance that Health Card will be able to
replace such sponsors. See "Risk Factors-Loss of One of Our Major Customers" and
"Risk Factors-Consolidation Among Sponsors."
48
<PAGE>
Health Card depends on a limited number of sponsors for a significant
portion of its revenue.
Significant Sponsors
Vytra
Vytra Health Plans Long Island, Inc. (formerly known as ChoiceCare Long
Island, Inc.)("Vytra"), a health maintenance organization, is a particularly
significant sponsor, as the following table indicates:
Percent of Health
Period Card Revenues Number of Participants
Year ended June 30, 1997 44% 128,404
Year ended June 30, 1998 42% 166,840
Three months ended September 30, 1998 40% 170,116
Health Card has been providing services to Vytra since 1990.
A. Prescription Arrangement.
Health Card provides prescription benefit management services to Vytra
under two separate arrangements. Pursuant to a series of letters and
conversations, Health Card provides services to Vytra under an arrangement that
began under a written agreement that, as amended, expired in December 1998 (the
"Prescription Arrangement"). Health Card is in the process of negotiating a
formal amendment to the Prescription arrangement which would, among other
things, renew and extend the term of the expired written agreement on a modified
basis. Health Card cannot be certain that a definitive agreement with Vytra will
be signed, or that the agreement (if any) that is signed will contain terms as
favorable to it as the current agreement. If Health Card were to lose Vytra as a
sponsor, it would have a material adverse effect on Health Card's business,
operating results and financial condition.
Under the Prescription Arrangement as modified, Health Card provides
prescription benefit management services and charges a preset amount based on
the number of plan participants covered at the beginning of each month. The
amount payable under this agreement is adjusted retrospectively to take into
account actual utilization and cost of claims. The party that benefitted from
any difference in such amount pays a percentage of the difference to the other
party. Vytra pays Health Card additional fees for certain information services,
claims processed and other services.
49
<PAGE>
The Prescription Arrangement accounted for the percentage of revenues
received from Vytra indicated in the following table:
Period Percent of Revenues
Year ended June 30, 1997 76%
Year ended June 30, 1998 78%
Three months ended September 30, 1998 79%
Pursuant to the Prescription Arrangement, Health Card is Vytra's
primary provider of prescription benefit management services. Vytra has the
right to place a percentage of its claims with other prescription benefit
management companies. If Vytra processes more than such percentage of its claims
with other parties, Health Card can terminate the Prescription Arrangement.
Under the Prescription Arrangement, should Health Card offer rates more
favorable than those offered to Vytra to a competing sponsor whose plan design
and demographics, service area and services received from Health Card are
substantially similar to those of Vytra, Health Card must promptly notify Vytra.
Vytra then may:
terminate the Prescription Arrangement, if the competing
sponsor has more participants (but less than twice more) than
Vytra and we do not offer the same rates to Vytra; and receive
the more favorable rates, if the number of the competing
sponsor's participants is equal to or less than the number of
Vytra's participants.
As a result of adoption of new contract drafting guidelines for HMOs and IPAs in
New York, Health Card will not be permitted this same contract benefit. See
"Risk Factors -- Government Regulations Generally."
The Prescription Arrangement requires Health Card to arrange for an
adequate and accessible pharmacy network for Vytra plan participants (i.e., a
specified number of pharmacies). Health Card meets this standard if one or more
participating pharmacies are located in each zip code in Queens, Nassau and
Suffolk County, New York, unless either (a) no pharmacy exists within a zip
code, or (b) a pharmacy will not participate and such non-participation is
beyond the reasonable control of Health Card. In addition, Health Card must
exercise its best efforts to maintain pharmacy network participation in
accordance with certain historical levels; as of January 1, 1999, there were
over 42,000 pharmacies participating in Health Card's pharmacy network. Health
Card is not responsible if the number of pharmacies in the network declines
because of pharmacy closings, consolidations or changes in the reimbursement
schedule. Health Card has agreed with Vytra that it will not terminate a major
chain of participating pharmacies during the term of the Agreement without
Vytra's consent. However, if Vytra does not consent and the inclusion of such
chain results in higher actual costs to Health Card, then Vytra will be required
to pay such increase on a quarterly basis. In addition, Vytra may require Health
Card to add specific pharmacies to the pharmacy
50
<PAGE>
network. Similarly, if the inclusion of such pharmacies results in higher actual
costs to Health Card, Vytra will be responsible for the increase.
The Prescription Arrangement sets forth certain guarantees that Health
Card must meet. These include:
processing certain percentages of claims within certain periods,
making all reasonable efforts to process all claims within a
maximum period,
answering all calls within a minimum time frame,
ensuring that a certain percentage of mail order prescriptions
that are not eligible for substitution of therapeutic equivalents
are dispensed within certain periods, and
making all reasonable efforts to make sure all mail order
prescriptions are dispensed within a maximum time period.
Health Card is required to pay a penalty for failing to meet the
processing-period and call-answering guarantees; however, there is no specific
penalty provision if the mail order prescription guarantees are not met.
Health Card must maintain a Pharmacy and Therapeutics Committee. Vytra
has the right to designate one representative to serve on the Pharmacy and
Therapeutics Committee, but has not exercised that right. See
"Business-Services-Clinical Consulting and Disease information." A portion of
the rebates actually received by Health Card for pharmacy benefit management
services to plan participants must be remitted to Vytra. See
"Business-Services-Electronic Point-of-Sale Pharmacy Claims Management-Rebate
Administration."
Pursuant to the Prescription Arrangement, a portion of certain
financial risks is shifted from Vytra to us. Vytra is a health maintenance
organization ("HMO") established under the laws of the State of New York. Under
New York law, an HMO may share risk only with "providers," independent practice
associations ("IPAs") or reinsurers. "Providers" is not defined in the statute
or regulations but Health Card believes it means health care provider, e.g.,
physician, pharmacist, physical therapist, etc. Health Card believes that it is
not a "provider", an IPA or a reinsurer. Thus, Health Card may be deemed
ineligible to be a party to the Prescription Arrangement, or any new agreement
with Vytra, a consequence of which may be to render it voidable by Vytra. Health
Card has acquired National Medical Health Card I.P.A., Inc., a wholly-owned
subsidiary which is an IPA in New York State. Health Card intends to cause the
IPA to be the contracting party with respect to any contracts with HMOs and
providers containing financial risk sharing provisions, which Health Card
believes will solve the problem for future time periods. No assurance can be
given that Vytra or any other HMO or provider will agree to contract with the
IPA, or that any agreement entered into by the IPA would not be rejected by the
DOH. Failure to enter into an agreement with Vytra would have a material adverse
effect on Health Card's business, operating results and financial condition. See
"Risk Factors--Insurance Regulations," "Risk Factors--Pharmacy Regulations" and
"Risk Factors--Government Regulations Generally."
51
<PAGE>
In addition, the DOH has issued contract drafting guidelines to be used
in connection with the approval process for HMO and IPA contracts and HMO and
IPA certification. The drafting guidelines discourage "most favored nations"
clauses in HMO and IPA contracts. Health Card's inability to offer a most
favored nation clause to Vytra may result in the loss of a competitive advantage
Health Card presently enjoys. See "Risk Factors--Government Regulations
Generally" and "Business--Independent Practice Association Regulations."
As of September 25, 1998, Health Card executed a letter agreement with
Vytra which extended the term of the original Prescription Arrangement until
December 31, 1998. This letter agreement also listed new and additional terms
which were to be included in a formal amendment to the Prescription Arrangement.
Health Card anticipates that the formal amendment will govern the parties'
relationship from January 1 to December 31, 1999, and will include, among other
things, the terms of a proposal issued by Health Card in response to a request
for proposal which was issued by Vytra, as contemplated to be modified by the
September 25, 1998 letter. As of the date of this prospectus, the formal
amendment has not been entered into. Although negotiations are continuing and we
expect a formal amendment to be executed by both parties, no assurances can be
given that a formal amendment will be executed, or that it will be executed on
terms favorable to Health Card. See "Risk Factors - Loss of One of Our Major
Sponsors Would Significantly Impair Our Business."
B. Fee for Service Agreement.
Health Card also provides prescription benefit management services to
Vytra under an agreement commencing March 15, 1990 (the "Fee for Service
Agreement") with an initial term ended on March 31, 1991. The Fee for Service
Agreement renews annually from year to year, unless terminated by either party.
Under this Agreement, Health Card performs prescription benefit management
services and charges a fee based on the number and type of claims processed.
While the Fee for Service Agreement requires Health Card to pay specified
amounts for drugs, Health Card has verbally advised Vytra that it pays less than
such specified amounts and Vytra has not objected to such arrangement.
The Fee for Service Agreement accounted for the percentage of revenues
received from Vytra indicated in the following table:
Percent of Revenues
Year ended June 30, 1997 24%
Year ended June 30, 1998 22%
Three months ended September 30, 1998 21%
Suffolk County
Health Card has been providing prescription benefit management services
to Suffolk County, a municipal corporation of the State of New York, since 1992.
Health Card is currently providing
52
<PAGE>
services to Suffolk County under an oral agreement, terminable by either party,
the economic terms of which are otherwise substantially similar to those of a
written agreement that expired on December 31, 1998.
Suffolk County accounted for a substantial portion of Health Card's
business, as indicated in the following table:
Percent of Number of
Period Revenues Participants
Year ended June 30, 1997 19% 37,833
Year ended June 30, 1998 15% 38,893
Three months ended September 30, 1998 14% 39,077
Health Card guarantees an effective blended average wholesale price
discount per prescription and an average blended dispensing fee per
prescription. Health Card is required to pay certain percentages of rebates to
Suffolk County pursuant to a complex formula. Health Card offers Suffolk County
a minimum initial rebate guarantee for each paid claim, which applies until the
rebate per claim equals a threshold amount. The percentage rebate to which
Suffolk County is entitled increases based on a formula tied to the per claim
rebate rate. Additionally, during the first three years of the Suffolk County
agreement, Health Card guaranteed the amount of administrative fees, a
percentage of savings based on electronic reviews, a percentage of concurrent
drug review and analysis review savings, and a percentage of pharmacy audit
savings.
Health Card received a Request for Proposal from Suffolk County which
had the effect of informing Health Card that Suffolk County had elected not to
extend the then-current agreement. In February 1999, Suffolk County provided us
with a proposed amendment to the written agreement, which, among other things,
would extend the term of the prior agreement until December 31, 1999. See "Risk
Factors - Loss of One of Our Major Sponsors Would Significantly Impair Our
Business." Neither party has signed the amendment as of the date hereof. We
cannot be certain that a definitive agreement with Suffolk County will be
signed, or that the agreement that is signed (if any) will contain terms as
favorable to us as the current arrangement.
Operating Engineers
On December 1, 1997, Health Card began providing prescription benefit
management services to Operating Engineers Trust Funds, IUOE Local 12, a
construction workers' union, in Southern California. As of January 1, 1999,
Operating Engineers cover approximately 40,000 plan participants. As of the date
of this prospectus, Health Card is providing services pursuant to a verbal
agreement but is negotiating for a written agreement. No assurances can be given
that a formal agreement will be executed, or that it will be executed on terms
favorable to Health Card. Pursuant to such verbal agreement, Health Card is
required to pay a certain percentage of rebates to the Trust
53
<PAGE>
Funds. For the three months ended September 30, 1998, Operating Engineers
accounted for approximately 13% of Health Card's revenues.
Sales and Marketing
Health Card markets its services through a sales and marketing
department led by the Executive Vice President of Sales and Marketing. The sales
and marketing department includes a marketing manager, marketing assistant, a
proposal writer, one regional sales manager, seven sales executives, and one
sales coordinator. There is a sales executive for each targeted geographic sales
region - Northeast, Mid-Atlantic, Southeast, Southwest, Midwest and West, and
one for the public sector market with a national focus. The members of Health
Card's sales and marketing department have approximately 135 years of combined
experience in the prescription benefit management services industry. In
addition, Health Card contracts with independent brokers who are retained to
market Health Card's services to prospective sponsors for agreed upon fees based
on the number of plan participants enrolled in a Health Card-supported plan. See
"Risk Factors--Pharmacy Regulations."
Health Card maintains a prospect list in which each prospect is
identified by market segment and geographic sales location; the list includes
sponsors which, in the aggregate, target over 5,000,000 plan participants.
Health Card has completed market studies of and has identified various managed
care organizations, local governments, unions, corporations, and third party
health plan administrators who are potential sponsors. Health Card focuses its
marketing efforts on sponsors with plans covering up to 100,000 participants
although it provides services to, and seeks sponsors with, plans covering less
or significantly more plan participants. Health Card is beginning a market
research effort to determine the profitability and marketability of developing
prescription benefit management programs for the U.S. retiree population. Health
Card also markets to all major employee benefit consultant groups.
Health Card attends numerous trade shows and utilizes advertising,
public relations and marketing literature for sales support. Additionally,
Health Card employs the services of a public relations and media firm for
exposure and publication in newspapers, periodicals and journals which are
targeted to employee benefit and managed care specialists.
Further, Health Card is continuing to expand its World Wide Web site.
Currently, the web site describes Health Card's products and services and lists
frequently asked questions, among other things. It is anticipated that the web
site will have a page dedicated to on-line services which will allow plan
participants to fill out customer service surveys and direct reimbursement
claims forms, and to access the pharmacy network listings. The web site is
anticipated to be available for physician access to the Health Card formulary
drug listing. Security firewalls have been developed and implemented to protect
patient confidentiality. Competition
Health Card competes with numerous companies which provide the same or
similar services, such as:
54
<PAGE>
Express Scripts,Inc./ValueRx National rescription Administrators, Inc.
PCS Health Systems, Inc., Diversified Pharmaceutical Services, Inc.
Merck-Medco Manage Advance Paradigm, Inc.
Provantage, Inc. MedImpact Health Care Systems, Inc.
Promark Holdings, Inc. Pharmaceutical Care Network
Consultec, Inc.
Many of Health Card's competitors have been in existence for longer
periods of time and are far better established than Health Card. Many of them
also have:
broader public recognition,
financial and marketing resources substantially greater than
Health Card,
more experienced management, and
far more extensive facilities than those available to Health
Card.
In addition, Health Card's sponsors and potential sponsors may find it desirable
to perform for themselves those services now being rendered by Health Card.
Health Card's ability to attract and retain sponsors is substantially
dependent on its capability to provide efficient and accurate claims management,
prescription drug program management and related reporting, auditing and
consulting services. Health Card believes that the following factors help Health
Card successfully compete:
a broad base of experience in the information technology and
pharmacy benefit management industries,
flexible and sophisticated on-line computerized information
systems, and
a focus on customer service.
See "Risk Factors-Competition."
There can be no assurance that Health Card will remain competitive or
successfully market integrated prescription benefit management services and
disease information services to existing and new sponsors. Furthermore, there is
a distinct possibility that consolidation and alliances within the industry will
adversely impact the operations and prospects for independent prescription
benefit management companies such as Health Card. See "Risk Factors-Competition"
and "Risk Factors - Consolidation Among Sponsors." Employees
As of January 1, 1999 Health Card had 75 employees, including:
9 officers,
a sales and marketing department of 14 employees,
an information services department of 14 employees,
an operations department of 31 employees (4 of which are
part-time),
55
<PAGE>
consulting department of 5 employees, and
financial department of 2 employees.
Health Card's employees are not subject to collective bargaining agreements and
Health Card considers its relations with its staff to be satisfactory. See
"Certain Transactions." Information Systems
Health Card's information systems integrate all of the:
data input,
reporting,
analysis, and
access functions
provided by Health Card, and Health Card believes that its information systems
provide it with a competitive advantage. See "Risk Factors--Dependence on
Information Systems" and "Business- General."
Health Card's on-line claims management system depends in large part on
software licensed from Prospective Health Incorporated ("PHI"). By a license
agreement dated February 18, 1998, Health Card was granted a nonexclusive and
nontransferable perpetual license to use PHI's claims adjudication software
system. This system is an integral part of Health Card's on-line claims
management system. Health Card agreed to an initial license fee of $400,000, of
which $100,000 was payable upon execution of the agreement and the balance is
payable at the rate of $25,000 per month. Once the annual transaction volume
exceeds 3,000,000 transactions annually, the license fee increases
incrementally, up to a maximum of $500,000 annually. In any case, the license
fee is payable in monthly installments. The agreement contains several
performance guarantees on PHI's part; monthly installments of the license fee
may be withheld by Health Card if the software does not comply with the
guarantees, until the software is compliant. The agreement also provides for
payment to PHI of maintenance fees by Health Card.
In addition, Health Card entered into a non-exclusive licensing
agreement on March 16, 1998 with Medi-Span, Inc. for a three-year term. This
agreement permits Health Card to use Medi-Span's master drug database, drug
utilization review databases, price-checking software and state claims- review
programs for New York and Virginia. Health Card pays license fees annually,
which increase as the number of claims processed with Medi-Span's software
increases. In addition, Health Card pays an annual base fee of $16,000.
On June 1, 1998, Health Card entered into an agreement with Sandata,
Inc. ("Sandata"), of which Bert E. Brodsky is the Chairman of the Board,
President, Treasurer and a principal stockholder. This agreement, which was
amended on the same date, relates to the hiring of 11 Sandata employees by
Health Card to provide development, enhancement and maintenance of Health Card's
information systems internally. Health Card paid Sandata $208,000 in
consideration for Sandata's assigning to Health Card certain rights relative to
such employees. Health Card also
56
<PAGE>
assumed a liability of $86,000 relating to these employees. In addition, on June
1, 1998, Health Card purchased from Sandata certain computer equipment,
furniture and fixtures for $100,000. Sandata is expected to continue to provide,
on a limited basis, consulting services related to Health Card's information
systems. Also, Sandata confirmed Health Card's proprietary rights in certain
software developed by Sandata for Health Card, among other things.
A significant portion of Health Card's information systems has
historically been developed, enhanced, modified and maintained by Sandsport Data
Services, Inc. ("Sandsport"), a wholly-owned subsidiary of Sandata. Furthermore,
Health Card leases computer hardware for its data processing center at a monthly
cost of $24,000 from Sandsport pursuant to a oral agreement. Based on
competitive fee quotations obtained by Health Card, Health Card believes that
the terms of the rental agreement are as fair to Health Card as those which
could be obtained from an unaffiliated third party. See "Certain
Transactions-Health Card's Relationship with Sandata."
Year 2000
Health Card recently completed a comprehensive review of its
information systems and is involved in a program to update its information
systems and applications in preparation for the Year 2000. Health Card will
incur internal staff costs as well as outside consulting and other expenditures
related to this initiative. For the period January 1, 1999 to August 31, 1999,
which is the only period during which Health Card expects to incur Y2K-related
expenses, both historical and anticipated expenditures related to remediation,
testing, conversion, replacement and upgrading system applications are expected
to total approximately $100,000. Total expenses, including depreciation and
amortization of new package systems, are not expected to have a material impact
on Health Card's financial condition during the conversion process from July
1998 through 2000. Health Card expects to be fully Year 2000 compliant by June
30, 1999.
Health Card's management intends to develop a "worst-case scenario"
with respect to Y2K non-compliance and to develop contingency plans designed to
minimize the effects of such scenario. Both the worst-case scenario and the
contingency plans will involve analysis of the use of alternative,
non-information technology methods of processing claims, including manual
processing, in the event of information technology system failure on the part of
outside parties. The executive management of Health Card intends to have its
worst-case scenario and contingency plans fully developed and in place by August
31, 1999.
Health Card is attempting to contact vendors and others on whom it
relies to assure that their systems will be converted in a timely fashion.
However, there can be no assurance that the systems of other companies on which
Health Card's systems rely will also be converted in a timely fashion, so that
any such failure to convert by another company would not have an adverse effect
on Health Card's information systems. Furthermore, no assurance can be given
that any or all of Health Card's information systems are or will be Year 2000
compliant, or that the ultimate costs required to address Year 2000 issues or
the impact of any failure to achieve substantial Year 2000 compliance will not
have a material adverse effect on Health Card's business, operating results or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of
57
<PAGE>
Operations."
Facilities
Health Card occupies approximately 7,225 square feet of space at 26 Harbor
Park Drive, Port Washington, New York 11050, under a sublease at a monthly cost
of $20,980 (including utilities). The sublessor is BFS Realty, LLC, which is
affiliated with Mr. Brodsky. The sublease expires as of December 31, 2000. Rent
under the sublease increases by five percent annually. The BFS sublease was
assigned by Sandata, Inc. to BFS in November 1996. Mr. Brodsky is the Operating
Manager and holder of a majority of the membership interests of BFS. Based on
competitive fee quotations obtained by Health Card, Health Card believes that
the terms of this sublease are as fair to it as those which could be obtained
from an unaffiliated third party. Pursuant to an agreement entered into in June
1995, Health Card paid $700,000 in connection with certain allocated leasehold
improvements. See "Certain Transactions."
Health Card has orally agreed to lease an additional 2,500 square feet
at 26 Harbor Park Drive, Port Washington, New York 11050 at a rent not yet
determined, beginning on February 15, 1999, from Document Storage and
Management, Inc., which is affiliated with Mr. Brodsky. See "Certain
Transactions." Health Card also has orally agreed to lease an additional 1,500
square feet at the same premises as of June 1, 2000. The combined areas will be
used for the customer service center described below.
Health Card is in the process of building a new customer service center
at its headquarters. It will initially be equipped with between 30 and 35
service representatives' desks, and there is space for an additional 30 service
representatives. Health Card anticipates that the customer service center will
open on or about March 15, 1999, and that the additional 30 service
representative work areas will be equipped and operational as needed. Sponsors,
plan participants, pharmacies and physicians will be able to call the customer
service center.
Pursuant to a lease dated August 10, 1998 and expiring on August 31,
2005, Health Card occupies approximately 1,500 square feet at 63 Manorhaven
Boulevard, Port Washington, New York, which will be used as a pharmacy. The
landlord for these premises is 61 Manorhaven Blvd., LLC, of which Mr. Brodsky is
the sole member. The rent for the twelve (12) month period ending August 31,
1999 is $1,500 per month; the annual rent increases by 5% per year. Additional
rent, in the form of Health Card's pro rata share of common expenses, is also
payable.
Pursuant to a lease commencing December 15, 1998, and expiring on
December 14, 1999, Health Card leases an apartment, for use by two of its staff
members, at premises located at 77 Juniper Road, Port Washington, New York. The
annual rent is $20,400. Utilities and maintenance service (if any maintenance
service is contracted for) are payable by Health Card as additional rent.
Government Regulation Generally
The activities of pharmacy benefits management companies such as Health
Card are subject to regulation at the federal, state and local levels. Except as
otherwise discussed in this prospectus, Health Card believes that its business
operations and relationships are in material compliance with
58
<PAGE>
applicable laws, rules and regulations. The laws that implement this regulation
include, but are not limited to, the federal Anti-Kickback, anti-trust and ERISA
laws and the laws of various states relating to health, insurance and the
licensing and regulation of professionals, including pharmacists. Health Card is
also subject to laws and regulations relating to business corporations in
general. Regulatory authorities have very broad discretion to interpret and
enforce these laws and to promulgate corresponding rules and regulations.
Violations of these laws, rules and regulations (as determined by agencies or
judicial authorities) may result in criminal and/or civil penalties, injunctive
relief to prevent future violations, other sanctions, loss of professional
licensure and exclusion from participation in federal and state health care
programs.
The interpretation and applicability of some of the laws, rules and
regulations applicable to Health Card's business are unclear. Health Card's
business activities and relationships with sponsors, pharmacies, Integrated,
plan participants, its IPA and brokers have not been the subject of regulatory
investigation or review on either the state or the federal level. Health Card
has not obtained or applied for any opinion of any regulatory or judicial
authority that its business operations and relationships with sponsors,
pharmacies, Integrated, plan participants or brokers are (or that its proposed
business arrangement or its IPA will be) in compliance with applicable laws,
rules and regulations. There can be no assurances that regulatory or judicial
scrutiny of its business or relationships with sponsors, pharmacies, plan
participants, Integrated or brokers will not result in determinations adverse to
Health Card. While Health Card is taking steps to come into compliance with all
such laws, rules and regulations, there can be no assurance that its efforts
will be successful, that it will interpret the applicable laws, rules and
regulations in the same way as regulatory or judicial authorities, or that the
laws, rules and regulations and/or the interpretation thereof will not change
from time to time.
Health Card may, therefore, be subject to lengthy and expensive
investigations of its business operations and/or relationships by various state
or federal governmental authorities, regardless of the merit of the underlying
claims in such investigations. If any regulatory or judicial authority found
Health Card to be in violation of these laws and regulations, Health Card could
be subject to criminal and/or civil penalties including substantial fines, other
sanctions, loss of licensure and exclusion from participation in federal and
state health care programs. This could limit or terminate Health Card's ability
to provide its services to sponsors and plan participants or conduct its
business in accordance with current practices, and could have a material adverse
effect on its business, operating results and financial condition. See "Risk
Factors - Government Regulations Generally."
A more detailed analysis of certain specific laws, rules and
regulations affecting the business, operations and relationships of Health Card
is set forth below.
Anti-Kickback Regulations
The Criminal Penalties for Acts Involving Federal Health Care Programs,
commonly referred to as the Federal Anti-Kickback Statute (the "Anti-Kickback
Statute") imposes civil and criminal penalties for knowingly paying or receiving
remuneration (including any kickback, bribe or rebate) in return for referring
an individual for the furnishing of an item or service, or for the purchasing,
leasing, ordering or arranging for any item or service for which payment may be
made in whole or in part under a federal health care program, including Medicare
or Medicaid. Violation of this law
59
<PAGE>
is a felony, punishable by fines up to $25,000 per violation and imprisonment
for up to five years. Violation may also give rise to civil penalties of up to
$50,000 per violation and exclusion from the Medicare and Medicaid programs. The
Anti-Kickback Statute and related regulations have been broadly interpreted by
the Federal courts to prohibit the payment or receipt of any form of
remuneration, even if only one purpose of such remuneration is to obtain a
referral for any item or service that is covered by a federal health care
program including Medicare or Medicaid. Certain states (but not New York) have
similar statutes that may extend the prohibitions to items or services that are
paid for by non-governmental third-party payors, as well as individuals who pay
directly for their own health care.
Because of the breadth of the interpretations of the Anti-Kickback
Statute, the Office of the Inspector General ("OIG") of the Department of Health
and Human Services promulgated safe harbor regulations under the Anti-Kickback
Statute, which immunize certain compensation arrangements which might otherwise
violate that statute. While all of Health Card's business practices may not fall
squarely within the requirements of the safe harbor regulations, the failure of
an arrangement to fall within a safe harbor provision does not mean that such
practice constitutes a violation of the law. Health Card believes that it is not
in violation of the Anti-Kickback Statute. Health Card does not receive any form
of remuneration directly from Medicare, Medicaid or any other government
sponsored health care program and does not believe that its services under any
material arrangements (other than Vytra) are paid for by any of its sponsors
utilizing funds from Medicare, Medicaid or other federal government sponsored
health care programs and so the Anti- Kickback Statute does not apply to them.
No assurance, however, can be given that some portion of a sponsor's payment
will not be derived from a government health program source thereby implicating
the Anti-Kickback Statute. However, even if Health Card were found to receive
indirectly a benefit from such a government sponsored health care program,
Health Card believes that it does not engage in conduct prohibited by the
Anti-Kickback Statute or have the requisite intent to be in violation of that
statute.
With respect to the Prescription Arrangement with Vytra, where a
portion of Health Card's remuneration from Vytra may be derived from Medicare,
Health Card believes that its arrangement with Vytra may fall within a safe
harbor under the Anti-Kickback Statute. The availability of the safe harbor is
dependent upon the existence of a written agreement between the HMO and Health
Card. As noted elsewhere in this prospectus, Health Card is currently
negotiating with Vytra to enter into a new written agreement. Until those
negotiations are concluded and a written agreement entered into, we are
continuing to provide pharmacy benefit management services to Vytra on
substantially the same economic terms as under an amended written agreement
that expired on December 31, 1998 pursuant to a series of letters and
conversations between us and Vytra. Until the definitive new written agreement
with Vytra is entered into we may not be entitled to claim the protections
offered by the safe harbor. Even if it is determined that the safe harbor is not
available to Health Card under the circumstances, Health Card believes that it
does not engage in conduct prohibited by the Anti-Kickback Statute or otherwise
lacks the requisite intent to be in violation of that statute. While Health Card
believes that it does not engage in conduct prohibited by the Anti- Kickback
Statute, no assurance can be given that a court or regulatory agency called upon
to render a decision in such a case would come to the same determination. A
contrary determination could result in the imposition of criminal and/or civil
penalties including substantial fines, other sanctions, exclusion from
participation in federal and state health care programs and/or the granting of
60
<PAGE>
injunctive relief, any one or more of which may have a material adverse effect
on Health Card's business, operating results and financial condition.
In a 1994 Fraud Alert (the "Fraud Alert"), the OIG questioned drug
marketing practices involving payments made to individuals in a position to
generate referrals from a paying party, and payments related to the volume of
business generated or which exceed the fair market value of legitimate services
rendered. Specifically, the OIG indicated that investigations may be warranted
in cases where cash payments are offered in exchange for or based upon
prescribing or providing specific prescription products. This is especially true
if the payments (a) are based on the volume or value of business generated for
the drug company, or (b) are given in return for changing a prescription or
recommending or requesting such a change from one product to another, unless, in
either case, that payment is fully consistent with a safe harbor or other
federal provision governing the reporting of prescription drug prices. The OIG
stated that a prescription drug marketing program which is illegal under the
Anti-Kickback Statute may pose a danger to patients because the payment of
remuneration may interfere with a physician's judgment in determining the most
appropriate therapeutic treatment for a patient, and may increase the federal
government's cost in reimbursing Medicare and Medicaid suppliers. Health Card
believes that there are material differences between its rebate program
formulary management program and therapeutic interchange program, and the drug
switching programs questioned in the Fraud Alert. Health Card believes that its
current practices do not impinge on a physician's judgment in determining the
most appropriate therapeutic treatment and do not increase the government's cost
for prescription drugs.
Health Card is not aware of any instance in which the Anti-Kickback
Statute has been applied (i) to prohibit pharmacy benefit management companies
from receiving rebates from drug manufacturers based on drug sales by pharmacies
to plan participants, formulary management programs, or therapeutic substitution
programs, or (ii) to the contractual relationships between independent pharmacy
benefit management companies and their sponsors and participating pharmacies.
However, there can be no assurance that Health Card will not be subject to
regulatory or judicial scrutiny or challenge under such laws and regulations or
that such a challenge, whether or not successful, would not have a material
adverse effect on Health Card's business, operating results and financial
condition. Moreover, the institution of such claim, whether or not successful,
and the cost of defending such claim, could have a material adverse effect on
Health Card's business, operating results and financial condition. See "Risk
Factors - Government Regulations Generally" and "Risk Factors -- Anti-Kickback
Regulations."
In the last few years, private citizens have commenced litigation
against health care providers and suppliers on behalf of the Federal government
alleging that such providers and suppliers filed false claims with the Medicare
and/or Medicaid programs, based on allegations of an improper kickback
arrangement. These so-called Qui Tam plaintiffs are eligible to receive a
percentage of any fines and recoveries obtained by the Federal government
against health care providers or suppliers successfully prosecuted in such
litigations. Recently, some Qui Tam actions predicated on violations of the
Anti-Kickback Statute have been permitted to proceed to trial. Health Card does
not believe that it has engaged in any conduct which would violate the
Anti-Kickback Statute and form a predicate act for a Qui Tam proceeding. If any
of Health Card's activities paid for by sponsors in whole or in part by a
federally funded program were challenged as a kickback in a Qui Tam proceeding
and determined to form the basis for a false claim under the Anti-Kickback
Statute,
61
<PAGE>
Health Card could be subjected to substantial penalties and treble damages,
which could have a material adverse effect upon its business, operating results
and financial condition. Moreover, the institution of such a claim, whether or
not successful, and the cost of defending such claim could have a material
adverse effect on Health Card's business, operating results and financial
condition. See "Risk Factors--Anti-Kickback Regulations."
State Insurance Regulations
Health Card is a party to certain agreements with sponsors which
involve shifting some of the financial risk to Health Card from sponsors. Under
New York law, financial risk sharing arrangements may constitute engaging in the
business of insurance (unless subject to an exemption) which requires a license
from the state. Health Card's Prescription Arrangement with Vytra contains a
risk sharing provision which may expose it to a possible violation of the
insurance laws. Health Card has determined that its arrangement with Vytra, and
any other risk sharing arrangements with HMOs, other sponsors or providers to
which Health Card becomes a party, would be entitled to an exemption from New
York's risk sharing prohibitions if Health Card were an independent practice
association (an "IPA"). In order to avail itself of this exemption, Health Card
has acquired a wholly-owned subsidiary which is an IPA in New York State. In
connection with its ongoing contract negotiations with Vytra, Health Card plans
to substitute the IPA as a party in place of Health Card. To the extent it
enters into risk sharing arrangements with HMOs or providers in the future,
Health Card intends to use the IPA as the contracting party. If Health Card does
not succeed in its negotiations with Vytra to substitute the IPA as a party,
Health Card could be found to be engaged in the business of insurance without a
license and be subject to criminal and civil fines, penalties and injunctive
relief . It should be noted that our existing arrangement with Vytra was not
entered into by the IPA. We can not be sure that our past non-compliance in this
regard will not be investigated and/or punished by state regulators. In the
future, Health Card does not intend to enter into risk sharing arrangements with
HMOs or providers except in the name of the IPA.
There is one contract between Health Card and a non-HMO party which may
be deemed to involve risk sharing as the result of an ambiguous provision. The
ambiguity involves whether the contract provides for a maximum fee to be paid to
Health Card without regard to the amount of pharmacy charges incurred by Health
Card. The contract has never been enforced by the parties to effect a sharing of
risk and Health Card does not believe that it was the intent of the parties to
create such a risk sharing arrangement. Health Card is taking steps to modify
the contract to make it clear that it does not contemplate an impermissible
sharing of risk. In any event, this contract comprises less than one (1%)
percent of Health Card's business and may be terminated by Health Card for cause
on fifteen (15) days prior written notice. "Cause" is not defined in the
agreement, but Health Card believes that a subsequent determination that the
arrangement violates the Insurance Law would be a sufficient basis for
termination of the agreement. Health Card does not believe that its activities
under this contract, if investigated by the Department of Insurance, would be
construed to constitute the unauthorized practice of insurance. No assurance can
be given that the New York State Department of Insurance would not come to a
different conclusion and seek to impose on Health Card civil and/or criminal
fines and penalties and/or seek injunctive relief against the unauthorized
practice of insurance. Such a different conclusion, or the initiation of
judicial or administrative proceedings by the Department of Insurance or by
another party to a contract alleging an inappropriate termination for "cause,"
could have a material adverse effect on Health Card's
62
<PAGE>
business, operating results and financial condition. See "Risk Factors -
Government Regulations Generally;" and "Risk Factors -- Insurance Regulations."
Independent Practice Association Regulations
Health Card's wholly-owned subsidiary, National Medical Health Card
IPA, Inc., is an IPA under the laws of New York. Health Card intends that the
IPA will be the contracting party with respect to any contracts with HMOs or
providers containing financial risk sharing provisions. The IPA is subject to
the regulatory authority of the DOH and the laws, rules and regulations
applicable to IPAs in New York. Under such laws, rules and regulations, the
IPA's contracts with HMOs and pharmacies would be subject to the DOH's contract
drafting guidelines; those contracts must be submitted to and approved by the
DOH. These laws, rules and regulations and the potential consequences of
compliance and/or non-compliance (e.g., non-approval of important contracts by
the DOH) with them could have a material adverse effect on Health Card's
business, operating results and financial condition. Moreover, there can be no
assurances that the DOH will not change its existing rules and regulations or
its interpretation of them, or impose additional regulatory constraints on
pharmacy benefit management companies and IPAs, the implementation and/or
enforcement of which could have a material adverse effect on Health Card's
business, operating results and financial condition.
In July 1998, the DOH issued new HMO and IPA contract drafting
guidelines. These are to be used in connection with the approval process for HMO
and IPA certification and HMO and IPA contracts. The drafting guidelines, among
other things, consider most favored nations clauses unacceptable in HMO and IPA
contracts. In the Prescription Arrangement with Vytra, Health Card has
negotiated to include a provision offering Vytra comparable rates in the event
Health Card offers rates more favorable to a competing sponsor that is
substantially similar to Vytra. This may be considered a most favored nation
clause. The inability of Health Card through its IPA subsidiary to offer a most
favored nation clause to Vytra may result in the loss of a competitive advantage
presently enjoyed by Health Card; this could result in an inability to enter
into a new agreement with Vytra which could in turn have a material adverse
effect on Health Card's business, operating results and financial condition. See
"Risk Factors - Government Regulations Generally."
Pharmacy Regulations
New York (and possibly the laws of other jurisdictions in which Health
Card may do business) prohibits unlicensed persons from engaging in the practice
of pharmacy. The practice of pharmacy is defined as "the preparing, compounding,
preserving, or the dispensing of drugs, medicines and therapeutic devices on the
basis of prescriptions or other legal authority." Health Card believes that it
is engaging in the business of providing management and administrative services
for pharmacy benefit plans and not in the practice of pharmacy.
Health Card maintains a Pharmacy & Therapeutics Committee (the "P&T
Committee") containing independent physicians and pharmacists. This committee
compiles comprehensive lists of prescription drugs on the basis of cost,
inclusion in the Integrated formulary, statistical and other data for selection
by sponsors for inclusion in their formularies. The primary work of the P&T
Committee is to assist sponsors' development of a well managed, therapeutically
appropriate, cost-
63
<PAGE>
effective formulary. Drugs in the sponsors' formularies typically include those
suggested by the P&T Committee. However, pharmacies are not limited to
dispensing only formulary drugs to sponsors. Under our agreements with the
participating pharmacies, prescriptions for non-formulary drugs will elicit a
request from the pharmacist to the prescriber for substitution of an equivalent
formulary drug, if appropriate. No payments are made by Health Card to the
participating pharmacies (nor does Health Card share any rebates with the
pharmacies) for those actions. Health Card believes that neither its current
operations nor the operations or functions of the P&T Committee constitute the
practice of pharmacy. However, there can be no assurance that the New York State
Department of Education (the agency charged with regulating and licensing the
pharmacy profession) would not come to a different conclusion, and seek to
impose on Health Card civil and/or criminal fines and penalties and/or seek
injunctive relief against the unauthorized practice of pharmacy. Such a
different conclusion, or the initiation of judicial or administrative
proceedings by the Department of Education, could have a material adverse effect
on Health Card's business, operating results and financial condition. See "Risk
Factors--Government Regulations Generally;" and "Risk Factors--Pharmacy
Regulations."
In order to preclude a finding that it is engaged in the unauthorized
practice of pharmacy, Health Card applied to become a licensed pharmacy in New
York. Although we have been advised that Health Card has been approved to be a
pharmacy by the Pharmacy Board and the inspector from the Office of Professional
Discipline, we have not yet received official documentation to that effect.
There can be no assurance that the burdens of being a licensed pharmacy will not
outweigh the risks sought to be avoided. As a licensed pharmacy, Health Card
will be subject to all of the laws and regulations governing pharmacies
including the laws and rules regarding professional misconduct. Professional
misconduct for a pharmacy is defined to include, among other things, (i)
splitting fees in connection with the furnishing of professional care or
services, including the sale of drugs, (ii) receiving valuable consideration as
a commission, discount or gratuity in connection with the sale of drugs, and
(iii) paying or receiving any consideration to or from a third party for
referring a patient, or in connection with the performance of a professional
service. Health Card receives rebates from Integrated through contracts between
Integrated and pharmaceutical companies to which Health Card has agreed to be
joined. Health Card shares the proceeds of those rebates with its sponsors. See
"Business-Services-Electronic Point-of-Sale Claims Management-Rebate
Administration," and "Business--Services--Rebate Administration." Under its
therapeutic interchange program, Health Card also shares savings realized as a
result of participating pharmacies' dispensing lower cost drugs instead of more
expensive prescribed drugs. It also has agreements to pay brokers to market its
plan administration services to other potential sponsors. Although it
anticipates being licensed as a pharmacy, Health Card does not believe that its
activities as a pharmacy benefit manager constitute the rendering of pharmacy
services that would subject it to the professional misconduct regulations.
Health Card also does not believe that the payments made by it to sponsors,
brokers or pharmacies, or the payments made to it by Integrated or sponsors, are
of the type prohibited by the laws and regulations regarding fee splitting or
referral fees. Health Card is not aware of any interpretation by any court or
governmental agency of the application of the laws and regulations regarding fee
splitting or referral fees by licensed professionals to any arrangements similar
to those engaged in by Health Card. Health Card has not obtained or applied for
any opinion of any regulatory or judicial authority that its business operations
or relationships are or will be in compliance with such laws, rules and
regulations. No assurance can be given that any court or governmental agency
will interpret the fee splitting and referral laws and rules the same
64
<PAGE>
way Health Card has. If a court or other governmental agency interprets the fee
splitting and referral laws, rules and regulations differently than Health Card,
Health Card could be found to be in violation of such laws, rules and
regulations. As a result of such an adverse finding such a court or government
agency could seek to impose on Health Card civil fines and penalties, injunctive
relief against the unauthorized practice of pharmacy, sanctions and loss of its
pharmacy license, any one of which could have a material adverse effect on its
business, operating results and financial condition. See "Risk Factors-
Government Regulations Generally;" and "Risk Factors--Pharmacy Regulations."
It is also professional misconduct in New York (and may also be a
violation of the laws, rules and regulations of other states) for a pharmacy to
disseminate personally identifiable health information without the patients'
prior written authorization. Improper dissemination of such information may
subject a pharmacist to fines, penalties, other sanctions, injunctive relief,
professional disciplinary actions and loss of license. In the course of its
business, Health Card receives data regarding each plan participant's
prescription drug utilization history. Under some circumstances (e.g., during
the pre-authorization process regarding payment for prescriptions requiring such
authorization), Health Card may also receive other medical information regarding
a plan participant. The availability of such information to Health Card may
enable it to draw certain conclusions about a plan participant's health. For
example, a plan participant receiving long-term insulin therapy may be
identified as a diabetic. Health Card calls these identifications "inferred
disease states." Based on the information Health Card obtains regarding a plan
participant's inferred disease state, Health Card may make recommendations to
sponsors on how to improve the plan to better serve plan participants (e.g.,
recommend mail order pharmacy services for chronic conditions). Health Card
routinely shares such information with its sponsors through its computer
network. Under the terms of most plans, Health Card also may be required to
provide patient specific information directly to sponsors, including drug
history information that may suggest an inferred disease state. In utilizing the
data received by us in this manner, it is possible that Health Card could be
found to have violated the privacy rights of plan participants under the laws of
New York and other states in which we do business. As a result, Health Card
could be subject to the fines, penalties and other sanctions described above for
improperly revealing personally identifiable facts or information regarding a
plan participant without proper authorization. Such a determination could have
an adverse effect on our ability to provide disease information services, an
area of our business that we believe gives us a competitive advantage and is
anticipated to be an important element of Health Card's future success. See
"Risk Factors--Pharmacy Regulations."
The Secretary of Health and Human Services has circulated
recommendations regarding legislation intended to protect the privacy of
personally identifiable health information. Several legislative bills on the
subject have also been introduced in the U.S. Senate. While none of these
measures have been adopted into law, we can not be sure that the subject will
not be addressed in one manner or another at the federal level. If federal
legislation regulating access to and dissemination of personally identifiable
health information is adopted, it could have an adverse effect on the business
operations of Health Card as currently conducted.
Utilization Review Regulations
Under the Insurance Law and Article 49 of the Public Health Law (the
"UR Laws"), the State
65
<PAGE>
of New York regulates utilization review. Utilization review is defined as the
review to determine whether health care services that have been, are being or
will be provided are medically necessary. Health care services, for purposes of
the UR Laws, are defined to include the provision of pharmaceutical products. In
some of the contracts to which it is a party, Health Card agrees to provide drug
utilization review and drug utilization management. However, Health Card
believes that the drug utilization review services it provides to its sponsors
do not involve making determinations as to the medical necessity of the
pharmaceutical products provided.
Health Card's drug utilization review services include prospective
reviews of potential claims and concurrent and retrospective reviews of
submitted claims. These include a series of on-line reviews based upon
recommended drug and treatment guidelines. Based on each plan participant's
claims history, the computer review alerts the pharmacist to drug interactions,
premature refills of prescriptions, duration or duplication of therapy,
geriatric or pediatric precautions, pregnancy and breast feeding precautions,
compliance with prescriptions (both as to dosage and timing) and contra-
indications based upon a plan participant's disease state. This information is
made available to the pharmacies through computer systems provided by Health
Card. It is provided for informational purposes only and not to replace the
prescribing physicians' or the dispensing pharmacists' professional judgment.
Retrospectively, Health Card's drug review and analysis department analyzes the
drug utilization patterns of plan participants for sponsors. Based on the
historical data collected and recommended drug and treatment guidelines, Health
Card may recommend changes in the sponsor's plan design and drug coverage
management and utilization to contain costs or to better serve the sponsor and
the plan participants. While Health Card believes that these activities do not
subject Health Card to the UR Laws, there can be no assurances that either the
DOH or Department of Insurance would not come to a different conclusion, and
seek to impose on Health Card as a result of such a different conclusion civil
and/or criminal fines and penalties and/or injunctive relief. Such a different
conclusion, or the initiation of judicial or administrative proceedings by the
Department of Insurance or the Department of Health, could have a material
adverse effect on Health Card's business, operating results and financial
condition. See "Risk Factors - Government Regulations Generally."
FDA Regulation
The United States Food and Drug Administration ("FDA") has asserted
general authority to regulate promotional activities of, and materials
disseminated by, pharmacy benefit management companies that are owned or
influenced by or subject to contractual relationships with drug companies. In
January, 1998, the FDA published a draft guidance concerning certain promotional
practices performed by such pharmacy benefit management companies. Among the
practices discussed in the FDA's commentary to the draft guidance were the use
of product-specific financial incentives to influence drug selection and
prescribing decisions, disease information programs, and the use of specified or
preferred drug formularies. While Health Card is neither owned, nor directly
controlled or influenced by a drug company, due to its contractual relationship
with Integrated and its joinder in agreements between Integrated and various
drug companies, there can be no assurance that some of Health Card's activities
may not be subject to FDA review and regulation as set forth in the draft
guidance, if adopted as currently circulated, or any other rules or regulations
having a similar impact. In such event, some of Health Card's activities and
Integrated's rebate program may require modification or elimination. Any such
consequence could have a material adverse effect on
66
<PAGE>
Health Card's business, operating results and financial condition. In addition,
there can be no assurance that the FDA will not seek to increase regulation
pertaining to the pharmacy benefit management industry even with respect to
companies that are not owned or directly controlled or influenced by drug
companies. See "Risk Factors - Government Regulations Generally."
Regulation in Other States
Health Card is in the process of evaluating its involvement with
sponsors and plan participants located in states other than New York. Health
Card is conducting that review systematically, focusing our attention initially
on those states where we have the most sponsors and/or plan participant's. As a
result of that review, Health Card has determined that it is required to become
licensed as a third party administrator of insurance benefits in several states,
including Ohio, Florida, Tennessee, Kentucky and Michigan. Health Card has
applied to become a third party administrator in each of these states and has
received a license in Ohio. Health Card intends to apply for a third party
administrator's license in each state in which it determines that its business
operations require it. There can be no assurance that Health Card will
successfully obtain the licenses and permits required to conduct its business in
all of the states in which Health Card has sponsors and plan participants. The
failure to do so could subject Health Card to serious consequences, including
civil and criminal fines and penalties, injunctive relief, other sanctions and
the loss of privileges to conduct business. It should be noted that we have
conducted our business until recently without being licensed as a third party
administrator in any state. We can not be sure that our past non-compliance in
this regard will not be investigated and/or punished by state regulators. See
"Risk Factors -- Government Regulations Generally;" and "Risk Factors --
Regulations of Other States."
New York does not regulate pharmacy benefit management companies. Some
other states have considered laws applicable to such companies or activities. We
can not be sure that New York or any other state will not assert regulatory
authority over us or our activities as a pharmacy benefit management company or
otherwise, now or at any time in the future. There is a further risk that if any
state does assert such regulatory authority, Health Card will not be permitted
to conduct its activities in those states as it currently conducts them, or at
all.
Legal Proceedings
Health Card is involved in various legal proceedings incidental to the
conduct of its business. While there can be no assurance, Health Card does not
expect that any such proceedings will have a material adverse effect on its
business, operations or financial condition.
MANAGEMENT
Executive Officers and Directors
Certain information concerning the executive officers and Directors of
Health Card is set forth below:
67
<PAGE>
<TABLE>
<CAPTION>
Name Age Positions Held
- ---- --- --------- ----
<S> <C> <C> <C>
Bert E. Brodsky 55 Chairman of the Board, Chief Executive
Officer and Director
Gerald Shapiro 68 Vice Chairman of the Board, Secretary and
Director
Marjorie O'Malley 48 President, Chief Operating Officer
Linda Portney 54 Executive Vice President of Operations and
Director
Mary Casale 58 Executive Vice President of Sales and
Marketing
John Ciufo 45 Vice President of Clinical Services
Barry Denaro 43 Treasurer and Chief Financial Officer
Richard J. Strauss, M.D.,
F.A.C.S. 52 Director
Gerald Angowitz 49 Director
</TABLE>
Bert E. Brodsky has served as Chairman of the Board of Health Card
since December 7, 1998, and as Chief Executive Officer since June, 1998. Mr.
Brodsky has been a director of Health Card since 1988. From June 26, 1998 until
December 7, 1998, Mr. Brodsky served as President of Health Card. Mr. Brodsky
previously served as Chairman of the Board of Health Card from August, 1983,
through November, 1984 and from December, 1988 through January, 1991. Mr.
Brodsky has served as Chairman of the Board and Treasurer of Sandata, Inc. since
June 1983 and as President of Sandata, Inc. since December 1989. From October
1983 though December 1993, Mr. Brodsky served as Chairman of the Board of
Compuflight, Inc., a provider of computerized flight planning services. Since
August 1980, Mr. Brodsky has served as Chairman of the Board and President of
P.W. Medical Management, Inc., which provides financial and consulting services
to physicians. For more than the past five years, Mr. Brodsky has also served as
President of P.W. Capital Corp., a consulting services firm, Chairman of
Sandsport Data Services, Inc., a computer service firm, President of Brodsky
Sibling Realty, Inc., a real estate company, President of Document Storage and
Management, Inc., a document storage company, a managing member of BFS Realty,
LLC, a real estate company, since November 1996, BFS Realty II, LLC, a real
estate company, since November 1996 and 4 B's Realty, LLC, a real estate
company, since July 1996. See "Management -- "Certain Transactions." From
August, 1977 until October, 1980, Mr. Brodsky served as the President of the
medical services division of Itel Corporation, where his responsibilities
included identifying and consummating acquisitions in medical and health related
industries.
Gerald Shapiro has served as Vice Chairman of the Board and a Director of
Health Card since December 7, 1998. Mr. Shapiro has also served as Secretary
since October 28, 1998. From June 1, 1998 until December 7, 1998, Mr. Shapiro
served as Chairman of the Board. From February 4, 1998 until June 1, 1998, Mr.
Shapiro served as Health Card's Vice Chairman. For more than the
68
<PAGE>
past five years, Mr. Shapiro has served as a consultant to Sandata, Inc. and
President of Lee Management Associates, Inc., a billing and collections firm,
Chairman and Treasurer of Mediclaim, Inc., a physician billing and consulting
firm, President of Brookhaven M.R.I., Inc., a company that operates magnetic
resonance imaging machines, Vice President of Mobile Health Management Services,
Inc., a provider of medical screening services and Treasurer of Document Storage
and Management, Inc. From 1973 to 1978 Mr. Shapiro served as President of Ally &
Gargano, Inc., an advertising agency, and from 1971 to 1973 he was President of
Hertz Corporation.
Marjorie G. O'Malley has served as President and Chief Operating
Officer of Health Card since December 7, 1998. From July 1995 to December 1998,
Ms. O'Malley was the Principal of Strategic Healthcare Consultants, a consulting
firm to various health care companies, pharmacy benefit managers, pharmacy
chains and pharmaceutical companies. Ms. O'Malley has served as a consultant to
Health Card since August 1995. From 1980 until July 1995, Ms. O'Malley was
employed by CIGNA Corporation in a variety of positions. Ms. O'Malley formed and
served as President of RxPrime, CIGNA Corporation's pharmacy benefit management
business, from 1993 until July 1995. From 1990 to 1993, Ms. O'Malley was Vice
President, Finance and Planning for CIGNA HealthCare, one of the largest health
care management organizations in the United States. Prior to joining CIGNA
Corporation, Ms. O'Malley served as Senior Vice President and Treasurer of Old
Stone Bank and Old Stone Corporation, a bank holding company.
Linda Portney has served as Executive Vice President of Operations of
Health Card since June 1,1998 and as a Director of Health Card since 1982. Ms.
Portney served as Secretary of Health Card from June 26, 1998 until October 28,
1998. From 1995 until June 1, 1998, Ms. Portney served as President of Health
Card and as Vice President and Secretary of Health Card from 1983 to 1995. Ms.
Portney has been employed by Health Card since 1981.
Mary Casale has served as Executive Vice President of Sales and
Marketing of Health Card since June 1, 1998 and as a Vice President of Health
Card from March 1996 to June 1, 1998. Ms. Casale previously served as Vice
President of Managed Care Sales and Union Related Accounts at ValueRx, a
prescription benefit management company, from March 1995 to February 1996, Vice
President of Sales for the Eastern Region at Diagnostek, Inc. ("Diagnostek"), a
prescription benefit management company that was acquired by ValueRx, from
August 1994 to March 1995, National Vice President of Customer Development for
Sales and Marketing at Diagnostek from January 1994 to August 1994 and a
consultant for special accounts for Sales and Marketing at Diagnostek from 1989
to 1993.
Barry Denaro has served as Chief Financial Officer for Health Card
since June 1997 and the as Treasurer for Health Card since February 1998. Mr.
Denaro served as Controller of NDA Clinical Trial Services Inc., a provider of
laboratory testing and data collection for clinical drug trials, from April 1996
through November 1996 and served as Controller of North Shore Agency, a
collection agency, from October 1993 through July 1995. Mr. Denaro is an
attorney licensed to practice in New York State and a certified public
accountant.
John T. Ciufo joined Health Card as Vice President of Clinical Services
in December 1998. Prior to this, he served as Director of Pharmaceutical
Contracting at United Health of Wisconsin, in Appleton, Wisconsin from March
1998 until December 1998. From January 1997 until January 1998, Mr. Ciufo was
Director of Clinical Services with Provantage PBM, in Milwaukee, Wisconsin.
69
<PAGE>
From January 1996 until January 1997, Mr. Ciufo was Director of Clinical
Services for Managed Prescription Services, a pharmacy benefit management firm,
in St. Louis, Missouri, owned by Humana of Louisville, Kentucky. From January
1995 to April 1996, Mr. Ciufo was Director of Managed Care for Muro
Pharmaceuticals in Tewksbury, Massachusetts. Mr. Ciufo was Director of Pharmacy
Services for Pilgrim Health Care in Boston, Massachusetts from 1992 until 1994.
From 1980 until 1992, Mr. Ciufo was Director of Pharmacy at Harvard Community
Health Plan in Boston, Massachusetts. Mr. Ciufo was a founder and member of
Board of Directors from 1989 through 1991 for the Academy of Managed Care
Pharmacy, a national managed care pharmacy association with over 4,500 members
representing over 600 managed care organizations.
Gerald Angowitz has served as a Director of Health Card since June 26,
1998. Mr. Angowitz has served as Senior Vice President of Human Resources and
Administration for RJR Nabisco, Inc. ("RJR"), a consumer products manufacturer,
since March 1995. Mr. Angowitz previously served as Vice President of Human
Resources for RJR from February 1994 to March 1995 and Vice President of
employee benefits at RJR from January 1992 to February 1994. Mr. Angowitz is the
brother-in-law of Hugh Freund, a Vice President, principal stockholder and
Director of Sandata, Inc.
Richard J. Strauss, M.D., F.A.C.S. has served as a Director of Health Card
since June 26, 1998. Since 1979, Dr. Strauss has owned and operated the medical
practice of Richard J. Strauss, M.D., P.C. Dr. Strauss also has served as an
Associate Clinical Professor of Surgery at Albert Einstein College of Medicine
since 1990, and as an Instructor of Clinical Surgery at Cornell Medical Center
since 1978. Committees of the Board of Directors Health Card has established an
Audit Committee consisting of Messrs. Shapiro, Angowitz and Dr. Strauss. The
Audit Committee is responsible for making recommendations regarding: Health
Card's retention of independent auditors, the annual audit of Health Card's
financial statements, and Health Card's internal accounting controls, practices
and policies.
Health Card has also established a Compensation Committee consisting of
Messrs. Shapiro, Angowitz and Dr. Strauss. The Compensation Committee is
responsible for making recommendations to the Board of Directors regarding
compensation arrangements for executive officers of Health Card, including
annual bonus compensation, and consults with management of Health Card regarding
compensation policies and practices. The Compensation Committee also makes
recommendations concerning the adoption of any compensation plans in which
management is eligible to participate, including the granting of stock options
or other benefits under such plans.
Directors' and Officers' Terms and
Directors' Fees
Health Card's Board of Directors consists of five members. Each
director is elected for a period of one year and serves until his or her
successor is duly elected and qualified. During the last three fiscal years, no
directors' fees were paid. Each of the executive officers serves at the pleasure
of Health Card's Board of Directors.
70
<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth certain information with respect to the
compensation paid or awarded by Health Card to the Chief Executive Officer and
other executive officers (the "Named Executive Officers") whose cash
compensation exceeded $100,000 in all capacities for the fiscal years ended June
30, 1996, 1997 and 1998, respectively:
<TABLE>
<CAPTION>
Name and Annual Securities
Principal Compensation Other Annual Underlying
Position Year Salary Bonus Compensation Options
-------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Bert E. 1998 $751,096(1) $ 30,000(2) $17,377(3) ----
Brodsky, 1997 $474,000(1) ---- $13,714(3) ----
Chairman of the 1996 $510,000(1) ---- $12,000(3) ----
Board and Chief
Executive
Officer
Linda Portney, 1998 $125,000 ---- $19,514(4) ----
Executive Vice 1997 $125,000 $ 50,000 $13,828(4) ----
President of 1996 $ 80,350 ---- $11,671(4) ----
Operations
Mary Casale, 1998 $100,000 $ 50,031 $ 4,800(5)(7) ----
Executive Vice 1997 $100,000 $ 15,000 $ 4,800(5) 255,689(8)
President of 1996 $ 82,543 ---- $ 1,200(5) ----
Sales and
Marketing
Kenneth 1998 $100,327 ---- ---- ----
Hammond, Vice 1997 $13,462(6) ---- ---- ----
President of
Operations 1996 ---- ---- ---- ----
</TABLE>
(1) Represents salary and consulting fees paid to certain entities
affiliated with Mr. Brodsky. See "Certain Transactions."
(2) Represents one-twelfth of an annual bonus of $360,000 to be paid on behalf
of Mr. Brodsky to P.W. Capital Corp. This bonus was approved by the Board of
Directors on June 1, 1998.
(3) Represents automobile lease payments to an entity affiliated with Mr.
Brodsky. See "Certain Transactions."
(4) Represents automobile lease payments to an entity affiliated with Mr.
Brodsky and amounts for automobile insurance and travel allowance.
(5) Represents automobile allowances paid to Ms. Casale.
(6) Represents amounts paid to Mr. Hammond from the commencement of his
employment with Health Card on April 28, 1997 until on June 1, 1997.
71
<PAGE>
(7) Does not include annual payments of $20,400 made by Health Card for the
lease of an apartment for the benefit of Ms. Casale and Marjorie G. O'Malley.
(8) Includes a currently unexercisable option to purchase an aggregate of
255,689 shares of Health Card common stock from Bert E. Brodsky at a price of
$5.87 per share. Such option is exercisable over a five year period ending
December 7, 2002 and vests in increments of 20% on the second, third, fourth,
fifth and sixth anniversaries of such option, respectively.
Marjorie G. O'Malley, Health Card's President and Chief Operating Officer,
was not an executive officer at the end of the last fiscal year. She has served
as President and Chief Operating Officer since December 7, 1998. Ms. O'Malley's
current annual salary is $175,000. In addition, on December 7, 1998, Bert E.
Brodsky granted a currently unexercisable option to Ms. O'Malley to purchase
63,922 shares of Health Card common stock at a price of $5.87 per share. Mr.
Ciufo, Health Card's Vice President, Clinical Services, was not an executive
officer at the end of the last fiscal year. He has served as Vice President,
Clinical Services since December 1998. Mr. Ciufo's current annual salary is
$130,000. In addition, on December 7, 1998, Mr. Brodsky granted a currently
unexercisable option to Mr. Ciufo to purchase 25,568 shares of common stock of
Health Card at a price of $5.87 per share. Such option is exercisable over a
five year period commencing on December 7, 1998 and vests in one third
increments on the first, second and third anniversaries of such options,
respectively.
Option/SAR Grants in Last Fiscal Year
There were no individual grants of stock options to Named Executive
Officers during the fiscal year ended June 30, 1998.
Stock Plans
1999 Stock Option Plan
On February 9, 1999, Health Card's Board of Directors adopted, subject to
the stockholder approval, the 1999 Stock Option Plan (the "1999 Plan") which
provides for the grant of options intended to qualify as "incentive stock
options"("ISOs") under Section 422 of the Internal Revenue Code of 1986 as
amended (the "Code"), and options that are not intended to so qualify
("Nonstatutory Stock Options"). The total number of shares of common stock
reserved for issuance under the 1999 Plan is 1,650,000 (subject to adjustment in
the event of a stock split, stock dividend, recapitalization or similar capital
change) plus an indeterminate number of shares of common stock issuable upon the
exercise of "reload options."
The 1999 Plan is presently administered by the Compensation Committee,
which selects the eligible persons to whom options will be granted, determines
the number of shares of common stock subject to each option, the exercise price
therefor and the periods during which options are exercisable, interprets the
provisions of the 1999 Plan and, subject to certain limitations, may amend the
1999 Plan. Each option granted under the 1999 Plan will be evidenced by a
written agreement between Health Card and the optionee.
Options may be granted under the 1999 Plan to all full-time employees
(including officers) and directors of, and certain consultants and advisors to,
Health Card or any subsidiary of Health Card.
72
<PAGE>
The exercise price for ISOs granted under the 1999 Plan may not be less
than the fair market value of the shares of common stock on the date the option
is granted, except for ISOs granted to 10% stockholders which must have an
exercise price of not less than 110% of the fair market value of the shares of
common stock on the date the option is granted. The exercise price and term for
Nonstatutory Stock Options is determined by the Compensation Committee. ISOs
granted under the 1999 Plan have a maximum term of ten years, except for grants
to 10% stockholders which are subject to a maximum term of five years. The
exercise price of options granted under the 1999 Plan may be paid by check, note
or common stock at the option holder or any combination of the foregoing.
Options granted under the 1999 Plan are not transferable, except by will and the
laws of descent and distribution. The total amount of ISOs that may be granted
to any individual person in any calendar year is limited; however, there is no
limit as to Nonstatutory Stock Options. No options have been granted under the
1999 Plan.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Except as described below, there are no written employment or similar
agreements with any of the Named Executive Officers. See "Certain Transactions"
for a discussion of certain fees paid and payable to Mr. Brodsky. Mr. Brodsky
has verbally agreed with Health Card that, as of the consummation of the
offering, he will receive an annual salary of $200,000 plus a bonus to be
determined by the Board of Directors.
Pursuant to an agreement dated April 14, 1994 with P.W. Medical
Management, Inc. and assigned to P.W. Capital Corp., of which Mr. Brodsky is the
President, P.W. Capital provides services in connection with the day-to-day
activities of Health Card, including marketing, customer service, financial
advice and general business advice. Fees payable to P.W. Capital are a minimum
of $25,000 per year in monthly installments. Although the agreement has no
specified term, if either P.W. Capital or Health Card fails materially to
materially fulfill its obligations under the agreement, following notice and an
opportunity to cure, the other party has the right to terminate this agreement.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended June 30, 1998, Health Card did not have a
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning the compensation of executive officers
were made by the Board of Directors.
Gerald Shapiro, the Vice Chairman of the Board of Directors of Health
Card, and Bert E. Brodsky, Health Card's Chairman of the Board, Chief Executive
Officer and a director, are each members of the Board of Directors and/or
officers of the following companies (unless otherwise stated, such affiliations
have been maintained for more than the past five years): (1) P.W. Capital Corp.,
a consulting services firm (Brodsky since June 1996 and Shapiro since October
1994), (2) Brookhaven M.R.I., Inc., a company that operates magnetic resonance
imaging machines, (3) Mobile Health Management Services, Inc., a provider of
medical testing services, (4) 780 Bay Walk Land Co., Inc., a real estate company
(since August 1994), (5) Accutrak Media, Inc., a computer duplication disk
company, (6) Bert Brodsky Associates, Inc., an insurance consulting firm (since
February 1996), (7) Island Mermaid Restaurant Corp., a company that operates a
restaurant, (8) Wilder Woods Estates, LLC, a real estate company (since April
1997), (9) Document Storage and Management Inc., a document storage company
(since 1994), (10) Lee Management Associates, Inc., a billing and collections
firm, (11) United States Information Corp., a facsimile subscription service
73
<PAGE>
company, and (12) Medical Arts Office Services, Inc., a company that provides
personnel and administrative services (since November 19, 1998). See "Certain
Transactions."
CERTAIN TRANSACTIONS
Health Card's Relationship with Sandata
On June 1, 1998: Health Card entered into an agreement with Sandata,
Inc. ("Sandata"), of which Bert E. Brodsky is the Chairman of the Board,
President, Treasurer and a principal stockholder. This agreement, which was
amended on the same date, relates to the hiring of 11 employees of Sandata by
Health Card to provide development, enhancement and maintenance of Health Card's
information systems internally. Health Card paid Sandata $208,000 in
consideration for Sandata's assigning to Health Card certain rights relative to
such employees. Health Card also assumed liability of $86,000 relating to these
employees. In addition, Health Card purchased from Sandata certain computer
equipment, furniture and fixtures for $100,000. Sandata is expected to continue
to provide, on a limited basis, consulting services related to Health Card's
information systems. Also, Sandata confirmed Health Card's proprietary rights in
certain software developed by Sandata for Health Card, among other things.
A significant portion of Health Card's information systems has
historically been developed, enhanced, modified and maintained by Sandsport Data
Services, Inc. ("Sandsport"), a wholly-owned subsidiary of Sandata. Furthermore,
Health Card leases computer hardware for its data processing center at a monthly
cost of $24,000 from Sandsport pursuant to a oral agreement. Based on
competitive fee quotations obtained by Health Card, Health Card believes that
the terms of the rental agreement are as fair to Health Card as those which
could be obtained from an unaffiliated third party. For additional information,
see "Certain Transactions-Health Card's Relationship with Sandata."
During the fiscal years ended June 30, 1997 and 1998 and the three
month period ended September 30, 1998, Health Card incurred fees to Sandsport in
the aggregate amounts of approximately $2,539,000, $2,492,299 and $372,908 for
such services, sublicense fees and property. As of January 1, 1999, Health Card
owed $ 135,649 to Sandsport.
Employee Management Relationship with Medical Arts Office Services, Inc.
Medical Arts Office Services, Inc. may be deemed an affiliate of Health
Card. Certain persons employed by companies affiliated with Mr. Brodsky are also
officers and directors of Medical Arts and Mr. Brodsky is the sole stockholder.
As of January 1993, Medical Arts owned 807,467 shares of common stock of Health
Card. Health Card purchased such stock from Medical Arts stock through a series
of transactions, the last of which occurred in May 1996. Health Card paid an
aggregate amount of $638,400 for such stock.
Until May 31, 1998, Medical Arts provided employee leasing and
administrative services, such as payroll processing, to Health Card, and all of
Health Card's staff (then 52 persons, excluding persons formerly employed by
Sandata) were paid through Medical Arts. Health Card would pay Medical Arts an
amount equal to such persons' salary, medical benefits, social security and the
like, as well as an administrative fee. In addition, Medical Arts provided
Health Card with accounting,
74
<PAGE>
bookkeeping, paralegal and bookkeeping services. On May 31, 1998 Health Card
directly hired these individuals that had previously been paid through Medical
Arts.
It is anticipated that, following the consummation of the offering,
annual amounts paid to Medical Arts for paralegal and bookkeeping services will
be approximately $95,000, of which approximately $20,000 will be paid for
paralegal services and approximately $75,000 will be paid for bookkeeping
expenses.
For the fiscal year ended June 30, 1998, the total payments made by
Health Card to Medical Arts were approximately $2,618,155, of which $2,248,331
was paid for salaries of leased employees, $92,383 was paid for accounting
services, $33,593 was paid for bookkeeping services, $180,000 was paid for
consulting services, $31,531 was paid to a medical plan, $28,438 was paid for
paralegal services and $3,879 was paid to a pension plan.
Until May 31, 1998, Health Card employees who were paid through Medical
Arts could contribute to a 401(k) plan maintained by Sandata. As of January 1,
1999, Health Card has joined that plan. For the fiscal year ended June 30, 1998,
Health Card made matching contributions of approximately $3,879 to such plan.
Consulting Fees
For the fiscal year ended June 30, 1998, Health Card paid aggregate
consulting fees of $746,929 for services rendered by Mr. Brodsky. Pursuant to
verbal agreements among Health Card, Mr. Brodsky, and the entities named below,
portions of those fees were paid as follows:
Medical Arts $ 180,000
P.W. Capital 552,000
In addition, Health Card paid P.W. Capital $17,377 representing lease payments
for a car leased for Mr. Brodsky's benefit. Based on competitive fee quotations
obtained by Health Card, Health Card believes that the terms of the lease
agreement are as fair to Health Card as those which could be obtained from an
unaffiliated third party. See "Management-Executive Compensation."
Real Estate
On November 1, 1996, Health Card signed a lease with Four B's Realty,
LLC, of which Mr. Brodsky is the Managing Member, for office space in
Southampton, New York. Prior to occupancy, such lease was terminated by an
agreement dated as of July 30, 1997. Prior to such termination Health Card paid
Four B's Realty, LLC an aggregate of $102,675 under such lease.
On August 1, 1997, Health Card signed a lease with BFS Realty II, LLC
("BFS II"), of which Mr. Brodsky is the Managing Member, for office space in
Hicksville, New York. Prior to occupancy, such lease was terminated by an
agreement dated as of April 1, 1997. Prior to such termination Health Card paid
BFS II an aggregate of $91,266 under such lease.
On August 10, 1998, Health Card signed a lease with 61 Manorhaven
Boulevard, LLC, of which Mr. Brodsky is the sole member, for space in Port
Washington to be used as a pharmacy. See "Business-Facilities."
75
<PAGE>
Health Card occupies approximately 7,225 square feet of space at 26
Harbor Park Drive, Port Washington, New York 11050, at a monthly cost of $20,980
(including utilities). The sublessor is BFS Realty, LLC, which is affiliated
with Mr. Brodsky. The lease expires as of December 31, 2000. Rent under the
lease increases by five percent annually. The BFS lease was assigned by Sandata,
Inc. to BFS in November 1996. Mr. Brodsky is the Operating Manager and holder of
a majority of the membership interests of BFS. Based on competitive fee
quotations obtained by Health Card, Health Card believes that the terms of this
lease are as fair to it as those which could be obtained from an unaffiliated
third party. Pursuant to an agreement entered into in June 1995, Health Card
paid $700,000 in connection with certain allocated leasehold improvements.
Health Card has orally agreed to lease an additional 2,500 square feet
at a cost not yet determined, beginning on February 15, 1999, from Document
Storage and Management, Inc., which is affiliated with Mr. Brodsky. See
"Business-Facilities." Health Card has also orally agreed to lease an additional
1,500 square feet at the same premises as of June 1, 2000. The combined areas
will be used for the customer service center described below.
Health Card is in the process of building a new customer service center
at its headquarters. It will initially be equipped with between 30 and 35
service representatives' desks, and there is space for an additional 30 service
representatives. Health Card anticipates that the customer service center will
open on or about March 15, 1999, and that the additional 30 service
representative work areas will be equipped and operational as needed. Sponsors,
plan participants, pharmacies and physicians will be able to call the customer
service center.
Stock Transactions
On July 1, 1997, Bert E. Brodsky surrendered to Health Card currently
exercisable options to purchase 1,022,758 shares of common stock of Health Card.
On July 1, 1997, Gerald Shapiro surrendered to Health Card currently exercisable
options to purchase 383,534 shares of common stock of Health Card.
The following transactions also occurred on July 1, 1997: Bert E.
Brodsky purchased 1,278,447 shares of common stock of Health Card by delivery of
a promissory note made payable to the order of Health Card in the original
principal amount of $1,000,000. This note is secured by the 1,278,447 shares of
common stock of Health Card purchased by Mr. Brodsky and is without recourse to
Mr. Brodsky. Gerald Shapiro purchased 383,534 shares of common stock of Health
Card by delivery of a promissory note made payable to the order of Health Card
in the original principal amount of $300,000. This note is secured by the
383,534 shares of common stock of Health Card purchased by Mr. Shapiro and is
without recourse to Mr. Shapiro. Sandra Rothstein, Mr. Brodsky's secretary,
purchased 51,137 shares of common stock of Health Card by delivery of a
promissory note made payable to the order of Health Card in the original
principal amount of $40,000. This note is secured by the 51,137 shares of common
stock of Health Card purchased by Ms. Rothstein and is without recourse to Ms.
Rothstein. Each of the promissory notes mentioned above bears interest at the
rate of 8.5% per annum, payable quarterly, commencing October 1, 1997 and is
payable 5 years from the date thereof, except that payment of Ms. Rothstein's
note may be accelerated upon termination of her employment with Sandata.
On October 30, 1998, Bert E. Brodsky executed a promissory note made
payable on demand to the order of Marine Midland Bank in the principal amount of
$2,000,000. Mr. Brodsky used the proceeds of the loan to purchase 340,919 shares
of common stock of Health Card. In addition, Mr.
76
<PAGE>
Brodsky pledged such shares to the bank as security for the loan. On October 30,
1998, Health Card executed an unlimited continuing Guaranty Agreement for the
indebtedness of Mr. Brodsky to Marine Midland Bank. By the Guaranty Agreement,
Health Card unconditionally guaranteed the full and prompt payment to Marine
Midland Bank of the indebtedness of Mr. Brodsky. On November 3, 1998, the
promissory note from Bert E. Brodsky to Marine Midland Bank, dated October 30,
1998, was converted from a demand note to an installment note, payable in full
by October 28, 1999, bearing interest at a per annum rate of 7.72%. This note
has been repaid in full and Mr. Brodsky is not currently otherwise indebted to
Marine Midland Bank.
Indebtedness of Management
From time to time, Mr. Brodsky and certain of his affiliates
(collectively the "Brodsky Affiliates") and other affiliates of Health Card have
borrowed funds from Health Card. The following table describes certain
information relating to such indebtedness.
<TABLE>
<CAPTION>
Largest aggregate amount
owed by Debtor during fiscal
year ended Debt owed as of
Debtor June 30, 1998 January 1, 1999
- ------ ------------- ---------------
<S> <C> <C>
P.W. Capital Corp.(1) $ 4,284,902 $ 4,469,354
Port Charitable Foundation(2) 258,500 0
Sandata, Inc. 550,599 0
Bert E. Brodsky 1,684,700 1,127,500
P.W. Medical Management, Inc. 785,000 0
Medical Arts Office Services, Inc. 93,485 0
Wilder Woods Estates, LLC(3) 214,000 0
Document Storage & Management, Inc. 0
Inc.(4) 95,000
Hugh Freund 8,000 8,000
Carol Freund 8,000 8,000
BFS Realty II, LLC 5,000 0
J&A Construction, LLC 15,000 20,000
Gerald Shapiro 325,500 338,250
Sandra Rothstein 43,400 45,100
Mediclaim, Inc. 52,866 0
Linda Portney 5,394 2,374
Muriel Brodsky, as trustee under certain
trusts established for the
benefit of Mr. Brodsky's children 78,600 0
Camp Poyntelle, Inc. 12,500 0
US Information Corp. 7,000 0
</TABLE>
(1) On June 1, 1998, Health Card assigned certain indebtedness, aggregating
$4,254,785 in principal and accrued interest, if any, from the following
affiliates to P.W. Capital, LLC, a company affiliated with Mr. Brodsky. On
June 1, 1998, P.W. Capital, LLC executed a demand promissory note made
payable to the order of Health Card in the principal amount of $4,254,785
with interest at the rate of 8.5 percent per annum payable quarterly. On
June 1, 1998, Bert E. Brodsky executed an unconditional guaranty in favor
of Health Card for the full and prompt payment to Health Card of all
amounts payable under the P.W. Capital, LLC promissory note dated June 1,
1998. Such note is secured by 1,022,757 shares of common stock of Health
Card and is without recourse to the maker.
77
<PAGE>
Bert E. Brodsky
P.W. Medical Management, Inc.
Medical Arts Office Services, Inc.
Wilder Woods Estates, LLC
Document Storage & Management, Inc.
BFS Realty II, LLC
J&A Construction, LLC
Muriel Brodsky as trustee under certain trusts established for the
benefit of Mr. Brodsky's children
Camp Poyntelle
Port Charitable Foundation
(2) Port Charitable Foundation is a company affiliated with Hugh Freund and
Carol Freund. Mr. Freund is an Executive Vice President, director and
principal stockholder of Sandata. Mr. and Mrs. Freund are husband and wife.
(3) Mr. Brodsky is the Managing Member of Wilder Woods Estates, LLC.
(4) Mr. Brodsky is the President and a director and principal stockholder of
Document Storage & Management Inc.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of Health Card's common stock, before and after giving
effect to the sale of shares offered by this prospectus, for:
- each person who is known by Health Card to be the beneficial
owner of more than five (5%) percent of Health Card's shares
of common stock,
- each of the Named Executive Officers,
- each of Health Card's directors, and
- all of Health Card's executive officers and directors as a
group.
Except as otherwise indicated below, each of the entities or persons named in
the table has sole voting and investment power with respect to all shares of
common stock beneficially owned.
<TABLE>
<CAPTION>
Number of Shares Approximate Percentage of
of Common Stock Outstanding Shares of
Beneficially Common Stock
Owned Before the Before the After the
Name and Address(1) Offering Offering Offering
- ------------------ ----------------- ----------- ----------
<S> <C> <C> <C>
Bert E. Brodsky 4,451,164(2) 83.8%(2) 60.9%(2)
Irrevocable Trust of
David Craig Brodsky 383,559 7.2% 5.3%
Gerald Shapiro 383,534 7.2% 5.3%
Linda Portney 219,162 4.1% 3.0%
Mary Casale 0 0% 0%
78
<PAGE>
Richard J. Strauss, M.D., F.A.C.S. 0 0% 0%
Gerald Angowitz 0 0% 0%
All executive officers and
Directors as a group (7 persons) 5,053,861 95.1% 69.1%
</TABLE>
(1) The address of each person named in the table is c/o National Medical
Health Card Systems, Inc. at 26 Harbor Park Drive, Port Washington, New
York 11050.
(2) Includes (i) an aggregate of 965,585 shares of common stock beneficially
owned by Mr. Brodsky's children's trusts, of which Mr. Brodsky is a trustee
and (ii) 1,725 shares of common stock beneficially owed by P.W. Capital
Corp., of which Mr. Brodsky is President. Includes an aggregate of 345,179
shares of common stock subject to options granted to certain executive
officers of Health Card. See "Management-Executive Compensation."
DESCRIPTION OF CAPITAL STOCK
Certain amendments to Health Card's Certificate of Incorporation are
contemplated to be effected prior to completion of the offering. The following
discussion assumes that those amendments have been made.
The authorized capital stock of Health Card consists of
- 25,000,000 shares of common stock, $.001 par value per share,
and
- 10,000,000 shares of Preferred Stock, $.10 par value per
share.
As of February 4, 1999, there were 5,312,497 shares of common stock and no
shares of Preferred Stock outstanding. Upon the completion of the offering there
will be 7,312,497 shares of common stock and no Preferred Stock outstanding,
excluding 200,000 shares of common stock issuable upon exercise of the
representative's warrants and 300,000 shares of common stock issuable upon
exercise of the over-allotment option. There were 33 shareholders of record as
of January 1, 1998.
The following summary of certain provisions of the capital stock is not
complete. It is qualified in its entirety by New York law, and provisions of
Health Card's Certificate of Incorporation, as contemplated to be amended prior
to the consummation of the offering.
Common Stock
Holders of common stock are entitled to one vote for each share of
common stock held on all matters submitted to a vote of stockholders. The common
stock does not have cumulative voting rights. Holders of common stock are
entitled to receive ratably any dividends that may be declared by the Board of
Directors. Upon the liquidation, dissolution or winding up of Health Card, the
holders of common stock are entitled to receive ratably the net assets of Health
Card available after the payment of all debts and other liabilities. Holders of
common stock have no preemptive,
79
<PAGE>
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares of common stock offered hereby, when issued and paid
for, will be validly issued, fully paid and nonassessable. Any common shares
issued by Health Card are subject to the provisions of Section 630 of the New
York Business Corporation Law (the "BCL"). The rights and privileges of common
stock are subject to the rights and privileges of any preferred stock which
Health Card may issue in the future; the common stock's rights may be diminished
or impaired by such preferred stock's rights.
In addition, the stock market has from time to time experienced price
and volume fluctuations that are often unrelated to the operating performance of
particular companies. The market price of the common stock, similar to that of
securities of other growing companies, may be highly volatile. The market price
of the common stock could be subject to significant fluctuations in response to
Health Card's operating results and other factors, and there can be no assurance
that the market price of the common stock will not decline below the offering
price.
Preferred Stock
Health Card's Certificate of Incorporation, as contemplated to be
amended, authorizes 10,000,000 "blank check" shares of preferred stock, par
value $.10 per share. The Board of Directors of Health Card will have the
authority, without further action by the holders of common stock, to:
- issue shares of preferred stock in one or more series,
- fix the number of shares constituting any series, and
- fix the terms of any such series, including:
- dividend rights,
- dividend rates,
- conversion or exchange rights,
- voting rights,
- rights and terms of redemption, (including sinking
fund provisions)
- redemption price, and the liquidation preference
of such series.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Health Card. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock Health Card may issue and designate in the future. Health Card has no
present plans to issue any shares of preferred stock.
Registration Rights
Ryan, Beck & Co., the representative of the underwriters, as holder of
the representative's warrants, has "piggyback" rights to include the shares
underlying the representative's warrants in any registration statement filed by
Health Card. These rights exist during the period commencing one (1) year from
the date of this prospectus and ending six (6) years from the date of this
prospectus. Ryan, Beck also has "demand" rights during the period commencing one
(1) year from the date of this prospectus and ending five (5) years from the
date of this prospectus. This demand right is exercisable by holders of a
majority of the representative's warrants, to require registration by Health
Card of the shares underlying the representative's warrants. Furthermore, any
holder of
80
<PAGE>
the representative's warrants has "demand" rights during the same period, to
require one "demand" registration of the shares underlying such holder's
warrants, solely at the expense of such holder.
Limitation on Liability of Directors; Indemnification
Article 6 of Health Card's Certificate of Incorporation, as
contemplated to be amended, eliminates the personal liability of directors for
breach of fiduciary duty as a director to the fullest extent permitted by the
BCL. The BCL itself, however, provides that the Article 6 provision may not
eliminate or limit the liability of a director for:
- any breach of the director's duty of loyalty to Health Card or
its stockholders,
- acts or omissions in bad faith or which involve intentional
misconduct or a knowing violation of law,
- acts or omissions in violation of Section 719 of the BCL (with
respect to unlawful dividend payments, unlawful share
purchases or redemption, unlawful distributions of assets to
stock holders after dissolution without providing for known
liabilities and unlawful loans to directors under BCL Section
714 without stockholders approval) unlawful uses of corporate
funds or assets, or
- any transaction from which the director gained an improper
personal financial or other advantage.
Additionally, Health Card has included in its Certificate of
Incorporation and By-Laws provisions to indemnify its directors and officers, as
permitted by the BCL. The BCL provides further that the indemnification
permitted thereunder will not be deemed exclusive of any rights to which the
directors or officers may be entitled under Health Card's By-Laws, and if
permitted under Health Card's Certificate of Incorporation under any agreement,
by vote of stockholders, by vote of directors, or otherwise.
The effect of the foregoing is to require Health Card to indemnify the
officers and directors of Health Card, to the extent permitted by law, for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of Health Card, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed 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 and Registrar
The transfer agent and registrar for Health Card's common stock is
Continental Stock Transfer and Trust Company, 200 Broadway, New York, New York
10004.
81
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Health Card will have outstanding
7,312,497 shares of common stock. Of these shares, the 2,000,000 shares sold in
the Offering (2,300,000 shares if the over-allotment option is exercised), as
well as 5,312,497 currently issued and outstanding shares of common stock will
be freely tradeable without restriction under the Securities Act, unless held by
"affiliates" of Health Card as that term is defined in Rule 144 under the
Securities Act (an "Affiliate").
In general, under Rule 144 as currently in effect, if a period of at
least one year has elapsed since the later of the date the "restricted shares"
(as that phrase is defined in Rule 144) were acquired from Health Card and the
date they were acquired from an Affiliate, then the holder of such restricted
shares (including an Affiliate) is entitled to sell a number of shares within
any three-month period that does not exceed the greater of 1% of the then
outstanding common stock or the average weekly reported volume of trading of the
common stock on the Nasdaq National Market during the four calendar weeks
preceding such sale. The holder may only sell such shares through unsolicited
brokers' transactions or directly to market makers. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning Health Card. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted shares were acquired from Health Card
and the date they were acquired from an Affiliate, as applicable, a holder of
such restricted shares who is not an Affiliate at the time of the sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions described above.
Health Card's executive officers, directors and certain stockholders
who collectively own 5,053,861 shares of common stock issued prior to the
offering have agreed that they will not directly or indirectly, offer to sell or
otherwise encumber or dispose of any securities issued by Health Card, whether
or not beneficially owned by them, for a period of nine months after the date of
this prospectus, without the prior written consent of Ryan, Beck & Co. Ryan,
Beck & Co. may, in its sole discretion, and at any time without notice, release
all or any portion of the shares subject to such lock-up agreements. After the
nine month period, all of the common stock subject to the sale restriction will
be eligible for sale in the public market pursuant to Rule 144 under the
Securities Act, subject to the volume limitations and other restrictions
contained in Rule 144, except that 1,713,118 shares will not be saleable until
the full consideration has been paid. See "Certain Transactions."
At the present time, there is no public market for the common stock of
Health Card and no predictions can be made as to the effect, if any, that sales
of common stock will have on the market price of the common stock prevailing
from time to time. Nevertheless, sales of significant numbers of common stock in
the public market, or the perception that such sales may occur, could adversely
affect the market price of the common stock and could impair Health Card's
future ability to raise capital through an offering of its equity securities.
See "Risk Factors -- Shares Eligible for Future Sale."
In 1988, Health Card successfully completed an initial public offering of
an aggregate of
82
<PAGE>
28,126 units consisting of 6.37 shares of common stock and two-year Redeemable
Common Stock Purchase Warrants to purchase 3.20 shares of common stock at $43.02
per share, raising gross proceeds of $1,210,000.
UNDERWRITING
The underwriters named below, for whom Ryan, Beck & Co. is acting as
the representative, have separately agreed, subject to the terms and conditions
of the underwriting agreement, to purchase from Health Card, and Health Card has
agreed to sell to them, on a firm commitment basis, the respective number of
shares of common stock set forth opposite their names below:
Underwriter Number of Shares
Ryan, Beck & Co. ..............................................
[ ]..............................................
Total..........................................................
The underwriters are committed to purchase all the shares of common
stock offered hereby, if any of such shares are purchased. The underwriting
agreement provides that the obligations of the underwriters are subject to the
conditions precedent specified in that agreement.
Health Card has been advised by the representative that the
underwriters initially propose to offer the shares of common stock (a) to the
public at the offering price set forth on the cover page of this prospectus and
(b) to certain dealers at that price less concessions of not in excess of $____
per share. Such dealers may re-allow a concession not in excess of $.__ per
share to other dealers. After the commencement of the offering, the public
offering price, concession and reallowance may be changed.
The underwriters have been granted an option by Health Card,
exercisable within 45 days of the date of this prospectus, to purchase up to an
additional 300,000 shares of common stock from Health Card at the offering
price, less underwriting discounts, the non-accountable expense allowance and
the financial advisory fee. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby. To the extent such option is exercised, in whole or in part, each
underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of common stock proportionate to
its initial commitment. If such option is exercised in full, the total price to
the public, underwriting discounts and commissions, and proceeds to Health Card
will be $______________, $___________, and $______________, respectively.
The representative has advised Health Card that it does not anticipate
sales to discretionary accounts by the underwriters to exceed five percent of
the total number of shares of common stock offered hereby.
Health Card has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute to
payments that the underwriters may be
83
<PAGE>
required to make in connection with this offering. Health Card has also agreed
to pay the underwriters an expense allowance on a non-accountable basis equal to
one percent (1%) of the gross proceeds of the offering, as well as a financial
advisory fee equal to one percent (1%) of the gross proceeds of the offering,
none of which has been paid to date.
All of Health Card's officers, directors and certain stockholders have
agreed not to, directly or indirectly, offer to sell, sell, transfer, assign,
hypothecate, pledge or otherwise dispose of any securities of Health Card owned
by them for a period of nine months following the date of this prospectus,
without the prior written consent of the representative. An appropriate legend
shall be marked on the face of the certificates representing all of such
securities. See "Shares Eligible for Future Sale."
The Representative's Warrants
In connection with the offering, Health Card has agreed to sell to the
underwriters, for nominal consideration, the representative's warrants. These
warrants entitle the underwriters to purchase 200,000 shares of common stock
from Health Card. The representative's warrants are initially exercisable at a
price per share equal to 120% of the offering price. The representative's
warrants are exercisable for four years commencing one year after the date of
this prospectus and are restricted from sale, transfer, assignment or a
hypothecation for a period of twelve months from the date hereof, except to
officers of the representative. The representative's warrants also provide for
adjustment in the number of shares of common stock issuable upon the exercise
thereof as a result of certain subdivisions or combinations of the common stock
of Health Card. The representative's warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise of the
representative's warrants. See "Description of Capital Stock--Registration
Rights."
At the present time, there is no market for Health Card's shares of
common stock. Consequently, the offering price for the common stock was
determined by negotiations between Health Card and the representative and is not
necessarily related to Health Card's asset value, net worth or other established
criteria of value. The offering price may not be indicative of the prices that
will prevail in the public market. The factors considered in such negotiations,
in addition to prevailing market conditions, included:
- the history of and prospects for the industry in which Health
Card competes,
- an assessment of Health Card's management,
- the prospects of Health Card,
- Health Card's capital structure, and
- certain other factors deemed relevant.
In connection with the offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase common stock for the purpose of stabilizing its market price. The
underwriters also may create a short position for the account of the
underwriters by selling more common stock in connection with the offering than
they are committed to purchase from Health Card, and in such case may purchase
common stock in the open market following completion of the offering to cover
all or a portion of
84
<PAGE>
such short position. The underwriters may also cover all or a portion of such
short position, up to 300,000 shares of common stock, by exercising the
over-allotment option. In addition, the representative may impose "penalty bids"
under contractual arrangements with the underwriters, whereby it may reclaim
from an underwriter (or dealer participating in the offering) for the account of
other underwriters, the selling concession with respect to common stock that is
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the shares of common
stock at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph are required, and, if they
are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the underwriters
agreement and the warrant agreement and does not purport to be complete.
Reference is made to the copy of each such agreement which is filed as an
exhibit to the registration statement. See "Available Information."
LEGAL MATTERS
The validity of the shares of common stock offered hereby and certain legal
matters in connection with the offering will be passed upon for Health Card by
Certilman Balin Adler & Hyman, LLP. Ruskin Moscou Evans & Faltischek, P.C. has
acted as special counsel to Health Card with respect to certain insurance and
health law regulatory matters. Sonnenschein Nath & Rosenthal has acted as
counsel for the underwriters in connection with the offering.
EXPERTS
The financial statements and financial statement schedule of Health Card
included in this prospectus, and in the registration statement, have been
audited by BDO Seidman, LLP, independent public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and in the
registration statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Health Card has filed with the Commission a registration statement (of
which this prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the common
stock being offered. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain portions of the registration statement, and the exhibits and schedules
thereto, are omitted as permitted by the Commission. Statements made in this
prospectus about the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to any such contract,
agreement or other document filed as an exhibit to the registration statement,
reference is made to the exhibit itself for a more complete description of the
matter involved. Each such statement shall be deemed qualified in its entirety
by reference to the registration statement exhibits filed as a part thereof.
This Registration Statement and all other information filed by Health Card
with the Commission may be inspected without charge at the principal reference
facilities maintained by the Commission at:
85
<PAGE>
450 Fifth Street, N.W.
Washington, D.C. 20549,
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661,
7 World Trade Center
13th Floor
New York, New York 10048.
Copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
The common stock is expected to be listed on the Nasdaq National Market
and, upon listing, copies of such reports, proxy statements and other
information concerning Health Card can also be inspected and copied at the
library of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
86
<PAGE>
2,000,000 Shares
NATIONAL MEDICAL HEALTH
CARD SYSTEMS, INC.
Common Stock
-------------
PROSPECTUS
RYAN, BECK & CO.
___________, 1999
Until , 1999 (25 days after the date of this
prospectus),all dealers that buy, sell or trade the
common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
<PAGE>
National Medical Health
Card Systems, Inc.
Financial Statements
For the years ended June 30, 1996, 1997 and 1998
and the three months ended September 30, 1998 and 1997
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Contents
Report to Independent Certified Public Accountants F-2
Financial statements:
Balance sheets as of June 30, 1997
and 1998, and unaudited as of September 30, 1998 F-3
Statements of Income for each of
the years ended June 30, 1996, 1997
and 1998, and unaudited for the three months ended
September 30, 1997 and 1998 F-4
Statements of Stockholders' Deficit for each
of the years ended June 30, 1996, 1997 and
1998, and unaudited for the three months ended
September 30, 1998 F-5
Statements of Cash Flows for each of the
years ended June 30, 1996, 1997
and 1998, and unaudited for the three months ended
September 30, 1997 and 1998 F-6
Notes to Financial Statements F-7 - F-22
F-1
<PAGE>
[This is the form of report we will issue upon completion of the
reverse stock split described in Note 12]
Report of Independent Certified Public Accountants
Board of Directors
National Medical Health
Card Systems, Inc.
Port Washington, New York
We have audited the accompanying balance sheets of National Medical Health Card
Systems, Inc. as of June 30, 1997 and 1998, and the related statements of
income, stockholders' deficit and cash flows for each of the three years in the
period ended June 30, 1998. These financial statements are the responsibility of
the management of National Medical Health Card Systems, Inc. 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Medical Health Card
Systems, Inc. as of June 30, 1997 and 1998, and the results of its operations
and cash flows for each of the three years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
September 2, 1998, except for
Note 12 which is as of _____________
F-2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Balance Sheets
June 30, September 30,
1997 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Assets (unaudited)
Current:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,782,597 $ 1,305,792 $ 1,873,376
Accounts receivable, less allowance for possible
losses of $200,000, $244,189, and $177,395 3,312,329 6,079,079 7,906,312
Other, including rebates receivable 1,557,043 4,163,382 4,131,878
Deferred income tax 120,000 141,000 285,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 6,771,969 11,689,253 14,196,566
Property, equipment and software development
costs, net 900,979 1,596,443 1,855,077
Due from affiliates 2,846,851 4,300,902 4,479,377
Due from stockholders 386,493 10,774 -
Other assets 14,528 12,528 12,528
Deferred income tax 951,000 734,000 661,000
- ------------------------------------------------------------------------------------------------------------------------------------
$11,871,820 $18,343,900 $21,204,548
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current:
Accounts payable and accrued expenses $13,353,884 $19,730,110 $21,107,447
Current portion of long-term debt 256,221 7,137 6,336
Due to officers/stockholders - 30,000 329,900
Due to affiliates 560,599 451,669 277,643
Income taxes payable - 59,881 632,881
Other current liabilities 37,360 68,780 179,664
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,208,064 20,347,577 22,533,871
Long-term debt, less current portion 7,427 2,605 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,215,491 20,350,182 22,533,871
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments (Note 7)
Stockholders' deficit:
Preferred stock $.10 par value; 10,000,000 shares
authorized, none outstanding - - -
Common stock, $.001 par value, 25,000,000
shares authorized, 3,258,459 and 4,971,578
shares issued and outstanding 3,259 4,972 4,972
Additional paid-in capital - 901,128 901,128
Accumulated deficit (2,274,930) (1,458,482) (753,048)
Notes receivable - stockholders (72,000) (1,453,900) (1,482,375)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (2,343,671) (2,006,282) (1,329,323)
- ------------------------------------------------------------------------------------------------------------------------------------
$11,871,820 $18,343,900 $21,204,548
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National Medical Health
Card Systems, Inc.
Statements of Income
Years Ended Three Months Ended
June 30, September 30,
----------------------------------------------------------------------------------------------
1996 1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $56,265,033 $71,288,411 $99,988,921 $20,114,066 $31,253,445
Cost of claims 50,799,422 64,176,942 91,230,939 18,338,909 27,736,990
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 5,465,611 7,111,469 8,757,982 1,775,157 3,516,455
Selling, general and
administrative 4,216,259 5,855,282 7,192,027 1,617,517 2,246,410
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 1,249,352 1,256,187 1,565,955 157,640 1,270,045
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Other income, net 21,530 42,595 264,666 48,336 164,785
Public offering costs - - (445,173) - (227,396)
- ------------------------------------------------------------------------------------------------------------------------------------
21,530 42,595 (180,507) 48,336 (62,611)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,270,882 1,298,782 1,385,448 205,976 1,207,434
Provision for income taxes
(benefit) (185,275) (189,984) 569,000 85,000 502,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,456,157 $ 1,488,766 $ 816,448 $ 120,976 $ 705,434
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per common share:
Basic $ 0.47 $ 0.46 $ 0.16 $ 0.02 $ 0.14
Diluted $ 0.35 $ 0.37 $ 0.16 $ 0.02 $ 0.14
Weighted average number of
common shares outstanding:
Basic 3,093,085 3,258,459 4,966,885 4,952,957 4,971,578
Diluted 4,182,909 4,008,481 4,969,166 4,961,211 4,971,578
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National Medical Health Card Systems, Inc.
Statements of Stockholders' Deficit
Notes Preferred Stock Common Stock Additional Treasury Stock
Receivable --------------- ------------------ Paid-In Accumulated ----------------------
Stockholders Shares Amount Shares Amount Capital Deficit Shares Amount
------------ ------ ------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 - - $- 3,804,984 $3,805 $ 25,958 $(3,580,281) 1,357,927 $(976,728)
Exercise stock options (72,000) - - 1,022,758 1,023 78,977 - - -
Capital distribution, net of
income taxes - - - - - (104,935) (346,051) - -
Purchase of treasury stock - - - - - - - 211,356 (149,050)
Treasury stock retired - - - (1,569,283) (1,569) - (1,124,209) (1,569,283) 1,125,778
Net income - - - - - - 1,456,157 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 (72,000) - 3,258,459 3,259 - (3,594,384) - -
Capital distribution, net of
income taxes - - - - - - (169,312) -
Net income - - - - - - 1,488,766 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 (72,000) - - 3,258,459 3,259 - (2,274,930) - -
Sale of stock (1,340,000) - - 1,713,119 1,713 1,338,287 - - -
Interest on notes receivable (113,900) - - - - - - - -
Capital distributions, net of
income taxes - - - - - (437,159) - - -
Repayment of loan by
stockholder 72,000 - - - - - - - -
Net income - - - - - - 816,448 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 (1,453,900) - - 4,971,578 4,972 901,128 (1,458,482) - -
Interest on notes receivable
(unaudited) (28,475) - - - - - - - -
Net income (unaudited) - - - - - - 705,434 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998
(unaudited) $(1,482,375) - 4,971,578 $4,972 $ 901,128 $ (753,048) - -
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National Medical Health
Card Systems, Inc.
Statements of Cash Flows
Years Ended Three Months Ended
June 30, September 30,
---------------------------------------------------------------------------------------
1996 1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Cash flows from operating activities:
Operating activities:
<S> <C> <C> <C> <C> <C>
Net income $1,456,157 $1,488,766 $ 816,448 $ 120,976 $ 705,434
Depreciation and amortization 184,708 240,744 368,644 71,291 153,468
Bad debt expense (recovery) - - 44,189 (3,847) (66,795)
Bonus accrued to officers/stockholders - - - - 300,000
Compensation expense accrued to
officer/stockholder - - 30,000 - 90,000
Deferred income taxes (225,000) (200,000) 488,000 73,000 (71,000)
Gain on sale of investment (15,885) - - - -
Interest accrued on stockholders' loans - - (113,900) (28,475) (28,475)
Changes in assets and liabilities:
Accounts receivable (437,911) (859,319) (2,810,939) (486,759) (1,760,438)
Other assets including rebates (1,154,927) 246,548 (2,604,339) (554,554) 42,278
Due to/from affiliates (2,983,896) 511,512 (1,562,981) (703,348) (352,501)
Accounts payable and accrued
expenses 4,328,056 2,104,949 6,175,665 898,507 1,351,178
Income taxes payable - - 59,881 12,000 573,000
Other liabilities 38,900 (38,900) 31,420 (1,326) 110,884
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in )
operating activities 1,190,202 3,494,300 922,088 (602,535) 1,047,033
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (448,163) (444,646) (864,108) (132,621) (385,943)
Sale of investment 25,114 - - - -
Loans to stockholders - (32,093) (792,200) (149,607) (90,100)
Repayment of loans by
officer/stockholders 36,300 - 1,167,919 - -
Repayment of note by stockholder - - 72,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (386,749) (476,739) (416,389) (282,228) (476,043)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 8,000 - - - -
Purchase of treasury stock (149,050) - - - -
Capital distribution (625,986) (640,312) (728,598) (141,456) -
Repayments of debt (55,909) (605,789) (253,906) (151,462) (3,406)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (822,945) (1,246,101) (982,504) (292,918) (3,406)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (19,492) 1,771,460 (476,805) (1,177,681) 567,584
Cash and cash equivalents, beginning
of period 30,629 11,137 1,782,597 1,782,597 1,305,792
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 11,137 $1,782,597 $1,305,792 $ 604,916 $1,873,376
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
1. Significant Accounting Policies
Nature of business
National Medical Health Card Systems, Inc. provides
comprehensive prescription benefit management services to
plan sponsors which include managed care organizations,
local governments, unions, corporations and third party
health care plan administrators through its network of
licensed pharmacies throughout the United States.
Pharmacies are reimbursed for the cost of the drugs
dispensed plus dispensing fees which are set by contracts.
The Company entered into two types of reimbursement
arrangements; fee for service and capitation. Under the fee
for service arrangement, the Company is reimbursed by the
plans for their disbursements plus a set transaction fee.
Under the capitation arrangement, the Company receives its
fee based on the number of participants per month and pays
for the cost of prescriptions filled and thus shares the
risk of operating profit or loss with these plans.
Cash equivalents
The Company considers all highly liquid debt instruments and
other short-term investments with an initial maturity date
of three months or less from purchase date to be cash
equivalents.
Revenue recognition
The Company recognizes revenues and direct costs as the
pharmaceutical service is rendered. Revenues under the
capitation arrangements are recognized monthly based on the
number of participants and costs under the capitation
agreements are recognized as incurred.
The Company obtains rebates from drug manufacturers through
a rebate administrator. Rebates are earned for efforts to
encourage the use of specific drugs and certain sponsors are
entitled to receive all or a portion of the rebates received
by the Company. Net rebates are recorded as revenue by the
Company.
Property, equipment and software
Office equipment and furniture and fixtures are being
depreciated over five years using accelerated recovery
methods.
Leasehold improvements are amortized on a straight line
basis over the term of the lease.
F-7
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
A significant portion of the Company's computer software was
developed by a company affiliated by common ownership. The
cost includes development of software programs and
enhancements which may either expand or modify existing
programs. Costs incurred to plan the software to be
developed, conversions of data from the old software to the
new software and training and consulting costs have been
expensed as incurred. To the extent that the Company has
capitalized certain amounts for software development and
those amounts exceeded the costs incurred by the affiliate,
this excess has been charged to stockholders' deficit as a
capital distribution.
Amortization of computer software is provided using the
straight line method over the estimated useful lives of the
assets, primarily five years.
Long lived assets
Long lived assets are evaluated for impairment when events
or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the
estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related
assets will be written down to fair value.
Taxes on income
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under this
standard, deferred taxes on income are provided for those
items for which the reporting period and methods for income
tax purposes differ from those used for financial statement
purposes using the asset and liability method. Deferred
income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory rates
applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities.
F-8
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
Computation of earnings per common share
In 1997,the Financial Accounting Standards Board issued
Standard No. 128 ("SFAS No. 128"), Earnings per Share. SFAS
No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings
per share. Basic earnings per share has been computed using
the weighted average number of shares of common stock
outstanding. Diluted earnings per share has been computed
using the basic weighted average shares of common stock
issued plus outstanding stock options, in accordance with
Staff Accounting Bulletin No. 98.
Accounting for stock based compensation
The Company has adopted the intrinsic value method of
accounting for employee stock options and will disclose the
pro forma impact on net income and earnings per share.
Concentration of credit risk
The Company may be subject to a concentration of credit risk
with respect to its trade receivables. The Company performs
ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains
allowances to cover potential or anticipated losses for
uncollectible accounts. Financial instruments which
potentially subject the Company to concentrations of credit
risk are cash balances deposited in financial institutions
which exceed FDIC insurance limits.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the
Company to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
F-9
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
Estimated fair value of financial instruments
The carrying amounts of financial instruments, including
cash, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of the current
nature of these instruments. Fair value of amounts due to
from stockholders and affiliates cannot be readily
determined because of the nature of the terms.
Interim financial information
The financial statements and related notes thereto as of
September 30, 1998 and the three months ended September 30,
1997 and 1998 are unaudited and have been prepared on a
basis consistent with the Company's annual financial
statements. In the opinion of management, such unaudited
financial statements include all adjustments (consisting of
normal recurring adjustments) that the Company considers
necessary for a fair presentation of such data. Results for
the three months ended September 30, 1998 are not
necessarily indicative of the results that may be expected
for the entire year ended June 30, 1999.
Effect of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board
issued two new disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), Reporting Comprehensive Income, establishes
standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except
those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under
current accounting standards as components of comprehensive
income be reported in a financial statement that is
displayed with the same prominence as other financial
statements.
F-10
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
Statement of Financial Accounting Standards No. 131 ("SFAS
No. 131"), Disclosures about Segments of an Enterprise and
Related Information, which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise, establishes
standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires reporting of selected information
about operating segments in interim financial statements
issued to the public. It also establishes standards for
disclosures regarding products and services, geographic
areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate
financial information is available that is evaluated
regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Both of these new standards are effective for financial
statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be
restated. The Company's results of operations and financial
position will be unaffected by implementation of these new
standards.
In February 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 132
("SFAS No. 132"), Employers' Disclosures about Pensions and
Other Postretirement Benefits, which standardizes the
disclosure requirements for pensions and other
postretirement benefits. The adoption of SFAS No. 132 in
1998 is not expected to materially impact the Company's
current disclosures.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Investments and Hedging Activities
Income ("SFAS 133"), which requires the recording of all
derivative instruments as assets or liabilities measured at
fair value. Among other disclosures, SFAS 133 requires that
all derivatives be recognized and measured at fair value
regardless of the purpose or intent of holding the
derivative.
SFAS 133 is effective for financial statements for periods
beginning after June 15, 1999. Because of the recent
issuance of this standard, management has been unable to
evaluate fully the impact, if any, the standard will have on
future financial statements.
F-11
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
2. Property, Equipment and Software Development Costs
Property, equipment and software development costs consists
of the following:
June 30, September 30,
---------------------------------
1997 1998 1998
- --------------------------------------------------------------------------------
Furniture and fixtures $ 284,846 $ 386,480 $ 403,154
Software 1,183,130 2,145,606 2,493,200
Leasehold improvements - - 47,833
- --------------------------------------------------------------------------------
1,467,976 2,532,086 2,944,187
Accumulated depreciation
/amortization 566,997 935,643 1,089,110
- --------------------------------------------------------------------------------
$ 900,979 $1,596,443 $1,855,077
- --------------------------------------------------------------------------------
Depreciation and amortization expense for the years ended
June 30, 1996, 1997 and 1998 was $184,708, $240,744 and
$368,644, respectively, and $71,291 and $153,468 for the
three months ended September 30, 1997 and 1998,
respectively.
3. Related Party Transactions
(a) Distributions - capital
The Company leases office space in Port Washington, New York
from a company affiliated by common ownership under a
five-year agreement expiring December 31, 2000. As part of
the lease agreement, the Company was allocated part of the
cost of the preparation of the building for occupancy. These
costs amounted to $700,000, and were treated as capital
distributions in 1995. The Company also leased certain space
from companies affiliated by common ownership during fiscal
1997 and fiscal 1998. These additional leases were
terminated in July 1997 and April 1998, respectively.
In September 1998 the Company leased space for a pharmacy in
Port Washington, New York, from a Company affiliated by
common ownership under a seven year agreement expiring
August 31, 2005.
F-12
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
Rent expense including utilities for the years ended June
30, 1996, 1997 and 1998 under operating leases amounted to
$153,330, $264,727 and $304,193, respectively, and $80,590
and $52,282 for the three months ended September 30, 1997
and 1998, respectively.
Due to affiliates represent trade payables for developed
software, other software services, operating leases and
maintenance costs. During 1998 an affiliate charged the
Company approximately $208,000, as a fee to hire
programmers, which were formerly employed by an affiliated
company. The Company assumed a liability of $86,000 relating
to these employees.
In accordance with SAB 48, the Company has recorded amounts
in excess of affiliates' cost for capitalized software
development and acquisition of employees as a capital
distribution, net of tax as follows:
1996 1997 1998
- --------------------------------------------------------------------------------
Software development $ 625,986 $ 640,312 $ 520,122
Acquisition of
employees - - 208,476
Tax effect* (175,000) (471,000) (291,439)
- --------------------------------------------------------------------------------
Net increase in
stockholders' deficit $ 450,986 $169,312 $ 437,159
- --------------------------------------------------------------------------------
* Approximately $215,000 of the tax benefit for 1997 was
offset by a decrease in the deferred income tax valuation
reserve.
(b) Other
Due from affiliates represents loans to companies affiliated
by common ownership or are companies controlled by the
majority stockholder. Effective June 1, 1998, the majority
of the loan balances were consolidated into a promissory
note due from one affiliated company controlled by the
majority stockholder. The amount is due on demand and bears
interest at 8.5% per annum, payable quarterly, and has no
set repayment date. Due to the uncertainty of the repayment
date, this note has been classified as a non-current asset.
The note is collateralized by 1,022,758 shares
F-13
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
of $.001 par value common stock of the Company registered in
the name of the majority stockholder and the personal
guarantee of the majority stockholder. For the year ended
June 30, 1998, the amount of interest income accrued was
$30,117. For the three months ended September 30, 1998,
interest income accrued was $90,414. Prior to June 1, 1998,
the outstanding balances did not bear any interest.
Prior to June 1, 1998, the Company leased all of its
employees from an affiliated company. Effective June 1,
1998, the Company hired these employees (which included
programmers as discussed above) and paid its own payroll and
related costs.
Costs related to transactions with affiliates approximated
the following:
Three months ended
Year ended June 30, September 30,
-------------------------------------- --------------------
1996 1997 1998 1997 1998
- ---------------------------------------------------------- --------------------
Software development
and related
services(i) $ 551,000 $1,443,000 $1,696,000 $593,000 $324,000
Management and
consulting fees(ii) $ 542,000 $ 601,000 $1,152,000 $222,000 $333,000
Administrative and
bookkeeping
services(iii) $1,627,000 $2,202,000 $2,618,000 $644,000 $ 92,000
- --------------------------------------------------------------------------------
(i) A company affiliated by common ownership provides a
significant portion of the Company's developed software
(Note 1), certain other software services, computer hardware
under operating leases and maintains certain computer
hardware.
(ii) The Company incurred to certain other affiliated
companies fees for various management and consulting
services.
(iii) A Company affiliated by common ownership provides the
Company with various administrative services. The
arrangement includes the leasing of all the Company's
employees through June 1, 1998 and the provision of
bookkeeping services and personnel related consulting
services.
F-14
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the
following:
June 30,
---------------------------------- September 30,
1997 1998 1998
- --------------------------------------------------------------------------------
Claims payable $10,676,936 $13,571,796 $14,890,505
Other payables including
rebates payable to
sponsors 2,676,948 6,158,314 6,216,942
- --------------------------------------------------------------------------------
$13,353,884 $19,730,110 $21,107,447
- --------------------------------------------------------------------------------
5. Major Customers and Pharmacies
For the years ended June 30, 1996, 1997 and 1998,
approximately 66%, 63% and 57% of the revenues were from two
plan sponsors administering multiple plans. Amounts due from
these two customers at June 30, 1997 and 1998 approximated
$925,000 and $2,751,000, respectively.
For the three months ended September 30, 1997 and 1998,
approximately 66% and 67% of the revenues were from two and
three plan sponsors, respectively. Amounts due from the
three customers at September 30, 1998 approximated
$2,933,000.
For the years ended June 30, 1996, 1997 and 1998,
approximately 22%, 30% and 25% of the cost of claims were
from two pharmacy chains. Amounts payable to these two
pharmacy chains at June 30, 1997 and 1998 were approximately
$1,714,000 and $2,679,000, respectively.
For the three months ended September 30, 1997 and 1998,
approximately 28% of the cost of claims were from two
pharmacy chains. Amounts payable to these two chains at
September 30, 1998 were approximately $3,408,000.
F-15
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
6. Taxes on Income
Provisions (benefit) for federal and state income taxes
consist of the following:
Three months ended
Year ended June 30, September 30,
------------------------------------- -----------------------
1996 1997 1998 1997 1998
- --------------------------------------------------- -----------------------
Current:
Federal $26,700 $ 6,038 $ 60,000 $ 9,000 $426,000
State 13,025 3,978 21,000 3,000 147,000
- --------------------------------------------------- -----------------------
39,725 10,016 81,000 12,000 573,000
- --------------------------------------------------- -----------------------
Deferred:
Federal (174,400) (154,900) 363,000 54,000 (53,000)
State (50,600) (45,100) 125,000 19,000 (18,000)
- --------------------------------------------------- -----------------------
(225,000) (200,000) 488,000 73,000 (71,000)
- --------------------------------------------------- -----------------------
Total $(185,275) $(189,984) $569,000 $85,000 $502,000
- ------------------------------------------------------------------------------
In 1996, 1997 and 1998, $175,000, $471,000 and $291,439,
respectively, of income tax benefits reduced the capital
distribution in those years.
Differences between the federal statutory rate and the
Company's effective tax rate are as follows:
Three months
ended
Year ended June 30, September 30,
--------------------------- -----------------
1996 1997 1998 1997 1998
- -------------------------------------------------------------- -----------------
Statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State taxes - net of federal taxes .7 - 7.1 7.3 7.6
Decrease in deferred income tax
valuation reserve
(see Note 3(a)) (49.3) (48.6) - - -
- -------------------------------------------------------------- -----------------
(14.6%) (14.6%) 41.1% 41.3% 41.6%
- --------------------------------------------------------------------------------
F-16
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
Deferred income tax assets resulting from temporary
differences are as follows:
June 30, 1997 1998
- --------------------------------------------------------------------------------
Accounts receivable allowances $ 120,000 $100,000
Vacation expense accrual 41,000
Property and equipment 951,000 734,000
- --------------------------------------------------------------------------------
$1,071,000 $875,000
- --------------------------------------------------------------------------------
7. Commitments and Contingencies
(a) Future minimum rent payments under the noncancellable
operating leases (Note 3) at June 30, 1998 are approximately
as follows:
Year ending June 30,
- -------------------------------------------------------------------------
1999 $239,000
2000 255,000
2001 141,000
2002 21,000
2003 22,000
Thereafter 51,000
- -------------------------------------------------------------------------
$729,000
- -------------------------------------------------------------------------
(b) In February 1998, the Company entered into an agreement
for computer software products and professional services
with an unrelated company. The agreement requires the
Company to pay an initial license fee of $400,000, of which
$100,000 was paid upon signing and $25,000 is payable
monthly. Additionally, on the anniversary date each
succeeding year, up to an additional $500,000 annually will
be due upon reaching certain milestones, as defined.
Additionally, the Company is required to pay a service
maintenance fee of 18% of the initial license fee plus the
milestone payments, as defined.
F-17
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
8. Stock Options
The Company had an incentive stock option plan, under which
it may have granted up to 2,301,205 shares of common stock.
The Company also had a non-qualified stock option plan under
which it may have granted up to 383,534 shares. Both plans
have expired.
On February 14, 1995, the Company granted the principal
stockholder an option to purchase 1,022,758 shares of common
stock at $.08 per share and a director of the Company
383,534 shares of common stock at $.08 per share which
expires in ten years.
On November 1, 1995, the principal stockholder exercised his
option to acquire 1,022,758 shares of common stock for cash
and a promissory note for $72,000 which was paid to the
Company in October 1998. Additionally, on November 1, 1995,
the Company issued to the principal stockholder a new option
for the purchase of an additional 1,022,758 shares of common
stock at $.08 per share, which expires in five years.
On July 1, 1997, the principal stockholder and the director
forfeited the options to purchase 1,022,758 shares and
383,534 shares of common stock at $.08, respectively.
On July 1, 1997 the principal stockholder granted options to
an employee of the Company to purchase 255,689 shares of the
Company's common stock at $5.87 per share from his personal
holdings. In accordance with Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123") Accounting for
Stock- Based Compensation, the options were accounted for,
as granted to the employee directly by the Company. These
options vest and become exercisable as follows:
(i) 20% on July 1, 1999
(ii) 20% on July 1, 2000
(iii) 20% on July 1, 2001
(iv) 20% on July 1, 2002
(v) 20% on July 1, 2003
These options terminate on July 1, 2004.
F-18
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
SFAS No. 123 requires the Company to provide pro forma
information regarding net income and earnings per share as
if compensation cost for the Company's stock option grants
had been determined in accordance with the fair value method
prescribed in SFAS No. 123
The Company estimated the fair value of the stock options
granted on July 1, 1997 to be zero by using the
Black-Scholes option-pricing model with the following
weighted average assumptions: no dividends paid for fiscal
1998; no expected volatility for fiscal 1998; risk-free
interest rate of 4% and expected life of 8 years.
The following table summarizes information about stock
options as of September 30, 1998:
Shares of Common Weighted Average Exercise
Stock Price
- --------------------------------------------------------------------------------
Shares under option at June 30,
1995 2,940,428 $.08
Granted 1,022,758 .08
Cancelled (1,534,136) .08
Exercised (1,022,758) .08
- -------------------------------------------------------------------------------
Shares under option at June 30,
1996 1,406,292 .08
Granted, cancelled, exercised - -
- -------------------------------------------------------------------------------
Shares under option at June 30,
1997 1,406,292 .08
Granted 255,689 5.87
Cancelled (1,406,292) .08
- -------------------------------------------------------------------------------
Shares under option at June 30,
1998 255,689 5.87
Granted, cancelled, exercised - -
- -------------------------------------------------------------------------------
Shares under option at
September 30, 1998 255,689 $5.87
- -------------------------------------------------------------------------------
F-19
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
9. Supplemental Cash Flow Information
Three months ended
Year ended June 30, September 30,
-------------------------------- -------------------
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------
Cash paid:
Interest $ 2,589 $ 2,254 $ 4,136 $ 550 $1,398
Income Taxes 825 48,916 20,901 - 800
Nan cash investing and
financing activities:
Conversion of claims
payable into a non-
interest bearing note 900,000 - - - -
Issuance of commona
stock for notes from
stockholders 72,000 - 1,340,000(i) 1,340,000(i) -
- --------------------------------------------------------------------------------
(i) These non-recourse promissory notes dated July 1, 1997
are due and payable in five years and bear interest at 8
1/4% per annum payable quarterly. The 1,713,119 shares
issued in connection with these notes included 1,278,447
shares to the majority stockholder. The notes are
collateralized by the shares of stock purchased.
10. Employee Benefit Plan
Effective June 1, 1998, the Company adopted a 401(k) plan
covering substantially all employees. Participants may elect
to contribute to the plan a minimum of 1% to a maximum of
18% of their annual compensation, not to exceed a dollar
limit set by law. Annually, the Company will determine a
discretionary matching contribution equal to a percentage of
each participant's contribution. No such contributions were
made for the year ended June 30, 1998 or the three months
ended September 30, 1998.
F-20
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
11. Earnings Per Share
A reconciliation of shares used in calculating basic and
diluted earnings per share follows:
Three months ended
Year ended June 30, September 30,
-------------------------------------------------------------
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------
Basic 3,093,085 3,258,459 4,966,885 4,952,957 4,971,578
Effect of assumed
conversion of
employee stock
options 1,089,824 750,022 2,281 8,254 -
- --------------------------------------------------------------------------------
Diluted 4,182,909 4,008,481 4,969,166 4,961,211 4,971,578
- --------------------------------------------------------------------------------
12. Subsequent Events
(a) On October 23, 1998 the Company sold 340,919 shares of
common stock to the majority stockholder at $5.87 per share.
(b) On December 7, 1998 the principal stockholder granted
options to an employee of the Company to purchase 63,922
shares of the Company's common stock at $5.87 per share from
his personal holdings. In accordance with Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123")
Accounting for Stock-Based Compensation, the options were
accounted for as granted to the employee directly by the
Company. These options vest and become exercisable as
follows:
(i) 20% on December 7, 2000
(ii) 20% on December 7, 2001
(iii) 20% on December 7, 2002
(iv) 20% on December 7, 2003
(v) 20% on December 7, 2004
These options terminate on December 7, 2005.
F-21
<PAGE>
- --------------------------------------------------------------------------------
National Medical Health
Card Systems, Inc.
Notes to Financial Statements
(Information as of September 30, 1998 and for the three
months ended September 30, 1997 and 1998 is unaudited)
(c) On December 7, 1998 the principal stockholder granted
options to an employee of the Company to purchase 25,569
shares of the Company's common stock at $5.87 per share from
his personal holdings. In accordance with Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123")
Accounting for Stock-Based Compensation, the options were
accounted for as granted to the employee directly by the
Company. These options vest and become exercisable as
follows:
(i) 1/3 on December 7, 1999
(ii) 1/3 on December 7, 2000
(iii) 1/3 on December 7, 2001
These options terminate on December 7, 2003.
(d) In connection with a proposed public offering ("the
Offering"), the Company signed a letter of intent with an
underwriter to complete an offering of its common stock. The
Company anticipates generating net proceeds of approximately
$____ million upon the sale of its common stock. If the
Offering is consummated, the net proceeds will be used in
whole or in part for acquisitions, enhancement of the
Company's information systems, expansion of the Company's
sales and marketing efforts, and working capital.
(e) In connection with the Offering the Company on _____,
filed an amendment to its Certificate of Incorporation to
adjust its authorized preferred stock to ____ shares, to
adjust its authorized common stock to ____ shares and affect
a .1278447 for-one reverse stock split. All applicable share
and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect the
stock split.
F-22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National Medical Health
Card Systems, Inc.
Schedule II - Valuation and Qualifying Accounts
Balance at beginning Additions charged to Other Balance at
Description of period costs and expenses Write-offs Changes end of period
- -----------------------------------------------------------------------------------------------------------------------------
Reserves and allowances deducted
from asset accounts:
Allowance for possible losses from
uncollectible accounts receivable
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996 $100,000 $214,046 $214,046 $- $100,000
Year ended June 30, 1997 $100,000 $115,000 $ 15,000 $- $200,000
Year ended June 30, 1998 $200,000 $ 70,000 $ 25,811 $- $244,189
</TABLE>
F-23
<PAGE>
[This is the form of report we will issue upon completion of the reverse stock
split described in Note 12 to the financial statements]
Report of Independent Certified Public Accountants on Financial Statement
Schedule
The audit referred to in our report to National Medical Health Card Systems,
Inc., dated September 2, 1998, except for Note 12 which is as of , which is
contained in the Prospectus constituting part of this Registration Statement
included the audit of the schedule listed under Item 16(b) for each of the three
years in the period ended June 30, 1998. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
September 2, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses (other than
underwriting discounts and the non-accountable expense allowance) expected to be
incurred in connection with the offering described in this Registration
Statement:
Securities and Exchange Commission Registrati$ 7,062
NASD Filing Fee 3,040
The Nasdaq National Market Listing Fee 69,375
Blue Sky Fees and Expenses 20,000
Legal Fees and Expenses 200,000
Accounting Fees and Expenses 275,000
Printing and Engraving Expenses 125,000
Transfer Agent and Registrar's Fees and Expenses 25,000
Miscellaneous Expenses 50,523
---------
Total $775,000
All amounts except the Securities and Exchange Commission Registration Fee, the
NASD Filing Fee and the Nasdaq National Market Listing Fee are estimated. All
expenses will be borne by the Company.
Item 14. Indemnification of Directors and Officers.
Under the laws of the State of New York, the officers and directors
of the Registrant are entitled to indemnification by the Registrant, under
certain circumstances, pursuant to Sections 721-727 of the New York Business
Corporation Law which authorizes the Registrant, generally, to indemnify
officers and directors against both expenses and liabilities in connection with
any proceeding involving any such officer or director, other than in a
proceeding by or in the right of the Registrant to procure a judgment in its
favor, if (i) such officer or director acted in good faith and in a manner he
reasonably believed to be in the best interests of the Registrant; and (ii) with
respect to any criminal proceeding, such officer or director also had no
reasonable cause to believe his conduct was unlawful. In addition, such statute
authorizes the Registrant, generally, to indemnify officers and directors
against amounts paid in settlement and their expenses in connection with any
proceeding by or in the right of the Registrant to procure a judgment in its
favor which involved the officer or director, if such officer or director acted
in good faith for a purpose which he reasonably believed to be in the best
interests of the Registrant.
The Registrant is required to indemnify an officer or director, as
set forth above, if such officer or director has been successful on the merits
or otherwise in the defense of any matter referred to herein. Otherwise,
indemnification of an officer or director, unless ordered by a court, may be
made by the Registrant only as authorized in a specific case upon a
determination that indemnification is proper in the circumstances because the
officer or director met the applicable standard of conduct or because
indemnification is permitted pursuant to Section 721 of the Business Corporation
Law. Such determination must be made generally (a) by the Board of Directors of
the Registrant, acting by a quorum consisting of directors who were not parties
to the proceeding; or (b) if a quorum is not obtainable or, even if obtainable,
a quorum of disinterested directors so directs (i) by the Board of Directors
upon the written opinion of independent legal counsel that indemnification is
proper under the circumstances, or (ii) by the stockholders.
The Registrant's Certificate of Incorporation and By-Laws, as
contemplated to be amended prior to the consummation of the offering, provide
that the Registrant shall, to the fullest extent permitted by law, indemnify all
its officers and directors.
The Registrant's Certificate of Incorporation contains the provisions
of Section 402(b) of the Business Corporation Law of the State of New York
relating to the elimination of directors' liability for damages for breach of
duty in such capacity.
The Company expects to maintain directors' and officers' liability
insurance policies covering certain liabilities of persons serving as officers
and directors and providing reimbursement to the Company for its indemnification
of such persons.
Pursuant to the Underwriting Agreement to be entered into among the Company
and the underwriters, officers and
<PAGE>
directors of the Company are indemnified for certain liabilities, including
liabilities incurred under the Securities Act of 1933, as amended.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT MAY
BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY PURSUANT
TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT, IN THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT AND IS THEREFORE UNENFORCEABLE.
Item 15. Recent Sales of Unregistered Securities.
The Company sold the following shares of common stock during the past
three years. The number of shares of common stock referred to herein gives
effect to a .1278447-for-one reverse stock split of the Company's shares of
common stock contemplated to be effected prior to the consummation of the
offering.
On February 14, 1995, the Company granted an option to purchase
1,022,757 shares of common stock at an exercise price of $.0782 per share to Mr.
Bert E. Brodsky (the "February Option").
On November 1, 1995, the Company granted an option to purchase
1,022,757 shares of common stock at an exercise price of $.0782 per share to Mr.
Brodsky. The February Option was exercised on November 1, 1995 by Mr. Brodsky's
payment of $8,000 and delivery of a promissory note made payable to the order of
the Company in the original principal amount of $72,000. In February, 1998, Mr.
Brodsky paid such promissory note in full.
On February 14, 1995, the Company granted an option to purchase
383,534 shares of common stock at an exercise price of $.0782 per share to Mr.
Gerald Shapiro.
On July 1, 1997, Mr. Bert E. Brodsky purchased 1,278,447 shares of
common stock by delivery of a promissory note made payable to the order of the
Company in the original principal amount of $1,000,000. This note is secured by
the 1,278,447 shares of common stock purchased by Mr. Brodsky on July 1, 1997.
On July 1, 1997, Mr. Gerald Shapiro purchased 383,534 shares of
common stock by delivery of a promissory note made payable to the order of the
Company in the original principal amount of $300,000. This note is secured by
the 383,534 shares of common stock purchased by Mr. Shapiro on July 1, 1997.
On October 23,1998, Mr. Bert E. Brodsky purchased 340,919 shares of
common stock for $2,000,000 cash. The funds used for this purchase were borrowed
from Marine Midland Bank. The indebtedness of $2,000,000 to Marine Midland Bank
was secured by the 340,919 shares of common stock purchased by Mr. Brodsky on
October 23, 1998. The Company also executed an unlimited continuing Guaranty
Agreement for the indebtedness of Mr. Brodsky to Marine Midland Bank. In January
1999, Mr. Brodsky paid such promissory note in full.
All the foregoing transactions were private transactions not
involving a public offering and were exempt from the registration provisions of
the Act pursuant to Section 4(2) thereof. Sales of the securities were without
the use of an underwriter, and the certificates evidencing the securities
relating to the foregoing transactions bear restrictive legends permitting the
transfer thereof only upon registration of such securities or an exemption under
the Act.
-2
<PAGE>
<TABLE>
,Caption>
Item 16. Exhibits.
Exhibit Number Description of Exhibit
<S> <C>
1.1 Form of Underwriting Agreement by and between the Company and the Underwriter*
3.1 Certificate of Incorporation of the Company
3.2 Amendment, dated January 9, 1987, to Certificate of Incorporation of the Company
3.3 Amendment, dated April 21, 1987, to Certificate of Incorporation of the Company
3.4 Form of Proposed Amendment to Certificate of Incorporation of the Company*
3.5 By-Laws of the Company
3.6 Form of Proposed Amendment to By-Laws of the Company*
4.1 Form of Specimen common stock Certificate*
4.2 Warrant Agreement, including form of Representative's Warrants*
5.1 Opinion of Certilman Balin Adler & Hyman, LLP, counsel for the Company*
5.2 Opinion of Ruskin Moscou Evans & Faltischek, P.C.*
10.1 Agreement, dated April 1, 1990, between the Company and ChoiceCare Long Island, Inc. d/b/a Vytra
Healthcare
10.2 Prescription Drug Service Agreement, dated December 1, 1995, between the Company and ChoiceCare
Long Island, Inc. d/b/a Vytra Healthcare*
10.3 Amendment to Prescription Drug Service Agreement, dated September 25, 1998 between
the Company and Vytra Healthcare*
10.4 Agreement, dated January 1, 1995, between the Company and Suffolk County
10.5 Agreement, dated March 15, 1998, between the Company and Medi-Span, Inc.*
10.6 Formulary Agreement, dated January 1, 1996, between the Company and Foundation Health
Pharmaceutical Services d/b/a Integrated Pharmaceutical Services*
10.7 Mail Service Provider Agreement, dated July 1, 1996, between the Company and Thrift Drug, Inc. d/b/a
Express Pharmacy Services
10.8 Amendment to Mail Service Provider Agreement, dated January 1, 1997, between the Company and Thrift
Drug, Inc. d/b/a Express Pharmacy Services
10.9 Agreement, dated June 1,1998, between Sandata, Inc. and the Company
-3
<PAGE>
10.10 Amendment to Agreement, dated June 1, 1998 between Sandata, Inc. and the Company
10.11 Bill of Sale, dated June 1, 1998, between Sandata, Inc. and the Company
10.12 Software License Agreement and Professional Service Agreement, dated February 18, 1998, between the
Company and Prospective Health, Inc.
10.13 1999 Stock Option Plan
10.14 Stock Option Agreement, dated July 1, 1997, between Bert Brodsky and Mary Casale
10.15 Stock Option Agreement, dated December 7, 1998, between Bert Brodsky and Marjorie O'Malley
10.16 Stock Option Agreement, dated December 7, 1998, between Bert Brodsky and John Ciufo
10.17 Lease, dated January 1, 1996, between Sandata, Inc. and the Company
10.18 Assignment, dated November 1, 1996, from Sandata, Inc, to BFS Realty, LLC
10.19 First Amendment to BFS Realty, LLC Lease, dated 6/1/98, between BFS Realty, LLC and
the Company
10.20 Lease, dated August 10, 1998, between 61 Manor Haven, LLC and the Company
10.21 Promissory Note, dated July 1, 1997, made payable by Bert Brodsky to the order of the Company in the
original principal amount of $1,000,000
10.22 Promissory Note, dated July 1, 1997, made payable by Gerald Shapiro to the order of the Company in the
original principal amount of $300,000
10.23 Promissory Note, dated June 1, 1998, made payable by P.W. Capital, LLC to the order of the Company in
the original principal amount of $4,254,785
10.24 Agreement of Guaranty, dated June 1, 1998, by Bert E. Brodsky in favor of the Company
10.25 Promissory Note, dated October 30, 1998, made payable by Bert Brodsky to Marine Midland Bank in the
principal amount of $2,000,000
10.26 Agreement of Guaranty, dated October 30, 1998, by the Company in favor of Marine Midland Bank
10.27 Promissory Note, dated November 3, 1998, made payable by Bert Brodsky to Marine Midland
Bank in the principal amount of $2,000,000
10.28 Consulting Agreement, dated April 14, 1994, between P.W. Medical Management, Inc. and
the Company
10.29 Assignment, dated July 1, 1996, between P.W. Medical Management, Inc. and P.W. Capital
Corp.
-4
<PAGE>
10.30 Form of Lock-up Agreement*
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Certilman Balin Adler & Hyman, LLP (included in its opinion filed as Exhibit 5.1 hereto)*
23.3 Consent of Ruskin Moscou Evans & Faltischek, P.C. (included in its opinion filed as Exhibit 5.2 hereto)*
24.1 Powers of Attorney (included in signature page forming a point hereof)
27.1 Financial Data Schedule
</TABLE>
*To be filed by amendment.
Item 17. Undertakings.
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement,
provided, however, that paragraphs (l)(i) and (l)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered
-5
<PAGE>
which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, as amended, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Equity Offerings of Nonreporting Registrants.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(c) Indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) Rule 430A.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective;
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Port
Washington, State of New York, on the ___ day of February, 1999.
NATIONAL MEDICAL HEALTH
CARD SYSTEMS, INC.
By: /s/ Bert Brodsky
Bert E. Brodsky
Chairman of the Board, Chief Executive Officer
By:/s/ Barry Denaro
Barry Denaro
Chief Financial Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Bert E. Brodsky his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Capacity Date
Chairman of the Board
and Director
(Principal Executive
/s/ Bert Brodsky February 11, 1999
Bert E. Brodsky
Vice Chairman of the
/s/Gerald Shapiro Board, Secretary and
Gerald Shapiro Director February 11, 1999
/s/ Marjorie G. O'Malley President and Chief
Marjorie G. O'Malley Operating Officer February 11, 1999
Executive Vice President
of Operations
/s/ Linda Portney and Director February 11, 1999
Linda Portney
/s/ Richard J. Strauss Director February 11, 1999
Richard J. Strauss, M.D,
F.A.C.S.
/s/ Gerald Angowitz
Gerald Angowitz Director February 11, 1999
/s/ Barry Denaro (Principal Accounting
Barry Denaro Officer) February 11, 1999
Executive Vice President
/s/ Mary Casale of Sales and Marketing February 11, 1999
Mary Casale
-8
<PAGE>
EXHIBIT 3.1
NYS DEPARTMENT OF STATE
================================================================================
FILING RECEIPT INCORPORATION (BUSINESS)
================================================================================
CORPORATION NAME
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
- --------------------------------------------------------------------------------
DATE FILED DURATION & COUNTY CODE FILM NUMBER CASH NUMBER
07/23/81 P NEW A784128-4 642259
- --------------------------------------------------------------------------------
NUMBER AND KIND OF SHARES LOCATION OF PRINCIPAL OFFICE
200NPV NEW YORK
- --------------------------------------------------------------------------------
COMMENTS:
SERVICO
- --------------------------------------------------------------------------------
ADDRESS FOR PROCESS REGISTERED AGENT
RUSKIN SCHLISSEL
MOSCOU & EVANS
114 OLD COUNTRY ROAD
MINEOLA NY
- --------------------------------------------------------------------------------
FEES AND/OR TAX PAID AS FOLLOWS:
AMOUNT OF CHECK $00110.00 AMOUNT OF MONEY ORDER $_____ AMOUNT OF CASH $_____
$5.00 DOLLAR FEE TO COUNTY $ 100.00 FILING
FILER NAME AND ADDRESS $00010.00 TAX
RUSKIN SCHLISSEL MOSCOU & EVANS $ CERTIFIED COPY
114 OLD COUNTRY ROAD $ CERTIFICATE
MINEOLA NY TOTAL PAYMENT $ 0000110.00
REFUND OF $
TO FOLLOW
================================================================================
BASIL A PATERSON SECRETARY OF STATE
<PAGE>
State of New York )
) ss.: 4183
Department of State)
I hereby certify that I have compared the annexed copy with the original
document filed by the Department of State and that the same is a correct
transcript of said original.
Witness my hand and seal of the Department of State on Jan 18 1983
/s/ GAIL S SHAFFER
Secretary of State
<PAGE>
Certificate of Incorporation
C/I-1
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
FILED BY: RUSKIN, SCHLISSEL, MOSCOU & EVANS
ATTORNEYS AT LAW
114 OLD COUNTRY ROAD
MINEOLA, NY 11501
STATE OF NEW YORK
DEPARTMENT OF STATE
FILED JUL 23, 1981
AMT OF CHECK $110
FILING FEE $100
TAX $10
COPY $_____
CERT $_____
REFUND $_____
BY: /s/ MR
-------------
P n.4.
SERVICO
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
Under Section 402 of the Business Corporation Law:
The undersigned, being a natural person of at least eighteen (18) years of
age and acting as the incorporator of the corporation hereby being formed under
the Business Corporation Law, certifies that:
FIRST: The name of the corporation is National Medical Health Card
Systems, Inc.
SECOND: The corporation is formed for the following purpose or purposes:
To process employee claims for various health related fringe benefits.
The corporation, in furtherance of its corporate purposes above set forth,
shall have all of the powers conferred upon corporations organized under
the Business Corporation Law subject to any limitations thereof contained
in this Certificate of Incorporation or in the laws of the State of New
York.
THIRD: The office of the Corporation is to be located in the City, State
and County of New York.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is two hundred (200) all of which are without par value, and
all of which are of the same class.
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served. The post
office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is: c/o
Ruskin, Schlissel, Moscou & Evans, P.C., 114 Old Country Road, Mineola, New York
11501.
SIXTH: The duration of the corporation is to be perpetual.
-1-
<PAGE>
SEVENTH: The number of directors of the corporation shall be determined as
provided by the by-laws, provided that this number shall not be less than three
(3), except that where all the shares of the corporation are owned beneficially
and of record by less than three (3) shareholders, the number of directors may
be less than three (3) but not less than the number of shareholders.
EIGHTH: Any action required or permitted to be taken by the Board of
Directors of the corporation or of any committee thereof may be taken without a
meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
NINTH: Any one or more members of the Board of Directors of the
corporation or of any committee thereof may participate in a meeting of such
board or committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time and participation by such means shall constitute presence in
person.
TENTH: The Board of Directors by vote of a majority of the entire board
shall have the power to adopt, amend or repeal the by-laws but any by-laws
adopted by the Board may be amended or repealed by the shareholders.
ELEVENTH: No holder of any of the shares of any class of the corporation
shall be entitled as of right to subscribe for, purchase, or otherwise acquire
any shares of any class of the corporation which the corporation proposes to
issue or any rights or options which the corporation proposes to grant for the
purchase of shares of any class of the corporation or for the purchase of
shares, bonds, securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any rights, to subscribe
for, purchase, or otherwise acquire shares of any class of the corporation; and
any and all of such shares, bonds, securities or obligations of the corporation,
whether now or hereafter authorized or created, may be issued, or may be
reissued or transferred if the same have been reacquired and have treasury
status and any and all of such rights and options may be granted by the Board of
Directors to such persons, firms, corporations and associations and for such
lawful consideration, and on such terms, as the Board of Directors in its
discretion may determine, without first offering the same, or any thereof to any
said holder. Without limiting the generality of the foregoing stated denial of
any and all preemptive rights, no holder of shares of any class of the
corporation shall have preemptive rights in respect of the matters, proceedings,
or transactions specified in sub-paragraphs (1) to (6), inclusive, of paragraph
(e) of Section 622 of the Business Corporation Law.
-2-
<PAGE>
TWELFTH: Except as may otherwise be specifically provided in this
certificate of incorporation, no provision of this certificate of incorporation
is intended by the corporation to be construed as limiting, prohibiting, denying
or abrogating any of the general or specific powers or rights conferred under
the Business Corporation Law upon the corporation, upon its shareholders,
bondholders, and security holders, and upon its directors, officers, and other
corporate personnel, including in particular, the power of the corporation to
furnish indemnification to directors and officers in the capacities defined and
prescribed by the Business Corporation Law and the defined and prescribed rights
of said persons to indemnification as the same are conferred by the Business
Corporation Law.
THIRTEENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended or repealed and other provisions authorized by the
laws of the State of New York at the time in force may be added or inserted in
the manner and at the time prescribed by said laws, and all rights at any time
conferred upon the of the corporation by this Certificate of Incorporation are
granted subject to the provisions of this Article "THIRTEENTH".
Subscribed and affirmed by me as true under the penalties of perjury on
June 15, 1981.
/s/ Raymond S. Evans, Esq.
--------------------------------------
RAYMOND S. EVANS, ESQ.
RUSKIN, SCHLISSEL, MOSCOU & EVANS, P.C.
114 Old Country Road
Mineola, New York 11501
-3-
<PAGE>
NYS DEPARTMENT OF STATE
================================================================================
FILING RECEIPT CH SHARES, PURPOSES, AND POWERS
================================================================================
CORPORATION NAME
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
- --------------------------------------------------------------------------------
DATE FILED DURATION & COUNTY CODE FILM NUMBER CASH NUMBER
04/21/87 NEW B486240-4 930033
- --------------------------------------------------------------------------------
NUMBER AND KIND OF SHARES LOCATION OF PRINCIPAL OFFICE
SEE COMMENT
- --------------------------------------------------------------------------------
COMMENTS:
200,000,000 PV $.001; 10,000,000 PV $.10
*P-H
- --------------------------------------------------------------------------------
ADDRESS FOR PROCESS REGISTERED AGENT
- --------------------------------------------------------------------------------
FEES AND/OR TAX PAID AS FOLLOWS:
AMOUNT OF CHECK $_____ AMOUNT OF MONEY ORDER $00674.00 AMOUNT OF CASH $_____
$6.00 DOLLAR FEE TO COUNTY $ 060.00 FILING
FILER NAME AND ADDRESS $00600.00 TAX
GUSRAE KAPLAN & BRUNO $ 04.00 CERTIFIED COPY
67 WALL STREET $ CERTIFICATE
NEW YORK, NY 10005 010.00 MISCELLANEOUS
TOTAL PAYMENT $ 0000674.00
REFUND OF $
TO FOLLOW
================================================================================
GAIL S SHAFFER - SECRETARY OF STATE
<PAGE>
NYS DEPARTMENT OF STATE
================================================================================
FILING RECEIPT RECLASSIFIED SHARES
================================================================================
CORPORATION NAME
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
- --------------------------------------------------------------------------------
DATE FILED DURATION & COUNTY CODE FILM NUMBER CASH NUMBER
01/09/87 NEW B444255-3 864281
- --------------------------------------------------------------------------------
NUMBER AND KIND OF SHARES LOCATION OF PRINCIPAL OFFICE
- --------------------------------------------------------------------------------
COMMENTS:
*USC
- --------------------------------------------------------------------------------
ADDRESS FOR PROCESS REGISTERED AGENT
- --------------------------------------------------------------------------------
FEES AND/OR TAX PAID AS FOLLOWS:
AMOUNT OF CHECK $_____ AMOUNT OF MONEY ORDER $00073.50 AMOUNT OF CASH $_____
$6.00 DOLLAR FEE TO COUNTY $ 060.00 FILING
FILER NAME AND ADDRESS $ TAX
NATIONAL MEDICAL HEALTH CARD $ 03.50 CERTIFIED COPY
SYSTEMS, INC. $ CERTIFICATE
48 HARBOR DRIVE 010.00 MISCELLANEOUS
PT. WASHINGTON, NY 11050 TOTAL PAYMENT $ 0000073.50
REFUND OF $
TO FOLLOW
================================================================================
GAIL S SHAFFER - SECRETARY OF STATE
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
(UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW)
The undersigned, being the President and the Secretary, respectively, of
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC., (the "Corporation"), do hereby
certify and set forth:
FIRST: The name of the corporation is: NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on July 23, 1981.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended to effect the following:
Each of the one hundred (100) presently issued and outstanding common
shares of the Corporation, of no par value, are being changed and converted
hereby into two (2) common shares, no par value, resulting in an aggregate of
two hundred (200) issued shares. Upon the filing of this Certificate of
Amendment (i) each of the one hundred (100) presently issued and outstanding
common shares no par value be changed into two (2) Common shares, no par value,
and the 100 authorized but as yet unissued shares shall be cancelled, leaving a
balance of -0- shares authorized but unissued.
FOURTH: The foregoing Amendments to the Certificate of Incorporation were
authorized by the Unanimous Written Consent of
-1-
<PAGE>
the Board of Directors followed by the Written Consent of the sole shareholder
of the Corporation.
IN WITNESS WHEREOF, the undersigned have subscribed this Certificate and
affirm the truth of the statements hereon under penalties of perjury this 17th
day of October, 1986.
/s/ Martin A. Duberstain
-------------------------------
PRESIDENT Martin A. Duberstein
/s/ Linda Portney
-------------------------------
SECRETARY Linda Portney
-2-
<PAGE>
State of New York )
) ss.: 2080
Department of State)
I hereby certify that I have compared the annexed copy with the original
document filed by the Department of State and that the same is a correct
transcript of said original.
Witness my hand and seal of the Department of State on JAN 09 1987
/s/ GAIL S SHAFFER
Secretary of State
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
------------------------
UNDER SECTION 805 OF THE
BUSINESS CORPORATION LAW
------------------------
- --------------------------------------------------------------------------------
National Medical Health Card Systems, Inc.
48 Harbor Drive
Pt. Washington, New York 11050
STATE OF NEW YORK
DEPARTMENT OF STATE
FILED JAN 09 1987
AMT. OF CHECK $73.50
[ILLEGIBLE] $60
[ILLEGIBLE] $_____
1 [ILLEGIBLE] $3.50
[ILLEGIBLE] $_____
[ILLEGIBLE] $_____
[ILLEGIBLE] $_____
[ILLEGIBLE] $10
BY: /s/[Illegible]
--------------
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and Secretary, respectively, of
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. (the "Corporation") do hereby
certify:
1. The name of the Corporation is: NATIONAL MEDICAL HEALTH CARD SYSTEMS,
INC.
2. The Certificate of Incorporation of the Corporation was filed with the
Department of State on July 23, 1981.
3. A Certificate of Amendment of the Certificate of Incorporation was
filed with the Department of State on January 9, 1987.
4. The Certificate of Incorporation of the Corporation is hereby amended;
(a) to enlarge the purpose of the Corporation; (b) to increase and change the
aggregate number of common shares which the Corporation shall have the authority
to issue from 200 common shares without par value to 200,000,000 common shares
with a par value of $.001 per share; (c) to convert the issued and outstanding
200 common shares without par value into 21,150,000 common shares with a par
value of $.001 per share at a ration of 105,750 common shares (par value of
$.001 per share) for each one (1) common share without par value; (d) to
authorize the issuance of 10,000,000 shares of preferred stock with a par value
of $.10 per share and to vest the Board of Directors with the authority to
establish and designate series of the preferred stock and to fix the relative
rights and preferences as between the series;
5. To effect the foregoing:
(a) Article "SECOND" is hereby amended to read in its entirety as
follows:
"SECOND: The purpose for which this corporation is formed is as
follows:
1. To engage in any lawful act of activity for which corporations
may be organized under the Business Corporation Law, provided that the
corporation shall not engage in any act or activity requiring the consent or
approval of any state official, department, board, agency or other body without
such consent or approval being first obtained.
-1-
<PAGE>
2. For the accomplishment of the aforesaid purpose, and in
furtherance thereof, the corporation shall have and may exercise all of the
powers conferred by the Business Corporation Law upon corporations formed
thereunder, subject to any limitations contained in Article 2 of said law or in
accordance with the provisions of any other statute of the State of New York."
(b) Article "FOURTH" is hereby amended to read in its entirety
as follows:
"FOURTH": 1. The aggregate number of shares which the corporation shall
have the authority to issue is 210,000,000, of which 200,000,000 shares shall be
common stock with a par value of $.001 per share and 10,000,000 shall be
preferred shares with a par value of $.10 per share.
2. The preferred stock may be issued in series. The Board of
Directors is vested with the authority to establish and designate series, to fix
the number of shares therein, and to fix the variations in the relative rights,
preferences and limitations as between the series."
6. There having been issued 200 common shares (without par value), said
issued 200 common shares are being changed and converted hereby into 21,150,000
common shares of the par value of $.001 per share. Upon the filing of this
Certificate of Amendment, (i) each of the 200 presently authorized and issued
common shares of the Corporation (no par value) will be deemed changed and
converted into 105,750 shares (par value $.001 per share) resulting in an
aggregate of 21,150,000 issued shares; and (ii) a balance of 178,850,000 common
shares (par value $.001 per share) will be authorized but unissued.
7. The foregoing amendments to the Certificate of Incorporation were
authorized by the unanimous written consent of the Board of Directors followed
by the unanimous written consent of the holders of all outstanding shares of the
Corporation.
-2-
<PAGE>
State of New York )
) ss.: 28975
Department of State)
I hereby certify that I have compared the annexed copy with the original
document filed by the Department of State and that the same is a correct
transcript of said original.
Witness my hand and seal of the Department of State on APR 21 1987
/s/ GAIL S SHAFFER
Secretary of State
<PAGE>
IN WITNESS WHEREOF, the undersigned have subscribed this Certificate and
affirm the truth of the statements herein contained under the penalities of
perjury this 14th day of April, 1987.
/s/ Martin Duberstain
-------------------------------
Martin Duberstain, President
/s/ Linda Portney
-------------------------------
Linda Portney, Secretary
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
STATE OF NEW YORK
DEPARTMENT OF STATE
FILED APR 21 1987
AMT. OF CHECK $674
FILING FEE $60
TAX $600
COUNTY FEE $_____
1 COPY $4
CERT $_____
REFUND $_____
SPEC HANDLE $10
BY: /s/[Illegible]
--------------
FILER:
Gusrae, Kaplan & Bruno
67 Wall Street
New York, New York 10005
Tel. No. (212) 269-1400
<PAGE>
BY-LAWS
OF
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE
The principal office of the Corporation shall be determined by the Board of
Directors in its sole discretion.
SECTION 2. ADDITIONAL OFFICES
The Corporation may also have offices and places of business at such other
places, within or without the State of New York, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING
The annual meeting of shareholders shall be held within five months after
the close of each year on such date as the Board of Directors shall determine,
or on such other date as the Board of Directors shall determine, and the
shareholders shall then elect a Board of Directors and transact such other
business as may properly be brought before the meeting. To be properly brought
before an annual meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by, at the direction of or upon
authority granted by the Board of Directors, (b) otherwise brought before the
meeting by, at the direction of or upon authority granted by the Board of
Directors, or (c) subject to Article II, Section 10 hereof, otherwise properly
brought before the meeting by a shareholder. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that, in the event that less than 70 days'
notice of the date of the meeting is given to shareholders and public disclosure
of the meeting date, pursuant to a press release, is either not made or is made
less than 70 days prior to the meeting date, then notice by the shareholder to
be timely must be so received not later than the close of business on the tenth
day following the earlier of (a)
<PAGE>
the day on which such notice of the date of the annual meeting was mailed to
shareholders or (b) the day on which any such public disclosure was made.
A shareholder's notice to the Secretary must set forth as to each matter
the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting, and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in the By-Laws to the
contrary, but subject to Article II, Section 10 hereof, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 1,
and, if he should so determine, he shall so declare to the meeting, and any such
business not properly brought before the meeting shall not be transacted.
SECTION 2. TIME AND PLACE
The annual meeting of the shareholders of the Corporation and all special
meetings of shareholders may be held at such time and place within or without
the State of New York as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
SECTION 3. NOTICE OF ANNUAL MEETING
Written notice of the place, date and hour of the annual meeting of
shareholders shall be given personally or by mail to each shareholder entitled
to vote thereat, not less than ten (10) nor more than sixty (60) days prior to
the meeting.
SECTION 4. SPECIAL MEETINGS
Special meetings of the shareholders, for any purposes, unless otherwise
prescribed by law or by the Certificate of Incorporation, may be called by the
President, Chairman of the Board or any Director of the Corporation. Such
request shall state the purpose or purposes of the proposed meetings.
SECTION 5. NOTICE OF SPECIAL MEETING
Written notice of a special meeting of shareholders stating the place, date
and hour of the meeting, the purpose or purposes for which the meeting is
called, and by or at whose direction it is being issued, shall be given
personally or by mail to each shareholder entitled to vote thereat, not less
than ten (10) nor more than sixty (60) days prior to the meeting.
2
<PAGE>
SECTION 6. QUORUM
Except as otherwise provided by the Certificate of Incorporation, the
holders of a majority of the shares of the Corporation issued and outstanding
and entitled to vote thereat shall be necessary to and shall constitute a quorum
for the transaction of business at all meetings of the shareholders. If a quorum
shall not be present at any meeting of the shareholders, the shareholders
entitled to vote thereat present in person or represented by proxy shall have
power to adjourn the meeting from time to time until a quorum shall be present.
At any such adjourned meeting at which a quorum may be present, any business may
be transacted which might have been transacted at the meeting as originally
called.
SECTION 7. VOTING
(a) At any meeting of the shareholders, every shareholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided in the Certificate of Incorporation, each shareholder
shall have one (1) vote for each share of stock having voting power which
is registered in his name on the books of the Corporation.
(b) Except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws, all elections of Directors shall be decided
by a plurality of the votes cast and all other matters shall be decided by
a majority of the votes cast.
(c) At each meeting of the shareholders, the polls shall be opened and
closed, the proxies and ballots shall be received and be taken in charge,
and all questions touching the qualification of voters, the validity of
proxies and the acceptance or rejection of votes shall be decided by one
(1) or more inspectors. Such inspector(s) shall be appointed by the Board
of Directors or the chairman of the meeting. If, for any reason, any
inspector(s) appointed shall fail to attend or refuse or be unable to
serve, inspectors in place of any so failing to attend or refusing or
unable to serve shall be appointed in like manner. Such inspector(s),
before entering upon the discharge of his/their duties, shall be sworn
faithfully to execute the duties of inspector(s) at such meeting with
strict impartiality and according to the best of his/their ability, and the
oath so taken shall be subscribed by him/them.
SECTION 8. PROXIES
A proxy, to be valid, shall be executed in writing by the shareholder or by
his attorney-in-fact. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where an irrevocable proxy is permitted by law.
SECTION 9. CONSENTS
Unless otherwise provided by the Certificate of Incorporation or by
applicable New
3
<PAGE>
York law, any action required to be taken at any annual or special meeting of
shareholders, or any action which may be taken at any annual or special meeting,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those shareholders who have not consented in writing.
SECTION 10. NOTICE AND QUALIFICATION OF SHAREHOLDER NOMINEES TO BOARD
Only persons who are nominated in accordance with the procedures set forth
in this Section 10 shall be qualified for election as Directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of shareholders by or at the direction of the Board of Directors or by
any shareholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the procedures set forth in this
Section 10. In order for persons nominated to the Board of Directors, other than
those persons nominated by or at the direction of the Board of Directors, to be
qualified to serve on the Board of Directors, such nomination shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting, provided, however, that, in the event that less than 70 days'
notice of the date of the meeting is given to shareholders and public disclosure
of the meeting date, pursuant to a press release, is either not made or is made
less than 70 days prior to the meeting date, then notice by the shareholder to
be timely must be so received not later than the close of business on the tenth
day following the earlier of (a) the day on which such notice of the date of the
meeting was mailed to shareholders or (b) the day on which such public
disclosure was made.
A shareholder's notice to the Secretary must set forth (a) as to each
person whom the shareholder proposes to nominate for election or re-selection as
a Director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitation of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended from time to time
(including, without limitation, such documentation as is required by Regulation
14A to confirm that such person is a bona fide nominee); and (b) as to the
shareholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such shareholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in a shareholder's notice
of nomination which pertains to the nominee. No person shall be qualified for
election as a Director of the Corporation unless nominated in accordance with
the procedures set
4
Page>
forth in this Section 10. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with procedures prescribed by the By-Laws, and, if he should so
determine, he shall so declare to the meeting, and the defective nomination
shall be disregarded.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER; TENURE
(a) The number of Directors constituting the entire Board of Directors
shall be fixed from time to time by resolution of the Board.
(b) Directors shall be elected at the annual meeting of the
shareholders, except as provided in Section 3 of this Article III, and each
Director shall be elected to serve until his successor has been elected and
has qualified.
SECTION 2. RESIGNATION; REMOVAL
Any Director may resign at any time. The Board of Directors may remove a
Director for cause. Any or all of the Directors may be removed with or without
cause by a vote of the shareholders.
SECTION 3. VACANCIES
If any vacancies occur in the Board of Directors by reason of the death,
resignation, retirement, disqualification or removal from office of any Director
with or without cause or if any new directorships are created, the Directors
then in office may choose successors, or fill the newly created directorships,
and the Directors so chosen shall hold office until the next annual meeting of
the shareholders and until their successors shall be duly elected and qualified,
unless sooner displaced.
SECTION 4. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members an Executive Committee and other
committees, each consisting of one or more Directors, which committees shall
serve at the pleasure of the Board of Directors. The Board of Directors may
designate one or more Directors as alternate members of any such committee, who
may replace any absent member or members of such committee. The Board of
Directors, by resolution adopted by a majority of the entire Board, may remove a
member of any such committee with or without cause. To the extent provided in
said resolution and to the extent permitted by the laws of the State of New
York, each such committee shall have and may exercise
5
<PAGE>
<PAGE>
the powers of the Board of Directors. Each of such committees shall keep regular
minutes of its proceedings and shall report thereon to the Board from time to
time as required.
ARTICLE IV
MEETINGS OF THE BOARD
SECTION 1. PLACE
The Board of Directors of the Corporation may hold meetings, both regular
and special, either within or without the State of New York.
SECTION 2. REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
Board.
SECTION 3. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Chairman of
the Board or by the President on twenty-four (24) hours notice to each Director,
either personally, by telegram, by telecopier or by telephone.
SECTION 4. QUORUM
At all meetings of the Board of Directors, a majority of the Directors then
in office, shall be necessary to constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the Board of
Directors, a majority of the Directors present thereat may adjourn the meeting
from time to time until a quorum shall be present. Twenty-four (24) hours notice
of any such adjournment shall be given, either personally, by telegram, by
telecopier or by telephone to each Director who was not present and, unless
announced at the meeting, to the other Directors.
SECTION 5. ACTION OF THE BOARD
Unless otherwise required by law, the vote of a majority of the Directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the Board.
SECTION 6. PARTICIPATION IN MEETING BY ELECTRONIC MEANS
Any one or more members of the Board of Directors or any committee thereof
may participate in a meeting of the Board of Directors or any committee thereof
by means of a conference telephone or similar communication equipment allowing
all persons participating in such meeting
6
<PAGE>
to hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting.
SECTION 7. ACTION IN LIEU OF MEETING
Any action required or permitted to be taken by the Board of Directors or
any committee thereof may be taken without a meeting if all members of the Board
of Directors or the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the Board of Directors or committee shall be filed with the minutes
of the proceedings of the Board of Directors or committee.
SECTION 8. COMPENSATION
Directors, as such, shall not receive any stated salary for their services,
but, by resolution of the Board of Directors, a fixed fee and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided, however, that nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 9. INTERESTED DIRECTORS
No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other corporation, provided that such facts are
disclosed or made known to the Board of Directors. Any director, personally and
individually, may be a party to or may be interested in any contract or
transition of this Corporation, and no director shall be liable in any way by
reason of such interest, provided that the fact of such interest be disclosed or
made known to the Board of Directors, and provided that the Board of Directors
shall authorize, approve or ratify such contract or transaction by the vote (not
counting the vote of any such director) of a majority of a quorum,
notwithstanding the presence of any such director at the meeting at which such
action is taken. Such director or directors may be counted in determining the
presence of a quorum at such a meeting. This Section shall not be construed to
impair or invalidate or in any way affect any contract or other transaction
which would otherwise be valid under the law (common, statutory or otherwise)
applicable thereto.
ARTICLE V
NOTICES
SECTION 1. FORM; DELIVERY
Notices to Directors and shareholders shall be in writing (except as
provided herein)
7
<PAGE>
<PAGE>
and may be delivered personally or by mail or, with respect to Directors only,
by telegram, telecopier or telephone. Such notice is deemed to be given, if by
mail, when deposited in the United States mail with postage thereon prepaid and,
if by telegram, when ordered or, if a delayed delivery is ordered, as of such
delayed delivery time and, if by telecopier, when transmitted and directed to
Directors at their addresses as they appear on the records of the Corporation.
SECTION 2. WAIVER
Whenever a notice is required to be given by any statute, the Certificate
of Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the tune
stated therein, shall be deemed equivalent to such notice. In addition, any
shareholder attending a meeting of shareholders in person or by proxy without
protesting prior to the conclusion of the meeting the lack of notice thereof to
him, and any Director attending a meeting of the Board of Directors or committee
thereof without protesting prior to the meeting or at its commencement such lack
of notice shall be conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
SECTION 1. OFFICERS
The officers of the Corporation shall be a President, a Vice-President, a
Secretary, a Treasurer, and such other officers as may be determined by the
Board of Directors, including a Chairman of the Board, a Vice-Chairman of the
Board and additional Vice-Presidents.
SECTION 2. AUTHORITY AND DUTIES
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-Laws, or, to the extent not so provided, by the Board of
Directors.
SECTION 3. TERM OF OFFICE: REMOVAL
All officers shall be elected by the Board of Directors and shall hold
office for such time as may be prescribed by the Board. Any officer or agent
elected or appointed by the Board may be removed with or without cause at any
time by the Board.
SECTION 4. VACANCIES
If an office becomes vacant for any reason, the Board of Directors may fill
the vacancy. Any officer so appointed or elected by the Board shall serve only
until the unexpired term
8
<PAGE>
of his predecessor shall have expired unless re-elected by the Board.
SECTION 5. THE CHAIRMAN OF THE BOARD
The Chairman of the Board of Directors, if elected, shall preside at all
meetings of the Board of Directors and shareholders; he shall be ex-officio a
member of all standing committees and shall perform such other duties as from
time to time may be assigned to him by the Board of Directors.
SECTION 6. THE VICE CHAIRMAN OF THE BOARD
The Vice-Chairman of the Board of Directors shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board, and shall generally assist the Chairman of
the Board and perform such other duties as the Board or the Chairman of the
Board shall prescribe.
SECTION 7. THE PRESIDENT
The President shall be the Chief Operating Officer of the Corporation; he
shall have general and active management and control of the day-to-day business
and affairs of the Corporation, subject to the control of the Board of
Directors, and shall see that all orders and resolutions of the Board are
carried into effect.
SECTION 8. THE VICE-PRESIDENT
The Vice-President, or if there shall be more than one, the Vice-Presidents
in the order determined by the Board of Directors, shall, in the absence or
disability of the President, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe. The Board of Directors shall
determine the duties and powers of the Executive Vice-President and the Senior
Vice-President.
SECTION 9. THE SECRETARY
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the shareholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board,
and shall perform such other duties as may be prescribed by the Board, the
Chairman of the Board or the President, under whose supervision he shall act. He
shall keep in safe custody the seal of the Corporation and, when authorized by
the Board, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by his signature or by the signature of the Treasurer or an
Assistant Treasurer or Assistant Secretary. He shall keep in safe custody the
certificate books and
9
<PAGE>
shareholder records and such other books and records as the Board may direct and
shall perform all other duties incident to the office of the Secretary.
SECTION 10. THE ASSISTANT SECRETARY
During the absence or disability of the Secretary, any Assistant Secretary,
or if there be more than one, the one so designated by the Secretary or by the
Board of Directors, shall have all the powers and functions of the Secretary.
SECTION 11. THE TREASURER
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, and shall keep full and accurate
accounts or receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board, taking proper vouchers for such disbursements, and
shall render the Directors, at the regular meeting of the Board, or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation.
SECTION 12. THE ASSISTANT TREASURER
During the absence or disability of the Treasurer, any Assistant Treasurer,
of if there be more than one, the one so designated by the Treasurer or by the
Board of Directors, shall have all the powers and functions of the Treasurer.
SECTION 13. BONDS
In case the Board of Directors shall so require, any officer or agent of
the Corporation shall give the Corporation a bond for such term, in such sum and
with such surety or sureties as shall be satisfactory to the Board for the
faithful performance of the duties of his office, and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
ARTICLE VII
SHARE CERTIFICATES
SECTION 1. FORM; SIGNATURE
The certificates for shares of the Corporation shall be in such form as
shall be determined by the Board of Directors and shall be numbered
consecutively and entered in books of
10
<PAGE>
<PAGE>
the Corporation as they are issued. Each certificate the registered holders name
and the number and class of shares, and shall be signed by the Chairman of the
Board, the President or a Vice-President and by the Treasurer or the Assistant
Treasurer or the Secretary or an Assistant Secretary, and shall bear the seal of
the Corporation or a facsimile thereof. Where any such certificate is
counter-signed by a transfer agent or registered by a registrar, the signature
of any such officer may be a facsimile signature. In case any officer who signed
or whose facsimile signature or signatures was placed on any such certificate
shall have ceased to be such officer before such certificate is issued, it may
nevertheless be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
SECTION 2. LOST CERTIFICATES
The Board of Directors may direct a new share certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost or destroyed.
SECTION 3. REGISTRATION OF TRANSFER
Upon surrender to the Corporation or any transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or such transfer agent to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
SECTION 4. REGISTERED SHAREHOLDERS
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends or other distributions and to vote as such owner,
and to hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be found to recognize any equitable or legal
claim to or interest in such share or shares on the part of any other person,
whether or not it has actual or other notice thereof.
SECTION 5. RECORD DATE
For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action
11
<PAGE>
affecting the interest of shareholders, the Board of Directors may fix, in
advance, a record date. Such date shall not be more than sixty (60) nor less
than ten (10) days before the date of any such meeting, nor more than sixty (60)
days prior to any other action.
In each such case, except as otherwise provided by law, only such persons
as shall be shareholders of record on the date so fixed shall be enticed to
notice of, and to vote at, such meeting and any adjournment thereof, or to
express such consent or dissent, or to receive payment of such dividend or such
allotment or rights, or otherwise to be recognized as shareholders for the
related purpose, notwithstanding any registration or transfer of shares on the
books of the Corporation after any such record date so fixed.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
SECTION 2. DIVIDENDS
Dividends upon the capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting and may be paid in cash, in
property, in shares of the capital stock or any combination thereof, subject to
the provisions of the laws of the State of New York.
SECTION 3. RESERVES
Before payment of any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Directors from
time to time, in their absolute discretion, think proper as a reserve fund to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purposes as the Board shall
deem conducive to the interests of the Corporation, and the Board may modify or
abolish any such reserve in the manner in which it was created.
SECTION 4. CHECKS
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
12
<PAGE>
SECTION 5. SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words 'Corporate Seal -- New
York'. The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or otherwise reproduced.
ARTICLE IX
INDEMNIFICATION
SECTION 1. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Any person made, or threatened to be made a party to an action by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he, his testator or intestate, is or was a Director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
Director or officer of any other corporation of any type or kind, domestic or
foreign, of any partnership, joint venture, trust, employee benefit plan or
other enterprise, shall be indemnified by the Corporation against amounts paid
in settlement and reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein, to the fullest extent permitted
by the laws of State of New York.
SECTION 2. ACTION OR PROCEEDING OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION
Any person made, or threatened to be made, a party to an action or
proceeding (other than one by or in the right of the Corporation to procure a
judgment in its favor), whether civil or criminal, including an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any Director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that he, his
testator or intestate, was a Director or officer of the Corporation, or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, shall be indemnified by the Corporation
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorney's fees actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, to the fullest extent permitted by
the laws of the State of New York.
SECTION 3. OPINION OF COUNSEL
In taking any action or making any determination pursuant to this Article,
the Board of Directors and each Director, officer or employee, whether or not
interested in any such action or determination, may rely upon an opinion of
counsel selected by the Board.
13
<PAGE>
SECTION 4. OTHER INDEMNIFICATION; LIMITATION
The Corporation's obligation under this Article shall not be exclusive or
in limitation of, but shall be in addition to, any other rights to which any
such person may be entitled by (i) a resolution of shareholders, (ii) a
resolution of Directors or (iii) an agreement providing for such
indemnification. All of the provisions of this Article IX of the By-Laws shall
be valid only to the extent permitted by the Certificate of Incorporation and
the laws of the State of New York.
ARTICLE X
AMENDMENTS
SECTION 1. POWER TO AMEND
These By-Laws shall be subject to amendment or repeal, and additional
By-Laws may be adopted, either by the Board of Directors at any regular or
special meeting of the Board or by written consent in lieu of a meeting, or by
the shareholders at any regular or special meeting of the shareholders, or by
written consent in lieu of a meeting.
14
<PAGE>
EXHIBIT 10.1
AGREEMENT BETWEEN CHOICECARE LONG ISLAND
AND
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
AGREEMENT, made as of this 1st day of April, 1990 between ChoiceCare Long
Island, ("Contractor") having its principal office at 50 Charles Lindberg
Boulevard, Uniondale, New York 11553 and NATIONAL MEDICAL HEALTH CARD SYSTEMS,
INC. ("Administrator") having its principal office at 48 Harbor Park Drive, Port
Washington, New York, 11050.
WITNESSETH
WHEREAS, the Contractor provides health and welfare benefits to persons
and their dependents ("eligible participants") eligible to receive them and is
desirous of including a prescription drug program ("Program") as part of such
benefits; and
WHEREAS, the Administrator is engaged in the business of administering
claims for prescription drugs furnished through licensed retail pharmacies
("participating pharmacies");
NOW, THEREFORE the parties hereby agree as follows:
(1) Administrator shall enter into agreements with participating
pharmacies to fill prescriptions of the Fund's eligible participants in
accordance with the terms and conditions herein provided.
1
<PAGE>
(2) Administrator shall supervise the operation of the program for the
benefit of such eligible participants.
(3) From time to time the Contractor will provide Administrator with a
list of eligible participants.
(4) Within seven (7) working days after receipt of the list of eligible
participants, the Administrator shall issue an Identification Card to each
eligible participant.
(5) Prescriptions covered under the Program must be provided by a licensed
physician, dentist, podiatrist or other person licensed under law to prescribe
drugs and must fall into one of the categories set forth in Addendum I.
(6) Administrator shall pay the participating pharmacies for each
prescription dispensed hereunder. The Contractor shall determine the
professional fee and reimbursement schedule to be paid to participating
pharmacies. Said schedule shall be set forth in Addendum I. Administrator shall
pay the participating pharmacies when it has received payment of invoices from
Contractor on a bi-monthly basis.
(7) The Administrator will review all Prescriptions to confirm that they
meet the eligibility requirements described in Addendum I.
(8) The term of this Agreement shall be from March 15, 1990 to March 31,
1991.
2
<PAGE>
Unless otherwise agreed by the parties at the time of any such
termination, this Agreement shall continue to be operative for consecutive one
year periods with respect to obligations incurred hereunder prior to the date of
termination. When a termination date is agreed upon, the Administrator will have
the right to process all claims filled by members under the program up to that
termination date and submitted for payment within six (6) months from
termination of this Agreement.
(9) The Administrator shall deliver to the Contractor at regular
intervals, a schedule ("Schedule") of prescriptions processed and funds
disbursed by the Administrator. All necessary documentation will be provided to
the Contractor. The Contractor agrees to reimburse the Administrator within Ten
(10) days on receipt of Administrator's invoice.
(10) The Contractor shall have the right on reasonable notice to the
Administrator and during normal business hours, to inspect the Administrator's
books and records to substantiate payments made to the Administrator on behalf
of the Contractor. In the event that such inspection discloses an error in
invoicing or payment, a prompt settlement of differences shall be made. The
costs of such inspection shall be borne by the Contractor.
(11) The Administrator will assist in the design of all forms,
Identification Cards, and instructional information, and will provide a
reasonable supply to the Contractor without charge.
3
<PAGE>
(12) All notices hereunder shall be in writing and shall be deemed to have
duly given if delivered or mailed first class, postage prepaid, registered or
certified mail, return receipt requested to the parties at their addresses set
forth at the beginning of this Agreement or at such other addresses as the
parties may specify by notice delivered in accordance with this paragraph.
(13) This Agreement is being executed and delivered, and is to be
performed in the State of New York and shall be enforced in accordance with the
law of such State.
(14) This Agreement and its addendums constitutes the entire agreement
between the parties pertaining to the subject matter hereof and can be changed
only by a writing executed by both of the parties.
IT WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
BY Lloyd [Illegible]
-----------------------------------
TITLE Assistant Secretary/Treasurer
--------------------------------
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
BY Charles V. Donovan
-----------------------------------
TITLE President
--------------------------------
4
<PAGE>
ADDENDUM I - Plan Parameters
1. Prescriptions covered under this Program must be provided by a licensed
physician, dentist, podiatrist or other person licensed under law to prescribe
drugs and must fall into one of the following:
(a) Drugs which by law can only be obtained by prescription and subject
to the legend, "Caution, Federal Law Prohibits Dispensing without a
Prescription". (Except vitamins and dietary supplements.)
(b) Prescription drugs requiring compounding.
(c) Insulin with dosage indicated, and, which must be dispensed only in
a licensed pharmacy or out-patient hospital pharmacy in the United
States.
2. The following shall not be covered under the Program:
(a) Non-legend patent or proprietary medicine or medication except
insulin, not requiring a prescription (i.e., over the-counter drugs,
vitamins).
(b) cosmetics, dietary supplements and health or beauty aides not
requiring a prescription.
(c) Drugs to hospital in-patients.
(d) Drugs covered by claims made under workers compensation insurance.
5
<PAGE>
3. Prescriptions filled under the Program shall not exceed the larger of
thirty-four (34) day supply or one hundred (100) unit doses whichever is
greater. Refills will be permitted as per law when indicated on the original
prescription.
4. Administrator shall pay the participating pharmacies for each prescription
dispensed hereunder, the prescription cost determined as Average Wholesale Cost
for independent pharmacies and Ninety Five (95%) for chain pharmacies plus
professional fee. The Contractor shall determine the professional fee paid to
participating pharmacies.
6
<PAGE>
<PAGE>
ADDENDUM II
Administrative Fees
1. For the services listed below to be provided by the Administrator, the
Contractor agrees to pay the Administrator the following:
(a) A service fee of ..59 for each claim processed and paid.
(b) $.25 per identification card issued.
2. Administrative fees shall be paid upon submission of a Statement of Charges
by the Administrator to the Contractor on a twice monthly basis.
- SERVICES -
- - Production of Identification Cards.
- - A computerized bi-monthly claims report with each invoice which list all
claims for the prior two week period.
- - Computerized quarterly drug usage reports.
- - Card recovery letter program for terminated members.
- - Toll free WATS service throughout the United States.
- - All standard forms needed for the effective operation of the program.
- - Handling and postage expense for checks to pharmacies and members with
explanation.
7
<PAGE>
<PAGE>
- - Computer generated alphabetical membership listing as required.
- - Pharmacy directories as required.
- - Reports - Exhibit I
- - Monthly Customer Accounting Tape
- - I.D. card mailing to "eligible participants" other than postage
- - Notification and explanation of benefits to members as approved by
Contractor.
- - Audits of pharmacies.
- - Hot stamping clients logos on I.D. cards - one color.
- - Provide electronic access via modem to "eligible participants" data files
and to update eligibility.
Additional Services - billed at actual cost
- - Postage for mailing cards directly to members.
- - Custom designed reports.
- - Hot stamping more than one color.
8
<PAGE>
<PAGE>
EXHIBIT 10.4
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Managerial/Administrative Services Agreement
This Administrative Services Agreement (Agreement) is between the COUNTY
OF SUFFOLK (COUNTY), a municipal corporation of the State of New York, acting
through its duly constituted OFFICE OF THE COUNTY EXECUTIVE, having an office at
888 Veterans Memorial Highway, Hauppauge, New York 11788 and its duly
constituted DEPARTMENT OF AUDIT & CONTROL/RISK MANAGEMENT AND BENEFIT DIVISION,
having an office at Woodlands Office Park, 700 Veterans Memorial Highway,
Hauppauge, New York 11788; and
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC (NATIONAL), a New York business
corporation, having its principal office at 26 Harbor Park Drive, Port
Washington, New York 11050.
The parties hereto desire to provide to the COUNTY certain administrative
services for the self-funded EMPLOYEE MEDICAL HEALTH PLAN OF SUFFOLK COUNTY
(EMHP). Sufficient funding exists in the 1995,1996 and 1997 Suffolk County
Operating Budgets for funding such health plan.
Term of Agreement: Shall be January 1, 1995 through December 31, 1998.
Total Cost of Agreement: Shall be as set forth in Exhibits B and F attached.
Terms and Conditions: Shall be as set forth in Exhibits A through I attached.
In Witness Whereof, the parties hereto have executed this Agreement as of the
latest date written below.
NATIONAL MEDICAL HEALTH CARD COUNTY OF SUFFOLK
SYSTEM, INC.
By: /s/ Linda Portney By: /s/ Eric A. Kopp
------------------------------ -------------------------------
LINDA PORTNEY ERIC A. KOPP
President Chief Deputy County Executive
Date: MARCH 9, 1998 Date: 4/13/98
---------------------------- ------------------------------
Page 1 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
APPROVED AS TO FORM, NOT APPROVED:
REVIEWED AS TO EXECUTION: DEPARTMENT OF AUDIT AND
CONTROL
ROBERT J. CIMINO
Suffolk County Attorney
By: /s/ Cynthia Kay Parry By: /s/ Joseph R. Caputo
------------------------------ --------------------------------
CYNTHIA KAY PARRY JOSEPH R. CAPUTO
Assistant County Attorney Comptroller
Date: 3/4/98 Date: 3/16/98
---------------------------- -------------------------------
OFFICE OF THE COUNTY
EXECUTIVE
By: /s/ DAVID S. GREENE
----------------------------------
DAVID S. GREENE
Director of Personnel & Labor
Relations
Date: 3/20/98
-------------------------------
Page 2 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Table of Contents
Exhibit A
General Terms And Conditions
1. NATIONAL Responsibilities................................................. 7
2. Term and Termination...................................................... 7
3. Payment and Compensation.................................................. 8
4. Notice Requirements/Contact Persons....................................... 8
5. Not In Arrears............................................................ 10
6. Public Disclosure Law..................................................... 10
7. Gratuities Law............................................................ 11
8. Independent Contractor Status............................................. 11
9. Indemnification........................................................... 11
10. Insurance................................................................ 12
11. Non-discrimination Requirements.......................................... 13
12. Non-discrimination in Services........................................... 13
13. Assignment/Subcontract................................................... 14
14. Severability............................................................. 14
15. Entire Agreement......................................................... 14
16. No Modifications......................................................... 14
17. Governing Law............................................................ 14
18. Section Headings......................................................... 14
Page 3 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit B
Responsibilities of NATIONAL........................................... 16
Exhibit C
Request for Proposal Issued by COUNTY in March 1994:
Incorporated by Reference.............................................. 22
Exhibit D
Proposal Submitted by NATIONAL in June 1994:
Incorporated by Reference.............................................. 23
Exhibit E
Two Proposal Addendums................................................. 24
Letter dated August 15, 1994 (consists of 9 pages); Letter dated
June 28, 1994 (consists of 5 pages).
Exhibit F
Managerial Fees........................................................ 25
Exhibit G
Wire Transfer Instructions............................................. 28
Exhibit H
Financial Guarantee.................................................... 29
Exhibit I
Description of Additional Services Relating to DUR and COB............. 33
Exhibit J
Payment by COUNTY to NATIONAL for Pharmaceutical
Claims Incurred........................................................ 37
Page 4 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit K
Audit Letter - Sample.................................................. 38
Exhibit L
Rebate Report - Sample................................................. 39
Exhibit M
Employee Medical Health Plan of Suffolk County
Benefit Booklet
April 1995............................................................. 40
Page 5 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit A
General Terms and Conditions
Whereas, the COUNTY, by Suffolk County Resolution No. 1031-91, entitled "Suffolk
County Resolution No. 1031-91 Authorizing the County of Suffolk to Withdraw from
Participation in the New York State Health Plan, Otherwise Known as the New York
State Empire Plan, and Establish a Separate Self-Insurance Program to Provide
Health Benefits to County Employees," has adopted the self-funded independent
Employee Medical Health Plan of Suffolk County (hereinafter referred to as the
"Plan" and/or "EMHP"); and
Whereas, the COUNTY issued a Request For Proposals ("RFP") in 1994 soliciting
proposals for the administration of its prescription drug plan; and
Whereas, NATIONAL responded to the RFP by proposal ("Proposal") and
Whereas, the Plan is set forth in its entirety in the plan document entitled
"Employee Medical Health Plan of Suffolk County" (hereinafter referred to as the
"Plan Document"), which may change from time to time in the COUNTY's discretion,
a copy of which is attached hereto as Exhibit M; and
Whereas, the Plan Document provides for the payment of certain medical benefits
on a self-funded basis to eligible employees and retirees of the COUNTY and
their eligible dependents (hereinafter individually referred to as a "Member"
and collectively as the "Members") and eligibility requirements are defined in
the Plan Document; and
Whereas, the Plan Document provides for the payment of certain medical,
radiological and diagnostic benefits on a self-funded basis to Members; and
Whereas, the COUNTY desires to provide a Prescription Drug Plan (hereinafter
referred to as the "Prescription Drug Plan") to eligible employees/members as
hereinafter defined; and
Whereas, NATIONAL has developed a system for paying claims and furnishing other
related services through a network of pharmacies, mail order facilities and home
infusion therapy providers based upon a specific plan design (hereinafter
referred to as the "System") for the purpose of managing the Prescription Drug
Plan; and
Page 6 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Whereas, the COUNTY desires to engage NATIONAL to provide certain
managerial/administrative services with respect to the Prescription Drug Plan on
behalf of the COUNTY through the use of the System, and NATIONAL desires to
provide such services to the COUNTY.
Now, Therefore, in consideration of the premises above recited and the covenants
and obligations hereinafter contained, the parties hereby agree as follows:
1. NATIONAL and COUNTY Responsibilities:
a. The duties and representations of NATIONAL and the COUNTY are more
particularly described in this Exhibit A and Exhibits B through M,
which are attached to and made part of this Agreement.
b. NATIONAL shall perform such services as may be necessary to
accomplish the managerial/administrative services required to be
performed under and in accordance with this Agreement.
c. NATIONAL specifically represents and warrants that it has and shall
possess, and that its employees, agents and subcontractors have and
shall possess, such training, knowledge and experience as may be
necessary to qualify them individually for the particular duties
they perform under this Agreement.
d. The provisions of this Exhibit A shall prevail over any inconsistent
provisions of any other Exhibit, and over any other document not
specifically referred to in this Agreement or made part thereof by
this Agreement, or by any subsequent amendment in writing and signed
by both parties, except to the extent that such provisions of this
Exhibit A are specifically referred to and amended or superseded by
such exhibit, amendment or other document.
2. Term and Termination:
a. This Agreement shall be for the term (the "Term") provided on the
first page hereof. This Agreement may be extended by formal
amendment executed by both parties.
Page 7 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
b. Either party shall have the right to terminate this Agreement
effective thirty (30) days after written notice of such termination
is sent by such party in the event that a law or regulation becomes
effective after the date of this Agreement which would render the
services provided by NATIONAL under this Agreement, in its
reasonable judgment, in violation of such law or regulation or
substantially burden either party with respect to the provision of
such services.
c. In the event that NATIONAL shall be in default of this Agreement for
thirty (30) days after written notice of such default from the
COUNTY to NATIONAL of such default, and NATIONAL has not cured or
commenced to cure such default which cannot be reasonably cured
within thirty (30) days, and which default has not been caused by
the COUNTY, the COUNTY shall have the right to immediately terminate
this Agreement.
d. In the event that the COUNTY shall be in default of this Agreement
for thirty (30) days after written notice of such default from
NATIONAL to the COUNTY of such default, and the COUNTY has not cured
or commenced to cure such default which cannot be reasonably cured
within thirty (30) days, and which default has not been caused by
NATIONAL, NATIONAL shall have the right to immediately terminate
this Agreement.
e. Following written notice of termination by either party, the COUNTY
may contact and solicit another administrator for prescription drug
services and NATIONAL shall not, in any manner, hinder or prevent
the COUNTY from contacting any such other administrators.
f. Termination of this Agreement will not terminate the rights or
obligations of either party arising out of the period during which
this Agreement was in effect. Unless otherwise agreed to by the
parties at the time of termination, this Agreement shall continue to
be operative with respect to obligations incurred hereunder prior to
the date of termination, including, but not limited to any
obligations by virtue of issued and unexpired member identification
cards issued by NATIONAL on behalf of the COUNTY.
Page 8 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
3. Payment and Compensation:
a. In consideration of NATIONAL's complying with all of the obligations
set forth in this Agreement, the COUNTY shall compensate NATIONAL as
set forth in Exhibit B, entitled "Responsibilities of NATIONAL" and
Exhibit F, entitled "Managerial Fees" of this Agreement.
b. The parties acknowledge that NATIONAL has submitted a proposal,
dated November 10, 1997, requesting certain changes, including an
adjustment in the fee schedule; such proposal is in the process of
negotiation. When the parties reach agreement as to such changes, a
First Amendment of Agreement will be executed documenting such
changes as they shall apply to calendar year 1998 only.
4. Notice Requirements/Contact Persons:
a. Any communication, notice, claim for payment, report or other
submission necessary or required to be made by the parties regarding
this Agreement and applicable Amendments shall be deemed to have
been duly made upon receipt by the COUNTY or NATIONAL or their
designated representative at the following address or at such other
address that may be specified in writing by the parties:
For the COUNTY
Department of Audit & Control
Risk Management & Benefit Division
Woodlands Office Park
700 Veterans Memorial Highway
Hauppauge, New York 11788
Attn.: Phil Bauccio, Risk & Benefit Manager
For NATIONAL:
National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, New York 11050
Attn.: Linda Portney, President
Page 9 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
b. Any communication or notice regarding indemnification, termination
or litigation shall be deemed to have been duly made upon receipt by
the COUNTY or NATIONAL at the addresses specified in sub-paragraph
(a), above, with copies to:
Suffolk County Department of Law
158 North County Complex
Hauppauge, New York 11788
Att.: Robert J. Cimino
County Attorney
and
National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, New York 11050
Attn.: Linda Portney, President
c. Each party shall give prompt written notice to the other party of
the appointment of successor(s) to the designated contact person(s)
or his or her designated successor(s).
5. Not in Arrears:
NATIONAL is not in arrears to the COUNTY upon any debt or contract and is
not in default as surety, contractor or otherwise on any obligation to the
COUNTY.
6. Public Disclosure Law:
NATIONAL represents and warrants that, unless exempt, it has filed with
the Comptroller of the COUNTY the verified public disclosure statement
required by Local Law No. 14 of 1976, as amended (ss. A5-7 of the Suffolk
County Code) and shall file an update of such statement with the said
Comptroller on or before the 31st day of January in each year of this
Agreement's duration. NATIONAL acknowledges that such filing is a
material, contractual and statutory duty and that the failure to file such
statement shall constitute a material breach of this Agreement, for which
the COUNTY shall be entitled, upon a determination that such breach has
occurred, to damages, in addition to all other legal remedies, of fifteen
(15%) of the amount of the Agreement.
Page 10 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
7. Gratuities Law:
NATIONAL represents and warrants that it has not offered or given any
gratuity to any official, employee or agent of the COUNTY or New York
State or of any political party, with the purpose or intent of securing an
agreement or securing favorable treatment with respect to the awarding or
amending of an Agreement or the making of any determinations with respect
to the performance of an agreement, and that the signer of this Agreement
has read and is familiar with the provisions of Local Law No. 32-1980 of
Suffolk County (Chapter 386 of the Suffolk County Code).
8. Independent Contractor Status:
It is expressly agreed that NATIONAL's status hereunder is that of an
independent contractor. Neither NATIONAL nor any person hired by NATIONAL
shall be considered employees of the COUNTY for any purpose.
9. Indemnification:
a. NATIONAL shall indemnify and hold harmless the COUNTY, its
consultant (if any), employees, agents and designated
representatives from and against all claims, costs, judgments,
liens, encumbrances and expenses, including attorney's fees, arising
out of the acts or omissions or negligence of NATIONAL in connection
with the services described or referred to in this Agreement.
b. To the extent permitted by law, the COUNTY shall indemnify and hold
harmless NATIONAL, its consultant (if any), employees, agents and
designated representatives from and against all claims, costs,
judgments, liens, encumbrances and expenses, including attorneys'
fees, arising out of the:
i. Acts or omissions or negligence of the COUNTY in
connection with the services described or referred to in
this Agreement; and
ii. The payment, or the denial thereof, of Benefit Payments;
and
iii. Plan Design issues.
Page 11 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
c. The indemnification obligations of this Paragraph 9 shall survive
the termination of this Agreement.
10. Insurance:
a. NATIONAL agrees to procure, pay the entire premium for and maintain
throughout the term of this Agreement insurance in reasonable
amounts and types specified by the COUNTY. Unless otherwise
specified by the COUNTY and agreed to by NATIONAL, in writing, such
insurance will be as follows:
i. Commercial General Liability insurance, including contractual
coverage, in an amount not less than One Million Dollars
($1,000,000.00) combined single limit for bodily injury and
property damage per occurrence.
ii. Worker's Compensation and Employer's Liability insurance in
compliance with all applicable New York State laws and
regulations. In accordance with General Municipal Law ss.108,
this Agreement shall be void and of no effect unless NATIONAL
shall provide and maintain coverage during the term of this
Agreement for the benefit of such employees as are required to
be covered by the provisions of the Workers' Compensation Law.
iii. Professional Liability insurance in an amount not less than
One Million Dollars ($1,000,000.00) on either a per occurrence
or claims made coverage basis.
b. All policies providing such coverage shall be issued by insurance
companies reasonably acceptable to the COUNTY.
c. NATIONAL shall furnish to the COUNTY Certificates of Insurance or,
on request, original policies, evidencing compliance with the
aforesaid insurance requirements. In the case of commercial general
liability insurance, said certificate shall name the COUNTY as an
additional insured. All such certificates or other evidence of
insurance shall provide for the COUNTY to be a certificate holder
and to be notified in writing thirty (30) days prior to any
cancellation, non-renewal or material change. Such certificates,
policies and other evidence of insurance and notices shall be
Page 12 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
mailed to Suffolk County Department of Audit and Control/Office of
Insurance and Risk Management, 700 Veterans Memorial Highway,
Woodlands Complex, Hauppauge, New York 11788, Attention: Risk &
Benefit Manager.
11. Non-discrimination Requirements:
In accordance with Article 15 of the New York State Executive Law (also
known as the Human Rights Law) and all other County, State and Federal
statutory and constitutional non-discrimination provisions, NATIONAL shall
not discriminate against any employee or applicant for employment because
of race, creed, color, sex, national origin, age, disability, marital
status or Vietnam Era Veteran status.
12. Non-discrimination in Services:
During the performance of this Agreement:
a. NATIONAL will not, on the grounds of race, creed, color, national
origin, sex, age, disability, Vietnam Era Veteran status or marital
status:
i. Deny any Member any service(s) or other benefits provided
under the Plan;
ii. Provide any service(s) or other benefits to a Member which are
different, or are provided in a different manner from those
provided to other Members under the Plan;
iii. Subject a Member to segregation or separate treatment in any
matter related to the Member's receipt of any service(s) or
other benefits provided under the Plan;
iv. Restrict a Member in any way in the enjoyment of any advantage
or privilege enjoyed by other Members receiving any service(s)
or other benefits provided under the Plan;
v. Treat a Member differently from other Members in determining
whether or not the Member satisfies any eligibility or other
requirements or condition which Members must meet in order to
receive any aid, care, service(s) or other benefits provided
under the Plan.
Page 13 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
b. NATIONAL will not utilize criteria methods of administration which
have the effect of subjecting Members to discrimination because of
their race, creed, color, NATIONAL origin, sex, age, disability,
Vietnam Era Veteran status or marital status, or have the effect of
defeating or substantially impairing accomplishment of the
objectives of the program in respect to individuals of a particular
race, creed, color, NATIONAL origin, sex, age, disability, Vietnam
Era Veteran status or marital status, in determining:
i. The types of service(s) or other benefits to be provided
under the Plan; or
ii. The class of Members to whom, or the situations in
which, such service(s) or other benefits will be
provided under the Plan; or
iii. The class of Members to be afforded an opportunity to
participate in the Plan.
13. Assignment/Subcontract:
a. NATIONAL shall not assign, transfer, convey, subcontract or
otherwise dispose of any material administrative responsibilities of
this Agreement, or any right, title or interest therein, to any
other person or corporation without the prior consent in writing of
the COUNTY, which may not be unreasonably withheld or delayed.
b. Notwithstanding anything else contained herein, NATIONAL may assign,
transfer and convey this Agreement and its obligations hereunder to:
i. Any subsidiary or affiliate; or
ii. To any successor-in-interest in connection with the sale
of all or substantially all of the assets, interests or
stock of NATIONAL, provided that in the event that this
Agreement is assigned pursuant to this sub-section (ii),
the COUNTY may terminate this Agreement upon one hundred
and twenty (120) days prior written notice during the
Term of this Agreement.
Page 14 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
14. Severability:
It is expressly agreed that if any term or provision of this Agreement, or
the application thereof to any person or circumstance, shall, to any
extent, be held invalid or unenforceable, the remainder of this Agreement,
or the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall
not be affected thereby; and every other term and provision of this
Agreement shall be valid and shall be enforced to the fullest extent
permitted by law.
15. Entire Agreement:
It is expressly agreed that this instrument represents the entire
agreement of the parties and that all previous understandings are merged
in this Agreement.
16. No Modifications:
No modification of this Agreement shall be valid unless written in the
form of an Addendum or Amendment signed by both parties.
17. Governing Law:
a. This Agreement shall be construed in accordance with, and governed
by, the laws of the State of New York.
b. The parties shall comply with all applicable federal, state and
local laws, rules and regulations.
18. Section Headings:
All section headings contained herein are for the convenience of reference
only and are not intended to define or limit the scope of any provision of
this Agreement.
End of Text for Exhibit A
Page 15 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit B
Responsibilities of NATIONAL
1. Definitions:
a. An "eligible employee" or "member" is an employee of the COUNTY, or
a dependent of such employee, who has met the criteria required to
become a participant in the Plan.
b. A "member pharmacy" is a pharmacy which has entered into a Member
Pharmacy Agreement with NATIONAL to participate in the Prescription
Drug Plan.
c. A "non-member pharmacy" is a pharmacy which does not participate in
the Prescription Drug Plan.
d. A "bi-weekly account statement" is a statement provided by NATIONAL
to the COUNTY every two weeks, which details various claim and
payment information in addition to managerial fees incurred for a
specific period.
e. A "claim voucher" is utilized by a member pharmacy when filling a
prescription that is not communicated electronically.
f. An "out-of-network claim form" is utilized when filling a
prescription at a non-member pharmacy.
g. A "Concurrent DUR service" is described in Exhibit I attached hereto
and made part of this Agreement.
h. A "Retrospective DUR service" is described in Exhibit I attached
hereto and made part of this Agreement.
i. A "Prospective DUR service" is described in Exhibit I attached
hereto and made part of this Agreement.
j. The "Coordination Of Benefits (COB)" procedures are described in
Exhibit I attached hereto and made part of this Agreement.
Page 16 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
k. "Other Insurance Coverage" is representative of another carrier
which is the primary payor for prescription drug benefit.
l. A "member identification card" is an identification card issued to
each Plan member or dependent evidencing his participation in the
Plan.
2. Prescription Drug Plan to Be Managed:
a. NATIONAL has received from the COUNTY a written statement containing
the details of the Plan to be managed, which includes the following:
i. effective date of the Plan;
ii. classes of dependents covered, including any age
limitations;
iii. estimated number of employees, listed by location;
iv. basis by which payments are determined when
prescriptions are furnished by both member and
non-member pharmacies;
v. expiration date of the Plan, if applicable; and
vi. amount of co-payments; and\
vii. benefit plan design.
b. The COUNTY has provided to NATIONAL a list of names of all persons
to be covered as of the effective date of the Prescription Drug Plan
and such other information as may be required for the effectual
operation of the System. Eligibility updates on behalf of the COUNTY
will be provided to NATIONAL on a daily basis by VYTRA via
electronic media. The COUNTY shall be liable for all charges
incurred by persons unauthorized to use a member's identification
card, unless NATIONAL was notified in writing that the
identification card so identified was for an individual no longer
eligible to participate in the Prescription Drug Plan.
Page 17 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
c. The Prescription Drug Plan shall provide for reimbursement to the
employee of the cost of prescription drugs purchased at non-member
pharmacies only upon the submission of claims for direct
reimbursement, in a form approved by the COUNTY and NATIONAL,
together with the employee's proof of payment for the prescription
drugs. The level of reimbursement provided pursuant to this
Paragraph 3 shall be based upon the same schedule in effect for
pharmacies. See Exhibit J, entitled "Payment by COUNTY to NATIONAL
for Pharmaceutical Claims Incurred," attached hereto and made part
hereof for schedule of reimbursement.
d. The Prescription Drug Plan shall also provide that the benefits
payable under the Prescription Drug Plan with respect to
reimbursement to employees who deal with non-member pharmacies, are
not assignable and any assignment or attempted assignment thereof
shall be null and void.
3. Services:
NATIONAL agrees to:
a. Add pharmacies to the network as requested by the COUNTY and/or
members in order to insure that there are an adequate number of
member pharmacies. Currently, the network consists of over 37,000
participating pharmacies nationwide, while continuously adding new
members to various geographic areas;
b. Furnish each member pharmacy with a description of the Plan as
approved by the COUNTY, including the COUNTY's payment schedule for
covered prescriptions;
c. Require member pharmacies to comply with the terms of the NATIONAL's
Member Pharmacy Agreement;
d. Process claim vouchers and/or electronic claims received from member
pharmacies; process claim forms received from covered persons for
prescriptions which have been furnished by non-member pharmacies;
determine whether such claims qualify for reimbursement in
accordance with the terms of the Plan and the payment applicable for
such claim; and the return of unacceptable claim vouchers and claim
forms to the
Page 18 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
submitting party, pursuant to the System and in accordance with
applicable law;
e. NATIONAL shall be responsible for issuing timely reports, both
orally and in writing, to the COUNTY on the status of pending and
proposed activities, such reports shall include, but not be limited
to, the following:
i. Advise the COUNTY on a bi-weekly account statement the
amount of claims cost coming due on valid claim vouchers
as well as electronic claims processed and approved by
the NATIONAL for payment during the applicable period:
ii. Furnish the COUNTY with a bi-weekly account statement
which sets forth a computer-produced summary of claim
cost made on behalf of the Plan during the preceding
period. The summary shall indicate the total number of
payments made and shall include such other data and be
in such form as agreed upon by the parties, provided
that such form is compatible with the System;
iii. Provide management reports which include both retail and
mail order data. The mail order provider is responsible
for providing mail order claims data to the NATIONAL in
NATIONAL's format which conforms to the NCPD industry
standard for communication between pharmacies (retail
and mail order) and the Benefits Manager. The NATIONAL
shall provide such reports on a monthly basis for claims
dispensed on behalf of members during the preceding
month. The initial tape is to be generated by the mail
order provider on or about April 15, 1995 and will be
generated monthly thereafter and such initial tape will
include all claims dispensed since January 1, 1995;
f. Provide Concurrent and Retrospective DUR services;
g. Provide for "Coordination of Benefits" with respect to Prescription
Drug Benefits. The COUNTY or its agent will provide NATIONAL with a
list of employees who have Other Insurance Coverage. NATIONAL will
research and establish which prescriptions were payable as primary
by other insurance companies. NATIONAL shall contact and pursue
collection on
Page 19 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
those claims. At the end of each quarter NATIONAL will provide the
COUNTY with a payment for monies collected in accordance with the
terms of the Agreement and a list of the employees represented by
the payment;
h. Address all terms and conditions as outlined in this Agreement,
including all Exhibits;
i. Provide current pharmacy listings to the COUNTY upon request by the
COUNTY;
j. Provide a telephone call blockage rate of less than .01%;
k. Generate member identification cards on a weekly basis. Each member
will be provided with one identification card. All changes,
additions and corrections recorded in-house during the preceding
five business days are generated and mailed on the sixth business
day. In the event the schedule cannot be met due to circumstances
beyond the control of the NATIONAL, the COUNTY representative will
be notified by the NATIONAL of the situation and the anticipated
date on which the COUNTY will receive such identification cards.
l. Provide a representative to attend Suffolk County meetings upon
advance written notice received by the NATIONAL either forty-eight
(48) hours prior to the date of the meeting, or upon receipt by the
NATIONAL of a yearly schedule of meetings provided by the COUNTY.
4. Payments Due:
a. Upon review and acceptance by the COUNTY of the information
contained in the bi-weekly account statement, the COUNTY shall
reimburse NATIONAL the cost of claims as documented. Any alleged
discrepancies noted by the COUNTY will be reviewed by NATIONAL and
credited to the COUNTY on subsequent invoices, should it be
determined that such discrepancies are factual. The bi-weekly
account statement will also include an amount due to NATIONAL for
the auditing, approval and payment of claims processed during the
preceding period. The COUNTY shall pay fees to NATIONAL as outlined
on Exhibit F attached hereto and made part of this Agreement. The
COUNTY agrees to make all payments
Page 20 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
by wire transfer within five (5) business days from receipt of the
bi-weekly account statement. (See Exhibit G, attached, for wire
transfer instructions.)
b. Any additional charges for special services, supplies, reports etc.,
not included in the Plan as discussed herein, for which a separate
fee is agreed to in writing by the parties, shall be remitted by the
COUNTY within thirty (30) days after receipt by the COUNTY of a
billing by NATIONAL.
5. Records:
a. NATIONAL shall maintain in electronic form, current and complete
files of all claims received, including any paper claims vouchers,
received from member pharmacies and covered persons for services
rendered by non member pharmacies. NATIONAL shall also maintain
adequate records to establish cost of drugs to the COUNTY. These
records shall remain accessible to the COUNTY for examination and
audit by the COUNTY throughout the calendar year in which they are
established and for three (3) calendar years thereafter. Such audits
may be conducted, upon written notice, at reasonable intervals
during the regular business hours of NATIONAL. All claims vouchers,
claims forms and other records pertaining to the management of the
Plan and the System are the property of NATIONAL.
b. All computer programs, software or other data generated or utilized
by NATIONAL are and at all times shall remain the property of
NATIONAL.
End of Text for Exhibit B
Page 21 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit C
RFP Issued by COUNTY in March 1994
Incorporated by Reference
Page 22 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit D
Proposal Submitted by NATIONAL
Incorporated by Reference
Page 23 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit E
Two Proposal Addendums
Letter dated August 15, 1994 (consists of 9 pages);
Letter dated June 28, 1994 (consists of 5 pages).
Incorporated by Reference
Page 24 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit F
Managerial/Administrative Fees
1. This Exhibit summarizes the managerial/administrative fees described in
the Proposal and Addendums (Exhibits D and E); to the extent there is a
conflict, this Exhibit F controls.
2. NATIONAL will manage the basic prescription program in accordance with the
accepted responses to the Request For Proposal and its subsequent
questionnaire for $0.25 per claim.
3. NATIONAL will provide for the following package of services to be included
for its standard per claim fee (plus any additional charges as described
below):
i. A Computerized bi-weekly claims report with each invoice,
which lists all claims for the prior two week period.
ii. Coordination of retail and mail order claims data between
NATIONAL, mail order provider and COUNTY.
iii. A monthly management report which includes both retail and
mail order data.
iv. Computerized quarterly drug usage reports.
v. Toll free WATS service throughout the United States.
vi. All standard forms needed for the effective operation of the
program.
vii. Handling and postage expense for checks to pharmacies and
members with explanation.
viii. Computer generated alphabetical membership listing as
required.
ix. Computer generated pharmacy listing as required.
x. Notification and explanation of benefits to members, only in
the case of a direct reimbursement.
Page 25 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
xi. Educational materials as needed for Plan participants,
physicians and pharmacists relative to the management of the
prescription benefit program.
xii. Audit of pharmacies and return of funds to clients where
appropriate.
xiii. Compliance with State Generic drug laws.
xiv. Client's logo on I.D. card.
xv. Concurrent and Retrospective Drug Utilization Review.
xvi. MAC program (as described in Response to Proposal).
xvii. Production and distribution of paper claim forms for members
who use non-member pharmacies.
xviii. Production of standard employee communication materials.
xix. Adjudication of claims from both member pharmacies and
members who utilize non-member pharmacies.
xx. Generic waiver appeals program.
xxi. Customer services.
xxii. Mailings direct to cardholders - Postage charges.
xxiii. Annual Audit Letter.
xxiv. Card costs $0.25 per card, plus cost of postage, when
appropriate.
xxv. NATIONAL will manage the Coordination of Benefits Program, at
a fee of 20% net of billed outstanding monies that are
recovered.
xxvi. Claims history tape (one tape each cycle) $50.00 per tape.
xxvii. Other mailings direct to cardholders - Postage charges.
Page 26 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
4. Additional Services may be requested in writing by the COUNTY. Charges for
such additional services not listed above will be at cost to NATIONAL.
End of Text for Exhibit F
Page 27 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit G
Wire Transfers
Wire transfers shall be to:
BANK: Chase Manhattan Bank
ADDRESS: 55 Water Street
New York, NY
FOR ACCOUNT OF: National Medical Health Card Systems, Inc.
ACCOUNT NUMBER: 618-930-108
ABA NUMBER: 021000021
Both the managerial/administrative fees (as described in Exhibit F) and
the COUNTY payment per prescription (as described in Exhibit J) shall be
paid to NATIONAL by Wire Transfer.
Page 28 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit H
Financial Guarantees
1. This exhibit summarizes financial guarantees described in the proposal and
addendums (Exhibits D and E); to the extent there is a conflict, this
Exhibit H controls.
2. All financial guarantees are based on:
a. There being no changes made to the plan design and/or the
administration of the program which would effect the utilization or
the reimbursement of the plan.
b. There are no additional inducements to members to use the mail order
pharmacy as opposed to the retail pharmacy network.
3. Rebates:
a. Initial rebate guarantee is $.80 per paid claim.
b. Any additional net rebates in excess of $.80 per claim minus
NATIONAL 20% administrative fee will be shared as follows:
i. Up to $1.00 will be remitted at the minimum amount
agreed upon ($.80)% minus administrative fee.
ii From $1.01 to $1.1499 will be remitted at 80% of earned
net rebates minus administrative fee.
iii. In excess net $1.15 will be shared respectively by the
County and NATIONAL in the ratio 85/15 (net of
administrative fees).
4. Administrative Fee is the fee NATIONAL is charged by its Rebate
Administrator and is a pass through to the County.
Page 29 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
5. Copies of the reconciliation will be forwarded to the County, and/or its
designated party as documentation for the rebates are made available to
NATIONAL. The lag time is generally nine months from the end of the
quarter and is available monthly from there on in, as payments are
received.
6. Rebates will not be reconciled nor remanded until NATIONAL has received
said reconciliation and funds from manufacturers.
Rebates are guaranteed for three years unless manufacturers cease
providing rebates or government intervention prohibits the practice.
7. Guarantee of Discounts
NATIONAL guarantees an effective blended AWP discount per script of
15.488% and an average blended dispensing per script fee no greater than
$3.04. This takes into account MAC pricing where applicable in the
program.
Any difference between the actual cost of the program and the guaranteed
savings will be credited to the County dollar for dollar.
AWP is determined by First Data Bank.
NATIONAL will semi-annually provide a report comparing ingredient cost on
file to total ingredient cost billed to the County. A similar report will
be provided for dispensing fees
8. Generic Dispensing Rate Guarantee
NATIONAL guarantees a generic dispensing rate of 35% of the total number
of scripts dispensed in each of the calendar years 1995, 1996, 1997 and
1998.
NATIONAL will provide copies of the Claims Analyses Report (CAR Report) to
document the generic substitution rate.
The 35% generic dispensing rate reflects the minimum guarantee. NATIONAL
is willing to renegotiate the minimum guaranteed generic dispensing rate
following any year when the actual generic dispensing rate achieved
exceeds the guaranteed rate by 3% or more.
Page 30 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
9. Guarantees on Administrative Fees
Administrative fees as set forth in the Proposal are guaranteed for three
years.
10. Electronic Edits Guarantees
NATIONAL guarantees a minimum of 1.50% savings to the plan based on
electronic edits as set forth in paragraph 19 of the letter dated August
15, 1994.
To document the savings, NATIONAL will provide a rejected claims report.
The savings will be determined based on the cost to the program had the
scripts been filled. Attempts at refills will be included in calculated
cost savings.
Savings are guaranteed for each of the three contract years.
11. Concurrent DUR Savings
a. Concurrent DUR savings are guaranteed at 3%. Savings will be
documented on a report that includes:
i. Claims backed out of the system;
ii. Claims rejected as a result of DUR message
intervention;
iii. Claims denied as "refilled too soon."
Included in this category will be any savings to the COUNTY that may
be realized from a new pharmacy intervention program that NATIONAL
has implemented.
b. Savings will be calculated in accordance with paragraph 19 in the
letter dated August 15, 1994.
c. Savings are guaranteed for each of the three contract years.
Page 31 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
12. Retrospective DUR Savings:
Retrospective DUR savings cannot be guaranteed. Projected savings for
Retrospective DUR are 2% in the second and third year of the contract. The
projected savings are predicated upon the plan sponsor allowing NATIONAL
the latitude to communicate and intervene with plan outlines in the
physician and patient communities.
13. Pharmacy Audit Savings:
a. Pharmacy audit savings are guaranteed at 2%, provided the COUNTY
allows NATIONAL to communicate with outlined in the patient
community. A variety of reports will be provided to document these
savings.
b. Savings will not include savings from any new intervention program
unless, it is found that pharmacist was not in compliance with
program.
c. Savings are guaranteed for each of the three contract years.
Page 32 of 40
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit I
DUR and COB
1. This Exhibit I serves as an addendum to the Proposal and Addendums
(Exhibits D and E).
2. Concurrent DUR:
a. NATIONAL's DUR drug utilization review system ("DUR System") detects
potential drug misutilization before a prescription is filled,
enhancing the quality of care and saving money. Driven by a
comprehensive clinical database and a full spectrum of sophisticated
clinical modules, the DUR System identifies problems in real time at
the point of service. When a pharmacist submits a claim for
approval, the DUR System processes the transaction concurrently with
the Claim adjudication system, ensuring rapid response time.
b. The DUR System includes nine clinical modules, which can be
separate, in combination, or as a complete package. Within each
module, user-defined parameters provide the flexibility needed to
manage the drug utilization review process successfully. Screening
parameters may be specified for specific carriers, plans, or member
groups. The patient drug profile is common to all configurations.
The DUR System builds and maintains this computerized list of active
drug ingredients from prescription data captured from claims
submitted for each patient. The DUR System includes, but is not
limited to the following interventions:
i. Drug interaction;
ii. Duplicate drug therapy and therapeutic overlaps;
iii. Pregnancy precautions;
iv. Breast feeding precautions;
v. Doses which exceed the recommended or absolute maxim for
a drug;
Page 33 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
vi. Compliance checking;
vii. Age precautions.
c. To ensure that network pharmacists understand how to handle messages
returned by the DUR System, NATIONAL provides education to ensure
that pharmacists serving employees, retirees and their families use
the System's informational messages for the benefit of program
members.
3. Retrospective DUR
With the inclusion of concurrent and prospective DUR as tools in the
NATIONAL "managed care arsenal," retrospective DUR, while still important,
has captured a new emphasis. Retrospective DUR is now a major component of
the interface between the managed prescription plan administrator and the
managed medical care administrator. NATIONAL will analyze data
retrospectively, combining data with medical claims information, in order
to identify abuse; effect clinical outcomes and prescribing limitations.
4. Prospective DUR
Prospective DUR is performed before the patient has received the
prescription. Prospective DUR by definition allows for the cognitive
skills of the participating pharmacist to anticipate inappropriate
outcomes and to proactively intervene with the physician to suggest an
alternate measure. In April of 1994, NATIONAL, in conjunction with CCLI
and the Long Island Pharmaceutical Society, the first nonclinic based
Intervention program that recognizes the value of the cognitive services
offered by the pharmacist, and in addition, electronically tracks the
process from beginning to end in a single on-line transmission. Under a
program sponsored by CCLI for their HMO managed care participants, and
administered by NATIONAL, the pharmacist is financially incented to
intervene with physicians to positively affect patient outcomes and to
conserve health care dollars. The pharmacist receives twenty-five percent
(25%) of the savings on the initial script and ten percent (10%) of the
savings on the first three (3) refills.
Page 34 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
5. Catastrophic:
a. All high tech, high cost therapies require prior approval and in
some instances special procedures which remove these claims from the
normal adjudication process. For example, Protropin is a costly
growth hormone which is used to stimulate growth in children
diagnosed with dwarfism. NATIONAL's prior approval process requires
the member, or the pharmacy provider, to contact NATIONAL before the
medication is dispensed. NATIONAL Health Card's Manager of Claims
Administration or a designated member of the Health Services
Department for our Managed Care Clients must provide approval and an
authorization code before the medication is dispensed. For this
particular medication, the same procedure is followed with each
refill.
b. Similar procedures are in place for home infusion therapy. Because
infusion therapy providers are required to contact NATIONAL when
beginning therapy, we are often able to negotiate significant
additional discounts with the provider and request that they accept
our negotiated discount as payment in full. Since people requiring
this type of treatment are often very ill, we are able to relieve
them of some financial concerns while saving the client money.
c. For other drug therapies which are costly but do not require
constant monitoring, NATIONAL keep's a doctor's certification letter
on file and the local pharmacist calls before dispensing the
medication. NATIONAL provides an override code enabling the
pharmacist to transmit the claim via standard electronic
transmission. NATIONAL is currently developing the capability of
indicating overrides on a member's record so that pharmacists will
not have to call for override codes on refills. However, there will
always be those therapies that NATIONAL may wish to keep out of
mains of electronic transmission due to cost, limited providers and
the limited duration of therapy, and/or the careful monitoring that
is required.
Page 35 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
d. Because of NATIONAL's reputation as a forward thinking company, it
is often notified as new high tech drug therapies such as Pulmozyne
and Beta Seron come to market. Often these drugs are in short supply
but NATIONAL establishes a procedure either with the manufacturer or
the distributor that enables it's subscribers to obtain the
necessary medication easily while allowing NATIONAL to monitor the
cost and duration of therapy. NATIONAL is currently working with
Berlex to ensure that NATIONAL's members who are eligible for Beta
Seron the new genetically engineered drug that is used to treat
Multiple Sclerosis is easily available to our members that have
qualified for the lottery.
6. COB:
a. The goal of NATIONAL'S COB Department is to maximize the collection
of COB dollars from other insurance carriers. It is the
responsibility of the COB department to actively pursue COB
investigation, confirmation, and the timely collection of all
recoverable monies. Those retrievable dollars are viewed as
incremental dollars ultimately contributing to the bottom line of a
client's prescription drug program. The function of the COB
department is to work in concert with the client in minimizing the
cost of the administration of the client's prescription drug
program.
b. The starting point for NATIONAL'S method of collection and process
of recovery stems from the list of 'Members with other Insurance' as
provided by the client. This list of 'Members with Other Insurance'
is entered into NATIONAL's system, and NATIONAL's computer program
sorts and identifies these 'Members with Other Insurance' into the
status of collectible. With this integrated database, NATIONAL's
system is equipped to maintain a turnaround time by establishing
trigger dates for the generation of letters to other insurance
carriers. Ten (10) days after the first request for reimbursement is
produced, a second request for recovery can be automatically
generated. Five (5) days thereafter, the system can prompt the
member account for the initiation of the phone call campaign.
Multiple phone calls are made to ensure prompt reimbursement of
projected monies.
Page 36 of 40
<PAGE>
<PAGE>
APPENDIX J
Payment by COUNTY to CONTRACTOR/MANAGER
for Pharmaceutical claims incurred
CHAINS (21 days or less) & (Over 21 days)
Brand = 87%AWP
Brand w/Generic = 75%BLP
Generic = 75%AWP
Disp. Fee = $2.90
================================================================================
INDEPENDENTS (21 days or less)
Brand = 90%AWP
Brand w/Generic = 90%BLP
Generic = 90%AWP
Dispense Fee = $3.50
(Over 21 days)
Brand = 87%AWP
Brand w/Generic = 75%BLP
Generic = 75%AWP
Disp. Fee = $2.90
Page 37 of 40
<PAGE>
EXHIBIT K
AUDIT LETTER SAMPLE
HEALTH CARD 11/03
P.O. BOX 90
ROSLYN, N.Y. 11576
EXPLANATION OF PRESCRIPTION BENEFITS
57850004
EMPLOYEE MEDICAL HEALTH PLAN
OF SUFFOLK COUNTY
77 N COUNTY COMPLEX
HAUPPAUGUE, NY 11787
FAMILY DATA INFORMATION
# NAME BIRTH DT
02 / /
The prescription drug benefits reimbursed on your behalf during the period from
07/01/94 to 09/30/94 totaled ****** 3587.59 ******. All of the medications which
you received are listed below. Please verify the prescription information.
Indicate any discrepancies on the form and return it to Health Card. If the
information is correct, do not return the form.
<TABLE>
<CAPTION>
QUAN ALLOWED AMOUNT
PATIENT # RX NUMBER DATE DRUG DESCRIPTION TITY COST CO PAY PAID
- ------- - --------- ---- ---------------- ---- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0751159 07/15/94 PROCARDIA XL 90 163.38 5.00 158.38
0753860 07/01/94 QUESTRAN LIGHT (POWDER 50 71.98 5.00 66.98
0750066 08/30/94 *POTASSIUM CHLORIDE 200 17.97 5.00 12.97
0765731 08/11/94 QUESTRAN LIGHT (POWDER 180 210.14 5.00 205.14
0757666 08/30/94 *INDAPAMIDE 90 47.44 5.00 42.14
02 0752231 07/11/94 NEUPOGEN 10 1231.78 5.00 1226.78
02 0752232 07/11/94 EPOGEN 20 838.10 5.00 833.10
02 0755649 08/11/94 EPOGEN 10 1046.90 5.00 1041.90
------- ---- -------
TOTAL $3627.69 $40.00 $3587.59
</TABLE>
*: Generic Drug Obtained
**: Brand name drug obtained but a generic was available
Page 38 of 40
<PAGE>
<PAGE>
EXHIBIT L
Rebate Report
Sample
Administrative Charge/ NMHC'S MANUFACTURER'S REBATE PROGRAM
DISTRIBUTION DETAIL SUMMARY-NMHC PPO
DISTRIBUTION FOR 11/94
TIME PERIOD: FILL DATES: 10/01/93-13/31/93
GROUP: Simpson Co.
Admin.
Group No Total Charge Net to Customer
collected share at 20% reflects 80%
94473204 1,157.48 231.50 925.98
-------- ------ ------
Client total 1,157.48 231.50 925.98
The above represents the standard rebate. Additional rebates beyond the standard
will be calculated and provided after the reconcilliation to the applicable
calendar year.
Page 39 of 40
<PAGE>
<PAGE>
Law No. 98-IS-002
Rev. 3/4/98 National Medical Health Card/Prescription Drug/EMHP
Exhibit M
Employee Medical Health Plan of Suffolk County
Benefit Booklet
April 1995
Incorporated by Reference
Page 40 of 40
<PAGE>
<PAGE>
EXHIBIT 10.7
MAIL SERVICE PROVIDER AGREEMENT
This Agreement is made as of the 1st day of July, 1996 by and between
National Medical Health Card Systems, Inc. (hereinafter "Sponsor"), a
corporation duly organized under New York law, having its principal place of
business at 26 Harbor Park Drive, Port Washington, New York 11050, and Thrift
Drug, Inc., d/b/a Express Pharmacy Services (hereinafter "Express"), a
corporation duly organized under Delaware law, having its principal place of
business at 615 Alpha Drive, Pittsburgh, Pennsylvania 15238.
Whereas, Express through its mail service operation desires to render
certain pharmaceutical services to eligible clients of Sponsor and their
eligible employees and retirees, and Sponsor agrees to the provision of these
services pursuant to the terms and conditions hereinafter stated, it is
therefore agreed as follows:
1. Definitions
(A) "Average Wholesale Price" (AWP) means the wholesale cost of
the Covered Drug(s) for pints, quantities of 100 units, or in
such other quantity at which the Covered Drug(s) is most
commonly sold at wholesale as reported in a nationally
recognized drug medication publication.
(B) "Business Day" means all days of the week but excluding
holidays recognized by the U.S. Postal Service.
(C) "Copayment" means the portion of the Prescription Charge for
which the Covered Person is responsible.
(D) "Covered Drug" means a drug, medication or agent ordered by a
Prescriber which cannot legally be sold without a
Prescription, inclusive of insulin and diabetic supplies,
which ordinarily may be purchased without a Prescription.
-1-
<PAGE>
<PAGE>
(E) "Covered Person" means an Eligible Member and any of his/her
dependents as to whom Express has been notified of his/her
status in accordance with the provisions of Paragraph 2
hereof.
(F) "Eligible Member" means an employee or retiree of Sponsor's
client, who is entitled to prescription drug benefits in
accordance with and under the terms of the applicable
prescription drug plan of Sponsor.
(G) "Patient Profiles" means the history of all Covered Drugs
dispensed by Express to a Covered Person. It shall also
include drug/drug, drug/allergy, and drug/health condition
alert mechanisms. Drug/allergy and drug/health condition
alerts will be based on information provided by a Covered
Person with respect to a Covered Person to Express. Drug/drug
interaction protection extends to drugs dispensed to Covered
Persons by Express.
(H) "Prescriber" means a person who is legally entitled to
prescribe drugs and medication for humans in the state in
which the Prescriber is licensed.
(I) "Prescription" means an order to dispense a Covered Drug
legally eligible for dispensing under the laws and regulations
of the United States, the Food and Drug Administration, and
the state in which Express' dispensing facility is located,
except for a drug not listed in the Department of Health
Generic Formulary or equivalent Formulary of the state in
which the dispensing facility is located.
(J) "Prescription Charge" is calculated in accordance with the
formula set forth in Schedule A attached hereto and made part
of this Agreement.
(K) "Prescription Request Forms" consist of:
(1) a Prescription, and
(2) an order form, provided by Express, upon which the
Covered Person will be required to provide such
information as Express deems necessary for program
control and administration or for maintaining Patient
Profiles.
-2-
<PAGE>
<PAGE>
(L) "Client" means a client company of Sponsor for which Sponsor
provides third party administrative services.
2. Coverage
Sponsor shall provide Express with information necessary for Express
to maintain a roster of Covered Persons. Express and Sponsor will
establish mutually satisfactory procedures to maintain such roster.
3. Enrollment Materials and Claim Forms
Express shall bulk ship to Sponsor or Client, for Sponsor's or
Client's distribution to Eligible Members, an enrollment package
including a carrier envelope, a brochure describing the details of
the services provided by Express, a postage paid order envelope, an
employer announcement letter and patient profile request forms.
Express will provide adequate supplies of packets to Sponsor for use
in soliciting Eligible Members. Express will be willing to customize
brochures beyond the standard brochure for groups of at least five
thousand (5,000) employees or groups that will generate in excess of
approximately fifty-five hundred (5,500) or more Prescriptions per
year.
4. Provision of Covered Drugs
Express will provide Covered Drugs to all Covered Persons in the
United States and Puerto Rico who have provided Express with
Prescription Request Forms containing sufficient information to
maintain a Patient Profile. As provided in Schedule B attached
hereto and made part hereof, prescriptions will be mailed to Covered
Persons within two Business Days of receipt of such Covered Person's
Prescription Request Forms, subject to product availability and the
need to contact the Covered Person's physician for prescription
clarification. Express shall furnish the lowest cost drug consistent
with the Prescription Plan
-3-
<PAGE>
<PAGE>
parameters and the requirements of the law of the state in which the
dispensing facility is located. If the Covered Drug is prescribed in
generic terms, or in such a way as to permit generic dispensing,
Express shall dispense the lowest cost A-Rated drug it then has in
stock which meets the specifications set forth in the United States
Pharmacopoeia or the National Formulary if such drug is listed
therein and which, in the professional judgment of the dispensing
pharmacist fulfills the requirements of the Prescription. Nothing
herein shall affect the right of Express to refuse to dispense a
Covered Drug which in the professional judgment of the licensed
pharmaceutical staff of Express should not be dispensed. Express
shall dispense Covered Drugs in accordance with the requirements of
Federal law and the law of the state in which the dispensing
facility is located.
5. Copayment
(A) Express will collect from a Covered Person for each
Prescription or refill of a Covered Drug, the full Copayment
amount, if any, as determined by Sponsor and subject to change
from time to time. Sponsor agrees to communicate Copayment
changes to Express prior to the effective date of the change
for the sole purpose of addressing customer service inquiries
or calls that may be received from the Covered Persons.
(B) Generic Penalties. In the event a plan design requires that a
Covered Person pay an additional out-of-pocket expense if a
brand name drug is purchased where a generic brand is
available, Express will collect said amount.
6. Maximum Quantity to be Dispensed
Express will provide the quantity of the Covered Drug specified by
the Prescriber on the Prescription submitted, with the following
qualifications, regarding quantities:
(a) Express will not provide more than a 90-day supply of a
Covered Drug under any Prescription or refill.
-4-
<PAGE>
<PAGE>
(b) Dispensing of certain Schedule II "controlled" substances as
defined by the Drug Enforcement Agency will be limited to a
30-day supply and no refill will be permitted.
7. Reimbursement for Services
Sponsor shall, in consideration of Express' provision of pharmacy
services to Sponsor's Covered Persons, reimburse Express for claims
submitted that have been adjudicated in accordance with the
Sponsor's benefit plan. Reimbursement shall be at the levels listed
in Schedule A or applicable subsequent schedules less any plan
copayment, coinsurance or deductible. Reimbursement for services
shall occur within forty-five (45) days of the end of the applicable
claims period. For purposes of this agreement, "claims period" shall
mean the two-week processing cycles within which claims have been
submitted to Sponsor and approved for pharmacy services as reflected
in Schedule D attached hereto and made part of this agreement.
Sponsor will agree to pay interest on the outstanding balance equal
to the Thrift Drug, Inc. cost of funds (currently 8%) multiplied by
the balance for days outstanding beyond the forty-five (45) day
term. Thrift's cost of funds will be reviewed and updated every
ninety (90) days to reflect the current value as determined by the
Thrift Drug Treasurer's Department.
8. Exclusions
Sponsor shall have no obligation to pay Express for any drug or
medication dispensed by Express which is not a Covered Drug or
dispensed to anyone who is not a Covered Person.
9. Indemnity
Express agrees to indemnify and hold Sponsor, its officers, agents,
and employees harmless from any and all liability, penalties, fines,
claims or demands (including the costs, expenses, and reasonable
attorney(s) fees on account thereof) caused by, arising out of, or
in any way
-5-
<PAGE>
<PAGE>
related to the sale, compounding, dispensing, failure to sell,
failure to deliver, or use of any Covered Drug dispensed to Covered
Persons pursuant to this Agreement, except that Express shall have
no liability and shall be similarly indemnified by Sponsor for any
action, suit, liability, penalty, claim, or demand which alleges a
failure to dispense by Express in which the failure is with respect
to a person who is not a Covered Person.
10. Insurance
Express shall maintain, during the term of this Agreement, insurance
coverage including, but not limited to, comprehensive general
liability insurance, products liability insurance, and Worker's
Compensation Insurance. Express shall furnish to Sponsor, as
evidenced in Schedule C attached hereto and made of this Agreement,
certificates of such insurance. At its sole discretion, Express may
elect to self-insure all or a part of its insurance obligations. In
such event, at Sponsor's request, Express will furnish to Sponsor a
statement of self-insurance.
11. Maintenance and Inspection of Records
Express shall maintain detailed business records and Prescription
files directly related to the dispensing of Covered Drugs provided
to Covered Persons under the terms of this Agreement. Express will
maintain such eligibility, address, and claim history files as are
necessary for its performance of this Agreement. Sponsor shall have
the right at reasonable intervals and during regular business hours
of Express to review such business records and Prescription files of
Express to the extent they directly relate to the performance of
this Agreement. Notwithstanding the foregoing, Sponsor's right to
review such business records and Prescription files, relating to the
performance of this Agreement, will expire five (5) years after the
filling/refilling of a Prescription and shall survive termination of
this Agreement.
-6-
<PAGE>
<PAGE>
12. Exclusivity
Express understands that Sponsor wishes to appoint Express as the
provider of first choice for mail service prescription drug programs
managed by Sponsor. Express recognizes that in certain instances,
Sponsor and member programs may elect to use a mail service pharmacy
other than Express.
13. Warranties
Express hereby warrants as follows:
(a) That it has been duly licensed as a professional pharmacy
under the laws of the states in which it has dispensing
facilities.
(b) That it is in full compliance with all federal, state, and
local laws and regulations, governing the sites upon which
dispensing facilities are located and are applicable to the
filling of prescriptions by mail and that its compliance with
the terms of this Agreement will not violate the provisions of
any third party prescription drug law.
(c) That by entering into this Agreement Express is not in
violation of any agreement with any other third party carrier.
14. Termination
The initial term of this Agreement shall be 36 months, commencing on
the date set forth above. This Agreement will be automatically
renewed for 12 month renewal terms, unless either party gives
written notice not less than 90 days prior to the expiration of the
initial term, the first renewal term or subsequent renewal term of
its desire to terminate this Agreement. Upon receipt of said notice
of termination, the Agreement shall terminate at the expiration of
the then current term. In the event of the termination of this
Agreement Express shall, at the option of Sponsor, continue to
arrange for the provision of mail order
-7-
<PAGE>
<PAGE>
service for Covered Persons currently receiving mail order service
on the effective date of termination until such time as other
provisions for mail service can be made.
15. Non-Exclusive and Non-Solicitation
Nothing contained herein shall be construed to limit in any way,
Express' ability to participate in other prescription drug programs.
Express agrees that it will not directly solicit any of Sponsor's
clients for whom Express is the mail service provider nor have any
direct contact with said clients unless requested to do so by
Sponsor. All correspondence and reporting will be directed to
Sponsor, unless requested to do otherwise.
16. Independent Contractor
Both parties declare and agree that Express is engaged in an
independent business and will perform its obligations under this
Agreement as an independent contractor and that nothing contained
herein shall be construed to mean that Express is an agent or
partner of Sponsor.
17. Assignment
Neither party shall assign this Agreement without the express
written consent of the other, such consent will not be unreasonably
withheld, except that this Agreement may be assigned by either party
to a parent or subsidiary of the assignor.
18. Subcontracting
Neither party shall subcontract any of its obligations hereunder
without the prior written consent of the other party, such consent
will not be unreasonably withheld. Any subcontracting pursuant to
the terms of this Paragraph shall not alleviate the contracting
party of its obligations hereunder.
-8-
<PAGE>
<PAGE>
19. Notice
Any notices required or permitted to be sent hereunder shall be
addressed as follows and shall be delivered by hand (against
receipt) or mailed, certified mail, prepaid, return receipt
requested:
If to Express:
Thrift Drug, Inc.
620 Epsilon Drive
Pittsburgh, PA 15238
ATTN: F. A. Marasco
President
Express Pharmacy Services
If to Sponsor:
National Medical Health Card Systems, Inc.
26 Harbor Park Drive Port Washington, NY
11050
ATTN: Ms. Linda Portney
President
---------------------------------
Or at such other address as any of the parties hereto shall notify
the other in writing in accordance with this Paragraph 19.
20. Governing Law
This Agreement shall be governed by the substantive laws in the
jurisdiction of the defending party.
-9-
<PAGE>
<PAGE>
21. Waiver, Amendment or Modification
Any waiver, amendment or modification of any of the provisions of
this Agreement or any right, power or remedy hereunder shall not be
effective unless made in writing and signed by the party against
whom enforcement of such waiver, amendment or modification is
sought. No failure or delay by either party in exercising any of its
rights hereunder shall operate as a waiver thereof.
22. Entire Agreement
This Agreement and the schedule or schedules attached hereto
constitute the entire understanding between the parties in
connection with the subject matter hereof and supersede all prior
and contemporaneous agreements, understanding, negotiations and
discussions, whether oral or written, of the parties, and there are
no warranties, representations and/or agreements among the parties
in conjunction with the subject matter hereof except as set forth in
this Agreement.
23. Force Majeure
Neither Express nor Sponsor shall be liable for a failure or delay
in performance hereunder arising from acts of God, acts of a public
enemy, acts of a sovereign nation or any state or political
subdivision or any department or regulatory agency thereof or entity
created thereby, acts of any person engaged in a subversive activity
or sabotage, fires, floods, explosions, strikes, slow-downs,
lockouts or labor stoppage, or freight embargoes, unless caused by
either party.
-10-
<PAGE>
<PAGE>
24. Use of Name
Neither party shall use the other party's name, trademarks, logo or
the name of any affiliated company in any advertising or promotional
material, or otherwise, without the prior written consent of the
other party.
25. Waiver of Breach
Waiver of a breach of any provision of this Agreement shall not be
deemed a waiver of any other breach of the same or a different
provision.
26. Severability
In the event that a provision of this Agreement is rendered invalid
or unenforceable, or declared null and void by any court of
competent jurisdiction, the remaining provisions of this Agreement
will remain in full force and effect.
27. Headings
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation
of this Agreement.
28. Performance Guarantees
Express guarantees to Sponsor performance of the services set forth
in Schedule B, attached hereto and incorporated herein by reference.
-11-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date and year first above written.
NATIONAL MEDICAL HEALTH CARD THRIFT DRUG, INC.
SYSTEMS, INC.
BY: Linda Portney BY: /s/ [ILLEGIBLE]
--------------------------- --------------------------
TITLE: President TITLE: President
Express Pharmacy Services
-12-
<PAGE>
<PAGE>
SCHEDULE A
The following tier pricing is dependent on Prescription volume. Changes to
the Prescription Charge outlined below will occur after the new volume is
attained and maintained for two consecutive months. Within fifteen (15) days of
the end of the second month, Express shall provide confirmation of the
attainment level and Sponsor shall implement the attained level of pricing.
Express shall pay Sponsor quarterly an administration fee of fifty cents
($0.50) per Prescription for the Vytra plan through the term of this Agreement
and thereafter if Sponsor chooses not to include Vytra in its volume thresholds.
Vytra volume shall not contribute to the Prescription volume thresholds or
affect the level of tier pricing. Pricing may be reviewed periodically in
accordance with both parties.
FORMULARY DRUG MANAGEMENT AND INTERVENTION (VYTRA HMO ONLY):
Express Pharmacy Services shall perform the following:
1) Maintain knowledge of the formulary provided by Sponsor for the Vytra
HMO.
2) Intervene with the physician when a non-formulary drug has been
prescribed. Express will contact the patient's physician to obtain their
consent to convert to a formulary compliant and therapeutic equivalent
medication.
3) Provide Sponsor with weekly and/or monthly reports of the drug
conversions and attempt of conversions.
Express will place calls to the physician at no additional charge
providing the interventions required total 5% or less of the total number of
Vytra HMO mail service Prescriptions. Should the interventions required exceed
5% of the total number of mail service Prescriptions, Express will invoice
Sponsor $4.00 for each formulary intervention attempted with the physician. This
additional charge will be waived for the initial thirty (30) days of the
program.
-13-
<PAGE>
<PAGE>
Prescription Charge:
PRESCRIPTION
VOLUME
PER MONTH BRANDS GENERICS
0-7,500 Average Wholesale Price minus NMHC MAC* plus a $1.75
17% with $0.00 dispensing fee dispensing fee
7,501 - 15,000 Average Wholesale Price minus NMHC MAC* plus a $1.75
18% with $0.00 dispensing fee dispensing fee
More than 15,001 Average Wholesale Price minus NMHC MAC* plus a $1.75
19% with $0.00 dispensing fee dispensing fee
*Generic drug pricing at the Maximum Allowable Cost or MAC means the
reimbursement level that is specific to groups of pharmaceutical equivalent
drugs as established by National Medical Health Card Systems, Inc. located at 26
Harbor Park Drive, Port Washington, New York 11050.
-14-
<PAGE>
<PAGE>
SCHEDULE B
Prescription Turnaround Time Guarantee:
Express will guarantee that 95% of all mail service pharmacist-approved
prescriptions received during each year of the plan will be shipped within an
average of two (2) Business Days from the date of receipt. Express will track
all prescription dispensing activity. If the turnaround time for
pharmacist-approved prescriptions received exceeds an average of two (2)
Business Days for more than 5% of all pharmacist-approved prescriptions during
each year of the plan, a penalty of $3,500 will be paid. Pharmacist-approved
prescriptions are defined as those prescriptions for which product is available
in the pharmacy and which do not require the pharmacist to contact the
prescriber for clarification, consultation or intervention before dispensing.
The availability of such product in the pharmacy shall be applicable only in the
event a product becomes unavailable to the open market due to a manufacturer's
shortage. In this instance, Express agrees to notify Sponsor of same immediately
and such product will be exempted from the aforementioned turnaround time
guarantee until the shortage has ended.
-15-
<PAGE>
<PAGE>
SCHEDULE C
- --------------------------------------------------------------------------------
Certificate of Insurance
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON YOU THE CERTIFICATE HOLDER. THIS CERTIFICATE IS NOT AN INSURANCE POLICY AND
DOES NOT AMEND, EXTEND, OR ALTER THE COVERAGE AFFORDED BY THE POLICIES LISTED
BELOW.
- --------------------------------------------------------------------------------
This is to Certify that
LIBERTY MUTUAL
THRIFT DRUG, INC. Name and [LOGO]
2000 OXFORD DRIVE address of
BETHEL PARK, PA 15102 insured
Is, at the issue date of this certificate, insured by the Company under the
policy(ies) listed below. The insurance afforded by the listed policy(ies) is
subject to [ILLEGIBLE] terms, exclusions and conditions and is not altered by
any requirement, term or condition of any contract or other document with
respect to which this certificate [ILLEGIBLE] issued.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EXP. DATE
|_| CONTINUOUS
TYPE OF POLICY |_| EXTENDED POLICY NUMBER LIMIT OF LIABILITY
|X| POLICY TERM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COVERAGE AFFORDED UNDER WC EMPLOYERS LIABILITY
LAW OF THE FOLLOWING STATES: ------------------------------------
Bodily Injury By Accident
WC2-621-004072-106 WY 1,000,000 [ILLEGIBLE]
[ILLEGIBLE]
WORKERS ------------------------------------
COMPENSATION 02/01/97 CA, CT, MA, MI, NH, NJ, NY, Bodily Injury By Disease
WA1-62D-004072-726 PA, VT 1,000,000 [ILLEGIBLE]
[ILLEGIBLE]
------------------------------------
Bodily Injury By Disease
1,000,000 [ILLEGIBLE]
[ILLEGIBLE]
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL LIABILITY BODILY INJURY PROPERTY DAMAGE
- ------------------------------------------------------------------------------------------------------------------------------------
|X| Comprehensive Form Each Each
$2,000,000 Occurrence $2,000,000 Occurrence
|_| Schedule
|_| Products Completed
Operations
|_| Independent Contractors/ 02/01/97 RG1-621-004072-826
Contractors Protective $2,000,000 Aggregate $2,000,000 Aggregate
|_| Contractural Liability
|X| Pharmacists MALPR
MALPRACTIVE
|_|
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY
|_| OWNED Each Accident - Single [ILLEGIBLE]
B.I. and P.D. Combined
-------------------------------------------------------------------
|_| NON-OWNED Each Person
-------------------------------------------------------------------
Each Accident or Occurrence
-------------------------------------------------------------------
|_| HIRED Each Accident or Occurrence
- ------------------------------------------------------------------------------------------------------------------------------------
WA POLICY - $500,000 DEDUCTIBLE PER OCCURRENCE APPLICABLE TO PART 1,
WORKERS' COMPENSATION AND PART II EMPLOYERS LIABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
Location(s) of Operations & Job # (If applicable) Description of Operations:
EXPRESS PHARMACY SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* If the certificate expiration date is continuous or extended term, you will be
notified if coverage is terminated [illegible]
However, you will not be notified annually of the continuation of coverage.
NOTICE OF CANCELLATION: THE COMPANY WILL NOT TERMINATE OR REDUCE THE INSURANCE
AFFORDED UNDER THE ABOVE POLICIES UNLESS 30 DAYS NOTICE OF SUCH TERMINATION OR
REDUCTION HAS BEEN MAILED TO:
THRIFT DRUG, INC. 202
CERTIFICATE 615 ALPHA DRIVE
HOLDER PITTSBURGH. PA 15238
LIBERTY MUTUAL GROUP
/s/ Dominic Z. Incollingo
- --------------------------
Dominic Z. Incollingo
AUTHORIZED REPRESENTATIVE
02/01/96 (212) 391-7500 New York office
DATE ISSUED TELEPHONE OFFICE
This certificate is [ILLEGIBLE] by LIBERTY MUTUAL GROUP as respects such
insurance as is afforded by Those Companies
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON YOU THE CERTIFICATE HOLDER. THIS CERTIFICATE IS NOT AN INSURANCE POLICY AND
DOES NOT AMEND, EXTEND, OR ALTER THE COVERAGE AFFORDED BY THE POLICIES LISTED
BELOW.
- --------------------------------------------------------------------------------
This is to Certify that
LIBERTY MUTUAL
THRIFT DRUG, INC. Name and [LOGO]
2000 OXFORD DRIVE address of
BETHEL PARK, PA 15102 insured
Is, at the issue date of this certificate, insured by the Company under the
policy(ies) listed below. The insurance afforded by the listed policy(ies) is
subject to [ILLEGIBLE] terms, exclusions and conditions and is not altered by
any requirement, term or condition of any contract or other document with
respect to which this certificate [ILLEGIBLE] issued.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EXP. DATE
|_| CONTINUOUS
TYPE OF POLICY |_| EXTENDED POLICY NUMBER LIMIT OF LIABILITY
|X| POLICY TERM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COVERAGE AFFORDED UNDER WC EMPLOYERS LIABILITY
LAW OF THE FOLLOWING STATES: ------------------------------------
Bodily Injury By Accident
WC2-621-004072-106 WY 1,000,000 [ILLEGIBLE]
[ILLEGIBLE]
WORKERS ------------------------------------
COMPENSATION 02/01/97 CA, CT, MA, MI, NH, NJ, NY, Bodily Injury By Disease
WA1-62D-004072-726 PA, VT 1,000,000 [ILLEGIBLE]
[ILLEGIBLE]
------------------------------------
Bodily Injury By Disease
1,000,000 [ILLEGIBLE]
[ILLEGIBLE]
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL LIABILITY BODILY INJURY PROPERTY DAMAGE
- ------------------------------------------------------------------------------------------------------------------------------------
|X| Comprehensive Form Each Each
$1,000,000 Occurrence $1,000,000 Occurrence
|_| Schedule
|_| Products Completed
Operations
|_| Independent Contractors/ 02/01/97 RG1-621-004072-826
Contractors Protective $1,000,000 Aggregate $1,000,000 Aggregate
|_| Contractural Liability
|_| Pharmacists MALPR
MALPRACTIVE
|_|
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY
|_| OWNED Each Accident - Single [ILLEGIBLE]
B.I. and P.D. Combined
-------------------------------------------------------------------
|_| NON-OWNED Each Person
-------------------------------------------------------------------
Each Accident or Occurrence
-------------------------------------------------------------------
|_| HIRED Each Accident or Occurrence
- ------------------------------------------------------------------------------------------------------------------------------------
WA POLICY - $500,000 DEDUCTIBLE PER OCCURRENCE APPLICABLE TO PART 1,
WORKERS' COMPENSATION AND PART II EMPLOYERS LIABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
Location(s) of Operations & Job # (If applicable) Description of Operations:
THRIFT DRUG EXPRESS PHARMACY
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* If the certificate expiration date is continuous or extended term, you will be
notified if coverage is terminated or reduced before the certificate expiration
date.
However, you will not be notified annually of the continuation of coverage.
NOTICE OF CANCELLATION: THE COMPANY WILL NOT TERMINATE OR REDUCE THE INSURANCE
AFFORDED UNDER THE ABOVE POLICIES UNLESS 30 DAYS NOTICE OF SUCH TERMINATION OR
REDUCTION HAS BEEN MAILED TO:
NATIONAL MEDICAL HEALTH CARE 202
CERTIFICATE SYSTEMS, INC.
HOLDER 26 HARBOR PARK DRIVE
PORT WASHINGTON, NY 11050
LIBERTY MUTUAL GROUP
/s/ Dominic Z. Incollingo
- --------------------------
Dominic Z. Incollingo
AUTHORIZED REPRESENTATIVE
08/12/96 (212) 391-7500 New York office
DATE ISSUED TELEPHONE OFFICE
[ILLEGIBLE]
<PAGE>
<PAGE>
SCHEDULE D
1996 PROCESSING CYCLES
6/8 - 6/21 6/22 - 7/5 7/6 - 7/19 7/20 - 8/2
8/3 - 8/16 8/17 - 8/30 8/31 - 9/13 9/14 -
9/27
9/28 - 10/11 10/12 - 10/25 10/26 - 11/8 11/9 -
11/22 11/23 - 12/6 12/7 - 12/20
-17-
<PAGE>
<PAGE>
EXHIBIT 10.8
FIRST AMENDMENT
TO
MAIL SERVICE PROVIDER AGREEMENT
BY AND BETWEEN
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
AND
THRIFT DRUG, INC. d/b/a EXPRESS PHARMACY SERVICES
THIS AMENDMENT is effective as of the 1st day of January, 1997 by and
between NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. (hereinafter "Sponsor") and
THRIFT DRUG, INC. d/b/a EXPRESS PHARMACY SERVICES (hereinafter "Express").
W I T N E S S E T H :
WHEREAS, effective as of the 1st day of July, 1996 the Sponsor and Express
entered into a Mail Service Provider Agreement ("hereinafter the "Agreement") in
order to provide mail order prescription drug services to Eligible Members of
Sponsor's prescription drug program; and
WHEREAS, in addition to the pharmacy services provided by Express pursuant
to the terms of the Agreement, Express desires to provide Sponsor with its
therapeutic drug management program (hereinafter "TDMP"); and
WHEREAS, Sponsor desires to participate in such TDMP; and
WHEREAS, this Amendment shall only be applicable to mail order
pharmaceutical services provided to SUNDAY SCHOOL BOARD (hereinafter "SSB").
1
<PAGE>
<PAGE>
NOW, THEREFORE, the Agreement shall be amended by adding the following new
Paragraphs:
29. Therapeutic Drug Management Program
(A) Express shall perform the following services:
(1) establish an independent advisory board comprised of
medical doctors and doctors of pharmacy to advise Express of facts as respects
therapeutic equivalent medications.
(2) contact the Covered Person and the Covered Person's
physician to obtain consent for conversion to a lower cost, therapeutic or
generic equivalent medication, any and all of which are consistent with
Sponsor's request for specific therapeutic classes to be managed and specific
drugs within the referenced class to be substituted.
(3) upon obtaining the appropriate consent(s), Express will
convert the prescribed drug to a lower cost, therapeutic or generic equivalent
medication.
(4) provide Sponsor with monthly reports of drug conversions
and applicable cost savings.
(5) send invoices to Sponsor for an amount equal to fifty
percent (50%) of the cost savings. Sponsor will then bill SSB for such amount.
When Sponsor has received payment from SSB on such invoice, Sponsor will remit
eighty-five percent (85%) of the amount paid by SSB to Express.
(B) Express represents and warrants to Sponsor that the therapeutic
or generic equivalent medications have met all the applicable standards imposed
by the U.S. Food and Drug Administration.
(C) Sponsor agrees to make payments to Express as discussed in
Paragraph 29(A)(5) above within fourteen (14) days after Sponsor's receipt of
payment from SSB.
30. Either party shall have the right to terminate this Amendment only,
with or without cause, upon ninety (90) days prior written notice to the other
party.
2
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective authorized representatives as of the date
hereinabove first written.
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
By:
/s/ Linda Portney
---------------------------------
Linda Portney, President
THRIFT DRUG, INC. d/b/a EXPRESS
PHARMACY SERVICES
By:
/s/ James F. Smith
---------------------------------
Vice President, Managed Care
3
<PAGE>
<PAGE>
AGREEMENT
AGREEMENT effective as of June 1, 1998 by and between Sandata, Inc., a
Delaware corporation ("Sandata"), and National Medical Health Card Systems,
Inc., a New York corporation ("Health Card").
WHEREAS, Sandata and Health Card entered into an oral agreement (the
"Program Support Agreement") on or about March 1, 1994 pursuant to which Sandata
would provide certain data processing services to Health Card;
WHEREAS, in order to perform its obligations under the Program Support
Agreement, Sandata had hired several full-time employees (the "Programmers")
specializing in computer programming;
WHEREAS, the parties have determined that all of their obligations to each
other under the Program Support Agreement have been completed and, as a
consequence, Sandata no longer has a need to continue the employment of the
Programmers;
WHEREAS, Health Card has advised Sandata that Health Card would like to
take over all maintenance and support services with respect to the programs
previously developed and maintained by Sandata pursuant to the Program Support
Agreement and, in that regard, Health Card desires to hire the Programmers;
WHEREAS, the Programmers are each subject to certain Employee Covenants
entered into by them with Sandata which, among other things, restrict the
Programmers' ability to compete with Sandata;
<PAGE>
<PAGE>
WHEREAS, Health Card desires Sandata (i) to permit the Programmers to be
employed by Health Card; and (ii) in connection therewith, to assign to Health
Card its rights under the Employee Covenants; and
WHEREAS, Sandata is willing to permit Health Card to employ the Programmers
and to assign to Health Card its rights under the Employee Covenants in
accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Concurrently with the execution hereof, Health Card is paying to Sandata
two hundred thousand and 00/100 ($200,000) dollars in consideration of Sandata
(a) assigning to Health Card all of its rights to enforce the Employee Covenants
against the Programmers or to bring any claim against Health Card arising out of
or relating to Health Card's employment of the Programmers, whether based in
contract, tort or otherwise; and (b) consenting to the employment by Health Card
of the Programmers, whether in connection with the development and maintenance
of software previously developed and/or maintained by Sandata or otherwise.
2. Sandata hereby consents to the employment by Health Card of each of the
Programmers, whether in connection with the development and maintenance of
software previously developed and/or maintained by Sandata or otherwise.
3. Sandata hereby waives any and all rights and claims it may have against
Health Card arising from or relating to any breach or alleged breach by any such
Programmer of the Employee Covenants, whether such right or claim is based in
contract, tort or otherwise.
4. Health Card acknowledges and agrees that (a) nothing contained herein
shall impose on Sandata any obligation with respect to the Programmers for any
period after May 31, 1998; and (b) as between Sandata and Health Card, Health
Card is solely responsible for all
2
<PAGE>
<PAGE>
claims of the Programmers for salaries, benefits, consulting fees or otherwise
as employees of or consultants (or in any other capacity) to Health Card for all
periods after May 31, 1998.
5. Sandata acknowledges and agrees that (a) nothing contained herein shall
impose on Health Card any obligation with respect to the Programmers for any
period on or before May 31, 1998; and (b) as between Health Card and Sandata,
Sandata is solely responsible for all claims of the Programmers for salaries,
benefits, consulting fees or otherwise as employees of or consultants (or in any
other capacity) to Sandata for all periods on or before May 31, 1998.
6. This Agreement shall be governed by the law of the State of New York
without regard to any principles of conflicts of laws.
7. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, distributees,
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any person not a party hereto, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and arrangements with respect to such subject matter.
This Agreement may not be modified, amended or terminated orally but only by a
writing signed by both parties hereto.
9. Each of the parties hereto agrees to execute and deliver such other
agreements, instruments, certificates or documents which may be reasonably
required to effectuate the transactions contemplated hereby.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date birth set forth above.
SANDATA, INC.
By: BERT E. BRODSKY
--------------------------------
Bert E. Brodsky, President
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
By: LINDA PORTNEY
-------------------------------
Linda Portney, President
4
<PAGE>
<PAGE>
AMENDMENT
THIS AMENDMENT dated as of June 1, 1998 by and between Sandata, Inc.,
having an office at 26 Harbor Park Drive, Port Washington, NY 11050 ("Sandata")
and National Medical Health Card Systems, Inc. ("Health Card") having an office
at 26 Harbor Park Drive, Port Washington, NY 11050.
WITNESSETH:
WHEREAS, as of June 1, 1998 Sandata and Health Card entered into an
Agreement whereby Health Card agreed to, among other things, take on all
maintenance and support services with respect to programs previously developed
and maintained by Sandata, and hire several full-time employees (Programmers");
and
WHEREAS, Sandata and Health Card wish to amend certain of the terms and
conditions of such Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants set forth, the
parties agree as follows:
1. Paragraph 1 shall be amended by deleting the previous language and
replacing it with the following:
"Concurrently with the execution hereof, Health Card is paying to
Sandata TWO HUNDRED EIGHT THOUSAND FOUR HUNDRED SEVENTY SIX AND 00/100
($208,476.00) DOLLARS in consideration of Sandata (a) assigning to
Health Card all of its rights to enforce the Employee Covenants
against the Programmers or to bring any claim against Health Card
arising out of or relating to Health Card's employment of the
Programmers, whether based in contract, tort or otherwise; and (b)
consenting to the employment by Health Card of the Programmers,
whether in connection with the development and maintenance of software
previously developed and/or maintained by Sandata or otherwise."
2. Paragraph 4 shall be amended by deleting the previous language and
replacing it with the following:
"Health Card acknowledges and agrees that (a) nothing contained herein
shall impose on Sandata any obligation with respect to the Programmers
for any period after May 31, 1998; and (b) as between Sandata and
Health Card, Health Card is solely responsible for all claims of the
Programmers for salaries, benefits, accrued vacations, consulting fees
or otherwise as employees of or consultants (or in any other capacity)
to Health Card for all periods after May 31, 1998."
3. All other terms and provisions of the Agreement remain the same and are
in full force and effect.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SANDATA, INC.
By:
HUGH FREUND
-------------------------------------
Hugh Freund, Executive Vice President
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
By:
LINDA PORTNEY
-------------------------------------
Linda Portney, President
<PAGE>
<PAGE>
BILL OF SALE
KNOW THAT, the undersigned, on behalf of Sandata, Inc., having a
principal place of business at 26 Harbor Park Drive, Port Washington, NY 11050
(hereinafter called the "Seller") for and in consideration of the sum of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00) and other good and valuable
consideration, receipt of which is hereby acknowledged, does hereby grant, sell,
assign, transfer and set over unto National Medical Health Card Systems, Inc.,
having a principal place of business at 26 Harbor Park Drive, Port Washington,
NY 11050 (hereinafter called the "Buyer"), its successors and assigns, all
right, title and interest in and to equipment and furniture as set forth on
Schedule A attached hereto and made part hereof, hereinafter referred to as the
"Equipment", to have and to hold for its own use and benefit forever.
The Seller represents and warrants to the Buyer, its successors and
assigns that the Seller has full legal and beneficial title to the Equipment and
the good and lawful right to sell the Equipment free and clear of all claims,
liens and encumbrances. The Seller hereby convenants and agrees to defend such
title forever against all claims and demands whatsoever.
IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be
executed and delivered by its duly authorized officer on June 1, 1998.
SANDATA, INC.
By:
Bert E. Brodsky
-----------------------------
Bert E. Brodsky, Chairman
<PAGE>
<PAGE>
AFFIDAVIT
STATE OF NEW YORK )
) ss:
COUNTY OF NASSAU )
Bert E. Brodsky, on behalf of Sandata, Inc., being duly sworn, deposes
and says that he resides at South Road, Harbor Acres, Sands Point, New York
11050, that he is the same person who executed the within Bill of Sale. That
Sandata, Inc. is the sole and absolute owner of the Equipment described in said
Bill of Sale, and has full right to sell and transfer the same.
That the said Equipment, and each and every part thereof, is free and
clear of any liens, mortgages, debts or other encumbrances of whatsoever kind or
nature.
That this Affidavit is made for the purpose and with the intent of
inducing National Medical Health Card Systems, Inc. to purchase the Equipment
described in said Bill of Sale knowing that it will rely thereon and pay a good
and valuable consideration therefor.
Sworn before me
this 1st day of June, 1998
Linda M. Scarpantonio
- ------------------------------- Notary Pub
LINDA M. SCARPANTONIO
NOTARY PUBLIC, State of New York
No. 30-4759564
Qualified in Nassau County
Commission Expires September 30, 1998
<PAGE>
<PAGE>
SCHEDULE A
BILL OF SALE
11 Pentium 166 computers
11 17" monitors
11 desks
11 chairs
11 credenzas
<PAGE>
<PAGE>
EXHIBIT 10.12
SOFTWARE LICENSE AGREEMENT
AND
PROFESSIONAL SERVICES AGREEMENT
This Agreement entered into this 18th day of February, 1998 ("Effective Date")
by and between National Medical Health Card Systems, Inc., (hereinafter
"CLIENT"), having its principal place of business at 26 Harbor Park Drive, Port
Washington, New York 11050 and Prospective Health, Inc., a Delaware Corporation
(hereinafter "PHI") having its principal place of business at 7808 College
Drive, Palos Heights, IL 60463.
WHEREAS, the parties to this Agreement desire to enter into and maintain an
arrangement for the provision of Computer Software Products and Professional
Services for CLIENT.
NOW THEREFORE, in consideration of the mutual covenants and consideration
herein, the parties agree as follows:
SECTION ONE
Representations, Covenants and Warranties
PHI and CLIENT each hereby represent, warrant and covenant as follows:
(a) That it is a corporation duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated; and that
it has full and complete corporate authority, including any and all
required approvals by its Board of Directors and Shareholders, to enter
into, execute, perform and carry out all provisions of this Agreement, and
to execute all instruments incident thereto; that the signatures appearing
for it at the end of this Agreement have been affixed pursuant to such
specific authority as under applicable law is required to bind it; and
that this Agreement will be its legal, valid and binding obligation,
enforceable in accordance with its terms subject to any applicable
bankruptcy, reorganization, insolvency or similar laws affecting
creditors' rights and subject to the application of equitable principles
and at any proceeding involving the enforcement of any of the provisions
of this Agreement, and the discretion of the Court before which any
proceeding may be brought;
(b) That there are no judgments, litigation or other legal proceedings
pending, or to the best of its knowledge, threatened against or relating
to it, or its properties or business, which pose a material risk of any
material adverse change in its business, operations, assets or financial
condition, and that it is not in default with respect to any judgment,
order, writ, injunction or decree of any Court, or in violation of any
statute, ordinance or regulation which poses a material risk of any
material adverse change in its business, operation, assets or financial
condition;
(c) That it has, as of the Effective Date of this Agreement, the rights, power
and authority to make, observe, keep and perform all warranties,
representations, indemnities, terms, provisions, covenants, conditions and
agreements contained in this Agreement to be kept, observed or performed
by it; and that the execution of this Agreement, the consummation of the
transactions hereby contemplated, and its performance of this Agreement
will not result in any breach or violation of, or constitute a default
under any agreement, corporate charter, bylaw or other instrument to which
it is a party, and will not require the consent of any governmental agency
or third party.
1
<PAGE>
<PAGE>
SECTION TWO
Performance of Services
(a) PHI will deliver application software necessary to meet the functions and
features outlined in Exhibit A and Exhibit B. Said application software
will be comprised of the ProNET, ProPBM, ProCLIENT. and ProANALYST
application programs and the additional system functionality identified in
Exhibit B. All PHI documentation included in Exhibits A and B and all
software and source code will collectively be referred to in this
Agreement as the "System".
(b) PHI further agrees to perform installation and training services on-site
as described in Section Five below and detailed in Exhibit C, and support
during the Test Period as described in Section Six below and detailed in
Exhibit C.
(c) PHI agrees to refrain from discriminating against any worker, employee or
applicant for employment or other member of the public account of race,
creed, color, national or ethnic origin, sex or handicap; nor otherwise
knowingly commit an unfair labor practice. PHI further pledges where
required by law, this clause will be incorporated in all contracts it
enters into with suppliers of materials or services who may perform
services with respect to this contract.
(d) PHI agrees to abide by the performance guarantees specified in Exhibit G,
as long as CLIENT purchases and makes available for System installation,
the hardware specified in the listing that is attached to said exhibit. As
long as CLIENT remains current on Maintenance Fees, except as provided in
Exhibit G, PHI will support the Oracle and UNIX System, staying consistent
with industry-standard releases.
SECTION THREE
License of the System
(a) PHI is the owner of the SYSTEM and has the exclusive right to use and
license others to use such SYSTEM.
(b) Upon payment as and when due of the License Fees as detailed in Section
Seven, PHI hereby grants to CLIENT, and CLIENT hereby accepts, a
nontransferable and nonexclusive perpetual license (the "License") to use
the System, described herein to be made a part hereof at CLIENT's facility
at 26 Harbor Park Drive, Port Washington, New York ("CLIENT Facility") or
such other facility as may become CLIENT's operating facility. CLIENT
shall have the right to operate a separate System at a different location
for the purpose of back-up or disaster recovery at no additional charge.
Any other provisions of this Agreement notwithstanding, CLIENT agrees and
understands that it is being granted a License to use and not title the
System provided hereunder. Should CLIENT decide to add additional
production operating facilities, CLIENT will notify PHI in writing of the
details of such a facility and PHI will apprise CLIENT of the costs of
installation and maintenance at the new site if such installation and
maintenance is required by CLIENT. Although the license is
nontransferable, CLIENT may buy other companies or be purchased by another
company, who then would be licensed to use the System and transaction
tiers would be applicable for increased volume fees. CLIENT must notify
PHI in writing of such mergers within thirty (30) days of contractual
arrangements being completed.
(c.) The License granted in sub-section "b" hereof extends only to the use of
the System at the CLIENT's facilities in connection with CLIENT's
business. CLIENT shall not, without the express prior written consent of
PHI, use the System to provide computer or other services to any other
person or entity or in any other manner except in connection with CLIENT's
own
2
<PAGE>
<PAGE>
business. It is understood that CLIENT will provide claims adjudication
service for other pharmacy benefit management companies who are their
customers, using the SYSTEM pursuant to the License.
SECTION FOUR
Delivery of Services
(a) Delivery of software, installation, and training will occur according to
the schedule referenced under Section Eight herein and detailed in Exhibit
C. In addition, a mutually agreeable implementation schedule will be a
part of the Agreement and attached as Exhibit F.
(b) PHI will exercise due diligence to complete its assigned duties as
described herein and will deliver the System to CLIENT for acceptance.
However, PHI will not be responsible for any reasonable delays in
performing this Agreement for reasons beyond PHI's control including, but
not limited to, lack of reasonable cooperation from CLIENT as requested by
PHI, acts of God or government, war, riot, fire, flood, epidemic,
quarantine restriction, natural disaster, labor strikes or slowdowns,
defective materials, freight embargoes, etc. PHI will notify CLIENT if
significant delays are anticipated and use diligent efforts where possible
to eliminate the cause of the delay. CLIENT agrees to provide qualified
and cooperative personnel to assist PHI in performance of its duties
herein, as described in Exhibit C. Specified duties are outlined in
Exhibit C.
(c) PHI agrees that all services rendered under this Agreement will be
performed by qualified personnel experienced with the SYSTEM in a
professional and workmanlike manner.
(d) CLIENT agrees to provide a dedicated data line and telecommunications
equipment, at CLIENT's sole expense, between PHI's corporate location and
CLIENT's Facility prior to Completion of Installation. Said data line and
equipment will be used solely for support during and after implementation
of the System. The specifications of this line and equipment are outlined
in Exhibit G.
(e) CLIENT may modify the obligations and responsibilities of PHI during the
tenure of this Agreement upon written request delivered to PHI in the
manner described below. In such an event, CLIENT agrees to be responsible
for additional normal and customary fees and expenses, at the contract
rates for PHI services (as detailed in Exhibit D), required to effectuate
such modification(s). PHI will supply CLIENT with a written proposal of
any work or project that will be done. Such proposal requires CLIENT
signature in order for work to be authorized.
SECTION FIVE
Installation and Training
(a) PHI will install the System as described in Exhibits A and B at CLIENT's
site on CLIENT's hardware, which has been agreed upon and outlined in
Exhibit G.
(b) Upon Completion of Installation, defined in Exhibit C, PHI will provide
two people for ten days of training by PHI personnel on-site to
appropriate CLIENT personnel in the use and operation of the System at no
additional charge.
3
<PAGE>
<PAGE>
(c) Additional training may be provided upon written request from CLIENT.
CLIENT will be responsible for such training at the Contract Services
rates detailed in Exhibit D, plus reasonable and actual travel and lodging
expenses associated with any such additional training in the use of the
System.
SECTION SIX
Satisfaction and Acceptance
Upon Completion of Training (defined in Exhibit C) and data conversion, CLIENT
shall have a "Test Period" (specified in Exhibit F) of sixty (60) days. In such
period, CLIENT shall run the software and make the determination that functions,
specifications and features of the System are met. In the event that the
completed software product does not perform in accordance with System
documentation, CLIENT shall, within ten (10) days of completion of the Test
Period, provide written notice to PHI detailing a list of needed corrections.
PHI shall make corrections as necessary to make the System perform in such
manner within sixty (60) days of said notice. If, at the end of such sixty (60)
day period (period to cure), the System fails to perform in accordance with
System documentation, as referenced in Exhibit A and B, PHI, at the request of
CLIENT, shall:
(1) Refund to CLIENT all fees paid by CLIENT, including license fees,
development fees and any charges for installation and training.
(2) This Agreement shall then be canceled and CLIENT shall return all software
and documentation to PHI.
CLIENT's failure to notify PHI of any problems experienced by CLIENT by the
expiration of the aforesaid sixty (60) day period shall be deemed CLIENT's
satisfaction and acceptance ("Acceptance") of the System. In the event CLIENT
requires additional work on the System such additional professional services
shall thereafter be subject to further testing and acceptance by CLIENT as
previously set forth herein.
SECTION SEVEN
Fees and Source Code
License fees for the System are transaction volume dependent as follows and
include Source Code. A transaction is defined as a single submission from a
pharmacy (i.e. a paid claim, a rejected claim, a reversal). Each time a pharmacy
makes connection to the System, it is considered a transaction. If, however, the
pharmacy receives a message that the System (or Host) is unavailable, no
transaction is recorded.
<TABLE>
<CAPTION>
Annual Transaction Volume Initial License Fee
- ------------------------- -------------------
<S> <C>
up to 3,000,000 transactions per year $400,000.
from 3,000,001 to 4,000,000 transactions per year $450,000.
from 4,000,001 to 6,000,000 transactions per year $550,000.
from 6,000,001 to 8,000,000 transactions per year $700,000.
from 8,000,001 to 12,000,000 transactions per year $800,000.
12,000,001 transactions per year and above $900,000.
</TABLE>
CLIENT agrees to pay $400,000 as the Initial License Fee. Should CLIENT's
transaction volume, calculated by the six month annualized volume (figured for
the period just prior to the anniversary
4
<PAGE>
<PAGE>
date), increase beyond the volume originally licensed for, CLIENT agrees to pay
PHI the incremental increase in Initial License Fee. Any and all such
incremental increases in License Fees are due and payable on the anniversary
date of the Effective Date of this Agreement. CLIENT shall verify their
transaction volume with PHI every quarter.
System Source Code may only be used by CLIENT to maintain the system in a manner
consistent with the original license. CLIENT acknowledges that PHI has other
SYSTEMS that utilize the same or similar System Source Code and CLIENT in no way
is entitled to reverse engineer or build upon the System to access or create the
functionality of other PHI applications not licensed to CLIENT.
SECTION EIGHT
Payment Schedule and Delivery Dates
The Initial License Fee will be paid according to the following schedule:
<TABLE>
<CAPTION>
Anticipated Date Event Payment Due
<S> <C> <C>
February 18, 1998 Execution of this Agreement $100,000
March 16, 1998 Completion of Installation of Software $25,000 per month
for 12 months
</TABLE>
The Installation of Software is specified as the day PHI employees leave
CLIENT's site having loaded the ProPBM Software on to CLIENT's hardware. In the
event that CLIENT misses two consecutive license fee payments, except as
permitted in Exhibit F and G, PHI will notify CLIENT in writing of such. CLIENT
shall have 30 days after receiving such notification to pay the past due
balance. At the end of thirty (30) days, if CLIENT has not paid the past due
balance, the software license shall be revoked and the right of CLIENT to
utilize the System will be terminated.
SECTION NINE
Software Maintenance and Enhancements
(a) PHI shall provide CLIENT with application software maintenance on a timely
basis, as it becomes available for general distribution. Such software
maintenance may include, but is not necessarily limited to, enhancements;
additional features as they are incorporated into the basic software
components for which the CLIENT is licensed; modifications necessary for
Federal, State, or third party requirements ("Maintenance Releases"). PHI
agrees to provide a minimum of two Maintenance Releases per year during
the term of this Agreement. Should PHI fail to provide Maintenance
Releases to update the SYSTEM in order to maintain industry standards,
CLIENT shall be permitted to engineer necessary changes using Source Code.
CLIENT may elect to engineer changes to Source Code at any time,
recognizing that future PHI System upgrades my not be applicable. The
Support provided to the CLIENT is outlined in Exhibit E.
(b) In consideration of PHI's making available the maintenance and updating
services consistent with Section Nine paragraph (c), CLIENT agrees to pay
PHI the sum of eighteen percent 18% of the Initial License Fee, per year,
for each year or any part thereafter following Acceptance of the System
("Software Maintenance Fees"). Acceptance of the System is defined in
Exhibit F. Said amounts are to be paid starting at Installation of the
Software (see Section Eight) at the rate of $6,000 per month. Such
payments shall be due and payable regardless of the nature and scope of
maintenance, if any, actually performed unless PHI has clearly been
5
<PAGE>
<PAGE>
unresponsive to the CLIENT. Should CLIENT's transaction volume increase to
the next license tier, the maintenance fees that are due represent 18% of
the total license fees.
(c) CLIENT agrees to continue paying for maintenance and updating services for
a minimum period of one (1) year, so long as PHI remains responsive to
CLIENT enhancement requests and current with industry standards,
including, but not limited to NCPDP standards. PHI cannot terminate
maintenance and updating services without cause. Thereafter, failure by
CLIENT to adhere to said payment schedule shall terminate PHI's
responsibility to provide such services, but does not affect the CLIENT's
license granted in this Agreement.
(d) In the event PHI materially breaches its obligations to CLIENT under this
Section Nine, CLIENT shall have the right to terminate payment of Software
Maintenance Fees by giving PHI written notice of termination, specifying
the nature of the breach and giving PHI sixty (60) days to remedy the
breach.
SECTION TEN
Disclaimer
CLIENT acknowledges that the System is not to be regarded or relied upon as a
substitute for the skill, judgment and care of pharmacists or other professional
personnel in dispensing pharmaceutical products or otherwise.
SECTION ELEVEN
Intellectual Property Defense
(a) Anything contained in this Agreement or in any provision of law to the
contrary notwithstanding, PHI's sole obligation to CLIENT in the event of
a claim that the System infringes a copyright, trademark, trade secret or
other intellectual property in the United States shall be for PHI to hold
CLIENT harmless and reimburse CLIENT for related expenses and for PHI, at
its own expense, to defend such claim and that PHI may control the defense
and agree with, CLIENT'S consent if it in any manner affects CLIENT's
right to use the System or receive maintenance thereof, to any settlement.
(b) Should CLIENT be enjoined from using the System as a result of such claim
of intellectual property infringement, PHI shall, without limiting its
obligations under (a.) (1) take such action as will correct the
infringement and make the System not infringing, provided there is no
substantial degradation of the System, provided, however, on or before the
date on which CLIENT is enjoined from using the System, PHI will procure,
at its own expense, from the party whose rights which the System is found
to infringe, a License to use the System, and, without additional charge,
grant a sub-license therefore to CLIENT in accordance with the terms
hereof. In the event the actions described above are not accomplished,
CLIENT will have the option of terminating this Agreement and PHI will be
required to refund all fees paid by CLIENT.
(c) If an infringement by CLIENT is alleged prior to completion of delivery of
the System pursuant to this Agreement, PHI may decline to make further
shipments without being in breach of this Agreement, and providing that
PHI has not been enjoined from selling such System to CLIENT, PHI agrees
to supply such System to CLIENT at CLIENT's option.
6
<PAGE>
<PAGE>
SECTION TWELVE
Software Warranty
(a) PHI expressly warrants that the System shall be free from errors and
perform in all material respects according to System documentation in
Exhibit A and projects in Exhibit B. However, this software warranty
specifically excludes program errors engendered by individuals other than
PHI's staff or its subcontractors, independent contractors or free lance
suppliers. Said warranty will remain in effect so long as Software
Maintenance Fees are paid up to date. Should CLIENT not pay maintenance
fees, the System will be warranted for a period of one year following the
date that such maintenance fees were due.
(b) In the event PHI expends its professional services to investigate errors
which arise within the warranty period, CLIENT agrees to fully pay for
PHI's services at its contract rates (Exhibit D) if said errors are
determined to have been caused by CLIENT or their contracted staff.
(c) The parties further agree no other software warranties, either expressed
or implied, have been extended and that no change or other modification to
the above software warranty shall be valid unless documented in writing
and signed by an authorized representative of the parties.
SECTION THIRTEEN
Confidentiality
(a) The System and the ideas and concept and the expressions thereof,
contained herein, are acknowledged by CLIENT to be confidential
proprietary information and trade secrets belonging to PHI, in which
CLIENT has no interest and no right to use thereof except as granted by
the Agreement. CLIENT agrees that it shall not at any time, without prior
written permission of PHI, copy or duplicate or create the source programs
and/or object programs of the System, including outside support
contractors, shall not transfer all or any portion of the System or its
ideas and concepts other than for CLIENT's own use. It is understood by
PHI that CLIENT includes Sandata, Inc.
(b) CLIENT agrees to limit access to all physical embodiments of the System to
those of its personnel who must have such access for CLIENT to use the
System, and to store each such embodiment in a secure place except when
being used.
(c) Upon termination of the License, pursuant to Section Six hereof, CLIENT
shall deliver to PHI all materials furnished by PHI pertaining to the
System, shall deliver to PHI or destroy all copies thereof and shall erase
from all computer storage and computer storage devices any image or copies
of the System.
(d) PHI agrees to treat all CLIENT information and data to which it has access
as confidential and proprietary.
SECTION FOURTEEN
Taxes and Assessments
Excluding any and all Federal, State, or Local income taxes or gross receipt
taxes incurred by PHI, CLIENT agrees to pay any and all Federal, State, local
and other governmental sales, use,
7
<PAGE>
<PAGE>
franchise and excise taxes and/or penalties or assessments which may be lawfully
assessed in connection with the provision of services or products described in
this Agreement.
SECTION FIFTEEN
Termination of Agreement
This Agreement shall remain in full force and effect until terminated in
accordance with provisions of this Agreement. Either party may terminate this
agreement with cause, which shall be defined as a substantial breach of terms of
this Agreement. Notification of such breach shall be in writing with 60 days to
correct.
SECTION SIXTEEN
Limitation of Liability
(a) CLIENT agrees to hold PHI harmless for any claim of loss or damage
incurred by CLIENT on account of PHI's wrongful acts or omissions to the
extent that the value of the claim exceeds total amount of the total fees
paid by CLIENT. CLIENT shall give timely written notice to PHI of any
alleged loss or damage incurred by CLIENT.
(b) CLIENT acknowledges that the drug interaction portion of the System is to
be used only as a guide and is not to be regarded or relied upon as a
substitute for the skill, judgment and care of pharmacists or other
professional personnel in dispensing pharmaceutical products. PHI shall
not, under any circumstances, be liable or responsible for injury,
including death, suffered by any consumer of any pharmaceutical or any
other product dispensed or distributed by any person or entity using the
System for any purpose, or for any side effects or other consequential or
incidental damages of any kind or description whatsoever involving injury
to such consumers from the use of any such product, it being expressly
understood that such liability and responsibility rests entirely upon the
pharmacist or other professional involved in the transaction.
SECTION SEVENTEEN
Severability
In the event a provision or provisions of this Agreement shall be determined
invalid, illegal, or unenforceable, the parties agree the remaining provisions
shall nevertheless be binding with the same effect as though the invalid,
illegal or unenforceable parts were deleted, unless to do so would defeat the
substance and purpose of this Agreement.
SECTION EIGHTEEN
Notice to Parties
All notice provided for herein shall be in writing and delivered in person, or,
in the alternative, by delivering same via United States Mail, postage prepaid,
registered or certified mail, address as follows:
Notice Directed to CLIENT: Notice Directed to PHI:
ATTN: Linda Portney, President ATTN: Ron Roma, CEO
National Medical Health Card Systems Prospective Health, Inc.
26 Harbor Park Drive 7808 College Drive
Port Washington, N.Y. 11050 Palos Heights, Illinois 60463
8
<PAGE>
<PAGE>
SECTION NINETEEN
Assignment
Neither this Agreement nor any of CLIENT's rights, duties or obligations as
provided hereunder may be assigned or transferred, except by merger,
consolidation or sale and then only by written notice to PHI. PHI acknowledges
CLIENT's affiliated company, Sandata, and recognizes its right to perform
duties, assignments, and accept obligations as described in this Agreement.
Should PHI merge or consolidate with another company, it shall provide written
notice to CLIENT within thirty (30) days of such action.
SECTION TWENTY
Governing Law
This Agreement shall be construed and interpreted in accordance with and
governed and enforced in all respects by the laws of the state of defending
party, excluding the choice of law rules thereof.
SECTION TWENTY-ONE
Addenda
This Agreement is subject to the terms and conditions set forth in any attached
Exhibits, memoranda, or other addenda which may by written agreement of the
parties, subsequently be appended hereto. The parties agree to the terms and
conditions of all such addenda which shall be incorporated herein by reference
with the same force and effect as if originally included herein.
SECTION TWENTY-TWO
Entire Agreement
This Agreement, and all Exhibits attached hereto and made a part hereof,
constitutes the entire agreement between CLIENT and PHI with regard to the
matters set forth herein. This Agreement may be amended or modified in whole or
in part at any time only by an agreement in writing executed by authorized
parties.
SECTION TWENTY-THREE
Further Documents
The parties agree to execute all further documents which may be necessary to
effectuate the terms of this Agreement.
SECTION TWENTY-FOUR
Construction of Terms
The titles and headings of this Agreement are inserted for informational
purposes only and shall
9
<PAGE>
<PAGE>
effect neither the meaning of the terms nor the intent of the parties. It is
further agreed this Agreement shall be binding upon, and shall inure to the
benefit of the heirs, executors, permitted assigns, transferees and successors
in interest of the parties hereto, notwithstanding the reorganization, merger,
consolidation or change in personnel of either party.
IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective
Date written above.
CLIENT NMHCS PROSPECTIVE HEALTH, INC.
By: /s/ Linda Portney By: /s/ Ron G. Roma
------------------------- ----------------------------
Title: President Title: C.E.O. 3/3/98
---------------------- ----------------------------
2/23/98
10
<PAGE>
<PAGE>
Exhibit A
System Functionality
The System includes PHI's ProNET, ProPBM, ProCLIENT, and ProANALYST Applications
(as described in documentation attached hereto (the ProPBM Eligibility Guide,
the ProANALYST System Reference Guide, the ProPBM Technical Reference Guide -
ProSWITCH, and the ProPBM Application Description) and made a part hereof
[System Documentation], all specifications and representations made by PHI
regarding version 2.11, and any additional functionality and interfaces in
development for the CLIENT as described in detail in Exhibit B.
<PAGE>
<PAGE>
EXHIBIT B
System Functionality in Development
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Flex Code
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-1
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Client includes in their hierarchy of eligibility, a field called flex code. The
flex code is contained on the incoming eligibility record from the client and is
housed on the member eligibility record. It is primarily used for reporting
purposes, but it is imperative that CLIENT be able to determine which flex code
was on a member's record at the time of adjudication and thus will be attached
to the Rx Transaction Detail. It is important that the flex code be tied to the
member's record. CLIENT must be able to, not only look back at the flex code
that was present at adjudication, but also know what benefit structure was tied
to that flex code. The flex code is currently 10 characters in length. The flex
code, as it is on the member record, needs to have effective and termination
dates tied to it. Address information is also required as flex codes tie to
specific employers.
Scope:
PHI will create a separate table which holds flex codes, customer, client, group
identifiers and address data. An unlimited number of flex codes (along with
effective and termination date for each code) can be attached to a member. This
will require another list form and detail form. Because of the current limit of
5 characters imposed on user-defined codes, PHI will have to create another
selection, detail and list form.
Overview: Analysis - 1 day Front end - 2 days Batch Process - 1/2 day QA -
4 day
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Accumulated Benefit Tiers
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-2
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
PHI will provide the ability to attach a copay schedule to the tier levels, the
way you can currently attach a different price schedule.
Scope:
PHI will accomplish this by embedding the copay into the price schedule that is
attached at the tier level. PHI will then add copay schedules to each tier under
the Individual and Family columns in Accumulated Benefits Maintenance. The
adjudication process will need to make the determination of which copay takes
precedence.
Overview:
Analysis - 1/2 day Front end - 1/2 day OLTP - 1 day QA - 3 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 40
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Shoe Box Processing
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-3
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Client will have certain plans that have the shoe box option that can apply to
retail, mail order or both. The claim will be submitted through POS and then
require member to submit paper claim in order to receive reimbursement. Upon
receipt of the DMR (match on NABP, DOS, and Rx#), the POS claim would then be
reversed and the DMR would be adjudicated based on the benefit structure
established. The claim would be priced according to the AWP that was in place at
the time the prescription was dispensed. The copay at POS will be different than
the copay of the DMR claim.
Scope:
A new function will be added to the ProPBM application where the user could
specifically select a claim. Upon selecting the claim the user could then submit
the claim through the reversal and adjudication process. This submission will
follow a different rule (because it is a DMR claim process) than the POS claim
followed.
Overview: Analysis - 2 day Front end - 4 days OLTP - 3 day QA - 7 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 128
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Customer ID on Physician File
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-4
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
The intention is to associate a specific customer or group of customers with a
group of physicians. PHI will provide functionality that will relate a specific
customer or group of customers to one or many physicians. This could be
accomplished with the customer ID on every physician record or by setting a list
of physicians and attaching the list to a customer.
Scope:
This project may require schema changes. The adjudication of claims will need to
recognize the relationship between customers and physicians and the appropriate
edits.
Overview:
Analysis - 1 day Front end - 2 days OLTP - 1 day QA - 3 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 56
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Additional Information on Rejected Claims
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-5
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Rejected claims to have pricing information recorded in the data base under
calculated fields. This will occur on all rejected claims so that NMHC can use
this information to report savings to clients. For example, NMHC has a plan
whereby all transactions require a prior authorization to pay. The transactions
would be adjudicated against plan parameters and regardless of whether they were
considered payable or not, the claim would be priced and the resulting
information recorded. The pharmacist is then required to call for a prior
authorization before the claim is actually released for payment.
Scope:
In order to price rejected claims, a minimum amount of information is required
on the transaction. This information is date filled, NDC, member information,
and quantity. Beyond this data requirement, a valid price schedule is needed to
price the rejected claim.
Overview: Analysis - 2 days Front end - 1/2 day OLTP - 4 days QA -5 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 92
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: ID Card Enhancements
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-6
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Currently the system allows the user to indicate the number of cards per family
to be issued. NMHC wants the ability to indicate that each family member is to
receive a card. PHI's card production batch process should not indicate more
cards to be produced than eligible family members. Elaine Levy noted that there
are additional fields that need to be included as Card Production Parameters.
These fields follow:
Individual card, Number of cards
Family card, Number of cards
Dependents on family card? (Y/N)
Charge for cards? (Y/N)
Card fee
Bill for postage? (Y/N)
Postage fee
Get dependent card data from (either member or dependent) Produce Card
Billing Report by flex? (Y/N) Name of card format file (8 characters) Card
Stock (10 characters should be enough. We currently have 25)
Scope:
A flag will be added to the Card Production Parameters screen to allow the user
to select the option they prefer. If they choose manual entry of the number of
cards, they may then enter the number of cards which should be printed for each
family. If they choose one per family member option, the card printing batch
process will need to recognize that flag and print the appropriate number of
cards for each family. The additional fields noted in the objective above will
be available for entry and stored. They will be used in the creation of the ID
card extract file and/or used in complementary processes.
Overview: Analysis - 1/2 day Front end - 1/2 day OLTP - 1/2 day QA - 2 days
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: ID Card Request
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-7
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
The system needs to have the ability to request an ID card through the
eligibility load process. The request for a card should be possible for a
member, a family, or an individual.
Scope:
The batch load process will need to be modified to recognize a request for an ID
card. The specifics require the batch process, upon recognition, to mark the
card request as if it were keyed on the screen. Strict attention will be taken
to include all edits in place on the screen process.
Overview:
Analysis - 1/2 day Batch Process - 1/2 day QA - 2 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 24
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Enhancement of Rx Transaction Detail
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-8
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Enhance the Rx Transaction Detail screen to note which fields are submitted
values versus calculated values. In addition, there are fields that need to be
added to the Rx Transaction Detail. These additional fields need to be displayed
on the screen. The fields are flex code, and one other ten byte member field
that are populated at adjudication time.
Scope:
The grouping of information on the screen will be modified per PHI specification
to include those items referenced, here, in exhibit 'B'. The data will be
displayed in an order to be more acceptable to all customers that view the data.
It is important to the client that they be able to view the all data from the Rx
Transaction Detail screens.
Overview:
Analysis - 1/2 day Front end - 1/2 day QA - 1 day
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 16
QA Analyst:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Additional Effective and Termination Date Tiers
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-9
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Client requires unlimited effective date tiers at the member level.
Scope:
For each member record, every tier needs to be available for viewing and to
adjudication. PHI will allow for an unlimited number of effective date tiers for
each member.
Overview:
Analysis - 2 days Front end - 3 days OLTP - 3 days QA - 10 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 144
QA Analyst:
Status Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: DUR Enhancements
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-10
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Further information about DUR occurrences is needed for reporting and editing
purposes. Client wants the ability to vary the type of editing that is done on
DUR (i.e. reject or accept for information only ) Although there are several
drug to drug edits that would fall within a severity one edit, Client may want
to reject only certain ones. PHI would need to rely on coding from MediSpan to
further define the exact edit that is hit. If this is possible, the information
would need to be stored on the Rx Log record. In addition, Client would like
enough additional information regarding the claim in history that caused the
drug to drug interaction, such as pharmacy and physician, that would uniquely
identify the claim. Client is also interested in being able to know when a
preferred drug list was used in the adjudication of a claim.
Scope:
In terms of the Front End, the greatest effort will be in the display and
parameter entry. Some changes may be required to DUR Exceptions. Also,
additional information may need to be viewed on the transaction in history. This
additional information will allow the client to uniquely identify the claim in
history that caused the drug to drug interaction. From the adjudication
prospective, there would need to be a new table developed that allows the user
to enter the conflict code, priority, response (reject or warn), GPI, and
severity level. This new table(s) would be attached at the Client/Customer/Group
level and cause adjudication to recognize the type of response on the DUR
conflict code, priority, GPI and severity. Also, adjudication will be modified
to indicate that a preferred drug list was used. This will be accomplished by
adding a new column attached to the transaction that will be set if a preferred
drug list was used during the adjudication of the prescription.
Overview: Analysis - 1 day Front end - 1 day OLTP - 3 days QA - 8 days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt. 0
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: NMHC Logo
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-11
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
Replace the PHI logo with the NMHC logo where ever it is used in the
application.
Scope:
ProCLAIM allows the user to specify the location of the graphic they wish
displayed on the Splash Screen, Menu Switchboard and About Box. This will be
implemented in the Front End with some additional coding and form changes to the
Login screen.
Overview:
Analysis - 1 day Front end - 1 day QA - 1/2 day
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs: 20
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Eligibility Validation
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-12
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
The system needs the ability to specify when the maximum age limit is met (i.e.
1st of the month following the date of birth, end of the month in which the
birth date occurred, etc.) The list of possibilities for age validation cutoff
criteria are as follows:
Up to birth date Through birth date Through birth week
Through birth month Through birth year Through
specified date
Scope:
PHI will add indicator to Customer, Client, Group, and Member to indicate when
the maximum age limit is reached. The OLTP, Front End, and Batch Code will need
to check this flag when adding eligibility and/or checking the age limit.
Overview:
Analysis - 1 day Front end - 1 day OLTP - 1 day Batch Process - 1 day QA - 3
days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
<PAGE>
<PAGE>
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Eligibility Changes Logged
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-13
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective:
The system needs the ability to log all changes made to eligibility.
Scope:
Functionality will be added to the eligibility processes (batch and manual) that
tracks all change activity. This includes all fields at the member level. These
changes will be available for viewing by the user.
Overview:
Analysis - day Front end - day Batch Process - day QA - days
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
Scheduled Release: TBD
Est. Prog./Analysis Hrs:
QA Analyst:
Status Date:
Notes: Release Date:
<PAGE>
<PAGE>
Exhibit B
System Functionality in Development
PHI Enhancement Request Form - Exhibit B
Enhancement Name: Additional Group Number Fields
Product Type:
Enhancement Number: Front End OLTP Database
Date Entered in QA Log: 01/02/98 Batch Other
Contact Name: Linda Portney
Company: NMHC
Application:
Telephone Number: (516) 626-0007 Ext: 201
Batch Extracts ProClaim
Customer Project ID: Exhibit B-14
Batch Loads ProCLIENT
Priority: High
Data Dictionary ProINTERCEPT
Customer Request Date: 04/01/97
Data Migration ProPBM
Current Release: 2.11.1
PHI Comm Interface QA log
Account Manager: Not Assigned
ProANALYST System
Administrator
Objective: CLIENT has requested the availability of fields that they did not
recognize on the PHI tables. Some fields must be available at the plan (group)
level, while others must be available at the member level. PHI will work with
the CLIENT to satisfy the new field needs utilizing existing fields. In the
event that the fields are not available, PHI agrees to include those additional
fields that would be deemed beneficial. PHI will assist the CLIENT in making the
fields available for display and storage, but the fields will not be used during
the adjudication process.
Scope: The list of plan (group) fields CLIENT wants added will be developed as
the mapping of existing data is completed. List of member fields CLIENT wants
added are: Other ID (9 characters), CCLIID (12 characters), Office copay (4
characters minimum), Card expiration date, Flex 1 (10 characters), Flex 2 (10
characters), Flex 3 (10 characters), Employment code (2 characters) [ full time,
part time, retired full time, retired part time, Cobra full time, Cobra part
time, Other], Dependent code - This is another person code
Overview:
Approval:
Charge: 0
Modification Charge: 0
Status: New
Est. Billable Amt: 0
<PAGE>
<PAGE>
Exhibit C
Installation and Training
PHI and CLIENT agree as follows to complete the Installation, Implementation and
Training of the System at CLIENT's site:
INSTALLATION
SELECTION OF PERSONNEL. PHI shall make reasonable efforts consistent with sound
business practices to honor the specific requests of Client with respect to the
assignment of PHI personnel as Project Leader and members of the Project Team.
PHI warrants that all PHI personnel assigned to the Project Team will be
appropriately qualified to perform such services.
REPLACEMENT OF PERSONNEL. CLIENT reserves the right to request and obtain the
replacement of any PHI personnel whose performance CLIENT reasonable finds to be
inadequate or inappropriate. PHI may reassign and/or replace key personnel
assigned to the Project Team with others having comparable education and
experience with the System, subject to the express approval of CLIENT. Such
approval will not be unreasonably withheld but may be denied if, in CLIENT's
reasonable judgment, such reassignment and/or replacement will be detrimental to
the successful completion of implementation.
CONCURRENT ASSIGNMENT. CLIENT acknowledges that PHI key personnel assigned to
the Project Team may also perform similar services for others from time to time
and that this Agreement shall not prevent PHI from using such personnel to
perform services for others. However, in the event that such services to other
parties are judged by CLIENT to in appropriately delay the completion of
implementation, PHI agrees that services for CLIENT will take precedence over
such services to other parties.
PHI will work diligently with CLIENT's selected hardware vendors and operations
personnel to ensure appropriateness and completeness of all hardware components,
but will not be held responsible for functionality of the hardware itself. Said
responsibility is solely held by the selected hardware vendors. CLIENT agrees to
make appropriate data processing operations personnel available for review and
consultation during the installation of hardware by hardware vendors.
PHI will install the ProNET, ProPBM, ProCLIENT, and ProANALYST software with
modifications so as to comply and conform to the specifications detailed in
Exhibits A and B hereof on CLIENT supplied hardware at CLIENT site. Said
installation will occur after installation of hardware and on or before March 1,
1998 and will include:
1) Verification of installed hardware components for completeness.
2) Defining and configuring the telecommunications equipment and CLIENT
supplied communications links between hardware and CLIENT selected network
provider (NDC, ENVOY, etc.)
3) Defining proper connectivity between CLIENT supplied personal computers
and local area network and the PHI software.
4) Loading and configuring the PHI front-end software on said personal
computers.
5) Installing and configuring the ORACLE database on CLIENT supplied database
hardware platform.
6) Assist and train CLIENT personnel in the conversion of CLIENT supplied
existing claims history
<PAGE>
<PAGE>
Exhibit C (cont'd)
Installation and Training
from CLIENT's current system, using software provided by PHI for such
purpose described in Exhibit A above. CLIENT will be responsible for
becoming proficient in the use of said software for the purpose of ongoing
claims history conversion after the Test Period.
(7) Assist and train CLIENT personnel in the use of Eligibility load programs,
financial interface programs and card production interface programs
developed for CLIENT by PHI as described in Exhibit A above. CLIENT will
be responsible for processing associated with each of these programs
during and after the Test Period.
At the completion of the installation of the software and training as outlined
in this exhibit, CLIENT and PHI shall recognize it as the Completion of
Installation.
PHI agrees that the environment will be configured and tested to ensure proper
claim switching, adjudication and that reports can be generated from the System
CLIENT personnel.
CLIENT agrees to provide access to all CLIENT site areas as appropriate and
operations personnel as required for PHI to effect items 1) through 4) above.
CLIENT further agrees to assist PHI in items 6) through 7) above so as to become
proficient in the ongoing conversion and interface software developed by PHI for
CLIENT and to verify completeness of the application modifications and the
System.
TRAINING
PHI will provide a minimum of ten days of training at CLIENT site.
PHI will make available a minimum of two qualified trainers who have extensive
experience with the PHI software and the necessary skills to teach. The training
is divided into two categories: Technical Training and PBM Administration
Training. The specific areas discussed for each are specified in the
accompanying training syllabus. CLIENT will receive this and other such training
as to ensure CLIENT's personnel become proficient in the use of the System. At
the end of such training it is anticipated that CLIENT will be prepared to use
the System. in a production mode.
CLIENT agrees to provide industry knowledgeable personnel capable of learning
the System and becoming proficient in the use of the application as described
above.
<PAGE>
<PAGE>
Exhibit C (cont'd)
Technical Training Syllabus
NMHC Prescription Management
NT Switch with Unix Oracle ProPBM server
Transaction switch server
Sever configuration NTserver
Model
Disk drive allocations
RAID configurations
ProSwitch Discussion NTserver
Overview
Installation
Directory Structure
Production and test environments
Communication protocols
Communications layer
TCP/IP
Application layer
Discussion of application and specific customer modifications
Configuration and routing tables routing Administration and monitor
functionality Open forum
ProPBM application; NTserver
Overview of design
NT services (component overview)
Pre and Post adjudication functionality, highlighting key components
NT applications Oracle applications Software upgrades NT directory
structure
Test environs
Transfer mechanism
System monitoring
NT tools
PHI developed tools
Problem determination and resolution
PHI services
Application support
Open forum
<PAGE>
<PAGE>
Exhibit C (cont'd)
Technical Training Syllabus
NMHC Prescription Management
NT Switch with Unix Oracle ProPBM server
Application server
ProPBM application; Unix Oracle server
Server configuration Model Disk drive allocations RAID configurations
Oracle/PHI database layout Overview of design Directory structure for
rdbms
Directory structure for PHI application components Application
Packages Database backup and recovery Oracle rdbms PHI model Third
party providers Monitoring tools Oracle rdbms PHI products Third party
providers PHI services Application support Database support Oracle
services Network Application Customer support Open forum
<PAGE>
<PAGE>
Exhibit C (cont'd)
Administration Training Syllabus
ProPBM Administration Training
1. Strategy Training
a. Overview of coverage strategies
b. Setting up a new strategy
c. Correlating to benefit design
2. Building Exception Lists
a. What constitutes an exception
b. Building tables
c. Reusing an exception list
3. Building Formularies
a. Starting with an open formulary b. Starting with a closed formulary
c. Using drug class level editing d. Using therapy class level editing
e. Using GPI class editing f. Using NDC number editing g. Using
preferred products
4. Building Pharmacy Networks
a. Entering individual pharmacies
b. Building a chain
c. Building a network
d. Building a super pharmacy network
5. Building DUR Strategies
a. Overview of MediSpan's The Solution
b. Options available when setting up DUR strategies
6. Building Accumulated Benefits Strategies
a. Overview of accumulated benefits
b. Working with deductibles
c. Understanding out-of-pocket
d. Options for setting up strategies
<PAGE>
<PAGE>
Exhibit C (cont'd)
Administration Training Syllabus
ProPBM Administration Training
7. Building Pricing Strategies
a. Pricing from AWP b. Comparing different pricing formulas c.
Correlating pricing to DAW codes d. Attaching price schedules to
pharmacies
8. Building Copay Strategies
a. Standard copay structure
b. Creative copay structures
c. Changing copays with specific drug classes or NDCs
9. Understanding the Help Desk Features
a. Reviewing Rx Transaction Log
b. Reviewing Rx Transaction Detail
c. Finding and reviewing paid or rejected claims
d. Prior Authorizations
10. Security System
a. Setting up security for different levels
b. Security for ProCLIENT
11. ProANALYST Training
a. Ordering standard reports
b. Setting up date and range parameters
c. Using SQR
d. Using Speedware
e. Ad hoc reporting
<PAGE>
<PAGE>
Exhibit D,
Contract Services
Contract Services rates will be guaranteed as long as Maintenance Fees are
current and are as follows:
Training $1000. / day $125. / hour
Consultant $1200. / day $150. / hour
Senior Consultant $1600. / day $200. / hour
Database Admin. $2000. / day $250. / hour
<PAGE>
<PAGE>
Exhibit E
Support Services
GENERAL SUPPORT
PHI's regular business hours are 8:00 a.m. to 6:00 p.m. Central Standard Time
(CST) Monday through Friday (excluding Holidays). In the event of a severe error
or defect, CLIENT may call and receive after-hours assistance according to the
following protocol:
TELEPHONE SUPPORT. For all errors or defects reported by CLIENT in the
performance of the System, CLIENT will assign a severity level and PHI will
respond in accordance with the schedule set forth below:
Severity 1: Prevents the System from being effectively and
substantially utilized for its intended purpose.
Response: PHI will provide a response through qualified
members of its staff by using best efforts on
a priority basis 24 hours per day, 7 days per
week, to correct the errors or defects and
advise CLIENT accordingly. On Severity 1
errors or defects, PHI personnel will respond
and commence efforts to correct the problem
within two (2) hours.
Severity 2: Disables nonessential Product functions.
Response: PHI will provide a response through qualified
members of its staff by using reasonable
efforts to take no more than fourteen (14)
days, whatever corrective action is necessary
to correct the error or defect and advise
CLIENT accordingly. Every effort will be made
to accommodate the CLIENT within 5 days.
Severity 3: Produces an inconvenient situation in which the System is
usable, but does not provide a function in the most convenient
or expeditious manner, and the user suffers little or no
significant impact.
Response: PHI will exercise best efforts to resolve such
errors in the next maintenance release.
Severity 4: Produces a noticeable situation in which the use of the
System is affected in some way which is reasonably correctable
by a documentation change or by a future regular release from
PHI.
Response: PHI will provide, as agreed by the parties, a
fix or fixes for such errors in subsequent
maintenance releases.
<PAGE>
<PAGE>
Exhibit F
Implementation Schedule
As soon as the Agreement is executed and initial payment made, PHI will meet
with a team from CLIENT's facility to outline the final specifications and
schedule including all specific assignments, names of responsible parties, and
dates for completion. A time frame for key events, however, is included below.
If PHI does not perform the specific assignments described below in the time
frames indicated, CLIENT may withhold monthly license payments ($25,000) until
the month when assignment is complete. Once assignment is complete, CLIENT will
pay any monthly license payments that were withheld as well as the current
month's payment.
Late- February:
PHI begins working on Exhibit B projects.
Mid-March:
PHI installs software at CLIENT's location. (INSTALL SOFTWARE)
INSTALL SOFTWARE is defined as a PHI employee performing the
following functions:
1. Examine the hardware to determine its readiness for our software
2. Lay out the database to PHI specifications
3. Create schema structures
4. Populate the tables with required data
5. Load the applications
6. Determine the directory structures are in place
7. Set-up the routers to communicate with the database
It normally takes 2 to 4 days to INSTALL SOFTWARE. This assumes the
CLIENT has preconfigured the server with the required DASDI. PHI
will physically install Oracle for CLIENT.
An initial meeting will be held to discuss CLIENT's overall business
strategy in order for PHI to make recommendations as to business
hierarchy (use of customer, client and group, including flex codes).
A planning meeting is held and PHI begins reviewing interfaces and
data conversion with CLIENT. Assignments are given to appropriate
personnel to ensure that all interfaces and history loads will be
completed in a timely manner.
<PAGE>
<PAGE>
Mid April:
PHI holds overview training (1st round) with CLIENT's employees.
CLIENT's employees begin working with the system, setting up plans
and loading files.
TBD after Planning Meeting, But No Later Than June 1st:
History loads have been completed and CLIENT begins testing of the
plan strategies, networks, eligibility loads, formularies and
provider files. COMPLETION of TRAINING occurs which is defined as
all ten days of training have been given and all subjects outlined
in Exhibit C have been covered with CLIENT's staff.
PHI delivers software enhancement projects from Exhibit B. TEST
PERIOD begins (CLIENT has software installed and staff has been
trained, Historical data resides on the system and enhancements have
been delivered.) CLIENT can run a parallel test with current system.
August 1st:
TEST PERIOD of sixty days is completed and CLIENT has notified PHI
of any deficiencies in the system. If there are no deficiencies
noted, PHI will assume there is ACCEPTANCE of the SYSTEM. ACCEPTANCE
OF THE SYSTEM means the CLIENT agrees the System adjudicates
pharmacy claims with all of the functionality described in Exhibits
A and B.
<PAGE>
<PAGE>
Exhibit G
Performance Guarantees
1. Adjudication time will not exceed 4 seconds. Ninety percent (90%) of
claims will be adjudicated in less than 2.5 seconds.
2. Hardware as recommended in Exhibit G will be able to adjudicate 50,000 to
65,000 claims in an eight (8) hour day.
3. System and hardware configuration as described in Exhibit G will be
scaleable from current volumes up to 1,000,000 claims per month.
4. PHI guarantees that there are no additional passwords necessary to operate
and modify the System other than security passwords made known to CLIENT
and whose control has been provided to CLIENT.
5. If a new release of the product requires changes in the System or hardware
requirements, sixty (60) days notice will be given.
6. PHI assures that all changes to the System as outlined in Exhibit B will
become part of the standard version of the System supported by PHI, in the
next release.
7. There will be no CLIENT specific hardcoding (i.e. data dependent, logic)
unless authorized by CLIENT.
8. PHI will adhere to the timeline for installation as outlined in Exhibit F,
unless delays are caused by forces outside PHI's control (i.e. CLIENT or
their contracted employees do not meet project dates as assigned.)
9. PHI assures that all software is 2000 compliant.
10. PHI assures that there is no data dependent logic in the programs.
11. PHI will provide a VB front end version of ProCLIENT prior to Test Period
that will accommodate a minimum of 4 and potentially more clients per
server. The VB product is more efficient at handling input and output,
therefore the productivity of each server should be better than current
tests show.
Should System (with hardware that meets specifications outlined in this exhibit)
not meet the performance guarantees outlined above in the first year, CLIENT
shall have the right to withhold $25,000 monthly payments until performance does
meet these standards. At such time, CLIENT will pay for any and all monthly
payments that had been withheld. After first year, if performance guarantees are
not met, CLIENT shall have the right to withhold monthly maintenance fees
(currently $6,000 per month) without risking termination of contract, and
withholding such fees until performance guarantees are met. At such time, CLIENT
shall pay any and all back payments that had been withheld. PHI will abide by
Severity levels outlined in Exhibit E in terms of the specific time frame for
addressing performance problems.
<PAGE>
<PAGE>
HARDWARE SPECIFICATIONS
CLIENT shall obtain from their preferred source either a leased data or frame
relay line to be run from their offices in Port Washington, New York, to the PHI
offices in Palos Heights, Illinois. The line should have the following
characteristics:
56 Kilobit or faster
TCP/IP Router at both ends
CLIENT has obtained an HP 9000 computer platform, which is acceptable for PHI to
install the ProPBM application. In addition, CLIENT will need a second platform
which could be another HP 9000 for Decision Support, Fail Over, Testing, and
Reporting purposes. In addition, CLIENT shall also purchase two NT boxes, for
the purpose of running ProNET. The characteristics of the hardware is described
in detail in the attached listing.
<PAGE>
<PAGE>
Sandata D370/2-Way
New System
HP9000 Series D37C/2 Way
Model:
0370/2
Includes:
2-Way SMP Server, 120MHz 8 I/0 Slots, 4 EISA/HSC, 3 EISA, 1HSC
Single-Ended SCSI-2 w/Extemal Connector Parallel Centronics; Console Port
802:3 EtherTwist LAN HP-UX Operating System w/2 User License Hot-Swap
Internal FWD Disk Drives Factory Integration; Three year on-site warranty
Qty Part Number
HP9000Series 800 Business Server 1 A3562A Model D370/2 SMP Server 1 A3562A\3Y3
3 Year Warranty Upgrade 1 A3562A\OS4 System and Network Configurati 1
A2440A HP-UX 2-User Operating System 1 A2440A\ABA English system manuals 1
A2440A\OD1 S/800 Software PreLoaded 1 A2440A\APZ HP-UX version 10.20 1
B3897A HP-UX Licenses, Media S/800 1 B3897A\AGS Unlimited user media
specifica 1 83897A\AJG CD-ROM media and certificate 1 B3897A\3YN Phone
Asst/LTU For Unlimited U 1 B3921CA HP-UX version 10.20 manuals 1
B3921CA\3Y3 3 Year Warranty Upgrade 1 B3921CA\OBC Manuals on CD-ROM
System Cabinet:
2 A1897A 1.6M, 32 EIA 19" Rack, UX
2 A1897A\3Y3 3 Year Warranty Upgrade
2 A1897A\ABA U.S. 200-2-40V power distributi
1 E4468A 1.6M Cabinet Tie-Together
1 K2296 SCSI-2 screw to SCSI-1 bail ca
1 E4468A\OS4 System and network configurati
3 92227B ThinLAN Coaxial Cable, 2M
1 A3384A Rack Kit, D-Class, 17 EIA, New
CDI; Quote File Ref =
SANDTD37.XLS; Quote Rev =;
Date = 2/26/97 BUDGETARY
Quotation - Page 2
<PAGE>
<PAGE>
System Memory:
4 A3408A 128MB ECC Memory Mod, D-Class
4 A3408A\DISC Memory discount qty 4 or more
4 A3408A\OD1 Factory integrated
4 A3408A\3Y3 Telephone/4-hr System Support
System Disk:
2 A3306A 2GB FWD Hot Swap Disk, D-Class
2 A3306A\OD1 Factory integrated
2 A3306A\3Y3 3 Year Warranty Upgrade
Back-Up Storage Devices:
1 A3416A Quad Speed 600MB CD-ROM Driv
1 A3416A\ODS Complimentary CD ROM Drive
1 A3416A\3Y3 3 Year Warranty Upgrade
Additional I/0 Products:
2 A4107A Fast-Wide SCSI-2 Controller
2 A4107A\3Y3 3 Year Warranty Upgrade
2 A4107A\0D1 Factory integrated
1 A2679A EISA SE SCSI-2 Host Adapt
1 A2679A\3Y3 3 Year Warranty Upgrade
1 A2679A\0D1 Factory integrated
1 A2579A\AFT 1.5 meter SCSI cable and termi
1 A3658A EISA LAN Adapter
1 J2780AA\AHO EISA LAN Adapter License Tier I
1 J2781AA\APZ HP-UX vers. 10.20
1 J2781AA\AAU CD-ROM Certificate
1 J2782AA EISA LAN Adapter Manuals
System Console:
1 C1064AX Console, Amber
1 C1064AX\ABA US Keyboard
1 C1064AX\3Y3 3 Year Warranty Upgrade
Performance & System Management Software
1 B2491A MirrorDisk/UX
1 B2491A\AHO Tier 1 License
1 B2491A\3Y3 3 Year Warranty Upgrade
1 B2491A\APZ HP-UX version 10.20
1 B2491A\AAU LVM Mirroring Software for SCS
1 B3692AA GlancePlus, S/800
1 B3692AA\AHO Tier 1 License
1 B3692AA\3Y3 3 Year Warranty Upgrade
1 B3693AA GlancePlus Manual & Media S800
CDI; Quote File Ref=
SANDTD37.XLS: Quote Rev = ;
Date = 2/26/97 BUDGETARY
Quotation - Page 3
<PAGE>
<PAGE>
1 B3693AA\AAU CD-ROM certificate for HP Glan
1 B3693AA\APZ HP-UX version 10.20
1 B3693AA\OD1 Factory Integration opt, HP G
1 B3693AA\3Y3 3 Year Warranty Upgrade
Disk & Tape Storage Products
2 C2905A SCSI III Term., 68 Pin, Hi Den 1 7980SR Rmkt 1600/6250CPI, 1/2"
Tape 1 7980SR\OS3 TELE/4 hr 1 7980SR\100 Specifies 1.0 meter, 19-inch c 1
7980SR\200 Specify standard 1600/6250 bpi
<PAGE>
<PAGE>
Sandata - HP Auto Raid Array
Additional Products
Model:
Includes:
Qty Part Number
- ---------------------------------------------------------
Disk & Tape Storage Products
1 A3516A Rackmnt Disk Array w/AutoRAID
1 A3516A\3Y3 3 Year Warranty Upgrade
1 A3516A\0S4 System and network configurati
1 A3516A\002 Second power supply
2 A3516A\803 5.0M 68 Pin HD Male/68 Pin HD
1 A3516A\AAU CD-ROM Certificate
1 A3516A\APZ HP-UX version 10.20
1 A3516A\125 Qty 5 of 4.3GB Disk Drive Modu
<PAGE>
National Medical Health Card Systems, Inc.
1999 Stock Option Plan
1. Purpose of the Plan. The National Medical Health Card
Systems, Inc. 1999 Stock Option Plan (the "Plan") is intended to advance the
interests of National Medical Health Card Systems, Inc. (the "Company") by
inducing individuals and eligible entities (as hereinafter provided) of
outstanding ability and potential to join and remain with, or provide consulting
or advisory services to, the Company, by encouraging and enabling eligible
employees, non-employee Directors, consultants and advisors to acquire
proprietary interests in the Company, and by providing the participating
employees, non-employee Directors, consultants and advisors with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options," which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later defined, to
employees, non-employee Directors, consultants and advisors.
2. Administration. The Plan shall be administered by the Board
of Directors of the Company (the "Board of Directors") or by a committee (the
"Committee") consisting of at least one (1) person chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option granted under it shall be final and conclusive. The
receipt of Options by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the Plan.
3. Shares Subject to the Plan. The stock subject to Options
granted under the Plan shall be shares of the Company's common stock, par value
$.001 per share (the "Common Stock"), whether authorized but unissued or held in
the Company's treasury, or shares purchased
1
<PAGE>
from stockholders expressly for use under the Plan. The maximum number of shares
of Common Stock which may be issued pursuant to Options granted under the Plan
shall not exceed in the aggregate one million six hundred fifty thousand
(1,650,000) shares plus such number of shares of Common Stock issuable upon the
exercise of Reload Options (as hereinafter defined) granted under the Plan,
subject to adjustment in accordance with the provisions of Section 14 hereof.
The Company shall at all times while the Plan is in force reserve such number of
shares of Common Stock as will be sufficient to satisfy the requirements of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for
Options under the Plan.
4. Participation. The class of individual or entity that shall
be eligible to receive Options under the Plan shall be (a) with respect to
Incentive Stock Options described in Section 6 hereof, all employees (including
officers) of either the Company or any subsidiary corporation of the Company,
and (b) with respect to Nonstatutory Stock Options described in Section 7
hereof, all employees (including officers) and non-employee Directors of, or
consultants and advisors to, either the Company or any subsidiary corporation of
the Company; provided, however, that Nonstatutory Stock Options shall not be
granted to any such consultants and advisors unless (i) bona fide services have
been or are to be rendered by such consultant or advisor and (ii) such services
are not in connection with the offer or sale of securities in a capital raising
transaction. For purposes of the Plan, for an entity to be an eligible entity,
it must be included in the definition of "employee" for purposes of a Form S-8
Registration Statement filed under the Securities Act of 1933, as amended (the
"Act"). The Board of Directors or the Committee, in its sole discretion, but
subject to the
2
<PAGE>
provisions of the Plan, shall determine the employees and non-employee Directors
of, and the consultants and advisors to, the Company and its subsidiary
corporations to whom Options shall be granted, and the number of shares to be
covered by each Option, taking into account the nature of the employment or
services rendered by the individuals or entities being considered, their annual
compensation, their present and potential contributions to the success of the
Company, and such other factors as the Board of Directors or the Committee may
deem relevant.
5. Stock Option Agreement. Each Option granted under the Plan
shall be authorized by the Board of Directors or the Committee, and shall be
evidenced by a Stock Option Agreement which shall be executed by the Company and
by the individual or entity to whom such Option is granted. The Stock Option
Agreement shall specify the number of shares of Common Stock as to which any
Option is granted, the period during which the Option is exercisable, the option
price per share thereof, and such other terms and provisions as the Board of
Directors or the Committee may deem necessary or appropriate.
6. Incentive Stock Options. The Board of Directors or the
Committee may grant Options under the Plan, which are intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and which are subject to the following terms and conditions and
any other terms and conditions as may at any time be required by Section 422 of
the Code (referred to herein as an "Incentive Stock Option"):
(a) No Incentive Stock Option shall be granted to individuals other than
employees of the Company or of a subsidiary corporation of the Company.
(b) Each Incentive Stock Option under the Plan must be granted prior to
February 9, 2009, which is within ten (10) years from the date the Plan was
adopted by the Board
3
<PAGE>
of Directors of the Company.
(c) The option price of the shares subject to any Incentive Stock Option
shall not be less than the fair market value of the Common Stock at the
time such Incentive Stock Option is granted; provided, however, if an
Incentive Stock Option is granted to an individual who owns, at the time
the Incentive Stock Option is granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of a
parent or subsidiary corporation of the Company (a "Principal
Stockholder"), the option price of the shares subject to the Incentive
Stock Option shall be at least one hundred ten percent (110%) of the fair
market value of the Common Stock at the time the Incentive Stock Option is
granted. (d) No Incentive Stock Option granted under the Plan shall be
exercisable after the expiration of ten (10) years from the date of its
grant. However, if an Incentive Stock Option is granted to a Principal
Stockholder, such Incentive Stock Option shall not be exercisable after the
expiration of five (5) years from the date of its grant. Every Incentive
Stock Option granted under the Plan shall be subject to earlier termination
as expressly provided in Section 12 hereof. (e) For purposes of determining
stock ownership under this Section 6, the attribution rules of Section
424(d) of the Code shall apply. (f) For purposes of the Plan, fair market
value shall be determined by the Board of Directors or the Committee. If
the Common Stock is listed on a national securities exchange or The Nasdaq
Stock Market ("Nasdaq") or traded on the NASD OTC Electronic Bulletin Board
(the "Bulletin Board") or the Over-the-Counter market, fair market value
shall be the closing selling price or, if not available, the closing bid
price or, if not available, the high bid price of the Common Stock quoted
on such exchange or Nasdaq, or as reported by the Bulletin Bord or, with
respect to the Over- the-Counter market, the National Quotation Bureau,
Incorporated or other reporting bureau, on the day immediately preceding
the day on which the Option is granted (or, if granted after the close of
trading, on the day on which the Option is granted), or, if there is no
selling or bid price on that day, the closing selling price, closing bid
price or high bid price on the most recent day which precedes that day and
for which such prices are available. If there is no selling or bid price
for the thirty (30) day period preceding the date of grant of an Option
hereunder, fair market value shall be determined in good faith by the Board
of Directors or the Committee. 7. Nonstatutory Stock Options. The Board of
Directors or the Committee may grant Options under the Plan which are not
intended to meet the requirements of Section 422 of the Code, as well as
Options which are intended to meet the requirements of Section 422 of the
Code but the terms of which provide that they will not be treated as
Incentive Stock Options (referred to herein as a "Nonstatutory Stock
Option"). Nonstatutory Stock Options shall be subject to the following
terms and conditions: (a) A Nonstatutory Stock Option may be granted to any
individual or entity eligible to receive an Option under the Plan pursuant
to Section 4(b) hereof. (b) The option price of the shares subject to a
Nonstatutory Stock Option shall be determined by the Board of Directors or
the Committee, in its sole discretion, at the time of the grant of the
Nonstatutory Stock Option. (c) A Nonstatutory Stock Option granted under
the Plan may be of such duration as shall be determined by the Board of
Directors or the Committee (subject to earlier termination as expressly
provided in Section 12 hereof). 8. Reload Feature. The Board of Directors
or the Committee may grant Options
4
<PAGE>
with a reload feature. A reload feature shall only apply when the option price
is paid by delivery of Common Stock (as set forth in Section 13(b)(ii)). The
Stock Option Agreement for the Options containing the reload feature shall
provide that the Option holder shall receive, contemporaneously with the payment
of the option price in shares of Common Stock, a reload stock option (the
"Reload Option") to purchase that number of shares of Common Stock equal to the
sum of (i) the number of shares of Common Stock used to exercise the Option, and
(ii) with respect to Nonstatutory Stock Options, the number of shares of Common
Stock used to satisfy any tax withholding requirement incident to the exercise
of such Nonstatutory Stock Option. The terms of the Plan applicable to the
Option shall be equally applicable to the Reload Option with the following
exceptions: (i) the option price per share of Common Stock deliverable upon the
exercise of the Reload Option, (A) in the case of a Reload Option which is an
Incentive Stock Option being granted to a Principal Stockholder, shall be one
hundred ten percent (110%) of the fair market value of a share of Common Stock
on the date of grant of the Reload Option and (B) in the case of a Reload Option
which is an Incentive Stock Option being granted to an individual or entity
other than a Principal Stockholder or is a Nonstatutory Stock Option, shall be
the fair market value of a share of Common Stock on the date of grant of the
Reload Option; and (ii) the term of the Reload Option shall be equal to the
remaining option term of the Option (including a Reload Option) which gave rise
to the Reload Option. The Reload Option shall be evidenced by an appropriate
amendment to the Stock Option Agreement for the Option which gave rise to the
Reload Option. In the event the exercise price of an Option containing a reload
feature is paid by check and not in shares of Common Stock, the reload feature
shall have no application with respect to such exercise.
9. Rights of Option Holders. The holder of any Option granted
under the Plan
5
<PAGE>
shall have none of the rights of a stockholder with respect to the stock covered
by his Option until such stock shall be transferred to him upon the exercise of
his Option.
10. Alternate Stock Appreciation Rights.
(a) Concurrently with, or subsequent to, the award of any Option to
purchase one or more shares of Common Stock, the Board of Directors or the
Committee may, in its sole discretion, subject to the provisions of the
Plan and such other terms and conditions as the Board of Directors or the
Committee may prescribe, award to the optionee with respect to each share
of Common Stock covered by an Option ("Related Option"), a related
alternate stock appreciation right ("SAR"), permitting the optionee to be
paid the appreciation on the Related Option in lieu of exercising the
Related Option. An SAR granted with respect to an Incentive Stock Option
must be granted together with the Related Option. An SAR granted with
respect to a Nonstatutory Stock Option may be granted together with, or
subsequent to, the grant of such Related Option. (b) Each SAR granted under
the Plan shall be authorized by the Board of Directors or the Committee,
and shall be evidenced by an SAR Agreement which shall be executed by the
Company and by the individual or entity to whom such SAR is granted. The
SAR Agreement shall specify the period during which the SAR is exercisable,
and such other terms and provisions not inconsistent with the Plan. (c) An
SAR may be exercised only if and to the extent that its Related Option is
eligible to be exercised on the date of exercise of the SAR. To the extent
that a holder of an SAR has a current right to exercise, the SAR may be
exercised from time to time by delivery by the holder thereof to the
Company at its principal office (attention: Secretary) of a written notice
of the number of shares with respect to which it is being exercised. Such
notice shall be accompanied by the
6
<PAGE>
agreements evidencing the SAR and the Related Option. In the event the SAR
shall not be exercised in full, the Secretary of the Company shall endorse
or cause to be endorsed on the SAR Agreement and the Related Option
Agreement the number of shares which have been exercised thereunder and the
number of shares that remain exercisable under the SAR and the Related
Option and return such SAR and Related Option to the holder thereof. (d) An
optionee may exercise an SAR only when the market price on the exercise
date of a share of Common Stock subject to the Related Option exceeds the
exercise price per share of the Related Option (the "SAR Spread"). The
amount of payment to which an optionee shall be entitled upon the exercise
of each SAR shall be equal to one hundred percent (100%) of the SAR Spread;
provided, however, the Company may, in its sole discretion, withhold from
any such cash payment any amount necessary to satisfy the Company's
obligation for withholding taxes with respect to such payment. (e) The
amount payable by the Company to an optionee upon exercise of a SAR may, in
the sole determination of the Company, be paid in shares of Common Stock,
cash or a combination thereof, as set forth in the SAR Agreement. In the
case of a payment in shares, the number of shares of Common Stock to be
paid to an optionee upon such optionee's exercise of an SAR shall be
determined by dividing the amount of payment determined pursuant to Section
10(d) hereof by the fair market value of a share of Common Stock on the
exercise date of such SAR. For purposes of the Plan, the exercise date of
an SAR shall be the date the Company receives written notification from the
optionee of the exercise of the SAR in accordance with the provisions of
Section 10(c) hereof. As soon as practicable after exercise, the Company
shall either deliver to the optionee the amount of cash due such optionee
or a certificate or certificates for such shares of
7
<PAGE>
Common Stock. All such shares shall be issued with the rights and
restrictions specified herein.
(f) SARs shall terminate or expire upon the same conditions and in the same
manner as the Related Options, and as set forth in Section 12 hereof.
(g) The exercise of any SAR shall cancel and terminate the right to
purchase an equal number of shares covered by the Related Option.
(h) Upon the exercise or termination of any Related Option, the SAR with
respect to such Related Option shall terminate to the extent of the number
of shares of Common Stock as to which the Related Option was exercised or
terminated. (i) No SAR granted pursuant to the Plan shall be transferable
by the individual or entity to whom it was granted otherwise than by will
or the laws of descent and distribution, and, during the lifetime of an
individual, shall not be exercisable by any other person, but only by him.
11. Transferability. No Option granted under the Plan shall be transferable
by the individual or entity to whom it was granted otherwise than by will
or the laws of descent and distribution, and, during the lifetime of an
individual, shall not be exercisable by any other person, but only by him.
12. Termination of Employment or Death. (a) Subject to the terms of the
Stock Option Agreement, if the employment of an employee by, or the
services of a non-employee Director for, or consultant or advisor to, the
Company or a subsidiary corporation of the Company shall be terminated for
cause or voluntarily by the employee, non-employee Director, consultant or
advisor, then his or its Option shall expire forthwith. Subject to the
terms of the Stock Option Agreement, and except as provided in subsections
(b) and (c) of this Section 12, if such employment or services shall
terminate for any
8
<PAGE>
other reason, then such Option may be exercised at any time within
three (3) months after such termination, subject to the provisions of
subsection (d) of this Section 12. For purposes of the Plan, the
retirement of an individual either pursuant to a pension or retirement
plan adopted by the Company or at the normal retirement date
prescribed from time to time by the Company shall be deemed to be
termination of such individual's employment other than voluntarily or
for cause. For purposes of this subsection (a), an employee,
non-employee Director, consultant or advisor who leaves the employ or
services of the Company to become an employee or non-employee Director
of, or a consultant or advisor to, a subsidiary corporation of the
Company or a corporation (or subsidiary or parent corporation of the
corporation) which has assumed the Option of the Company as a result
of a corporate reorganization, etc., shall not be considered to have
terminated his employment or services.
(b) Subject to the terms of the Stock Option Agreement, if the holder
of an Option under the Plan dies (i) while employed by, or while
serving as a non-employee Director for or a consultant or advisor to,
the Company or a subsidiary corporation of the Company, or (ii) within
three (3) months after the termination of his employment or services
other than voluntarily by the employee or non-employee Director,
consultant or advisor, or for cause, then such Option may, subject to
the provisions of subsection (d) of this Section 12, be exercised by
the estate of the employee or non-employee Director, consultant or
advisor, or by a person who acquired the right to exercise such Option
by bequest or inheritance or by reason of the death of such employee
or non-employee Director, consultant or advisor at any time within one
(1) year after such death. (c) Subject to the terms of the Stock
Option Agreement, if the holder of an Option under the Plan ceases
employment or services because of permanent and total disability
9
<PAGE>
(within the meaning of Section 22(e)(3) of the Code) while employed
by, or while serving as a non-employee Director for or consultant or
advisor to, the Company or a subsidiary corporation of the Company,
then such Option may, subject to the provisions of subsection (d) of
this Section 12, be exercised at any time within one (1) year after
his termination of employment, termination of Directorship or
termination of consulting or advisory services, as the case may be,
due to the disability.
(d) An Option may not be exercised pursuant to this Section 12 except
to the extent that the holder was entitled to exercise the Option at
the time of termination of employment, termination of Directorship,
termination of consulting or advisory services, or death, and in any
event may not be exercised after the expiration of the Option.
(e) For purposes of this Section 12, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company
will be treated as continuing intact while he is on military or sick
leave or other bona fide leave of absence (such as temporary
employment by the Government) if such leave does not exceed ninety
(90) days, or, if longer, so long as his right to reemployment is
guaranteed either by statute or by contract. 13. Exercise of Options.
(a) Unless otherwise provided in the Stock Option Agreement, any
Option granted under the Plan shall be exercisable in whole at any
time, or in part from time to time, prior to expiration. The Board of
Directors or the Committee, in its absolute discretion, may provide in
any Stock Option Agreement that the exercise of any Options granted
under the Plan shall be subject (i) to such condition or conditions as
it may impose, including, but not limited to, a condition that the
holder thereof remain in the employ or service of, or continue to
provide consulting or advisory
10
<PAGE>
services to, the Company or a subsidiary corporation of the Company
for such period or periods from the date of grant of the Option as the
Board of Directors or the Committee, in its absolute discretion, shall
determine; and (ii) to such limitations as it may impose, including,
but not limited to, a limitation that the aggregate fair market value
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any calendar
year (under all plans of the Company and its parent and subsidiary
corporations) shall not exceed one hundred thousand dollars
($100,000). For purposes of the preceding sentence, the fair market
value of any stock shall be determined as of the date the option with
respect to such stock is granted. In addition, in the event that under
any Stock Option Agreement the aggregate fair market value of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any employee during any calendar
year (under all plans of the Company and its parent and subsidiary
corporations) exceeds one hundred thousand dollars ($100,000), the
Board of Directors or the Committee may, when shares are transferred
upon exercise of such Options, designate those shares which shall be
treated as transferred upon exercise of an Incentive Stock Option and
those shares which shall be treated as transferred upon exercise of a
Nonstatutory Stock Option. (b) An Option granted under the Plan shall
be exercised by the delivery by the holder thereof to the Company at
its principal office (attention of the Secretary) of written notice of
the number of shares with respect to which the Option is being
exercised. Such notice shall be accompanied, or followed within ten
(10) days of delivery thereof, by payment of the full option price of
such shares, and payment of such option price shall be made by the
holder's delivery of (i) his check payable to the order of the
Company; (ii) previously acquired Common Stock, the fair market value
of which shall be determined as of the date of exercise; (iii) if
provided in the Stock
11
<PAGE>
Option Agreement at the discretion of the Board or Committee, a
promissory note made payable to the Company accompanied by cash
payment of the par value of the Common Stock being purchased; or (iv)
by the holder's delivery of any combination of the foregoing (i), (ii)
and if provided in the Stock Option Agreement at the discretion of the
Board or Committee, (iii).
14. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter
changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of
shares, reverse split, stock dividend or the like, an appropriate
adjustment shall be made by the Board of Directors or the Committee in
the aggregate number of shares available under the Plan and in the
number of shares and option price per share subject to outstanding
Options. If the Company shall be reorganized, consolidated, or merged
with another corporation, the holder of an Option shall be entitled to
receive upon the exercise of his Option the same number and kind of
shares of stock or the same amount of property, cash or securities as
he would have been entitled to receive upon the happening of any such
corporate event as if he had been, immediately prior to such event,
the holder of the number of shares covered by his Option; provided,
however, that in such event the Board of Directors or the Committee
shall have the discretionary power to take any action necessary or
appropriate to prevent any Incentive Stock Option granted hereunder
which is intended to be an "incentive stock option" from being
disqualified as such under the then existing provisions of the Code or
any law amendatory thereof or supplemental thereto. (b) Any adjustment
in the number of shares shall apply proportionately to only the
unexercised portion of the Option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be
revised to the next lower whole number of shares.
12
<PAGE>
15. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the shares issuable
upon such exercise have been registered with the Securities and
Exchange Commission pursuant to the Act, the notice of exercise shall
be accompanied by a representation or agreement of the person or
estate exercising the Option to the Company to the effect that such
shares are being acquired for investment purposes and not with a view
to the distribution thereof, or such other documentation as may be
required by the Company, unless in the opinion of counsel to the
Company such representation, agreement or documentation is not
necessary to comply with the Act. (b) The Company shall not be
obligated to deliver any Common Stock until it has been listed on each
securities exchange or stock market on which the Common Stock may then
be listed or until there has been qualification under or compliance
with such federal or state laws, rules or regulations as the Company
may deem applicable. The Company shall use reasonable efforts to
obtain such listing, qualification and compliance. 16. Effectiveness
of the Plan. The Plan was adopted by the Board of Directors on
February 9, 1999. The Plan shall be subject to approval on or before
February 8, 2000, which is within one (1) year of adoption of the Plan
by the Board of Directors, by a majority of the votes cast at a
meeting of stockholders of the Company by the holders of shares
entitled to vote thereon (or, in the case of action by written consent
in lieu of a meeting of stockholders, the number of votes required by
applicable law to act in lieu of a meeting) ("Stockholder Approval").
In the event such Stockholder Approval is withheld or otherwise not
received on or before the latter date, the Plan and, subject to the
terms of the Stock Option Agreement, all Options that may have been
granted hereunder shall become null and void.
13
<PAGE>
17. Termination, Modification and Amendment.
(a) The Plan (but not Options or SARs previously granted under the
Plan) shall terminate on February 8, 2009, which is within ten (10)
years from the date of its adoption by the Board of Directors of the
Company, or sooner as hereinafter provided, and no Option shall be
granted after termination of the Plan. (b) The Plan may from time to
time be terminated, modified, or amended if Stockholder Approval of
the termination, modification or amendment is obtained. (c) In
addition, the Board of Directors may at any time, on or before the
termination date referred to in Section 17(a) hereof, terminate the
Plan, or from time to time make such modifications or amendments to
the Plan as it may deem advisable; provided, however, that the Board
of Directors shall not, without Stockholder Approval, increase (except
as otherwise provided by Section 14 hereof) the maximum number of
shares as to which Options may be granted hereunder, change the
designation of individuals or entities eligible to receive Options,
make any other change which would prevent any Incentive Stock Option
granted hereunder which is intended to be an "incentive stock option"
from qualifying as such under the then existing provisions of the Code
or any law amendatory thereof or supplemental thereto, or adopt any
modification or amendment which, pursuant to the applicable law,
requires Stockholder Approval. (d) No termination, modification, or
amendment of the Plan may, without the consent of the individual or
entity to whom any Option shall have been granted, adversely affect
the rights conferred by such Option. 18. Not a Contract of Employment.
Nothing contained in the Plan or in any Stock Option Agreement
executed pursuant hereto shall be deemed to confer upon any individual
14
<PAGE>
or entity to whom an Option is or may be granted hereunder any right
to remain in the employ or service of the Company or a subsidiary
corporation of the Company or any entitlement to any remuneration or
other benefit pursuant to any consulting or advisory arrangement.
19. Use of Proceeds. The proceeds from the sale of shares
pursuant to Options granted under the Plan shall constitute general funds of the
Company.
20. Indemnification of Board of Directors or Committee. In
addition to such other rights of indemnification as they may have, the members
of the Board of Directors or the Committee, as the case may be, shall be
indemnified by the Company to the extent permitted under applicable law against
all costs and expenses reasonably incurred by them in connection with any
action, suit, or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any rights granted thereunder and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment of any such
action, suit or proceeding, except a judgment based upon a finding of bad faith.
Upon the institution of any such action, suit, or proceeding, the member or
members of the Board of Directors or the Committee, as the case may be, shall
notify the Company in writing, giving the Company an opportunity at its own cost
to defend the same before such member or members undertake to defend the same on
his or their own behalf.
21. Captions. The use of captions in the Plan is for
convenience. The captions are not intended to provide substantive rights.
22. Disqualifying Dispositions. If Common Stock acquired upon
exercise of an Incentive Stock Option granted under the Plan is disposed of
within two years following the date of grant of the Incentive Stock Option or
one year following the issuance of the Common Stock to the
15
<PAGE>
Optionee, or is otherwise disposed of in a manner that results in the optionee
being required to recognize ordinary income, rather than capital gain, from the
disposition (a "Disqualifying Disposition"), the holder of the Common Stock
shall, immediately prior to such Disqualifying Disposition, notify the Company
in writing of the date and terms of such Disqualifying Disposition and provide
such other information regarding the Disqualifying Disposition as the Company
may reasonably require.
23. Withholding Taxes. Whenever under the Plan shares of
Common Stock are to be delivered by an optionee upon exercise of a Nonstatutory
Stock Option, the Company shall be entitled to require as a condition of
delivery that the optionee remit or, in appropriate cases, agree to remit when
due, an amount sufficient to satisfy all current or estimated future Federal,
state and local income tax withholding requirements, including, without
limitation, the employee's portion of any employment tax requirements relating
thereto. At the time of a Disqualifying Disposition, the optionee shall remit to
the Company in cash the amount of any applicable Federal, state and local income
tax withholding and the employee's portion of any employment taxes.
24. Other Provisions. Each Option granted under the Plan may
contain such other terms and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, in its sole discretion.
Notwithstanding the foregoing, each Incentive Stock Option granted under the
Plan shall include those terms and conditions which are necessary to qualify the
Incentive Stock Option as an "incentive stock option" within the meaning of
Section 422 of the Code and the regulations thereunder and shall not include any
terms and conditions which are inconsistent therewith.
25. Definitions. For purposes of the Plan, the terms "parent
corporation" and
16
<PAGE>
"subsidiary corporation" shall have the meanings set forth in Sections 424(e)
and 424(f) of the Code, respectively, and the masculine shall include the
feminine and the neuter as the context requires.
26. Governing Law. The Plan shall be governed by, and all
questions arising hereunder shall be determined in accordance with, the laws of
the State of New York.
17
<PAGE>
<PAGE>
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated July 1, 1997 between Bert E. Brodsky, with an
office address at 26 Harbor Park Drive, Port Washington, New York, 11050
("Brodsky") and Mary Casale, residing at 822 Cedar Avenue, Haddonfield, NJ 08033
("the Optionee").
WHEREAS, the Optionee is a key employee of National Medical Health
Card Systems, Inc. (the "Company"); and
WHEREAS, Brodsky, a major shareholder in the Company, desires to
afford the Optionee the ability to acquire a proprietary interest in the
Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements hereinafter set forth, the parties hereto hereby mutually agree as
follows:
1. GRANT OF OPTION Subject to the terms and conditions hereinafter set
forth, Brodsky hereby grants to the Optionee, the option to purchase during the
period specified in Paragraph 2, all of or any part of 2,000,000 shares (the
"Shares") of the Common Stock of the Company par value $.001 per Share (the
"Common Stock"), which Shares when issued upon the exercise of such option and
paid for in accordance with the terms hereof shall be fully paid and
nonassessable (the "Option").
2. PERIOD AND EXERCISE
A. The Option granted hereunder shall become exercisable as follows:
i. 20% shall be exercisable on a date two years from the date hereof;
1
<PAGE>
<PAGE>
ii. 20% shall be exercisable on a date three years from the date
hereof;
iii. 20% shall be exercisable on a date four years from the date
hereof;
iv. 20% shall be exercisable on a date five years from the date
hereof;
v. 20% shall be exercisable on a date six years from the date hereof;
and shall terminate on a date seven years from the date hereof (the "Termination
Date").
The Option must be exercised in whole (or in part, if not fully
vested), on a date one year after termination of Optionee's employment with the
Company or eight (8) years from the date hereof, whichever is earlier.
During the term of the Option, Brodsky may in his sole discretion at
any time accelerate the Optionee's right to exercise the Option with respect to
all or any portion of the Common Stock covered by the Option and, with the
consent of the Optionee, impose in connection with such acceleration such other
conditions or restrictions on the Option, or any Common Stock acquired upon the
exercise of the Option, as Brodsky in his sole discretion deems appropriate.
B. For the purposes of this Agreement, employment may be considered
continuous although interrupted by a leave of absence authorized by the Company;
provided, however, that the Optionee shall return to service on or prior to the
expiration of such leave of absence.
Should the Company authorize such leave of absence, Brodsky may, in
his discretion, give credit for the time of such leave in computing whether
sufficient time, pursuant
2
<PAGE>
<PAGE>
to Paragraph 2, has elapsed for the Option or any part thereof to be exercised.
In no event, however, may the Option be exercised beyond the Termination Date.
C. This Option may be exercised pursuant to its terms by the
Optionee's giving written notice thereof to Brodsky at his address above, which
exercise shall be effective upon receipt of such notice. Such notice shall
specify the number of Shares of Common Stock with respect to which the Option is
being exercised. The notice shall be accompanied by payment in full of the
Purchase Price specified in Paragraph 3 for such Shares in cash or certified or
bank cashier's check payable to the order of Brodsky.
D. If a registration statement under the Securities Act of 1933, as
amended (the "Act"), is not then in effect with respect to the Shares issuable
upon exercise of this Option, then it shall be a condition precedent to the
exercise of this Option that the Optionee provide Brodsky with a written
undertaking, satisfactory to Brodsky, that she is acquiring the Shares for her
own account for investment and not with a view to the distribution thereof and
all certificates representing the Shares issued upon exercise of the Option
shall bear an appropriate restrictive legend.
In the event that this Option is exercised pursuant to Paragraph 11,
by any person other than the Optionee, the aforesaid undertaking shall also be
accompanied by appropriate proof of the right of such person to exercise the
same.
3. PURCHASE PRICE
Subject to the provisions of Paragraph 7, the Purchase Price per Share
of Common Stock subject to this Option shall be $.75 (the "Purchase Price").
Such price has been
3
<PAGE>
<PAGE>
found by the Company to be not less than 100% of the fair market value per Share
as of the date hereof.
4. CANCELLATION OF OPTION
Subject to the consent of the Optionee, Brodsky may, from time to
time, cancel all or any portion of the Option then subject to exercise, and
Brodsky's obligation in respect of such Option may be discharged by (i) payment
to the Optionee of an amount in cash equal to the excess, if any, of the
aggregate fair market value of the Shares at the date of such cancellation
subject to the portion of the Option so cancelled over the aggregate Purchase
Price of such shares, (ii) the issuance or transfer to the Optionee of shares of
stock with a fair market value, at the date of such transfer, equal to any such
excess, or (iii) a combination of cash and shares with a combined value equal to
any such excess.
5. TERMINATION OF EMPLOYMENT
A. GENERAL RULE Except as provided in Paragraph 5(B), if the
Optionee's employment with the Company is terminated for any reason, then the
Option granted hereunder shall expire one year after such termination (without
regard to any severance pay, vacation pay or other payments upon termination),
and all rights to purchase Shares of Common Stock which the Optionee would have
been able to purchase under Paragraph 2, shall terminate on such day.
B. DEATH, DISABILITY OR RETIREMENT If the Optionee's employment with
the Company is terminated for any reason described in this Paragraph 5(B), then
the Optionee, or her beneficiaries or legal representatives, as the case may be,
shall have the right, within the following period of time subsequent to such
termination, to exercise the Option to purchase the
4
<PAGE>
<PAGE>
number of Shares which the Optionee would have been able to purchase under
Paragraph 2 on the date before her termination:
i. one year when termination of employment is without cause;
ii. 6 months when termination of employment is caused by death or the
Optionee dies within 30 days after termination of employment for any reason
described in Paragraph 5 (B) (iii); and
iii. one year when termination is caused by Permanent or Total
Disability.
As used herein, "Permanent and Total Disability" means permanent and
total disability as defined in Section 105 (d) (4) of the Code, as evidenced by
a certificate from a qualified physician to the effect that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than 12
months.
6. COMPLIANCE WITH SECURITIES LAWS The granting and exercise of this
Option and Brodsky's obligation to deliver stock pursuant to an exercise of this
Option shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by a regulatory or governmental agency as may
be required. Accordingly, if in the opinion of the Company, Shares subject to
Options are required to be registered under the Act and such registration has
not been effected or a Prospectus complying with the requirements of Section 10
of the Act is not available for delivery upon exercise of this Option, then
Brodsky shall not be
5
<PAGE>
<PAGE>
required to deliver the Shares subject to the Option to the extent being
exercised until the registration has been effected and the Prospectus made
available. Pending satisfaction of the foregoing, such exercise shall be deemed
suspended and there shall be returned to the person exercising this Option the
proceeds representing the Purchase Price. In such event, Brodsky shall provide
notice to the Optionee or her representative of the satisfaction of the
foregoing registration condition, whereupon the right to exercise this Option
shall be reinstated.
7. CAPITAL ADJUSTMENT
A. If the Company is separated or reorganized, or merged or
consolidated with another corporation, there shall be substituted for the Shares
issuable upon exercise of the outstanding Options an appropriate number of
shares of each class of stock, other securities or other assets of the separated
or reorganized, or merged or consolidated corporation which were distributed to
the shareholders of the Company in respect of such Shares; provided, however,
that the Option may be exercised in full by the Optionee as of the effective
date of any such separation, reorganization, merger, or consolidation of the
Company without regard to the installment exercise provisions of Paragraph 2, by
the Optionee giving notice in writing to Brodsky of her intention to so
exercise.
B. If the Company is liquidated or dissolved then all outstanding
portions of the Option may be exercised in full by the Optionee as of the
effective date of any such liquidation or dissolution of the Company without
regard to the installment exercise provisions of Paragraph 2, by the Optionee
giving notice in writing to Brodsky of her intention to so exercise.
6
<PAGE>
<PAGE>
C. If the outstanding Shares of Common Stock shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, recapitalization, extraordinary dividend
payable in stock of a corporation other than the Company, or otherwise in cash,
or any other like event by or of the Company, and as often as the same shall
occur, then the number, class and kind of Shares subject to this Option and the
Purchase Price for such Shares shall be appropriately and equitably adjusted so
as to maintain the proportionate number of Shares without changing the aggregate
Purchase Price; provided, however, no adjustment shall be made by reason of the
distribution or subscription rights on outstanding stock.
8. NO OTHER ADJUSTMENT
Except as provided in Paragraph 7, no adjustments shall be made for
dividends or other rights for which the record date shall be prior to the
issuance of a stock certificate to the Optionee by reason of her exercise of
this Option.
9. RIGHTS IN OPTION STOCK
The Optionee shall not be or have any rights or privileges of a
shareholder of the Company in respect of any Shares purchasable upon the
exercise of any part of this Option unless and until certificates representing
such Shares shall have been issued by the Company to such holder.
10. STOCK RESERVED
Brodsky shall at all times during the term of this Agreement reserve
and keep available such number of Shares of Common Stock as will be sufficient
to satisfy the
7
<PAGE>
<PAGE>
requirements of this Agreement and shall pay all original issue taxes, if any,
on the exercise of this Option, and all other fees and expenses necessarily
incurred by Brodsky in connection therewith.
11. RESTRICTIONS ON TRANSFERS
A. Notwithstanding anything to the contrary herein contained, neither
this Option nor any rights represented hereby shall be transferable or
assignable by the Optionee otherwise than by will or under the laws of descent
and distribution, nor shall this Option be sold, pledged, hypothecated or
encumbered. This Option shall be exercisable during the Optionee's lifetime only
by the Optionee, and any attempt to transfer or assign this Option in violation
of the foregoing shall be void and of no force or effect.
B. Shares of Common Stock acquired upon the exercise of this Option
may not be transferred except in accordance with all applicable federal and
state securities laws, rules and regulations. The Company may require investment
or residency representations from the Optionee or impose other restrictions
prior to issuance of Shares to the Optionee or transfer of such Shares by the
Optionee.
12. NOTICES
All notices which are provided for under any of the provisions of this
Agreement shall be in writing and shall be given by registered or certified
mail, return receipt requested. Any such notice shall be effective upon actual
receipt by the person to whom such notice is to be given; provided, however,
that in the case of notices to the Optionee or to her legal representative or
beneficiary, such notice shall be effective upon delivery if delivered
personally
8
<PAGE>
<PAGE>
or three business days after mailing, registered first class postage prepaid, to
the last known address of the person to whom notice is to be given. All notices
required to be given to Brodsky or to his legal representative or beneficiary,
shall be addressed to him at the address of Brodsky set forth above, or at such
other address as he may designate by notice hereunder.
13. FRACTIONAL SHARE
The Company shall not be required to issue any fractional Share upon
exercise of this Option, but it shall pay to the Optionee, or to her legal
representatives or beneficiaries who acquire the right to exercise this Option
by bequest or inheritance on the death of the Optionee, the cash equivalent of
any fractional Share interests, as determined in the sole discretion of Brodsky.
14. OPTIONS
Brodsky may modify, extend or renew this Option or accept the
surrender of this Option (to the extent not theretofore exercised) and authorize
the granting of new options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, however, no modification
of this Option shall, without the consent of the Optionee, impair any rights or
obligations under the Option.
15. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New York. If any provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
9
<PAGE>
<PAGE>
Brodsky shall have the right to require the Optionee or, if
applicable, the Optionee's legal representatives or beneficiaries to pay to
Brodsky the amount of any taxes which Brodsky is required to withhold or pay
with respect to the exercise of any Option granted hereunder or any subsequent
disposition of Common Stock issued upon exercise of an Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first written above.
BERT E. BRODSKY
---------------------------------
BERT E. BRODSKY
MARY CASALE
---------------------------------
MARY CASALE
10
<PAGE>
<PAGE>
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated December 7, 1998 between Bert E. Brodsky, with
an office address at 26 Harbor Park Drive, Port Washington, New York, 11050
("Brodsky") and Marjorie O'Malley, residing at 28 Loyal Ledge Lane, Guilford, CT
06437 ("the Optionee").
WHEREAS, the Optionee is a key employee of National Medical Health
Card Systems, Inc. (the "Company"); and
WHEREAS, Brodsky, a major shareholder in the Company, desires to
afford the Optionee the ability to acquire a proprietary interest in the
Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements hereinafter set forth, the parties hereto hereby mutually agree as
follows:
1. GRANT OF OPTION Subject to the terms and conditions hereinafter set
forth, Brodsky hereby grants to the Optionee, the option to purchase during the
period specified in Paragraph 2, all of or any part of 500,000 shares (the
"Shares") of the Common Stock of the Company par value $.001 per Share (the
"Common Stock"), which Shares when issued upon the exercise of such option and
paid for in accordance with the terms hereof shall be fully paid and
nonassessable (the "Option").
2. PERIOD AND EXERCISE
A. The Option granted hereunder shall become exercisable as follows:
i. 20% shall be exercisable on a date two years from the date hereof;
ii. 20% shall be exercisable on a date three years from the date
hereof;
1
<PAGE>
<PAGE>
iii. 20% shall be exercisable on a date four years from the date
hereof;
iv. 20% shall be exercisable on a date five years from the date
hereof;
v. 20% shall be exercisable on a date six years from the date hereof;
and shall terminate on a date seven years from the date hereof (the "Termination
Date").
The Option must be exercised in whole (or in part, if not fully
vested), on a date one year after termination of Optionee's employment with the
Company or seven (7) years from the date hereof, whichever is earlier.
During the term of the Option, Brodsky may in his sole discretion at
any time accelerate the Optionee's right to exercise the Option with respect to
all or any portion of the Common Stock covered by the Option and, with the
consent of the Optionee, impose in connection with such acceleration such other
conditions or restrictions on the Option, or any Common Stock acquired upon the
exercise of the Option, as Brodsky in his sole discretion deems appropriate.
B. For the purposes of this Agreement, employment may be considered
continuous although interrupted by a leave of absence authorized by the Company;
provided, however, that the Optionee shall return to service on or prior to the
expiration of such leave of absence.
Should the Company authorize such leave of absence, Brodsky may, in
his discretion, give credit for the time of such leave in computing whether
sufficient time, pursuant to Paragraph 2, has elapsed for the Option or any part
thereof to be exercised. In no event, however, may the Option be exercised
beyond the Termination Date.
2
<PAGE>
<PAGE>
C. This Option may be exercised pursuant to its terms by the
Optionee's giving written notice thereof to Brodsky at his address above, which
exercise shall be effective upon receipt of such notice. Such notice shall
specify the number of Shares of Common Stock with respect to which the Option is
being exercised. The notice shall be accompanied by payment in full of the
Purchase Price specified in Paragraph 3 for such Shares in cash or certified or
bank cashier's check payable to the order of Brodsky.
D. If a registration statement under the Securities Act of 1933, as
amended (the "Act"), is not then in effect with respect to the Shares issuable
upon exercise of this Option, then it shall be a condition precedent to the
exercise of this Option that the Optionee provide Brodsky with a written
undertaking, satisfactory to Brodsky, that she is acquiring the Shares for her
own account for investment and not with a view to the distribution thereof and
all certificates representing the Shares issued upon exercise of the Option
shall bear an appropriate restrictive legend.
In the event that this Option is exercised pursuant to Paragraph 11,
by any person other than the Optionee, the aforesaid undertaking shall also be
accompanied by appropriate proof of the right of such person to exercise the
same.
3. PURCHASE PRICE
Subject to the provisions of Paragraph 7, the Purchase Price per Share
of Common Stock subject to this Option shall be $.75 (the "Purchase Price").
Such price has been found by the Company to be not less than 100% of the fair
market value per Share as of the date hereof.
3
<PAGE>
<PAGE>
4. CANCELLATION OF OPTION
Subject to the consent of the Optionee, Brodsky may, from time to
time, cancel all or any portion of the Option then subject to exercise, and
Brodsky's obligation in respect of such Option may be discharged by (i) payment
to the Optionee of an amount in cash equal to the excess, if any, of the
aggregate fair market value of the Shares at the date of such cancellation
subject to the portion of the Option so cancelled over the aggregate Purchase
Price of such shares, (ii) the issuance or transfer to the Optionee of shares of
stock with a fair market value, at the date of such transfer, equal to any such
excess, or (iii) a combination of cash and shares with a combined value equal to
any such excess.
5. TERMINATION OF EMPLOYMENT
A. GENERAL RULE Except as provided in Paragraph 5(B), if the
Optionee's employment with the Company is terminated for any reason, then the
Option granted hereunder shall expire one year after such termination (without
regard to any severance pay, vacation pay or other payments upon termination),
and all rights to purchase Shares of Common Stock which the Optionee would have
been able to purchase under Paragraph 2, shall terminate on such day.
B. DEATH, DISABILITY OR RETIREMENT If the Optionee's employment with
the Company is terminated for any reason described in this Paragraph 5(B), then
the Optionee, or her beneficiaries or legal representatives, as the case may be,
shall have the right, within the following period of time subsequent to such
termination, to exercise the Option to purchase the number of Shares which the
Optionee would have been able to purchase under Paragraph 2 on the date before
her termination:
i. one year when termination of employment is without cause;
4
<PAGE>
<PAGE>
ii. 6 months when termination of employment is caused by death or the
Optionee dies within 30 days after termination of employment for any reason
described in Paragraph 5 (B) (iii); and
iii. one year when termination is caused by Permanent or Total
Disability.
As used herein, "Permanent and Total Disability" means permanent and
total disability as defined in Section 105 (d) (4) of the Code, as evidenced by
a certificate from a qualified physician to the effect that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than 12
months.
6. COMPLIANCE WITH SECURITIES LAWS The granting and exercise of this
Option and Brodsky's obligation to deliver stock pursuant to an exercise of this
Option shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by a regulatory or governmental agency as may
be required. Accordingly, if in the opinion of the Company, Shares subject to
Options are required to be registered under the Act and such registration has
not been effected or a Prospectus complying with the requirements of Section 10
of the Act is not available for delivery upon exercise of this Option, then
Brodsky shall not be required to deliver the Shares subject to the Option to the
extent being exercised until the registration has been effected and the
Prospectus made available. Pending satisfaction of the foregoing, such exercise
shall be deemed suspended and there shall be returned to the person exercising
this Option the proceeds representing the Purchase Price. In such event, Brodsky
shall
5
<PAGE>
<PAGE>
provide notice to the Optionee or her representative of the satisfaction of the
foregoing registration condition, whereupon the right to exercise this Option
shall be reinstated.
7. CAPITAL ADJUSTMENT
A. If the Company is separated or reorganized, or merged or
consolidated with another corporation, there shall be substituted for the Shares
issuable upon exercise of the outstanding Options an appropriate number of
shares of each class of stock, other securities or other assets of the separated
or reorganized, or merged or consolidated corporation which were distributed to
the shareholders of the Company in respect of such Shares; provided, however,
that the Option may be exercised in full by the Optionee as of the effective
date of any such separation, reorganization, merger, or consolidation of the
Company without regard to the installment exercise provisions of Paragraph 2, by
the Optionee giving notice in writing to Brodsky of her intention to so
exercise.
B. If the Company is liquidated or dissolved then all outstanding
portions of the Option may be exercised in full by the Optionee as of the
effective date of any such liquidation or dissolution of the Company without
regard to the installment exercise provisions of Paragraph 2, by the Optionee
giving notice in writing to Brodsky of her intention to so exercise.
C. If the outstanding Shares of Common Stock shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, recapitalization, extraordinary dividend
payable in stock of a corporation other than the Company, or otherwise in cash,
or any other like event by or of the Company, and as often as the same shall
occur, then the number, class and kind of Shares subject to this Option and the
Purchase Price for such Shares shall be appropriately and equitably adjusted so
as to maintain the
6
<PAGE>
<PAGE>
proportionate number of Shares without changing the aggregate Purchase Price;
provided, however, no adjustment shall be made by reason of the distribution or
subscription rights on outstanding stock.
8. NO OTHER ADJUSTMENT
Except as provided in Paragraph 7, no adjustments shall be made for
dividends or other rights for which the record date shall be prior to the
issuance of a stock certificate to the Optionee by reason of her exercise of
this Option.
9. RIGHTS IN OPTION STOCK
The Optionee shall not be or have any rights or privileges of a
shareholder of the Company in respect of any Shares purchasable upon the
exercise of any part of this Option unless and until certificates representing
such Shares shall have been issued by the Company to such holder.
10. STOCK RESERVED
Brodsky shall at all times during the term of this Agreement reserve
and keep available such number of Shares of Common Stock as will be sufficient
to satisfy the requirements of this Agreement and shall pay all original issue
taxes, if any, on the exercise of this Option, and all other fees and expenses
necessarily incurred by Brodsky in connection therewith.
7
<PAGE>
<PAGE>
11. RESTRICTIONS ON TRANSFERS
A. Notwithstanding anything to the contrary herein contained, neither
this Option nor any rights represented hereby shall be transferable or
assignable by the Optionee otherwise than by will or under the laws of descent
and distribution, nor shall this Option be sold, pledged, hypothecated or
encumbered. This Option shall be exercisable during the Optionee's lifetime only
by the Optionee, and any attempt to transfer or assign this Option in violation
of the foregoing shall be void and of no force or effect.
B. Shares of Common Stock acquired upon the exercise of this Option
may not be transferred except in accordance with all applicable federal and
state securities laws, rules and regulations. The Company may require investment
or residency representations from the Optionee or impose other restrictions
prior to issuance of Shares to the Optionee or transfer of such Shares by the
Optionee.
12. NOTICES
All notices which are provided for under any of the provisions of this
Agreement shall be in writing and shall be given by registered or certified
mail, return receipt requested. Any such notice shall be effective upon actual
receipt by the person to whom such notice is to be given; provided, however,
that in the case of notices to the Optionee or to her legal representative or
beneficiary, such notice shall be effective upon delivery if delivered
personally or three business days after mailing, registered first class postage
prepaid, to the last known address of the person to whom notice is to be given.
All notices required to be given to Brodsky or to his legal representative or
beneficiary, shall be addressed to him at the address of Brodsky set forth
above, or at such other address as he may designate by notice hereunder.
8
<PAGE>
<PAGE>
13. FRACTIONAL SHARE
The Company shall not be required to issue any fractional Share upon
exercise of this Option, but it shall pay to the Optionee, or to her legal
representatives or beneficiaries who acquire the right to exercise this Option
by bequest or inheritance on the death of the Optionee, the cash equivalent of
any fractional Share interests, as determined in the sole discretion of Brodsky.
14. OPTIONS
Brodsky may modify, extend or renew this Option or accept the
surrender of this Option (to the extent not theretofore exercised) and authorize
the granting of new options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, however, no modification
of this Option shall, without the consent of the Optionee, impair any rights or
obligations under the Option.
15. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New York. If any provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
Brodsky shall have the right to require the Optionee or, if
applicable, the Optionee's legal representatives or beneficiaries to pay to
Brodsky the amount of any taxes which Brodsky is required to withhold or pay
with respect to the exercise of any Option granted hereunder or any subsequent
disposition of Common Stock issued upon exercise of an Option.
9
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first written above.
BERT E. BRODSKY
---------------------------------
BERT E. BRODSKY
---------------------------------
MARJORIE O'MALLEY
10
<PAGE>
<PAGE>
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated December 7, 1998 between Bert E. Brodsky, with
an office address at 26 Harbor Park Drive, Port Washington, New York, 11050
("Brodsky") and John Ciufo, residing at 144 Daly Road, East Northport, NY
11731("the Optionee").
WHEREAS, the Optionee is a key employee of National Medical Health
Card Systems, Inc. (the "Company"); and
WHEREAS, Brodsky, a major shareholder in the Company, desires to
afford the Optionee the ability to acquire a proprietary interest in the
Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements hereinafter set forth, the parties hereto hereby mutually agree as
follows:
1. GRANT OF OPTION Subject to the terms and conditions hereinafter set
forth, Brodsky hereby grants to the Optionee, the option to purchase during the
period specified in Paragraph 2, all of or any part of 200,000 shares (the
"Shares") of the Common Stock of the Company par value $.001 per Share (the
"Common Stock"), which Shares when issued upon the exercise of such option and
paid for in accordance with the terms hereof shall be fully paid and
nonassessable (the "Option").
2. PERIOD AND EXERCISE
A. The Option granted hereunder shall become exercisable as follows:
i. 1/3 shall be exercisable on a date one year from the date hereof;
ii. 1/3 shall be exercisable on a date two years from the date
hereof;
1
<PAGE>
<PAGE>
iii. 1/3 shall be exercisable on a date three years from the date
hereof; and shall terminate on a date five years from the date hereof (the
"Termination Date").
The Option must be exercised in whole (or in part, if not fully
vested), on a date one year after termination of Optionee's employment with the
Company or five (5) years from the date hereof, whichever is earlier.
During the term of the Option, Brodsky may in his sole discretion at
any time accelerate the Optionee's right to exercise the Option with respect to
all or any portion of the Common Stock covered by the Option and, with the
consent of the Optionee, impose in connection with such acceleration such other
conditions or restrictions on the Option, or any Common Stock acquired upon the
exercise of the Option, as Brodsky in his sole discretion deems appropriate.
B. For the purposes of this Agreement, employment may be considered
continuous although interrupted by a leave of absence authorized by the Company;
provided, however, that the Optionee shall return to service on or prior to the
expiration of such leave of absence.
Should the Company authorize such leave of absence, Brodsky may, in
his discretion, give credit for the time of such leave in computing whether
sufficient time, pursuant to Paragraph 2, has elapsed for the Option or any part
thereof to be exercised. In no event, however, may the Option be exercised
beyond the Termination Date.
2
<PAGE>
<PAGE>
C. This Option may be exercised pursuant to its terms by the
Optionee's giving written notice thereof to Brodsky at his address above, which
exercise shall be effective upon receipt of such notice. Such notice shall
specify the number of Shares of Common Stock with respect to which the Option is
being exercised. The notice shall be accompanied by payment in full of the
Purchase Price specified in Paragraph 3 for such Shares in cash or certified or
bank cashier's check payable to the order of Brodsky.
D. If a registration statement under the Securities Act of 1933, as
amended (the "Act"), is not then in effect with respect to the Shares issuable
upon exercise of this Option, then it shall be a condition precedent to the
exercise of this Option that the Optionee provide Brodsky with a written
undertaking, satisfactory to Brodsky, that she is acquiring the Shares for her
own account for investment and not with a view to the distribution thereof and
all certificates representing the Shares issued upon exercise of the Option
shall bear an appropriate restrictive legend.
In the event that this Option is exercised pursuant to Paragraph 11,
by any person other than the Optionee, the aforesaid undertaking shall also be
accompanied by appropriate proof of the right of such person to exercise the
same.
3. PURCHASE PRICE
Subject to the provisions of Paragraph 7, the Purchase Price per Share
of Common Stock subject to this Option shall be $.75 (the "Purchase Price").
Such price has been found by the Company to be not less than 100% of the fair
market value per Share as of the date hereof.
3
<PAGE>
<PAGE>
4. CANCELLATION OF OPTION
Subject to the consent of the Optionee, Brodsky may, from time to
time, cancel all or any portion of the Option then subject to exercise, and
Brodsky's obligation in respect of such Option may be discharged by (i) payment
to the Optionee of an amount in cash equal to the excess, if any, of the
aggregate fair market value of the Shares at the date of such cancellation
subject to the portion of the Option so cancelled over the aggregate Purchase
Price of such shares, (ii) the issuance or transfer to the Optionee of shares of
stock with a fair market value, at the date of such transfer, equal to any such
excess, or (iii) a combination of cash and shares with a combined value equal to
any such excess.
5. TERMINATION OF EMPLOYMENT
A. GENERAL RULE Except as provided in Paragraph 5(B), if the
Optionee's employment with the Company is terminated for any reason, then the
Option granted hereunder shall expire one year after such termination (without
regard to any severance pay, vacation pay or other payments upon termination),
and all rights to purchase Shares of Common Stock which the Optionee would have
been able to purchase under Paragraph 2, shall terminate on such day.
B. DEATH, DISABILITY OR RETIREMENT If the Optionee's employment with
the Company is terminated for any reason described in this Paragraph 5(B), then
the Optionee, or her beneficiaries or legal representatives, as the case may be,
shall have the right, within the following period of time subsequent to such
termination, to exercise the Option to purchase the number of Shares which the
Optionee would have been able to purchase under Paragraph 2 on the date before
her termination:
i. one year when termination of employment is without cause;
4
<PAGE>
<PAGE>
ii. 6 months when termination of employment is caused by death or the
Optionee dies within 30 days after termination of employment for any reason
described in Paragraph 5 (B) (iii); and
iii. one year when termination is caused by Permanent or Total
Disability.
As used herein, "Permanent and Total Disability" means permanent and
total disability as defined in Section 105 (d) (4) of the Code, as evidenced by
a certificate from a qualified physician to the effect that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than 12
months.
6. COMPLIANCE WITH SECURITIES LAWS The granting and exercise of this
Option and Brodsky's obligation to deliver stock pursuant to an exercise of this
Option shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by a regulatory or governmental agency as may
be required. Accordingly, if in the opinion of the Company, Shares subject to
Options are required to be registered under the Act and such registration has
not been effected or a Prospectus complying with the requirements of Section 10
of the Act is not available for delivery upon exercise of this Option, then
Brodsky shall not be required to deliver the Shares subject to the Option to the
extent being exercised until the registration has been effected and the
Prospectus made available. Pending satisfaction of the foregoing, such exercise
shall be deemed suspended and there shall be returned to the person exercising
this Option the proceeds representing the Purchase Price. In such event, Brodsky
shall
5
<PAGE>
<PAGE>
provide notice to the Optionee or her representative of the satisfaction of the
foregoing registration condition, whereupon the right to exercise this Option
shall be reinstated.
7. CAPITAL ADJUSTMENT
A. If the Company is separated or reorganized, or merged or
consolidated with another corporation, there shall be substituted for the Shares
issuable upon exercise of the outstanding Options an appropriate number of
shares of each class of stock, other securities or other assets of the separated
or reorganized, or merged or consolidated corporation which were distributed to
the shareholders of the Company in respect of such Shares; provided, however,
that the Option may be exercised in full by the Optionee as of the effective
date of any such separation, reorganization, merger, or consolidation of the
Company without regard to the installment exercise provisions of Paragraph 2, by
the Optionee giving notice in writing to Brodsky of her intention to so
exercise.
B. If the Company is liquidated or dissolved then all outstanding
portions of the Option may be exercised in full by the Optionee as of the
effective date of any such liquidation or dissolution of the Company without
regard to the installment exercise provisions of Paragraph 2, by the Optionee
giving notice in writing to Brodsky of her intention to so exercise.
C. If the outstanding Shares of Common Stock shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, recapitalization, extraordinary dividend
payable in stock of a corporation other than the Company, or otherwise in cash,
or any other like event by or of the Company, and as often as the same shall
occur, then the number, class and kind of Shares subject to this Option and the
Purchase Price for such Shares shall be appropriately and equitably adjusted so
as to maintain the
6
<PAGE>
<PAGE>
proportionate number of Shares without changing the aggregate Purchase Price;
provided, however, no adjustment shall be made by reason of the distribution or
subscription rights on outstanding stock.
8. NO OTHER ADJUSTMENT
Except as provided in Paragraph 7, no adjustments shall be made for
dividends or other rights for which the record date shall be prior to the
issuance of a stock certificate to the Optionee by reason of her exercise of
this Option.
9. RIGHTS IN OPTION STOCK
The Optionee shall not be or have any rights or privileges of a
shareholder of the Company in respect of any Shares purchasable upon the
exercise of any part of this Option unless and until certificates representing
such Shares shall have been issued by the Company to such holder.
10. STOCK RESERVED
Brodsky shall at all times during the term of this Agreement reserve
and keep available such number of Shares of Common Stock as will be sufficient
to satisfy the requirements of this Agreement and shall pay all original issue
taxes, if any, on the exercise of this Option, and all other fees and expenses
necessarily incurred by Brodsky in connection therewith.
7
<PAGE>
<PAGE>
11. RESTRICTIONS ON TRANSFERS
A. Notwithstanding anything to the contrary herein contained, neither
this Option nor any rights represented hereby shall be transferable or
assignable by the Optionee otherwise than by will or under the laws of descent
and distribution, nor shall this Option be sold, pledged, hypothecated or
encumbered. This Option shall be exercisable during the Optionee's lifetime only
by the Optionee, and any attempt to transfer or assign this Option in violation
of the foregoing shall be void and of no force or effect.
B. Shares of Common Stock acquired upon the exercise of this Option
may not be transferred except in accordance with all applicable federal and
state securities laws, rules and regulations. The Company may require investment
or residency representations from the Optionee or impose other restrictions
prior to issuance of Shares to the Optionee or transfer of such Shares by the
Optionee.
12. NOTICES
All notices which are provided for under any of the provisions of this
Agreement shall be in writing and shall be given by registered or certified
mail, return receipt requested. Any such notice shall be effective upon actual
receipt by the person to whom such notice is to be given; provided, however,
that in the case of notices to the Optionee or to her legal representative or
beneficiary, such notice shall be effective upon delivery if delivered
personally or three business days after mailing, registered first class postage
prepaid, to the last known address of the person to whom notice is to be given.
All notices required to be given to Brodsky or to his legal representative or
beneficiary, shall be addressed to him at the address of Brodsky set forth
above, or at such other address as he may designate by notice hereunder.
8
<PAGE>
<PAGE>
13. FRACTIONAL SHARE
The Company shall not be required to issue any fractional Share upon
exercise of this Option, but it shall pay to the Optionee, or to her legal
representatives or beneficiaries who acquire the right to exercise this Option
by bequest or inheritance on the death of the Optionee, the cash equivalent of
any fractional Share interests, as determined in the sole discretion of Brodsky.
14. OPTIONS
Brodsky may modify, extend or renew this Option or accept the
surrender of this Option (to the extent not theretofore exercised) and authorize
the granting of new options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, however, no modification
of this Option shall, without the consent of the Optionee, impair any rights or
obligations under the Option.
15. APPLICABLE LAW; SEVERABILITY
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New York. If any provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
Brodsky shall have the right to require the Optionee or, if
applicable, the Optionee's legal representatives or beneficiaries to pay to
Brodsky the amount of any taxes which Brodsky is required to withhold or pay
with respect to the exercise of any Option granted hereunder or any subsequent
disposition of Common Stock issued upon exercise of an Option.
9
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first written above.
/s/ BERT E. BRODSKY
---------------------------------
BERT E. BRODSKY
/s/ JOHN CIUFO
---------------------------------
JOHN CIUFO
10
<PAGE>
<PAGE>
THIS LEASE made the 1st day of January 1996, between SANDATA, INC. a
Delaware Corporat with an office at 26 Harbor Park Drive, Port Washington NY
11050 hereinafter referred to as LANDLORD, and NATIONAL MEDICAL CARD SYSTEMS,
INC., a New York Corporation with an office at 26 Harbor Park Drive, Port
Washington NY 11050 hereinafter jointly, severally and collectively referred to
as TENANT.
WITNESSETH, that the Landlord hereby leases to the Tenant, and the Tenant
hereby hires and takes from the Landlord approximately 5,725 square feet in the
building known as 26 Harbor Park Drive, Port Washington, NY 11050 to be used and
occupied by the Tenant as office space.
and for no other purpose, for a term to commence on January 1 1996, and to end
on December 31, 2000, unless sooner terminated as hereinafter provided, at the
ANNUAL RENT of One Hundred Forty--Five Thousand Eight Hundred Sixty Dollars
($145,860) for the period from January 1, 1996 through December 31, 1996; One
Hundred Sixty--Seven Thousand Four Hundred Sixty Dollars ($167,460) for the
period from January 1, 1997 through December 31, 1997; and thereafter increased
by an amount equal to five percent (5%) per annum as reflected on the attached
schedule and made part of this lease, all payable in equal monthly instalments
in advance on the first day of each and every calendar month during said term,
except the first instalment, which shall be paid upon the execution hereof.
THE TENANT JOINTLY AND SEVERALLY COVENANTS:
FIRST.--That the Tenant will pay the rent as above provided.
REPAIRS
ORDINANCES
AND
VIOLATIONS
ENTRY
INDEMNIFY
LANDLORD
SECOND.--That, throughout said term the Tenant will take good care of the
demised premises, fixtures and appurtenances, and all alterations, additions and
improvements to either; make all repairs in and about the same necessary to
preserve them in good order and condition, which repairs shall be, in quality
and class, equal to the original work; promptly pay the expense of such repairs;
suffer no waste or injury; give prompt notice to the Landlord of any fire that
may occur; execute and comply with all laws, rules, orders, ordinances and
regulations at any time issued or in force (except those requiring structural
alterations), applicable to the demised premises or to the Tenant's occupation
thereof, of the Federal, State and Local Governments, and of each and every
department, bureau and official thereof, and of the New York Board of Fire
Underwriters; permit at all times during usual business hours, the Landlord and
representatives of the Landlord to enter the demised premises for the purpose of
inspection, and to exhibit them for purposes of sale or rental; suffer the
Landlord to make repairs and improvements to all parts of the building, and to
comply with all orders and requirements of governmental authority applicable to
said building or to any occupation thereof; suffer the Landlord to erect, use,
maintain, repair and replace pipes and conduits in the demised premises and to
the floors above and below; forever indemnify and save harmless the Landlord for
and against any and all liability, penalties, damages, expenses and judgments
arising from injury during said term to person or property of any nature,
occasioned wholly or in part by any act or acts, omission or omissions of the
Tenant, or of the employees, guests, agents, assigns or undertenants of the
Tenant and also for any matter or thing growing out of the occupation of the
demised premises or of the streets, sidewalks or vaults adjacent thereto;
permit, during the six months next prior to the expiration of the term the usual
notice "To Let" to be placed and to remain unmolested in a conspicuous place
upon the exterior of the demised premises; repair, at or before the end of the
term, all injury done by the installation or removal of furniture and property;
and at the end of the term, to quit and surrender the demised premises with all
alterations, additions and improvements in good order and condition.
<PAGE>
MOVING
INJURY
SURRENDER
NEGATIVE
COVENANTS
OBSTRUCTION
SIGNS
AIR
CONDITIONING
THIRD.--That the Tenant will not disfigure or deface any part of the
building, or suffer the same to be done, except so far as may be necessary to
affix such trade fixtures as are herein consented to by the Landlord; the Tenant
will not obstruct, or permit the obstruction of the street or the sidewalk
adjacent thereto; will not do anything, or suffer anything to be done upon the
demised premises which will increase the rate of fire insurance upon the
building or any of its contents, or be liable to cause structural injury to said
building; will not permit the accumulation of waste or refuse matter, and will
not, without the written consent of the Landlord first obtained in each case,
either sell, assign, mortgage or transfer this lease, underlet the demised
premises or any part thereof, permit the same or any part thereof to be occupied
by anybody other than the Tenant and the Tenant's employees, make any
alterations in the demised premises, use the demised premises or any part
thereof for any purpose other than the one first above stipulated, or for any
purpose deemed extra hazardous on account of fire risk, nor in violation of any
law or ordinance. That the Tenant will not obstruct or permit the obstruction of
the light, halls, stairway or entrances to the building, and will not erect or
inscribe any sign, signals or advertisements unless and until the style and
location thereof have been approved by the Landlord; and if any be erected or
inscribed without such approval, the Landlord may remove the same. No water
cooler, air conditioning unit or system or other apparatus shall be installed or
used without the prior written consent of Landlord.
IT IS MUTUALLY COVENANTED AND AGREED, THAT
FIRE CLAUSE
FOURTH.--If the demised premises shall be partially damaged by fire or
other cause without the fault or neglect of Tenant, Tenant's servants,
employees, agents, visitors or licensees, the damages shall be repaired by and
at the expense of Landlord and the rent until such repairs shall be made shall
be apportioned according to the part of time demised premises which is usable by
Tenant But if such partial damage is due to the fault or neglect of Tenant.
Tenant's servants, employees, agents, visitors or licensees, without prejudice
to any other rights and remedies of Landlord and without prejudice to the rights
of subrogation of Landlord's insurer, the damages shall be repaired by Landlord
but there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of insurance
on the part of Landlord and/or Tenant, and for reasonable delay on account of
"labor troubles" or any other cause beyond Landlord's control. If the demised
premises are totally damaged or are rendered wholly untenantable by fire or
other cause, and if Landlord shall decide not to restore or not to rebuild the
same, or if the building shall be so damaged that Landlord shall decide to
demolish it or to rebuild it then or in any of much events Landlord may, within
ninety (90) days after such fire or other cause, give Tenant a notice in writing
of such decision, which notice shall be given as in Paragraph Twelve hereof
provided, and thereupon the term of this lease shall expire by lapse of time,
upon the third day after such notice is given, and Tenant shall vacate the
demised premises and surrender the same to Landlord. If Tenant shall not be in
default under this lease then, upon the termination of this lease under the
conditions provided for in the sentence immediately preceding, Tenant's
liability for rent shall cease as of the day following the casualty. Tenant
hereby expressly waives the provisions of Section 227 of the Real Property Law
and agrees that the foregoing provisions of this Article shall govern and
control in lieu thereof. If the damage or destruction be due to the fault or
neglect of Tenant the debris shall be removed by, and at the expense of, Tenant.
EMINENT
DOMAIN
FIFTH.--If the whole or any part of the premises hereby demised shall be
taken or condemned by any competent authority or any public use or purpose then
the term hereby granted shall cease from the time when possession of the art so
taken shall be required for such public purpose and without apportionment of
award, the Tenant hereby assigning to the Landlord all right and claim to any
such award, the current rent, however, In such case to be apportioned.
LEASE NOT
IN EFFECT
DEFAULTS
TEN DAY
NOTICE
SIXTH.--If, before the commencement of the term, the Tenant be adjudicated
a bankrupt, or make a "general assignment," or take the benefit of any insolvent
act, or if a Receiver or Trustee be appointed for the Tenant's property, or if
this lease or the estate of the Tenant hereunder be transferred or pass to or
devolve upon any other person or corporation or if the Tenant shall default in
the performance of any agreement by the Tenant contained in any other lease to
the Tenant by the Landlord or by any corporation of which an officer of Landlord
is a Director, this lease shall thereby, at the option of the Landlord, be
terminated and in that case, neither the Tenant nor anybody claiming under the
Tenant shall be entitled to go into possession of the demised premises. If after
the commencement of the term, any of the events mentioned above in this
subdivision shall occur, or if Tenant shall make default in fulfilling any of
the covenants of this lease, other than the covenants for the payment of rent or
"additional rent" or if the demised premises become vacant or deserted, the
Landlord may give to the Tenant ten days' notice of intention to end the term of
this lease, and thereupon at the expiration of said ten days' (if said condition
which was the basis of said notice shall continue to exist) the term under this
lease shall expire as fully and completely as if that day were the date herein
definitely fixed for the expiration of the term and the Tenant will then quit
and surrender the demised premises to the Landlord, but the Tenant shall remain
liable as hereinafter provided.
<PAGE>
<PAGE>
RE-POSSESSION
BY LANDLORD
RE-LETTING
WAIVER
BY TENANT
If the Tenant shall make default in the payment of the rent reserved
hereunder, or any item of "additional rent" herein mentioned, or any part of
either or in making any other payment herein provided for, or if the notice last
above provided for shall have been given and If the condition which was the
basis of said notice shall exist at the expiration of said ten days' period, the
Landlord may immediately, or at any time thereafter, re-enter the demised
premises and remove all persons and all or any property therefrom, either by
summary dispossess proceedings, or by any suitable action or proceeding at law,
or by force or otherwise, without being liable to indictment, prosecution or
damages therefor, and re-possess and enjoy said premises together with all
additions, alterations amid improvements. In any such case or in the event that
this lease be "terminated" before the commencement of the term, as above
provided, the Landlord may either re-let the demised premises or any part or
parts thereof for the Landlord's own account, or may, at the Landlord's option,
re-let the demised premises or any part or parts thereof as the agent of the
Tenant and receive the rents therefor, applying the same first to the payment of
such expenses as the landlord may have incurred, and then to the fulfillment of
the covenants of the Tenant herein, and the balance, if any, at the expiration
of the term first above provided for, shall be paid to the Tenant. Landlord may
rent the premises for a term extending beyond the term hereby granted without
releasing Tenant from any liability. In the event that the term of this lease
shall expire as above in this subdivision "Sixth" provided, or terminate by
summary proceedings or otherwise, and if the Landlord shall not re-let the
demised premises for the Landlord's own account, then, whether or not the
premises be re-let, the Tenant shall remain liable for, and the Tenant hereby
agrees to pay to the Landlord, until the time when this lease would have expired
but for such termination or expiration, the equivalent of the amount of all of
the rent and "additional rent" reserved herein, less the avails of reletting, if
any, and the same shall be due and payable by the Tenant to the Landlord on the
several rent days above specified, that is. upon each of such rent days the
Tenant shall pay to the Landlord the amount of deficiency then existing. The
Tenant hereby expressly waives any and all right of redemption in case the
Tenant shall be dispossessed by judgment or warrant of any court or judge, and
the Tenant waives and will waive all right to trial by jury in any summary
proceedings hereafter instituted by the Landlord against the Tenant in respect
to the demised premises. The words "re-enter" and "re-entry" as used in this
lease are not restricted to their technical legal meaning.
REMEDIES ARE
CUMULATIVE
In the event of a breach or threatened breach by the Tenant of any of the
covenants or provisions hereof, the Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity, as if re-entry,
summary proceedings and other remedies were not herein provided for.
LANDLORD
MAY
PERFORM
ADDITIONAL
RENT
SEVENTH.--If the Tenant shall make default in the performance of any
covenant herein contained, the Landlord may immediately, or at any time
thereafter, without notice, perform the same for the account of the Tenant. If a
notice of mechanic's lien be filed against the demised premises or against
premises of which the demised premises are part, for, or purporting to be for,
labor or material alleged to have been furnished, or to be furnished to or for
the Tenant at the demised premises, and if the Tenant shall fail to take such
action as shall cause such lien to be discharged within fifteen days after the
filing of such notice, the Landlord may pay the amount of such lien or discharge
the same by deposit or by bonding proceedings, and in the event of such deposit
or bonding proceedings, the Landlord may require the lienor's to prosecute an
appropriate action to enforce the lienor's claim. In such case, the Landlord may
pay any judgment recovered on such claim. Any amount paid or expense incurred by
the Landlord as in this subdivision of this lease provided, and any amount as to
which the Tenant shall at any time be in default for or in respect to the use of
water, electric current or sprinkler supervisory service, and any expense
incurred or sum of money paid by the Landlord by reason of the failure of the
Tenant to comply with any provision hereof, or in defending any such action,
shall be deemed to be "additional rent" for the demised premises, and shall be
due and payable by the Tenant to the Landlord on the first day of the next
following month, or, at the option of the Landlord, on the first day of any
succeeding month. The receipt by the Landlord of any installment of the regular
stipulated rent hereunder or any of said "additional rent" shall not be a waiver
of any other "additional rent" then due.
<PAGE>
AS TO
WAIVERS
EIGHTH.--The failure of the Landlord to insist, in any one or more
instances upon a strict performance of any of the covenants of this lease, or to
exercise any option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by the Landlord of
rent, with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach and no waiver by the Landlord of any provision hereof
shall be deemed to have been made unless expressed in writing and signed by the
Landlord. Even though the Landlord shall consent to an assignment hereof no
further assignment shall be made without express consent in writing by time
Landlord.
COLLECTION
OF RENT
FROM OTHERS
NINTH.--If this lease be assigned with the permission of the landlord, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than the Tenant the Landlord may collect rent from the assignee, under-
tenant or occupant, and apply the net amount collected to the rent herein
reserved, and no such collection shall be deemed a waiver of the covenant herein
against assignment and under-letting, or time acceptance of the assignee,
under-tenant or occupant as tenant, or a release of the Tenant from the further
performance by the Tenant of the covenants herein contained on the part of
Tenant.
MORTGAGES
TENTH.--This lease shall be subject and subordinate at all times, to the
lien of the mortgages now on the demised premises, and to all advances made or
hereafter to be made upon the security thereof, and subject and subordinate to
the lien of any mortgage or mortgages which at any time may be made a lien upon
the premises. The Tenant will execute and deliver such further instrument or
instruments subordinating this lease to the lien of any such mortgage or
mortgages as shall be desired by any mortgagee or proposed mortgagee. The Tenant
hereby appoints the Landlord the attorney-in-fact of the Tenant, irrevocable, to
execute and deliver any such instrument or instruments for the Tenant.
IMPROVEMENTS
ELEVENTH.--All improvements made by the Tenant to or upon the demised
premises, except said trade fixtures, shall when made, at once be deemed to be
attached to the freehold, and become the property of the Landlord, and at the
end or other expiration of the term, shall be surrendered to the Landlord in as
good order and condition as they were when installed, reasonable wear and
damages by the elements excepted.
NOTICES
TWELFTH.--Any notice or demand which under the terms of this lease or
under any statute must or may be given or made by the parties hereto shall be in
writing and shall be given or made by mailing the same by certified or
registered mail addressed to the respective parties at the addresses set forth
in this lease.
NO LIABILITY
THIRTEENTH.--The Landlord shall not be liable for any failure of water
supply or electrical current, sprinkler damage, or failure of sprinkler service,
nor for injury or damage to person or property caused by the elements or by
other tenants or persons in said building, or resulting from steam, gas,
electricity, water, rain or snow, which may leak or flow from any part of said
buildings, or from the pipes, appliances or plumbing works of the same, or from
the street or sub-surface, or from any other place, nor for interference with
light or other incorporeal hereditaments by anybody other than the Landlord, or
caused by operations by or for a governmental authority in construction of any
public or quasi-public work, neither shall the landlord be liable for any latent
defect in the building.
NO
ABATEMENT
FOURTEENTH.--No diminution or abatement of rent, or other compensation
shall be claimed or allowed for inconvenience or discomfort arising from the
making of repairs or improvements to the building or to its appliances, nor for
any space taken to comply with any law, ordinance or order of a governmental
authority. In respect to the various "services," if any, herein expressly or
impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed
that there shall be no diminution or abatement of the rent, or any other
compensation, for interruption or curtailment of such "service" when such
interruption or curtailment shall be due to accident, alterations or repairs
desirable or necessary to be made or to inability or difficulty in securing
supplies or labor for the maintenance of such "service" or to some other cause,
not gross negligence on the part of the Landlord. No such interruption or
curtailment of any such "service" shall be deemed a constructive eviction. The
Landlord shall not be required to furnish, and the Tenant shall not be entitled
to receive, any of such "services" during any period wherein the Tenant shall be
in default in respect to the payment of rent. Neither shall there be any
abatement or diminution of rent because of making of repairs, improvements or
decorations to the demised premises after the date above fixed for the
commencement of the term, it being understood that rent shall, in any event.
commencement to run at such date so above fixed.
RULES, ETC.
FIFTEENTH.--The Landlord may prescribe and regulate the placing of safes,
machinery, quantities of merchandise and other things. The Landlord may also
prescribe and regulate which elevator and entrances shall be used by the
Tenant's employees, and for the Tenant's shipping. The Landlord may make such
other and further rules and regulations as, in the Landlords judgment, may from
time to time be needful for the safety, care or cleanliness of the building, and
for the preservation of good order therein. The Tenant and the employees and
agents, of the Tenant will observe and conform to all such rules and
regulations.
<PAGE>
SHORING OF
WALLS
VAULT SPACE
ENTRY
EIGHTEENTH.--That during seven months prior to the expiration of the term
hereby granted, applicants shall be admitted at all reasonable hours of the day
to view the premises until rented; and the Landlord and the Landlord's agents
shall be permitted at any time during the term to visit and examine them at any
reasonable hour of the day, and workmen may enter at any time, when authorized
by the Landlord or the Landlord's agents, to make or facilitate repairs in any
part of the building; and if the said Tenant shall not be personally present to
open and permit an entry into said premises at any time, when for any reason an
entry therein shall be necessary or permissible hereunder, the Landlord or the
Landlord's agents may forcibly enter the same without rendering the Landlord or
such agents liable to any claim or cause of action for damages by reason thereof
(if during such entry the Landlord shall accord reasonable care to the Tenant's
property) and without in any manner affecting the obligations and covenants of
this lease; it is, however, expressly understood that the right and authority
hereby reserved, does not impose, nor does the Landlord assume, by reason
thereof, any responsibility or liability whatsoever for the care or supervision
of said premises, or any of the pipes, fixtures, appliances or appurtenances
therein contained or therewith in any manner connected.
NO REPRE-
SENTATIONS
NINETEENTH.--The Landlord has made no representations or promises in
respect to said building or to the demised premises except those contained
herein, and those, if any, contained in some written communication to the
Tenant, signed by the Landlord. This Instrument may not be changed, modified,
discharged or terminated orally.
ATTORNEY'S
FEES
TWENTIETH.--If the Tenant shall at any time be in default hereunder, and
if the Landlord shall institute an action or summary proceeding against the
Tenant based upon such default then the Tenant will reimburse the Landlord for
the expense of attorneys' fees and disbursements thereby incurred by the
Landlord, so far as the same are reasonable in amount. Also so long as the
Tenant shall be a tenant hereunder the amount of such expenses shall be deemed
to be "additional rent" hereunder and shall be due from the Tenant to the
Landlord on the first day of time month following the incurring of such
respective expenses.
POSSESSION
TWENTY-FIRST.--Landlord shall not be liable for failure to give possession
of the premises upon commencement date by reason of the fact that premises are
not ready for occupancy, or due to a prior Tenant wrongfully holding over or any
other person wrongfully in possession or for any other reason: in such event the
rent shall not commence until possession is given or is available, but the term
herein shall not be extended.
<PAGE>
<PAGE>
THE TENANT FURTHER COVENANTS:
IF A FIRST
FLOOR
INCREASED
FIRE
INSURANCE
RATE
TWENTY-THIRD.--If by reason of the conduct upon the demised premises of a
business not herein permitted, or if by reason of the improper or careless
conduct of any business upon or use of the demised premises, the fire insurance
rate shall at any time be higher than it otherwise would be, then the Tenant
will reimburse the Landlord, as additional rent hereunder, for that part of all
fire insurance premiums hereafter paid out by time Landlord which shall have
been charged because of the conduct of such business not so permitted, or
because of the improper or careless conduct of any business upon or use of the
demised premises, and will make such reimbursement upon the first day of the
month following such outlay by the Landlord; but this covenant shall not apply
to a premium for any period beyond the expiration date of this lease, first
above specified. In any action or proceeding wherein the Landlord and Tenant are
parties, a schedule or "make up" of rate for the building on the demised
premises, purporting to have been issued by New York Fire Insurance Exchange, or
other body making fire insurance rates for the demised premises, shall be prima
facie evidence of the facts therein stated and of the several items and charges
included in the fire insurance rate then applicable to the demised premises.
WATER RENT
SEWER
TWENTY-FOURTH.--If a separate water meter be installed for the demised
premises, or any part thereof, the Tenant will keep the same in repair and pay
the charges made by the municipality or water supply company for or in respect
to the consumption of water, as and when bills therefor are rendered. If the
demised premises, or any part thereof, be supplied with water through a meter
which supplies other premises, the Tenant will pay to the Landlord, as and when
bills are rendered therefor, the Tenant's proportionate part of all charges
which time municipality or water supply company shall make for all water
consumed through said meter, as indicated by said meter. Such proportionate part
shall be fixed by apportioning the respective charge according to floor area
against all of the rentable floor area in the building (exclusive of time
basement) which shall have been occupied during the period of the respective
charges, taking into account the period that each part of such area was
occupied. Tenant agrees to pay as additional rent the Tenant's proportionate
part determined as aforesaid, of the sewer rent or charge imposed or assessed
upon the building of which the premises are a part.
ELECTRIC
CURRENT
TWENTY-FIFTH.--That the Tenant will purchase from the Landlord, if the
Landlord shall so desire, all electric current that the Tenant requires at the
demised premises, and will pay the Landlord for the same, as the amount of
consumption shall be indicated by the meter furnished therefor. The price for
said current shall be the same as that charged for consumption similar to that
of time Tenant by time company supplying electricity in time same community.
Payments shall be due as and when bills shall be rendered. The Tenant shall
comply with like rules, regulations and contract provisions as those prescribed
by said company for a consumption similar to that of time Tenant.
SPRINKLER
SYSTEM
TWENTY-SIXTH.--If there now is or shall be installed in said building a
"sprinkler system" the Tenant agrees to keep the appliances thereto in the
demised premises in repair and good working condition, and if the New York Board
of Fire Underwriters or the New York Fire Insurance Exchange or any bureau,
department or official of the State or local government requires or recommends
that any changes, modifications, alterations or additional sprinkler heads or
other equipment be made or supplied by reason of the Tenant's business, or the
location of partitions, trade fixtures, or other contents of the demised
premises, or if such changes, modifications, alterations, additional sprinkler
heads or other equipment in the demised premises are necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate as fixed by said Exchange or by any Fire
Insurance Company, the Tenant will at the Tenant's own expense, promptly make
and supply such changes. modifications, alterations, additional sprinkler heads
or other equipment. As additional rent hereunder the Tenant will pay to the
Landlord, annually In advance, throughout time term $.................., toward
the contract price for sprinkler supervisory service.
<PAGE>
SECURITY
TWENTY-SEVENTH.--The sum of --O-- Dollars is deposited by the Tenant
herein with the Landlord herein as security for the faithful performance of all
the covenants and conditions of time lease by the said Tenant. If the Tenant
faithfully performs all the covenants and conditions on his part to be
performed, then time sum deposited shall be returned to said Tenant.
NUISANCE
TWENTY-EIGHTH.--This lease is granted and accepted on the especially
understood and agreed condition that the Tenant will conduct his business in
such a manner, both as regards noise and kindred nuisances, as will in no wise
interfere with, annoy, or disturb any other tenants, in the conduct of their
several businesses, or time landlord in the management of the building; under
penalty of forfeiture of this lease and consequential damages.
BROKERS
COMMISSION
WINDOW
CLEANING
THIRTIETH.--The Tenant agrees that it will not require, permit, suffer,
nor allow the cleaning of any window, or windows, in time demised premises from
the outside (within time meaning of Section 202 of time Labor Law) unless the
equipment and safety devices required by law, ordinance, regulation or rule,
including, without limitation, Section 202 of the New York Labor Law, are
provided and used, and unless the rules, or any supplemental rules of the
Industrial Board of time State of New York are fully complied with and the
Tenant hereby agrees to Indemnify the Landlord Owner, Agent, Manager and/or
Superintendent as a result of the Tenant's requiring, permitting, suffering, or
allowing any window, or windows in the demised premises to be cleaned from the
outside in violation of the requirements of time aforesaid laws, ordinances,
regulations and/or rules.
VALIDITY
THIRTY-FIRST.--The invalidity or unenforceability of any provision of this
lease shall in no way affect the validity or enforceability of any other
provision hereof.
EXECUTION
& DELIVERY
OF LEASE
THIRTY-SECOND.--In order to avoid daisy, this lease has been prepared and
submitted to the Tenant for signature with the understanding that it shall not
bind the Landlord unless and until it is executed and delivered by the Landlord.
EXTERIOR OF
PREMISES
PLATE GLASS
WAR
EMERGENCY
THIRTY-FIFTH.--This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, Impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of governmental preemption in connection with a
National Emergency declared by the President of the United States or in
connection with any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
THE LANDLORD COVENANTS
QUIET
POSSESSION
FIRST.--That if and so long as the Tenant pays the rent and "additional
rent" reserved hereby, and performs and observes the covenants and provisions
hereof, the Tenant shall quietly enjoy the demised premises subject however, to
the terms of this lease, and to the mortgages above mentioned, provided however,
that this covenant shall be conditioned upon the retention of title to the
premises by Landlord.
ELEVATOR
HEAT
SECOND.--Subject to the provisions of Paragraph "Fourteenth" above the
Landlord will furnish the following respective services: (a) Elevator service,
if the building shall contain an elevator or elevators, on all days except
Sundays and holidays, from A.M. to P.M. and on Saturdays from
A.M. to P.M.; (b) Heat, during the same hours on the same
days in the cold season in each year.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the Landlord and Tenant have respectively signed and
sealed these presents the day and year first above written.
SANDATA, INC.
By:
/s/ Bert E. Brodsky
--------------------------------[L.S]
Bert E. Brodsky, President Landlord
IN PRESENCE OF:
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
By:
/s/ Linda Portney
--------------------------------[L.S]
Linda Portney, President Tenant
<PAGE>
<PAGE>
SCHEDULE ATTACHED HERETO AND MADE PART HEREOF
LEASE OF DEMISED PREMISES IN BUILDING LOCATED
AT 26 HARBOR PARK DRIVE, PORT WASHINGTON, NY,
DATED JANUARY 1, 1996, BETWEEN
SANDATA, INC. AS LANDLORD AND
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AS TENANT.
SCHEDULE OF RENT
January 1, 1996 through $145,860.00 per annum
December 31, 1996 $12,155.00 per month
January 1, 1997 through $167,460.00 per annum
December 31, 1997 $13,955.00 per month
January 1, 1998 through $175,833.00 per annum
December 31, 1998 $14,652.75 per month
January 1, 1999 through $184,624.65 per annum
December 31, 1999 $15,385.39 per month
January 1, 2000 through $193,855.88 per annum
December 31, 2000 $16,154.66 per month
<PAGE>
<PAGE>
ASSIGNMENT OF LEASE
KNOW THAT SANDATA, INC. ("Assignor"), in consideration of the sum of Ten
($10.00) Dollars paid by BFS REALTY, LLC ("Assignee"), and for other good and
valuable consideration, does hereby assign unto the Assignee a certain Lease
("Lease") dated January 1, 1996 by and between Sandata, Inc., as lessor, and
National Medical Health Card Systems, Inc., as lessee, for approximately 5,725
square feet in the building known as 26 Harbor Park Drive, Port Washington, New
York 11050 (the "Premises").
TO HAVE AND TO HOLD the same unto the Assignee, its successors, personal
representatives and assigns from and after the date hereof, for all the rest of
the term of the Lease, subject to the terms, covenants, conditions and
limitations therein contained.
In order to induce Assignor to consent to this assignment and Assignee to
accept this assignment, Assignor represents to Assignee that:
a. Assignor has full right, title and authority to assign the Lease;
b. Assignor has fully performed all the terms, covenants and conditions of
the Lease on Assignor's part to be performed to the effective date hereof;
c. Assignor has not done or suffered anything to be done which might impose
any liability on Assignee; and
d. There are no claims, security interests or liens which may have been
filed against the Lease.
<PAGE>
<PAGE>
The covenants and representations herein shall survive the delivery hereof.
Whenever the text hereof requires, the singular number as used herein shall
include the plural and all genders.
IN WITNESS WHEREOF, the Assignor has executed this Assignment this 1st day
of November, 1996.
ASSIGNOR: SANDATA, INC.
/s/ Bert E. Brodsky, President
--------------------------------------------
Bert E. Brodsky, President
ASSIGNEE:
BFS REALTY, LLC
By:
/s/ Bert E. Brodsky, Member
--------------------------------------------
Bert E. Brodsky, Member
2
FIRST AMENDMENT
TO
LEASE AGREEMENT
This First Amendment ("Amendment") dated as of the 1st day of June, 1998
by and between BFS REALTY, LLC, a New York limited liability company, having an
office at 26 Harbor Park Drive, Port Washington, New York 11050 ("Landlord") and
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC., a New York corporation having an
office at 26 Harbor Park Drive, Port Washington, New York 11050 ("Tenant").
WITNESSETH:
WHEREAS, on January 1, 1996 Tenant entered into a Lease agreement with
Sandata, Inc. ("Sandata") (the "Lease") for premises consisting of approximately
5,725 square feet of area in the building commonly known as 26 Harbor Park
Drive, Port Washington, New York (the "Building"), which Lease was assigned by
Sandata on November 1, 1996 to Landlord;
WHEREAS, both Landlord and Tenant are desirous to amend certain
provisions of the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Both Landlord and Tenant are desirous to increase the size of
the area currently being leased by Tenant by 1,500 square feet to 7,225 square
feet effective as of the date hereof.
2. Tenant agrees to pay Landlord an increase in rent in
accordance with the amended Schedule of Rent attached hereto and made part of
this First Amendment for the duration of the term of this Lease.
All other terms of the Lease shall remain in full force and effect as
previously written.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment the day and year first above written.
LANDLORD
BFS REALTY, LLC
By: Bert E. Brodsky
-----------------------------------------
name: Bert E. Brodsky
title: Member
TENANT
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
By: Linda Portney
-----------------------------------------
name: Linda Portney
title: President
<PAGE>
<PAGE>
SCHEDULE ATTACHED HERETO AND MADE PART HEREOF
LEASE OF DEMISED PREMISES IN BUILDING LOCATED
AT 26 HARBOR PARK DRIVE, PORT WASHINGTON, NY,
DATED JANUARY 1, 1996, BETWEEN
SANDATA, INC. AND ASSIGNED TO BFS REALTY, LLC, AS LANDLORD AND
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AS TENANT.
SCHEDULE OF RENT
January 1, 1996 through
December 31, 1996 $145,860.00 per annum
$12,155.00 per month
January 1, 1997 through
December 31, 1997 $167,460.00 per annum
$13,955.00 per month
January 1, 1998 through
December 31, 1998 $202,083.00 per annum
$16,840.25 per month
January 1, 1999 through
December 31, 1999 $230,937.15 per annum
$19,244.76 per month
January 1, 2000 through
December 31, 2000 $242,484.01 per annum
$20,207.00 per month
<PAGE>
<PAGE>
State of New York, County of ss:
On the day of 19 , before me personally came
, to me known, who, being by me
duly sworn, did depose and say that he resides at ; that he is of , the
corporation described in and which executed the within instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
State of New York, County of ss:
On the day of 19 , before me personally came
, to me known, who, being by me
duly sworn, did depose and say that he resides at ; that he is of , the
corporation described in and which executed the within instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
State of New York, County of ss:
On the day of 19 , before me personally came
to me known and known to me to be
the individual described in and who executed the foregoing instrument, and duly
acknowledged that he executed the same.
State of New York, County of ss:
On the day of 19 , before me personally came
, subscribing witness to the foregoing instrument, with
whom I am personally acquainted, who, being by me duly sworn, did depose and
say, that he resided, at the time of the execution of said instrument, and still
resides in that he is and then was acquainted with , and knew to be the
individual described in and who executed the foregoing instrument; and that he,
said subscribing witness, was present and saw execute the same; and that he,
said witness, thereupon at the same time subscribed his name as witness thereto.
BUILDING........................................................................
Premises........................................................................
================================================================================
Landlord
to
Tenant
================================================================================
LEASE
================================================================================
================================================================================
GUARANTY
In consideration of the letting of the premises within mentioned to the
Tenant within named, and of the sum of One Dollar, to the undersigned in hand
paid by the Landlord within named, the undersigned hereby guarantees to the
Landlord and to the heirs, successors and/or assigns of the Landlord, the
payment by the Tenant of the rent, within provided for, and the performance by
the Tenant of all of the provisions of the within lease. Notice of all defaults
is waived, and consent is hereby given to all extensions of time that any
Landlord may grant.
Dated, 19
....................................L.S.
STATE OF COUNTY OF ss:
On this day of , 19 , before me personally appeared
to me known and known to me to be the individual described in and who executed
the foregoing instrument, and duly acknowledge to me that he executed the same.
<PAGE>
<PAGE>
This Lease made the 10TH day of AUGUST 1998, between 61 MANORHAVEN
BOULEVARD, LLC, 26 HARBOR PARK DRIVE, PORT WASHINGTON, NY 11050 hereinafter
referred to as LANDLORD, and NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC., 26
HARBOR PARK DRIVE, PT. WASHINGTON, NEW YORK 11050 hereinafter jointly, severally
and collectively referred to as TENANT.
WITNESSETH, that the Landlord hereby leases to the Tenant, and the Tenant
hereby hires and takes from the Landlord APPROXIMATELY 1,500 SQUARE FEET
('DEMISED PREMISES') in the building known as 63 MANORHAVEN BOULEVARD, PORT
WASHINGTON, NY 11050 to be used and occupied by the Tenant A PHARMACY and for no
other purpose, for a term to a commence on SEPTEMBER 1, 1998 and to end on
AUGUST 31, 2005, unless sooner terminated as hereinafter provided, at the annual
rent of Eighteen Thousand and 00/100 Dollars ($18,000.00) for the period
September 1, 1998 through August 31, 1999, thereafter increased by an amount
equal to five percent (5%) per annum as reflected on the attached schedule made
part of this lease, all payable in equal monthly installments in advance on the
first day of each and every calendar month during said term, except the first
installment, which shall be paid upon the execution hereof.
THE TENANT JOINTLY AND SEVERALLY COVENANTS:
FIRST. -- That the Tenant will pay the rent as above provided.
REPAIRS
ORDINANCES
AND
VIOLATIONS
ENTRY
INDEMNIFY
LANDLORD
SECOND. -- That, throughout said term the Tenant will take good care of the
demised premises, fixtures and appurtenances, and all alterations, additions and
improvements to either; make all repairs in and about the same necessary to
preserve them in good order and condition, which repairs shall be, in quality
and class, equal to the original work; promptly pay the expense of such repairs;
suffer no waste or injury; give prompt notice to the Landlord of any fire that
may occur; execute and comply with all laws, rules, orders, ordinances and
regulations at any time issued or in force (except those requiring structural
alterations), applicable to the demised premises or to the Tenant's occupation
thereof, of the Federal, State and Local Governments, and of each and every
department, bureau and official thereof, and of the New York Board of Fire
Underwriters; permit at all times during usual business hours, the Landlord and
representatives of the Landlord to enter the demised premises for the purpose of
inspection, and to exhibit them for purposes of sale or rental; suffer the
Landlord to make repairs and improvements to all parts of the building, and to
comply with all orders and requirements of governmental authority applicable to
said building or to any occupation thereof; suffer the Landlord to erect, use,
maintain, repair and replace pipes and conduits in the demised premises and to
the floors above and below; forever indemnify and save harmless the Landlord for
and against any and all liability, penalties, damages, expenses and judgments
arising from injury during said term to person or property of any nature,
occasioned wholly or in part by any act or acts, omission or omissions of the
Tenant, or of the employees, guests, agents, assigns or undertenants of the
Tenant and also for any matter or thing growing out of the occupation of the
demised premises or of the streets, sidewalks or vaults adjacent thereto;
permit, during the six months next prior to the expiration of the term the usual
notice 'To Let' to be placed and to remain unmolested in a conspicuous place
upon the exterior of the demised premises; repair, at or before the end of the
term, all injury done by the installation or removal of furniture and property;
and at the end of the term, to quit and surrender the demised premises with all
alterations, additions and improvements in good order and condition.
<PAGE>
<PAGE>
MOVING
INJURY
SURRENDER
NEGATIVE
COVENANTS
OBSTRUCTION
SIGNS
AIR
CONDITIONING
THIRD. -- That the Tenant will not disfigure or deface any part of the
building, or suffer the same to be done, except so far as may be necessary to
affix such trade fixtures as are herein consented to by the Landlord; the Tenant
will not obstruct, or permit the obstruction of the street or the sidewalk
adjacent thereto; will not do anything, or suffer anything to be done upon the
demised premises which will increase the rate of fire insurance upon the
building or any of its contents, or be liable to cause structural injury to said
building; will not permit the accumulation of waste or refuse matter, and will
not, without the written consent of the Landlord first obtained in each case,
either sell, assign, mortgage or transfer this lease, underlet the demised
premises or any thereof, permit the same or any part thereof to be occupied by
anybody other than the Tenant and the Tenant's employees, make any alterations
in the demised premises, use the demised premises or any part thereof for any
purpose other than the one first above stipulated, or for any purpose deemed
extra hazardous on account of fire risk, nor in violation of any laws or
ordinance. That the Tenant will not obstruct or permit the obstruction of the
light, halls, stairways or entrances to the building, and will erect or inscribe
any sign, signals or advertisements unless and until the style and location
thereof have been approved by the Landlord; and if any be erected or inscribed
without such approval, the Landlord may remove the same. No water cooler, air
conditioning unit or system or other apparatus shall be installed or used
without prior written consent of Landlord.
IT IS MUTUALLY COVENANTED AND AGREED, THAT
FIRE CLAUSE
FOURTH. -- If the demised premises shall be partially damaged by fire or
other cause without fault or neglect of Tenant, Tenant's servants, employees,
agents, visitors or licensees, the damages shall be repaired by and at the
expense of Landlord and the rent until such repairs shall be made shall be
apportioned according to the part of the demised premises which is usable by
Tenant. But if such partial damage is due to the fault or neglect of Tenant,
Tenant's servants, employees, agents, visitors or licensees, without prejudice
to any other rights and remedies of Landlord and without prejudice to the rights
of subrogation of Landlord's insurer, the damages shall be repaired by Landlord
but there shall be no apportionment or abatement of rent. No penalty shall
accrue for reasonable delay which may arise by reason of adjustment of insurance
on the part of Landlord and/or Tenant, and for reasonable delay on account of
'labor troubles' or any other cause beyond Landlord's control. If the demised
premises are totally damaged or are rendered wholly untenantable by fire or
other cause, and if Landlord shall decide not to restore or not to rebuild the
same, or if the building shall be so damaged that Landlord shall decide to
demolish it or to rebuild it, then or in any of such events Landlord may, within
ninety (90) days after such fire or other cause, give Tenant a notice in writing
of such decision, which notice shall be given in Paragraph Twelve hereof
provided, and thereupon the term of this lease shall expire by lapse of time
upon the third day after such notice is given, and Tenant shall vacate the
demised premises and surrender the same to Landlord. If Tenant shall not be in
default under this lease then, upon the termination of this lease under the
conditions provided for in the sentence immediately preceding, Tenant's
liability for rent shall cease as of the day following the casualty. Tenant
hereby expressly waives the provisions of Section 227 of the Real Property Law
and agrees that the foregoing provisions of this Article shall govern and
control in lieu thereof. If the damage or destruction be due to the fault or
neglect of Tenant the debris shall be removed by and at the expense of Tenant.
<PAGE>
<PAGE>
EMINENT
DOMAIN
FIFTH. -- If the whole or any part of the premises hereby demised shall be
taken or condemned by any competent authority for any public use or purpose then
the term hereby granted shall cease from the time when possession of the part so
taken shall be required for such public purpose and without apportionment of
award, the Tenant hereby assigning to the Landlord all right and claim to any
such award, the current rent, however, in such case to be apportioned.
LEASE NOT
IN EFFECT
DEFAULTS
TEN DAY
NOTICE
SIXTH. -- If, before the commencement of the term, the Tenant be
adjudicated a bankrupt, or make a 'general assignment' or take the benefit of
any insolvent act, or if a Receiver or Trustee be appointed for the Tenant's
property, or if this lease or the estate of the Tenant hereunder be transferred
or pass to or devolve upon any other person or corporation, or if the Tenant
shall default in the performance of any agreement by the Tenant contained in any
other lease to the Tenant by the Landlord or by any corporation of which an
officer of the Landlord is a Director, this lease shall thereby, at the option
of the Landlord, be terminated and in that case, neither the Tenant nor anybody
claiming under the Tenant shall be entitled to go into possession of the demised
premises. If after the commencement of the term, any of the events mentioned
above in this subdivision shall occur, or if Tenant shall make default in
fulfilling any of the covenants of this lease, other than the covenants for the
payment of rent or 'additional rent' or if the demised premises become vacant or
deserted, the Landlord may give to the Tenant ten days' notice of intention to
end the terms of this lease, and thereupon at the expiration of said ten days'
(if said condition which was the basis of said notice shall continue to exist)
the term under this lease shall expire as fully and completely as if that day
were the date herein definitely fixed for the expiration of the term and the
Tenant will then quit and surrender the demised premises to the Landlord, but
the Tenant shall remain liable as hereafter provided.
<PAGE>
<PAGE>
RE-POSSESSION BY LANDLORD
RE-LETTING
WAIVER
BY TENANT
If the Tenant shall make default in the payment of the rent reserved
hereunder, or any item of 'additional rent' herein mentioned, or any part of
either or in making any other payment herein provided for, or if the notice last
above provided for shall have been given and if the condition which was the
basis of said notice shall exist at the expiration of said ten days' period, the
Landlord may immediately, or at any time thereafter, re-enter the demised
premises and remove all persons and all or any property therefrom, either by
summary dispossess proceedings, or by any suitable action or proceeding at law,
or by force or otherwise, without being liable to indictment, prosecution or
damages therefor, and re-possess and enjoy all premises together with all
additions, alterations and improvements. In any such case or in the event that
this lease be 'terminated' before the commencement of the term, as above
provided, the Landlord may either re-let the demised premises or any part or
parts thereof for the Landlord's own account, or may, at the Landlord's option,
re-let the demised premises or any part or parts thereof as the agent of the
Tenant, and receive the rents therefor, applying the same first to the payment
of such expenses as the Landlord may have incurred, and then to the fulfillment
of the covenants of the Tenant herein, and the balance, if any, at the
expiration of the term first above provided for, shall be paid to the Tenant.
Landlord may rent the premises for a term extending beyond the term hereby
granted without releasing Tenant from any liability. In the event that the term
of this lease shall expire as above in this subdivision 'Sixth' provided, or
terminate by summary proceedings or otherwise, and if the Landlord shall not
re-let the demised premises for the Landlord's own account, then, whether or not
the premises be re-let, the Tenant shall remain liable for, and the Tenant
hereby agrees to pay to the Landlord, until the time when this lease would have
expired but for such termination or expiration, the equivalent of the amount of
all of the rent and 'additional rent' reserved herein, less the avails of
reletting, of any, and the same shall be due and payable by the Tenant to the
Landlord on the several rent days above specified, that is, upon each of such
rent days the Tenant shall pay to the Landlord the amount of deficiency then
existing. The Tenant hereby expressly waives any and all right of redemption in
case the Tenant shall be dispossessed by judgment or warrant of any court or
judge, and the Tenant waives and will waive all right to trial by jury in any
summary proceedings hereafter instituted by the Landlord against the Tenant in
respect to the demised premises. The words 're-enter' and 're-entry' as used in
this lease are not restricted to their technical legal meaning.
REMEDIES ARE CUMULATIVE
In the event of a breach or threatened breach by the Tenant of any of the
convenants or provisions hereof, the Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity, as if re-entry,
summary proceedings and other remedies were not herein provided for.
LANDLORD MAY PERFORM
ADDITIONAL RENT
SEVENTH. -- If the Tenant shall make default in the performance of any
covenant herein contained, the Landlord may immediately, or at any time
thereafter, without notice, perform the same for the account of the Tenant. If a
notice of mechanic's lien be filed against the demised premises or against
premises of which the demised premises are part for, or purporting to be for,
labor or material alleged to have been furnished, or to be furnished to or for
the Tenant at the demised premises, and if the Tenant shall fall to take such
action as shall cause such lien to be discharged within fifteen days after the
filing of such notice, the Landlord may pay the amount of such lien or discharge
the same by deposit or by bonding proceedings, and in the event of such deposit
or bonding proceedings, the Landlord may require the lienor to prosecute an
appropriate action to enforce the lienor's claim. In such case, the Landlord may
pay any judgment recovered on such claim. Any amount paid or expense incurred by
the Landlord as in this subdivision of this lease provided, any any amount as to
which the Tenant shall at any time be in default for or in respect to the use of
water, electric current or sprinkler supervisory service, and any expense
incurred or sum of money paid by the Landlord by reason of the failure of the
Tenant to comply with any provision hereof, or in defending any such action,
shall be deemed to be 'additional rent' for the demised premises, and shall be
due and payable by the Tenant to the Landlord on the first day or the next
following month, or, at the option of the Landlord, on the first day of any
succeeding month. The receipt by the Landlord of any instalment of the regular
stipulated rent hereunder or any of said 'additional rent' shall not be a waiver
of any other 'additional rent' then due.
<PAGE>
<PAGE>
AS TO WAIVERS
EIGHTH. -- The failure of the Landlord to insist, in any one or more
instances upon a strict performance of any of the covenants of this lease, or to
exercise any option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by the Landlord of
rent, with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach and no waiver by the Landlord of any provision hereof
shall be deemed to have been made unless expressed in writing and signed by the
Landlord. Even though the Landlord shall consent to an assignment hereof no
further assignment shall be made without express consent in writing by the
Landlord.
COLLECTION OF RENT FROM OTHERS
NINTH. -- If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than the Tenant the Landlord
amy collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the rent herein reserved, and no such collection shall be
deemed a waiver of the covenant herein against assignment and under-letting, or
the acceptance of the assignee, under-tenant or occupant as tenant, or a release
of the Tenant from the further performance by the Tenant of the covenants herein
contained on the part of the Tenant.
MORTGAGES
TENTH. -- This lease shall be subject and subordinate at all times, to the
lien of the mortgages now on the demised premises, and to all advances made or
hereafter to be made upon the security thereof, and subject and subordinate to
the lien of any mortgage or mortgages which at any time may be made a lien upon
the premises. The Tenant will execute and deliver much further instrument or
instruments subordinating this lease to the lien of any such mortgage or
mortgages as shall be desired by any mortgagee or proposed mortgagee. The Tenant
hereby appoints the Landlord the attorney-in-fact of the Tenant, irrevocable, to
execute and deliver any such instrument or instruments for the Tenant.
IMPROVEMENTS
ELEVENTH. -- All improvements made by the Tenant to or upon the demised
premises, except said trade fixtures, shall when made, at once be deemed to be
attached to the freehold, and become the property of the Landlord, and at the
end or other expiration of the term, shall be surrendered to the Landlord in as
good order and condition as they were when installed, reasonable wear and
damages by the elements excepted.
NOTICES
TWELLFTH. -- Any notice or demand which under the terms of this lease or
under any statute must or may be given or made by the parties hereto shall be in
writing and shall be given or made by mailing the same by certified or
registered mail addressed to the respective parties at the addresses set forth
in this lease.
NO LIABILITY
THIRTEENTH. -- The Landlord shall not be liable for any failure of water
supply or electrical current, sprinkler damage, or failure of sprinkler service,
nor for injury or damage to person or property caused by the elements or by
other tenants or persons in said building, or resulting from steam, gas,
electricity, water, rain or snow, which may leak or flow from any part of said
buildings, or from the pipes, appliances or plumbing works of the same, or from
the street or sub-surface, or from any other place, nor for interference with
light or other incorporeal hereditaments by anybody other than the Landlord, or
caused by operations by or for a governmental authority in construction of any
public or quasi-public work, neither shall the Landlord be liable for any latent
defect in the building.
NO ABATEMENT
FOURTEENTH. -- No diminution or abatement of rent, or other compensation
shall be claimed or allowed for inconvenience or discomfort arising from the
making of repairs or improvements to the building or to its appliances, nor for
any space taken to comply with any law, ordinance or order of a governmental
authority. In respect to the various 'services,' if any, herein expressly or
impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed
that there shall be no diminution or abatement of the rent, or any other
compensation, for interruption or curtailment of such 'service' when such
interruption or curtailment shall be due to accident, alterations or repairs
desirable or necessary to be made or to inability or difficulty in securing
supplies or labor for the maintenance of such 'service' or to some other cause,
not gross negligence on the part of the Landlord. No such interruption or
curtailment of any such 'service' shall be deemed a constructive eviction. The
Landlord shall not be required to furnish, and the Tenant shall not be entitled
to receive, any of such 'services' during any period wherein the Tenant shall be
in default in respect to the payment of rent. Neither shall there be any
abatement or diminution of rent because of making of repairs, improvements or
decorations to the demised premises after the date above fixed for the
commencement of the term, it being understood that rent shall, in any event,
commence to run at such date so above fixed.
<PAGE>
<PAGE>
RULES, ETC.
FIFTEENTH. -- The Landlord may prescribe and regulate the placing of safes,
machinery, quantities of merchandise and other things. The Landlord may also
prescribe and regulate which elevator and entrances shall be used by the
Tenant's employees, and for the Tenant's shipping. The Landlord may make such
other and further rules and regulations as, in the Landlord's judgment, may from
time to time be needful for the safety, care or cleanliness of the building, and
for the preservation of good order therein. The Tenant and the employees and
agents of the Tenant will observe and conform to all such rules and regulations.
ENTRY
EIGHTEENTH. -- That during seven months prior to the expiration of the term
hereby granted, applicants shall be admitted at all reasonable hours of the day
to view the promises until rented; and the Landlord and the Landlord's agents
shall be permitted at any time during the term to visit and examine them at any
reasonable hour of the day, and workmen may enter at any time, when authorized
by the Landlord or the Landlord's agents, to make or facilitate repairs in any
part of the building; and if the said Tenant shall not be personally present to
open and permit an entry into said premises at any time, when for any reason an
entry therein shall be necessary or permissible hereunder, the Landlord or the
Landlord's agents may forcibly enter the same without rendering the Landlord or
such agents liable to any claim or cause of action for damages by reason thereof
(if during such entry the Landlord shall accord reasonable care to the Tenant's
property) and without in any manner affecting the obligations and convents of
this lease; it is, however, expressly understood that the right and authority
hereby reserved, does not impose, nor does the Landlord assume, by reason
thereof, any responsibility or liability whatsoever for the care or supervision
of said premises, or any of the pipes, fixtures, appliances or appurtenances
therein contained or therewith in any manner connected.
NO REPRESENTATIONS
NINETEENTH. -- The Landlord has made no representations or promises in
respect to said building or to the demised premises except those contained
herein, and those, if any, contained in some written communication to the
Tenant, signed by the Landlord. This instrument may not be changed, modified,
discharged or terminated orally.
ATTORNEY'S FEES
TWENTIETH. -- If the Tenant shall at any time be in default hereunder, and
if the Landlord shall institute an action or summary proceeding against the
Tenant based upon such default, then the Tenant will reimburse the Landlord for
the expense of attorneys' fees and disbursements thereby incurred by the
Landlord, so far as the same are reasonable in amount. Also so long as the
Tenant shall be a tenant hereunder the amount of such expenses shall be deemed
to be 'additional rent' hereunder and shall be due from the Tenant to the
Landlord on the first day of the month following the incurring of such
respective expenses.
POSSESSION
TWENTY-FIRST. -- Landlord shall not be liable for failure to give
possession of the premises upon commencement date by reason of the fact that
premises are not ready for occupancy, or due to a prior Tenant wrongfully
holding over or any other person wrongfully in possession or for any other
reason: in such event the rent shall not commence until possession is given or
is available, but the term herein shall not be extended.
<PAGE>
<PAGE>
THE TENANT FURTHER COVENANTS:
INCREASED FIRE INSURANCE RATE
TWENTY-THIRD. -- If by reason of the conduct upon the demised premises of a
business not herein permitted, or if by reason of the improper or careless
conduct of any business upon or use of the demised premises, the fire insurance
rate shall at any time be higher than it otherwise would be, then the Tenant
will reimburse the Landlord, as additional rent hereunder, for that part of all
fire insurance premiums hereafter paid out by the Landlord which shall have been
charged because of the conduct of such business not so permitted, or because of
the improper or careless conduct of any business upon or use of the demised
premises, and will make such reimbursement upon the first day of the month
following such outlay by the Landlord; but this covenant shall not apply to a
premium for any period beyond the expiration date of this lease, first above
specified. In any action or proceeding wherein the Landlord and Tenant are
parties, a schedule or 'make up' of rate for the building on the demised
premises, purporting to have been issued by New York Fire Insurance Exchange, or
other body making fire insurance rates for the demised premises, shall be prima
facie evidence of the facts therein stated and of the several items and charges
included in the fire insurance rate then applicable to the demised premises.
WATER RENT
SEWER
TWENTY-FOURTH. -- If a separate water meter be installed for the demised
premises, or any part thereof, the Tenant will keep the same in repair and pay
the charges made by the municipality or water supply company for or in respect
to the consumption of water, as and when bills therefor are rendered. If the
demised premises, or any part thereof, be supplied with water through a meter
which supplies other premises, the Tenant will pay to the Landlord, as and when
bills are rendered therefor, the Tenant's proportionate part of all charges
which the municipality or water supply company shall make for all water consumed
through said meter, as indicated by said meter. Such proportionate part shall be
fixed by apportioning the respective charge according to floor area against all
of the rentable floor area in the building (exclusive of the basement) which
shall have been occupied during the period the respective charges, taking into
account the period that each part of such area was occupied. Tenant agrees to
pay as additional rent the Tenant's proportionate part, determined as aforesaid,
of the sewer rent or charge imposed or assessed upon the building of which the
premises are a part.
ELECTRIC CURRENT
TWENTY-FIFTH -- That the Tenant will purchase from the Landlord, if the
Landlord shall so desire, all electric current that the Tenant requires at the
demised premises, and will pay the Landlord for the same, as the amount of
consumption shall be indicated by the meter furnished therefor. The price for
said current shall be the same as that charged for consumption similar to that
of the Tenant by the company supplying electricity in the same community.
Payments shall be due as and when bills shall be rendered. The Tenant shall
comply with like rules, regulations and contract provisions as those prescribed
by said company for a consumption similar to that of the Tenant.
SPRINKLER SYSTEM
TWENTY-SIXTH -- If there now is or shall be installed in said building a
'sprinkler system' the Tenant agrees to keep the appliances thereto in the
demised premises in repair and good working condition, and if the New York Board
of Fire Underwriters or the New York Fire Insurance Exchange or any bureau,
department or official of the State or local government requires or recommends
that any changes, modifications, alterations or additional sprinkler heads or
other equipment be made or supplied by reason of the Tenant's business, or the
location of partitions, trade fixtures, or other contents of the demised
premises, or if such changes, modifications, alterations, additional sprinkler
heads or other equipment in the demised premises are necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate as fixed by said Exchange, or by any Fire
Insurance Company, the Tenant will at the Tenant's own expense, promptly make
and supply such changes, modifications, alterations, additional sprinkler heads
or other equipment. As additional rent hereunder the Tenant will pay to the
Landlord, annually in advance, throughout the term $ , toward the contract price
for sprinkler supervisory service.
<PAGE>
<PAGE>
SECURITY
TWENTY-SEVENTH -- The sum of $1,500.00 Dollars is deposited by the Tenant
herein with the Landlord herein as security for the faithful performance of all
the covenants and conditions of the lease by the said Tenant. If the Tenant
faithfully performs all the covenants and conditions on his part to be
performed, then the sum deposited shall be returned to said Tenant.
NUISANCE
TWENTY-EIGHTH -- This lease is granted and accepted on the especially
understood and agreed condition that the Tenant will conduct his business in
such a manner, both as regards noise and kindred nuisances, as will in no wise
interfere with, annoy, or disturb any other tenants, in the conduct of their
several businesses, or the landlord in the management of the building; under
penalty of forfeiture of this lease and consequential damages.
BROKERS COMMISSIONS
TWENTY-NINTH -- The Landlord hereby recognizes N/A as the broker who
negotiated and consummated this lease with the Tenant herein, and agrees that
if, as, and when the Tenant exercises the option, if any, contained herein to
renew this lease, or fails to exercise the option, if any, contained therein to
cancel this lease, the Landlord will pay to said broker a further commission in
accordance with the rules and commission rates of the Real Estate Board in the
community. A sale, transfer, or other disposition of the Landlord's interest in
said lease shall not operate to defeat the Landlord's obligation to pay the said
commission to the said broker. The Tenant herein hereby represents to the
Landlord that the said broker is the sole and only broker who negotiated and
consummated this lease with the Tenant.
WINDOW CLEANING
THIRTIETH -- The Tenant agrees that it will not require, permit, suffer,
nor allow the cleaning of any window, or windows, in the demised premises from
the outside (within the meaning of Section 202 of the New York Labor Law) unless
the equipment and safety devices required by law, ordinance, regulation or rule,
including, without limitation, Section 202 of the New York Labor Law, are
provided and used, and unless the rules, or any supplemental rules of the
Industrial Board of the State of New York are fully complied with; and the
Tenant hereby agrees to indemnify the Landlord, Owner, Agent, Manager and/or
Superintendent, as a result of the Tenant's requiring, permitting, suffering, or
allowing any window, or windows in the demised premises to be cleaned from the
outside in violation of the requirements of the aforesaid laws, ordinances,
regulations and/or rules.
VALIDITY
THIRTY-FIRST -- The invalidity or unenforceability of any provision of this
lease shall in no way affect the validity or enforceability of any other
provision hereof.
EXECUTION & DELIVERY OF LEASE
THIRTY-SECOND -- In order to avoid delay, this lease has been prepared and
submitted to the Tenant for signature with the understanding that it shall not
bind the Landlord unless and until it is executed and delivered by the Landlord.
WAR EMERGENCY
THIRTY-FIFTH -- This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is unable to supply
or is delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of governmental preemption in connection with a
National Emergency declared by the President of the United States or in
connection with any rule, order or regulation or any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
THE LANDLORD COVENANTS
QUIET POSSESSION
FIRST. -- That if and so long as the Tenant pays the rent and 'additional
rent' reserved hereby, and performs and observes the covenants and provisions
hereof, the Tenant shall quietly enjoy the demised premises, subject, however,
to the terms of this lease, and to the mortgages above mentioned, provided
however, that this covenant shall be conditioned upon the retention of title to
the premises by Landlord.
ELEVATOR
HEAT
SECOND. -- Subject to the provisions of Paragraph 'Fourteenth' above the
Landlord will furnish the following respective services: (a) Elevator service,
if the building shall contain an elevator or elevators, on all days except
Sundays and holidays, from A.M. to P.M. and on Saturdays from
A.M. to P.M.; (b) Heat, during the same hours on the same days in the
cold season in each year.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the Landlord and Tenant have respectively signed and
sealed these presents the day and year first above written.
61 MANORHAVEN BOULEVARD, LLC
By: /s/ BERT E. BRODSKY
..............................[L.S.]
Bert E. Brodsky Landlord
IN PRESENCE OF: NATIONAL MEDICAL HEALTH CARD SYSTEMS,
INC.
By: LINDA PORTNEY
..............................[L.S.]
Linda Portney, Secretary Tenant
<PAGE>
<PAGE>
State of New York, County of ss:
On the day of 19 , before me personally came
, to me known, who, being by me duly
sworn, did depose and say that he resides at
; that he is
, the corporation described in and which
executed the instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto by like
State of New York, County of ss:
On the day of 19 , before me personally came to me known and known to me to
be the individual described in and who executed the foregoing instrument, and
acknowledged that he executed the same.
State of New York, County of ss:
On the day of 19 , before me personally came
, subscribing witness to the foregoing instrument,
with whom I am personally acquainted who, being by me duly sworn, did depose and
say, that he resided, at the time of the execution of said instrument and still
resides, in that he is and then was acquainted with , and knew to be individual
described in and who executed the foregoing instrument; and that he, said
subscribing witness, was present and saw execute the same; and that he, said
witness, thereupon at the same time subscribed his as witness thereto.
BUILDING-------------------------------------
Premises-------------------------------------
- ---------------------------------------------
Landlord
to
Tenant
- ---------------------------------------------
L E A S E
- ---------------------------------------------
- ---------------------------------------------
GUARANTY
In consideration of the letting of the premises within mentioned to the
Tenant within named, and of the sum of Dollar, to the undersigned in hand paid
by the Landlord within named, the undersigned hereby guarantees to the Landlord
and to the heirs, successors and/or assigns of the Landlord, the payment by the
Tenant of the rent, within provided and the performance by the Tenant of all of
the provisions of the within lease. Notice of all defaults is waived, and
consent is hereby given to all extensions of time that any Landlord may grant.
Dated, 19
------------------------------
STATE OF COUNTY OF ss:
On this day of , 19 , before me personally appeared to me known and known
to me to be the individual described in and who executed the foregoing
instrument, and duly acknowledged to me that he executed the same.
<PAGE>
<PAGE>
RIDER
Rider containing 4 numbered articles attached to and made part of Lease for
Building at 63 Manorhaven Boulevard, Port Washington, New York, dated
September 1, 1998, between 61 MANORHAVEN BOULEVARD, LLC, as Landlord, and
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. as Tenant.
In the event of any conflict between any of the terms of the provisions of
this Rider and any of the terms of the printed portion of this Lease, the
provisions of this Rider shall be controlling.
1. Additional Rent. In addition to the Basic Rent provided for above, all
other payments to be made by Tenant to Landlord shall be deemed to be and shall
become Additional Rent hereunder whether or not the same be designated as such,
and, unless otherwise provided, shall be due and payable ten (10) days after
demand. Landlord shall have the same remedies under Article Sixth of the printed
portion of this Lease for failure to pay said Additional Rent, as for the
nonpayment of Basic Rent. Tenant's obligation to pay Additional Rent shall
survive the expiration of termination of the term of this Lease. Installments of
Basic Rent and any Additional Rent payable on a monthly basis shall be equitably
adjusted if the term of this Lease commences or terminates on a day other than
the first day of a calendar month.
2. Tenants Pro-Rata Share. For purposes of this Lease, the 'Tenant's
Pro-Rata Share' shall be twenty-five percent (25%). In the event Landlord shall
increase the size of the Building or in the event Tenant shall lease additional
space in the Building, Tenant's Pro-rata Share shall be adjusted to reflect the
new ratio which the size of the Demised Premises bears to the size of the
Building. In the event Landlord and Tenant are unable to enter into an agreement
in writing setting forth Tenant's new Pro-rata Share within thirty (30) days
after submittal of such an agreement by Landlord to Tenant or Tenant to
Landlord, the dispute shall be resolved by arbitration in accordance with the
provisions contained herein.
3. Landlord's Maintenance. Landlord shall perform all maintenance, repairs
and replacements of the roof, parking lot, lawn sprinkler system and
landscaping, and shall perform ice clearance from the parking lot and sidewalk,
and from the roof if necessary, and all exterior painting (at such intervals as
Landlord deems appropriate). Tenant shall pay to Landlord Tenant's Pro-rata
Share of the costs and expenses incurred by Landlord in fulfilling its
obligations under this Section 3, except that: (a) the cost of replacements
shall be amortized over the life of such replacements; (b) as regards any
re-paving of the parking lot, Tenant's annual payment to the Landlord in
connection therewith shall not exceed $2,500; and (c) except as set forth in the
following sentence, Tenant shall not be obligated to make any payment hereunder
with regard to repairs or replacements of the roof. Notwithstanding anything to
the contrary contained in the foregoing sentence, if the necessity for any such
maintenance, repairs or replacements (including, without limitation, to the
parking lot and/or roof) results from any act or omission or negligence of
Tenant, its agents, employees, contractors, customers or invitees, Tenant shall
pay to Landlord all of the costs and expenses incurred by Landlord in performing
such work. All such payments shall be Additional Rent hereunder and shall be
paid to Landlord within ten (10) days after Landlord bills therefor, or, at
Landlord's election, in monthly installments in amounts established by Landlord.
4. Tenant's Maintenance.
(a) Tenant shall keep and maintain in good order and repair, and shall
perform necessary maintenance, repairs and replacements on, the entire interior
of the Demised Premises and the portions of the Building not being maintained by
Landlord pursuant to Section 3 hereof, including, without limitation,
roof-mounted mechanical equipment used in connection with the Demised Premises,
pipes and conduits below the floor and below the ground surface of the
1
<PAGE>
<PAGE>
Demised Premises (provided that as to repairs and replacements of pipes and
conduits below the floor and below the ground surface of the Demised Premises,
Tenant's obligations shall be limited to those instances caused by or resulting
from Tenant's occupancy of the Demised Premises), and windows on the interior
and exterior of the Demised Premises clean and sanitary and in good condition
and repair, and further, without limitation, maintaining and repairing of truck
dock doors and all other exterior doors in conformity with other such doors of
the Building. Tenant shall, to the extent possible, keep the Demised Premises
from falling temporarily out of repair or deteriorating and shall keep the same
safe, secure, clean and sanitary and in full compliance with all health, safety
and police regulations in force. Tenant shall promptly remove any debris left by
Tenant, its employees, agents, contractors or invitees in the parking area or
other exterior areas of the Building. Tenant agrees to cooperate with any other
tenants in the Building in connection with exterior maintenance and repairs not
performed by Landlord hereunder to the end that any exterior repairs and
maintenance will be performed in a uniform manner acceptable to Landlord. In
connection therewith, Tenant and other such tenants may agree among themselves
as to the allocation of costs and responsibilities.
(b) Without limiting Tenant's obligations under Section 3(a) hereof, Tenant
shall, at all times during the term of this Lease, have and keep in force an
inspection and maintenance contract, in form and with a contractor satisfactory
to the Landlord, providing for inspection at least once each calendar quarter of
the heating equipment and providing for necessary repairs thereto. Said
contracts shall provide that it will not be cancelable by either party thereto
except upon thirty (30) days' prior written notice to Landlord.
61 MANORHAVEN BOULEVARD, LLC
By: BERT E. BRODSKY
...................................
Bert E. Brodsky, Member
NATIONAL MEDICAL HEALTH CARD SYSTEMS
INC.
By: LINDA PORTNEY
...................................
Linda Portney, Secretary
2
<PAGE>
<PAGE>
SCHEDULE ATTACHED HERETO AND MADE PART HEREOF
LEASE OF DEMISED PREMISES IN BUILDING LOCATED
AT 63 MANORHAVEN BOULEVARD, PORT WASHINGTON, NY,
COMMENCING SEPTEMBER 1, 1998, BETWEEN
61 MANORHAVEN BOULEVARD, LLC AS LANDLORD AND
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AS TENANT.
SCHEDULE OF RENT
<TABLE>
<S> <C>
September 1, 1998 through $18,000.00 per annum
August 31, 1999 $ 1,500.00 per month
September 1, 1999 through $18,900.00 per annum
August 31, 2000 $ 1,575.00 per month
September 1, 2000 through $19,854.00 per annum
August 31, 2001 $ 1,653.75 per month
September 1, 2001 through $20,837.25 per annum
August 31, 2002 $ 1,736.44 per month
September 1, 2002 through $21,879.11 per annum
August 31, 2003 $ 1,823.26 per month
September 1, 2003 through $22,973.07 per annum
August 31, 2004 $ 1,914.42 per month
September 1, 2004 through $24,121.72 per annum
August 31, 2005 $ 2,010.14 per month
</TABLE>
<PAGE>
<PAGE>
PROMISSORY NOTE
$ 1,000,000.00 Date JULY 1, 1997
------------------- --------------------------
FIVE (5) YEARS after date I promise to pay to
- ---------------------------- ------------------
the order of NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
--------------------------------------------------------------------
*************ONE MILLION AND NO CENTS ($1,000,000.00)********************Dollars
- --------------------------------------------------------------------------------
Payable at 26 HARBOR PARK DRIVE
----------------------------------------------------------------------
PORT WASHINGTON, NY 11050
- --------------------------------------------------------------------------------
for value received with interest at eight and one-half per cent (8.5%) per
annum, payable quarterly commencing October 1, 1997. This debt shall be
non-recourse and shall be collateralized by 10,000,000 shares of Common Stock
par value $.001 per share of National Medical Health Card Systems, Inc.
registered in the name of Bert E. Brodsky.
BERT E. BRODSKY
-------------------------------------
BERT E. BRODSKY
Witness:
LINDA SCARPANTONIO
- ----------------------------------
JANE A. KIMBERLY
- ----------------------------------
<PAGE>
<PAGE>
PROMISSORY NOTE
$ 300,000.00 Date JULY 1, 1997
------------------- --------------------------
FIVE (5) YEARS after date I promise to pay to
- ---------------------------- -------------------------
the order of NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
--------------------------------------------------------------------
*************THREE HUNDRED THOUSAND AND NO CENTS ($300,000.00)***********Dollars
- --------------------------------------------------------------------------------
Payable at 26 HARBOR PARK DRIVE
----------------------------------------------------------------------
PORT WASHINGTON, NY 11050
- --------------------------------------------------------------------------------
for value received with interest at eight and one-half per cent (8.5%) per
annum, payable quarterly commencing October 1, 1997. This debt shall be
non-recourse and shall be collateralized by 3,000,000 shares of Common Stock par
value $.001 per share of National Medical Health Card Systems, Inc.
registered in the name of Gerald Shapiro.
GERALD SHAPIRO
-------------------------------------
GERALD SHAPIRO
Witness:
LINDA SCARPANTONIO
- ----------------------------------
JANE A. KIMBERLY
- ----------------------------------
<PAGE>
<PAGE>
PROMISSORY NOTE
$ 4,254,785.00 Date JUNE 1, 1998
------------------- --------------------------
ON DEMAND after date WE promise to pay to
- ---------------------------- -------------------------
the order of NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
--------------------------------------------------------------------
********************** FOUR MILLION TWO HUNDRED FIFTY-FOUR THOUSAND
SEVEN HUNDRED EIGHTY-FIVE AND 00/100 ************************************Dollars
- --------------------------------------------------------------------------------
Payable at 26 HARBOR PARK DRIVE
----------------------------------------------------------------------
PORT WASHINGTON, NY 11050
- --------------------------------------------------------------------------------
for value received with interest at EIGHT AND ONE-HALF (8.5%) per cent per
annum, payable quarterly. This debt shall be non-recourse and shall be secured
by eight million (8,000,000) shares of Common Stock $.001 par value of National
Medical Health Card Systems, Inc. registered in the name of Bert E. Brodsky.
P.W. CAPITAL, LLC
BERT E. BRODSKY
-------------------------------------
BERT E. BRODSKY, MEMBER
Witness:
JANE A. KIMBERLY
- ----------------------------------
LINDA SCARPANTONIO
- ----------------------------------
<PAGE>
<PAGE>
GUARANTY
Bert E. Brodsky, an individual, residing at South Road, Harbor Acres, Sands
Point, NY 11050 (the "Guarantor") in order to induce National Medical Health
Card Systems, Inc. ("Health Card") to accept a promissory note of even date
herewith in the principal sum of $4,254,785 (the "Note") evidencing a debt owed
by P.W. Capital, LLC to Health Card, do hereby, unconditionally and irrevocably
guaranty the full and prompt payment to Health Card of all amounts payable under
the Note.
This Guaranty shall be a continuing guaranty, and liability hereunder shall
in no way be affected or diminished by any renewal, extension, amendment or
modification of the Note or any waiver of the provisions thereof. The Guarantor
hereby waives any notice of default under or with respect to the Note. This
Guaranty is not conditioned or contingent upon any attempt to collect from
Maker. This Guaranty shall not be affected by any modification, amendment or
alteration of the Note or by any waiver, forbearance or extension of time for
payment granted to Maker.
This Guaranty shall inure to the benefit of and may be enforced by Health
Card or its endorsees, transferees, successors and assigns, and shall be binding
upon and enforceable against the Guarantor and his successors, heirs, executors,
administrators and legal representatives. This Guaranty may not be changed,
terminated, modified or waived orally, but only in writing signed by Health Card
and the Guarantor. This Guaranty shall remain and continue in full force and
effect notwithstanding, and the liability of the Guarantor hereunder shall in no
way be affected, modified or diminished by reason of (i) any bankruptcy,
insolvency, reorganization, arrangement, assignment for the benefit of
creditors, receivership or trusteeship or other similar action or proceeding
affecting Maker, whether or not notice of any of the foregoing is given to the
Guarantor, or (ii) the Guarantor no longer being affiliated with or related to
Maker.
This Guaranty shall be deemed to have been made in the State of New York
and the rights and liabilities of Maker and Guarantor shall be determined in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
1st day of June, 1998.
Bert E. Brodsky
---------------------------
Bert E. Brodsky
Sworn to before me this 1st day of June, 1998.
Linda M. Scarpantonio
- -----------------------------
Notary
[LINDA M. SCARPANTONIO NOTARY PUBLIC SEAL]
<PAGE>
<PAGE>
[MARINE MIDLAND BANK LOGO]
VARIABLE INTEREST TIME OR DEMAND NOTE
BANK
USE
ONLY
Melville, NEW YORK October 30, 1998 on demand after date, for value
received, the undersigned (jointly and severally, if the undersigned be more
than one) promise(s) to PAY TO MARINE MIDLAND BANK (Bank) or order, at its
Queens/LI Commercial Office at Melville NEW YORK THE SUM OF Two million and
00/100 Dollars $2,000,000.00 with interest on the principal balance hereof from
time to time unpaid at a per annum rate equal to the Bank's prime rate as
defined below minus 1%.
- --------------------------------------------------------------------------------
The Bank's prime rate means the rate of interest publicly announced by the Bank
from time to time as its prime rate and is a base rate for calculating interest
on certain loans. After maturity (whether by acceleration or otherwise), if this
note is a time note, or after demand, if this note is payable on demand, this
note shall bear interest computed at a rate of 2% per month. In no event shall
the interest rate on this note exceed the maximum rate authorized by applicable
law. Any change in the interest rate on this note resulting from a change in the
Bank's prime rate shall be effective on the date of such change. If this note is
not payable on demand, any holder of this note may declare this note to be
immediately due and payable whenever the holder hereof has the right to do so
under any Security Agreement or other Agreement, now or hereafter in effect,
pursuant to which payment of the indebtedness evidenced by this note is secured;
or, irrespective of the terms or existence of any such Security Agreement or
other agreement, upon the happening of any of the following: nonpayment when
due, of principal of or interest on any indebtedness evidenced by this note;
default by any maker hereof in the performance of any obligation, term or
condition of any agreement between such maker and the holder hereof; death or
judicial declaration of incompetency of any maker hereof, if an individual; the
filing by or against any maker hereof of a request or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
relief as a debtor or other relief under the bankruptcy, insolvency or similar
laws of the United States or any state or territory thereof or any foreign
jurisdiction, now or hereafter in effect; the making of any general assignment
by any maker hereof for the benefit of creditors; the appointment of a receiver
or trustee for any maker hereof or for any assets of any such maker, including,
without limitation, the appointment of or taking possession by a 'custodian,' as
defined in the Federal Bankruptcy Code; the occurrence of any of the foregoing
events with respect to any indorser, guarantor or any other party liable for, or
whose assets or any interest therein secures, payment of any indebtedness
evidenced by this note, or the occurrence of any such event with respect to any
general partner of any maker hereof, if any such maker is a partnership; if any
certificate, statement, representation, warranty or audit heretofore or
hereafter furnished by or on behalf of the undersigned, as an inducement to the
Bank to extend any credit to, or for entry into any agreement with, the
undersigned proves to have been false in any material respect at the time of
which the facts therein set forth were stated or certified, or to have omitted
any substantial contingency or unliquidated liability or claim against the
undersigned; or if the holder hereof in good faith believes that the prospect of
payment of all or any part of the indebtedness evidenced by this note is
impaired. This note and the loan it evidences shall be construed under the laws
of New York State, as the same may from time to time be in effect. The
undersigned agrees that any action or proceeding to enforce this note may be
commenced in the Supreme Court of New York in any county, or in the District
Court of the United States in any district, in which the Bank has an office, and
the undersigned waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and shall confer personal jurisdiction if served by registered mail to
the undersigned, or as otherwise provided by the laws of the State of New York
or the United States. The undersigned waives the right to jury trial and agrees
that any action or proceeding to enforce this note or any action or proceeding
commenced by the undersigned against the Bank and arising out of this note or
the loan it evidences, will be tried before a judge and not a jury. The
undersigned acknowledges that the foregoing waiver is informed and voluntary.
The undersigned agrees
<PAGE>
<PAGE>
to pay all costs and expenses incurred by the holder hereof in enforcing this
note, including, without limitation, actual attorney's fees and legal expenses.
Interest will be calculated for each day at 1/360th of the foregoing per
annum rate, which will result in a higher effective annual rate. However, if
this [ ] box is checked, interest will be calculated for each day at 1/365th of
the per annum rate. If this [x] box is checked, the undersigned will pay
interest [x] monthly or [ ] quarterly until maturity or demand, at which time
the undersigned will pay any remaining accrued interest. If any interest payment
is not made within ten days after its due date, the undersigned will pay the
Bank a late charge equal to 5% of the overdue payment.
ACCOUNT NUMBER 327328088 BERT E. BRODSKY
--------- ------------------------
Bert E. Brodsky
<PAGE>
<PAGE>
UNLIMITED CONTINUING GUARANTY
[MARINE MIDLAND BANK LOGO] (Corporation, Individual, Proprietorship,
Partnership)
Date October 30, 1998
<TABLE>
<S> <C> <C>
NAME STATE OF INCORPORATION IF APPLICABLE
National Medical Health Card Systems, Inc. New York
NO. AND STREET
26 Harbor Park Drive
CITY, VILLAGE OR TOWN COUNTY STATE
Port Washington Nassau New York
(GUARANTOR)
LENDING OFFICE, DEPARTMENT OR DIVISION
MARINE MIDLAND BANK Queens/LI Commercial
NO. AND STREET CITY STATE (BANK)
534 Broad Hollow Road Melville New York
</TABLE>
1. GUARANTY OF PAYMENT.
(a) Guarantor hereby unconditionally guarantees the full and prompt payment
to BANK when due, whether by acceleration or otherwise, of any and all
Indebtedness (as hereinafter defined) of Bert E. Brodsky (Debtor) to BANK.
(b) As used in this Guaranty, 'Indebtedness' shall mean any and all
indebtedness and other liabilities of Debtor to BANK of every kind and character
and all extensions, renewals and replacements thereof, including, without
limitation, all unpaid accrued interest thereon and all costs and expenses
payable as hereinafter provided; (i) whether now existing or hereafter incurred;
(ii) whether direct, indirect, primary, absolute, secondary, contingent,
secured, unsecured, matured or unmatured, by guarantee or otherwise; (iii)
whether such indebtedness is from time to time reduced and thereafter increased,
or entirely extinguished and thereafter reincurred; (iv) whether such
indebtedness was originally contracted with BANK or with another or others; (v)
whether or not such indebtedness is evidenced by a negotiable or non-negotiable
instrument or any other writing; and (vi) whether such indebtedness is
contracted by Debtor alone or jointly or severally with another or others.
(c) Guarantor acknowledges that valuable consideration supports this
Guaranty, including, without limitation, any commitment to lend, extension of
credit or other financial accommodation, whether heretofore or hereafter made by
BANK to Debtor; any extension, renewal or replacement of any indebtedness, any
forbearance with respect to any indebtedness or otherwise; any cancellation of
an existing guaranty; any purchase of any of Debtor's assets by BANK; or any
other valuable consideration.
2. BANK'S COSTS AND EXPENSES. Guarantor agrees to pay on demand all costs
and expenses of every kind incurred by BANK: (a) in enforcing this Guaranty; (b)
in collecting any indebtedness from Debtor or Guarantor; (c) in realizing upon
or protecting any collateral for this Guaranty or for payment of any
indebtedness; and (d) for any other purpose related to the indebtedness of this
Guaranty. 'Costs and expenses' as used in the preceding sentence shall include,
without limitation, the actual attorneys' fees incurred by BANK in retaining
counsel for advice, suit, appeal, any insolvency or other proceedings under the
Federal Bankruptcy Code or otherwise, or for any purpose specified in the
preceding sentence.
3. NATURE OF GUARANTY; CONTINUING, ABSOLUTE AND UNCONDITIONAL.
(a) This Guaranty is and is intended to be a continuing guaranty of payment
of the indebtedness (irrespective of the aggregate amount thereof and whether or
not the indebtedness from time to time exceeds the amount of this Guaranty, if
limited), independent of, in addition and without modification to, and does not
impair or in any way affect, any other guaranty, indorsement, or other agreement
in connection with the indebtedness, or in connection with any other
indebtedness or liability to BANK, or collateral held by BANK therefor or with
respect thereto, whether or not furnished by Guarantor. This Guaranty and
Guarantor's obligations hereunder shall not be modified, terminated, impaired or
in any way affected by the execution, delivery or performance by
<PAGE>
<PAGE>
Guarantor, Debtor or any other person of any other guaranty, indorsement or
other agreement or the delivery of collateral therefor. Guarantor waives any
claim, remedy or other right which Guarantor might now have or hereafter acquire
against Debtor or any other person that is primarily or contingently liable for
the indebtedness including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, or any right to
participate in any claim or remedy of BANK against Debtor or any collateral
therefor which BANK now has or hereafter acquires, whether or not such claim,
remedy or right arises in equity, or under contract, statute, or common law.
(b) This Guaranty is absolute and unconditional and shall not be changed or
affected by any representation, oral agreement, act or thing whatsoever, except
as herein provided. This Guaranty is intended by Guarantor to be the final,
complete and exclusive expression of the agreement between Guarantor and BANK.
Guarantor expressly disclaims any reliance on any course of dealing or usage of
trade or oral representation of BANK including, without limitation,
representations to make loans to Debtor or enter into any other agreement with
Debtor or Guarantor. No modification or amendment of any provision of this
Guaranty and no waiver of any right by BANK shall be effective unless in writing
and signed by a duly authorized officer of BANK.
4. CERTAIN RIGHTS AND OBLIGATIONS.
(a) Guarantor authorizes BANK, without notice, demand or additional
reservation of rights against Guarantor and without affecting Guarantor's
obligations hereunder, from time to time: (i) to renew, refinance, modify,
subordinate, extend, increase, accelerate, or otherwise change the time for
payment of, the terms of or the interest on the indebtedness or any part
thereof; (ii) to accept from any person or entity and hold collateral for the
payment of the indebtedness or any part thereof, and to exchange, enforce or
refrain from enforcing, or release such collateral or any part thereof; (iii) to
accept and hold any indorsement or guaranty of payment of the indebtedness or
any part thereof or any negotiable instrument or other writing intended by any
party to create an accord and satisfaction with respect to the indebtedness or
any part thereof, and to discharge, terminate, release, substitute,
<PAGE>
<PAGE>
replace or modify any such obligation of any such indorser or guarantor, or any
person or entity who has given any security interest in any collateral as
security for the payment of the indebtedness or any part thereof, or any other
person or entity in any way obligated to pay the indebtedness or any part
thereof, and to enforce or refrain from enforcing, or compromise or modify, the
terms of any obligation of any such indorser, guarantor, person or entity; (iv)
to dispose of any and all collateral securing the indebtedness in any manner as
BANK, in its sole discretion, may deem appropriate, and to direct the order or
manner of such disposition and the enforcement of any and all endorsements and
guarantees relating to the indebtedness or any part thereof as BANK, in its sole
discretion, may determine; and (v) to determine the manner, amount and time of
application of payments and credits, if any, to be made on all or any part of
any component or components of the indebtedness (whether principal, interest,
costs and expenses, or otherwise), including, without limitation, if this
Guaranty is limited in amount, to make any such application to indebtedness, if
any, in excess of the amount of this Guaranty.
(b) If any default shall be made in the payment of any indebtedness,
guarantor hereby agrees to pay the same in full: (i) without deduction by reason
of any setoff, defense or counterclaim of Debtor; (ii) without requiring
protest, presentment or notice of non-payment of default to Guarantor, to Debtor
or to any other person; (iii) without demand for payment or proof of such
demand; (iv) without requiring BANK to resort first to Debtor (this being a
guaranty of payment and not of collection) or to any other guaranty or any
collateral which the BANK may hold; (v) without requiring notice of acceptance
hereof or assent hereto by BANK; and (vi) without requiring notice that any
indebtedness has been incurred or of the reliance by the BANK upon this
Guaranty; all of which Guarantor hereby waives.
(c) Guarantor's obligation hereunder shall not be affected by any of the
following, all of which Guarantor hereby waives: (i) any failure to perfect or
continue the perfection of any security interest in or other lien on any
collateral securing payment of any indebtedness or Guarantor's obligation
hereunder; (ii) the invalidity, unenforceability, propriety of manner of
enforcement of, or
<PAGE>
<PAGE>
loss or change in priority of any such security interest or other lien, (iii)
any taking, holding, continuation, collection, modification, leasing,
impairment, surrender or abandonment of, or any failure to protect, preserve or
insure, any such collateral; (iv) any delay in the exercise or waiver of, any
failure to exercise, or any forbearance in the excercise of, any right or remedy
of BANK or any person (including, without limitation, those remedies described
in Section 4(c)(iii) of this Guaranty) against Guarantor, Debtor or any person
or relating to the indebtedness or any part thereof or the collateral therefor;
(v) failure of Guarantor to receive notice of any intended disposition of such
collateral; (vi) any defense arising by reason of the cessation from any cause
whatsoever of liability of the Debtor including, without limitation, any
failure, delay, waiver, forbearance, negligence or omission by BANK in enforcing
its claim against the Debtor or any collateral therefor including, without
limitation, any failure to make, prove, or vote any claim relating to the
indebtedness or any collateral therefor in any case or proceeding pursuant to
the Federal Bankruptcy Code or any similar law, or any satisfaction of the
indebtedness or any part thereof by reason of the failure of BANK to recover
against any collateral therefor or the failure of BANK to obtain a judgment for
any deficiency; (vii) any release, settlement, composition, adjustment,
compromise, replacement, cancellation, discharge, assignment, safe, exchange,
conversion, participation or other transfer or disposition of any obligation of
Debtor or of any collateral therefor; (viii) the invalidity or unenforceability
of any of the indebtedness; (ix) the creation of any security interest, lien or
other encumbrance in favor of any person other than BANK; (x) any refusal or
failure of BANK or any other person prior to the date hereof or hereafter to
grant any additional loan or other credit accommodation to Debtor or BANK's or
any other party's receipt of notice of such refusal or failure; (xi) any refusal
or failure of BANK or any other person to provide to Guarantor any information
relating to Debtor, any other guarantor, indorser, of any person or entity who
has given any collateral as security for the payment of the indebtedness or any
information relating to Debtor's or such guarantor's, endorser's, person's or
entity financial condition, business or assets, or if such information is
provided, to provide such information completely and accurately; (xii) any
change in the ownership or membership of Guarantor or Debtor; (xiii) the
expiration of the period of any statute of limitations with respect to any
lawsuit or other legal proceeding against Debtor or any person in any way
related to the indebtedness or part thereof or any collateral therefor; or (xiv)
any other thing or circumstance which might otherwise constitute a defense to
Guarantor's obligation hereunder.
5. COLLATERAL.
(a) As further security for payment of the indebtedness and of any other
indebtedness, now existing or hereafter incurred, of Guarantor to BANK,
Guarantor hereby grants to BANK a security interest in and lien on any and all
money, securities and other property of Guarantor, and all proceeds thereof,
which is or hereafter may be in the actual or constructive possession or control
of BANK in any capacity or of any third party acting on BANK's behalf,
including, without limitation, all deposit and other accounts and all moneys
owed or to be owed by BANK to Guarantor; and with respect to all such money,
securities and other property, BANK shall have all the rights and remedies of a
secured party under the Uniform Commercial Code and under any other applicable
law, as the same may from time to time be in effect in New York State, in
addition to those rights granted herein or in any other agreement now or
hereafter in effect between Guarantor and BANK.
(b) Guarantor agrees to furnish on BANK's demand, collateral satisfactory
to BANK as security for this Guaranty and to execute such security and other
documents with respect thereto as BANK shall reasonably request.
6. GUARANTY OF PERFORMANCE. Guarantor also guarantees the full, prompt and
unconditional performance of all obligations and agreements of every kind owed
or hereafter to be owed by Debtor to BANK. Every provision for the benefit of
the BANK contained in this Guaranty shall apply to the guaranty of performance
given in this paragraph.
7. TERMINATION. This Guaranty shall remain in full force and effect as to
each Guarantor until the officer in charge of the Lending Office, Department or
Division of BANK indicated above
<PAGE>
<PAGE>
shall acutally receive from such Guarantor written notice of its discontinuance,
or notice of the death or judicial declaration of incompetency of such
Guarantor; provided, however, this Guaranty shall remain in full force and
effect thereafter until all indebtedness outstanding, or contracted or committed
for (whether or not outstanding), before the receipt of such notice by BANK, and
any extensions, renewals or replacements thereof (whether made before or after
receipt of such notice), together with interest accruing thereon after such
notice, shall be finally and irrevocably paid in full. Discontinuance of this
Guaranty as to one Guarantor shall not operate as a discontinuance hereof as to
any other Guarantor. Payment of all of the indebtedness from time to time shall
not operate as a discontinuance of this Guaranty, unless notice of
discontinuance as above provided has theretofore actually been received by BANK,
Guarantor agrees that, to the extent that Debtor makes a payment or payments to
BANK on the indebtedness, or BANK receives any proceeds of collateral to be
applied to the indebtedness, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or otherwise are required to be repaid to Debtor, its estate, trustee, receiver
or any other party, including, without limitation, under any bankruptcy law,
state or federal law, common law or equitable cause, then to the extent of such
repayment, the obligation or part thereof which has been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred,
notwithstanding any contrary action which may have been taken by BANK in
reliance upon such payment or payments. As of the date any payment or proceeds
of collateral are returned, the statute of limitations shall start anew with
respect to any action or proceeding by BANK against Guarantor under this
Guaranty. Guaranty shall defend and indemnify BANK of and from any claim or loss
under this paragraph including actual attorneys' and paralegals' fees and
expenses in the defense of any such action or suit.
8. OTHER PARTIES; JOINT AND SEVERAL LIABILITY.
(a) BANK shall have the right to discharge or release one or more of the
undersigned from any obligation hereunder, in whole or in part,
-2-
<PAGE>
<PAGE>
without in any way releasing, impairing or affecting its right against the other
or others of the undersigned. The failure of any other person to sign this
Guaranty shall not release or affect the obligations or liability of the
undersigned.
(b) If more than one party executes this Guaranty, the obligations of the
undersigned hereunder shall be joint and several and the term 'Guarantor' shall
include each as well as all of them.
9. HAZARDOUS SUBSTANCES. For the purposes of this Section 9, (i) 'Hazardous
Substances' means, without limitation, any explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or any other material defined as
a hazardous substance in Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et
seq., and (ii) 'Release' has the same meaning as given to that term in Section
101(22) of such Act and the regulations promulgated thereunder. Guarantor agrees
to indemnify, defend, and hold harmless BANK from and against any and all
liabilities, claims, damages, penalties, liens, expenditures, losses, and
charges including, but not limited to, all costs of investigation, monitoring,
legal representation, remedial response, removal, restoration or permit
acquisition, which may now or in the future be undertaken, suffered, paid,
awarded, assessed, or otherwise incurred by BANK as a result of the presence or
suspected presence of, Release of or threatened Release of Hazardous Substances
on, in, under or near any property or improvements thereon, owned, leased or
operated by Debtor or Guarantor. The liability of Guarantor to BANK under the
convenants of this Section is not limited by any exculpatory provisions in any
agreement in connection with the indebtedness or collateral therefor and shall
survive repayment of the indebtedness or any transfer or termination of any
agreement in connection with the indebtedness or collateral therefor or this
Guaranty regardless of the means of such transfer or termination.
10. MISCELLANEOUS.
(a) 'Debtor' and 'Guarantor' as used in this Guaranty shall include: (i)
any successor individual or individuals, association, partnership or corporation
to which all or a substantial part of the business or assets of Debtor or
Guarantor shall have been transferred including, without limitation, a debtor in
possession under the Federal Bankruptcy Code; (ii) in the case of a partnership
Debtor or Guarantor, any new partnership which shall have been created by reason
of the admission of any new partner or partners therein or by reason of the
dissolution of the existing partnership by voluntary agreement or the death,
resignation or other withdrawal of any partner; and (iii) in the case of a
corporate Debtor or Guarantor, any other corporation into or with which
Guarantor or Debtor (if Debtor is a corporation) shall have been merged,
consolidated, reorganized, or absorbed.
(b) Without limiting any other right of BANK, whenever BANK has the right
to declare any Indebtedness to be immediately due and payable (whether or not it
has so declared), BANK at its sole election may set off against the Indebtedness
any and all moneys then owned to Guarantor by BANK in any capacity, whether or
not the Indebtedness or the obligation to pay such moneys owed by BANK is then
due, and BANK shall be deemed to have exercised such right of setoff immediately
at the time of such election even though any charge therefor is made or entered
on BANK's records subsequent thereto.
(c) Guarantor's obligation hereunder is to pay the Indebtedness in full
when due according to its terms, and shall not be affected by any extension of
time for payment by Debtor, any bar to the enforceability of the Indebtedness,
or any limitation on the right to attorneys' fees, resulting from any proceeding
under the Federal Bankruptcy Code or any similar law. Guarantor's obligation
under this Guaranty shall also include payment of interest accrued on the
Indebtedness before or after a filing of a petition under the bankruptcy laws
and interest on, and principal of, loans made to the debtor in possession after
the filing of such a petition by or against Debtor.
(d) No course of dealing or usage of trade, and no oral or written
representations or agreement, between Debtor or Guarantor and BANK, whether or
not relied on or acted upon, and no
<PAGE>
<PAGE>
act, delay or omission by BANK in exercising any right or remedy hereunder or
with respect to any Indebtedness shall operate as a waiver thereof or of any
other right or remedy, and no single or partial exercise there of shall preclude
any other or further exercise thereof or the exercise of any other right or
remedy. The giving of notice or a demand by BANK at any time shall not operate
as a waiver in the future of the BANK's right to exercise any right or remedy
without notice or demand. BANK may remedy and default by Debtor under any
agreement with Debtor or with respect to any Indebtedness in any reasonable
manner, without waiving the default remedied and without waiving any other prior
or subsequent default by Debtor. After Debtor's failure to pay the Indebtedness
in full, or any part thereof, BANK may exercise against Guarantor each right and
remedy of a creditor against a principal debtor upon a past due liquidated
obligation. All rights and remedies of BANK hereunder are cumulative.
(e) BANK and Guarantor as used herein shall include the heirs, executors or
administrators, or successors or assigns, of those parties. The rights and
benefits of BANK hereunder shall, if BANK so directs, inure to any party
acquiring any interest in the Indebtedness or any part thereof. If any right of
BANK hereunder is construed to be a power of attorney, such power of attorney
shall not be affected by the subsequent disability or incompetence of Debtor or
Guarantor.
(f) BANK's rights and remedies under this Guaranty are assignable and any
participation may be granted by BANK herein in connection with the assignment or
granting of a participation by BANK in the Indebtedness or any part thereof.
(g) Captions of the sections of this Guaranty are solely for the
convenience of BANK and Guarantor, and are not an aid in the interpretation of
this Guaranty.
(h) GUARANTOR AGREES THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING
OUT OF THIS GUARANTY MAY BE COMMENCED IN THE SUPREME COURT OF NEW YORK IN ANY
COUNTY, OR IN THE DISTRICT COURT OF THE UNITED STATES IN ANY DISTRICT, IN WHICH
BANK HAS AN OFFICE, AND GUARANTOR WAIVES PERSONAL SERVICE OF PROCESS AND AGREES
THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH
COURT SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED
BY REGISTERED MAIL TO GUARANTOR AT THE ADDRESS SPECIFIED ABOVE, OR AS OTHERWISE
PROVIDED BY THE LAWS OF THE STATE OF NEW YORK OR THE UNITED STATES.
(i) If any provision of this Guaranty is unenforceable in whole or in part
for any reason, it shall be deemed modified to the extent necessary to make it
or the applicable provision enforceable, or if for any reason such provision is
not deemed modified, the remaining provisions shall continue to be effective.
(j) Any payment or other act which results in the extension or renewal of
the statute of limitations in connection with any action or proceeding against
the Debtor relating to the Indebtedness, shall extend or renew the statute of
limitations in connection with any action or other proceeding against the
Guarantor in connection with this Guaranty whether or not Guarantor had notice
of, or consented to, such payment or act.
(k) Any demand for payment against Guarantor made by BANK under this
Guaranty shall be in writing and delivered in person or by first class mail
postage prepaid at the Guarantor's address first written above, and shall be
deemed received: (i) upon delivery, if delivered in person, and (ii) two days
after deposited in the mail or delivered to the post office, if mailed.
(l) This Guaranty and the transactions evidenced hereby shall be construed
under the laws of New York State without regard to principles of conflicts of
law.
(m) GUARANTOR AND BANK HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE ANY RIGHT TO TRIAL BY JURY GUARANTOR AND BANK MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THE GUARANTY OR THE
TRANSACTIONS RELATED HERETO. GUARANTOR REPRESENTS AND WARRANTS THAT NO
REPRESENTATIVE OR AGENT OF BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL
WAIVER. GUARANTOR ACKNOWLEDGES THAT BANK HAS BEEN INDUCED TO ENTER INTO THIS
GUARANTY BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.
-3-
<PAGE>
<PAGE>
This Guaranty is unlimited in amount unless an amount is inserted in the
space at the end of this paragraph. Only if an amount is so inserted, this
Guaranty is limited to that amount (hereinafter referred to as the 'Maximum
Amount'), plus the sum of: (a) all unpaid interest which accrues on the Maximum
Amount until payment of the Maximum Amount in full, calculated at the rate
provided for in any instrument, document or agreement evidencing or pertaining
to the indebtedness; (b) all costs and expenses payable pursuant to Section 2(a)
of this Guaranty; and (c) an amount equal to a fraction of all costs and
expenses payable pursuant to Section 2(b), 2(c) and 2(d) of this Guaranty, the
numerator of which fraction is the Maximum Amount and the denominator of which
fraction is the sum of all outstanding indebtedness (less any unpaid accrued
interest thereon), if such indebtedness is either (i) payable on demand by its
terms and for which the BANK has made demand for payment, or (ii) payable other
than on demand by its terms and is presently due and owing, whether by maturity,
acceleration or otherwise. Maximum Amount unlimited.
(SEAL) Guarantor(s) Name: National Medical Health
Card Systems, Inc.
---------------------------
By: BERT E. BRODSKY
------------------------------------------
Print Name: Bert E. Brodsky
----------------------------------
Title: President
---------------------------------------
INDIVIDUAL OR PROPRIETORSHIP
STATE OF------------------ NOT APPLICABLE
ss.:
COUNTY OF------------------
On _______________________, _________________________ before me personally
________________________________ came to me known to be the person(s) described
in and who executed the foregoing Guaranty, and (severally) acknowledged to me
that (s)he executed the same.
-----------------------------
NOTARY PUBLIC
PARTNERSHIP NOT APPLICABLE
STATE OF ---------------------- ss.:
COUNTY OF ---------------------
On ________________________ , ___________________ before me personally
____________________________________ came to me known to be the person who
executed the foregoing Guaranty and who, being duly sworn by me, did depose and
say that (s)he is a general partner in the partnership described in the
foregoing Guaranty, that (s)he executed the foregoing Guaranty in the name of
such partnership and that (s)he had authority to sign the same; and (s)he
acknowledged to me that (s)he executed the same as the act and deed of such
partnership.
-------------------------
NOTARY PUBLIC
-4-
<PAGE>
<PAGE>
TO BE USED ONLY FOR A CORPORATION INCOPORATED IN NEW YORK STATE --
OTHERWISE CONSULT REGION/DIVISION LOAN ADMINISTRATION
- --------------------------------------------------------------------------------
SECRETARY CERTIFICATION OF
BOARD OF DIRECTORS ACTION
The undersigned hereby certifies that:
I am the duly elected Secretary of National Medical Health Card Systems,
Inc. (Company), a corporation duly organized and existing under the laws of the
State of New York.
The following resolutions are a true and correct copy of those duly and
unanimously adopted at a meeting of the Board of Directors of the Company duly
called and held on October 30, 1998 at which a quorum was present and
participating throughout.
The resolutions have not been amended or revoked and are in all respects,
as of the date hereof, in full force and effect.
I have personally examined the Certificate of incorporation and By-Laws of
the Company and all amendments thereof (Charter Documents). These resolutions
were adopted in accordance with the Charter Documents and applicable law, and
neither these resolutions nor any action taken or to be taken pursuant to them
are or will be in contravention of any provision of the Charter Documents or any
agreements other instrument to which the Company is a party or which is binding
upon the Company.
The undersigned has executed this certificate as Secretary and impressed
the seal of the Company hereon this 30th day of October 1998
<TABLE>
<S> <C>
GERALD SHAPIRO
- ----------------------------------- -----------------------------
(SEAL) SECRETARY Gerald Shapiro
</TABLE>
(or)
UNANIMOUS CONSENT OF DIRECTORS
The undersigned, all of the directors of _____________ (The Company) hereby
adopt and consent to the adoption of the following resolutions.
<TABLE>
<S> <C>
Signatures Print or Type Names of Signatures
- ----------------------------------- --------------------------------------
- ----------------------------------- --------------------------------------
- ----------------------------------- --------------------------------------
- ----------------------------------- --------------------------------------
- ----------------------------------- --------------------------------------
</TABLE>
The undersigned, the duly elected Secretary of the Company, hereby
certifies that the foregoing are the signatures of all of the directors of said
corporation.
<TABLE>
<S> <C>
Dated:
--------------------------------- -------------------------------
(SEAL) SECRETARY
</TABLE>
<PAGE>
<PAGE>
RESOLUTIONS
WHEREAS, Bert E. Brodsky (borrower) desires or may desire at some time and
from time to time to obtain loans or other financial accommodations from Marine
Midland Bank (BANK); and
WHEREAS, National Medical Health Card Systems, Inc. (Company) is
financially interested in the affairs of the Borrower and expects to derive
advantage from each and every such loan or accommodation;
WHEREAS, more specifically, the borrower is using the proceeds of the loan
to purchase common stock in the Company, thereby improving the Company's net
worth which will enable the Company to obtain a new contract with a company in
Michigan.
NOW, THEREFORE, BE IT RESOLVED, that any officer of the Company acting
alone is hereby authorized and directed on behalf of the Company to execute and
deliver to the BANK the Company's continuing, absolute and unconditional
guaranty of the full and prompt payment of the BANK when due, whether by
acceleration or otherwise, of any and all indebtedness and liabilities of the
Borrower to the BANK, whether now existing or hereafter incurred, of every kind
and character, direct or indirect, and whether such indebtedness is from time to
time reduced and thereafter increased or entirely extinguished and thereafter
reincurred and the unpaid accrued interest thereon, plus all costs and expenses
incurred by the BANK in endeavoring to collect such indebtedness and in
enforcing such guaranty;
RESOLVED FURTHER, that any officer of the Company acting alone is hereby
authorized on behalf of the Company to execute and deliver to the BANK one or
more mortgages security agreements or similar documents granting interests in
any or all assets of the Company, now owned or hereafter acquired.
RESOLVED FURTHER, that any officer of the Company acting alone is hereby
authorized and directed on behalf of the Company to execute and deliver to the
BANK any and all other documents and to take any and all other action as may be
requested by the bank in connection with the aforesaid guaranty, security and
any related matters, and that any and all documents and agreements heretofore
executed and actions heretofore taken in connection with the aforesaid guaranty
and any related matters are hereby in all respects ratified, confirmed, and
approved as the act or acts of the Company;
RESOLVED FURTHER, that each of the foregoing documents mentioned in these
resolutions be in such form and content as the BANK my request.
- 5 -
<PAGE>
<PAGE>
CORPORATION
STATE OF NEW YORK :
: SS.:
COUNTY OF NASSAU :
On October 30, 1998 before me personally came Bert E. Brodsky; to me known,
who, being by me duly sworn, did depose and say that (s)he resides at South
Road, Sands Point, NY that (s)he is President of National Medical Health Card
Systems, Inc., the corporation described in and which executed the foregoing
instrument; and that (s)he signed his (her) name thereto by order of the Board
of Directors of said corporation.
LINDA M. SCARPANTONIO
---------------------
NOTARY PUBLIC
LINDA M. SCARPANTONIO
NOTARY PUBLIC, State of New York
No. 30-479564
Qualified in Nassau County
Commission Expires September 30, 2000
---------------------------------------------------------------------------
TO BE USED ONLY FOR A CORPORATION INCORPORATED IN NEW YORK STATE-
OTHERWISE CONSULT REGION/DIVISION LOAN ADMINISTRATION
---------------------------------------------------------------------------
SHAREHOLDERS' CONSENT TO GUARANTY
The undersigned, being collectively the holders and owners of all of the
issued and outstanding shares of stock of National Medical Health Card Systems,
Inc., a corporation organized and existing under the laws of New York (Company),
entitled to vote on an authorization to guarantee, do hereby authorize and
consent that: (a) the Company continuously, absolutely and unconditionally
guarantee to Marine Midland BANK (BANK), the full and prompt payment, when due,
whether by acceleration or otherwise, of any and all indebtedness and
liabilities of Bert E. Brodsky to the BANK, whether now existing or hereafter
incurred, of every kind and character, direct or indirect, and whether such
indebtedness is from time to time reduced and thereafter increased or entirely
extinguished and thereafter reincurred, and the unpaid accured interest thereon,
plus all costs and expenses incurred by the BANK in endeavoring to collect such
indebtedness and in enforcing such guaranty; (b) the Company secure such
guaranty by any or all assets of the Company, now owned or hereafter acquired;
and (c) the Company execute and deliver to the BANK any and all documents and
take any and all action as may be requested by the BANK in connection with such
guaranty, such security and any related matters.
Dated: October 30, 1998
<TABLE>
<CAPTION>
Print or Type
Signatures Names of Signators No. of Shares
<S> <C> <C>
BERT E. BRODSKY Bert E. Brodsky 24,584,000
--------------------------- ---------------------------- ---------------
GERALD SHAPIRO Gerald Shapiro 3,000,000
--------------------------- ---------------------------- ---------------
--------------------------- ---------------------------- ---------------
--------------------------- ---------------------------- ---------------
--------------------------- ---------------------------- ---------------
</TABLE>
I do hereby CERTIFY that I am Secretary of the Company; that I have custody
of the stockbooks and records of the Company and the signatures appearing above
constitute the signatures of holders of record of all of the issued and
outstanding shares of the Company entitled to vote on the aforesaid
authorization to guarantee.
WITNESS my hand and the seal of the Company this 30th day of October, 1998
Gerald Shapiro
-----------------------------
Secretary Gerald Shapiro
(SEAL)
-6-
<PAGE>
<PAGE>
INSTALLMENT NOTE
$2,000,000.00 Melville, New York
November 3, 1998
FOR VALUE RECEIVED, THE UNDERSIGNED promises to pay to the order of Marine
Midland Bank ('Bank'), on January 28, 1999 at its Broadhollow Road office in
Melville, New York or, at the holder's option, at such other place as may be
designated from time to time by the holder, the principal sum of Two Million and
00/100 Dollars ($2,000,000.00) in lawful money of the United States of America.
This Note shall bear interest until maturity (whether by acceleration or
otherwise) at a per annum rate equal to 7.72%. Interest shall be payable
monthly, on the 1st day of each month, and on the date the principal balance is
paid in full. After maturity, whether by acceleration or otherwise, this Note
shall bear interest at a per annum rate equal to the rate of interest
hereinbefore specified plus 3%. In no event shall the rate of interest on this
Note exceed the maximum rate authorized by applicable law. Interest will be
calculated for each day at 1/360th of the applicable per annum rate, which will
result in a higher effective annual rate.
The undersigned shall have the right to prepay at any time all or any
portion of the principal indebtedness evidenced by this Note, together with
accrued interest on the principal so prepaid to the date of such prepayment,
provided that any partial prepayment shall not affect the undersigned's
obligation to continue making the installment payments provided for in this
Note, and provided, further, that in the event there is a partial or complete
prepayment of this Note for any reason, including, without limitation, as a
result of acceleration upon default, the undersigned shall pay to the holder a
break funding charge in an amount sufficient for the Bank to invest in U.S.
Treasury obligations with maturities as close to the relevant maturity date as
are reasonably available, to produce the same annual effective yield as under
this Note. The break funding charge shall be calculated in accordance with the
Bank's then-prevailing formula on a discounted cash flow basis which shall
reconcile differences in timing, yield, interest basis, and amortization between
the payment streams of this Note and the alternative U.S. Treasury obligation.
If any installment of this Note is not paid when due, whether because such
installment becomes due on a Saturday, Sunday or a banking holiday, or for any
other reason, the undersigned will pay interest thereon at the applicable rate
until the date of actual receipt of such installment by the holder of this Note.
Any holder of this Note may declare all indebtedness evidence by this Note
to be immediately due and payable whenever such holder has the right to do so
under any Security Agreement or other agreement, now or hereafter in effect,
pursuant to which payment of
<PAGE>
<PAGE>
-2-
the indebtedness evidenced by this Note is secured; or, irrespective of the
terms or existence of any such Security Agreement or other agreement, upon the
happening of any of the following: (1) nonpayment, within ten (10) days of when
due, of principal of, or interest on, any indebtedness evidenced by this Note;
(2) default by any maker hereof in the payment or performance of any obligation,
term or condition of any agreement between such maker and the holder hereof; (3)
death or judicial declaration of incompetency of any maker hereof, if an
individual; (4) the filing by or against any maker hereof of a request or
petition for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, relief as a debtor or other relief under the
bankruptcy, insolvency or similar laws of the United States or any state or
territory thereof or any foreign jurisdiction, now or hereafter in effect; (5)
the making by any maker hereof of any general assignment for the benefit of
creditors; (6) the appointment of a receiver or trustee for any maker hereof or
for any assets of any such maker, including, without limitation, the appointment
of or taking possession by a 'custodian,' as defined in the Federal Bankruptcy
Code; (7) the occurrence of any event described in clause (3), (4), (5) or (6)
of this paragraph with respect to any endorser, guarantor or any other party
liable for, or whose assets or any interest therein secures, payment of any
indebtedness evidenced by this Note; (8) nonpayment when due by any maker hereof
of any indebtedness for borrowed money owing to any party other than the Bank,
or the occurrence of any event which would result in acceleration of the time
for payment of any such indebtedness; or (9) if the holder hereof in good faith
believes that the prospect of payment of all or any part of the indebtedness
evidenced by this Note is impaired.
No failure by the holder hereof to exercise, and no delay in exercising,
any right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise by such holder of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right or remedy. The rights and remedies of the holder hereof as herein
specified are cumulative and not exclusive of any other rights or remedies which
such holder may otherwise have.
No rescission, waiver, forbearance, release or amendment of any provision
of this Note shall be made, except by a written agreement duly executed by the
undersigned and the holder hereof.
This Note shall be governed by the laws of the State of New York. The
undersigned agrees to pay all costs and expenses incurred by the holder hereof
in enforcing this Note, including, without limitation, actual attorney's fees
and disbursements.
BERT E. BRODSKY
----------------------------
Bert E. Brodsky
<PAGE>
<PAGE>
AGREEMENT
This Agreement made and entered into this 14th day of April, 1994 by and
between National Medical Health Card Systems, Inc. ("Health Card") a New York
corporation with a principal office located at 48 Harbor Park Drive, Port
Washington, NY 11050 and P. W. Medical Management, Inc. ("P. W.") a New York
corporation with a principal office located at 48 Harbor Park Drive, Port
Washington, NY 11050.
TERMS AND CONDITIONS
Subject to the terms and conditions set forth herein executed by Health
Card and P.W., P.W. agrees to perform certain consulting services for Health
Card as herein described:
1. Services. P.W. shall, in a professional manner provide services
specifically in connection with the day-to-day activities of Health Card,
including, but not limited to, marketing, customer service, financial advice and
general business advice (the "Services") for the fees or compensation defined
below.
2. Fees. Fees for such Services shall not be less than $25,000 annually
and will be paid to P.W. in equal monthly installments.
3. Confidentiality. P.W. acknowledges that P.W. may be provided with
information about, and P.W.'s engagement by Health Card may bring it into close
contact with, many confidential affairs of Health Card and its clients,
including proprietary information about costs, profits, sales, pricing policies,
operational methods, client lists
1
<PAGE>
<PAGE>
and other business affairs and methods, plans for future developments and other
information not readily available to the public, all of which are highly
confidential and proprietary ("Confidential Information"). In recognition of the
foregoing, P.W. covenants and agrees that:
a. P.W. will keep secret all Confidential Information of Health Card
and shall not, directly or indirectly, disclose any Confidential
Information to anyone outside of Health Card, either during or
after the engagement with Health Card, except with Health Card's
prior written consent;
b. P.W. will not make use of any Confidential Information for its
own purposes or the benefit of anyone other than Health Card;
c. P.W. will deliver promptly to Health Card on termination of this
Agreement, or at any time that Health Card may so request, all
memoranda, notes, records, reports and other documents and
materials (and all copies thereof) regarding or including any
Confidential Information, which P.W. may then possess or have
under its control; and
d. P.W. will take no action with respect to the Confidential
Information that is inconsistent with the confidential and
proprietary nature of such information.
Notwithstanding the foregoing, Confidential Information shall not
include information that: (i) is in the public domain not as a result of a
disclosure by P.W.; or (ii) is rightfully in the possession of P.W. prior to
disclosure by Health Card; or (iii) is rightfully received from a third party
not under a confidentiality obligation to Health Card. P.W. acknowledges that
the disclosure of the Confidential Information will cause irreparable injury to
Health Card. Health Card shall, therefore, be entitled to injunctive relief
against P.W. upon a disclosure or threatened disclosure of any Confidential
2
<PAGE>
<PAGE>
Information without a requirement that Health Card prove irreparable harm or the
posting of a bond. Without limitation of the foregoing, P.W. shall advise Health
Card immediately in the event that it learns or has reason to believe that any
person who has had access to Confidential Information has violated or intends to
violate the terms of this Agreement, and will reasonably cooperate in seeking
injunctive relief against any such person.
4. Indemnification. Health Card and P.W. mutually agree to indemnify
each other, to hold each other harmless and defend any action which may be
brought against either party with respect to any claim, demand, cause of action,
debt or liability, including reasonable attorneys' fees, arising out of the
performance or nonperformance by either party of its obligations under the terms
of this Agreement.
5. Termination. If either party should fail materially to fulfill its
obligations under this Agreement, the other party shall have the right to
terminate this Agreement in whole or in part at any time as of which the default
persists, provided that the defaulting party has been given notice of the
default and thirty (30) days from receipt of such notice to cure the default.
The failure to cure such default within the stated period of time shall entitle
the nonbreaching party to terminate this Agreement, in whole or in part, at the
end of such period.
6. Independent Contractor. P.W. is acting in performance of this
Agreement as an independent contractor. Health Card shall not be responsible for
payment of workers' compensation, disability benefits or unemployment insurance,
nor shall Health Card be responsible for withholding or payment of employment
related taxes for P.W.
3
<PAGE>
<PAGE>
7. Non Competition; Non-Interference. P.W. covenants and undertakes
that, during the term of this Agreement and for a period of two (2) years
thereafter, it will not, without the prior written consent of Health Card,
directly or indirectly, and whether as principal or as agent, broker, officer,
director, employee, P.W., or otherwise, alone or in association with any other
person, firm, corporation, or other business organization, carry on, or be
engaged, concerned, or take part in, or render services to, or own, share in the
earnings of, or invest in the stock, bonds, or other securities of any person,
firm, corporation, or other business organization, engage anywhere (A) in a
business which is similar to or in competition with any of the businesses
carried on by Health Card (a "Similar Business"), provided, however, that the
Broker may invest in stock, bonds, or other securities of any Similar Business
(but without otherwise participating in the activities of such Similar Business)
if (A) such stock, bonds, or other securities are listed on any national or
regional securities exchange or have been registered under Section 12 (g) of the
Securities Exchange Act of 1934; and (B) his investment does not exceed, in the
case of any class of the capital stock of any one issuer, two (2%) percent of
the issued and outstanding shares, or in the case of bonds or other securities,
two (2%) percent of the aggregate principal amount thereof issued and
outstanding.
8. Governing Law; Jurisdiction. This Agreement and performance hereunder
shall be governed by the laws of the State of New York. Health Card and P.W.
hereby agree on behalf of themselves and any person claiming by or through them
that the sole
4
<PAGE>
<PAGE>
jurisdiction and venue for any litigation arising from or relating to this
Agreement shall be an appropriate federal or state court located in Nassau
County, New York.
9. Remedies. The rights and remedies of Health Card set forth in this
Agreement are not exclusive and are in addition to any other rights and remedies
available to it in law or in equity.
10. Notices. Any notice provided pursuant to this Agreement, if
specified to be in writing, shall be in writing and shall be deemed given (i) if
by hand delivery, upon receipt hereof; (ii) if mailed, three (3) days after
deposit in the U.S. mails, postage prepaid, certified or registered mail return
receipt requested; or (iii) if by overnight delivery service, one (1) day after
sending. All notices shall be addressed to the parties at the respective
addresses indicated herein, or at such other address that either party may
provide written notice to the other party pursuant to the terms of this Section.
11. Survival. All provisions of this Agreement relating to
confidentiality, non-disclosure and proprietary rights shall survive the
termination of this Agreement.
12. Severability. If any term or provision of this Agreement shall be
invalid or unenforceable to any extent, the remainder of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
13. No Waiver. The failure of either party to enforce any provision of
this Agreement shall not be construed as a waiver or limitation of that party's
right to subsequently enforce and compel strict compliance with every provision
of this Agreement.
5
<PAGE>
<PAGE>
14. Entire Agreement. This Agreement, constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no representations, understandings or agreements relative hereto which are
not fully expressed herein. This Agreement may only be modified by a writing
duly executed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first written above.
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
By:
Linda Portney
--------------------------------
Linda Portney, President
P. W. MEDICAL MANAGEMENT, INC.
By:
Bert E. Brodsky
--------------------------------
Bert E. Brodsky, President
6
<PAGE>
<PAGE>
ASSIGNMENT
KNOW THAT P.W. MEDICAL MANAGEMENT, INC. ("Assignor"), in consideration of
the sum of Ten ($10.00) Dollars paid by P.W. CAPITAL CORP. ("Assignee"), and for
other good and valuable consideration, does hereby assign unto the Assignee a
certain Agreement ("Agreement") effective as of the 14th day of April, 1994 by
and between Assignor and NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. ("Health
Card") for the purpose of providing consulting services to Health Card in
accordance with the terms as set forth in the Agreement.
TO HAVE AND TO HOLD the same unto the Assignee, its successors, personal
representatives and assigns from and after the date hereof, for all the rest of
the term of the Agreement, subject to the terms, covenants, conditions and
limitations therein contained.
In order to induce Health Card to consent to this assignment and Assignee
to accept this assignment, Assignor represents to Assignee that:
a. Assignor has full right and authority to assign the
Agreement;
b. Assignor has fully performed all the terms, covenants
and conditions of the Agreement on Assignor's part to be
performed to the effective date hereof; and
c. Assignor has not done or suffered anything to be done which might impose
any liability on Assignee.
The covenants and representations herein shall survive the delivery hereof.
Whenever the text hereof requires, the singular number as used herein shall
include the plural and all genders.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Assignor has executed this Assignment this 1st day
of July, 1996.
ASSIGNOR:
P.W. MEDICAL MANAGEMENT, INC.
By:
/s/ Bert E. Brodsky
-------------------------------
Bert E. Brodsky, President
ASSIGNEE:
P.W. CAPITAL CORP.
By:
/s/ Bert E. Brodsky
--------------------------------
Bert E. Brodsky, President
CONSENT TO ASSIGNMENT:
NATIONAL MEDICAL HEALTH
CARD SYSTEMS, INC.
By:
/s/ Linda Portney
--------------------------------
Linda Portney, President
CONSENT FOF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Medical Health Card Systems, Inc.
Port Washington, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 2, 1998, except for Note 12
which is as of __________, relating to the financial statements of National
Medical Health Card Systems, Inc., which is contained in that Prospectus, and of
our report dated September 2, 1999, relating to the schedule, which is contained
in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Melville, New York
February 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,873,376
<SECURITIES> 0
<RECEIVABLES> 8,083,707
<ALLOWANCES> 177,395
<INVENTORY> 0
<CURRENT-ASSETS> 14,196,566
<PP&E> 2,944,187
<DEPRECIATION> 1,089,110
<TOTAL-ASSETS> 21,204,548
<CURRENT-LIABILITIES> 22,533,871
<BONDS> 0
0
0
<COMMON> 4,972
<OTHER-SE> (1,334,295)
<TOTAL-LIABILITY-AND-EQUITY> 21,204,548
<SALES> 31,253,445
<TOTAL-REVENUES> 31,253,445
<CGS> 27,736,990
<TOTAL-COSTS> 27,736,990
<OTHER-EXPENSES> 227,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,207,434
<INCOME-TAX> 502,000
<INCOME-CONTINUING> 705,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705,434
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,305,792
<SECURITIES> 0
<RECEIVABLES> 6,323,268
<ALLOWANCES> 244,189
<INVENTORY> 0
<CURRENT-ASSETS> 11,689,253
<PP&E> 2,532,086
<DEPRECIATION> 935,643
<TOTAL-ASSETS> 18,343,900
<CURRENT-LIABILITIES> 20,347,577
<BONDS> 0
0
0
<COMMON> 4,972
<OTHER-SE> (2,011,254)
<TOTAL-LIABILITY-AND-EQUITY> 18,343,900
<SALES> 99,988,921
<TOTAL-REVENUES> 99,988,921
<CGS> 91,230,939
<TOTAL-COSTS> 91,230,939
<OTHER-EXPENSES> 445,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,385,448
<INCOME-TAX> 569,000
<INCOME-CONTINUING> 816,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 816,448
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
