<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996.
REGISTRATION NO. 333-4106
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APACHE MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 23-2476415
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1650 TYSONS BOULEVARD
MCLEAN, VIRGINIA 22102
(703) 847-1400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
GERALD E. BISBEE, JR., PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD
MCLEAN, VIRGINIA 22102
(703) 847-1400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
GEORGE C. MCKANN, ESQ. ALAN G. STRAUS, ESQ.
GARDNER, CARTON & DOUGLAS SKADDEN, ARPS, SLATE, MEAGHER & FLOM
321 NORTH CLARK STREET, SUITE 3200 919 THIRD AVENUE
CHICAGO, ILLINOIS 60610 NEW YORK, NEW YORK 10022
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective
date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class Proposed Proposed
of Securities to be Amount to be Maximum Offering Maximum Aggregate Amount of
Registered Registered(1) Price Per Share(2) Offering Price(2) Registration Fee
<S> <C> <C> <C> <C>
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Common Stock, $.01 par
value per share....... 2,300,000 $14.00 $32,200,000.00 $11,103.45(3)
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</TABLE>
(1) Includes a maximum of 300,000 shares which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of determining registration fee.
(3) Previously paid.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
APACHE MEDICAL SYSTEMS, INC.
FORM S-1
REGISTRATION STATEMENT
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER LOCATION IN PROSPECTUS
- --------------------------------------------- ------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Certain Transactions
5. Determination of Offering Price......... Outside Front Cover Page; Underwriting
6. Dilution................................ Risk Factors; Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside Front Cover Page; Underwriting; Back
Cover Page
9. Description of Securities to be
Registered.............................. Prospectus Summary; Capitalization; Description
of Capital Stock
10. Interests of Named Experts and
Counsel................................. Not Applicable
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page; Prospectus Summary;
Risk Factors; The Company; Use of Proceeds;
Dividend Policy; Capitalization; Dilution;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject To Completion)
Dated June 4, 1996
2,000,000 SHARES
APACHE LOGO
APACHE Medical Systems, Inc.
COMMON STOCK
------------------------------
All of the shares of common stock, $.01 par value per share (the "Common
Stock"), offered are being sold by APACHE Medical Systems, Inc. ("APACHE" or the
"Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $12.00 and $14.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation and trading on
the Nasdaq National Market under the symbol "AMSI," subject to notice of
issuance.
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
Total(3)................................ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated to be
$750,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1996.
------------------------------
COWEN & COMPANY
LEHMAN BROTHERS
VOLPE, WELTY & COMPANY
, 1996
<PAGE> 4
DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
The graphic is entitled "The APACHE Advantage." The text reads as
follows:
Our clinically validated methodologies have been utilized in
connection with more than 600 peer-reviewed articles (in New
England Journal of Medicine, JAMA, Annals of Internal Medicine,
Science and others).
Patient-specific data identifies and tracks patient health status
throughout the hospital stay. (accompanied by representative
graphic of patient status graph showing risk of death and active
treatment risk)
Concurrent, predictive clinical information supports physician
decisions regarding the most appropriate therapy at the
point-of-care. (accompanied by a bar chart depicting an APACHE
Complication Risk Analysis of Bypass Surgery (CABG) and
Angioplasty (PTCA))
APACHE products and services provide clinical and financial
information to clinicians and administrators, with ongoing
development throughout the continuum of care. (accompanied by
graphic illustrating the continuum of care)
High-risk, high-cost patient focus targets the greatest potential
cost savings. (accompanied by graphic illustrating cost savings
for various cost/risk levels)
GATEFOLD
The graphic is entitled "The APACHE Medical Cost Management Program"
and is a four step flow diagram. The text is as follows:
Step 1. Compare performance to Best Demonstrated Practices
APACHE systems measure a variety of healthcare outcomes, including
mortality, length of stay, complications and ventilator days, for
a broad range of disease groups. (accompanied by representative
graphics of utilization management review of ICU length of stay by
service and actual versus predicted risk-adjusted length of stay)
Step 2. Target high-risk, high-cost patients
APACHE systems identify cost savings opportunities for high-risk,
high-cost disease groups, such as the examples listed here.
<PAGE> 5
Acute Care -- Heart attack, Open heart surgery (CABG), Congestive
heart failure, Hysterectomy, Laminectomy, Pneumonia, Stroke,
Vascular surgery, Lower bowel resection
Treatment sites: Hospital
Critical Care -- Unstable angina, Gastrointestinal cancer, Acute
myocardial infarction (AMI), Drug overdose, Carotid
endarterectomy, Sepsis, Bacterial pneumonia, Rhythm disturbance,
Lung cancer, Peripheral vascular disease, Craniotomy for neoplasm
Treatment sites: Medical ICU, Surgical ICU, Neurological
ICU, Trauma ICU
Cardiovascular Care -- Open heart surgery (CABG), Valve surgery,
Angioplasty (PTCA), Cardiac catheterization
Treatment sites: CCU, CTICU, Cath Lab, CV Operating Room
Sub-Acute Care -- Ventilator dependent: Emphysema (COPD),
Congestive heart failure, Pneumonia
Treatment sites: Hospital or long-term care facility
Step 3. Develop severity-adjusted guidelines
A unique feature of these guidelines is the ability to adjust the
guidelines for the patient's level of severity. (accompanied by
graphics depicting a discharge criteria check sheet and a bar
chart of APACHE length of stay guidelines for varying severity
levels)
Step 4. Apply to individual patients
APACHE systems monitor health status (risk of mortality, length of
stay, treatment level) for individual patients and for an entire
unit at a glance. (accompanied by graphic depicting sample
computer screens produced by APACHE clinical decision support
systems)
INSIDE BACK COVER
The graphic is entitled "APACHE Integration." It depicts the
interfacing of admission, lab, billing, cost and clinical data information with
an Outcomes Repository and its utilization in APACHE EIS and point of care
tools. The page also depicts a representative graphic screen from an APACHE
EIS tool.
The accompanying text is as follows:
The APACHE EIS monitors the costs and quality of care. "Point and
click" Windows technology sorts the analysis by payer, physician,
service line, treatment level, risk range, or other category
specified by the user.
<PAGE> 6
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
APACHE(R) is a registered trademark of APACHE Medical Systems, Inc. All
other trademarks and trade names referred to in this Prospectus are the property
of their respective owners.
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Except as otherwise specified, the information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option
and has been adjusted for a 1-for-2.86 reverse split of the Common Stock to be
effected prior to the consummation of this offering, and for: (i) the conversion
of all outstanding shares of preferred stock into 3,294,519 shares of Common
Stock; (ii) conversion of $1,000,000 of convertible debt into 122,257 shares of
Common Stock; and (iii) payment of $733,350 of accumulated preferred stock
dividends by the issuance of 56,413 shares of Common Stock, all to be effected
upon the consummation of this offering (collectively, the "Recapitalization
Transactions"). See "Description of Capital Stock," "Underwriting" and Notes 4,
8 and 12 of Notes to Consolidated Financial Statements.
THE COMPANY
APACHE is a leading provider of clinically-based decision support
information systems to the healthcare industry. The Company believes that it is
the only healthcare information company that can provide hospitals and
physicians with patient-specific, concurrent and predictive outcomes information
at the point of care that can be used to assist them in making clinical and
resource utilization decisions. APACHE's products and services address the
information needs of both clinicians and healthcare administrators by enabling
joint access to clinical and cost information, which facilitates both the
containment of costs and the delivery of high-quality care. APACHE's products
and services are focused on high-risk, high-cost patients, such as
cardiovascular care and critical care patients, who typically account for a
disproportionately large share of hospital costs.
APACHE addresses the healthcare industry's need for sophisticated
outcomes-based clinical decision support information systems. The Company's
systems provide clinicians with information to assist them in making individual
patient care decisions, based on concurrent information about the patient's
health status and a severity-adjusted analysis of the outcomes of similar
patients in the Company's databases. The Company's products also enable
healthcare providers to analyze patient outcomes, physician performance and
hospital unit resource utilization in comparison to similar hospital, regional
and national norms. These analyses can be used to develop care guidelines and
allocate resources to reduce the cost of healthcare.
APACHE offers healthcare providers and suppliers a comprehensive line of
outcomes-based products and services, encompassing software, hardware, and
related consulting services. APACHE's products and services are differentiated
from other healthcare decision support products by: (i) using detailed clinical
data in addition to administrative or cost data; (ii) utilizing
patient-specific, severity-adjusted data; (iii) providing concurrent, predictive
outcomes information as well as comparative historical information; (iv)
providing patient information to the physician across the continuum of care; and
(v) focusing on high-risk, high-cost patients. The Company's products and
services are based on its clinical outcomes methodologies and its proprietary
databases, which contain clinical data on over 550,000 patients.
APACHE's principal product, the Medical Cost Management Program ("MCMP"),
is an integrated decision support system that provides point-of-care,
severity-adjusted clinical and financial information to physicians and
healthcare administrators. The Company also offers Benchmark Studies to compare
a customer's clinical and financial outcomes to industry norms on a
severity-adjusted basis. Other products and services include the Outcomes
Repository, the Enterprise Information System, Consulting Studies and Supplier
Studies. APACHE's products and services currently include coverage of patients
in the following categories: cardiovascular care, critical care, acute care and
long-term acute ("sub-acute") care.
The Company's objective is to become the leading provider of clinical
outcomes data and decision support systems to healthcare providers, suppliers
and payers. APACHE intends to achieve this objective by implementing its
strategy of: (i) leveraging its existing provider customer base; (ii) expanding
its market share in the provider and supplier markets and entering the payer
market; (iii) adding methodologies, databases, products and services; and (iv)
continuing to develop relationships with key industry participants. These
strategies have recently led to an agreement with an affiliate of Premier Inc.
pursuant to which the Company is designated as Premier Inc.'s exclusive supplier
of clinically-based outcomes data systems for high-risk, high-cost patients to
the approximately 1,700 Premier hospitals.
3
<PAGE> 8
THE OFFERING
Common Stock offered hereby... 2,000,000 shares(1)
Common Stock to be outstanding
after the offering.......... 6,549,435 shares(1)(2)
Use of proceeds............... For working capital and general corporate
purposes, including paying certain accumulated
preferred stock dividends, funding expansion of
the Company's sales and marketing activities,
developing or acquiring additional
methodologies and databases, or acquiring
complementary businesses, products or
technologies. See "Use of Proceeds."
Nasdaq National Market
symbol........................ AMSI
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue...................... $1,635 $ 1,974 $ 3,841 $ 5,317 $ 7,024 $ 1,259 $1,659
Expenses:
Cost of operations........ 767 1,457 2,152 3,700 2,866 733 753
Research and
development............. 393 667 1,017 1,813 1,919 578 364
Selling, general and
administrative.......... 1,079 1,810 2,976 6,030 5,631 1,577 1,445
------ ------- ------- ------- ------- ------- ------
Total expenses.......... 2,239 3,934 6,145 11,543 10,416 2,888 2,562
------ ------- ------- ------- ------- ------- ------
Loss from operations......... (604) (1,960) (2,304) (6,226) (3,392) (1,629) (903)
Other income (expense)....... 22 (71) (80) 34 (416) (20) (48)
------ ------- ------- ------- ------- ------- ------
Net loss..................... $ (582) $(2,031) $(2,384) $(6,192) $(3,808) $(1,649) $ (951)
====== ======= ======= ======= ======= ======= ======
Pro forma net loss per
share(3).................. $ (0.79) $(0.19)
======= ======
Pro forma weighted average
number of shares
outstanding(3)............ 4,610,379 4,625,881
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 2,627 $ 25,235
Working capital.................................................... 763 23,371
Total assets....................................................... 7,086 29,694
Long-term obligations, less current maturities..................... 1,114 271
Redeemable convertible preferred stock............................. 21,029 --
Stockholders' equity (deficit)..................................... (19,597) 24,883
</TABLE>
- ------------------------------
(1) Assumes the Underwriters' over-allotment option for up to 300,000 shares of
Common Stock is not exercised. See "Underwriting."
(2) Does not include 1,408,974 shares reserved for issuance upon the exercise of
currently outstanding options and warrants, exercisable at a weighted
average exercise price of $4.06 per share. See "Management -- Employee
Benefit Plans" and "Description of Capital Stock."
(3) See Note 2 of Notes to Consolidated Financial Statements.
(4) Gives effect to: (i) the sale of 2,000,000 shares of Common Stock offered
hereby at an assumed initial offering price of $13.00 per share and the
application of the net proceeds therefrom, after deducting the estimated
underwriting discounts and commissions and offering expenses as discussed
under "Use of Proceeds;" and (ii) the Recapitalization Transactions. See
Notes 4, 8 and 12 of Notes to Consolidated Financial Statements and "Use of
Proceeds."
4
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information in
this Prospectus, should be carefully considered in evaluating the Company and
its business before purchasing shares of Common Stock offered hereby.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT; EXPECTED LOSSES;
UNCERTAINTY OF FUTURE PROFITABILITY
The Company has never recorded an operating profit and had an accumulated
deficit of approximately $18.9 million as of March 31, 1996. The Company expects
to continue to record losses for at least the next five quarters. The ability of
the Company to achieve profitability in the future largely depends on its
ability to generate revenues from its products and services. In view of the
Company's operating history, there can be no assurance that the Company will be
able to generate revenue that is sufficient to achieve profitability, to
maintain profitability on a quarterly or annual basis or to sustain or increase
its revenue growth in future periods. The Company's limited capitalization may
adversely affect the ability of the Company to raise additional capital in the
future and could impair the Company's ability to invest in research and
development, sales and marketing programs and other operations, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations and on the price of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary from quarter to quarter in the
future. Quarterly revenues and operating results may fluctuate as a result of a
variety of factors, including: the Company's relatively long sales cycle;
variable customer demand for its products and services; changes in the Company's
product mix and the timing and relative prices of product sales; the loss of
customers due to consolidation in the healthcare industry; changes in customer
budgets; investments by the Company in marketing or other corporate resources;
acquisitions of other companies or assets; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
distribution channels; sales and marketing promotional activities and trade
shows; and general economic conditions. Further, due to the relatively fixed
nature of most of the Company's costs, which primarily include personnel as well
as facilities costs, any unanticipated shortfall in revenue in any fiscal
quarter would have an adverse effect on the Company's results of operations in
that quarter. Accordingly, the Company's operating results for any particular
quarterly period may not be indicative of results for future periods. Although
the Company has not historically experienced any material seasonality in its
operating results, the Company could experience such seasonality in the future,
which could cause fluctuations in the Company's quarterly results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future success and financial performance will depend in large
part on its ability to successfully market its products and services. To date,
the Company's healthcare provider customers include over 500 of the
approximately 5,200 community hospitals in the United States. Healthcare
providers comprise most of the Company's customers to date. The Company only
recently began to target sales to healthcare suppliers and has not yet completed
any sales to healthcare payers. There can be no assurance that the Company will
be able to achieve more extensive penetration of its target markets. The failure
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations and on the price of the Common
Stock.
The Company's future success and financial performance will also depend on
its ability to meet the increasingly sophisticated needs of its customers
through the timely development and successful introduction of new and enhanced
versions of its products and services. The Company believes that significant
continuing product development efforts will be required to sustain the Company's
growth and that such efforts have inherent risks. The Company is currently
expanding its products and services to include additional high-risk,
5
<PAGE> 10
high-cost disease categories and to broaden coverage across the continuum of
care. There can be no assurance that the Company will be successful in entering
new markets or in developing and marketing new or enhanced products and
services, or that it will not experience significant delays in the introduction
of new products and services. In addition, there can be no assurance that new or
enhanced products or services developed by the Company will meet the
requirements of healthcare providers, suppliers or payers and achieve market
acceptance. The failure to enter new markets successfully, to develop new
products or to achieve market acceptance for new products could have a material
adverse effect on the Company's business, financial condition and results of
operations and on the price of the Common Stock. See "Business -- The APACHE
Solution," "-- The APACHE Strategy," "-- APACHE Products and Services."
STATE AND FEDERAL GOVERNMENT REGULATION
The confidentiality of patient records and the circumstances under which
such records may be released is subject to substantial regulation by state and
federal governments. These state and federal laws and regulations govern both
the disclosure and use of confidential patient medical record information. To
protect patient confidentiality, data entries to APACHE's databases omit any
patient identifiers, including name, address, hospital and physician. The
Company believes that its procedures comply with the laws and regulations
regarding the collection of patient data in substantially all jurisdictions, but
regulations governing patient confidentiality rights are evolving rapidly and
are often unclear and difficult to apply in the rapidly restructuring healthcare
market. Additional legislation governing the dissemination of medical record
information is continually being proposed at both the state and federal level.
This legislation may require holders or users of such information to implement
security measures that may result in substantial cost to the Company. There can
be no assurance that changes to state or federal laws will not materially
restrict the ability of the Company to obtain or disseminate patient
information. The inability to obtain or disseminate patient information could
have a material adverse effect on the Company's business, financial condition
and results of operations and on the price of the Common Stock.
Certain products, including software applications, intended for use in the
diagnosis of disease or other conditions, or in the cure, treatment, mitigation
or prevention of disease, are subject to regulation by the United States Food
and Drug Administration (the "FDA") as medical devices. The laws administered by
the FDA impose substantial regulatory controls over the manufacturing, labeling,
testing, distribution, sale, marketing and promotion of medical devices and
other related activities. These regulatory controls can include compliance with
the following requirements: manufacturer establishment registration and device
listing; current good manufacturing practices; completion of premarket
notification or premarket approval; medical device adverse event reporting; and
general controls prohibiting misbranding and adulteration. Violations of the
laws concerning medical devices can result in severe criminal and civil
penalties and other sanctions. In its 1989 Policy for the Regulation of Computer
Products (the "1989 Policy Statement"), the FDA stated that it intended to issue
regulations exempting certain clinical decision support software products from a
number of regulatory controls, and that until those regulations were issued it
would not require manufacturers of such products to comply with requirements
other than the general controls. The Company believes that its products are not
medical devices and, thus, are not subject to the controls imposed on
manufacturers of such products. The Company further believes that to the extent
that its products were determined to be medical devices, the products would fall
within the exemptions for decision support systems provided by the 1989 Policy
Statement. The Company has not taken action to comply with the controls that
would otherwise apply if the Company's products were non-exempt medical devices.
The FDA has stated that it intends to revise its 1989 Policy Statement and that
it may eliminate some or all of the exemptions that it currently allows.
Accordingly, there can be no assurance that the FDA will not now or in the
future make a determination that the Company's current or future products are
medical devices subject to FDA regulations and are ineligible for the exemptions
from those regulations. Such determinations by the FDA could have a material
adverse effect on the Company's business, financial condition and results of
operations and on the price of the Common Stock. See "Business -- Government
Regulation."
In addition to legislation regarding patient records and potential FDA
regulation, state and federal lawmakers have proposed, and are likely to
continue to propose, a number of other legislative initiatives
6
<PAGE> 11
regulating various aspects of the healthcare industry. The Company is unable to
predict what impact, if any, such legislation could have on the Company's
business, financial condition and results of operations or on the price of the
Common Stock.
INTEGRITY AND RELIABILITY OF METHODOLOGIES AND DATABASES
The Company's success is highly dependent on the integrity and reliability
of its methodologies and databases. The Company's methodologies have been
validated by a large number of academic researchers. The Company believes that
it takes adequate precautions to safeguard the completeness and consistency of
the data in its databases. Moreover, while the Company believes that the
information contained in its databases is representative of the clinical and
financial aspects of various types of hospitals and patients, there can be no
assurance that such information is appropriate for comparative analysis in all
cases or that the databases accurately reflect general or specific trends in the
healthcare industry. If the validity of the Company's methodologies were
challenged in the future or if the information contained in the databases were
found, or were perceived, to be inaccurate or unreliable, there could be a
material adverse effect on the Company's business, financial condition and
results of operations and on the price of the Common Stock. See "Business -- The
APACHE Solution."
RISK OF LIABILITY CLAIMS
Customer reliance on the Company's products and services could result in
exposure of the Company to liability claims if the Company's products fail to
perform as intended or if patient care decisions based in part on guidance from
the Company's products or services are challenged. Even unsuccessful claims
could result in the expenditure of funds in litigation, diversion of management
time and resources or damage to the Company's reputation and the marketability
of the Company's products and services. While the Company takes contractual
steps to obtain indemnification for certain liabilities and maintains general
commercial liability insurance, there can be no assurance that a successful
claim could not be made against the Company, that the amount of indemnification
payments or insurance would be adequate to cover the costs of defending against
or paying such a claim or that damages payable by the Company would not have a
material adverse effect on the Company's business, financial condition and
results of operations and on the price of the Common Stock.
TECHNOLOGICAL CHANGE
The healthcare information industry is relatively new and is experiencing
technological change, changing customer needs, frequent new product
introductions and evolving industry standards. In addition, as the computer and
software industries continue to experience rapid technological change, the
Company must be able to quickly and successfully adapt its products so that they
continue to integrate well with the other computer platforms and software
employed by its customers. There can be no assurance that the Company will not
experience difficulties, including lack of necessary capital or expertise, that
could delay or prevent the successful development and introduction of product
enhancements or new products in response to technological changes. If the
Company is unable to respond to technological changes in a timely and cost-
effective manner, there could be a material adverse effect on the Company's
business, financial condition and results of operations and on the price of the
Common Stock. See "Business -- APACHE Products and Services."
HIGHLY COMPETITIVE INDUSTRY
The market for healthcare information systems and services is highly
competitive and rapidly changing. The Company believes that the principal
competitive factors for clinical decision support products and services are the
quality and depth of the underlying clinical outcomes databases, the proprietary
nature of methodologies, databases and technical resources, the usefulness of
the data and reports generated by the software, customer service and support,
compatibility with the customer's existing information systems, potential for
product enhancement, vendor reputation, price and the effectiveness of sales and
marketing efforts.
7
<PAGE> 12
The Company's competitors include other providers of clinical decision
support systems. Many of the Company's competitors and potential competitors
have greater financial, product development, technical and marketing resources
than the Company, and currently have, or may develop or acquire, substantial
installed customer bases in the healthcare industry. The Company also faces
significant competition from internal information services at individual
hospitals, large hospital alliances, for-profit hospital chains and managed care
companies, many of which may develop their own outcomes databases. However, the
Company's products and services are differentiated from the products and
services offered by the Company's competitors and potential competitors by
virtue of the fact that the Company's products and services focus on high-risk,
high-cost patients and provide both concurrent and predictive outcomes
information. As the market for decision support systems develops, additional
competitors may enter the market and competition may intensify. While the
Company believes that it has successfully differentiated itself from
competitors, there can be no assurance that, in the future, competition would
not have a material adverse effect on the Company's business, financial
condition and results of operations or on the price of the Common Stock. See
"Business -- Competition."
UNCERTAINTY AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. During the past several years, state and
federal government regulation of reimbursement rates and capital expenditures in
the United States healthcare industry has increased. Lawmakers continue to
propose programs to reform the United States healthcare system, which may
contain proposals to increase governmental involvement in healthcare, lower
Medicare and Medicaid reimbursement rates or otherwise change the operating
environment for the Company's customers. Healthcare industry participants may
react to these proposals by curtailing or deferring investments, including
investments in the Company's products. In addition, the healthcare industry has
experienced, and could continue to experience, consolidation as a result of
mergers and acquisitions of healthcare providers, suppliers and payers, which
typically puts additional pressure on the consolidated companies to reduce
expenses. The Company cannot predict what impact, if any, such factors would
have on its business, financial condition and results of operations or on the
price of the Common Stock.
In addition, many healthcare providers are consolidating to create larger
healthcare delivery enterprises with greater regional market power. Such
consolidation could erode the Company's existing customer base and reduce the
size of the Company's target market. In addition, the resulting enterprises
could have greater bargaining power, which could lead to price erosion affecting
the Company's products and services. The reduction in the size of the Company's
target market or the failure of the Company to maintain adequate price levels
could have a material adverse effect on the Company's business, financial
condition and results of operations or on the price of the Common Stock.
DEPENDENCE ON KEY PERSONNEL AND OTHERS
The success of the Company and of its business strategy is dependent in
large part on its key management and operating personnel, including its Chairman
and Chief Executive Officer, Gerald E. Bisbee, Jr., Ph.D., and its President and
Chief Operating Officer, Robert E. Ciri. The Company has entered into
confidentiality and noncompetition agreements with each of its executive
officers. The Company believes that its success in the future will also depend
upon its ability to attract and retain highly skilled technical, managerial and
marketing personnel. Such individuals are in high demand and are often subject
to competing offers. In particular, the Company's success will depend on its
ability to retain the services of its executive officers and to hire additional
management personnel as needed. As the Company's marketing efforts continue to
grow, the Company plans to reassign certain of its management employees from
administrative positions to management positions in marketing or client
relations, replacing them with newly hired personnel. For instance, the Company
is considering recruiting a new Chief Financial Officer, so that Brion D. Umidi,
who has served as the Vice President of Finance and Administration of the
Company since 1991, would be able to assume responsibility for management of the
Company's information systems business unit. The Company will also have an
ongoing need to expand the number of its management and support personnel. The
loss of the services
8
<PAGE> 13
of one or more members of management or key employees, or the inability to hire
additional personnel as needed, could have a material adverse effect on the
Company's business, financial condition and results of operations and on the
price of the Common Stock. While the Company maintains a key person life
insurance policy on Dr. Bisbee, the amount of insurance may not be sufficient to
offset the impact of the Company's loss of the services of Dr. Bisbee. See
"Management."
William A. Knaus, M.D., a founder, a director and the Chief Scientific
Advisor of the Company, was instrumental in the creation of the APACHE critical
care methodology. Although the Company has obtained a perpetual license to this
methodology, there can be no assurance that a significant change in Dr. Knaus's
relationship with the Company would not have a material adverse effect on the
Company's business, financial condition and results of operations or on the
price of the Common Stock.
DEPENDENCE ON PROPRIETARY ASSETS
The Company has made significant investments in its methodologies,
databases and technology and relies on a combination of trade secret and
copyright laws, nondisclosure and other contractual provisions, and technical
measures to protect its proprietary rights. There can be no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop methodologies, databases or technologies that are
substantially equivalent or superior to those of the Company. In addition, there
can be no assurance that the legal protections and precautions taken by the
Company will be adequate to prevent infringement or misappropriation of the
Company's proprietary assets.
Although the Company believes that its products do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable ruling on any such claim. In addition, any such claim
may require the Company to incur substantial litigation expenses or subject the
Company to significant liabilities and could have a material adverse effect on
the Company's business, financial condition and results of operations and the
price of the Common Stock. See "Business -- Proprietary Rights."
The Company's ability to successfully maintain and expand its business
through the acquisition of rights to, and the refinement and development of, its
methodologies and databases is dependent, in large part, upon its contractual
relationships with academic researchers and physicians. There can be no
assurance that a disruption or severance of any one or more of these
relationships would not have a material adverse effect on the Company's
business, financial condition and results of operations or on the price of the
Common Stock. See "Business -- The APACHE Solution."
IDENTIFICATION AND INTEGRATION OF ACQUISITIONS
The Company may seek to expand its product line through the acquisition of
complementary businesses, products, methodologies, databases and technologies.
Acquisitions involve numerous risks, including difficulties in the assimilation
of operations and products, the ability to manage geographically remote units,
the diversion of management's attention from other business concerns, the risks
of entering markets in which the Company has either limited or no direct
experience and the potential loss of key employees of the acquired companies.
Identifying and pursuing acquisition opportunities, integrating acquired
products and businesses, and managing growth requires a significant amount of
management time and skill. The Company has limited experience in acquiring
businesses and there can be no assurance that the Company will be effective in
identifying and effecting attractive acquisitions or assimilating such
acquisitions in a timely fashion. Any delay or failure to successfully
assimilate such acquisitions could result in the expenditure of money and
increased demands on management's time and could have a material adverse effect
on the Company's business, financial condition and results of operations and on
the price of the Common Stock. In addition, acquisitions may involve the
expenditure of significant funds and/or the issuance of additional securities,
which may be dilutive to stockholders.
9
<PAGE> 14
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE CAPITAL WILL BE AVAILABLE
Since its inception, the Company has financed its operations through cash
provided by operations, the sale of equity and the issuance of debt instruments.
If the Company were unable to generate sufficient revenues to fund its
operations in the future, the Company may be required to raise additional funds
to meet its capital and operating requirements through public or private
financing, including equity financing. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, will require payment
of interest and may involve restrictive covenants that could impose limitations
on the operating flexibility of the Company. Adequate funds for the Company's
operations may not be available when needed and, if available, may not be on
terms attractive to the Company. The failure to obtain funding on a timely basis
could have a material adverse effect on the Company's business, financial
condition and results of operations and on the price of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market after the
offering could adversely affect the prevailing market price for the Common Stock
and could impair the Company's future ability to raise capital through offerings
of its equity securities. In addition to the 2,000,000 shares offered hereby, a
total of 3,315,278 shares held by the directors, officers and other stockholders
of the Company will become available for sale in the public market 180 days
after the date of this Prospectus upon the expiration of certain agreements
entered into between the stockholders and the Underwriters, subject to the
provisions of Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"). In addition, the Company intends to file, after the
expiration of such 180-day period, registration statements under the Securities
Act to register an aggregate of 1,770,000 shares of Common Stock issued or
reserved for issuance under the Company's employee benefit plans. See
"Management," "Shares Eligible for Future Sale" and "Underwriting."
After this offering and subject to the terms of the lock-up agreements, the
holders of approximately 4,495,915 shares of Common Stock, who will have the
right to acquire up to an aggregate of 942,870 additional shares of Common Stock
pursuant to the exercise of vested options and warrants, will be entitled to
certain rights to cause the Company to register the sale of such shares under
the Securities Act. In addition, the Company has undertaken to effect at least
one registration of Common Stock per year for the next four years for shares of
Common Stock held by stockholders with registration rights. By exercising their
registration rights, subject to certain limitations, such holders could cause a
large number of shares to be registered and become freely tradable without
restrictions under the Securities Act (except for those shares purchased in the
offering by affiliates of the Company) immediately upon the effectiveness of
such registration. Such sales may have an adverse effect on the market price for
the Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. See "Recent Developments" and "Description
of Capital Stock -- Registration Rights."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; SHARE PRICE VOLATILITY
There has been no prior public market for the Common Stock and there can be
no assurance that an active public market for the Common Stock will develop or
be sustained after the offering. The initial public offering price will be
determined by negotiations between representatives of the Company and the
representatives of the Underwriters (as defined in "Underwriting") and may not
be indicative of future market prices. See "Underwriting" for information
related to the method of determining the initial public offering price. The
trading price of the Common Stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, changes in
earnings estimates by analysts, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
healthcare or software and computer industries, developments or disputes
concerning copyrights or proprietary rights, regulatory developments and
economic or other factors. In addition, in recent years the stock market in
general, and the shares of healthcare and computer software companies in
particular, have experienced extreme price fluctuations. This volatility has had
a substantial effect on the market prices of securities issued
10
<PAGE> 15
by many companies for reasons unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. See "Underwriting."
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which prohibits the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date on which the person first becomes an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of these provisions could have the effect of delaying or
preventing a change of control of the Company, which could adversely effect the
market price of the Company's Common Stock. See "Description of Capital Stock."
DILUTION; ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock in the offering will experience
immediate and substantial dilution of $9.31 per share in pro forma net tangible
book value per share. In addition, purchasers of shares of Common Stock in the
offering will incur additional dilution to the extent outstanding options and
warrants are exercised. See "Dilution." The Company has never declared or paid
any dividends on the Common Stock and does not anticipate paying any dividends
on the Common Stock in the foreseeable future. See "Dividend Policy."
11
<PAGE> 16
THE COMPANY
The Company was incorporated in Delaware in 1987 and maintains its
executive offices at 1650 Tysons Boulevard, McLean, Virginia 22102. The
Company's telephone number is (703) 847-1400. References in this Prospectus to
"APACHE" or the "Company" include APACHE Medical Systems, Inc. and its
wholly-owned subsidiary in the United Kingdom, Critical Audit, Ltd.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,000,000
shares of Common Stock offered hereby are estimated to be $23,430,000
($27,057,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $13.00 per share. A portion of the
net proceeds of the offering will be used to pay $821,670 of accumulated
dividends on the Company's preferred stock. The remainder of the net proceeds
will be used for working capital and general corporate purposes, including to
fund expansion of the Company's sales and marketing activities, to develop or
acquire additional methodologies and databases, or to acquire businesses,
products or technologies complementary to the Company's business. Although the
Company regularly reviews acquisition proposals involving complementary
businesses, there are currently no agreements or negotiations with respect to
such acquisitions. Pending such use, the Company intends to invest the net
proceeds of this offering in interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and does not anticipate paying dividends on its Common Stock in the foreseeable
future. The Company intends to retain any future earnings for use in the
operations, development and growth of its business.
12
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996: (i) on an actual basis; (ii) on a pro forma basis to give effect
to the Recapitalization Transactions; and (iii) on an as adjusted basis to
reflect the receipt and application of the estimated net proceeds from the sale
of 2,000,000 shares of Common Stock pursuant to this offering.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current maturities............... $ 1,114 $ 271 $ 271
Redeemable convertible preferred stock....................... 21,029 -- --
Stockholders' equity (deficit):
Common stock, par value $.01 per share, 5,769,231 shares
authorized and 1,075,575 shares issued and outstanding,
actual; 30,000,000 shares authorized pro forma and as
adjusted; 4,548,764 shares issued and outstanding pro
forma; and 6,548,764 shares issued and outstanding as
adjusted(1)............................................. 31 65 86
Additional paid in capital................................. 1,344 20,247 43,656
Cumulative dividends and accreted issue costs on redeemable
preferred stock......................................... (2,113) -- --
Accumulated deficit........................................ (18,859) (18,859) (18,859)
-------- --------- ---------
Total stockholders' equity (deficit).................... (19,597) 1,453 24,883
-------- --------- ---------
Total capitalization.................................. $ 2,546 $ 1,724 $ 25,154
======== ========= =========
</TABLE>
- ------------------------------
(1) Does not include 1,409,645 shares reserved for issuance upon the exercise of
options and warrants outstanding as of March 31, 1996, exercisable at a
weighted average exercise price of $4.07 per share. See "Management --
Employee Benefit Plans" and "Description of Capital Stock."
13
<PAGE> 18
DILUTION
The net tangible book value of the Common Stock as of March 31, 1996 (on a
pro forma basis to give effect to the Recapitalization Transactions) was
$763,554, or $0.17 per share. Pro forma net tangible book value per share
represents the amount of the Company's total pro forma tangible assets, less
total pro forma liabilities, divided by 4,548,764 shares of pro forma Common
Stock. See Note 2 of Notes to Consolidated Financial Statements.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering made hereby and the as adjusted net tangible book value
per share of Common Stock immediately after completion of the offering. After
giving effect to the sale of 2,000,000 shares of Common Stock in this offering
at an assumed initial public offering price of $13.00 per share and the receipt
of the estimated net proceeds therefrom, the as adjusted net tangible book value
of the Company as of March 31, 1996 would have been $24,193,554, or $3.69 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.52 per share to existing stockholders and immediate dilution in pro
forma net tangible book value of $9.31 per share to purchasers of Common Stock
in the offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $13.00
Pro forma net tangible book value per share as of March 31, 1996........... $0.17
Increase per share attributable to new investors........................... 3.52
-----
As adjusted net tangible book value per share after the offering............. 3.69
------
Pro forma net tangible book value dilution per share to new investors........ $ 9.31
======
</TABLE>
The following table sets forth the pro forma number of shares of Common
Stock purchased from the Company, the total pro forma consideration paid and the
average price per share paid by existing stockholders and to be paid (at an
assumed initial offering price of $13.00 per share) by purchasers of shares
offered hereby (before deducting the underwriting discounts and commissions and
estimated expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............. 4,548,764 69.5% $20,312,231 43.9% $ 4.47
New Investors...................... 2,000,000 30.5 26,000,000 56.1 $ 13.00
--------- ----- ----------- -----
Total......................... 6,548,761 100.0% $46,312,231 100.0%
========= ===== =========== =====
</TABLE>
The foregoing excludes 1,700,000 shares of Common Stock reserved for
issuance under the APACHE Medical Systems, Inc. Employee Stock Option Plan (the
"Stock Option Plan")(under which options for 866,705 shares at a weighted
average exercise price of $4.61 per share are outstanding), 70,000 shares of
Common Stock reserved for issuance under the APACHE Medical Systems, Inc.
Non-Employee Director Option Plan (the "Director Option Plan"), 65,735
outstanding options issued outside of the Stock Option Plan and the Director
Option Plan at a weighted average exercise price of $4.29 per share and 477,205
shares of Common Stock issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $3.04 per share. To the extent such options
and warrants are exercised, there will be future dilution to investors in this
offering. See "Management -- Employee Benefit Plans" and "Description of Capital
Stock -- Warrants."
14
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data presented below for each of
the years in the four-year period ended December 31, 1995, and the consolidated
balance sheet data as of the end of each of the years in the four-year period
ended December 31, 1995, are derived from the Company's consolidated financial
statements which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The consolidated statement of operations data for
the year ended December 31, 1991, and the consolidated balance sheet data as of
December 31, 1991, are derived from the Company's internal financial statements
which, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to reflect the financial position and
results of operations for the period presented. The consolidated financial data
as of March 31, 1996, and for the three months ended March 31, 1995 and 1996,
are derived from the unaudited consolidated financial statements of the Company
included elsewhere in this Prospectus, which have been prepared on a basis
consistent with the audited consolidated financial statements and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position and
results of operations for the periods presented. The results of operations for
the three months ended March 31, 1996 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31,
1996. The data set forth below should be read in conjunction with the Company's
consolidated financial statements, related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- --------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Systems........................ $1,237 $ 827 $ 2,004 $ 3,587 $ 4,096 $ 700 $1,242
Support........................ 52 277 486 836 1,352 318 330
Professional services.......... 346 870 1,351 894 1,576 241 87
------ ------- ------- ------- --------- ------- ---------
Total revenue............. 1,635 1,974 3,841 5,317 7,024 1,259 1,659
Expenses:
Cost of operations............. 767 1,457 2,152 3,700 2,866 733 753
Research and development....... 393 667 1,017 1,813 1,919 578 364
Selling, general and
administrative............... 1,079 1,810 2,976 6,030 5,631 1,577 1,445
------ ------- ------- ------- --------- ------- ---------
Total expenses............ 2,239 3,934 6,145 11,543 10,416 2,888 2,562
------ ------- ------- ------- --------- ------- ---------
Loss from operations.............. (604) (1,960) (2,304) (6,226) (3,392) (1,629) (903)
Other income (expense):
Interest income................ 16 65 67 94 62 19 58
Interest expense............... -- (106) (102) (69) (483) (39) (106)
Other.......................... 6 (30) (45) 9 5 -- --
------ ------- ------- ------- --------- ------- ---------
Net loss.......................... $ (582) $(2,031) $(2,384) $(6,192) $(3,808) $(1,649) $ (951)
====== ======= ======= ======= ========= ======= =========
Pro forma net loss per share...... $(0.79) $(0.19)
========= =========
Pro forma weighted average number
of shares outstanding.......... 4,610,379 4,625,881
</TABLE>
<TABLE>
<CAPTION>
MARCH
DECEMBER 31, 31,
------------------------------------------------- --------
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 164 $ 3,342 $ 567 $ 209 $ 4,036 $ 2,627
Working capital (deficiency)............. (353) 3,271 (352) (1,896) 1,518 763
Total assets............................. 632 4,301 2,455 4,245 7,909 7,086
Long-term obligations, less current
maturities............................ 1,159 1,013 813 549 1,079 1,114
Redeemable convertible preferred stock... 2,000 7,944 8,124 14,515 20,732 21,029
Total stockholders' equity (deficit)..... (3,341) (5,290) (7,865) (14,399) (18,312) (19,597)
</TABLE>
15
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1987 for the purpose of developing and
marketing clinically-based decision support products and services incorporating
the APACHE methodologies. The Company introduced its Medical Cost Management
Program in 1992 as an integrated decision support system that provides
physicians and healthcare administrators point-of-care, severity-adjusted
clinical and financial information on critical care patients. Early market
feedback indicated the need to extend the scope of the Company's product
offerings to include non-critical care patients and to develop a product
strategy that would provide for both group and patient-specific knowledge across
the continuum of care, incorporating clinical, administrative and financial
information. In 1995, the Company added acute care coverage to its line of
products and services, including an acute care module for the MCMP. In the first
quarter of 1996, APACHE announced the addition of cardiovascular care coverage.
Since 1993, APACHE has supported various suppliers to the healthcare marketplace
in their efforts to provide high-quality effective products and services to
healthcare providers. Recently, the professional services business unit was
expanded to provide similar services to healthcare providers, which represents
an extension of their traditional information system-based relationship with
APACHE.
The Company's revenue results primarily from: (i) licensing and sales of
information systems; (ii) support fees; and (iii) professional services
consulting. Systems revenue is derived mainly from the licensing and sale of
information system products and related implementation services to individual
hospitals, provider groups, integrated health services providers and long-term
sub-acute care facilities. The MCMP incorporates system integration,
installation, training, project management and program related consulting as
well as software licenses, necessary hardware and post-implementation customer
support services. Revenue derived from the sale of hardware does not constitute
a significant portion of systems revenue. The Company's support revenue is
derived mainly from annual client service or maintenance fees for the MCMP.
Professional services revenue relates primarily to value-added, database-driven
consulting services provided to pharmaceutical, biotechnology and other
suppliers as well as to provider clients. Professional services revenue has
varied significantly from period to period because to date the Company has
generally made such services available in response to specific customer requests
rather than as part of a concerted marketing effort. The Company's total revenue
grew by approximately 83% from 1993 to 1995. The Company's quarterly revenues
and operating results have varied significantly in the past and are likely to
vary significantly in the future.
The Company's cost structure includes the direct cost of operations,
research and development costs and selling, general and administrative expenses.
Cost of operations includes the cost of hardware and software sold, amortization
of capitalized software development costs and direct staffing and other costs
required to deliver the Company's products and services. Research and
development costs include the employee related costs associated with the
development and refinement of the Company's products and services. Selling,
general and administrative expenses include all selling, marketing, accounting,
facilities, human resources, legal and corporate expenses. These costs have
varied significantly due to the timing of investments made in the Company's
infrastructure, facilities and core staffing.
The Company has never recorded an operating profit and had an accumulated
deficit of approximately $18.9 million as of March 31, 1996. The Company expects
to continue to record losses for at least the next five quarters. The ability of
the Company to achieve profitability in the future largely depends on its
ability to generate revenues from its products and services. In view of the
Company's operating history, there can be no assurance that the Company will be
able to generate revenue that is sufficient to achieve profitability, to
maintain its profitability on a quarterly or annual basis or to sustain or
increase its revenue growth in future periods. The Company's limited
capitalization may adversely affect the ability of the Company to raise
additional capital in the future and could impair the Company's ability to
invest in research and development, sales and marketing programs and other
operations.
16
<PAGE> 21
There are a number of current proposals to revise existing, or to adopt
new, state and federal government statutes, regulations and policies affecting
various aspects of the healthcare industry. These proposals, if adopted, could
affect the business, financial condition and results of operations of the
Company. However, given the number of proposals, the fact that many of them
conflict with one another and the overall state of uncertainty in this area, the
Company is unable to estimate the extent of the impact, if any, that would
result from the adoption of one or more of these proposals.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Systems....................................... 52 % 67% 58 % 56% 75 %
Support....................................... 13 16 19 25 20
Professional services......................... 35 17 23 19 5
--- ---- --- ----- ----
Total revenue......................... 100 100 100 100 100
Expenses:
Cost of operations............................ 56 70 41 58 45
Research and development...................... 26 34 27 46 22
Selling, general and administrative........... 78 113 80 125 87
--- ---- --- ----- ----
Total expenses........................ 160 217 148 229 154
--- ---- --- ----- ----
Loss from operations............................ (60 ) (117) (48 ) (129) (54 )
Interest income............................... 2 2 1 1 3
Interest expense.............................. (3 ) (1) (7 ) (3) (6 )
Other......................................... (1 ) -- -- -- --
--- ---- --- ----- ----
Net loss........................................ (62 )% (116)% (54 )% (131)% (57 )%
=== ==== === ===== ====
</TABLE>
Three Months Ended March 31, 1996 and 1995
Revenue. Revenue for the three months ended March 31, 1996 increased 32% to
$1.7 million from $1.3 million in the prior year period. Systems revenue for the
three months ended March 31, 1996 increased 77% to $1.2 million from $700,000 in
the prior year period and accounted for all of the revenue growth. This increase
was due primarily to the increase in unit sales of the Company's MCMP product in
addition to the introduction and sale of new MCMP component products. Support
revenue for the three months ended March 31, 1996 increased 4% to $330,000 from
$318,000 in the prior year period due to an increase in the MCMP installed base
of clients. Professional service revenue for the three months ended March 31,
1996 decreased 64% to $87,000 from $242,000 in the prior year period. This
change is primarily related to variability in the timing of performance under
new and existing consulting contracts.
Cost of Operations. Cost of operations for the three months ended March 31,
1996 increased 3% to $753,000 from $733,000 in the prior year period, due
primarily to the increase of $53,000 in amortization expense of capitalized
software development costs. No amortization was recorded in the comparable prior
year period as the related products were not ready for sale. Cost of operations
for the three months ended March 31, 1996 decreased to 45% of revenue from 58%
in the prior year period, due to the increase in revenue for the period.
Research and Development. Research and development expenses for the period
ended March 31, 1996 decreased 37% to $364,000 from $578,000 in the prior year
period, due primarily to a decrease in subcontracting costs for development
related activities. During the three months ended March 31, 1996, $42,000 of
product development activity was capitalized, compared to $68,000 in the prior
year period.
17
<PAGE> 22
Research and development expenses for the three months ended March 31, 1996
decreased to 22% of revenue from 46% in the prior year period, primarily due to
the increase in revenue.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended March 31, 1996 decreased 8% to $1.4 million
from $1.6 million in the prior year period, due to a decrease in staffing and
related overhead costs and the implementation of cost controls. Selling, general
and administrative expenses for the three months ended March 31, 1996 decreased
to 87% of revenue from 125% for the prior year period due primarily to the
increase in revenue and the relative fixed nature of these costs.
Other Income (Expense). Other income (expense) decreased from ($20,000) in
the three months ended March 31, 1995 to ($48,000) for the three months ended
March 31, 1996. The decrease is attributable to the increase in non-cash imputed
interest expense resulting from the issuance of convertible debt, which was
partially offset by an increase in earnings from the Company's average cash and
cash equivalents balance.
Years Ended December 31, 1995 and 1994
Revenue. Revenue in 1995 increased 32% to $7.0 million from $5.3 million in
1994. Systems related revenue in 1995 increased 14% to $4.1 million from $3.6
million in 1994. This increase was primarily due to the increase in unit sales
of the Company's MCMP product and the introduction and sale of new MCMP
component products and other systems. Support revenue in 1995 increased 62% to
$1.4 million from $837,000 in 1994 due to an increase in the MCMP installed
client base. Professional services revenue in 1995 increased 76% to $1.6 million
from $894,000 in 1994 due to an increase in revenues from supplier studies
contracts in 1995.
Cost of Operations. Cost of operations in 1995 decreased 23% to $2.9
million from $3.7 million in 1994, due primarily to a decrease in staffing.
Staffing reductions resulted from realizing efficiencies in delivering,
installing and supporting new and existing clients. Cost of revenue in 1995
included $63,000 in amortization expense of capitalized software development
costs. No amortization was recorded in 1994 as the related products had not yet
been released. Cost of operations in 1995 decreased to 41% of revenue from 70%
in 1994, due to the same factors together with an increase in revenue during the
same period.
Research and Development. Research and development expenses in 1995
increased 6% to $1.9 million from $1.8 million in 1994, due to the enhancement
of current product lines as well as development activities for new products and
services. During 1995, $426,000 of product development activity was capitalized,
compared to $338,000 in 1994. Research and development expenses in 1995
decreased to 27% of revenue from 34% in 1994, primarily due to revenue
increasing at a faster pace than development-related activities.
Selling, General and Administrative. Selling, general and administrative
expenses in 1995 decreased 7% to $5.6 million from $6.0 million in 1994.
Staffing levels were lower in 1995 than in 1994, and 1994 included costs
associated with the move of the corporate offices. Selling, general and
administrative expenses in 1995 decreased to 80% of revenue from 113% in 1994
due to the same factors together with an increase in revenue during the same
period.
Other Income (Expense). Other income (expense) decreased from $35,000 in
1994 to ($416,000) in 1995. The decrease from 1994 to 1995 was attributable
primarily to an increase in non-cash imputed interest expense on convertible
debt and a decrease in interest income resulting from lower cash and cash
equivalents balances during the first three quarters of 1995, compared to 1994.
Years Ended December 31, 1994 and 1993
Revenue. Revenue in 1994 increased 38% to $5.3 million from $3.8 million
in 1993. Systems revenue in 1994 increased 79% to $3.6 million from $2.0 million
in 1993. This increase is due primarily to the increase in unit sales of the
Company's MCMP product and the introduction and sale of new MCMP component
products. Support revenue in 1994 increased 72% to $837,000 from $486,000 in
1993 due to an increase in the MCMP installed client base. Professional services
revenue in 1994 decreased 34% to $894,000 from $1.4 million in 1993 due to a
decrease in revenues from supplier studies contracts as several significant
contracts were concluded.
18
<PAGE> 23
Cost of Operations. Cost of operations in 1994 increased 72% to $3.7
million from $2.2 million in 1993, due primarily to additional staffing required
to establish the Company's primary delivery capabilities. Cost of operations in
1994 increased to 70% of revenue from 56% in 1993, due to the same factors.
Research and Development. Research and development expenses in 1994
increased 78% to $1.8 million from $1.0 million in 1993, due primarily to
additional staffing. During 1994, $338,000 of product development activity was
capitalized, compared to $0 in 1993. Research and development expenses in 1994
increased to 34% from 26% of revenue in 1993, primarily to the foregoing
factors.
Selling, General and Administrative. Selling, general and administrative
expenses in 1994 increased 103% to $6.0 million from $3.0 million in 1993, due
primarily to costs associated with the move of the corporate offices in 1994 and
an increase in staffing management, facilities, equipment and general expenses.
Selling, general and administrative expenses in 1994 increased to 113% of
revenue from 77% in 1994 due to the same factors.
Other Income (Expense). Other income (expense) increased from ($80,000) in
1993 to $35,000 in 1994. The increase was primarily attributable to the earnings
on the increase in the Company's cash and cash equivalents balances and a
decrease in interest expense due to a reduction in debt in 1994 compared to
1993.
19
<PAGE> 24
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly financial data,
as well as certain unaudited quarterly financial data as a percentage of
revenues, for 1994 and 1995 and for the first quarter of 1996. In the opinion of
the Company's management, this unaudited information has been prepared on the
same basis as the audited information included elsewhere in this Prospectus and
includes all adjustments necessary (consisting of normal recurring adjustments)
to present fairly the information set forth therein. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994 1995 1995 1995 1995
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Systems................ $ 772 $ 823 $ 1,304 $ 688 $ 700 $ 626 $ 1,256 $1,514
Support................ 59 171 288 319 318 282 366 387
Professional
services............. 280 227 197 189 241 408 524 402
------- -------- ------- -------- ------- -------- ------- -------
Total revenue...... 1,111 1,221 1,789 1,196 1,259 1,316 2,146 2,303
Expenses:
Cost of operations..... 583 862 990 1,265 733 715 686 732
Research and
development.......... 183 410 448 771 578 497 529 315
Selling, general and
administrative....... 1,246 1,412 1,428 1,945 1,577 1,379 1,232 1,443
------- -------- ------- -------- ------- -------- ------- -------
Total expenses..... 2,012 2,684 2,866 3,981 2,888 2,591 2,447 2,490
------- -------- ------- -------- ------- -------- ------- -------
Loss from operations..... (901) (1,463) (1,077) (2,785) (1,629) (1,275) (301) (187)
Interest income........ 33 35 21 4 19 8 2 33
Interest expense....... (21) (15) (17) (15) (39) (115) (140) (189)
Other.................. -- 1 6 2 -- -- 2 3
------- -------- ------- -------- ------- -------- ------- -------
Net loss................. $ (889) $ (1,442) $(1,067) $ (2,794) $(1,649) $ (1,382) $ (437) $ (340)
======= ======== ======= ======== ======= ======== ======= =======
<CAPTION>
THREE MONTHS ENDED
- ------------------------------------
MARCH 31,
1996
---------
(IN THOUSANDS)
<S> <C>
Revenue:
Systems................ $ 1,242
Support................ 330
Professional
services............. 87
-------
Total revenue...... 1,659
Expenses:
Cost of operations..... 753
Research and
development.......... 364
Selling, general and
administrative....... 1,445
-------
Total expenses..... 2,562
-------
Loss from operations..... (903)
Interest income........ 58
Interest expense....... (106)
Other.................. --
-------
Net loss................. $ (951)
=======
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994 1995 1995 1995 1995
------- -------- ------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Systems................ 69% 67% 73% 58% 56% 48% 59% 66%
Support................ 5 14 16 27 25 21 17 17
Professional
services............. 25 19 11 16 19 31 24 17
------- -------- ------- -------- ------- -------- ------- -------
Total revenue...... 100 100 100 100 100 100 100 100
Expenses:
Cost of operations..... 52 71 55 106 58 54 32 32
Research and
development.......... 16 34 25 64 46 38 25 14
Selling, general and
administrative....... 112 116 80 163 125 105 57 63
------- -------- ------- -------- ------- -------- ------- -------
Total expenses..... 181 220 160 333 229 197 114 108
------- -------- ------- -------- ------- -------- ------- -------
Loss from operations..... (81) (120) (60) (233) (129) (97) (14) (8)
Interest income........ 3 3 1 -- 1 1 -- 1
Interest expense....... (2) (1) (1) (1) (3) (9) (7) (8)
Other.................. -- -- -- -- -- -- -- --
------- -------- ------- -------- ------- -------- ------- -------
Net loss................. (80)% (118)% (60)% (234)% (131)% (105)% (20)% (15)%
======= ======== ======= ======== ======= ======== ======= =======
<CAPTION>
THREE MONTHS ENDED
- ------------------------------------
MARCH 31,
1996
-------
<S> <C>
Revenue:
Systems................ 75%
Support................ 20
Professional
services............. 5
-------
Total revenue...... 100
Expenses:
Cost of operations..... 45
Research and
development.......... 22
Selling, general and
administrative....... 87
-------
Total expenses..... 154
-------
Loss from operations..... (54)
Interest income........ 3
Interest expense....... (6)
Other.................. --
-------
Net loss................. (57)%
=======
</TABLE>
20
<PAGE> 25
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary from quarter to quarter in the
future. Quarterly revenues and operating results may fluctuate as a result of a
variety of factors, including: the Company's relatively long sales cycle,
variable customer demand for its products and services; changes in the Company's
product mix and the timing and relative prices of product sales; the loss of
customers due to consolidation in the healthcare industry; changes in customer
budgets; investments by the Company in marketing or other corporate resources;
acquisitions of other companies or assets; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
distribution channels; sales and marketing promotional activities and trade
shows; and general economic conditions. Further, due to the relatively fixed
nature of most of the Company's costs, which primarily include personnel costs,
as well as facilities costs, any unanticipated shortfall in revenue in any
fiscal quarter would have an adverse effect on the Company's results of
operations in that quarter. Accordingly, the Company's operating results for any
particular quarterly period may not necessarily be indicative of results for
future periods.
In addition, the Company's quarterly results have been, and may continue to
be, affected by supplier and provider budgeting practices that cause many
discretionary purchase decisions to be made before certain quarter and year
ends. The timing of quarterly revenue is also affected by the ability of the
Company to perform on its contracts, which is subject to the availability of the
client personnel as well as the availability of the Company's personnel.
Although the Company has not historically experienced any material seasonality
in its operating results, the Company could experience such seasonality in the
future, which could cause fluctuations in the Company's quarterly results.
LIQUIDITY AND CAPITAL RESOURCES
The Company has never recorded an operating profit and had an accumulated
deficit of approximately $18.9 million as of March 31, 1996. Since its
inception, the Company has financed its operations primarily through the private
issuance of Common Stock, convertible preferred stock, stockholder notes and
other debt instruments for net proceeds aggregating $22.2 million and, to a
lesser extent, from revenues from operations. The Company's working capital
needs are expected to continue to increase as the Company pursues its growth
strategy and the Company does not expect to record a profit for at least the
next five quarters. As of March 31, 1996, the Company had net working capital of
$763,000, including cash and cash equivalents of $2.6 million. The Company
currently has no material commitments for capital expenditures.
Historically, the Company's operating activities have not generated
positive cash flow due to increasing accounts receivable attendant to the
Company's growth as well as research and development and other expenses. The
Company has executed a letter of intent to obtain a secured line of credit to
finance its accounts receivable growth. While the Company believes that it will
be successful in securing this line of credit, there can be no assurance that
the Company will be able to enter into a line of credit on terms satisfactory to
the Company.
The Company anticipates financing its growth strategy through the net
proceeds from this offering, its current cash resources, revenues from
operations and third party credit facilities. The Company believes the
combination of these sources will be sufficient to fund its operations and
satisfy the Company's cash requirements for the next 24 months. If proceeds from
the offering, together with such other sources of funds, are not sufficient to
fund operations until the Company achieves positive cash flow, the Company would
be required to seek additional capital by incurring additional indebtedness or
issuing, in public or private transactions, equity or debt securities. However,
there can be no assurance that suitable debt or equity financing would be
available to the Company.
The Company does not believe the impact of inflation has significantly
affected the Company's operations.
21
<PAGE> 26
BUSINESS
OVERVIEW
APACHE is a leading provider of clinically-based decision support
information systems to the healthcare industry. The Company believes that it is
the only healthcare information company that can provide hospitals and
physicians with patient-specific, concurrent and predictive outcomes information
at the point of care that can be used to assist them in making clinical and
resource utilization decisions. APACHE's products and services address the
information needs of both clinicians and healthcare administrators by enabling
joint access to clinical and cost information, which facilitates both the
containment of costs and the delivery of high-quality care. APACHE's products
and services are focused on high-risk, high-cost patients, such as
cardiovascular care and critical care patients, who typically account for a
disproportionately large share of hospital costs.
INDUSTRY BACKGROUND
The nearly $1 trillion healthcare industry in the United States has
undergone rapid changes during the past decade. Government regulators and the
private sector have instituted various measures intended to lower the rate of
increase in healthcare expenditures, including the institution of prospective
payment programs, reductions in reimbursement rates, discounted fee-for-service
programs and capitation payments. As a result of the continued migration from
fee-for-service towards managed care, significant components of the financial
risk inherent in the provision of healthcare have been transferred from payers
to providers. Providers include hospitals, physicians and integrated delivery
systems ("IDSs"), which are combinations of hospitals and physicians for managed
care contracting purposes. In response to the transfer of financial risk,
healthcare providers have increasingly focused their efforts on reducing costs
while continuing to meet expectations for high-quality care.
Hospitals initially responded to the increasing financial pressure by
pursuing administrative cost savings. These cost savings, such as those
resulting from negotiating discounted purchases and optimizing staff and
inventory, were facilitated in part through the analysis of data generated by
administrative and financial information systems. Although many of these
administrative savings initiatives have been implemented, the financial
pressures on providers continue to increase. The next opportunity to realize
significant savings is in more efficiently managing utilization of clinical
resources, such as controlling the number and type of procedures performed and
the length of a patient's stay. In order to realize such savings while
maintaining the quality of care, providers have sought access to sophisticated
clinical information.
Initial efforts to develop decision support tools were based on the use of
data derived from charge-based information such as billing and claims forms.
Charge-based systems have a number of limitations, including: (i) the lack of
clinical detail that is inherent in charge data; (ii) the lack of statistically
significant comparative clinical information against which individual cases can
be measured; (iii) the retrospective nature of the information, which is unable
to support medical decision makers during the care process; and (iv) clinicians'
skepticism of clinical data derived from financial records. Moreover, such
systems generally have not been designed to focus on high-risk, high-cost
patients, who typically account for a disproportionately large share of hospital
costs.
In recent years, it has become possible to develop clinical decision
support systems that overcome these limitations. Methodologies have been
developed that incorporate complex techniques of data collection and analysis to
allow the assessment and prediction of clinical outcomes, or results, of patient
treatment. Using these methodologies, extensive databases comprised of clinical
outcomes information have been created. The collection of information for these
databases has been made more affordable by the development of integration
technology, which allows the information to be drawn directly from patient
recordkeeping systems. Finally, more powerful software and hardware have become
available to collect, retrieve and analyze patient-specific clinical outcomes
data.
In response to these technological advancements and continued healthcare
industry trends, healthcare providers and suppliers are seeking more
sophisticated, outcomes-based clinical decision support information
22
<PAGE> 27
systems. Such systems could provide timely access to patient-specific and
severity-adjusted clinical outcomes information to assist healthcare providers
in making critical point-of-care decisions. Ultimately, the Company believes
that the availability of decision support tools that measure the current health
status of patients and help predict clinical outcomes would facilitate the
delivery of high-quality care at a lower cost.
THE APACHE SOLUTION
APACHE believes that its products and services address the healthcare
industry's need for sophisticated outcomes-based clinical decision support
information systems. The APACHE solution bridges the gap between the information
needs of clinicians and those of hospital administrators by enabling joint
access to clinical and cost information, which facilitates both the containment
of costs and the delivery of high-quality care. The Company's systems, which
incorporate software, hardware and related consulting services, generate
information to assist providers in making timely and informed clinical resource
utilization and patient care decisions. These clinical decision support systems
are designed to enable providers to:
- Determine appropriate cost-effective treatment plans for individual
patients.
- Compare actual individual patient outcomes with both predicted patient
outcomes and statistically relevant similar hospital, regional and
national norms.
- Analyze the performance of physicians by using clinically-based,
peer-reviewed severity-adjustment methods.
- Analyze and measure quantifiable improvements in the clinical and cost
outcomes of specified groups of patients.
- Relate staffing and bed mix to the severity-adjusted mix of patients in a
hospital unit.
APACHE's products and services are differentiated from other healthcare
decision support systems by the combination of the following factors:
- Detailed Clinical Data. APACHE's products and services utilize detailed
clinical data on a variety of health parameters (e.g., vital signs,
laboratory results and measures of physiological function) and outcomes
data (e.g., adverse occurrences, morbidity and mortality). In addition,
APACHE's products and services utilize administrative and cost data, such
as active treatment data and patient length of stay data.
- Patient-specific, Severity-adjusted Data. APACHE's products and services
utilize clinical and cost data for individual patients, in addition to
patient groups. APACHE's methodologies severity-adjust these data to
enable the assessment of the overall health status of the patient.
Severity adjustment is a technique for weighting the relative factors
affecting the degree of illness of a patient. Physicians use APACHE's
patient-specific clinical decision support systems to develop individual
patient care plans incorporating APACHE's severity-adjusted outcomes
predictions.
- Concurrent, Predictive Outcomes Information. APACHE's systems support
physician decision making by providing outcomes information to the
physician in three timeframes: (i) predictions of the patient's outcomes
(e.g., mortality, adverse occurrences and length of stay); (ii) current
information, such as the patient's daily health status; and (iii)
historical or retrospective information about the patient or groups of
similar patients. In contrast to retrospective systems, APACHE's ability
to provide concurrent information permits the generation of predictive
information during the course of a patient's care, thereby enhancing a
physician's ability to direct treatment resources as the patient's health
status changes.
- Continuum of Care Capability. APACHE's products and services provide
information to the physician throughout a patient's hospital stay by
tracking the patient's outcomes with predictions on clinical and cost
results, both pre- and post-procedure, thereby enabling physicians to
better measure the appropriateness and adequacy of the care.
- High-risk, High-cost Patient Focus. Unlike decision support systems that
focus primarily on general hospital patients, APACHE's systems are
specifically designed to help predict outcomes for high-risk,
23
<PAGE> 28
high-cost patients, such as cardiovascular care and critical care
patients. These patients typically represent a disproportionately large
share of hospital costs.
APACHE's solution is derived from the Company's clinical outcomes
methodologies and proprietary databases.
Clinical Outcomes Methodologies. APACHE's methodologies include algorithms
that apply relative weightings to selected physiological variables to define a
patient's health status. APACHE's methods of measuring variations in a patient's
health status have been utilized in connection with more than 600 peer-reviewed
articles in professional journals. APACHE has acquired rights to and refined
these methodologies, which were originally developed over periods ranging from
six to 18 years by leading academic medical centers such as The George
Washington University Hospital, Dartmouth-Hitchcock Medical Center and The
Cleveland Clinic Foundation. APACHE acquired rights to its first methodology,
the critical care methodology, in 1988 through an exclusive commercial license
agreement with The George Washington University.
Proprietary Databases. The Company's databases include data on a variety of
health parameters, such as vital signs, laboratory results and measures of
physiological function, as well as outcomes data, such as adverse occurrences,
morbidity and mortality. The databases contain information from more than
550,000 patients, many of whom are high-risk, high-cost patients. The Company
created, and continues to refine, the critical care and sub-acute care
databases. APACHE acquired rights to its cardiovascular care and acute care
databases in connection with the acquisition of the rights to related
methodologies and has subsequently expanded and refined these databases.
APACHE's databases are periodically updated with patient data from customers as
well as special studies, with the goal of ensuring that the databases reflect
the results of current medical practice on a national basis.
APACHE's products and services currently include coverage of patients in
the following categories: cardiovascular care, critical care, acute care and
sub-acute care. The cardiovascular care category includes angioplasty, open
heart surgery and cardiac catheterization patients, among others. The critical
care category includes acute myocardial infarction, lung cancer and drug
overdose patients, among others. The acute care category includes congestive
heart failure, stroke and hysterectomy patients, among others. The sub-acute
care category includes emphysema, pneumonia and ventilator-dependent patients,
among others.
THE APACHE STRATEGY
The Company's objective is to become the leading provider of clinical
outcomes data and decision support systems and services to healthcare providers,
suppliers and payers. APACHE intends to achieve this objective through the
implementation of the following strategies:
- Leverage Existing Customer Base. APACHE's comprehensive and integrated
product line provides opportunities for the Company to market additional
products and services to its existing customer base. The modular nature
of APACHE's Medical Cost Management Program ("MCMP") allows healthcare
providers to add to an existing system as APACHE introduces new products
and services or as customer needs expand. The Company believes that many
of its existing Benchmark Study and Consulting Study customers will
purchase the Company's more sophisticated MCMP systems as they experience
the benefits of APACHE's products and services.
- Expand Market Share in the Provider Market. APACHE has provided products
or services to over 500 of the approximately 5,200 community hospitals
throughout the United States and, therefore, believes it has a
significant opportunity to expand its market share. The Company plans to
expand its market share by increasing (i) the range of products and
services offered; (ii) the size of the direct sales force; (iii) its
marketing budget; and (iv) its utilization of distribution relationships.
- Expand Market Share in the Supplier Market and Enter the Payer
Market. APACHE has performed clinical trial studies and disease
management projects for leading pharmaceutical and biotechnology
companies and plans to expand its presence in the supplier market. In
addition, while the Company currently markets its products and services
primarily to providers and suppliers, APACHE intends to pursue
opportunities in the healthcare payer market by leveraging existing
methodologies and databases to develop products and services for
healthcare payers.
24
<PAGE> 29
- Add Methodologies, Databases, Products and Services. APACHE seeks to
acquire, license or develop new methodologies, databases, software and
technologies in order to enhance existing products as well as to offer new
products and services across the continuum of care, both within and
outside of the hospital. In addition to its internal product development
activities, the Company expects to pursue the acquisition of product lines
and medical data resources and will consider the acquisition of
complementary businesses.
- Continue to Develop Relationships with Key Industry Participants. The
Company believes that relationships with key industry participants
enhance APACHE's ability to develop new products, increase penetration of
existing markets and gain access to new markets. The Company has formed a
relationship with Cerner Corporation ("Cerner") pursuant to which Cerner
has agreed to market one of APACHE's methodologies as a component of
Cerner's product line. In addition, the Company cooperates with other
industry participants, such as Hewlett-Packard Company and EMTEK Motorola
Healthcare Company, to incorporate APACHE's software into their critical
care products. APACHE intends to pursue strategic relationships with
other healthcare information systems companies, providers, suppliers and
payers.
APACHE PRODUCTS AND SERVICES
APACHE offers a comprehensive line of integrated clinical decision support
products and services to healthcare providers and suppliers. These products and
services encompass software, hardware, and related consulting services. The
following table summarizes the products and services offered or being developed
by the Company:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NUMBER OF
YEAR CUSTOMER CUSTOMER
PRODUCT/SERVICE INTRODUCED TYPE SALES(1) DESCRIPTION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Medical Cost Management 1992 Hospitals 50 Comprehensive clinical
Program and IDSs decision support system
- --------------------------------------------------------------------------------------------------------------
Outcomes Repository and 1996 Hospitals 2 Collection and integration
Integration Services(2) and IDSs system for a hospital's
clinical and financial data
- --------------------------------------------------------------------------------------------------------------
Enterprise Information 1995 Hospitals 24 Software tool to provide
System ("EIS") and IDSs comparative analysis of a
provider's performance
- --------------------------------------------------------------------------------------------------------------
Benchmark Study 1993 Hospitals 173 Comparative analysis and
and IDSs report of a provider's
clinical and financial
performance
- --------------------------------------------------------------------------------------------------------------
Hand-held Risk Predictor Under Hospitals N/A Portable electronic device
Development used to predict clinical
outcomes at the point of
care
- --------------------------------------------------------------------------------------------------------------
Consulting Studies 1994 Hospitals 11 Clinical process and
management consulting
- --------------------------------------------------------------------------------------------------------------
Supplier Studies 1993 Pharmaceutical 16 Studies that analyze
and Biotechnology clinical trial data and
Companies develop disease management
patient profiles and
outcomes data
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Some customers have purchased more than one product or service.
(2) Available previously only as part of the MCMP.
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<PAGE> 30
Medical Cost Management Program. The MCMP is the centerpiece of APACHE's
family of products and services. It is an integrated decision support system
comprised of software, hardware and related consulting services designed to
provide point-of-care, severity-adjusted clinical and financial information to
physicians within the hospital.
Healthcare providers can use the Company's MCMP system to: (i) manage the
quality and cost of care for high-risk, high-cost patients; (ii) compare actual
individual patient outcomes with both predicted patient outcomes and
statistically relevant similar hospital, regional and national norms; (iii)
analyze and compare the performance of physicians using clinically-based,
peer-reviewed severity-adjustment methods; (iv) analyze and measure quantifiable
improvements in the clinical and cost outcomes of specified groups of patients;
and (v) relate staffing and bed mix to the severity-adjusted mix of patients in
a hospital unit. Through the MCMP, a provider can develop a customized
outcomes-based clinical decision support program. The customer may select from
four care-specific modules: cardiovascular care, critical care, acute care and
sub-acute care. The reports and analyses that customers can produce using the
MCMP include length of stay reviews, physician profiling reports, readmission
reviews and non-surviving outlier reports.
The technical capabilities of the MCMP are combined with a four-step
clinical process improvement strategy that provides clinicians with a structured
approach for using information generated by a Company system to match the
patient's health status with the most appropriate care plan. First, the MCMP
analyzes and compares, initially through a Benchmark Study, the clinical and
financial data of a select group of the provider's patients who all suffer from
the same disease to the best demonstrated practices identified in APACHE's
database. Second, providers combine these guidelines with their patients'
severity-adjusted clinical data to target specific patients for active practice
management. Third, providers utilize the results from this analysis to develop
severity-adjusted guidelines and practice management strategies. In the final
step, the MCMP generates real-time, severity-adjusted information that the
provider can use to improve the cost-effectiveness and appropriateness of an
individual patient's care.
The hub of the MCMP is the Outcomes Repository, which holds the hospital's
relevant clinical and financial data. The Outcomes Repository can interface
electronically with the hospital's existing computerized systems, such as
laboratory, clinical registries, billing, admissions and cost accounting, and is
designed to reduce substantially manual data entry. The Outcomes Repository
interfaces can be real-time, providing current information to APACHE's software
applications. For example, when a laboratory test is completed, the results can
be made immediately available in the Outcomes Repository. The Company currently
offers Outcomes Repository interfaces for most major hospital information
systems, including those offered by HBO & Company, Shared Medical Systems, Inc.,
Cerner and Sunquest Information Systems, Inc.
The EIS is the analysis and reporting software tool that can also provide
the customer with easy access to data in the Outcomes Repository. This
Windows-based system uses point and click technology that requires little
training. The EIS is designed to operate on the desktop personal computers of
administrative and clinical decision makers.
Outcomes Repository and Integration Services. During the first quarter of
1996, the Company introduced the Outcomes Repository and associated services as
a stand-alone product line. It is designed for hospitals or IDSs that have
special integration or data repository requirements.
EIS. In addition to being a fully-integrated component of the MCMP, during
1995, the Company made the EIS available as a stand-alone product. Hospitals and
IDSs that do not purchase a complete MCMP can purchase an EIS to perform
comparative analysis and reporting of data from a stand-alone Outcomes
Repository or clinical data from other sources.
Benchmark Studies. APACHE offers Benchmark Studies that provide an
independent, severity-adjusted assessment of the customer's performance, with
particular focus on high-risk, high-cost patients. The first step of a Benchmark
Study is to gather physiological, outcome and other relevant retrospective data
from a sample of the provider's own patients. These data are then compared to
APACHE's national databases of severity-adjusted clinical information. This
comparison is used to generate a report that shows the provider's
26
<PAGE> 31
performance in rendering patient care in the treatment of a specific medical
condition and allows six levels of normative comparisons of the provider's
practices: best demonstrated practices, optimal practices, similar hospital
practices, regional practices, national practices and international practices.
In addition to using the results of a Benchmark Study as a one-time
"snapshot" of the provider's historical performance, a provider can use the
study as the basis for adjusting its future practices to better align it with
the best demonstrated practices identified by the study. Hospitals can use
Benchmark Study data to identify areas for improvement in clinical practices,
quality and cost performance. Benchmark Studies are currently offered in
cardiovascular care, critical care, acute care and sub-acute care, and they can
serve as an entry point to the MCMP and other APACHE products and services.
Hand-held Risk Predictor. The Company is currently developing this portable
device, which is designed to make APACHE's outcomes predictions available at the
point of care in locations where an MCMP might not be needed (e.g., physicians'
offices). This device will provide severity-adjusted individual patient
predictions designed to assist clinicians in making informed decisions prior to
treatment. The development of this device is being conducted pursuant to an
agreement with one of the Company's healthcare provider customers, who is
currently testing prototype versions of the device. The Company intends to
develop this hand-held product further, to enable wireless access to a
customer's Outcomes Repository.
Consulting Studies. APACHE's clinical and financial consultants work with
existing MCMP customers and others in the following areas: (i) high-risk,
high-cost patient facilities planning and management; (ii) severity-adjusted
care guideline development; (iii) clinical process improvement for specific
diseases; (iv) strategic outcomes planning; (v) organizational and productivity
assessment; and (vi) population-based planning. APACHE's consultants also work
with customers to design and build customized outcomes solutions supporting the
customer's business strategies.
Supplier Studies. The Company offers clinical trial support services to
pharmaceutical and biotechnology companies. Through the use of its methodologies
and proprietary databases, APACHE assists these companies by providing clinical
trial data support for drugs under testing or review for approval by the FDA or
other regulatory authorities. APACHE also utilizes its methodologies and
proprietary databases to assist suppliers of disease management programs in
developing patient profiles and analyzing the outcomes of selected courses of
treatment. These programs, which typically focus on a specific chronic disease
such as congestive heart failure, consist of profiles of typical patients,
criteria for evaluating patient risks and needs, and recommended courses of
treatment. Suppliers of disease management programs can help healthcare
providers more efficiently treat these patients by providing a "prepackaged"
treatment program for common non-acute diseases.
CUSTOMER TRAINING AND SUPPORT
The Company provides training to customers on the use of APACHE's products.
In addition to direct user training, APACHE trains customer representatives to
train their own personnel. Following initial training, the Company provides a
high level of customer support including follow-up training, a toll-free,
24-hour-per-day, seven-day-per-week customer service hotline and periodic
product upgrades. Customers pay an annual support service fee approximately
equal to 15% of the hardware and software portion of the product price for these
ongoing support services.
CUSTOMERS
APACHE currently markets its products and services to two types of
customers: healthcare providers and healthcare suppliers. To date, APACHE has
sold its products and services to more than 280 customers. The Company's
healthcare provider customers, representing more than 500 hospitals worldwide,
are primarily medium to large individual hospitals, hospital systems or
alliances and large physician group practices. The Company's healthcare supplier
customers are primarily pharmaceutical manufacturers and biotechnology
companies. In addition, as the Company increases the range of products and
services offered, the Company intends to market to insurance companies, health
maintenance organizations and other managed care companies, and other healthcare
payers.
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<PAGE> 32
The Company's provider customer base is geographically diverse, including
urban and rural hospitals located primarily throughout the United States. The
Company has also sold an MCMP to a hospital in Australia and consulting services
to hospital groups in the United Kingdom and Japan. APACHE's supplier customers
are located primarily in the United States. While foreign activity has not been
material to date, the Company intends to develop further these markets in the
future.
The Company's provider customers include hospitals within investor-owned
hospital chains, such as Doctor's Hospital of Dallas, a member of Tenet
Healthcare Corporation, and St. Vincent Charity Hospital, a member of
Columbia/HCA Healthcare Corporation; academic and teaching hospitals, such as
The Cleveland Clinic Foundation and The Mayo Foundation; not-for-profit
hospitals within integrated systems, such as Kaiser Foundation Hospitals; and
community hospitals. In addition, APACHE's provider customers include Vencor,
Inc., a multi-facility provider of long-term acute and sub-acute care; medical
professional organizations, such as the American College of Cardiology, with
which the Company recently contracted to provide data analysis and risk modeling
services for approximately 200 hospitals; medical consortiums, such as the
University HealthSystem Consortium, with which the Company recently contracted
to conduct Benchmark Studies at approximately 40 hospitals; and medical
coalitions, such as the Cleveland Health Quality Choice Program.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company believes that the timely development of new products and the
enhancement of existing products and services are important to continue to build
on its competitive position. APACHE releases upgrades and new products on a
periodic basis.
The Company's product development strategy is directed toward creating new
products that: (i) leverage APACHE's databases; (ii) increase the functionality
of current products; (iii) expand coverage along the continuum of care and to
additional disease or procedure groups; and (iv) provide customers with a
selection of decision support systems at various price points. The Company's
products are primarily internally developed software and analytical studies.
Hardware products offered by the Company are sourced from other vendors and
resold by APACHE as components of an integrated system incorporating the
Company's software. The software products are generally built on a client/server
architecture that includes UNIX workstation servers, Windows-based PCs,
graphical user interfaces and other software developed by third-party vendors.
The server hosts a comprehensive data repository using relational database
management system ("RDBMS") technologies and multidimensional database ("MDDB")
technologies. The server can interface with hospital systems, such as the
laboratory, admission and bedside charting systems, and uses the current
versions of the industry standard healthcare information protocols.
In addition, the Company has developed relationships with key industry
participants to enhance its product offerings. For example, the Company has
cooperated with Hewlett-Packard Company and EMTEK Motorola Healthcare Company to
incorporate APACHE's software into their critical care products.
APACHE's consultants offer guidance to the Company's research and
development process by providing current market research regarding customer
preferences. Consulting services build on the Company's databases, software
products and broad disease coverage. As these products and services continue to
evolve, additional consulting applications will be developed and marketed to
existing and new customers.
SALES AND MARKETING
The Company markets and sells its products and services generally through
its seven-person direct sales force, each of whom focuses on a specific
geographic region of the country. The Company has developed a customer profiling
process based upon criteria established by the Company that is designed to
identify healthcare providers that have the greatest opportunities for cost
savings. APACHE's direct sales force targets its marketing efforts at those
healthcare providers that are highlighted through this profiling process.
APACHE believes that the most effective use of its direct sales force in
marketing provider programs is to focus on individual hospitals, typically
having 250 or more licensed beds, hospital systems or alliances and
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<PAGE> 33
large physician group practices. The Company markets some of its provider
programs, particularly Benchmark Studies and the EIS, to smaller individual
hospitals and other healthcare providers through focused print advertising and
telemarketing, as well as through medical professional organizations and medical
consortiums. In addition, the Company has formed a relationship with Cerner
pursuant to which Cerner has agreed to market one of APACHE's methodologies as a
component of Cerner's product line.
APACHE's consulting services are marketed both as part of the MCMP and
separately by the Company's consultants as a stand-alone product. The Company's
supplier programs are marketed by the developers of those programs and other
Company professionals directly to pharmaceutical and biotechnology companies.
The Company intends to use a portion of the proceeds of the offering to
expand its direct sales force from seven to 14 representatives. This increase
will reduce the geographic responsibility for each salesperson, thereby allowing
more intense coverage in each region. In addition, APACHE may rely on strategic
relationships in the future to market certain of its provider programs, both
domestically and internationally.
PROPRIETARY RIGHTS
The Company has made significant investments in the development and
maintenance of its risk-adjustment methodologies and its proprietary clinical
and financial databases and software. The clinical databases maintained by the
Company include a highly detailed level of clinical information that the Company
believes provides a key advantage over competing decision support systems when
combined with APACHE's value-added clinical software. APACHE has
multi-disciplinary clinical and database management personnel that audit, edit
and standardize data from customers and other sources to maintain highly
statistically relevant databases. The Company believes that the sophistication
of its risk-adjustment methodologies, the richness of its corresponding
proprietary databases and the usefulness of its software provide better outcomes
measurements and utilization control than competitive systems.
The Company depends upon a combination of trade secret and copyright laws,
nondisclosure and other contractual provisions and technical measures to protect
its proprietary rights in its methodologies, databases and software. The Company
has not filed any patent applications covering its methodologies and software.
The Company distributes its software products under agreements that grant
customers non-exclusive licenses and contain terms and conditions restricting
the disclosure and use of APACHE's databases or software and prohibiting the
unauthorized reproduction or transfer of its products. In addition, APACHE
attempts to protect the secrecy of its proprietary databases and other trade
secrets and proprietary information through agreements with employees and
consultants. Portions of APACHE's methodologies are, however, available in
scientific literature and bona fide researchers have been granted access to
portions of APACHE's databases for peer review and other research purposes.
The Company also seeks to protect the source code of its software and its
databases as trade secrets and under copyright law. The Company has copyright
registrations for certain of its software, user manuals and databases. The
copyright protection accorded to databases, however, is fairly limited. While
the arrangement and selection of data are protectible, the actual data are not,
and others are free to create databases that perform the same function. The
Company believes, however, that the creation of competing databases would be
very time consuming and costly.
"APACHE" is registered as a trademark and/or service mark in connection
with certain of the Company's current products and services in the United
States, Australia, Benelux, Brazil, France, Germany, Sweden and the United
Kingdom. Applications to register the "APACHE" mark are pending in Canada and
Italy. The Company believes that it has developed substantial goodwill in
connection with its mark as an indicator of quality products and services.
The Company believes that, aside from the various legal protections of its
proprietary information and technologies, factors such as the technological and
creative skills of its personnel and its ongoing reliable product maintenance
and support are integral to establishing and maintaining its leadership position
within the healthcare industry due to the rapid pace of innovation within the
software industry. In addition, although the
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<PAGE> 34
Company believes that its products do not infringe upon the proprietary rights
of third parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that a license or
similar agreement will be available on reasonable terms in the event of an
unfavorable ruling on any such claim.
COMPETITION
The market for healthcare information systems and services is highly
competitive and rapidly changing. The Company believes that the principal
competitive factors for clinical outcomes systems are the quality and depth of
the underlying clinical outcomes databases, the proprietary nature of
methodologies, databases and technical resources, the usefulness of the data and
reports generated by the software, customer service and support, compatibility
with the customer's existing information systems, potential for product
enhancement, vendor reputation, price and the effectiveness of marketing and
sales efforts.
The Company's competitors include other providers of clinical support
systems. Many of the Company's competitors and potential competitors have
greater financial, product development, technical and marketing resources than
the Company, and currently have, or may develop or acquire, substantial
installed customer bases in the healthcare industry. The Company also faces
significant competition from internal information services at individual
hospitals, large hospital alliances, for-profit hospital chains and managed care
companies, many of which have developed their own outcomes databases. However,
the Company's products and services are differentiated from the products and
services offered by the Company's competitors and potential competitors by
virtue of the fact that the Company's products and services, unlike competing
products and services, focus primarily on high-risk, high-cost patients and
provide both concurrent and predictive outcomes information. As the market for
decision support systems develops, additional competitors may enter the market
and competition may intensify. While the Company believes that it has
successfully differentiated itself from competitors, there can be no assurance
that future competition would not have a material adverse effect on the Company.
GOVERNMENT REGULATION
The confidentiality of patient records and the circumstances under which
such records may be released is subject to substantial regulation under state
and federal laws and regulations. To protect patient confidentiality, data
entries to APACHE's databases omit any patient identifiers, including name,
address, hospital and physician. The Company believes that its procedures comply
with the laws and regulations regarding the collection of patient data in
substantially all jurisdictions, but regulations governing patient
confidentiality rights are evolving rapidly and are often difficult to apply.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. This legislation may
require holders of such information to implement security measures that may be
of substantial cost to the Company. There can be no assurance that changes to
state or federal laws would not materially restrict the ability of the Company
to obtain patient information originating from records.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. During the past several years, government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for the Company's customers.
Healthcare industry participants may react to these proposals by curtailing or
deferring investments, including investments in the Company's products. The
Company cannot predict what impact, if any, such factors may have on its
business, financial condition and results of operations or on the price of the
Common Stock.
Certain products, including software applications, intended for use in the
diagnosis of disease or other conditions, or in the cure, treatment, mitigation
or prevention of disease, are subject to regulation by the FDA under the Federal
Food, Drug and Cosmetic Act of 1938 (the "FDCA"), as amended. The FDCA imposes
substantial regulatory controls over the manufacturing, testing, labeling, sale,
distribution, marketing and
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<PAGE> 35
promotion of medical devices and other related activities. These regulatory
controls can include, for example, compliance with the following: manufacturer
establishment registration and device listing; current good manufacturing
practices; completion of premarket notification or premarket approval; medical
device adverse event reporting; and general controls over misbranding and
adulteration. Violations of the FDCA can result in severe criminal and civil
penalties, and other sanctions, including, but not limited to, product seizure,
recall, repair or refund orders, withdrawal or denial of premarket notifications
and approvals, and denial or suspension of government contracts, and injunctions
against unlawful product manufacture, labeling, promotion, and distribution or
other activities.
In its 1989 Policy for the Regulation of Computer Products (the "1989
Policy Statement"), the FDA stated that it intended to exempt certain clinical
decision support software products from a number of regulatory controls. Under
the 1989 Policy Statement, the FDA stated that it intended to promulgate
regulations exempting decision support software products that are intended to
involve "competent human intervention before any impact on human health occurs
(e.g., where clinical judgment and experience can be used to check and interpret
a system's output)" from the following controls: manufacturer establishment
registration and device listing, premarket notification, and compliance with the
medical device reporting and current good manufacturing practice regulations. In
the 1989 Policy Statement, the FDA stated that until it promulgated regulations
implementing the exemptions, manufacturers of eligible decision support software
products would not be required to comply with those controls.
Since issuing the 1989 Policy Statement, the FDA has neither promulgated
the exemption regulations discussed in the 1989 Policy Statement nor actively
sought to enforce compliance with the controls discussed in such Policy
Statement. Furthermore, the FDA has referred to the 1989 Policy Statement in
official presentations regarding software regulation and in decisions and
opinions regarding the regulatory status of various products. Over the last few
years, however, the FDA has stated that it intends to revise the 1989 Policy
Statement and to base exemptions from regulatory controls, if any, upon a
product specific "risk factor" analysis. The risk factors the FDA has proposed
using include: (i) seriousness of the disease to be diagnosed or treated; (ii)
time frame for use of the information; (iii) concordance with accepted medical
practice; (iv) format of data and its presentation; (v) individualized versus
aggregate patient care recommendations; and (vi) clarity of algorithms used in
the software. Given the formative state of the FDA's evaluation and possible
revision of the 1989 Policy Statement, there can be no assurance as to the
criteria or application of such revisions, if any.
The Company's products are intended to assist health care providers analyze
economic and quality data related to patient care and expected outcomes in order
to maximize or monitor the cost-effectiveness of general treatment plans and
practice guidelines. These products are not intended to provide specific
diagnostic data or results or affect the use of specific therapeutic
interventions. As such, the Company believes that its products are not medical
devices under the FDCA and, thus, are not subject to the controls imposed on
manufacturers of medical devices. The Company further believes that to the
extent that its products are determined to be medical devices, they fall within
the exemptions for decision support systems provided by the 1989 Policy
Statement. The Company has not taken action to comply with the requirements that
would otherwise apply if the Company's products were non-exempt medical devices.
Since 1992, the Company's products have been widely marketed and have been
reviewed or evaluated in the medical literature. The FDA has neither requested
that the Company take any action to comply with any controls under the FDCA nor
notified the Company that it is not in compliance with any such controls. The
Company is not aware of the FDA requiring other developers of similar products
to take any action to comply with any controls under the FDCA, or of the FDA
notifying such developers that they are not in compliance with any such controls
with respect to those similar products.
Nevertheless, there can be no assurance that the FDA will not make such a
request or take other action to require the Company to comply with any or all
current or future controls applicable to medical devices. There can be no
assurance that, if such a request were made or other action were taken, the
Company could comply in a timely manner, if at all, or that any failure to
comply would not have a material adverse effect on the Company's business,
financial condition, results of operations or on the price of the Common Stock,
or
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<PAGE> 36
that the Company would not be subjected to significant penalties or other
sanctions. There can be no assurance that the FDA will continue any or all of
the exemptions provided in the 1989 Policy Statement, or in a revised policy
statement, if any, or that the FDA will promulgate regulations formally
implementing such exemptions. There can be no assurance that the Company's
current or future products will qualify for future exemptions, if any, nor can
there any assurance that any future requirements will not have a material
adverse effect on the Company's business, financial condition, results of
operations or on the price of the Common Stock.
EMPLOYEES
As of March 31, 1996, the Company employed a total of 64 full-time
employees. None of the Company's employees is represented by a labor union. The
Company has experienced no work stoppages and believes that its employee
relations are excellent.
FACILITIES
The Company occupies approximately 21,000 square feet of space at its
headquarters in McLean, Virginia, under a lease expiring November 1999. The
Company also leases office space for two regional sales offices.
LEGAL PROCEEDINGS
The Company is a defendant from time to time in lawsuits incidental to its
business. The Company is not currently subject to, and none of its properties is
subject to, any material legal proceedings.
RECENT DEVELOPMENTS
On June 3, 1996, the Company entered into a marketing agreement with an
affiliate of Premier Inc. ("Premier"), which provides buying services to a group
of approximately 1,700 hospitals. Pursuant to the agreement, the Premier
affiliate will designate the Company as the exclusive supplier to the hospitals
purchasing through the Premier buying group of clinically-based outcomes data
systems for high-risk, high-cost patients, including critical care,
cardiovascular care and medical-surgical care patients, through December 31,
1999. In return, the Company has agreed to provide certain discounts to these
hospitals and, following the consummation of the offering, will grant to the
Premier affiliate three options to purchase up to a total of 366,294 shares of
Common Stock. Each of the options will have a ten year term. One of the options
will vest upon grant and will permit the Premier affiliate to purchase 65,488
shares of Common Stock at an exercise price of $8.18 per share. The other two
options will vest, if at all, based on the volume of products and services sold
to Premier hospitals and allow the Premier affiliate to purchase up to 300,806
shares of Common Stock at an exercise price of $13.00 per share. The Company has
also entered into a registration rights agreement with the Premier affiliate
pursuant to which the Company has undertaken to effect at least one registration
of Common Stock per year for the next four years that may include shares held by
the Premier affiliate as well as by other Company stockholders with existing
registration rights. In addition, this agreement gives the Premier affiliate
certain other "piggyback" and demand registration rights.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- ---- ------------------------------------------------------
<S> <C> <C>
Gerald E. Bisbee, Jr., Ph.D.(3)....... 53 Chairman and Chief Executive Officer
Robert E. Ciri........................ 44 President and Chief Operating Officer
Elizabeth A. Draper, R.N., M.S........ 49 Executive Vice President and Secretary
James C. Flounlacker.................. 35 Vice President, Client Services
Sherrie L. Jones...................... 40 Vice President, Sales and Marketing
Stephen C. Strategos.................. 39 Vice President, Systems Engineering
Douglas I. Thompson................... 37 Vice President, Consulting Services
Brion D. Umidi........................ 33 Vice President, Finance and Administration, Treasurer
Edward J. Connors..................... 67 Director
Thomas W. Hodson(1)(3)................ 49 Director
William A. Knaus, M.D.(2)............. 49 Director
Lawrence S. Lewin..................... 58 Director
Neal L. Patterson(1)(2)............... 49 Director
Stephen W. Ritterbush,
Ph.D.(1)(2)(3)...................... 49 Director
Francis G. Ziegler(1)(2).............. 55 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Capital Financing Committee.
GERALD E. BISBEE, JR., PH.D. has been Chairman and Chief Executive Officer
of the Company since December 1989. Before joining APACHE, Dr. Bisbee was the
Chairman and CEO of the Hanger Orthopedic Group, Inc. which he created and
financed. He founded and managed the Health Care Group of the Corporate Finance
Department of Kidder, Peabody & Co., leaving to found Hanger in 1988. From 1978
until moving to Kidder, Peabody in 1984, he was President of the Hospital
Research and Educational Trust, a new venture and product development company
affiliated with the American Hospital Association. Dr. Bisbee also managed the
Yale University Health Services, which included a 22,000-member health
maintenance organization. He is a director of Cerner Corporation, Yamaichi
Funds, Inc. and Geriatric & Medical Companies, Inc. Dr. Bisbee received his B.A.
from North Central College, his M.B.A. from the Wharton School of the University
of Pennsylvania and his Ph.D. from Yale University, where his dissertation was
instrumental in the development of Diagnosis Related Groups ("DRGs").
ROBERT E. CIRI has been President and Chief Operating Officer of APACHE
since February 1996. For 15 years prior to joining APACHE, Mr. Ciri was employed
by Hewlett-Packard Company in the area of clinical systems and healthcare
information systems. From 1989 to 1995, he served as Hewlett-Packard's National
and North American Field Operations Manager of internally developed
applications, consulting, hardware, and services. From 1995 until joining
APACHE, he served as part of a special task force developing strategic business
plans for Hewlett-Packard's healthcare operation and integrated health system
account structure. Before joining Hewlett-Packard, Mr. Ciri was a hospital
administrator in New York, where he was involved with both inpatient and
ambulatory care programs. In addition to a B.S. from Rensselaer Polytechnic
Institute and an M.S. in medical biology and education, he has done
post-graduate work in an M.P.A. in healthcare administration and finance in the
executive program at the Wharton School of the University of Pennsylvania.
ELIZABETH A. DRAPER, R.N., M.S. has been Executive Vice President and
Secretary of the Company since March 1988 and served as a director from the
founding of the Company until December 1994. From 1981 to 1988, Ms. Draper was
Senior Research Scientist at the ICU Research Unit at George Washington
University,
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where she was a founding member of the APACHE team. From 1976 until 1988, she
was an adjunct professor of physiology at the Graduate School of Nursing at The
Catholic University. Ms. Draper has 12 years of clinical experience in intensive
care nursing. She received her B.S. in nursing from the University of
Massachusetts and an M.S. in physiology from George Washington University.
JAMES C. FLOUNLACKER has been Vice President, Client Services of the
Company since April 1995. He joined APACHE in January of 1994 as Director of
Client Services. From September of 1991 until joining APACHE, Mr. Flounlacker
was Manager of Installation Services at American International Healthcare, Inc.,
where he lead a team of Project Managers responsible for installation and
implementation of a managed healthcare information system. From January 1991
until September 1991, Mr. Flounlacker was Manager of Acquisitions Development of
Columbia Freestate Health Plan, a health maintenance organization. Mr.
Flounlacker received his B.A. in English from the University of Maryland, and
his M.B.A. from Loyola College in Baltimore, Maryland.
SHERRIE L. JONES has served as Vice President, Sales and Marketing since
February 1996. From October 1994 until February 1996, she held the position of
Vice President, Marketing. Ms. Jones joined APACHE in early 1990 as a marketing
consultant responsible for assisting the design plan and market definition for
the APACHE Critical Care System, and later that year she assumed a permanent
position as a sales representative. Prior to joining APACHE, she spent 12 years
with Datapoint Corporation in the areas of accounting, finance, contracts
management and sales. Ms. Jones holds a B.A. in accounting from the University
of Texas.
STEPHEN C. STRATEGOS has been Vice President, Systems Engineering since
February of 1995. He joined APACHE in May 1991 as Director of Systems
Engineering. He has been responsible for the development and technical quality
of all software products since joining the Company. From 1990 until joining
APACHE, Mr. Strategos was the Director of Software Development at I-NET, Inc. in
Bethesda, Maryland, where he managed software development activities for the
Network Management division. Mr. Strategos received a B.A. in biology from State
University College at Oswego, New York and an M.S. in computer science from
State University of New York at Stony Brook.
DOUGLAS I. THOMPSON has served as Vice President, Consulting Services since
August 1993. From the time he joined APACHE until August 1993, he acted as Vice
President, Client Services. Mr. Thompson was a manager at Ernst & Young L.L.P.
in Phoenix, Arizona from 1989 until joining APACHE. While at Ernst & Young, he
led process improvement projects for hospital clients, which involved consulting
with physician groups on marketing, operations and organizational structure
issues, and prepared business plans for startup healthcare firms. Before joining
Ernst & Young, Mr. Thompson was employed from 1987 to 1988 by APM, Inc. in both
New York City and San Francisco as a consultant for healthcare clients. Mr.
Thompson received an M.B.A. in marketing from Columbia University and a B.S. in
business from Brigham Young University.
BRION D. UMIDI has been Vice President, Finance and Administration, and
Treasurer of the Company since February 1991. From 1987 until joining APACHE, he
was a commercial finance loan officer at the Mercantile Safe Deposit and Trust
Company in Baltimore, Maryland and an auditor with MNC Financial, Inc. in
Baltimore, Maryland from 1986 to 1987. He received his B.B.A. from Loyola
College in Baltimore, Maryland, where he majored in accounting and finance.
EDWARD J. CONNORS has served as a director of the Company since April 1990.
In 1993, he retired as the President and Chief Executive Officer of Mercy Health
Services, where he had been employed since 1976, and he is currently acting as
President Emeritus. Since 1993, Mr. Connors has been the President of
Connors/Roberts & Associates, a healthcare consulting firm located in
Morrisville, Vermont. He has also held academic and management leadership
positions at the University of Michigan and its hospital in Ann Arbor and the
University of Wisconsin Hospital in Madison. Mr. Connors has served as chair of
the AHA Board of Trustees and as chair of the American Healthcare Systems Board
of Governors. Mr. Connors has served as a Commissioner of the Joint Commission
on Accreditation of Healthcare Organizations Board of Commissioners and on the
Board of the American Hospital Association's Hospital Research and Educational
Trust. Currently, Mr. Connors serves on the Board of Trustees for the Eastern
Mercy Health System in
34
<PAGE> 39
Radnor, Pennsylvania, the Sisters of Providence Health System in Springfield,
Massachusetts, and Trinity College in Burlington, Vermont. Effective January 1,
1995, Mr. Connors assumed the responsibilities of Chairman of the Board of
Trustees of Fletcher Allen Health Care in Burlington, Vermont. In 1991, Mr.
Connors was elected to membership in the Institute of Medicine of the National
Academy of Science. Mr. Connors holds an M.H.A. from the University of
Minnesota.
THOMAS W. HODSON has served as a director of APACHE since December 1994 and
has been the Senior Vice President, Chief Financial Officer and a director of
Caremark International Inc. since August 1992. Caremark was spun off in 1992
from Baxter International, Inc., a manufacturer and marketer of healthcare
products, where Mr. Hodson had been Group Vice President for the Alternate Site
businesses from April 1992 until November 1992. From 1990 until April 1992, Mr.
Hodson was a Senior Vice President of Baxter, responsible for financial
relations, strategic planning, acquisitions and divestitures and corporate
communications. He holds a B.S. in business administration and economics from
Lehigh University and an M.B.A. from the Harvard Business School.
WILLIAM A. KNAUS, M.D. was a founder of the Company and currently serves as
the Company's Chief Scientific Advisor. He has been a director of the Company
since December 1994. Dr. Knaus is the Evelyn Troop Hobson Professor and Chairman
of the Department of Health Evaluation Sciences of the ICU at The University of
Virginia School of Medicine and a Fellow of the American College of Physicians.
He was the founder and, from 1978 to October 1995, a director of the ICU
Research Unit at George Washington University and developer of the APACHE
prognostic scoring system. Dr. Knaus has been honored with an appointment as a
professor at the University of Paris as well as numerous visiting lectureships
at universities in Western Europe, New Zealand and Australia. He is a
distinguished alumnus of both Widener and West Virginia Universities.
LAWRENCE S. LEWIN has been a director of the Company since December 1989
and has acted as the Chief Executive Officer and Chairman of Lewin-VHI, a
healthcare policy and management consulting firm, since December 1992. From 1987
until founding Lewin-VHI, he served as the Chief Executive Officer of Lewin-ICF,
a healthcare policy consulting firm. He founded Lewin and Associates, Inc. in
1970. He serves as a Trustee of Intermountain Health Care, Inc. and is a member
of the Advisory Board of Hambrecht & Quist Healthcare Investors and Life
Sciences Funds. Mr. Lewin holds an A.B. from Princeton's Woodrow Wilson School
of Public and International Affairs and an M.B.A. from the Harvard Business
School where he was a Baker Scholar.
NEAL L. PATTERSON has served as a director of APACHE since December 1989.
In 1980, Mr. Patterson was a founder of Cerner Corporation and has held the
position of its Chairman and Chief Executive Officer since 1986. He has played
an instrumental role in the development of the Healthcare Network Architecture,
which forms the basis for all Cerner systems, as well as the design of
individual products. Mr. Patterson holds a B.S. in finance and an M.B.A. from
Oklahoma State University.
STEPHEN W. RITTERBUSH, PH.D. has served as a director of APACHE since
December 1989. He is managing general partner of Fairfax Partners/The Venture
Fund of Washington, L.P., a venture capital fund, which he co-founded in 1989.
From 1986 to 1990, he was a director and an officer of ICF Kaiser International,
Inc., an environmental and remedial engineering firm. Prior to 1986, Dr.
Ritterbush served as President and Chief Executive Officer of Arthur D. Little
Far East, Inc., in Singapore. He holds a B.S. in engineering and a B.A. in
political science from Union College, in Schenectady, New York, an M.S. in
geophysics from the East West Center of the University of Hawaii, and an M.A.
and Ph.D. in international economics from the Fletcher School of Law and
Diplomacy of Tufts and Harvard Universities.
FRANCIS G. ZIEGLER has been a director of the Company since December 1994
and has acted as the President and Chief Executive Officer of Claneil
Enterprises, Inc., a privately owned holding company, since January 1993. He
joined Claneil in 1993 after thirty years as an operations and marketing
executive with Johnson & Johnson, where he served as President of five domestic
and international subsidiaries. Mr. Ziegler holds a B.S. in economics from St.
Peter's College, and attended the University of Santa Clara Business School, as
well as Advanced Management Programs at the Harvard and Columbia Business
Schools.
35
<PAGE> 40
ELECTION OF DIRECTORS
All of the current directors were elected to the Board of Directors
pursuant to a Stockholders Agreement, dated December 28, 1995, or its
predecessor agreements and serve for one-year terms or until their successors
are elected and qualified. The Stockholders Agreement, including all provisions
governing composition and election of the Board of Directors, will terminate
upon the closing of this offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has (i) an Audit Committee that reviews the results
and scope of the annual audit and other services provided by the Company's
independent public accountants; (ii) a Compensation Committee that makes
recommendations concerning salaries and incentive compensation for employees of
the Company; and (iii) a Capital Financing Committee that is responsible for
investigating and securing capital financing. The Company's Board of Directors
has designated the Compensation Committee as the administrator of the Company's
Stock Option Plan described below.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers or
employees of the Company are entitled to reimbursement of expenses for attending
each meeting of the Board of Directors and each meeting of any committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
following individuals for services rendered to the Company during the fiscal
year ended December 31, 1995: (i) the Chief Executive Officer ("CEO") and (ii)
the Company's four other most highly compensated executive officers (the CEO and
those officers are referred to herein collectively as the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL ALL OTHER
COMPENSATION COMPENSATION
------------ ------------
NAME AND PRINCIPAL POSITION SALARY($) ($)
- ------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Gerald E. Bisbee, Jr., Ph.D. -- Chairman and Chief Executive
Officer.......................................................... 150,000 2,598(1)
James L. Oakes, Jr. -- Chief Operating Officer(2).................. 144,000 --
Judith Hedstrom -- Vice President, Business Development(2)......... 109,979 --
Sherrie L. Jones -- Vice President, Sales and Marketing............ 108,045 --
Elizabeth A. Draper, R.N., M.S. -- Executive Vice President........ 106,000 --
</TABLE>
- -------------------------
(1) Consists of premiums paid on a life insurance policy.
(2) Mr. Oakes' employment terminated in April 1996. Ms. Hedstrom's employment
terminated in February 1996.
OPTION GRANTS
None of the Named Executive Officers was granted stock options during the
fiscal year ended December 31, 1995.
FISCAL YEAR-END VALUES
None of the Named Executive Officers exercised any stock options during
fiscal year 1995. The following table provides information regarding stock
options held by the Named Executive Officers as of the end of fiscal year 1995.
36
<PAGE> 41
OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT DECEMBER 31, 1995 OPTIONS AT DECEMBER 31, 1995(1)
------------------------------ --------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
- ---------------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Gerald E. Bisbee, Jr., Ph.D....... 377,449 22,728 2,339,755 107,903
James L. Oakes, Jr................ 17,483 52,449 -- --
Judith Hedstrom................... 18,064 16,902 16,537 15,469
Sherrie L. Jones.................. 5,766 15,214 -- --
Elizabeth A. Draper, R.N., M.S.... -- -- -- --
</TABLE>
- ------------------------------
(1) Value is calculated by subtracting the exercise price per share from $8.18,
the estimated fair market value at December 31, 1995 as determined by the
Board of Directors, and multiplying the result by the number of shares
subject to the option.
EMPLOYEE BENEFIT PLANS
Stock Option Plan
The Stock Option Plan was adopted by the Company's Board of Directors and
approved by the Company's stockholders on November 8, 1990. The Stock Option
Plan was amended and restated in April 1996. The Company has reserved 1,700,000
shares of Common Stock for issuance under the Stock Option Plan. Unless
terminated sooner by the Board of Directors, the Stock Option Plan will
terminate in April 2006.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. The Committee has the authority and discretion, subject to
the provisions of the Stock Option Plan, to select persons to whom options will
be granted, to designate the number of shares to be covered by options, to
specify the type of consideration to be paid to the Company, and to establish
all other terms and conditions of each stock option.
The Stock Option Plan provides for the grant of stock options to officers
and employees of the Company or its subsidiaries. Options granted under the
Stock Option Plan may be qualified or non-qualified stock options. The exercise
price for a stock option may not be less than the fair market value of the
Company's Common Stock on the date of grant. Stock options granted under the
Stock Option Plan may not be transferred other than by will or by the laws of
descent and distribution. Upon the occurrence of a Change of Control, as defined
in the Stock Option Plan, all outstanding unvested options under the Stock
Option Plan immediately vest.
Director Option Plan
In April 1996, the Company adopted the Director Option Plan, pursuant to
which non-employee directors of the Company will receive options to purchase
2,500 shares of Common Stock for each year of service. The exercise price of
such options shall be at the fair market value of the Company's Common Stock on
the date of grant. Stock options granted under the Director Option Plan may not
be transferred other than by will or by the laws of descent and distribution.
The Company has reserved 70,000 shares of Common Stock for issuance under the
Director Option Plan. The Director Option Plan may be terminated by the Board of
Directors at any time. Upon the occurrence of a Change of Control, as defined in
the Director Option Plan, all outstanding unvested options under the Director
Option Plan immediately vest.
37
<PAGE> 42
CERTAIN TRANSACTIONS
On February 23, 1995 and August 17, 1995, Caremark International Inc.
("Caremark") entered into convertible note agreements with the Company, pursuant
to which Caremark loaned $600,000 and $200,000, respectively, to the Company.
Caremark received warrants to purchase 119,881 shares of Common Stock at $1.43
per share and 24,452 shares of Common Stock at $8.18 per share in connection
with these loans. In December 1995, Caremark converted both loans into an
aggregate of 27,999 shares of Series F Convertible Preferred Stock, which shares
will be converted automatically at the closing of this offering into 97,899
shares of Common Stock. On an as-if converted basis, Caremark owns more than 5%
of the outstanding Common Stock of the Company, and Thomas W. Hodson, a director
of the Company, is Senior Vice President and Chief Financial Officer of
Caremark.
On February 24, 1995 and August 17, 1995, Benefit Capital Management
Corporation as Investment Manager for the Prudential Insurance Company of
America ("Benefit Capital") entered into convertible note agreements with the
Company pursuant to which Benefit Capital loaned $250,000 and $200,000,
respectively, to the Company. Benefit Capital received warrants to purchase
49,950 shares of Common Stock at $1.43 per share and 24,452 shares of Common
Stock at $8.18 per share, in connection with these loans. In December 1995, the
Company prepaid the $200,000 loan. The $250,000 loan is due and payable on
December 31, 1996, is non-interest bearing and is convertible at maturity into
30,458 shares of Common Stock. On an as-if converted basis, Benefit Capital owns
more than 5% of the outstanding Common Stock of the Company.
On April 16, 1995 and August 17, 1995, New York Life Insurance Company
("New York Life") entered into convertible note agreements with the Company,
pursuant to which New York Life loaned $800,000 and $100,000, respectively, to
the Company. New York Life received warrants to purchase 159,841 shares of
Common Stock at $1.43 per share and 12,226 shares of Common Stock at $8.18 per
share in connection with these loans. In December 1995, the Company prepaid the
$100,000 loan and New York Life agreed to extend the due date of the $800,000
loan from December 31, 1996 to December 31, 1997, in consideration of the
payment of interest on such loan at the per annum rate of 10% from and after
January 1, 1996. Prior to January 1, 1996, such loan had been non-interest
bearing. New York Life will convert the $800,000 loan into 97,805 shares of
Common Stock at the closing of this offering. On an as-if converted basis, New
York Life owns more than 5% of the outstanding Common Stock of the Company.
On February 24, 1995 and August 17, 1995, LHC Corporation ("LHC") entered
into convertible note agreements with the Company, pursuant to which LHC loaned
$100,000 and $100,000, respectively, to the Company. LHC received warrants to
purchase 19,981 shares of Common Stock at $1.43 per share and 12,226 shares of
Common Stock at $8.18 per share in connection with these loans. In December
1995, LHC agreed to extend the due date of both loans from December 31, 1996 to
December 31, 1997, in consideration of the payment of interest on such loans at
the per annum rate of 10% from and after January 1, 1996. Prior to January 1,
1996, the first $100,000 loan had been non-interest bearing and the second
$100,000 loan had borne interest at the prime rate plus 2%. LHC will convert
these loans into 24,452 shares of Common Stock at the closing of this offering.
Francis G. Ziegler, a director of the Company, is Chairman of LHC.
In connection with the Company's private placement of Series E Convertible
Preferred Stock, the Company issued a warrant to the placement agent, Allen &
Company Incorporated ("Allen"), which gives Allen the right to purchase 36,713
shares of Common Stock at a price of $8.18 per share. On an as-if converted
basis, including the warrant, Allen owns more than 5% of the outstanding Common
Stock of the Company.
In February 1995, the Company entered into an agreement with Cerner
Corporation ("Cerner") by which Cerner may incorporate certain of the Company's
proprietary methodologies into Cerner products and license such products to end
users in return for royalty payments to the Company. Cerner made a payment of
$250,000 against future royalties. Neal L. Patterson, a director of the Company,
is the Chairman and Chief Executive Officer of Cerner Corporation.
Each of the transactions described above was a negotiated transaction and
was approved by a disinterested majority of the Company's Board of Directors. In
addition, the Company believes that each of these transactions was fair to the
Company and on terms no less favorable than would have been available in similar
transactions with unaffiliated third parties.
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<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock (including shares of
Common Stock issuable upon the Recapitalization Transactions) as of March 31,
1996, and as adjusted to give effect to the sale of shares of Common Stock
offered hereby, by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer and (iv) all of the Company's
executive officers and directors as a group. Except as indicated in the
footnotes to the table, the Company believes that the persons named in the table
have sole voting and investment power with respect to the shares of Common Stock
indicated:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF TOTAL
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
OWNED(1) OFFERING OFFERING
------------ ---------- ---------
<S> <C> <C> <C>
5% STOCKHOLDERS
Caremark International Inc.(2)................................. 866,925 18.5 13.0
Benefit Capital Management Corporation(3)...................... 582,487 12.6 8.8
Baxter Healthcare Corporation(4)............................... 564,067 12.4 8.6
New York Life Insurance Company(5)............................. 460,405 9.8 6.9
Fairfax Partners/The Venture Fund of Washington, L.P.(6)....... 454,546 10.0 6.9
Allen & Company Incorporated(7)................................ 250,245 5.5 3.8
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Gerald E. Bisbee, Jr., Ph.D.(8)................................ 400,177 8.1 5.8
James L. Oakes, Jr.(9)......................................... 32,780 * *
Judith S. Hedstrom(10)......................................... 18,064 * *
Sherrie L. Jones(11)........................................... 5,766 * *
Elizabeth A. Draper, R.N., M.S................................. 176,521 3.9 2.7
Edward J. Connors(12).......................................... 10,490 * *
Thomas W. Hodson(13)........................................... 3,497 * *
William A. Knaus, M.D.(14)..................................... 405,752 8.9 6.2
Lawrence S. Lewin(15).......................................... 10,490 * *
Neal L. Patterson(16).......................................... 10,490 * *
Stephen W. Ritterbush, Ph.D.(17)............................... 10,490 * *
Francis G. Ziegler(18)......................................... 3,497 * *
All directors and executive officers as a group (15
persons)(13),(16),(17),(18),(19)............................. 1,173,006 22.8 16.4
</TABLE>
- ------------------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares listed in the table.
Share ownership information includes shares of Common Stock issuable
pursuant to outstanding options that may be exercised within 60 days after
March 31, 1996.
(2) Includes 144,333 shares issuable upon exercise of vested warrants. The
address of Caremark is 2215 Sanders Road, Suite 400, Northbrook, Illinois
60062. Mr. Hodson, a director of the Company, is the Senior Vice President,
Chief Financial Officer and a director of Caremark.
(3) Includes 74,402 shares issuable upon exercise of vested warrants. Benefit
Capital Management Corporation holds all shares and warrants in its
capacity as Investment Manager for the Prudential Insurance Company of
America Separate Account #VCA-GA-5298 and disclaims beneficial ownership of
all such shares and warrants. The address of Benefit Capital Management
Corporation is 39 Old Ridgebury Road, Danbury, Connecticut 06817.
(4) The address of Baxter Healthcare Corporation is 17221 Red Hill Avenue,
Irvine, California 92714.
(5) Includes 172,067 shares issuable upon exercise of vested warrants. The
address of New York Life Insurance Company is 51 Madison Avenue, New York,
New York 10010.
(6) Includes 17,483 shares issuable upon exercise of a vested warrant. The
address of Fairfax Partners/The Venture Fund of Washington, L.P. is 1568
Spring Hill Road, Suite 200, McLean, Virginia 22102.
39
<PAGE> 44
Mr. Ritterbush, a director of the Company, is the managing general partner
of Fairfax Partners/The Venture Fund of Washington, L.P.
(7) Includes 36,713 shares issuable upon exercise of a vested warrant. Allen
disclaims beneficial ownership of 8,812 of such shares. Allen also
disclaims beneficial ownership of 5,504 shares of the 250,245 shares listed
above, which are held by Allen as nominee for certain of its officers and
directors. Does not include 288,204 shares beneficially owned by other
officers, directors and related parties of Allen. The address of Allen is
711 Fifth Avenue, New York, New York 10022.
(8) Consists of 400,177 shares issuable upon exercise of vested options. Dr.
Bisbee's address is c/o APACHE Medical Systems, Inc., 1650 Tysons
Boulevard, McLean, Virginia 22102.
(9) Consists of 32,780 shares issuable upon exercise of vested options.
(10) Consists of 18,066 shares issuable upon exercise of vested options.
(11) Consists of 5,770 shares issuable upon exercise of vested options.
(12) Consists of 10,490 shares issuable upon exercise of vested options.
(13) Consists of 3,497 shares issuable upon the exercise of vested options. Mr.
Hodson disclaims all beneficial ownership of the 866,925 shares owned or to
be owned of record by Caremark Inc.
(14) Dr. Knaus' address is c/o Department of Health Evaluation Sciences, Box
600, University of Virginia School of Medicine, Charlottesville, Virginia
22908.
(15) Consists of 10,490 shares issuable upon exercise of a vested option.
(16) Consists of 10,490 shares issuable upon exercise of a vested option. Mr.
Patterson disclaims beneficial ownership of the 182,262 shares owned or to
be owned of record by Cerner Corporation.
(17) Consists of 10,490 shares issuable upon exercise of a vested option. Dr.
Ritterbush disclaims beneficial ownership of the 454,546 shares owned or to
be owned of record by Fairfax Partners/The Venture Fund of Washington, L.P.
(18) Consists of 3,497 shares issuable upon exercise of a vested option. Mr.
Ziegler disclaims beneficial ownership of the 191,113 shares owned or to be
owned of record by LHC Corporation.
(19) Includes 590,733 shares issuable upon exercise of vested options and
options that will vest within 60 days.
40
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of the offering made hereby, the
authorized capital stock of the Company will consist of 30,000,000 shares of
Common Stock, par value $.01 per share, and 1,543,704 shares of preferred stock,
par value $.01 per share.
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock. As of
March 31, 1996, the Company had outstanding 1,075,575 shares of Common Stock and
had 13 holders of record of the Common Stock. Upon the consummation of the
offering made hereby, there will be 6,549,435 shares of Common Stock outstanding
after giving effect to (i) the sale of the shares of Common Stock offered
hereby, (ii) the automatic conversion of 200,000 outstanding shares of Series A
Convertible Preferred Stock, 140,754 outstanding shares of Series B Convertible
Preferred Stock, 118,110 outstanding shares of Series C Convertible Preferred
Stock, 209,994 outstanding shares of Series D Convertible Preferred Stock,
174,995 outstanding shares of Series E Convertible Preferred Stock and 27,999
outstanding shares of Series F Convertible Preferred Stock into an aggregate of
3,294,519 shares of Common Stock, (iii) the conversion of certain promissory
notes having an aggregate principal amount of $1,000,000 into an aggregate of
122,257 shares of Common Stock and (iv) the payment of $733,350 of accumulated
dividends through the issuance of an aggregate of 56,413 shares of Common Stock.
Such total excludes shares issuable upon the exercise of outstanding options and
warrants. Each stockholder of record is entitled to one vote for each
outstanding share of Common Stock owned by him on every matter properly
submitted to the stockholders for their vote.
The holders of Common Stock are entitled to receive ratably such dividends
as are declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock have the right to a ratable
portion of assets remaining after payment of liabilities. Holders of Common
Stock have neither preemptive rights nor rights to convert their Common Stock
into any other securities and are not subject to future calls or assessments by
the Company. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are, and the shares
offered hereby upon issuance and sale will be, fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of this offering all of the issued and outstanding
shares of the preferred stock will be converted into 3,294,519 shares of Common
Stock. Following such conversion, the Board of Directors of the Company may not
authorize the issuance of shares of preferred stock.
WARRANTS
In connection with the Company's private placement of Series E Convertible
Preferred Stock, the Company issued a warrant to the placement agent, Allen,
which gives Allen the right to purchase 36,713 shares of Common Stock at a price
of $8.18 per share. Additionally, the Company issued warrants to purchase an
aggregate of up to 349,653 shares of Common Stock at $1.43 per share in February
1995 and April 1995 and 73,356 shares of Common Stock at $8.18 per share to four
lenders in connection with loan transactions consummated in August 1995. In May
1991, the Company issued a warrant to purchase up to 17,483 shares of Common
Stock at $2.86 per share to a lender in connection with a loan transaction.
REGISTRATION RIGHTS
The Company has granted certain registration rights to its preferred
stockholders (the "Preferred Holders"), certain majority common stockholders
(the "Key Holders") and an affiliate of Premier (the "Business Holder")
(collectively, the "Holders"), who will own in the aggregate 4,495,915 shares of
Common Stock upon consummation of this offering and have the right to acquire
through the exercise of vested options and warrants up to an aggregate of
942,870 additional shares of Common Stock. The Holders have "piggyback"
registration rights to request that the Company register any of their shares in
the event that the
41
<PAGE> 46
Company proposes to register any of its securities under the Securities Act
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 of the Securities and Exchange Commission is
applicable). However, if such piggyback rights are exercised in connection with
an underwritten public offering of the Company's Common Stock, the managing
underwriter of such an offering has the right to exclude or otherwise limit the
number of such shares to be included in such public offering. The Company has
undertaken annually for the next four years to initiate a registration with
respect to which the Holders will have piggyback rights. Additionally, the
Preferred Holders have "demand" registration rights to have the Company prepare
and file, on two occasions, a registration statement so as to permit a public
offering and sale of their shares of Common Stock, provided that Preferred
Holders owning at least 51%, in the case of the first demand, or 25%, in the
case of the second demand, of the shares covered by the registration rights must
demand such registration and must dispose of at least 20% of the then
registrable stock through the registration statement. After the first demand by
the Preferred Holders, the Business Holder shall have one right (or two under
certain circumstances) to demand a registration of at least 50,000 shares of
their Common Stock. Once the Company is eligible to register its securities on
Form S-3 with the Securities and Exchange Commission, the Preferred Holders can
demand up to six additional registrations, each at least six months apart and
for an aggregate expected public offering price of at least $500,000, and after
January 1, 2001, the Business Holder can demand up to two additional
registrations on Form S-3, each at least six months apart and for at least
50,000 shares.
DELAWARE LAW AND CERTAIN LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
Section 203 of Delaware General Corporation Law
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder", which is defined as a person who,
together with any affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of such assets having an aggregate value in excess of 10% of the consolidated
assets of the corporation, and certain transactions that would increase the
interested stockholder's proportionate share ownership in the corporation)
between an interested stockholder and a corporation for a period of three years
after the date the interested stockholder becomes an interested stockholder,
unless (i) the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an interested
stockholder, (ii) the interested stockholder acquired at least 85% of the voting
stock of the corporation (other than stock held by directors who are also
officers or by certain employee stock plan) in the transaction in which it
becomes an interested stockholder or (iii) the business combination is approved
by a majority of the board of directors and by the affirmative vote of 66 2/3%
of the outstanding voting stock that is not owned by the interested stockholder.
Indemnification and Limitation of Liability
The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall, subject to certain limitations, indemnify its directors
and officers against expenses (including attorneys' fees, judgments, fines and
certain settlements) actually and reasonably incurred by them in connection with
any suit or proceeding to which they are a party so long as they acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct to
have been unlawful.
Section 102 of the Delaware General Corporation Law ("DGCL") permits a
Delaware corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. DGCL Section
102 provides, however, that liability for breaches of the duty of loyalty, acts
or omissions not in good faith or involving intentional misconduct, or knowing
violation of the law, and the unlawful purchase or redemption of stock or
payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner. The Company's Restated
Certificate of Incorporation includes a provision which
42
<PAGE> 47
eliminates, to the fullest extent permitted, director liability for monetary
damages for breaches of fiduciary duty.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have 6,549,435
outstanding shares of Common Stock, including shares of Common Stock issuable
upon the Recapitalization Transactions. Of these shares, the 2,000,000 shares of
Common Stock sold in this offering (assuming the Underwriters' over-allotment
option is not exercised) will be freely tradable without restriction or further
registration under the Securities Act unless purchased by affiliates of the
Company (as such term is defined under the Securities Act). The 4,549,435 shares
held by existing stockholders, representing 69% of the total number of shares of
Common Stock to be outstanding upon the completion of this offering, may not be
resold except pursuant to an effective registration statement filed by the
Company or an applicable exemption from registration, including an exemption
under Rule 144. In addition, certain holders of Common Stock have agreed that
they will not, without obtaining the prior written approval of the
Representatives (as defined in "Underwriting"), directly or indirectly offer for
sale, sell, transfer, encumber, contract to sell, grant any option, right or
warrant to purchase or otherwise dispose (or announce any offer, sale, transfer,
encumbrance, contract to sell, grant of an option to purchase or other
disposition) of any shares of Common Stock, or any securities convertible into,
or exchangeable or exercisable for, shares of Common Stock, for a period of 180
days after the effective date of the Registration Statement of which this
Prospectus forms a part.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company (as defined
in Rule 144, an "Affiliate"), who has beneficially owned "restricted securities"
(as that term is defined in Rule 144) for a period of at least two years from
the later of the date such restricted securities were acquired from the Company
or the date they were acquired from an Affiliate, is entitled to sell, within
any three-month period, a number of such securities that does not exceed the
greater of (i) 1% of the then outstanding shares of the Company's Common Stock
(approximately 65,488 shares immediately after this offering) or (ii) the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks preceding the filing of notice of such sale. Sales under Rule 144
are also subject to certain restrictions on the manner of sale, notice
requirements, and the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering, subject to the 180-day restriction on transfer
described in the preceding paragraph. The Securities and Exchange Commission has
proposed an amendment to Rule 144 that would reduce the holding period required
for shares subject to Rule 144 to become eligible for sale in the public market.
If the proposed amendment becomes effective, the two-year and three-year holding
periods referred to in this paragraph will be reduced to one-year and two-year
holding periods, respectively.
Under Rule 701 under the Securities Act, certain shares issued pursuant to
employee benefit plans or arrangements in effect prior to this offering are
eligible for resale 90 days after the Company becomes a reporting company under
the Exchange Act and may be sold by persons other than Affiliates subject only
to the manner of sale provisions of Rule 144 and by Affiliates without
compliance with the holding period requirements of Rule 144.
The Company intends to file a registration statement or statements on Form
S-8 under the Securities Act, not earlier than 180 days after the date of this
Prospectus, to register the shares of Common Stock issuable pursuant to the
Stock Option Plan and the Director Option Plan. As of March 31, 1996, options
43
<PAGE> 48
issued pursuant to the Stock Option Plan to purchase approximately 866,705
shares were outstanding, of which options to purchase 646,483 shares were
exercisable. Shares issued upon the exercise of the options generally will be
eligible for sale in the public market after the effective date of such
registration, subject, in certain cases, to the lock-up agreements described
herein and volume and other restrictions.
Prior to this offering, there has been no public market for the Common
Stock. No predictions can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the specific
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Company's Common Stock.
After the completion of this offering, certain persons will be entitled to
certain rights with respect to registration under the Securities Act of
approximately 5,373,300 shares of Common Stock (including shares issuable upon
the exercise of outstanding warrants). In addition, after the completion of this
offering, the Company will issue options to purchase up to an aggregate of
366,294 shares of Common Stock to an affiliate of Premier. The Premier affiliate
will be entitled to certain rights with respect to registration under the
Securities Act of the shares issuable upon exercise of these options. See
"Recent Developments" and "Description of Capital Stock -- Registration Rights."
44
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Cowen & Company, Lehman Brothers Inc. and Volpe, Welty & Company (the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company..............................................................
Lehman Brothers Inc. ........................................................
Volpe, Welty & Company.......................................................
----------
Total................................................................... 2,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby (other
than the shares subject to the over-allotment option) if any such shares are
purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus to cover over-allotments, if any. To the extent the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to 2,000,000,
and the Company will be obligated, pursuant to the option, to sell such shares
to the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 2,000,000 shares are being offered.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, as amended.
The Company, certain of its officers and directors who own shares of Common
Stock and certain other stockholders and option holders of the Company have
entered into agreements providing that, for a period of 180 days after the date
of this Prospectus, they will not, without the prior written consent of Cowen &
Company, on behalf of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, Common Stock, or any option, warrant
or right to purchase any shares of Common Stock or any such convertible,
exercisable or exchangeable securities or grant any option to dispose of any
shares of Common Stock. See "Shares Eligible for Future Sale."
45
<PAGE> 50
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gardner, Carton & Douglas, Chicago, Illinois. Certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1994 and 1995, and for each of the years in the three-year period
ended December 31, 1995, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C. 20549, a Registration Statement on Form S-1, including
amendments thereto, under the Securities Act of 1933 with respect to shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other documents referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being deemed to
be qualified in its entirety by such reference. The Registration Statement,
including all exhibits and schedules thereto, may be inspected without charge at
the principal office of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World
Trade Center, Suite 1300, New York, New York 10048, and copies of all or any
part thereof may be obtained from such offices upon the payment of the
prescribed fees.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year.
46
<PAGE> 51
APACHE MEDICAL SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets -- December 31, 1994 and 1995, March 31, 1996 and Pro
Forma March 31, 1996............................................................... F-3
Consolidated Statements of Operations -- Years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996................................. F-4
Consolidated Statements of Changes in Stockholders' Deficit -- Years ended December
31, 1993, 1994 and 1995 and the three months ended March 31, 1996.................. F-5
Consolidated Statements of Cash Flows -- Years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996................................. F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
When the reverse stock split referred to in Note 12 of notes to
Consolidated Financial Statements has been consummated, we will be in a position
to render the following report.
KPMG Peat Marwick LLP
The Board of Directors and Stockholders
APACHE Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of APACHE
Medical Systems, Inc., and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of APACHE
Medical Systems, Inc., and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
March 22, 1996, except as to note 12
which is as of
McLean, Virginia
F-2
<PAGE> 53
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------------
--------------------------- PRO FORMA
1994 1995 1996 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 208,596 $ 4,035,787 $ 2,626,806 $ 2,626,806
Accounts receivable, net of allowance for
doubtful accounts of $143,000 in 1994, $190,800
in 1995 and $190,800 at March 31, 1996 (note
3)............................................. 934,524 1,419,959 2,201,841 2,201,841
Other trade receivables (note 3)................. 181,436 162,466 147,301 147,301
Prepaid expenses and other....................... 156,860 124,690 145,833 145,833
------------ ------------ ------------ ------------
Total current assets...................... 1,481,416 5,742,902 5,121,781 5,121,781
Other trade receivables, net of current maturities
(note 3)......................................... 348,289 74,875 35,736 35,736
Furniture and equipment (note 6)................... 2,900,820 2,887,115 2,893,073 2,893,073
Less accumulated depreciation and amortization... (823,318) (1,496,114) (1,654,462) (1,654,462)
------------ ------------ ------------ ------------
Net furniture and equipment........................ 2,077,502 1,391,001 1,238,611 1,238,611
Capitalized software development costs, net........ 337,944 700,543 689,732 689,732
------------ ------------ ------------ ------------
Total assets.............................. $ 4,245,151 $ 7,909,321 $ 7,085,860 $ 7,085,860
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable........................... $ 1,428,925 $ 921,726 $ 812,395 $ 812,395
Accrued expenses................................. 585,726 723,024 738,761 738,761
Preferred stock dividends payable................ -- -- -- 821,670
Current maturities of obligations under capital
leases (note 6)................................ 108,960 190,797 174,617 174,617
Current maturities of notes payable --
stockholders (note 4).......................... -- 250,000 250,000 250,000
Current maturities of notes payable -- other
(note 5)....................................... 122,115 224,020 200,980 200,980
Deferred revenue................................. 1,132,170 1,915,192 2,181,815 2,181,815
------------ ------------ ------------ ------------
Total current liabilities................. 3,377,896 4,224,759 4,358,568 5,180,238
Deferred rent benefit (note 6)..................... 202,590 186,431 181,335 181,335
Obligations under capital leases, net of current
maturities (note 6).............................. 117,722 62,405 36,752 36,752
Notes payable -- stockholders, net of current
maturities and discounts (note 4)................ 100,000 835,000 901,250 58,250
Notes payable -- other, net of current maturities
(note 5)......................................... 330,975 181,282 175,999 175,999
------------ ------------ ------------ ------------
Total liabilities......................... 4,129,183 5,489,877 5,653,904 5,632,574
Redeemable convertible preferred stock (note 8).... 14,514,906 20,731,878 21,029,333 --
Stockholders' Equity (Deficit) (note 9):
Common stock, $.01 par value, authorized shares,
4,947,552 at December 31, 1994, 5,769,231 at
December 31, 1995, 5,769,231 at March 31, 1996
and 30,000,000 pro forma at March 31, 1996;
issued and outstanding shares, 1,072,835 at
December 31, 1994, 1,075,458 at December 31,
1995, 1,075,575 at March 31, 1996, and
4,548,764 pro forma at March 31, 1996.......... 30,683 30,758 30,762 65,494
Additional paid-in capital....................... 548,678 1,343,269 1,344,217 20,246,737
Cumulative dividends and accreted issue costs on
redeemable convertible preferred stock......... (878,112) (1,778,689) (2,113,411) --
Accumulated deficit.............................. (14,100,187) (17,907,772) (18,858,945) (18,858,945)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit)...... (14,398,938) (18,312,434) (19,597,377) 1,453,286
------------ ------------ ------------ ------------
Commitments (notes 6 and 11)
Total liabilities and stockholders' equity
(deficit)............................... $ 4,245,151 $ 7,909,321 $ 7,085,860 $ 7,085,860
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 54
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Systems..................... $ 2,004,184 $ 3,586,991 $ 4,096,458 $ 699,665 $ 1,241,750
Support..................... 485,798 836,530 1,351,963 317,535 330,439
Professional services....... 1,350,643 893,610 1,575,684 241,500 86,883
----------- ----------- ----------- ----------- -----------
Total revenue....... 3,840,625 5,317,131 7,024,105 1,258,700 1,659,072
Expenses:
Cost of operations.......... 2,150,879 3,700,297 2,866,055 732,949 753,608
Research and development.... 1,017,374 1,812,579 1,919,264 577,970 363,824
Selling, general and
administrative........... 2,976,235 6,030,427 5,630,611 1,577,225 1,444,991
----------- ----------- ----------- ----------- -----------
Total expenses...... 6,144,488 11,543,303 10,415,930 2,888,144 2,562,423
----------- ----------- ----------- ----------- -----------
Loss from operations.......... (2,303,863) (6,226,172) (3,391,825) (1,629,444) (903,351)
Other income (expense):
Interest income............. 67,298 93,849 62,354 18,680 57,810
Interest expense............ (102,110) (68,733) (482,890) (38,974) (105,632)
Other, net.................. (45,261) 9,438 4,776 195 --
----------- ----------- ----------- ----------- -----------
Net loss...................... (2,383,936) (6,191,618) (3,807,585) (1,649,543) (951,173)
Accretion of dividends and
issue costs on redeemable
convertible preferred
stock....................... (179,495) (669,720) (900,577) (205,100) (334,722)
----------- ----------- ----------- ----------- -----------
Net loss to common
stockholders...... $(2,563,431) $(6,861,338) $(4,708,162) $(1,854,643) $(1,285,895)
=========== =========== =========== =========== ===========
Pro Forma (unaudited):
Pro Forma net loss per
share....................... $ (0.79) $ (0.19)
=========== ===========
Weighted average number of
shares used for calculation
of Pro Forma loss per
share....................... 4,610,379 4,625,881
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 55
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Years ended December 31, 1993, 1994 and 1995
and three months ended March 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE DIVIDENDS
AND ACCRETED
COMMON STOCK ADDITIONAL ISSUE COSTS ON
------------------- PAID-IN CUMULATIVE REDEEMABLE ACCUMULATED
SHARES AMOUNT CAPITAL PREFERRED STOCK DEFICIT TOTAL
--------- ------- ---------- --------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992........................ 1,064,093 $30,433 $ 221,748 $ (28,897) $ (5,524,633) $ (5,301,349)
Accretion of dividends and
issue costs on redeemable
preferred stock........... -- -- -- (179,495) -- (179,495)
Net loss.................... -- -- -- -- (2,383,936) (2,383,936)
--------- ------- ---------- ---------- ------------ ------------
Balance at December 31,
1993........................ 1,064,093 30,433 221,748 (208,392) (7,908,569) (7,864,780)
Issuance of common stock.... 8,742 250 71,250 -- -- 71,500
Issuance of common stock
options................... -- -- 255,680 -- -- 255,680
Accretion of dividends and
issue costs on redeemable
preferred stock........... -- -- -- (669,720) -- (669,720)
Net loss.................... -- -- -- -- (6,191,618) (6,191,618)
--------- ------- ---------- ---------- ------------ ------------
Balance at December 31,
1994........................ 1,072,835 30,683 548,678 (878,112) (14,100,187) (14,398,938)
Issuance of convertible
preferred stock
warrants.................. -- -- 787,166 -- -- 787,166
Issuance of common stock.... 2,623 75 7,425 -- -- 7,500
Accretion of dividends and
issue costs on redeemable
preferred stock........... -- -- -- (900,577) -- (900,577)
Net loss.................... -- -- -- -- (3,807,585) (3,807,585)
--------- ------- ---------- ---------- ------------ ------------
Balance at December 31,
1995........................ 1,075,458 30,758 1,343,269 (1,778,689) (17,907,772) (18,312,434)
Issuance of common stock
(unaudited)............... 117 4 948 -- -- 952
Accretion of dividends and
issue costs on redeemable
preferred stock
(unaudited)............... -- -- -- (334,722) -- (334,722)
Net loss (unaudited)........ -- -- -- -- (951,173) (951,173)
--------- ------- ---------- ---------- ------------ ------------
Balance at March 31, 1996
(unaudited)................. 1,075,575 $30,762 $1,344,217 $(2,113,411) $(18,858,945) $(19,597,377)
========= ======= ========== ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 56
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993, 1994 and 1995
and three months ended March 31, 1995 and 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- -----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................. $(2,383,936) $(6,191,618) $(3,807,585) $(1,649,543) $ (951,173)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 167,862 445,885 736,050 148,449 216,157
Gain on forgiveness of debt........ -- (19,500) -- -- --
Options issued for software
license.......................... -- 255,680 -- -- --
Loss on sale of furniture and
equipment........................ -- -- 68,735 -- --
Accretion of interest.............. -- -- 366,167 17,416 66,250
Provision for doubtful accounts.... -- 78,429 47,838 -- 25,000
(Increase) decrease in accounts
receivable....................... (572,275) 45,471 (533,273) 372,716 (806,882)
(Increase) decrease in other trade
receivables...................... -- (529,725) 292,381 (49,133) 54,304
(Increase) decrease in other
current assets................... (29,078) (65,074) 32,173 (146,079) (26,244)
Increase (decrease) in accounts
payable and accrued expenses..... 195,561 1,375,761 (369,901) 284,726 (93,595)
Increase (decrease) in deferred
rent............................. 3,832 184,566 (16,159) (6,284) (5,096)
Increase in deferred revenue....... 459,276 672,896 783,020 252,336 266,623
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities.................... (2,158,758) (3,747,229) (2,400,554) (775,396) (1,254,656)
Cash Flows from Investing Activities:
Purchase of furniture and
equipment.......................... (495,366) (1,785,514) (56,985) (6,747) (5,958)
Proceeds from sale of furniture and
equipment.......................... -- 206,247 221,217 92,517 --
Capitalized software development
costs.............................. -- (337,944) (425,852) (66,725) (41,896)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities.......... (495,366) (1,917,211) (261,620) 19,045 (47,854)
Cash Flows from Financing Activities:
Principal payments on borrowings..... (124,425) (390,108) (347,788) (10,480) (28,323)
Principal payments on capital lease
obligation......................... (31,508) (25,366) (192,742) (27,043) (41,833)
Proceeds from issuance of note
payable............................ 46,000 -- 2,350,000 950,000 --
Proceeds from issuance of preferred
stock, net of issuance costs....... (11,250) 5,721,596 4,672,395 -- (37,267)
Proceeds from issuance of common
stock upon exercise of options..... -- -- 7,500 -- 952
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities.......... (121,183) 5,306,122 6,489,365 912,477 (106,471)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents..................... (2,775,307) (358,318) 3,827,191 156,126 (1,408,981)
Cash and Cash Equivalents at Beginning
of Period............................ 3,342,221 566,914 208,596 208,596 4,035,787
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents at End of
Period............................... $ 566,914 $ 208,596 $ 4,035,787 $ 364,722 $ 2,626,806
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 57
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF THE BUSINESS
APACHE Medical Systems, Inc. (the "Company"), a Delaware corporation, was
incorporated on September 1, 1987. The Company is a leading provider of
clinically-based decision support information systems to the healthcare
industry. The Company offers healthcare providers and suppliers a comprehensive
line of outcomes-based products and services, encompassing software, hardware,
and related consulting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Critical Audit, Ltd. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Activities of the subsidiary to date have been immaterial. The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results inevitably will differ from those estimates.
Revenue Recognition
Revenues for sales of systems requiring production activities both before
and subsequent to delivery are recognized by the percentage-of-completion method
using significant milestones to estimate progress toward completion. Sales of
other systems and products are recognized at delivery. Systems support fees are
recognized ratably over the period of performance. Professional service revenues
are recognized as these services are provided. Amounts received prior to the
performance of service or completion of a milestone are deferred.
Prior to 1995, all revenues associated with the sales of systems were
recorded when the system was delivered, net of an accrual for the estimated cost
of fulfilling the Company's obligations. The new method of accounting was
adopted to more accurately reflect timing of the recognition of the contractual
amount of revenue consistent with the timing of further production activities by
the Company subsequent to the initial delivery, and has been applied by
restating all periods presented in the accompanying consolidated financial
statements.
Cost of Operations
Cost of operations consists primarily of cost of equipment sold,
amortization of software development costs, direct personnel costs and other
direct costs.
Furniture and Equipment
Furniture and equipment are stated at cost. Furniture and equipment under
capital leases are stated at the present value of minimum lease payments.
Depreciation and amortization are calculated on the straight-line basis over the
estimated useful lives of the assets ranging from 3 to 5 years. Amortization of
equipment held under capital leases is provided on the straight-line basis over
the shorter of the estimated useful life of the assets or the life of the lease.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents for purposes of the statement of
cash flows. Cash equivalents consisted of approximately $2,600,000 of interest
bearing overnight bank investment accounts at December 31, 1995 and a $50,000
certificate of deposit at December 31, 1994, which are carried at cost which
approximates market.
F-7
<PAGE> 58
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Software Capitalization
The Company capitalizes certain software development costs subsequent to
the establishment of technological feasibility of its products. Technological
feasibility is established generally upon completion of a working model of a
product. Costs incurred prior to technological feasibility are expensed and are
included as research and development costs in the accompanying consolidated
financial statements. Amortization of capitalized costs begins when products are
available for general release to customers and is computed on a
product-by-product basis in the amount which is the greater of (a) the ratio
that current revenues bear to the total of the current and future anticipated
revenues, or (b) the straight-line method over the remaining estimated economic
life of the product, not to exceed three years. Such costs are reflected in cost
of operations.
The Company capitalized approximately $0, $338,000 and $426,000 in software
development costs during 1993, 1994, and 1995, respectively. Amortization of
software development costs approximated $0, $0 and $63,000 in 1993, 1994 and
1995, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Current Vulnerability Due to Certain Concentrations
The Company currently depends on certain suppliers for the provision of
computer hardware to its customers. The Company has not experienced and does not
expect any disruption of such services and the Company believes that
functionally equivalent computer hardware is available from other sources.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
trade receivables. Concentrations of credit risk with respect to trade
receivables result from the Company's customer base comprising primarily
hospitals and other health care industry companies. Management regularly
monitors the creditworthiness of its customers and believes that it has
adequately provided for any exposure to potential credit losses. No single
customer accounted for more than 10 percent of revenues in 1993, 1994 or 1995.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
F-8
<PAGE> 59
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price not less than the fair value of the shares as determined
by the Board of Directors at the date of grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and, accordingly, recognizes compensation expense for stock option
grants only when the exercise price is less than the fair value of the shares at
the date of grant.
Interim Financial Information (Unaudited)
The unaudited interim information as of March 31, 1996 and for the three
months ended March 31, 1995 and 1996, including such information included in the
Notes to Consolidated Financial Statements is unaudited. It has been prepared on
the same basis as the annual consolidated financial statements and, in the
opinion of the Company's management, reflects normal recurring adjustments
necessary for a fair presentation of the information for the periods presented.
Operating results for any quarter are not necessarily indicative of results for
any future periods.
Pro Forma Balance Sheet (Unaudited)
Upon the consummation of this offering, all of the outstanding shares of
Series A, B, C, D, E and F Redeemable Convertible Preferred Stock, and, at the
holders' option, cumulative dividends to date, will automatically convert into
shares of common stock. The unaudited pro forma presentation of the balance
sheet has been prepared assuming the automatic conversion of the preferred stock
into 3,294,519 shares of common stock on March 31, 1996, and the conversion of
$733,350 of accrued dividends into 56,413 shares of common stock based on the
stated preference of the holders. Cumulative dividends of $821,670, which are to
be paid with the proceeds of this offering, have been reflected as dividends
payable, and $558,391 of accreted issue costs have been reflected as a decrease
in paid-in capital. Additionally, notes payable with an outstanding principal
balance of $1,000,000 and a net carrying value of approximately $843,000 will
convert into 122,257 shares of common stock.
Pro Forma Net Loss Per Common Share (Unaudited)
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except that, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve-month period prior
to the filing of the initial public offering ("cheap stock") even when
antidilutive, have been included in the calculation as if they were outstanding
for all periods, using the treasury stock method and the expected initial public
offering price of $13.00 per share. In the computation of pro forma net loss per
share, accretion of preferred stock to the mandatory redemption amount is not
included as an increase to net loss. The pro forma net loss per common share
gives effect to the mandatory conversion of all outstanding shares of preferred
stock, including certain accumulated dividends, the conversion of certain
convertible debt, including the reduction of related interest, and the cheap
stock related to stock options and warrants, all effective upon the consummation
of this offering.
F-9
<PAGE> 60
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- ----------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Billed accounts...................................... $1,008,565 $1,296,671 $1,822,806
Unbilled accounts.................................... 68,959 314,088 569,835
---------- ---------- ----------
1,077,524 1,610,759 2,392,641
Less allowance for doubtful accounts................. (143,000) (190,800) (190,800)
---------- ---------- ----------
$ 934,524 $1,419,959 $2,201,841
========== ========== ==========
</TABLE>
Unbilled accounts represent revenue that has been recognized for work
performed for which billings had not been presented to customers, as such
accounts were not billable under contract terms at the balance sheet date. It is
anticipated that substantially all of these accounts will be billed and
collected within one year of the respective balance sheet date.
In 1994, the Company sold software systems on trade terms that allow for
payment over an agreed upon period. Amounts due under such installment terms are
included as other trade receivables in the accompanying financial statements and
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
YEAR 1995 1996
-------------------------------------------- ------------ ---------
<S> <C> <C>
1996........................................ $159,534 $ 104,640
1997........................................ 76,811 76,811
-------- --------
Total amounts............................... 236,345 181,451
Less imputed interest at 14%................ 35,369 29,991
-------- --------
Installment trade receivables............... 200,976 151,460
Less current maturities..................... 143,493 127,949
-------- --------
Noncurrent installment trade receivables.... $ 57,483 $ 23,511
======== ========
</TABLE>
In 1994, the Company leased equipment to certain of its customers under
sales-type leases. Future minimum lease receipts under sales-type equipment
leases are included in other trade receivables in the accompanying consolidated
balance sheet and are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
1996........................................ $ 22,062 $14,368
1997........................................ 20,223 20,223
------- -------
Total minimum lease payments to be
received.................................. 42,285 34,591
Less amounts representing interest at 14%... 5,920 3,014
------- -------
Net investment in sales-type leases......... 36,365 31,577
Less current maturities..................... 18,973 19,352
------- -------
Noncurrent maturities....................... $ 17,392 $12,225
======= =======
</TABLE>
F-10
<PAGE> 61
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTES PAYABLE -- STOCKHOLDERS
Notes payable -- stockholders, which are all unsecured, consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Convertible notes payable, interest at 10 percent, interest
imputed at 22%, principal and interest due December 31,
1997..................................................... $ -- $1,000,000 $1,000,000
Less imputed interest...................................... -- (210,000) (157,000)
-------- ---------- ----------
-- 790,000 843,000
Convertible notes payable, non-interest bearing, interest
imputed at 22%, principal due December 31, 1996.......... -- 250,000 250,000
Less imputed interest...................................... -- (55,000) (41,750)
-------- ---------- ----------
-- 195,000 208,250
Notes payable, non-interest bearing, principal due after
cumulative year-end retained earnings exceeds $200,000... 100,000 100,000 100,000
-------- ---------- ----------
100,000 1,085,000 1,151,250
Less current maturities.................................... -- (250,000) (250,000)
-------- ---------- ----------
$100,000 $ 835,000 $ 901,250
======== ========== ==========
</TABLE>
Interest expense relating to notes payable-stockholders was approximately
$29,000, $6,000 and $366,167 for the years ended December 31, 1993, 1994, and
1995, respectively.
The 10% convertible notes were originally issued in February and April 1995
as non-interest bearing notes in the amount of $1,750,000 with detachable
warrants to purchase 349,653 shares of the Company's common stock at $1.43 per
share. The warrants have been valued at $691,166, which amount has been included
as capital stock and debt discount which is being amortized to interest expense
over the life of the note. The original notes were due December 31, 1996. The
notes are convertible at the holder's option into shares of the Company's
preferred stock at the same price and terms as the then most recently completed
preferred equity investment in the Company. In December 1995, $600,000 of these
notes were converted to 20,999 shares of Series F redeemable, convertible
preferred stock. Further, at that date, $900,000 of these notes were amended to
mature on December 31, 1997, bearing stated interest at 10% beginning January 1,
1996, payable at maturity. The interest at the stated rate and the remaining
imputed interest will be recognized over the life of the note. At December 31,
1995 and March 31, 1996, $250,000 of the originally issued non-interest bearing
notes remain outstanding.
In August 1995, the Company issued $600,000 of convertible notes, with
stated interest at prime plus 2 percent, due December 31, 1996, with detachable
warrants to purchase 73,356 shares of the Company's common stock at $8.18 per
share. The warrants did not become exercisable until 120 days after issuance and
were cancellable if the notes were repaid or converted prior to that date. The
warrants have been valued at $96,000 which amount has been included as capital
stock and debt discount which is being amortized to interest expense over the
life of the note. The notes have the same convertibility features as the
February and April notes. In December 1995, subsequent to the warrant
cancellation date, $200,000 of these notes were converted to 7,000 shares of
Series F redeemable convertible preferred stock, $300,000 were repaid and
$100,000 were amended to mature December 31, 1997, bearing stated interest at
10% beginning January 1, 1996, payable at maturity. The interest at the stated
rate and the remaining imputed interest will be recognized over the life of the
note.
F-11
<PAGE> 62
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES PAYABLE -- OTHER
Notes payable -- other consist of promissory notes to various medical and
financial institutions. All the notes are unsecured.
Notes payable -- other consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Note payable, 6% interest, payable in monthly
installments of principal plus interest through March
1996................................................... $ 13,288 $ -- $ --
Note payable, 10% interest payable semi-annually,
principal payable in annual installments of $34,500
through May 1998....................................... 117,895 83,395 83,395
Note payable, 10% interest payable semi-annually,
principal payable in annual installments of $34,500
commencing August 1994 through August 1998............. 138,000 138,000 138,000
Note payable, prime plus 2% interest (10.75% at December
31, 1995), payable in monthly installments of principal
plus interest through November 1999.................... 105,645 105,645 103,884
Note payable, prime plus 2% interest (10.75% at December
31, 1995), payable in monthly installments of principal
plus interest through January 1999..................... 78,262 78,262 51,700
-------- -------- --------
453,090 405,302 376,979
Less current maturities.................................. 122,115 224,020 200,980
-------- -------- --------
$330,975 $181,282 $ 175,999
======== ======== ========
</TABLE>
During 1995, the Company had not complied with the repayment terms of three
notes with an outstanding balance of $321,907 at December 31, 1995. These notes
were brought to a current status, or were repaid, in April, 1996. Amounts
classified as current liabilities at December 31, 1995 include amounts for which
the note holder could demand repayment.
Scheduled maturities of notes payable -- other are as follows (1995
delinquent installments of $133,891 are included as 1996 maturities):
<TABLE>
<CAPTION>
YEAR
---------------------------------------------------
<S> <C>
1996............................................... $224,020
1997............................................... 90,129
1998............................................... 70,332
1999............................................... 20,821
</TABLE>
F-12
<PAGE> 63
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LEASE COMMITMENTS
Future minimum lease payments at December 31, 1995, under non-cancelable
operating and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------------------------------------------- -------- ----------
<S> <C> <C>
1996......................................................... $213,862 $ 433,562
1997......................................................... 66,352 446,569
1998......................................................... -- 459,966
1999......................................................... -- 433,701
-------- ----------
Total........................................................ 280,214 $1,773,798
==========
Less amounts representing interest at 6% to 18%.............. 27,012
--------
Present value of net minimum lease payments.................. 253,202
Less current maturities...................................... 190,797
--------
$ 62,405
========
</TABLE>
Operating Leases
In 1994, the Company entered into a new lease agreement for its current
office space. The lease stipulates a rent abatement period of six months. Rent
expense is recorded on a straight-line basis over the term of the lease. The
difference between rent payments and rent expense resulted in a deferred rent
benefit.
Total rent expense under all operating leases was approximately $153,000,
$358,000 and $416,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $101,000 for the three months ended March 31, 1996.
Capital Leases
During 1994 and 1995, the Company entered into agreements to sell and
leaseback certain of its office equipment. The resulting leases are capital
leases that expire at various dates through 1997.
Office equipment and related accumulated amortization under capital leases
included in furniture and equipment on the accompanying balance sheet at
December 31, 1995 is as follows:
<TABLE>
<S> <C>
Office equipment................................... $380,429
Less accumulated amortization...................... 223,732
--------
$156,697
========
</TABLE>
(7) INCOME TAXES
The Company had no provision for income taxes in 1993, 1994 or 1995 or the
three months ended March 31, 1996 as a result of its net losses for both
financial statement and income tax purposes.
F-13
<PAGE> 64
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES -- (CONTINUED)
The approximate tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Book value of equipment in excess of tax
basis................................... $ (37,000) $ (28,100)
Capitalized software development costs..... (126,800) (262,500)
---------- ----------
Gross deferred tax liabilities............... (164,300) (290,600)
Deferred tax assets:
Accrued vacation........................... 51,700 28,100
Allowance for doubtful accounts............ 53,600 71,600
Deferred rent benefit...................... 76,000 69,900
Excess of tax over book revenue
recognized.............................. 429,400 997,500
Net operating loss carryforwards........... 5,287,600 6,715,400
---------- ----------
Gross deferred tax assets.................... 5,898,300 7,882,500
Less deferred tax assets valuation
allowance.................................. 5,734,000 7,591,900
---------- ----------
Net deferred tax assets...................... 164,300 290,600
---------- ----------
Total deferred tax assets (liabilities)...... $ -- $ --
========== ==========
</TABLE>
The change in the total valuation allowance for the years ended December
31, 1994 and 1995 were increases of $3,512,500 and $1,857,900, respectively.
The Company has a net operating loss carryforward for income tax reporting
purposes at December 31, 1995 of $13,795,000, which expire in approximate
amounts as follows: $2,000,000 in 2004, $1,000,000 in 2005, $500,000 in 2006,
$2,000,000 in 2007, $800,000 in 2008, $6,200,000 in 2009 and $1,300,000 in 2010.
The Company's ability to use the carryforwards is subject to limitations
resulting from changes in ownership, as defined by the Internal Revenue Code.
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has 200,000 shares of Series A redeemable convertible preferred
stock ("Series A"), 211,131 shares of Series B redeemable convertible preferred
stock ("Series B"), 118,110 shares of Series C redeemable convertible preferred
stock ("Series C"), 209,994 shares of Series D redeemable convertible preferred
stock ("Series D"), 174,995 shares of Series E redeemable convertible preferred
stock ("Series E") and 27,999 shares of Series F redeemable convertible
preferred stock ("Series F" and, together with the Series A, Series B, Series C,
Series D and Series E, the "Series Preferred") issued and outstanding. The net
proceeds from the issuance of the preferred stock were as follows: Series A,
$2,000,000; Series B, $3,139,078; Series C, $2,776,120; Series D, $5,721,596;
Series E, $4,672,395; and Series F, $800,000. Issue costs are accreted to
stockholders' equity in amounts relative to increases in redemption values over
time.
In conjunction with the 1995 issuance of Series E, the Company issued
36,713 warrants to purchase common stock at $8.18 to a stockholder relating to
transaction fees. In the opinion of management, the value of these warrants do
not materially effect the financial statements.
F-14
<PAGE> 65
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK -- (CONTINUED)
Among others, the principal rights, privileges, and preferences of all
Series Preferred stockholders, all as defined in the Company's Amended and
Restated Certificate of Incorporation or as set forth in the respective Series
Preferred Stock Purchase Agreements, are as follows:
Redemption:
Unless previously converted to common stock, all Series Preferred are
redeemable at the option of the holders in annual increments of 33.33%
commencing January 1, 1998. The redemption price is $10.00, $23.09, $25.40
per share for Series A, B, and C, respectively, and $28.58 per share for
Series D, E, and F, plus all accrued and unpaid dividends, if any. No
shares have been redeemed through March 31, 1996.
At December 31, 1995, the maximum aggregate redemptions that could be
demanded of the Company in each of the next five years are as follows:
1996, $0; 1997, $0; 1998, $6.683 million; 1999, $6.683 million; and 2000,
$6.684 million.
Liquidation preference:
In the event of a liquidation event, as defined in the Series
Preferred Stock Purchase Agreements, all Series Preferred stockholders are
ranked prior to all other classes of stock. All Series Preferred
stockholders are ranked equally and distributions are to be made in
proportion to the value of the investments originally made. As of December
31, 1995 all Series Preferred stockholders have an aggregate liquidation
preference equal to their initial investment of $20,050,000, as follows:
Series A, $2,000,000; Series B, $3,250,000; Series C, $3,000,000; Series D,
$6,000,000; Series E, $5,000,000; and Series F, $800,000.
Conversion:
All Series Preferred is convertible into common stock at the option of
the holder and conversion is mandatory in certain circumstances, including
the closing of a public stock offering meeting defined criteria. Subject to
certain adjustments, the Series A, B, C, D, E and F are convertible into
699,302 shares, 738,222 shares, 412,973 shares, 734,246 shares, 611,877
shares, and 97,899 shares of the Company's common stock, respectively. All
Series Preferred stockholders have certain anti-dilution protection rights.
The Company has reserved 3,294,519 shares of common stock for issuance upon
conversion of preferred stock.
Dividends and Voting rights:
Dividends, if any, declared and payable to common stockholders must
also first be paid to all Series Preferred stockholders. Dividends are
cumulative as of November 1, 1993, for Series A and B; as of November 1,
1994, for Series C; as of November 1, 1995, for Series D; and as of
November 1, 1997, for Series E and F. The annual dividend payable is
equivalent to $0.80 per share for Series A, $1.8472 per share for Series B,
$2.032 per share for Series C and $2.286 per share for Series D, E and F.
Holders of all Series Preferred have voting rights equal to the number
of common shares into which each class of Series Preferred is convertible.
Unpaid and undeclared dividends for the years ended December 31, 1993, 1994
and 1995, respectively, are as follows: Series A, $26,670, $160,000 and
$160,000; Series B, $43,330, $260,000 and $260,000; Series C, $0, $40,000
and $240,000; and Series D, $0, $0 and $80,000, and have been accreted in
stockholders' equity (deficit). Total Series Preferred dividends accreted
for the three months ended March 31, 1996 amounted to $285,000. Upon
conversion,
F-15
<PAGE> 66
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK -- (CONTINUED)
cumulative dividends may be paid in cash or shares of common stock at the
option of each holder of Series Preferred.
Other rights, privileges and preferences:
The Company is prohibited from making, among other things, certain
further amendments to its Amended and Restated Certificate of Incorporation
without the affirmative vote of 66.67% of Series Preferred stockholders
voting together as a class. Holders of Series Preferred have certain demand
and "piggyback" registration rights with respect to these securities, or
the securities they may be converted into, and possess certain rights
relating to election of Board of Director slots.
(9) COMMON STOCK, OPTIONS AND WARRANTS
Common Stock
The Company is restricted from paying dividends on common stock unless and
until all cumulative preferred stock dividends have been paid.
Stock Warrants
The Company has 17,483 outstanding warrants issued to a stockholder in 1991
with an exercise price of $2.86 per share which expire in 2001; 349,653
outstanding warrants issued to stockholders in 1995 with an exercise price of
$1.43 per share which expire in 2000; and 110,069 outstanding warrants issued to
stockholders in 1995 with an exercise price of $8.18 per share which expire in
2000.
Stock Options
The Company has a nonqualified employee stock option plan (the "Plan") for
the benefit of its employees and directors. All options are subject to
forfeiture until vested, and unexercised options expire on the tenth anniversary
of the year granted. Vesting periods are from one to five years. The Company has
also granted 65,735 vested stock options outside the Plan with an exercise price
of $4.29 per share.
F-16
<PAGE> 67
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMON STOCK, OPTIONS AND WARRANTS -- (CONTINUED)
The following is a summary of the option transactions for the years ending
December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
EXERCISE
PRICE SHARES
---------- -------
<S> <C> <C>
Outstanding, December 31, 1992.............................. $0.72-2.86 616,797
Granted................................................... 7.26 78,852
Forfeited................................................. 6.61-7.26 6,740
---------- --------
Outstanding, December 31, 1993.............................. 0.72-7.26 688,909
Granted................................................... 4.29-8.18 205,256
Forfeited................................................. 2.86-8.18 13,768
---------- --------
Outstanding, December 31, 1994.............................. 0.72-8.18 880,397
Granted................................................... 8.18 93,511
Forfeited................................................. 7.26-8.18 102,239
Exercised................................................. 2.86 2,623
---------- --------
Outstanding, December 31, 1995.............................. 0.72-8.18 869,046
Granted................................................... 8.18 87,413
Forfeited................................................. 7.26-8.18 23,902
Exercised................................................. 8.18 117
---------- --------
Outstanding, March 31, 1996................................. $0.72-8.18 932,440
========== =========
</TABLE>
At December 31, 1995 and March 31, 1996, options for 655,226 and 712,218
shares were exercisable and 42,143 and 153,488 shares were available for grant
under the Plan, respectively.
(10) RELATED PARTY TRANSACTION
The Company entered into a license agreement with a stockholder on February
2, 1995. The stockholder is licensed to sell a product of the Company for which
the stockholder will pay a royalty on each sale. The stockholder made a payment
against future royalties of $250,000.
(11) OTHER COMMITMENTS
In 1994, the Company purchased rights to databases and methodologies from
an unrelated company in exchange for 65,735 irrevocable options to purchase the
Company's common stock for $4.29 per share. The estimated fair value of the
stock option, $255,680, was recorded as software license expense. The Company
also committed $200,000, payable in monthly installments through March 1996, for
enhancements to the databases and the methodologies. At December 31, 1995,
$25,000 of these installment payments were remaining.
The Company has entered into an exclusive 10 year licensing agreement with
an unrelated company for its database and methodologies. The Company is
committed to pay $1,000,000 from 1994 to 1998 for the license and royalties on
the sale of the Company's product related to these methodologies. The Company is
F-17
<PAGE> 68
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) OTHER COMMITMENTS -- (CONTINUED)
also committed to pay $100,000 per year from 1994 to 1998 for marketing
services. Amounts committed by the Company related to this arrangement are as
follows at December 31:
<TABLE>
<S> <C>
1996............................................... $300,000
1997............................................... 325,000
1998............................................... 325,000
--------
$950,000
========
</TABLE>
(12) SUBSEQUENT EVENTS
In April 1996 the Board of Directors authorized a 1-for-2.86 reverse stock
split which will be effected prior to the consummation of the offering.
Accordingly, all shares and per share amounts have been adjusted to reflect the
reverse stock split as though it had occurred at the beginning of the initial
period presented. Additionally, the authorized common shares of the Company were
increased to 30,000,000.
Effective January 1996, the Board of Directors increased the number of
shares available under the Plan by 174,825 shares. In April 1996, the Board of
Directors amended and restated the Plan to, among other things, increase the
number of shares available for issuance under the Plan to 1,700,000.
Additionally, the Company adopted a Non-Employee Directors Option plan with a
total of 70,000 shares available for grant at fair market value on the grant
date. Further, the Company authorized a future Employee Stock Purchase Plan.
In June 1996, the Company entered into a marketing agreement pursuant to
which the Company may, among other things, grant options to purchase up to
366,294 shares of common stock, subject to defined terms and conditions. If
granted, options to purchase 65,488 shares of common stock will have an exercise
price of $8.18 per share and options to purchase 300,806 shares of common stock
will have an exercise price of $13.00 per share.
(13) PROFIT SHARING PLAN
The Company sponsors a profit sharing plan intended to qualify under
Section 401(k) of the Internal Revenue Code. All employees are eligible to
participate in the plan after three months of service. Employees may contribute
a portion of their salary to the plan, subject to annual limitations imposed by
the Internal Revenue Code. The Company may make matching or discretionary
contributions to the plan at the discretion of the Board of Directors, but has
made no such contribution to date. Employer contributions generally vest over
seven years.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $114,000, $67,000 and $33,000 for the years
ended December 31, 1993, 1994 and 1995 and $8,000 and $15,000 for the three
months ended March 31, 1995 and 1996.
The following is supplemental information concerning non-cash investing and
financing activities:
During 1993, the Company allowed a customer/noteholder to offset an
invoice due the Company against the amount owed on the note of $54,300.
During 1994, the Company issued 8,742 shares of common stock in
exchange for the forgiveness of $91,000 of debt. The difference between the
amount of debt forgiven and the estimated fair value of the common stock,
$71,000, was recorded as other income.
F-18
<PAGE> 69
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUPPLEMENTAL CASH FLOW INFORMATION -- (CONTINUED)
During 1994, the Company entered into an agreement for the sale and
leaseback of certain equipment. The lease is classified as a capital lease
and a capital lease obligation of $202,247 was recorded.
During 1995, the Company issued 27,999 shares of Series F upon
conversion of $800,000 of convertible debt.
During 1995, the Company entered into two agreements for the sale and
leaseback of certain equipment. The leases are classified as capital leases
and a total capital lease obligation of $219,262 was recorded.
During 1995, the Company issued warrants to acquire common stock in
connection with the issuance of convertible notes payable and Series E. The
estimated value of the warrants is included in additional paid-in capital
and $787,166 of debt discount was recorded.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments included in current assets and current liabilities
include cash and cash equivalents, accounts and trade receivables and accounts
payable and accrued expenses. The carrying amounts of these instruments
approximate fair value because of the short maturity of those instruments.
Notes payable-stockholders and obligations under capital leases have
carrying values that approximate fair values as the significant notes are
carried net of imputed interest calculated at approximate current market rates.
F-19
<PAGE> 70
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
The Company............................. 12
Use of Proceeds......................... 12
Dividend Policy......................... 12
Capitalization.......................... 13
Dilution................................ 14
Selected Consolidated Financial Data.... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................... 16
Business................................ 22
Recent Developments..................... 32
Management.............................. 33
Certain Transactions.................... 38
Principal Stockholders.................. 39
Description of Capital Stock............ 41
Shares Eligible for Future Sale......... 43
Underwriting............................ 45
Legal Matters........................... 46
Experts................................. 46
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
APACHE LOGO
APACHE Medical
Systems, Inc.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
LEHMAN BROTHERS
VOLPE, WELTY & COMPANY
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................................ $11,103
National Association of Securities Dealers, Inc. filing fee........................ 3,720
Nasdaq National Market entry fee................................................... 50,000**
Blue Sky fees and expenses......................................................... *
Legal fees and expenses............................................................ *
Accountants' fees and expenses..................................................... *
Printing and engraving expenses.................................................... *
Transfer Agent and Registrar fees and expenses..................................... *
Miscellaneous...................................................................... *
-------
Total......................................................................... $ *
=======
</TABLE>
- ------------------------------
* To be supplied by amendment.
** Estimated.
The Company will bear all of the foregoing fees and expenses.
The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market entry fee, are estimates.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant shall, subject to certain limitations, indemnify its
directors and officers against expenses (including attorneys' fees, judgments,
fines and certain settlements) actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as they
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to a criminal action
or proceeding, so long as they had no reasonable cause to believe their conduct
to have been unlawful.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. The enabling
statute provides, however, that liability for breaches of the duty of loyalty,
acts or omissions not in good faith or involving intentional misconduct, or
knowing violation of the law, and the unlawful purchase or redemption of stock
or payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner. The Registrant's Amended and
Restated Certificate of Incorporation includes a provision which eliminates, to
the fullest extent permitted, director liability for monetary damages for
breaches of fiduciary duty.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company sold the following securities that were not registered under the
Securities Act:
On January 24, 1994, the Company sold an aggregate of 209,994 shares of
Series D Convertible Preferred Stock for net proceeds of $5,721,596.
II-1
<PAGE> 72
In August 1994, the Company issued 8,742 shares of Common Stock to George
Washington University in consideration of certain contractual commitments and
agreements as to certain methodologies and databases transferred to the Company.
On December 28, 1995, the Company sold an aggregate of 174,995 shares of
Series E Convertible Preferred Stock for net proceeds of $4,672,395.
On December 28, 1995, the Company issued 27,999 shares of Series F
Convertible Preferred Stock in conversion of promissory notes in the principal
amount of $800,000.
In August 1995, the Company issued 2,623 shares of Common Stock to a former
employee who exercised a vested stock option at the per share exercise price of
$2.86. In February 1996, the Company issued 117 shares of Common Stock to a
former employee who exercised a vested stock option at the per share exercise
price of $8.18. In May 1996, the Company issued 671 shares of Common Stock to a
former employee who exercised a vested stock option at the per share exercise
price of $8.18.
Since January 1, 1993, the Company has issued to various directors,
employees and advisers of the Company, pursuant to the Company's Stock Option
Plan, options to purchase 3,999,297 shares of Common Stock at exercise prices
ranging from $7.26 to $8.18.
In connection with the Company's private placement of Series E Convertible
Preferred Stock, the Company issued a warrant to the placement agent, Allen &
Company Incorporated ("Allen"), which gives Allen the right to purchase 36,713
shares of Common Stock at a price of $8.18 per share. Additionally, the Company
issued warrants to purchase an aggregate of up to 349,653 shares of Common Stock
at $1.43 per share in February 1995 and April 1995 and 73,356 shares of Common
Stock at $8.18 per share to four lenders in connection with loan transactions
consummated in August 1995.
In April 1994, the Company issued to Cleveland Clinic Foundation an option
to purchase up to 65,735 shares of Common Stock at a price of $4.29 per share in
connection with the acquisition of cardiovascular surgery know-how and a related
database.
No underwriters were involved in any of the foregoing sales of securities.
Each of the foregoing issuances was made in reliance upon an exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
relative to sales by an issuer not involving any public offering or the rules
and regulations thereunder, or, in the case of options to purchase shares of
Common Stock issued pursuant to the Company's Stock Option Plan, Rule 701 of the
Securities Act as being pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS -- See Index to Exhibits.
(b) FINANCIAL STATEMENT SCHEDULES
VIII Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with
II-2
<PAGE> 73
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of McLean,
State of Virginia, on the 4th day of June, 1996.
APACHE MEDICAL SYSTEMS, INC.
By: /s/ GERALD E. BISBEE, JR.
------------------------------------
Gerald E. Bisbee, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on June 4, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<C> <S>
/s/ GERALD E. BISBEE, JR. Chairman and Chief Executive Officer
- --------------------------------------------
Gerald E. Bisbee, Jr.
/s/ BRION D. UMIDI Vice President, Finance and Administration,
- -------------------------------------------- Treasurer (Chief Financial and Accounting
Brion D. Umidi Officer)
* Director
- --------------------------------------------
Edward J. Connors
* Director
- --------------------------------------------
Thomas W. Hodson
* Director
- --------------------------------------------
William A. Knaus
* Director
- --------------------------------------------
Lawrence S. Lewin
Director
- --------------------------------------------
Neal L. Patterson
* Director
- --------------------------------------------
Stephen W. Ritterbush
* Director
- --------------------------------------------
Francis G. Ziegler
*/s/ GERALD E. BISBEE, JR.
- --------------------------------------------
Gerald E. Bisbee, Jr., as attorney-in-fact
pursuant to power of attorney granted in
Registration Statement No. 333-4106,
April 26, 1996.
</TABLE>
S-1
<PAGE> 75
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
CHARGED CHARGED
BALANCE AT TO COSTS AND TO OTHER BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------------- ------------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable
1993......................... $ 64,500 -- -- -- $ 64,500
1994......................... 64,500 $ 78,500 -- -- 143,000
1995......................... 143,000 126,300 -- $ 78,500 190,800
Deferred tax assets valuation
allowance
1993......................... -- -- $2,221,500 -- 2,221,500
1994......................... 2,221,500 -- 3,512,500 -- 5,734,000
1995......................... 5,734,000 -- 1,857,900 -- 7,882,500
</TABLE>
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTIONS PAGE
- ------- ------------------------------------------------------------------------------------ ----------
<C> <S> <C>
1.1 * Form of Underwriting Agreement
3.1 * Amended and Restated Certificate of Incorporation
3.2 + By-laws
4.1 Specimen Common Stock Certificate
5.1 * Opinion of Gardner, Carton & Douglas
10.1 + APACHE Medical Systems, Inc. Employee Stock Option Plan
10.2 + APACHE Medical Systems, Inc. Non-Employee Director Option Plan
10.3 + Sublease Agreement between the Company and First Union National Bank of Virginia,
dated March 17, 1994.
10.4 + Registration Agreement between the Company and Certain Stockholders, dated December
28, 1995.
10.5 Form of Warrant Agreement relating to warrants issued in 1995
10.6 + Warrant Agreement between the Company and Venture Fund of Washington dated May 13,
1991
10.7 Loan Agreement between the Company and Benefit Capital Management Corporation, dated
February 24, 1995
10.8 Licensing Agreement between the Company and Cerner Corporation, dated February 2,
1995
10.9 Nonqualified Stock Option Agreement between the Company and The Cleveland Clinic
Foundation, dated August 19, 1994
10.10++ Agreement between the Company and The George Washington University, dated August 19,
1994
10.11++ Letter Agreement between the Company and the Northern New England Cardiovascular
Disease Study Group, dated March 13, 1995
10.12* Licensing Agreement between the Company and Quality Information Management
Corporation, dated March 24, 1994
10.13* Marketing Agreement between the Company and American Healthcare Systems Purchasing
Partners, L.P., dated as of June 3, 1996
11.1 Statement re: Computation of Per Share Earnings
21.1 + List of Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 * Consent of Gardner, Carton & Douglas (included in Exhibit 5.1)
24.1 + Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment has been requested for a portion of this exhibit.
E-1
<PAGE> 1
EXHIBIT 4.1
[SEAL] APACHE MEDICAL SYSTEMS, INC. [SEAL]
COMMON STOCK A DELAWARE CORPORATION COMMON STOCK
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT CUISP 03746E 10 2
SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE,
OF
APACHE MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(the "Company"), transferable in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. The holder hereof accepts
said shares of common stock with notice of, and subject to, the provisions of
the Company's Certificate of Incorporation and Bylaws and all amendments
thereto. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ /s/
---------------------- -------------------------
Secretary Chairman
[SEAL]
<PAGE> 2
[COMMON STOCK CERTIFICATE]
[REVERSE SIDE]
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-__________Custodian_________
(Cust) (Minor)
TEN ENT - as tenants by the
entireties under Uniform Gifts to Minors
Act _________
JT TEN - as joint tenants with (State)
right of survivorship
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For value received ____________________________________hereby sell, assign
and transfer unto
Please insert Social Security or other
identifying number of assignee, if any
- -------------------------------------
- -------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the Company with full power of
substitution in the premises.
_____________________________________________
Notice: The signature to this assignment must
correspond with the name as written upon the
Date: ___________________________ face of the certificate in every particular
without alteration or enlargement or any
change whatever. The signature of the
person executing this power must be
guaranteed by an Eligible Guarantor
Institution such as a Commercial Bank,
Trust Company, Securities Broker/Dealer,
Credit Union, or Savings Association
participating in a Medallion program
approved by the Securities Transfer
Association, Inc.
<PAGE> 1
EXHIBIT 10.5
FORM OF WARRANT AGREEMENT
The terms of the warrants that vary for each warrant are set forth
below. The form of the warrant follows.
<TABLE>
<CAPTION>
Shares
Underlying Exercise
Holder Date Issued Warrant Price
- -------------------------------------- ----------------- ---------- --------
<S> <C> <C> <C>
Benefit Capital Management Corporation February 23, 1995 142,857 $0.50
Benefit Capital Management Corporation August 17, 1995 69,930 $2.86
Caremark Inc. February 23, 1995 342,857 $0.50
Caremark Inc. August 17, 1995 69,930 $2.86
LHC Corporation February 23, 1995 57,143 $0.50
LHC Corporation August 17, 1995 34,965 $2.86
New York Life Insurance Company April 6, 1995 457,143 $0.50
New York Life Insurance Company August 17, 1995 34,965 $2.86
Allen & Company Incorporated December 28, 1995 104,997 $2.86
</TABLE>
<PAGE> 2
THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") AND MAY
NOT BE OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
APACHE MEDICAL SYSTEMS, INC.
1650 Tysons Boulevard, Suite 300
McLean, Virginia 22102-3915
WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, or assigns (the
"Holder") is entitled to subscribe for and purchase from APACHE MEDICAL
SYSTEMS, INC., a Delaware corporation (the "Company"), at any time or from time
to time on and after the date hereof (the "Warrant Exercisable Date") and
ending at 5:00 p.m. New York time on the fifth (5th) calendar anniversary
hereof, ( ) shares of the fully paid and nonassessable
Common Stock of the Company (the "Shares"), at a price per share of $
(the "Warrant Price"), subject to adjustment and upon the terms and conditions
hereinafter set forth. As used herein, the term "Common Stock" shall mean the
Company's presently authorized Common Stock, $.01 par value per share.
[This Warrant (the "Warrant", such term to include any Warrants issued in
substitution therefor) is issued pursuant to the engagement letter, dated
, 199_, between Holder and the Company under which Holder acts
as a placement agent.]
OR
[This Warrant is one of one or more warrants (the "Warrants") of the same
form and having the same terms as this Warrant. The Warrants have been issued
pursuant to several Loan Agreements, dated as of , 199_, or within
60 days thereafter, each having identical terms and conditions, other than the
name of the lender, the principal amount of the loan made to the Company
thereunder, and the number of Shares to be issued to such lender (collectively,
the "Loan Agreements"), among the Company, the Holder and the other lenders
named therein (collectively, the "Lenders"), and the Holder is entitled to
certain benefits as set forth therein. The Company shall keep copies of the
Loan Agreements, and any amendments thereto, at its principal place of business
and shall furnish copies thereof to the Holder upon request.]
<PAGE> 3
1. Method of Exercise; Payment; Issuance of New Warrant.
(a) The purchase right represented by this Warrant may be
exercised by the Holder, in whole or in part and from time on or after the
Warrant Exercisable Date, by (i) the surrender of this Warrant (with the notice
of exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and (ii) the payment to the Company, by check or wire
transfer of funds to an account specified in writing by the Company, of an
amount equal to the Warrant Price per share. The person or persons in whose
name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the Holder as soon as possible and in any event
within 30 days of receipt of such notice and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder as soon as possible and in any
event within such 30-day period.
(b) In lieu of exercising this Warrant as provided in Section
1(a) above, the Holder may elect to receive shares equal to the value of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant
at the principal office of the Company together with notice of such election,
in which event the Company shall issue to the Holder hereof a number of shares
of Common Stock computed using the following formula:
X = Y (A - B)
---------
A
Where
X - The number of shares of Common Stock to be issued
to Holder;
Y - The number of shares of Common Stock purchasable
under this Warrant;
A - The fair market value of one share of the
Company's Common Stock; and
B - Warrant Price (as adjusted to the date of such
calculations);
provided that in no event shall "X" be less than zero (0).
(c) For purposes of Section l(b) above, fair market value of
Common Stock shall mean the average of the closing bid and asked prices of the
Common Stock quoted in the over-the-counter market in which the Common Stock is
traded or the closing price quoted on
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<PAGE> 4
any exchange on which the Common Stock is listed, whichever is applicable, as
published in The Wall Street Journal for ten trading days prior to the date of
determination of fair market value. If the Common Stock is not traded in the
over-the-counter market or on an exchange, the fair market value shall be the
price per share of Common Stock that the Company could obtain from a willing
buyer for shares sold by the Company from authorized but unissued shares, as
such price shall be determined in good faith by the Company's Board of
Directors.
2. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all preemptive
rights, taxes, liens and charges with respect to the issue thereof; provided
that the Company shall not be required to pay any transfer taxes with respect
to the issue of shares in any name other than that of the registered holder
hereof. During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized, and reserved
for the purpose of the issue upon exercise of the purchase rights evidenced by
this Warrant, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant. The Company shall at
all times take all such action and obtain all such permits or orders as may be
necessary to enable the Company lawfully to issue such shares of Common Stock
as duly and validly issued, fully paid and nonassessable shares upon exercise
in full of this Warrant.
3. [INTENTIONALLY OMITTED]
4. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the current market price of such Shares then in effect as determined in good
faith by the Company's Board of Directors.
5. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Adjustment for Stock Splits and Combinations. If the
Company at any time or from time to time effects a subdivision of the
outstanding Common Stock, the Warrant Price for the Common Stock issuable upon
exercise of this Warrant immediately before the subdivision shall be
proportionately decreased, and conversely, if the Company at any time or from
time to time combines the outstanding shares of Common Stock, the Warrant Price
of the Common Stock issuable upon exercise of this Warrant immediately before
the combination shall be proportionately increased. Any adjustment under this
paragraph (a) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions. In
the event the Company at any time, or from time to time, makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
issuable upon exercise of this Warrant shall be increased as of the time of
such issuance or, in the event such a record date is fixed, as of the close of
business on such record date, by multiplying the number of shares of Common
Stock issuable upon exercise of this Warrant by a fraction, (i) the numerator
of which shall be the total number of shares of
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<PAGE> 5
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution, and (ii)
the denominator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed thereof, the number of shares of Common Stock issuable
upon exercise of this Warrant shall be recomputed accordingly as of the Close
of business on such record date and thereafter the number of shares of Common
Stock issuable upon exercise of this Warrant shall be adjusted pursuant to this
paragraph (b) as of the time of actual payment of such dividends or
distributions.
(c) Adjustment for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the exercise of this Warrant is
changed into the same or different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this
Subsection), then and in any such event the Holder shall have the right
thereafter to exercise this Warrant into the kind and amount of stock and other
securities receivable upon such recapitalization, reclassification or other
change, by holders of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such recapitalization,
reclassification or change, and the Warrant Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided herein
and under the Company's Restated Certificate of Incorporation, as it may be
amended from time to time.
(d) Reorganization, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time there is a capital reorganization
of the Common Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Subsection) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder shall thereafter be entitled to receive upon exercise of this
Warrant, upon payment of the Warrant Price then in effect, the number of shares
of stock or other securities or property of the Company, or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, merger, consolidation, or sale. In any such case
(except to the extent any cash or property is received in such transaction),
appropriate adjustment shall be made in the application of the provisions of
this Subsection and the Company's Restated Certificate of Incorporation, as
amended from time to time, with respect to the rights of the Holder after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Subsection and the Company's Restated Certificate of Incorporation
(including adjustment of the number of shares of Common Stock issuable upon
exercise of this Warrant) shall be applicable after that event and be as nearly
equivalent to the provisions hereof as may be practicable.
(e) No Impairment. The Company will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid
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<PAGE> 6
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the Holder against dilution or other
impairment.
(f) Notice of Capital Changes. If at any time the Company
shall offer for subscription pro rata to the holders of shares of Common Stock
any additional shares of stock of any class, other rights or any equity
security of any kind, or there shall be any reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to another company or
there shall be a voluntary or involuntary dissolution, liquidation or winding
up of the Company, then, in any one or more of said cases, the Company shall
give the Holder written notice, by registered or certified mail, postage
prepaid, of the date on which (i) a record shall be taken for such subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of record
of shares of Common Stock shall participate in such subscription rights, or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the
case may be. Such written notice shall be given at least 20 business days prior
to the action in question and not less than 20 business days prior to the
record date in respect thereto.
(g) Adjustment of Number of Shares. Upon each
adjustment in the Warrant Price, the number of Shares of Common Stock
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
6. Notice of Adjustments. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to Paragraph
5 hereof, the Company shall make a certificate signed by an officer of the
Company setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price and the number of Shares purchasable
after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) to the Holder.
7. Compliance with Securities Act; Disposition of Warrant or Shares
of Common Stock.
(a) Compliance with Securities Act. The Holder, by acceptance
hereof, agrees that this Warrant and the shares of Common Stock to be issued
upon exercise hereof are being acquired for investment and that such Holder
will not offer, sell or otherwise dispose of this Warrant or any shares of
Common Stock to be issued upon exercise hereof except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended (the
"Act"). All shares of Common Stock issued upon exercise of this Warrant (unless
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<PAGE> 7
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR
DISPOSITION MAY BE EFFECTED UNLESS (i) THE SECURITY IS
REGISTERED UNDER THE ACT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN
OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, IS OBTAINED TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED, OR
(iii) A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION IS OBTAINED TO THE EFFECT THAT
NO ENFORCEMENT ACTION WILL BE PURSUED IF THE
SECURITY IS SOLD OR DISPOSED OF WITHOUT REGISTRATION
UNDER SUCH ACT."
(b) Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Common Stock
acquired pursuant to the exercise of this Warrant prior to registration of such
shares, the Holder agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of the
Holder's counsel, reasonably acceptable to the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of this Warrant or such shares of Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Common Stock to be sold or otherwise disposed of require any restrictive legend
as to applicable restrictions on transferability in order to insure compliance
with the Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify the Holder that the Holder may sell or otherwise dispose of this
Warrant or such shares of Common Stock, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this subparagraph (b) that the opinion of counsel for the Holder is not
reasonably satisfactory to the Company, the Company shall so notify the Holder
promptly after such determination has been made. Notwithstanding the foregoing,
this Warrant or such shares of Common Stock may be offered, sold or otherwise
disposed of in accordance with Rule 144 under the Act, provided that the
Company may request a reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the shares of
Common Stock thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
insure compliance with the Act, unless in the aforesaid opinion of counsel for
the Holder, such legend is not required in order to insure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
8. Additional Liquidity Rights. The Company agrees that it will
promptly provide the Holder with at least 20 business days' notice of the terms
and conditions of any proposed transaction pursuant to which the Company would
(i) sell, lease, exchange, convey or otherwise dispose of all or substantially
all of this property or business, or (ii) merge into or
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<PAGE> 8
consolidate with any other corporation (other than a wholly-owned subsidiary of
the Company), or effect any transaction (including a merger or other
reorganization) or series of related transactions, in which more than 50% of
the voting power of the Company is disposed of.
9. Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights of privileges of Holder hereof, shall give
rise to any liability of such Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
10. Rights as Shareholders; Information. No Holder, as such, shall
be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein. Notwithstanding the foregoing, the Company will transmit to the Holder
such information, documents and reports as are generally distributed to the
holders of any class or series of the securities of the Company concurrently
with the distribution thereof to the shareholders.
11. Representations and Warranties. The Company represents and
warrants to the Holder as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Shares and the holders thereof are as set forth
in the Company's Restated Certificate of Incorporation, as amended, a true and
complete copy of which has been delivered to the original Holder; and
(d) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Restated Certificate
of Incorporation or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to the Company,
and, except for consents that have already been obtained by the Company, do not
and will not conflict with or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with or the taking of
any action in respect of or by, any Federal, state or local government
authority or agency or other person.
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<PAGE> 9
12. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid,
to each Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this
Warrant.
14. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the Holder. The Company will, at
the time of the exercise or conversion of this Warrant, in whole or in part,
upon request of the Holder but at the Company's expense, acknowledge in writing
its continuing obligation to the Holder hereof in respect of any rights
(including, without limitation, any right to information and the repurchase
obligation of the Company) to which the Holder hereof shall continue to be
entitled after such exercise in accordance with this Warrant; provided that the
failure of the Holder to make any such request shall not affect the continuing
obligation of the Company to the Holder in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to
the Holder that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant or any stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company (provided, that,
in the case of a regulated financial institution having admitted assets in
excess of One Billion Dollars, a letter of indemnity by such institution shall
be deemed satisfactory), or in the case of any such mutilation upon surrender
and cancellation of such Warrant or stock certificate, the Company will make
and deliver a new Warrant or stock certificate, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of Delaware, without regard to principles of
conflicts of law.
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<PAGE> 10
APACHE MEDICAL SYSTEMS, INC.
By:__________________________
Title:_______________________
Dated:
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<PAGE> 11
EXHIBIT A
NOTICE OF EXERCISE
To: APACHE MEDICAL SYSTEMS, INC.
(1) The undersigned hereby elects to purchase _____
shares of Common Stock of APACHE MEDICAL SYSTEMS, INC. pursuant to the terms of
the attached Warrant, and (unless such election is being made pursuant to
Section 1(b) of such Warrant) tenders herewith payment of the purchase price
for such shares in full.
(2) In exercising this Warrant, the undersigned
hereby confirms and acknowledges that the shares of Common Stock are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, and for investment, and that the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock except under
circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates
representing said shares of Common Stock in the name of the undersigned or in
such other name as is specified below:
_________________________________________
(Name)
_________________________________________
(Name)
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<PAGE> 12
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
------------------------------
(Name)
------------------------------
(Address)
------------------------------
(Signature)
------------------------------
(Date)
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<PAGE> 1
EXHIBIT 10.7
APACHE MEDICAL SYSTEMS
LOAN AGREEMENT
THIS AGREEMENT is made and entered into this day of February, 1995,
by and between Benefit Capital Management Corporation, a corporation,
as Investment Manager for Prudential Insurance Company of America, a
corporation, Separate Account No. VCA-GA-5298, (together with its successors
and assigns "Lender"), and Apache Medical Systems, Inc., a Delaware business
corporation ("Borrower").
WITNESSETH
WHEREAS, Borrower desires to borrow from Lender, and Lender is willing to
loan to Borrower, the sum of Two Hundred Fifty Thousand Dollars ($250,000),
under the terms and conditions set forth herein;
WHEREAS, Lender would not make the Loan without the issuance to it of a
Warrant, exercisable for shares of the Borrower's common stock, on the terms
and conditions set forth in the form of Warrant annexed to this Agreement as
Exhibit D;
WHEREAS, in order to induce Lender to make the Loan, Borrower has agreed
to issue the Warrant to Lender on such terms and conditions; and
NOW THEREFORE, in consideration of the mutual promises and understandings
hereinafter set forth, the parties hereby agree as follows:
ARTICLE A. DEFINITIONS
As used herein, the following terms shall have the following meanings:
1. "Business Day" - means a day other than a Saturday, Sunday or day on
which commercial banks in Washington, D.C. are authorized or required by law to
close.
2. "Code" means the Uniform Commercial Code as adopted and enforced in the
State of Virginia.
3. "Event of Default" - shall have the meaning assigned to it in Article G
of this Agreement.
Benefit Capital/Apache LA
2/23/95
Page 1
<PAGE> 2
4. "GAAP" means Generally Accepted Accounting Principles as adopted
in the United States, consistently applied throughout the reporting period.
5. "Issuance" shall have the meaning assigned to it in Paragraph B(2)(a) of
this Agreement.
6. "Lenders" means the Lender and the parties to Loan Agreements
substantially identical to this Agreement but for the name of the Lender, the
amount of the Loan and number of Warrant Shares (the "Other Loan Agreements").
7. "Lien" - means any encumbrance, including without limitation, any
mortgage, pledge, hypothecation, assignment, lien (statutory or other),
security interest or other security agreement or arrangement (including,
without limitation, any sales or other title retention agreement), any
financing lease having the same economic effect as any of the foregoing and the
filing of any financing statement or similar instrument under the Code.
8. "Loan" shall have the meaning assigned to it in Paragraph B(1) of
this Agreement.
9. "Note" - means that certain promissory note of Borrower, as maker, to
Lender, as payee, executed concurrently herewith in the amount of the Loan and
in the form annexed hereto as Exhibit A.
10. "Person" - means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
11. "Repayment" shall have the meaning assigned to it in Paragraph B(2)(a)
of this Agreement.
12. "Term" shall mean the period from the date hereof until the Note shall
be fully repaid.
ARTICLE B. AMOUNT AND TERMS OF LOAN
1. Subject to all the terms and conditions hereof, Lender agrees to lend
and, concurrently with its execution hereof, lends to Borrower the sum of Two
Hundred Fifty Thousand Dollars ($250,000) (the "Loan") under the terms and
conditions set forth
Benefit Capital/Apache LA
2/23/95
Page 2
<PAGE> 3
herein and evidenced by the Note. Lender shall wire transfer the amount of the
Loan to Borrower's account set forth on Exhibit B hereto.
1. Principal:
(a) The principal amount of the Loan shall be repaid by Borrower to
Lender under the terms hereof (the "Repayment") on or before December 31, 1996
(the "Due Date").
(b) If the Loan is not prepaid by Borrower under the terms of
Paragraph 2(d) hereof, or previously converted by Lender into preferred stock
in Borrower under the terms of Paragraph 2(c) hereof, Lender shall have to
option (the "Repayment Option") to (i) accept repayment of the Loan in cash; or
(ii) convert the Loan into preferred stock in Borrower, of the same tenor and
with the same rights as, and at a per-share price equal to the per-share price
of, the preferred stock sold by Borrower at its then-most-recent sale of
preferred stock (the "Most Recent Sale); provided that, in the event of a
restructuring of the outstanding preferred stock of Borrower through a "stock
split" or other similar adjustment to the number of outstanding shares of
Borrower's preferred stock occurring between the Most Recent Sale and the Due
Date, the per-share price of the preferred stock issued to Lender in payment of
the Loan shall be adjusted to provide to Lender with the number of preferred
shares equivalent to the number that Lender would have received given
Borrower's capital structure at the time Lender exercised the Repayment Option.
(c) If at any time after the date hereof and prior to October
31,1996, Borrower undertakes a sale of any preferred stock (a "Preferred Stock
Sale"), Lender shall have the option (the "Conversion Option") to convert under
the terms hereof the Loan into preferred stock of same class and tenor, and at
the same per-share price, as the preferred stock sold in such Preferred Stock
Sale. The Conversion Option shall be exercised by written notice to Borrower
delivered not less than ten (10) Business Days after Borrower informs Lender
that Borrower intends to undertake the Preferred Stock Sale, and the conversion
undertaken pursuant to the Conversion Option must be consummated concurrently
with, and as part of, the Preferred Stock Sale.
(d) Borrower may prepay the Loan in cash in whole or in part at any
time without penalty, provided that prepayments shall be in amounts of $10,000
or more. Any amount prepaid under this or any other provision of this Agreement
may not be reborrowed from Lender under the terms hereof.
Benefit Capital/Apache LA
2/23/95
Page 3
<PAGE> 4
2. Interest:
(a) No interest shall accrue upon, or shall be payable by
Borrower on or in connection with, the Loan.
3. Business Day: If any payment hereunder or on the Note becomes due and
payable on a day other than a Business Day, the payment date thereof shall be
extended to the next succeeding Business Day.
ARTICLE C. WARRANTS
Concurrently herewith, the Borrower is issuing to Lender a Warrant
exercisable for one hundred forty-two thousand eight hundred fifty-seven
(142,857) shares of Borrower's common stock, and on the terms and conditions
set forth in the form of Warrant annexed hereto as Exhibit C (collectively with
the other warrants issued in connection with the Loans, the "Warrants").
ARTICLE D. REPRESENTATIONS AND WARRANTIES
To induce Lender to make loans to Borrower pursuant to this Agreement,
Borrower hereby represents and warrants to Lender which representations and
warranties shall continue in full force and effect as long as loaned amounts
are outstanding hereunder, as follows:
1. Borrower is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware. Borrower has the
power and authority and the legal right to own or lease, and to operate, its
property, and to conduct the business in which it is currently engaged and in
which it proposes to engage as contemplated herein. Borrower is in compliance
with all requirements of law except to the extent that the failure to comply
therewith would not, in the aggregate, have a material adverse effect on the
business, operations, assets (taken in the aggregate) or present or prospective
financial condition of Borrower, or could not be reasonably likely to, in the
aggregate, materially adversely affect the ability of Borrower to perform its
obligations hereunder. Borrower has duly recorded or filed any necessary
articles of incorporation or other organizational certificates or trade name
affidavits in all offices and is qualified to do business in all jurisdictions
where its ownership, lease or operation of property or the conduct of its
business requires such recordation, filing or qualification. Neither the
execution, delivery or performance of this Agreement nor the consummation of
any of the transactions contemplated hereby
Benefit Capital/Apache LA
2/23/95
Page 4
<PAGE> 5
will, with or without the giving of notice or the passage of time or both,
conflict with, result in a default or loss of rights or give rise to any right
of termination, cancellation or acceleration under, or result in the creation
of any Lien, pursuant to the terms of (a) the Certificate of Incorporation or
By-Laws of Borrower; (b) any note, bond, indenture, mortgage, contract, deed of
trust, agreement, lease or other instrument or obligation to which Borrower is
a party or by which it or any of its property is bound or affected; or (c) any
law, order, judgment, ordinance, rule, regulation or decree to which Borrower
is a party, or by which it or its property is bound or affected.
2. The authorized capital stock of Borrower, as of the Closing Date,
will consist of (a) 1,137,716 shares of preferred stock having a par value of
$.01 per share ("Preferred Stock"), of which (i) 200,000 shares have been
designated as Series A Preferred, all of which shares are issued and
outstanding, (ii) 140,754 shares have been designated as Series B Preferred,
all of which shares are issued and outstanding, (iii) 140,754 shares have been
designated as Series B-1 Preferred Stock, none of which are issued or
outstanding, (iv) 118,110 shares have been designated as Series C Preferred,
all of which are issued and outstanding, (v) 118,110 shares have been
designated as Series C-1 Preferred Stock, none of which are issued or
outstanding, (vi) 209,994 shares have been designated as Series D Preferred,
all of which are issued and outstanding, and (vii) 209,994 shares have been
designated as Series D-1 Preferred Stock, none of which are issued or
outstanding; and (b) 14,150,000 shares of common stock of Borrower, $.01 par
value ("Common Stock"), of which (i) 3,068,300 shares are issued and
outstanding, (ii) 7,392,350 are reserved for issuance on conversion of the
Preferred Stock, (iii) 50,000 are reserved for issuance upon exercise of
outstanding warrants, (iv) 2,433,000 are reserved for issuance pursuant to
employee stock purchase or stock option ownership plans which have been adopted
by Borrower for key employees, Directors and key consultants and advisors, and
(v) 1,142,857 shares of which are reserved for issuance upon exercise of the
Warrants (items "(b)(iii), (iv) and (v) collectively shall be referred to
herein as the "Reserved Shares"). The outstanding shares of Borrower's capital
stock have been duly authorized and validly issued and are fully paid and
non-assessable. Holders of shares of Borrower's capital stock have no
preemptive rights, and except for the University Hospitals' Participation
Rights (as defined in Section 5.11) and except as set forth in the agreements
entered into by Borrower to issue preferred stock, no holder of shares of
Borrower's capital stock has any right of first refusal to purchase securities
sold by Borrower. Except for transactions entered into in connection with the
issuance by Borrower of preferred stock, there are (i) no outstanding warrants,
options, convertible securities or rights to subscribe for or purchase any
capital stock or other securities from Borrower, or obligation of Borrower to
issue any capital stock or other securities, (ii) so far as known to Borrower,
no voting trusts or voting agreements among, or irrevocable proxies executed
by, stockholders of
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<PAGE> 6
Borrower, (iii) no existing rights of stockholders to require Borrower to
register any securities of Borrower or to participate with Borrower in any
registration by Borrower of its securities, (iv) so far as known to Borrower,
no agreements among stockholders providing for the purchase or sale of
Borrower's capital stock and (v) no obligations (contingent or otherwise) of
Borrower to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
3. (a) Borrower has all necessary legal and other power, authority
and right to make, deliver and perform this Agreement and to borrow hereunder
and has taken all necessary action to authorize the performance of its
undertakings hereunder on the terms and conditions of this Agreement and the
Note, to enter into the transactions contemplated hereby and to authorize the
execution, delivery and performance of this Agreement. This Agreement has been
duly executed and delivered on behalf of Borrower and constitutes a legal,
valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforceability may be limited (a) by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally; and (b) to the extent
that the remedies of specific performance and injunctive or other forms of
equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(b) Schedule D(3)(b) hereto contains a true and complete list
of all patents, patent applications, trademarks, service marks, trade names,
copyrights and licenses and rights to the foregoing presently owned or held by
the Company, none of which to the Company's knowledge is the subject of any
dispute or conflict with the right of any other person or entity except as
indicated on Schedule D(3)(b). To the best of Borrower's knowledge, except as
set forth in Schedule D(3)(b), Borrower (i) owns or has the right to use, free
and clear of all liens, claims and restrictions, all patents, trademarks,
service marks, trade names and copyrights, and licenses and rights with respect
to the foregoing, used in the conduct of its business as now conducted or
proposed to be conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any person, corporation or other entity under
or with respect to any of the foregoing, and (ii) is not obligated or under any
liability whatsoever, except as set forth in Schedule D(3)(b) to make any
payments by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service mark, trade name, copyright
or other intangible assets, with respect to the use thereof in connection with
the conduct of its business or otherwise.
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<PAGE> 7
(c) Borrower owns or has the right to use all trade secrets,
including know-how, inventions, designs, processes, works of authorship,
computer programs (with the exception of normal software purchased and sold as
such) and technical data and information (collectively herein "Intellectual
Property") required for or incidental to the development, manufacture,
operation and sale of the products and services sold or currently being
developed for sale or licensure by Borrower and, to the best of Borrower's
knowledge, such use does not violate any right, lien, or claim of others,
including without limitation, former employers of Company employees; provided,
however, that the foregoing is qualified by the possibility that other persons
or entities, completely independently of Borrower or its employees or agents,
could have developed trade secrets or items of technical information or
intellectual property similar or identical to those of Borrower. Borrower is
not aware of any such development of similar or identical trade secrets or
technical information by others.
(d) Borrower has taken reasonable security measures to protect
the secrecy and confidentiality and value of all its Intellectual Property.
Each of Borrower's employees and independent contractors who developed,
invented, discovered, derived, programmed or designed the Intellectual
Property, or who has knowledge of or access to proprietary information about
the Intellectual Property, has entered into a written agreement with Borrower
in the form of Exhibit D hereto. Borrower is not aware that any of its
employees or any persons who it intends to employ who has signed such an
agreement is in material violation thereof.
4. All taxes, licenses and fees incurred in the organization and
operation of Borrower's business have been paid or provided for, and all tax
returns required to be filed have been timely filed by Borrower. There are no
tax investigations pending or to the best of Borrower's knowledge threatened
against Borrower, and no extensions of the statute of limitations on the
assessment of any tax against Borrower have been granted by Borrower.
5. No litigation, investigation or claim of any kind or nature, is
pending or, to the best of Borrower's knowledge, threatened against Borrower,
nor are there any proceedings by any public body, agency or authority presently
pending or, to the best of Borrower's knowledge, threatened against Borrower.
6. Borrower has furnished the Lender with (i) audited financial
statements as of and for the year ended December 31, 1993 and (ii) unaudited
financial statements as of and for the 11-month period ended November 30, 1994
(collectively referred to herein as the "Financial Statements"). The Financial
Statements have been prepared in
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<PAGE> 8
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the period involved, are correct and complete in all
material respects, and fairly present the financial position of the Borrower as
of said date and the results of operations of the Borrower for the period
indicated, except that the November 30, 1994 Financial Statements are subject
to normal year-end audit adjustments and may not contain all footnotes required
by GAAP. The Borrower has not liabilities, debts or obligations, whether
accrued, absolute or contingent, other than (a) liabilities reflected or
reserved against in the balance sheet of the Financial Statements, and (b)
liabilities incurred since December 31, 1994 in the ordinary and usual course
of business.
7. Borrower is not in violation of any provision of its Certificate of
Incorporation or, to its knowledge, of any law, ordinance, requirement,
regulation, judgment, injunction, award, decree or order applicable to its
business. There is not under any agreement or instrument to which the Borrower
is a party any existing material default or event which with notice or lapse of
time or both would constitute a material default or create a material lien,
charge or encumbrance on any assets of the Borrower.
8. Neither this Agreement nor any document, certificate or statement
furnished to the Lender in connection herewith, when taken as a whole, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
ARTICLE E. AFFIRMATIVE COVENANTS.
While this Agreement is in effect, Borrower shall:
1. furnish Lender at Borrower's expense with monthly, quarterly and
annual financial information in the same form and format, and providing at
least the same information, as provided to Lender to date in its role as a
shareholder of Borrower;
2. furnish Lender, from time to time, with reasonable promptness and at
Borrower's expense, more frequent or more detailed financial statements and
such other financial statements and other information with respect to its
financial condition, operations or otherwise as Lender may reasonably request;
3. keep proper books of record and account in which full, true and
correct entries in conformity with GAAP shall be made and which comply with all
requirements of law with respect to all dealings and transactions in relation
to
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<PAGE> 9
Borrower's business and activities, and upon reasonable notice, permit
representatives of Lender to visit and inspect any of Borrower's properties
and examine and make abstracts from any of its books and records at any
reasonable time during normal business hours and as often as may reasonably be
desired, and to discuss the business, operations, properties and financial and
other independent certified public accountants;
4. comply with all contractual obligations, and requirements of
federal, state and local law, binding upon Borrower, except where the failure
to so comply would not materially and adversely affect (a) the business,
operations, assets (taken as a whole) or financial condition of Borrower; or (b)
the ability of Borrower to perform its obligations hereunder;
5. keep all property useful and necessary in Borrower's business in
good working order and condition, reasonable wear and tear excepted;
6. maintain property insurance in amounts and with coverage
satisfactory to Lender on the full replacement cost of insurable properties
owned or leased by Borrower; and keep Borrower insured in amounts not less than
three million dollars ($3,000,000) against liability on account of injury or
death to persons and damage to property and under all applicable workers'
compensation laws;
7. promptly give notice to Lender:
(a) of any occurrence or existence of any fact which, (i) makes
untrue or, with the passage of time is reasonably likely to make untrue, in any
material respect, any representation or warranty given by Borrower under
Article E of this Agreement, or (ii) is or, with the passage of time is
reasonably likely to become, an Event of Default, as of the date of any such
occurrence or the coming into existence of any such fact;
(b) of the occurrence of any Event of Default hereunder; and
(c) of a material adverse change in the business, operation,
assets (taken in the aggregate) or financial condition of Borrower.
8. pay and discharge when due in the normal course any and all of
Borrower's Indebtedness;
9. pay before the same become delinquent all taxes, impositions and
other governmental charges assessed against Borrower or Borrower's properties
or otherwise
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<PAGE> 10
due and payable, except to the extent and so long as contested in good faith
and by appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of Borrower in accordance with GAAP and if such
nonpayment does not impose the risk of any substantial penalties being imposed
or any substantial forfeiture.
ARTICLE F. NEGATIVE COVENANTS
(a) While this Agreement is in effect and until all Liabilities have
been paid, Borrower shall not, without prior written consent of Lender:
1. incur, create, assume or suffer to exist, any Lien upon any of its
rights, properties, income, profits or other assets except
(i) Liens incurred with the consent of Lenders holding a majority of
the then outstanding Loans made under this Agreement and the Other Loan
Agreements;
(ii) Liens granted solely in, and in connection with the purchase
of, property in which the liens are granted;
(iii) Liens granted in Borrower's accounts receivable in connection
with financing disclosed to the Lender prior to the consummation of such
financing and approved by Borrower's Board of Directors prior to the date
hereof;
(iv) Liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of Borrower in accordance with GAAP and if
such nonpayment does not impose the risk of any substantial penalties being
imposed or any substantial forfeiture,
(v) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in connection with debt incurred in the
ordinary course of business which have not been due for a period of more than
thirty (30) days or which have been fully bonded against and are being
contested in good faith and by appropriate proceedings and without the risk of
any substantial penalties being imposed or any substantial forfeiture,
(vi) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation,
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<PAGE> 11
(vii) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business,
(viii) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of Borrower; and
(ix) Liens granted in the ordinary course of business provided that
the aggregate value of the debt secured by such liens does not exceed $100,000.
(b) The Borrower will not enter into agreements with other Lenders or
prospective other Lenders in connection with loans contemplated to be made to
the Borrower on the terms contained in this Agreement unless such agreements
are identical with this Agreement, but for the name of the lender, the amount
of the note to be issued to such lender, the number of shares of common stock
for which the Warrant is exercisable, the date of such other agreement, or the
correction of minor typographical errors, nor will Borrower amend in any
respect the terms of any agreement with other Lenders without the consent of
all Lenders except for the correction of minor typographical errors.
2. permit a warrant of attachment in an amount of $25,000 or more, issued
against any of its rights, properties or other assets, to continue undismissed
or unbonded for a period of fifteen (15) days after levy.
ARTICLE G. EVENTS OF DEFAULT
1. An Event of Default shall occur under this Agreement upon each
occurrence of any of the following events
(a) Borrower shall fail to repay the Loan within fifteen (15) days
of the date when due under the terms hereof;
(b) Borrower shall breach or fail to observe or perform any term,
covenant or condition provided for in this Agreement or the Note, and Borrower
(i) shall not have cured such breach or failure within twenty (20) days of such
breach or
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<PAGE> 12
failure; or (ii) if not possible to cure such breach or failure within twenty
(20) days of such breach or failure, shall not have undertaken corrective
measures reasonably satisfactory to Lender within twenty (20) days of such
breach or failure, and shall not have cured such breach or failure within
thirty (30) days of undertaking such corrective measures, or before the
business, operations, assets (taken in the aggregate) or financial condition of
Borrower, or Borrower's ability to perform any of its obligations hereunder is
materially and adversely affected, whichever occurs first; provided that
Borrower shall have the opportunity to cure such breaches or failures to
observe or perform its obligations hereunder not more than three (3) times in
any twelve (12) month period.
(c) any representation or warranty which Borrower has made or
makes in or in correction with this Agreement shall prove to be false or
erroneous in any material respect;
(d) Borrower shall default in its obligations with respect to any
evidence or evidences of indebtedness or liability for borrowed money, other
than to Lender, if the effect of such default is to accelerate the maturity of
such evidence of such indebtedness or liability;
(e) one or more final judgments shall be rendered against Borrower
by a court of competent jurisdiction for money damages in any aggregate amount
in excess of $100,000 and (i) enforcement proceedings shall have been commenced
by any creditor upon such judgment; and (ii) a stay of enforcement of such
judgment, by reason of a pending appeal or otherwise, shall not be in effect;
(f) any person or entity (an "ACQUIRER") becomes the owner of
fifty percent (50%) or more of Borrower's outstanding voting common stock
(assuming the conversion of all interests convertible into common stock)
without there having been, at the option of Lender, payment in full of the Note
or assumption of the Note by an obligor which is reasonably satisfactory to
Lender pursuant to documentation which is reasonably satisfactory in form and
substance to Lender, or execution and delivery by the Acquirer of a new Loan
Agreement or a guaranty of the Loan in form reasonably acceptable to Lender;
(g) Borrower shall have received notice of any tax Lien, any Lien
not permitted under Subparagraph F(1) or a Lien in favor of the Pension Benefit
Guaranty Corporation, which Lien shall not be discharged or stayed within
thirty (30) days;
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<PAGE> 13
(h) Borrower shall make a general assignment for the benefit of
creditors, consent to the appointment of a trustee or receiver or become
insolvent, bankrupt or unable to pay its debts as they become due;
(i) a trustee or receiver shall be appointed for any properties of
Borrower and not be discharged within sixty (60) days; or
(j) bankruptcy, reorganization, arrangement or liquidation
proceedings shall be instituted by or against Borrower and, if instituted
against Borrower, are consented to by Borrower or permitted to remain
undismissed for sixty (60) days.
2. Upon the occurrence of an Event of Default pursuant to
Subparagraphs G(1)(h)-(i) hereof, all outstanding Principal of the Loan shall
automatically become immediately due and payable without any notice,
presentation, protest or demand of any kind by Lender whatsoever, all of which
are hereby expressly waived; upon the occurrence of any other Event of Default
under this Agreement, all outstanding Principal amount of the Loan shall, upon
delivery of written notice by Lender to Borrower, become immediately due and
payable without any presentation, protest, demand or further notice of any kind
by Lender whatsoever, all of which are hereby expressly waived, and Lender's
commitment to lend shall terminate.
3. Upon the occurrence of an Event of Default under this Agreement, Lender
may terminate this Agreement.
4. The rights and remedies of Lender under this Agreement are cumulative
and the exercise of any one or more of the rights and remedies provided for in
this Agreement shall not be construed as a waiver of any of the other rights
and remedies of Lender under this Agreement or otherwise available. No delay or
omission on the part of Lender in exercising any right or remedy under this
Agreement shall operate as a waiver of such right or remedy or of any other
right or remedy under this Agreement.
5. Lender, its successor or assigns or trustees appointed on behalf of
Lender, is hereby appointed the attorney-in-fact, with full power of
substitution, of Borrower for the purposes of taking action under this Article
or executing instruments that are necessary and appropriate to accomplish the
purpose of this Agreement, such appointment to be effective, if ever, only upon
an Event of Default and, then, only if Borrower refuses to take action, or to
execute instruments, reasonably requested by Lender pursuant to the terms
hereof.
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<PAGE> 14
6. Borrower shall pay all costs and expenses incurred by Lender in
connection with Lender's enforcing its rights hereunder as a result of, and in
connection with, an Event of Default.
ARTICLE H. NOTICES
All notices, requests, demands and other communications relating to
this Agreement shall be in writing and shall be delivered by hand, by
registered mail postage prepaid return receipt requested, by confirmed
facsimile transmission or by overnight delivery service, in the case of Lender
to:
Benefit Capital Management Corporation,
as Investment Manager for Prudential Insurance
Company of America,
Separate Account No. VCA-GA-5298
Attention: Sandra Roth
39 Old Ridgebury Road
Danbury, CT 0681-0001
Tel: 203-794-7703
Fax: 203-794-2693
in the case of Borrower to:
Apache Medical Systems, Inc.
Attention Brion Umidi
1650 Tysons Blvd.
Suite 300
McLean, VA 22102-3915
Tel: 703-847-1400
Fax. 703-847-1401
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<PAGE> 15
with a copy to:
Gardner, Carton & Douglas
Attention: David Main or Grier Raclin
1301 K Street, N.W.
Suite 900, East Tower
Washington, D.C. 20005
Tel: 202-408-7100
Fax: 202-289-1504
or to such other address for any party as is supplied by notice given in
accordance herewith. All such notices shall be deemed to have been duly
delivered and received (a) on the date of delivery by hand, (b) two days
following prepaid deposit with an overnight delivery service, (c) on the date
of receipt (as shown on the return receipt) if mailed by registered mail
postage prepaid return receipt requested, or (d) one day after confirmed
facsimile transmission, as the case may be.
ARTICLE I. CONFIDENTIALITY
Borrower and Lender shall take all reasonable precautions to maintain
the confidentiality of the business terms of this Agreement, and all other
information designated in writing by Lender as proprietary or confidential.
ARTICLE J. MISCELLANEOUS
1. All agreements, covenants, undertakings, representations and warranties
made by Borrower in this Agreement shall survive until the Loan is paid in
full.
2. Borrower shall at any time and from time to time upon written request
of Lender, execute and deliver such further documents and do such further acts
and things as Lender may reasonably request in order to effect the purposes of
this Agreement.
3. When the loans made hereunder shall have been paid in full, this
Agreement shall terminate, and Lender shall at the request and expense of
Borrower execute such documents and instruments as may be reasonably necessary
to evidence the termination of this Agreement.
4. If any part of any provision of this Agreement or any other agreement,
document or writing given pursuant to or in connection with this Agreement
shall be invalid or unenforceable in any respect, such part shall be
ineffective to the extent of
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<PAGE> 16
such invalidity only, without in any way affecting the remaining parts of such
provisions or the remaining provisions of this Agreement, provided that the
remaining parts do not materially alter the benefits of the Agreement for
either party.
5. This Agreement shall continue to be effective or reinstated, as the case
may be, if at any time payment, or any part thereof, of principal hereunder is
rescinded or must otherwise be restored by Lender upon the bankruptcy or
reorganization of Borrower or any other Person or otherwise.
6. This Agreement shall be governed by, and construed in accordance with,
the substantive laws of the Commonwealth of Virginia, without reference to
principles of conflicts of laws.
7. This Agreement may not be amended or modified except with the written
consent of the parties hereto. Any such amendment shall be binding upon each
future holder of the Note, unless thereafter amended as above provided.
8. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties. Neither Borrower nor Lender may assign
nor transfer any of its rights or obligations under this Agreement without the
prior written consent of the other Party hereto.
9. All headings are included for convenience only and shall not affect the
interpretation or construction of this Agreement. All uses herein of the
masculine gender or of singular or plural terms shall be deemed to include uses
of the feminine or neuter gender or plural or singular terms, as the context
may require.
10. This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
11. The transactions contemplated by this Agreement shall not be construed
to create an agency relationship between Lender and Borrower. Lender shall be
treated in all respects and for all purposes as a creditor of Borrower.
12. The terms and conditions contained in this Agreement and its exhibits
supersede all prior oral or written agreements and understandings, including
without limitation the Term Sheet entered into between the parties on February
________, 1995, with respect to the subject matters hereof and thereof and shall
constitute the entire agreement between the parties with respect to such
subject matters.
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<PAGE> 17
13. Any failure on the part of Lender at any time to require the
performance by Borrower of any of the terms or provisions of this Agreement,
even if known, shall in no way affect Lender's right thereafter to enforce the
same, nor shall the waiver by Lender of any term or provision hereof be taken
or held to be a waiver of any succeeding breach of any such term or provision.
No waiver by Lender shall be effective unless in writing and signed by Lender.
14. Borrower shall pay the expenses of Lender incurred in connection with
the negotiation and execution of this Agreement, including attorneys' fees and
expenses.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
BENEFIT CAPITAL MANAGEMENT APACHE MEDICAL SYSTEMS, INC.
CORPORATION, as Investment Manager for
Prudential Insurance Company of America,
Separate Account No. VCA-GA-5298
By: By /s/ Brion D. Umidi
-------------------------- --------------------------
Name: Name: Brion D. Umidi
------------------------ ------------------------
Title: Title: Vice President
----------------------- ------------------------
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<PAGE> 18
STATE OF__________________________)
)ss
COUNTY OF_________________________)
On this _____ day of _________, 19__, before me ____________________ personally
appeared __________________________, personally known to me (or proved on the
basis of satisfactory evidence) who executed the foregoing instrument as an
officer of the corporation therein named and acknowledged that [s]he did sign
the foregoing instrument for and on behalf of said corporation, being duly
authorized to so sign.
IN WITNESS WHEREOF, I set my hand and seal.
_______________________________________________
NOTARY PUBLIC
State of_______________________________________
My Commission Expires:_________________________
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<PAGE> 19
APACHE Medical Systems, Inc.
Schedule D(3)(b) - Intellectual Property
Patents and Patents Applications - None
Trademarks, Service Marks, Trade Names
APACHE(R)
Copyrights
APACHE Acute Care System
APACHE Critical Care System - Software
APACHE III Database - Core APACHE III date -
National database of
approximately 18,000
patients collected @ 40
U.S. hospitals
APACHE III Manuals - User manuals for
software
APACHE III Data Collection Manuals - Data collection
procedures and forms
Cardiovascular Surgery Database purchased - Database
from the Cleveland Clinic Foundation
Licenses
APACHE Critical Care and Acute Care Systems
and related manuals
APACHE II Software - Software
APACHE II Database - Core APACHE II data
APACHE II & III Prognostic Scoring System - Severity of illness
scoring systems
CHOICE Data and Proprietary Equations - Database
from Quality Information Management Corporation
Cardiovascular Surgery Database license back to
Cleveland Clinic Foundation
Various commercially available computer software
programs
Payment Obligations
The APACHE II and III licenses require payment of a royalty to George
Washington University under an Amended and Restated Agreement dated November
1,1988.
<PAGE> 20
EXHIBIT A
APACHE MEDICAL SYSTEMS, INC.
1901 Pennsylvania Ave., N.W., Suite 900
Washington, D.C. 20006
Gentlemen:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by you (the "Company") which
have been made or conceived or first reduced to practice by me alone or jointly
with others prior to my engagement by the Company which shall not be deemed
"Inventions" for purposes of the foregoing Proprietary Information, Inventions,
Non-Competition and Non-Solicitation Agreement:
_______ No inventions or improvements
_______ See below
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
_______ Additional sheets attached
2. I propose to bring to my employment the following materials and
documents of a former employer which are not generally available to the public,
which materials and documents may be used in my employment:
_______ No materials
_______ See below
- 7 -
<PAGE> 21
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
_______ Additional sheets attached
The signature below confirms that my continued possession and use of
these materials is authorized by my former employer.
Date: ________________________________ By: _____________________________
(Signature)
Name: ___________________________
(Print Name)
- 8 -
<PAGE> 22
EXHIBIT B
Routing Number: 054001204 (NationsBank/DC)
(ABA #)
Account Number: 2086704616
Account Officer: Anita Lustig
Bank Information: NationsBank
DC9-909-02-06
1801 K St., N.W.
2nd Floor
Washington, D.C. 20006
Phone: (202) 955-8773
Fax: (202) 955-8742
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EXHIBIT C
APACHE MEDICAL SYSTEMS, INC.
PROPRIETARY INFORMATION, INVENTIONS,
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
I recognize that APACHE MEDICAL SYSTEMS, INC., a Delaware corporation,
together with its subsidiaries and affiliates (collectively, the "Company"), is
engaged in a continuous program of research, development and production
respecting its business, present and future.
I understand that:
A. As part of my employment by the Company, I am expected to make
new contributions and inventions of value to the Company;
B. My employment creates a relationship of confidence and trust
between me and the Company with respect to any information:
(1) Applicable to the business of the Company; or
(2) Applicable to the business of any client or customer of
the Company, which may be made known to me by the
Company or by any client or customer of the Company, or
learned by me in such context during the period of my
employment.
C. The Company possesses and will continue to possess information
that has been created, discovered, developed, or otherwise become known to the
Company (including, without limitation, information created, discovered,
developed, or made known by me during the period of or arising out of my
employment by the Company) and/or in which property rights have been assigned
or otherwise conveyed to the Company, which information has commercial value in
the business in which the Company is or may become engaged. All of the
aforementioned information is hereinafter called "Proprietary Information." By
way of illustration, but not limitation, Proprietary Information includes trade
secrets, processes, structures, formulas, data and know-how, improvements,
inventions, product concepts, techniques, marketing plans, strategies,
forecasts, customer lists and information about the Company's employees and/or
consultants (including without limitation, the compensation, job
responsibility and job performance of such employees and/or consultants).
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D. As used herein, the period of my employment includes any time in
which I may be retained by the Company as a director or consultant.
In consideration of my employment or if I am already an employee of the
Company, any continued employment and the sum of ten dollars ($10) and other
good and valuable consideration, receipt of which is hereby acknowledged, as
the case may be, and the compensation received by me from the Company from time
to time, I hereby agree as follows:
1. OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary Information
shall be the sole property of the Company and its assigns, and the Company and
its assigns shall be the sole owner of all patents, copyrights and other rights
in connection therewith, including but not limited to the right to make
application for statutory protection. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information. At all times,
both during my employment by the Company and after its termination, I will keep
in confidence and trust all Proprietary Information, and I will not use or
disclose any Proprietary Information or anything directly relating to it
without the written consent of the Company, except as may be necessary in the
ordinary course of performing my duties as an employee of the Company and only
for the benefit of the Company. Notwithstanding the foregoing, it is
understood that, at all such times, I am free to use (a) information in the
public domain not as a result of a breach of this Agreement and (b) my own
skill, knowledge, know-how and experience to whatever extent and in whatever
way I wish, in each case consistent with any obligations as an employee of the
Company.
2. SOLE EMPLOYMENT. I agree that during the period of my employment
by the Company I will not, without the Company's express written consent,
engage in any employment or business other than for the Company.
3. DELIVERY OF DOCUMENTS AND DATA. In the event of the termination of
my employment by me or by the Company for any reason, I will deliver to the
Company all documents and data of any nature pertaining to my work with the
Company, I will not take with me or deliver to anyone else any documents or
data of any description or any reproduction of any description containing or
pertaining to any Proprietary Information and I will sign and deliver the
"Termination Certification" attached hereto as Exhibit B.
4. DISCLOSURE OF INVENTIONS. I will promptly disclose to the Company,
or any persons designated by it, all improvements, inventions, designs, ideas,
works of authorship, copyrightable works, discoveries, trademarks, copyrights,
trade secrets, formulas, processes, techniques, know-how, and data, whether or
not patentable, made or conceived or reduced to practice or learned by me,
either alone or jointly with others, during the period of my employment
(whether or not during working hours) which are related to or useful in the
actual or anticipated business of the Company, or result from tasks assigned me
by the Company or result use of premises or equipment
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owned, leased or contracted for by the Company (all said improvements,
inventions, designs, ideas, works of authorship, copyrightable works,
discoveries, trademarks, copyrights, trade secrets, formulas, processes,
techniques, know-how, data, patent applications, continuation applications,
continuation-in-part applications, file wrapper continuation applications and
divisional applications shall be collectively hereinafter called "Inventions.").
5. ASSIGNMENT OF AND ASSISTANCE ON INVENTIONS. I hereby assign to the
Company any rights I may have or acquire in all Inventions and agree that all
Inventions shall be the sole property of the Company and its assigns, and the
Company and its assigns shall be the sole owner of all patents, copyrights and
other rights in connection therewith. I further agree to assist the Company in
every proper way (but at the Company's expense) to obtain and from time to time
enforce patents, copyrights or other rights on said Inventions in any and all
countries, and to that end I will execute all documents necessary:
(a) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) letters, patent,
copyrights or other analogous protection in any country
throughout the world and when so obtained or vested to renew and
restore the same; and
(b) to defend any opposition proceedings or petitions or
applications for revocation of such letters patent, copyright
or other analogous protection.
In the event the Company is unable, after reasonable effort, to secure
my signature on any patent, copyright or other analogous protection relating to
any Invention, whether because of my physical or mental incapacity or for any
other reason whatsoever, I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents as my agent and attorney-in-fact,
to act for and do all other lawfully permitted acts to further the prosecution
and issuance of letters patent, copyrights or other analogous protection
thereon with the same legal force and effect as if executed by me (and this
appointment shall be deemed to be coupled with an interest and irrevocable).
My obligation to assist the Company in obtaining and enforcing patents and
copyrights for such Inventions in any and all countries shall continue beyond
the termination of my employment, but the Company shall compensate me at a
reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance.
I acknowledge that all original works of authorship which are made by
me (solely or jointly with others) within the scope of my employment and which
are protectable by copyright are being created at the instance of the Company
and are "works made for hire," as that term is defined in the United States
Copyright Act (17 USCA, Section 101). If such laws are inapplicable or in the
event that such works, or any part thereof, are determined by a court of
competent jurisdiction not to be a work made for hire under the United States
copyright laws, this agreement shall operate as an
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irrevocable and unconditional assignment by me to the company of all copyrights
throughout the world, including the right to prepare derivative works and the
right to all renewals and extensions) in such works in perpetuity.
6. PRIOR INVENTIONS. All improvements, inventions, designs,
ideas, works of authorship, copyrightable works, discoveries, trademarks,
copyrights, trade secrets, formulas, processes, techniques, know-how and data
relevant to the subject matter of my employment by the Company which have been
made or conceived or first reduced to practice by me alone or jointly with
others prior to my engagement by the Company shall be deemed "Inventions" for
the purposes of this Agreement except as set forth on Exhibit A hereto.
7. NO BREACH OF DUTY. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not, and to the
best of my present knowledge and belief, will not breach any agreement or duty
to keep in confidence proprietary information acquired by me in confidence or
in trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith. I am not at the present time restricted from being employed by the
Company or entering into this Agreement.
8. NO PRIOR EMPLOYER PROPERTY. I understand as part of the
consideration for the offer of employment extended to me by the Company and of
my employment or continued employment by the Company, that I have not brought
and will not bring with me to the Company or use in the performance of my
responsibilities at the Company any materials or documents of a former employer
which are not generally available to the public, unless I or the Company have
obtained written authorization from the former employer for their possession
and use.
Accordingly, this is to advise the Company that the only materials or
documents of a former employer which are not generally available to the public
that I will bring to the Company or use in my employment are identified on
Exhibit A attached hereto, and as to each such item, I represent that I have
obtained prior to the effective date of my employment with the Company written
authorization for their possession and use in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality or duty that I have to former
employers, and I agree that I shall fulfill at such obligations during my
employment with the Company.
9. NON-SOLICITATION. During the term of my employment by the
company, and for twelve months thereafter, I shall not, directly or indirectly,
without the prior written consent of the Company solicit or induce any employee
of the Company to leave the employ of the Company or hire for any purpose any
employee of the Company or any employee who has left the employment
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of the Company within six months of the termination of said employee's
involvement with the Company.
10. AGREEMENT NOT TO COMPETE. I agree that during the period of my
employment with the Company and for a period of three (3) years thereafter (the
"Non-Compete Period"), I will not, directly or indirectly (whether as an owner,
stockholder, partner, lender, investor, director, officer, employee, consultant
or otherwise) own, manage, control, participate in, consult with, render
services for, or otherwise engage in, any competitive business, or solicit or
assist any other person (corporate, natural or other) to engage in any such
activity (the "Non-Compete"). "Competitive business" means developing,
selling, licensing or otherwise merchandising computer programs, databases and
related manuals, service and knowhow, for the purpose(s) of: (i) managing the
quality and utilization of patient care or related services using risk-adjusted
outcomes measures; and (ii) assessing and/or predicting the mortality and other
treatment outcomes of hospital patients or outpatients; or (iii) otherwise
recording patient health factors in connection with predicting their treatment
or managing clinical productivity using risk-adjusted outcomes measures. If
the Company expands the scope of its business during my employment period, the
definition of competitive business shall be revised. Such revision shall be
mutually agreeable amongst the Company and myself. This Non-compete is
intended to apply to the territories where the Company now operates, as well as
those the Company may enter during the Non-compete Period. If I have any
proposed activity which may fall within the scope of this Non-compete, I shall
provide the Company with a reasonable specific description of the proposed
activity, and shall negotiate in good faith to determine if we can arrive at a
mutually agreeable definition of activities which do not conflict with this
Non-compete. Ownership of not more than 1% or the outstanding securities of
any class of any corporation that are listed on a natural securities exchange
or traded in the over-the-counter market shall not be considered a breach of
this Paragraph 10.
I recognize, understand, agree and acknowledge that the Company has a
legitimate and necessary interest in protecting its goodwill and Proprietary
Information. I further affirm, represent, and acknowledge that in the event of
my termination of employment with the Company, my experience and capabilities
are such that the enforcement of this Agreement will not prevent me from
obtaining employment in another line of business different from that carried on
by the Company and permitted under this Agreement. I further affirm, represent
and acknowledge that I have received valuable consideration for entering into
this Agreement.
11. NO EMPLOYMENT AGREEMENT. I agree that the Company is not by
reason of this Agreement obligated to continue me in its employment.
12. REMEDIES FOR BREACH. I agree that any breach of this Agreement
by me would cause irreparable damage to the Company and that, in the event of
such breach, the Company shall
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have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent or redress the
violation of my obligations hereunder.
13. SEPARABILITY. If any provision hereof shall be declared
unenforceable for any reason, such unenforceability shall not affect the
enforceability of the remaining provisions of this Agreement. Further, such
provision shall be reformed and construed to the extent permitted by law to that
it would be valid, legal and enforceable to the maximum extent possible.
14. EFFECTIVE DATE. This Agreement shall be effective as of the first
day of my employment with the Company, namely _________________________________.
15. ASSIGNABILITY. This Agreement shall be binding upon me, my heirs,
executors, assigns, and administrators, shall inure to the benefit of the
Company, its successors, and assigns, and shall survive the termination of my
employment by the Company, regardless of the manner of such termination.
16. APPLICABLE LAW. This Agreement shall in all respects be governed
by, and contained and enforced in accordance with the laws of the State of
Delaware.
Date:_____________________________ By: ____________________________________
(Signature)
Name: __________________________________
(Print Name)
ACCEPTED AND AGREED TO:
APACHE MEDICAL SYSTEMS, INC.
By: __________________________
Name: ________________________
Title: _______________________
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THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") AND MAY
NOT BE OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
APACHE MEDICAL SYSTEMS, INC.
1650 TYSONS BOULEVARD, SUITE 300
MCLEAN, VIRGINIA 22102-3915
WARRANT TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Benefit Capital Management
Corporation, as Investment Manager for The Prudential Insurance Co. of America,
Separate Account Number VCA-GA-5298 or assigns (the "Holder") is entitled to
subscribe for and purchase from APACHE MEDICAL SYSTEMS, INC., a Delaware
corporation (the "Company"), at any time or from time to time on and after the
date hereof (the "Warrant Exercisable Date") and ending at 5:00 p.m. New York
time on the tenth (10th) calendar anniversary hereof, up to One Hundred
Forty-Two Thousand Eight Hundred Fifty-Seven (142,857) shares of the fully paid
and nonassessable Common Stock of the Company (the "Shares), at a price per
share of $0.50 (the "Warrant Price"), subject to adjustment and upon the
terms and conditions hereinafter set forth. As used herein, the term "Common
Stock" shall mean the Company's presently authorized Common Stock, $.01 par
value per share.
This Warrant is one of one or more warrants (the "Warrants") of the
same form and having the same terms as this Warrant. The Warrants have been
issued pursuant to several Loan Agreements, dated as of February 23, 1995, or
within 60 days thereafter, each having identical terms and conditions, other
than the name of the lender, the principal amount of the loan made to the
Company thereunder, and the number of Shares to be issued to such lender
(collectively, the "Loan Agreements"), among the Company, the Holder and the
other lenders named therein (collectively, the "Lenders"), and the Holder is
entitled to certain benefits as set forth therein. The Company shall keep
copies of the Loan Agreements, and any amendments thereto, at its principal
place of business and shall furnish copies thereof to the Holder upon request.
<PAGE> 30
1. Method of Exercise; Payment; Issuance of New Warrant.
(a) The purchase right represented by this Warrant may be
exercised by the Holder, in whole or in part and from time to time on or after
the Warrant Exercisable Date, by (i) the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A duly executed) at the
principal office of the Company and (ii) the payment to the Company, by check
or wire transfer of funds to an account specified in writing by the Company, of
an amount equal to the Warrant Price per share. The person or persons in whose
name(s) any certificate(s) representing shares of Common Stock shall be issuable
upon exercise of this Warrant shall be deemed to have become the holder(s) of
record of, and shall be treated for all purposes as the record holder(s) of,
the shares represented thereby (and such shares shall be deemed to have been
issued) immediately prior to the close of business on the date or dates upon
which this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to the Holder as soon as possible and in any event within 30
days of receipt of such notice and, unless this Warrant has been fully
exercised or expired, a new Warrant representing the portion of the Shares, if
any, with respect to which this Warrant shall not then have been exercised
shall also be issued to the Holder as soon as possible and in any event within
such 30-day period.
(b) In lieu of exercising this Warrant as provided in Section
1(a) above, the Holder may elect to receive shares equal to the value of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder hereof a number of shares of
Common Stock computed using the following formula:
Y (A - B)
---------
X = A
Where
X - The number of shares of Common Stock to be
issued to Holder;
Y - The number of shares of Common Stock
purchasable under this Warrant;
A - The fair market value of one share of the
Company's Common Stock; and
B - Warrant Price (as adjusted to the date of such
calculations;
provided that in no event shall "X" be less than zero (0).
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(c) For purposes of Section 1(b) above, fair market value of Common
Stock shall mean the average of the closing bid and asked prices of the Common
Stock quoted in the over-the-counter market in which the Common Stock is traded
or the closing price quoted on any exchange on which the Common Stock is
listed, whichever is applicable, as published in The Wall Street Journal for
ten trading days prior to the date of determination of fair market value. If
the Common Stock is not traded in the over-the-counter market or on an
exchange, the fair market value shall be the price per share of Common Stock
that the Company could obtain from a willing buyer for shares sold by the
Company from authorized but unissued shares, as such price shall be determined
in good faith by the Company's Board of Directors.
2. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all preemptive
rights, taxes, liens and charges with respect to the issue thereof; provided
that the Company shall not be required to pay any transfer taxes with respect
to the issue of shares in any name other than that of the registered holder
hereof. During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized, and reserved
for the purpose of the issue upon exercise of the purchase rights evidenced by
this Warrant, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant. The Company shall at
all times take all such action and obtain all such permits or orders as may be
necessary to enable the Company lawfully to issue such shares of Common Stock
as duly and validly issued, fully paid and nonassessable shares upon exercise
in full of this Warrant.
3. [INTENTIONALLY OMITTED]
4. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the current market price of such Shares then in effect as determined in good
faith by the Company's Board of Directors.
5. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Adjustment for Stock Splits and Combinations. If the Company at
any time or from time to time effects a subdivision of the outstanding Common
Stock, the Warrant Price for the Common Stock issuable upon exercise of this
Warrant immediately before the subdivision shall be proportionately decreased,
and conversely, if the Company at any time or from time to time combines the
outstanding shares of Common Stock, the Warrant Price for the Common Stock
issuable upon exercise of this Warrant immediately before the combination shall
be proportionately increased. Any adjustment under this paragraph (a) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
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(b) Adjustment for Certain Dividends and Distributions. In the
event the Company at any time, or from time to time makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the number of shares of Common Stock
issuable upon exercise of this Warrant shall be increased as of the time of
such issuance or, in the event such a record date is fixed, as of the close of
business on such record date, by multiplying the number of shares of Common
Stock issuable upon exercise of this Warrant by a fraction, (i) the numerator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution, and (ii) the denominator of which
is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed thereof, the number of shares of Common Stock issuable upon exercise
of this Warrant shall be recomputed accordingly as of the close of business on
such record date and thereafter the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted pursuant to this paragraph (b)
as of the time of actual payment of such dividends or distributions.
(c) Adjustment for Reclassification, Exchange and Substitution.
If the Common Stock issuable upon the exercise of this Warrant is changed into
the same or different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Subsection),
then and in any such event the Holder shall have the right thereafter to
exercise this Warrant into the kind and amount of stock and other securities
receivable upon such recapitalization, reclassification or other change, by
holders of the number of shares of Common Stock for which this Warrant might
have been exercised immediately prior to such recapitalization, reclassification
or change, and the Warrant Price therefor shall be appropriately adjusted, all
subject to further adjustment as provided herein and under the Company's
Restated Certificate of Incorporation, as it may be amended from time to time.
(d) Reorganizations, Mergers, Consolidations or Sales of Assets.
If at any time or from time to time there is a capital reorganization of the
Common Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Subsection) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's properties
and assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, upon payment of
the Warrant Price then in effect, the number of shares of stock or other
securities or property of the Company, or of the successor corporation resulting
from such merger or consolidation or sale, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case (except to the
extent any
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<PAGE> 33
cash or property is received in such transaction), appropriate adjustment
shall be made in the application of the provisions of this Subsection and
the Company's Restated Certificate of Incorporation, as amended from time
to time, with respect to the rights of the Holder after the reorganization,
merger, consolidation or sale to the end that the provisions of this
Subsection and the Company's Restated Certificate of Incorporation
(including adjustment of the number of shares of Common Stock issuable upon
exercise of this Warrant) shall be applicable after that event and be as
nearly equivalent to the provisions hereof as may be practicable.
(e) No Impairment. The Company will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company but will at all times in good faith assist in the
carrying out of all the provisions of this Section and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the Holder against dilution or other impairment.
(f) Notice of Capital Changes. If at any time the Company shall
offer for subscription pro rata to the holders of shares of Common Stock
any additional shares of stock of any class, other rights or any equity
security of any kind, or there shall be any reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its
assets to another company or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, in any one or
more of said cases, the Company shall give the Holder written notice, by
registered or certified mail, postage prepaid, of the date on which (i) a
record shall be taken for such subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of
record of shares of Common Stock shall participate in such subscription
rights, or shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up, as the case may be. Such written notice shall be given at
least 20 business days prior to the action in question and not less than
20 business days prior to the record date in respect thereto.
(g) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall
be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
6. Notice of Adjustments. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Paragraph 5
hereof, the Company
<PAGE> 34
shall make a certificate signed by an officer of the Company setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price and the number of Shares purchasable after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Common Stock.
(a) Compliance with Securities Act. The Holder, by acceptance
hereof, agrees that this Warrant and the shares of Common Stock to be issued
upon exercise hereof are being acquired for investment and that such Holder
will not offer, sell or otherwise dispose of this Warrant or any shares of
Common Stock to be issued upon exercise hereof except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended (the
"Act"). All shares of Common Stock issued upon exercise of this Warrant
(unless registered under the Act) shall be stamped or imprinted with a legend
in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR
DISPOSITION MAY BE EFFECTED UNLESS (i) THE SECURITY
IS REGISTERED UNDER THE ACT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO,
(ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED, OR (iii) A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION IS OBTAINED TO
THE EFFECT THAT NO ENFORCEMENT ACTION WILL BE
PURSUED IF THE SECURITY IS SOLD OR DISPOSED OF
WITHOUT REGISTRATION UNDER SUCH ACT."
(b) Disposition of Warrant or Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Common Stock
acquired pursuant to the exercise of this Warrant prior to registration of such
shares, the Holder agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of the
Holder's counsel, reasonably acceptable to the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of this Warrant or such shares of Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Common Stock to be sold or otherwise disposed of require any restrictive legend
as to applicable restrictions on transferability in order to insure compliance
with the Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify the Holder that the Holder may sell or otherwise dispose of this
Warrant or such
-6-
<PAGE> 35
shares of Common Stock, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
subparagraph (b) that the opinion of counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Notwithstanding the foregoing, this
Warrant or such shares of Common Stock may be offered, sold or otherwise
disposed of in accordance with Rule l44 under the Act, provided that the
Company may request a reasonable assurance that the provisions of Rule l44 have
been satisfied. Each certificate representing this Warrant or the shares of
Common Stock thus transferred (except a transfer pursuant to Rule l44) shall
bear a legend as to the applicable restrictions on transferability in order to
insure compliance with the Act, unless in the aforesaid opinion of counsel for
the Holder, such legend is not required in order to insure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
8. Additional Liquidity Rights. The Company agrees that it will
promptly provide the Holder with at least 20 business days' notice of the terms
and conditions of any proposed transaction pursuant to which the Company would
(i) sell, lease, exchange, convey or otherwise dispose of all or substantially
all of this property or business, or (ii) merge into or consolidate with any
other corporation (other than a wholly-owned subsidiary of the Company), or
effect and transaction (including a merger or other reorganization) or series
of related transacted, in which more than 50% of the voting power of the
Company is disposed of.
9. Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of such Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
10. Rights as Shareholders; Information. No Holder, as such, shall
be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein. Notwithstanding the foregoing, the Company will transmit to the Holder
such information, documents and reports as are generally distributed to the
holders of any class or series of the securities of the Company concurrently
with the distribution thereof to the shareholders.
11. Representations and Warranties. The Company represents and
warrants to the Holder as follows:
-7-
<PAGE> 36
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and non assessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Shares and the holders thereof are as set forth
in the Company's Certificate of Incorporation, as amended, a true and complete
copy of which has been delivered to the original Holder; and
(d) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Restated Certificate
of Incorporation or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to the Company,
and, except for consents that have already been obtained by the Company, do not
and will not conflict with or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with or the taking of
any action in respect of or by, any Federal, state or local government
authority or agency or other person.
12. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid,
to each Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this
Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant and all of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder. The Company will, at the time of the
exercise or conversion of this Warrant, in whole or in part, upon request of
the Holder but at the Company's expense, acknowledge in writing its continuing
obligation to the Holder hereof in respect of any rights (including, without
limitation, any right to information and the repurchase obligation of the
Company) to which the Holder hereof shall continue to be entitled after such
exercise in accordance with this Warrant; provided that the
-8-
<PAGE> 37
failure of the Holder to make any such request shall not affect the continuing
obligation of the Company to the Holder in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to
the Holder that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant or any stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company (provided that,
in the case of a regulated financial institution having admitted assets in
excess of One Billion Dollars, a letter of indemnity by such institution shall
be deemed satisfactory), or in the case of any such mutilation upon surrender
and cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of Delaware, without regard to principles of
conflicts of law.
APACHE MEDICAL SYSTEMS, INC.
By: /s/ Brion D. Umidi
-------------------------------
Brion D. Umidi
Title: Vice President
----------------------------
Dated: February 27, l995
-9-
<PAGE> 38
EXHIBIT A
NOTICE OF EXERCISE
To: APACHE MEDICAL SYSTEMS, INC.
(1) The undersigned hereby elects to purchase shares
of Common Stock of APACHE MEDICAL SYSTEMS, INC. pursuant to the terms of the
attached Warrant, and (unless such election is being made pursuant to Section
l(b) of such Warrant) tenders herewith payment of the purchase price for such
shares in full.
(2) In exercising this Warrant, the undersigned hereby
confirms and acknowledges that the shares of Common Stock are being acquired
solely for the account of the undersigned and not as a nominee for any other
party, and for investment, and that the undersigned will not offer, sell or
otherwise dispose of any such shares of Series E Preferred Stock or Common
Stock except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other
name as is specified below:
------------------------------
(Name)
------------------------------
(Name)
-10-
<PAGE> 39
(4) Please issue a new Warrant for the unexercised portion
of the attached Warrant in the name of the undersigned or in such other name as
is specified below:
------------------------------
(Name)
------------------------------
(Address)
------------------------------
(Signature)
------------------------------
(Date)
-11-
<PAGE> 40
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED,
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
PROMISSORY NOTE
$250,000.00
February 23, 1995
McLean, Virginia
FOR VALUE RECEIVED, APACHE MEDICAL SYSTEMS, INC., a Delaware
corporation (the "Maker"), promises to pay to the order of Benefit Capital
Management Corporation, as Investment Manager for The Prudential Insurance Co.
of America, Separate Account Number VCA-GA-5298 ("Holder"), the principal
amount of Two Hundred Fifty Thousand Dollars ($250,000.00), without interest
thereon. Principal hereunder shall be due and payable on demand on December 31,
1996.
Payment shall be made in lawful tender of the United States.
Prepayment of principal may be made at any time without notice, premium or
penalty.
The entire unpaid principal sum of this Note shall be due and
payable at any time without any demand, immediately upon the insolvency of the
Maker, the execution by the Maker of a general assignment for the benefit of
creditors, the filing by or against the Maker of any petition in bankruptcy or
any petition for relief under the provisions of the federal bankruptcy act or
any other state or federal law for the relief of debtors and the continuation
of such petition without dismissal for a period of fifteen (15) days or more,
or the appointment of a receiver or trustee to take possession of the property
or assets of the Maker.
This Note is issued pursuant to a Loan Agreement dated as of the
date hereof between the Maker and the Holder (the "Loan Agreement"). Additional
rights of the Holder of this Note, including without limitation certain
conversion rights with respect to this Note, are set forth in the Loan
Agreement.
If action is instituted to collect this Note, the Maker
promises to pay all costs and expenses, including attorneys' fees and expenses,
incurred in connection with such action.
<PAGE> 41
The Maker hereby waives notice of default, presentment or demand for
payment, except as set forth in the first paragraph hereof, protest or notice
of nonpayment or dishonor and all other notices or demands relative to this
instrument.
This Note shall be construed in accordance with the internal laws of
the State of Delaware, without regard to principles of conflicts of law.
APACHE MEDICAL SYSTEMS, INC.
By: /s/ BRION D. UMIDI
------------------------------
Name: Brion D. Umidi
Title: Vice President
-2-
<PAGE> 1
EXHIBIT 10.8
APACHE(R) OMA Licensing Agreement
between
APACHE Medical Systems, Inc.
and
Cerner Corporation
<PAGE> 2
EXHIBIT 10.8
LICENSING AGREEMENT
BETWEEN APACHE MEDICAL SYSTEMS, INC. ("APACHE") AND CERNER CORPORATION
("CERNER")
Whereas APACHE has developed, acquired, and maintains updates for certain
mathematical equations, databases, computer software programs and computer
systems for use by hospitals in managing certain areas of the hospital or
monitoring the usage and performance of such areas, or both; and whereas Cerner
is a vendor of hospital information systems. Whereas Cerner wishes to acquire a
license to use APACHE proprietary equations in certain Cerner Systems for the
purpose of sublicensing to existing or future clients and whereas APACHE wishes
Cerner to sublicense an implementation of these equations. Therefore, in
consideration of the mutual covenants contained herein, the parties agree as
follows:
l. Definitions.
Certain terms used in this Agreement are defined as set forth below; other
terms are defined in the body of this Agreement (including Exhibits). All
references to "Exhibits" are references to Exhibits to this Agreement. All
references to "this Agreement" shall include all schedules, addenda and
exhibits to this Agreement which are referenced herein or in the attached
Exhibits.
"APACHE Acute Care Module(s)" shall mean the computer software object code
in machine-readable form developed and owned by APACHE that implements the
Licensed Equations and which provides a programmatic interface for Cerner
Supporting Software.
"APACHE Database" shall mean the database owned by APACHE, or to which
APACHE has rights, and constructed from a variety of data and including Raw
Data and Resulting Data and used by APACHE to create and refine the Licensed
Equations from time to time and for other purposes.
"Cerner Application Program" shall mean any Cerner Information System with
which the APACHE Acute Care Module is bundled as a sales unit or as an add-on
product.
"Cerner Database" shall mean the database owned by Cerner, or to which
Cerner has rights, and constructed from a variety of data including Raw Data
and Resulting Data.
"Cerner Information System" shall mean a Cerner hospital software or
information system product family, such as Path Net.
"Cerner Supporting Software" shall mean the software that is developed and
owned by Cerner and designed to interact with the APACHE Acute Care Module
programmatic interface. Supporting Software is designed to provide Raw Data
inputs to and accept Resulting Data outputs from the APACHE Acute Care Module.
"Demonstration License" shall have the meaning ascribed to it in Section
2(c).
"Distribution License" shall have the meaning ascribed to it in Section
2(a).
"Installation Fee" shall mean the fee received by Cerner from the
Sublicensee for installation services under a Sublicense.
"Licensed Equations" shall mean the mathematical expression proprietary to
and/or developed by or for APACHE and used to create severity representative
scores for certain groups of patients in a certain disease category and to
relate those scores through functional coefficients to a normative database in
order to create expected values for certain measures of outcomes including
length of stay and mortality. These are known as the APACHE UB92+ or "Acute
Care" equations. These Licensed Equations are represented as (i) a list of
variables to gather, (ii) the conditions which determine the particular
variable results to gather, (iii) a weighting system to apply to the variable
results, (iv) tables of coefficients relating calculated scores to the APACHE
Database and (v) the algebraic transformations of the above into Resulting
Data.
"Licenses" shall refer collectively to the Distribution License, the Loaner
License and the Demonstration License.
"Loaner License" shall have the meaning ascribed to it in Section 2(b).
"Nontraditional Sublicensee" shall mean any Sublicensee other than a
Traditional Hospital Sublicensee.
"Operating Platforms" shall mean the hardware and software configurations on
which APACHE certifies the APACHE Acute Care Module will operate. A list of
Operating Platforms used for Cerner Application Programs is attached as Exhibit
E, which Exhibit may be amended from time to time.
"Raw Data" shall mean the minimal data set required to calculate Resulting
Data from the Licensed Equations. The Raw Data includes certain laboratory
results, patient demographics, clinical diagnoses and standard billing data
(like that of UB 92 data) charges for a certain adult
<PAGE> 3
inpatient in certain disease categories. Raw Data shall also mean any
additional data necessary to calculate Resulting Data from revisions or
enhancements to the Licensed Equations or to aid in APACHE's development
efforts. Such additional data will be described in Exhibits that will be added
to the Agreement upon the Agreement of both parties.
"Resulting Data" shall mean the numbers output from the processing of the
Raw Data through the APACHE Acute Care Module. The Resulting Data consists of a
severity score and expected values for certain measures of outcome for certain
groups of patients, including length of stay and mortality.
"Software Specifications" shall mean the programmatic interface conventions
developed jointly by APACHE and Cerner to enable the implementation of the
APACHE Acute Care Module with Cerner Supporting Software.
"Sublicense" shall mean the non-exclusive, non-transferable license Cerner
grants to a Sublicensee to use the APACHE Acute Care Module in connection with
an Application Program.
"Sublicensee" shall mean the third party to whom Cerner grants a Sublicense
to use the APACHE Acute Care Module.
"Sublicense Fee" shall mean the fee received by Cerner from the Sublicensee
for the purchase of a Sublicense.
"Support Fee" shall mean the fee received by Cerner from the Sublicensee as
a recurring payment for support and update services under the Sublicense
agreement.
"Traditional Hospital Sublicensee" means an entity contracted by Cerner
according to Cerner's traditional A through F pricing schedule, the particular
A - F category in general reflecting number of beds.
2. Grant of Licenses; Limitations.
(a) APACHE grants to Cerner a non-exclusive, non-transferable Distribution
License to Sublicense the APACHE Acute Care Module for use in connection with
an Application Program. Cerner may not Sublicense the APACHE Acute Care Module
apart from the Application Programs or as the sole component of a Cerner
product or service. Cerner agrees to notify APACHE in advance in writing as to
which specific Cerner Information Systems are proposed as Application
Program(s). While it is in the best interests of both parties to have a broad
range of Application Programs, APACHE reserves the right to comment on the
clinical appropriateness of any Cerner Information System proposed as an
Application Program. In extreme cases, where providing a Cerner Information
System as an Application Program would negatively impact the APACHE methodology
or its clinical usefulness, APACHE, in its reasonable judgment, has the ability
to cause Cerner to exclude that Cerner Information System from being an
Application Program.
(b) APACHE grants to Cerner a non-exclusive, non-transferable Loaner License
for use of the APACHE Acute Care Module in connection with an Application
Program on a trial basis to no more than ten (l0) (or such a number as is
mutually agreed upon by the parties in writing) potential Sublicensees
("Prospects") at any one time. The Loaner License will allow the Prospect to
use the APACHE Acute Care Module for up to three months, at which time the
Prospect would either purchase a Sublicense or return the APACHE Acute Care
Module to Cerner. The purpose of the Loaner License is to provide Prospects
with an ability to evaluate the APACHE Acute Care Module, as such, Cerner
agrees to notify Prospects that use of the APACHE Acute Care Module under the
Loaner License is limited to those uses necessary to test the APACHE Acute Care
Module in contemplation of purchasing a Sublicense. This Loaner License shall
not apply if Cerner receives any payment from the Prospect for the APACHE Acute
Care Module. Before the APACHE Acute Care Module is loaned to a Prospect under
the terms of this Loaner License, the Prospect must sign an agreement with
Cerner containing the same provisions as the Sublicense agreement discussed in
Section 4. The APACHE Acute Care Modules distributed under the terms of this
Loaner License shall be called "Loaner Copies".
(c) APACHE grants to Cerner a non-exclusive, non-transferable Demonstration
License for one (l) copy of the APACHE Acute Care Module to be provided to each
Cerner Sales Representative and the Cerner Vision Center for use in connection
with an Application Program(s). Such copies shall be called "Demonstration
Copies". The use of the Demonstration Copies is limited to demonstration use
for sales and marketing support.
(d) Cerner is aware that APACHE has current negotiations underway to deliver
the functionality of the APACHE Acute Care Module in APACHE's own
implementation to the hospitals and hospital systems listed on Exhibit A. In
order to allow APACHE time to complete its negotiations with those hospitals
and hospital systems, Cerner agrees not to offer, sell or Sublicense the APACHE
Acute Care Module to those hospitals or hospital systems without APACHE's
written permission.
<PAGE> 4
(e) The Licensed Equations and the APACHE Acute Care Module are and shall
remain the exclusive property of APACHE. Cerner agrees to use the Licensed
Equations and the APACHE Acute Care Module only in accordance with the terms and
conditions set forth in this Agreement.
(f) Cerner shall not, without the prior written consent of APACHE, directly
or indirectly, or for a third party, use the Licensed Equations or the APACHE
Acute Care Module other than as directly related to the distribution or use of
the APACHE Acute Care Module as permitted under this Agreement. Cerner shall not
disassemble, decompile, decrypt, extract, reverse engineer or attempt to
reverse engineer any Licensed Equations or the APACHE Acute Care Module, nor,
to the best of its ability, cause or permit anyone else to do so. Cerner shall
not make the APACHE Acute Care Module available for service bureau,
time-sharing, rental or similar purposes.
(g) The right to modify or enhance the Licensed Equations or the APACHE
Acute Care Module is expressly excluded under this Agreement.
(h) The Licenses granted in this Agreement include the right to Sublicense,
use, distribute and demonstrate the APACHE Acute Care Module in connection with
an Application Program in those countries listed on Exhibit C, which Exhibit
may be amended by the parties in writing. Permission to Sublicense, use,
distribute and demonstrate the APACHE Acute Care Module in other countries must
be obtained by written amendment to Exhibit C. APACHE will grant such
permission provided that Cerner's Sublicensing, use, distribution and
demonstration will not infringe any laws of the United States or of a foreign
country and that the laws of the foreign country are sufficiently protective of
APACHE's intellectual property rights.
(i) Cerner shall not copy the APACHE Acute Care Module other than to create
the minimum number of copies required to fulfill the purposes of this Agreement.
3. Data Delivery and Use.
(a) For the first year of this Agreement every sixty (60) days and
thereafter each calendar quarter, Cerner shall deliver to APACHE from the
Cerner Database, in acceptable electronic format (within the guidelines defined
in Exhibit B), (i) all Raw Data and (ii) all Resulting Data received from the
Sublicensees during that preceding period and not previously provided to
APACHE. Individual patient names, facility or hospital names and physician
names shall not be included. Cerner shall provide patient identification which
uniquely identifies a patient within a hospital encounter.
(b) As a part of the Sublicense Agreement described in section 4, Cerner
shall obtain from Sublicensee on behalf of APACHE or cause Sublicensees to
grant directly to APACHE, subject to protecting the confidentiality of patient,
facility or hospital and physician names, a perpetual, world-wide, royalty-free
right and license (i) to use, in any manner, the Raw Data and to analyze and
incorporate the Raw Data in databases, reports, scores or scoring systems
generated therefrom, and (ii) to create and distribute works and derivative
works based on the Raw Data. Cerner shall use its reasonable efforts to gather
as much of the data contained in a UB92 bill types 111, 121, 117 and 118 as
possible from its Sublicensees, and, subject to protecting the confidentiality
of patient, facility or hospital and physician names, will provide a copy of
the data received to APACHE.
(c) As a part of the Sublicense Agreement described in section 4, Cerner
shall obtain from Sublicensee on behalf of APACHE or cause Sublicensee to grant
directly to APACHE, subject to protecting the confidentiality of patient,
facility or hospital and physician names, a perpetual, world-wide, royalty-free
right and license (i) to use, in any manner, the Resulting Data and to analyze
and incorporate the Resulting Data in databases, reports, scores or scoring
systems generated therefrom, and (ii) to create and distribute works and
derivative works based on the Resulting Data.
(d) Cerner and APACHE agree to the following additional provision regarding
use of the Resulting Data. If Cerner chooses to use, publish or otherwise
release or distribute Resulting Data or normative standards derived from
Resulting Data, such publication or release must be identified only as "APACHE
standards" or "APACHE Results".
4. Sublicense Agreements.
Any Sublicense granted by Cerner for the APACHE Acute Care Module must be
granted by a written document. Cerner shall deliver to APACHE a copy of its
proposed standard Sublicense agreement for review at least one week prior to
Cerner's first distribution or demonstration of the APACHE Acute Care Module.
The Sublicense agreement will contain terms and conditions providing for at
least the following:
(a) restrict use of the Licensed Equations and APACHE Acute Care Module to
a non-exclusive license for internal purposes only for use in connection with
an Application Program;
<PAGE> 5
(b) prohibit Sublicensee from disassembling, decompiling, decrypting,
extracting, reverse engineering or attempting to reverse engineer the Licensed
Equations or APACHE Acute Care Module, nor cause or permit anyone else to do
so;
(c) prohibit Sublicensee from modifying or enhancing any Licensed
Equations or APACHE Acute Care Module or preparing any derivative works;
(d) prohibit assignment, sublicense, transfer or duplication of the APACHE
Acute Care Module, with an allowance for up to two (2) archival or back-up
copies for each Sublicensee which shall bear APACHE's copyright notice;
(e) maintain intellectual property rights and ownership as defined in
Section 11(a)-(b);
(f) prohibit title from passing to the Sublicensee;
(g) provide to Cerner a copy of all Raw Data and Resulting Data and the
right to use that data as described in Section 3;
(h) incorporate the notices stated in Section 9;
(i) include the following:
(i) "Confidential Information" shall mean all non-public information
provided to or learned by Sublicensee, its agents, staff or employees from
APACHE or Cerner in connection with the activities contemplated by this
Agreement and any information or documentation regarding the Licensed Equations
and the APACHE Acute Care Module, whether in tangible or intangible form,
including, without limitation, all computer programs (whether in source or
object code), flow charts, algorithms, data, databases, rules, templates,
forms, protocols, methodologies, procedures, concepts, techniques and
approaches relating to the Licensed Equations and the APACHE Acute Care Module
or APACHE or Cerner's prices, fees and payment terms
(ii) Confidential Information shall not include information already known
to Sublicensee at the time of disclosure, as shown by the Sublicensee's
records, information which has been publicly disclosed in a lawful manner, or
information which is rightfully received from a third party in a lawful manner.
(iii) Sublicensee shall hold in strict confidence and not disclose APACHE
or Cerner's Confidential Information to any third party nor use that
Confidential Information except in furtherance of this Sublicense Agreement.
Sublicensee shall disclose APACHE or Cerner's Confidential Information only to
its employees who need to know such Confidential Information. Sublicensee is
responsible for ensuring the compliance of its employees with the foregoing
confidentiality obligations. In the event that the FDA or other regulatory body
or any court requires information from Sublicensee that might reasonably fall
within the above definition of APACHE or Cerner's Confidential Information,
Sublicensee shall notify Cerner in writing at least ten (10) days prior to the
proposed disclosure and Cerner and APACHE, in consultation with Sublicensee,
shall determine the appropriate steps in order to adequately safeguard the
Confidential Information, including, without limitation, in the case of a
proceeding in a court or other tribunal, obtaining a protective order.
(iv) Each of the parties, APACHE, Cerner, and Sublicensee, retain
ownership of all right, title and interest in its respective Confidential
Information.
(j) make APACHE an express Third Party Beneficiary entitled to enforce all
of Cerner's rights against the Sublicensee;
(k) include the following: NEITHER CERNER NOR APACHE SHALL BE RESPONSIBLE
TO SUBLICENSEE FOR ANY LOST PROFITS, INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING, TO THE EXTENT PERMITTED BY LAW,
PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION WITH THIS SUBLICENSE EVEN IF THE
SUBLICENSEE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(l) include the following:
(a) Sublicensee and its employees and medical staff shall be solely
responsible for all decisions involving patient care, utilization management,
peer review and use of the APACHE Acute Care Module, License Equations and
Resulting Data.
(b) APACHE shall defend, indemnify and hold Sublicensee and its
directors, officers, employees and agents harmless from all losses, damages,
costs, and expenses, including without limitation attorneys' fees and court
costs, arising from or in connection with use of the APACHE Acute Care Module
or License Equations by Sublicensee so long as Sublicensee has used the APACHE
Acute Care Module or License Equations in accordance with the terms and
conditions of this Agreement, the
<PAGE> 6
Documentation and applicable standards of good clinical practice and the sole
and proximate cause of the event giving rise to a claim for indemnification is
APACHE's negligence in designing the APACHE Acute Care Module or License
Equations. APACHE shall conduct such defense, at its expense, with attorneys
selected by it, and shall have sole control over the conduct of such defense.
(c) Sublicensee shall defend, indemnify and hold APACHE and its
directors, officers, employees and agents harmless from all losses, damages,
costs, and expenses, including without limitation attorneys' fees and court
costs, arising from or in connection with (i) the use of the APACHE Acute Care
Module, License Equations or Resulting Data or any component thereof by
Sublicensee or anyone other than APACHE, (ii) any breach of any representation,
warranty or covenant of Sublicensee under this Agreement, or (iii) any
disclosure of patient identifiers to APACHE in violation of applicable law or
hospital procedures. Sublicensee shall conduct such defense with attorneys
selected by it at its expense, and shall have sole control over the conduct of
such defense. The indemnity in part (i) shall not apply to the extent that
Sublicensee has used the APACHE Acute Care Module or License Equations in
accordance with the terms and conditions of this Agreement, the Documentation
and applicable standards of good clinical practice and the sole and proximate
cause of the event giving rise to a claim for indemnification is APACHE's
negligence in designing the APACHE Acute Care Module or License Equations.
(d) APACHE shall defend (or in APACHE's discretion, settle), indemnify
and hold Sublicensee harmless from all losses, damages, costs, and expenses,
including without limitation attorney's fees and court costs, arising from or
in connection with any third party claim of copyright, patent or trade secret
infringement under United States law resulting from Sublicensee's use of the
APACHE Acute Care Module or License Equations in accordance with this Agreement
APACHE shall conduct such defense, at its expense, with attorneys selected by
it, and shall have sole control over the conduct of such defense and all
settlement negotiations. APACHE shall not have any liability under this
paragraph (d) if a claim of infringement is based in whole or in part upon (i)
the modification of the APACHE Acute Care Module or License Equations or
Resulting Data by anyone other than APACHE or (ii) the use of the APACHE Acute
Care Module or License Equations, or any portion thereof, (aa) outside the
scope of the license granted hereunder; (bb) in combination with other
hardware, software or data not furnished by APACHE; (cc) in practicing any
infringing process; or (dd) in a manner for which it was not designed or
specified by APACHE. If, as a result of a claim of infringement for which
Sublicensee is entitled to indemnity hereunder, APACHE is enjoined from using
the APACHE Acute Care Module or License Equations, or if APACHE believes that
such injunction is likely or that the APACHE Acute Care Module or License
Equations are likely to become the subject of a claim of infringement, APACHE
may, in its sole discretion and at its expense, procure for Sublicensee the
right to continue to use the APACHE Acute Care Module or License Equations,
replace or modify the APACHE Acute Care Module or License Equations so as to
make it noninfringing, or terminate this Agreement and refund the unamortized
portion of the license fees previously paid by Sublicensee for the use of the
APACHE Acute Care Module or License Equations. Calculation of the unamortized
portion of the license fees shall be based upon three (3) years' straight line
depreciation. If the claim of infringement affects only a portion of the APACHE
Acute Care Module or License Equations, then APACHE's obligations described in
the preceding two sentences shall apply only to the item(s) affected. This
paragraph (d) states the entire and exclusive obligation of APACHE to
Sublicensee for any claim of infringement relating to the APACHE Acute Care
Module or License Equations. The provisions of this paragraph (d) shall
survive termination of this Agreement.
(e) Each party shall promptly notify the other party of any asserted or
threatened claims that may be subject to any of the indemnities in this
Section, and shall cooperate with the other party in conducting the defense.
5. Delivery.
(a) Cerner and APACHE will jointly determine Software Specifications by
March 1, 1995. APACHE will provide a "coding stub" by March 15, 1995 or fifteen
(15) days after completion of Software Specifications,
<PAGE> 7
whichever is later. The coding stub will allow Cerner to begin building the
Cerner Supporting Software.
(b) APACHE will deliver the APACHE Acute Care Module certified to operate on
the Digital Equipment VAX VMS Operating Platform (the "First APACHE Acute Care
Module") not later than May 15, 1995 or sixty (60) days after the Software
Specification is determined, whichever is later. Delivery and payment of
versions for other Operating Platforms listed on Exhibit E will be determined
jointly by Cerner and APACHE. The timelines in Sections 5(a) and (b) are
contingent upon Cerner's provision of the Operating Platform as described in
Section 5(c) in a timely and acceptable manner.
(c) Cerner will make the Digital Equipment VAX VMS Operating Platforms
listed on Exhibit E available to APACHE without charge for development and
testing of the APACHE Acute Care Module. Cerner will arrange for APACHE to dial
into the Operating Platform to perform the porting work under confidential
conditions such that Cerner will not have access to the APACHE Acute Care
Module during the porting process. If dialing in to the Operating Platform is
not possible or if the confidentiality arrangements are not acceptable to
APACHE then Cerner will supply the Operating Platform. Such platform will
include, but is not limited to, a compiler, a debugger, a linker and the
necessary hardware and system software to implement the APACHE Acute Care
Modules. Cerner will also provide responsive support for the hardware and
system software provided by Cerner. Cerner will provide access to the
additional Operating Platforms listed on Exhibit E as the delivery time and
payment, if any, is decided between the parties.
6. Royalty Payment; Taxes.
(a) Cerner will make an initial royalty payment of $250,000 as prepaid
royalties to APACHE toward Sublicenses by Cerner. This payment is due upon
execution of this Agreement. Any unearned royalties will be refunded by APACHE
to Cerner one year from Cerner's license of the First APACHE Acute Care Module
to a Sublicensee. If the APACHE Acute Care Module is not delivered to Cerner
ninety (90) days from the deadline in Section 5 and APACHE is unable to return
the initial royalty payment, then, at Cerner's option, the repayment may be
converted to common equity at the price of the most recent sale of preferred
stock.
(b) Cerner will pay APACHE a royalty payment for each Sublicense according
to the following schedules:
(i) for a Traditional Hospital Sublicense the royalty payment will be paid
at the following rate, matching the Cerner standard pricing category in use for
that Sublicensee:
<TABLE>
<S> <C>
A level -- less than 150 beds = $ 6,670
B level -- 150 to 299 beds = $11,120
C level -- 300 to 399 beds = $15,560
D level -- 400 to 599 beds = $20,000
E level -- 600 to 799 beds = $24,450
F level -- 800 to 1099 beds = $28,890.
</TABLE>
(ii) the royalty payment for a Nontraditional Sublicense will be fifty
percent (50%) of the Sublicense Fee received by Cerner. Such Sublicense Fee
shall be reasonable.
(c) Cerner will pay to APACHE twenty-five percent (25%) of the amounts
received by Cerner as Support Fees under a Sublicense. The first Maintenance
Fee would be due to APACHE when Cerner receives its first Support Fee from
Sublicensee and will be prorated for the remainder of the calendar year.
Maintenance Fees will be due annually at the first of the year thereafter.
(d) Royalty Payments are payable within thirty (30) days from the last day
of each calendar quarter. The quarterly Royalty Payment shall be based on the
number of Sublicensees who execute Sublicense Agreements with Cerner during the
preceding quarter.
(e) No amounts will be due with respect to Installation Fees received by
Cerner from the Sublicensee.
(f) If Cerner markets a product that includes Resulting Data, as aggregated
by Cerner, then Cerner will negotiate and pay to APACHE a fee recognizing the
amount of APACHE's contribution. Such fee will be mutually agreed to by the
parties.
(g) If the Sublicensee does not accept the Applications Program, the Royalty
Payment for that site will be credited toward the next Royalty Payment due to
APACHE.
(h) Cerner shall reimburse APACHE for its reasonable travel, lodging and
meal expenses incurred in connection with APACHE support provided pursuant
to Section 12.
(i) Failure by Cerner to make any payment within 30 days of when such
payments are due shall result in the imposition of an interest charge on any
unpaid amount at an annual rate equivalent to the lesser of (i) 1 1/2% per
month and (ii) the highest rate allowable by law.
<PAGE> 8
(j) Cerner shall pay directly to the federal government, state or
locality all sales, use, transfer or similar taxes, whether federal, state or
local, however designated, with the exception of any taxes based upon the
income of APACHE, which are levied or imposed by reason of this Agreement or
Cerner's use, distribution or Sublicense of the APACHE Acute Care Module,
regardless of whether such taxes are identified in any invoice, and Cerner
shall indemnify APACHE in the event Cerner fails to pay such taxes.
7. Reporting and Records Inspection.
(a) Within thirty (30) days of the last day of each calendar quarter Cerner
shall send to APACHE a report that shall contain the following ("Report"):
(i) the number of APACHE Acute Care Modules that were installed at
Sublicensee sites and an identification of the sites;
(ii) the name and address of all Sublicensees who have executed Sublicense
agreements during that month;
(iii) the status of existing Loaner Copies and if any new Loaner Copies
are delivered, the name and address of the Prospects and date of delivery of
the Loaner Copies;
(iv) a list of invoices issued by Cerner to Sublicensees for payments
under Sublicenses, both new and then outstanding, including those for new
purchases and for Support Fees.
(b) Cerner shall maintain records of activities in connection with this
Agreement ("Records") for so long as required by applicable law or for two (2)
years after this Agreement is terminated, whichever is longer. The Records
shall include but are not limited to executed Sublicense agreements, the
standard Sublicense agreement and the information required for the Report.
APACHE may inspect such Records or perform an audit of the relevant books and
Records upon reasonable notice to Cerner for the purpose of ensuring compliance
with the terms and conditions of this Agreement. Any such inspection or audit
shall be conducted in such a way as to not unreasonably interfere with Cerner's
business operations. Cerner will reimburse APACHE for the reasonable cost of
the audit if there are unreported Sublicenses or if royalty payments due APACHE
are underreported in excess of $5,000.
8. Consulting Support for Sublicensees.
(a) Following the request of Sublicensees, and, if required by APACHE,
execution of APACHE's services agreement, APACHE will provide consulting
application support to Sublicensees to assist them with interpretation and
effective use of the data produced by the APACHE Acute Care Module. Sub
licensees will pay APACHE's consulting fee to APACHE for these services.
(b) When marketing and distributing the APACHE Acute Care Module, Cerner
will make the Sublicensee aware of APACHE applications consulting services
through, for example, the delivery of APACHE marketing materials related to
these services.
9. Notices.
(a) Although the Licensed Equations and APACHE Acute Care Module provide
information that may enhance the quality of clinical reasoning and provide
useful information for quality improvement and quality assurance, they are not
a substitute for the professional judgment of a clinician or hospital
administrator and in no event should information provided by the Licensed
Equations or the APACHE Acute Care Module be the sole or primary basis for
decision making or clinical reasoning.
(b) Information generated by the Licensed Equations or the APACHE Acute Care
Module should not be relied upon as the sole or primary basis for peer review
or performance evaluations of physicians or other personnel who use the
Licensed Equations or the APACHE Acute Care Module. While comparisons of risk
predictions generated by the Licensed Equations or the APACHE Acute Care Module
with actual patient outcomes may provide useful information for quality
improvement and quality assurance and can suggest areas for further study, such
comparisons should not be relied upon as a primary or sole basis for drawing
conclusions concerning individual competence or performance.
10. Marketing.
(a) Cerner shall use the APACHE(R) name and mark when referring to the
Licensed Equations or the APACHE Acute Care Module in marketing and sales
materials and when otherwise referencing the products and services of APACHE,
such as identifying that the severity adjustment is the APACHE(R) Acute Care
methodology.
(b) APACHE may use the list of and directly contact Sublicensees in regards
to the products and services of APACHE. Cerner shall use its reasonable efforts
to make Sublicensees aware of the availability of the products and services of
APACHE and to secure Sublicensee's permission for APACHE to present such
products and services to Sublicensee.
(c) Cerner shall use its reasonable efforts to promote the APACHE Acute Care
Module.
<PAGE> 9
(d) Cerner shall not make any false or misleading representations to
Sublicensees, Prospects or others regarding APACHE, the Licensed Equations,
Resulting Data or the Apache Acute Care Module. Cerner shall not make any
representations or warranties concerning the Licensed Equations, Resulting Data
or the Apache Acute Care Module other than those approved in writing by APACHE.
11. Trademark and Copyright.
(a) Each copy of the Apache Acute Care Module must include appropriate
APACHE trademark and copyright notices as they appear on the copy of the APACHE
Acute Care Module and any other materials provided by APACHE or as otherwise
specified by APACHE and any other proprietary notice required by APACHE when
referencing APACHE or APACHE's products and services. Cerner will have no
rights to such marks or any ownership in such marks other than the limited,
non-exclusive, non-transferable right to use the APACHE(R) trademark in
accordance with Section 10. APACHE shall have the right to inspect all uses
by Cerner of APACHE's proprietary notices, including, without limitation, the
trademark APACHE(R) and all materials on which such notices appear. Cerner
shall provide APACHE with samples of such materials upon APACHE's request.
The APACHE Acute Care Module must be at least equal in quality to the other
software products distributed by APACHE and the Cerner Supporting Software must
be at least equal in quality to the other software products distributed by
Cerner. APACHE will provide written notice to Cerner if APACHE discovers after
such inspection that Cerner is not maintaining these quality standards and
provide an opportunity to cure the defect. Failure to cure a material defect
should be a default under Section 18(e)(ii).
(b) In addition to all other proprietary rights notices or labels required
by APACHE, Cerner shall affix the "restricted rights" legend prescribed by DFARS
Section 252.227- 7013(c)(1)(ii) to each copy of the APACHE Acute Care Module
(including all updates) and to each copy of the related documentation
distributed to governmental entities. The restricted rights legend currently
states as follows: "Use, duplication, or disclosure by the Government is subject
to restrictions as set forth in subparagraph (c)(l)(ii) of the Rights in
Technical Data and Computer Software clause at DFARS 252.227-7013. Manufacturers
are APACHE Medical Systems, Inc. 1650 Tysons Boulevard Suite 300, McLean,
Virginia 22102-3915 and Cerner Corporation 2800 Rockcreek Parkway, Suite 601,
Kansas City, MO 64117." Cerner shall maintain adequate procedures to ensure that
the restrictive markings on the APACHE Acute Care Module and related
documentation are consistently and properly applied and shall comply in all
respects with DFARS 252.227-7018 and all other regulations applicable to the
license of copies of the APACHE Acute Care Module and related documentation with
restricted rights. Cerner shall strictly and fully comply with all Federal
Acquisition Regulations, as the same may be amended or supplemented from time to
time, in a manner that will best protect and preserve APACHE's proprietary
rights in the Licensed Equations and the APACHE Acute Care Module and shall
comply with all reasonable written instructions from APACHE relating to these or
any other regulations, rules or laws applicable to any of the transactions
contemplated hereunder.
(c) Cerner's use of APACHE's trademark (which term shall include, whenever
used in this Agreement, all trademarks, trade name, service marks, logos,
slogans and designs) shall inure to the benefit of APACHE.
(d) Cerner shall promptly notify APACHE of all claims of infringement or
misuse of APACHE's trademarks, copyrights or other intellectual property
rights.
12. APACHE and Cerner Support.
(a) APACHE will provide two (2) sessions of its standard training program
for Cerner to present basic knowledge, materials and training for the purpose
of providing Cerner with an understanding of the scientific aspects of the
Licensed Equations. APACHE will provide additional training sessions (including
the training required to qualify Cerner personnel to meet their obligation
under Sections 12(e)-(f)) at its current rates (attached as Exhibit D).
(b) APACHE will provide eighty (80) hours worth of consulting support to
Cerner consisting of consultations with the APACHE business, programming and
statistical staff. APACHE will provide additional consulting support at its
current rates (attached as Exhibit D).
(c) APACHE will provide Cerner with updates to the APACHE Acute Care Module
without charge and no less often than annually.
(d) APACHE will provide Cerner and grants Cerner the right to Sublicense
models for mortality and LOS or financial models that are derived from UB 92
data for groups of adult patients as relates to the total hospital episode,
including extensions to the Acute Care Module such as the addition of new
disease categories and new predicted values, such as charges, as such models
are developed. Any other new models, such as models related to individual
patients or specific treatment units, would be
<PAGE> 10
available for an additional royalty payment as agreed to by the parties.
(e) Cerner shall provide sufficient qualified personnel to market and
support the APACHE Acute Care Module. Cerner shall provide training to
Sublicensees for the APACHE Acute Care Module and proper use of the Resulting
Data. All Cerner trainers who provide such training to Sublicensees must be
trained by APACHE. Cerner shall be responsible for installation of the APACHE
Acute Care Module at Sublicensee's sites. All support, marketing and other
services provided by Cerner shall be at its own expense.
(f) Cerner will send two or three Cerner Trainers to APACHE for yearly
training courses at APACHE's current rates. These Cerner Trainers will be
certified by APACHE to train other Cerner personnel to train Sublicensees.
13. Warranty.
(a) APACHE warrants that APACHE either owns the Licensed Equations and
APACHE Acute Care Module or has the right to license the Licensed Equations and
APACHE Acute Care Module to Cerner and the Sublicensees.
(b) APACHE warrants that, to the best of APACHE's knowledge, the use of the
Licensed Equations and the APACHE Acute Care Module in accordance with this
Agreement do not infringe upon any copyright, trademark or other intellectual
property right of a third party.
(c) APACHE warrants that the use and distribution of the Licensed Equations
and the APACHE Acute Care Module as contemplated by this Agreement does not
cause APACHE to be in breach of any agreement to which it is a party.
(d) Cerner warrants that Cerner owns the Application Programs and Cerner
Supporting Software.
(e) Cerner warrants that, to the best of Cerner's knowledge, the use of the
Application Programs and, Cerner Supporting Software does not infringe upon any
copyright, trademark or other intellectual property right of a third party.
(f) Cerner warrants that the use and distribution of the Application
Programs, Cerner Supporting Software, APACHE Acute Care Module and Licensed
Equations contemplated by this Agreement does not cause Cerner to be in breach
of any agreement to which it is a party.
14. Disclaimer of Warranties.
THE WARRANTIES SET FORTH IN PARAGRAPH 13 ARE THE SOLE AND EXCLUSIVE WARRANTY
MADE BY APACHE AND CERNER AND ALL OTHER WARRANTIES, EXPRESS OR IMPLED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED.
15. Limitations of Liability and Exclusive Remedy.
(a) NEITHER PARTY SHALL BE RESPONSIBLE TO THE OTHER PARTY FOR ANY LOST
PROFITS, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND
(INCLUDING, TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN
CONNECTION WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(b) APACHE's liability to Cerner for any loss whatsoever shall not exceed
the amounts received by APACHE from Cerner with respect to the particular
transaction which gives rise to the liability.
(c) No action, regardless of form, arising out of or under this Agreement
may be brought by either party more than one year after the cause of action
accrues.
16. Indemnification.
(a) Notwithstanding Sections 14 and 15 hereof, APACHE agrees to defend,
indemnify and hold harmless Cerner, and its directors, officers, employees and
agents, from and against all claims, losses, demands, costs, expenses,
judgments, liabilities, penalties and damages including without limitation
attorneys' fees and court costs ("Claims") resulting directly or indirectly
from the use by any Sublicensee of the Licensed Equations, the APACHE Acute
Care Module or the Resulting Data if the use of the Licensed Equations, APACHE
Acute Care Module or the Resulting Data was the sole and proximate cause of the
Claim and the APACHE Acute Care Module did not create Resulting Data
corresponding to the Resulting Data that would have been produced if the
Licensed Equations were calculated manually, provided that such failure was due
exclusively to APACHE's negligence. APACHE shall conduct such defense with
attorneys selected by it at its expense, and shall have sole control over the
conduct of such defense. Cerner shall promptly notify APACHE of any asserted or
threatened claim that may be subject to this
<PAGE> 11
indemnity, and shall cooperate with APACHE in conducting the defense.
(b) Cerner and its employees and medical staff shall be solely responsible
for all decisions involving use of the APACHE Acute Care Module, Licensed
Equations and Resulting Data. Cerner shall defend, indemnify and hold APACHE
and its subcontractors and affiliates harmless from all losses, damages, costs,
and expenses, including without limitation attorneys' fees and court costs,
arising from (i) the use of the Application Program, Cerner Supporting
Software, APACHE Acute Care Module, Licensed Equations or Resulting Data or any
work derived from any of the foregoing or any components thereof by Cerner or
anyone (other than Sublicensee) who obtains the Application Program, Cerner
Supporting Software, APACHE Acute Care Module, Licensed Equations or Resulting
Data or any work derived from any of the foregoing or any components thereof
from Cerner (other than claims covered by Section 16(c)), or (ii) any breach of
any representation, warranty or covenant of Cerner under this Agreement. Cerner
shall conduct such defense with attorneys selected by it at its expense, and
shall have sole control over the conduct of such defense. APACHE shall promptly
notify Cerner of any asserted or threatened claim that may be subject to this
indemnity, and shall cooperate with Cerner in conducting the defense. Cerner's
indemnity does not include claims based solely on APACHE's failure to apply
generally accepted scientific principles to the scientific methodology embodied
in the Licensed Equations.
(c) Provided Cerner promptly notifies APACHE of any asserted or threatened
claim that may be subject to this indemnity, and cooperates with APACHE in
conducting the defense, APACHE shall defend (or in APACHE's discretion,
settle), indemnify and hold Cerner harmless from all losses, damages, costs,
and expenses, including without limitation attorney's fees and court costs,
arising from or in connection with any third party claim of copyright, patent
or trade secret infringement under United States law resulting from Cerner or a
Sublicensee's use of the Licensed Equations or the APACHE Acute Care Module in
accordance with this Agreement. APACHE shall conduct such defense, at its
expense, with attorneys selected by it, and shall have sole control over the
conduct of such defense and all settlement negotiations. APACHE shall not have
any liability under this Section 16(c) if a claim of infringement is based in
whole or in part upon (i) the modification of the Licensed Equations, the
APACHE Acute Care Module or Resulting Data by Cerner, Sublicensee or anyone
other than APACHE or (ii) the use of the Licensed Equations or the APACHE Acute
Care Module or any portion thereof, (aa) outside the scope of the license
granted hereunder; (bb) in practicing any infringing process; or (cc) in a
manner for which it was not designed or specified by APACHE. If, as a result of
a claim of infringement for which Cerner is entitled to indemnity hereunder,
APACHE is enjoined from using the Licensed Equations or the APACHE Acute Care
Module or if APACHE believes that such injunction is likely or that the
Licensed Equations or the APACHE Acute Care Module are likely to become the
subject of a claim of infringement, APACHE may, in its sole discretion and at
its expense, procure for Cerner the right to continue to use the Licensed
Equations or the APACHE Acute Care Module, replace or modify the Licensed
Equations or the APACHE Acute Care Module so as to make them non infringing but
capable of performing substantially the same functionality, or terminate this
Agreement. If the claim of infringement affects only a portion of the Licensed
Equations or the APACHE Acute Care Module, then APACHE's obligations described
in the preceding two sentences shall apply only to the item(s) affected. This
Section 16(c) states the entire and exclusive obligation of APACHE to Cerner
for any claim of infringement relating to the Licensed Equations or the APACHE
Acute Care Module. The provisions of this Section 16(c) shall survive
termination of this Agreement.
17. Confidentiality.
(a) "Confidential Information" means the terms of this Agreement, each
respective party's client lists and business plans, the APACHE Acute Care
Module, Licensed Equations and all training materials and user materials.
Confidential Information shall not include information already known to a party
at the time of disclosure, as shown by the party's records, information which
has been publicly disclosed in a lawful manner, or information which is
rightfully received from a third party in a lawful manner. Any other
disclosures of information must be protected by separately negotiated
confidentiality agreements between the parties.
(b) Each party shall hold in strict confidence and not disclose the other's
Confidential Information to any third party nor use the other party's
Confidential Information except in furtherance of this Agreement. Each party is
responsible for ensuring the compliance of its employees with the foregoing
confidentiality obligations. In the event that the FDA or other regulatory
body or any court requires information from Cerner or APACHE that might
reasonably fall within the above definition of Confidential Information, the
party receiving the request shall notify the other in writing at least ten (10)
days prior to the proposed disclosure and the party receiving the request, in
consultation with the other, shall determine the appropriate steps in order to
adequately safeguard Confidential Information, including, without limitation,
in
<PAGE> 12
the case of a proceeding in a court or other tribunal, obtaining a protective
order.
(c) Each of the parties retains ownership of all right, title and interest
in its Confidential Information.
18. Term and Termination.
(a) This Agreement shall begin on the effective date set forth at the end of
this Agreement ("Effective Date"). The Agreement will have an "Initial Term" of
five (5) years, provided that at the end of the first year and each year
thereafter, APACHE may review the Agreement using its reasonable business
judgment based on the criteria listed below. Such review will be called the
"Annual Review". Cerner will provide to APACHE information regarding Cerner's
use of the APACHE Acute Care Module and Resulting Data. The Annual Review will
evaluate the following:
(i) whether the royalty payments or the fees in Section 6(f) accurately
reflect Cerner's use of the Licensed Equations and APACHE Acute Care Module or
any works derived from or based on the Licensed Equations or the Resulting
Data. This evaluation will look at the level of use of the APACHE Acute Care
Module or any works derived from or based on the Licensed Equations in Cerner
products;
(ii) whether APACHE is appropriately involved in outcomes innovations and
development at Cerner. Cerner acknowledges that APACHE has unique expertise in
the outcomes area and the parties intend that such expertise be utilized in
connection with outcomes innovations developed at Cerner.
(b) If APACHE is satisfied at the Annual Review this Agreement will continue
until the next Annual Review until the five (5) year Initial Term has expired.
After the Initial Term has expired, this Agreement will automatically renew on
an annual basis unless either party provides one hundred and eighty (180) days
written notice of termination before the end of the existing term.
(c) If APACHE is not satisfied at the time of the Annual Review, based on
the criteria in Section 18(a), then the following will occur:
(i) APACHE will provide written notice to Cerner that APACHE is not
satisfied according to the terms of this Section 18.
(ii) the parties will in good faith renegotiate the royalty or redefine
APACHE's role in the outcomes area. Negotiated terms will be implemented
through a signed addendum to this Agreement and will go into effect upon
execution of such addendum.
(iii) if the parties are unable to reach agreement within thirty (30) days
after Cerner's receipt of APACHE's written notice, APACHE may terminate this
Agreement with written notice to Cerner such that the Agreement will terminate
three (3) years from the Effective Date if the Annual Review occurs at the end
of the first or second year, and on the expiration of one year from the notice
of termination if the Annual Review occurs at the end of the third or fourth
year.
(d) Cerner may terminate this Agreement by written notice to APACHE:
(i) if APACHE has not delivered the deliverables defined in section 5(b)
within ninety (90 days from the time frame stated in that section and such
delay is caused solely by APACHE. In such case, Cerner shall be entitled to a
refund of the initial royalty payment paid by Cerner to APACHE hereunder and
neither party shall have any further liability under this Agreement or if
APACHE is unable to refund the initial royalty payment, at Cerner's option, the
refund may be a conversion to equity as described in Section 6(a).
(ii) effective thirty (30) days after APACHE's receipt of notice, in the
event that APACHE defaults on any material obligation or covenant or breaches
any material representation or warranty hereunder; if APACHE has not cured such
default within such thirty (30) day notice period.
(e) APACHE may terminate this Agreement by written notice to Cerner:
(i) effective ten (10) days after Cerner's receipt of such notice, if
Cerner exceeds the scope of any of the Licenses granted hereunder and does not
cure the same within such ten (10) day period;
(ii) effective thirty (30) days after Cerner's receipt of notice, in the
event that Cerner (aa) fails to make any payment required under this Agreement
when due, or (bb) defaults on any other material obligation or covenant or
breaches any material representation or warranty hereunder; if Cerner has not
cured such default within such thirty (30) day notice period.
(f) Without limiting any right of termination described above, APACHE may
terminate any Sublicense granted hereunder thirty (30) days after delivery of
APACHE's notice to Sublicensee and Cerner if Sublicensee has exceeded the scope
of the Sublicense and does not cure the same within such thirty (30) day period
or Cerner does
<PAGE> 13
not take appropriate action against Sublicensee, as determined by APACHE in its
reasonable judgment.
19. Consequences of Termination.
(a) The Licenses granted hereunder shall automatically terminate when either
APACHE or Cerner terminates this Agreement.
(b) Promptly after termination, Cerner shall:
(i) discontinue use of and return to APACHE all copies of the APACHE Acute
Care Module, all other materials respecting the APACHE Acute Care Module and
any APACHE confidential information;
(ii) purge all copies of the APACHE Acute Care Module and all portions
thereof from any storage medium or device in which Cerner may have placed such
material;
(iii) notwithstanding the above, unless the termination is for exceeding
the scope of the Licenses by Cerner or a breach of Section 17 by Cerner, then
Cerner may continue to use the current version of the APACHE Acute Care Module
solely for the purpose of continuing technical support to Sublicensees existing
at the time of termination without extension or renewal. Such continued use
shall be subject to all the terms and conditions of this Agreement; and
(iv) certify in writing to APACHE that Cerner has complied with all of its
obligations under this Section 19.
(c) Termination of this Agreement shall not relieve Cerner of its
obligations to APACHE that arose prior to termination or that survive
termination, including, without limitation, its obligations to pay all moneys
due and owing under this Agreement. All such amounts shall be paid no later
than ten (10) days following termination.
(d) Termination of this Agreement shall not automatically cause the
termination of any existing Sublicenses.
(e) Cerner shall have the right to provide updates to the APACHE Acute Care
Module to all Sublicensees for three years from execution of their respective
Sublicense agreement so long as Support Fees are paid by that Sublicensee and
the portion of Maintenance Fees described in section 6(c) is paid by Cerner to
APACHE for that Sublicensee. This ability to obtain updates as described above
shall not cease upon termination of this Agreement and APACHE shall make
updates to the APACHE Acute Care Module available to Cerner as required to
comply with this paragraph.
(f) If this Agreement is terminated after the expiration of the Initial
Term, Cerner will be granted one hundred and eighty days (180) to conclude its
existing marketing efforts and to complete any contracts pending. However,
additional marketing efforts may not commence after termination.
20. Dispute Resolution.
(a) Disputes under any provision of this Agreement (including any schedules,
addenda or exhibits thereto) not resolved between Cerner and APACHE within 10
days shall be resolved in accordance with the following procedures. The parties
shall refer the dispute to the Chief Executive Officer of each party (or other
person designated by the CEO and agreed to by both parties), who shall have
authority to resolve the dispute between the parties. Such executives shall use
all reasonable efforts to confer in person or by telephone within forty-eight
(48) hours after referral of a dispute, and thereafter as they reasonably deem
necessary, to exchange relevant information and to attempt to resolve the
dispute. If the matter has not been resolved within 10 days of referral of the
dispute to such executives, the parties shall proceed in accordance with
Sections 20(b)-(d). All negotiations pursuant to this paragraph are confidential
and shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence and state rules of evidence.
(b) If the efforts described in the preceding paragraph fail to resolve the
dispute, the parties shall institute binding arbitration proceedings pursuant
to the Commercial Arbitration Rules of the American Arbitration Association,
provided that this provision shall not apply if a third party which is a
necessary party to the arbitration refuses to participate. The arbitrators will
have the power to award any legal or equitable remedy, including without
limitation, specific performance. Arbitration will be conducted in a mutually
agreeable location. Arbitration will not be a condition to a party's exercise
of its termination rights under this Agreement.
(c) Each party will have the same discovery rights as are afforded under the
Federal Rules of Civil Procedure, including such discovery of third parties as
is necessary to resolve the controversy. Each party shall bear its own costs
(e.g., filing, attorney and expert witness fees) and shall share equally the
costs of the arbitration (e.g., arbitrator, court reporter and hearing room
fees). The arbitration will be conducted by three arbitrators, one of whom will
be specified in writing by each party within five (5) business days of either
party's receipt of the other party's demand for arbitration, and one of whom
will be chosen by the other two, or, if the other two fail to choose the third
within five (5) business days of their designation by the parties, by the
<PAGE> 14
American Arbitration Association. The arbitrators shall provide detailed,
written findings of fact and conclusions of law to the parties in support of
any award or decision the arbitrators make.
(d) Notwithstanding the foregoing, either party may seek a preliminary
injunction or other provision of judicial relief if in its judgment such action
is necessary to avoid irreparable damage or to preserve the status quo. Despite
such action, the parties will continue to participate in good faith in the
procedures specified in this Section 20.
21. General.
(a) If no due date is set forth in this Agreement or the relevant invoice,
payment for goods or services rendered by APACHE in connection with this
Agreement shall be made by Cerner within thirty (30) days of receipt of the
relevant invoice.
(b) The obligations of either party hereunder (other than the obligation to
make any payment hereunder) shall be excused in the event of labor
disturbances, riots, acts of war or terrorism, fires, power surges or power
failures, governmental acts, acts of God, fires, floods, failure of third-party
suppliers to deliver, or any other cause beyond the control of such party, for
so long as such cause for non-performance exists.
(c) This Agreement, including all other schedules, addenda and exhibits
referenced in this Agreement, contains the entire Agreement between APACHE and
Cerner concerning the subject matter hereof and supersedes all prior and
contemporaneous proposals, discussions, understandings and all other agreements
or representations, oral and written, between the parties relating to the
subject matter hereof. Notwithstanding the above, all confidentiality
agreements between the parties will remain in effect and are not superseded.
(d) In addition to the provisions that by their terms survive, the provisions
contained in Sections 2(f), 3, 15-17, 18(f), 19(b)-(c)-(d)-(e)-(f) and 20 shall
survive termination of this Agreement.
(e) All notices required by this Agreement shall be in writing, shall be
effective upon receipt, and shall be delivered by (i) hand, (ii) certified
mail, return receipt requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or overnight courier
service) addressed to the other party at the address or facsimile number set
forth herein, or at such address or facsimile number as to which such party
from time to time may give proper notice to the other party. Notices shall be
deemed to have been received: if hand delivered, when so delivered; five days
after deposit as certified mail; on the date scheduled for delivery if sent by
courier; and on the date shown on the report generated by the sending machine
if sent by facsimile. All notices shall be effective upon receipt or, if later,
deemed receipt.
(f) The parties irrevocably agree that service of process by mail as
provided in Section 21(e) shall be sufficient service for personal jurisdiction
of the party so served.
(g) If any provision of this Agreement or any portion thereof is declared
invalid or unenforceable, such provision shall be limited and construed so as
to make it enforceable consistent with the parties' manifest intentions or, if
such limitation or construction is not possible, such provision will be deemed
stricken from this Agreement. In such event, all other provisions of this
Agreement will remain in full force and effect, unless such enforcement would
result in an injustice or be inconsistent with the purposes of this Agreement.
(h) This Agreement may be assigned by either party only with the prior
written consent of the other party, provided that no written consent is
necessary if the assignment is to an entity controlled by, controlling or under
common control with the party making the assignment. No consent shall be
required in connection with the merger or consolidation of Cerner or the sale
by Cerner of all or substantially all of its assets or the merger or
consolidation of APACHE or the sale by APACHE of all or substantially all of
its assets.
(i) No waiver of any term of this Agreement shall be valid unless in a
writing signed by the party against whom the waiver is sought to be enforced.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any way the right to require
such performance at any time hereafter.
(j) Nothing in this Agreement is intended to create a relationship between
APACHE and Cerner other than that of independent contractors and neither party,
nor any of its employees or staff, shall be construed to be the agent, employee
or representative of the other.
(k) This Agreement may not be modified, altered or amended except by a
written instrument executed by both parties.
(I) This Agreement and performance hereunder shall be governed by and
construed in accordance with the laws of Virginia.
<PAGE> 15
(m) Cerner acknowledges that the unauthorized use or distribution of any
portion of the Licensed Equations or the APACHE Acute Care Module would cause
APACHE irreparable harm, and agrees that APACHE would be entitled to injunctive
relief prohibiting such unauthorized use or distribution, or such breach, in
addition to any other right or remedy APACHE might have in law or equity.
(n) Each party shall execute and deliver to the other party such other
documents, including, without limitation, documents of assignment, transfer or
conveyance, and take such other actions as may be reasonably necessary in the
discretion of the requesting party to carry out more effectively the purposes
of this Agreement.
The parties have executed this Agreement by their duly authorized
representatives, effective as of the date of the last to sign as set forth
below:
CERNER CORPORATION APACHE MEDICAL SYSTEMS, INC.
2800 Rockcreek Parkway 1650 Tysons Boulevard
Suite 601 Suite 300
Kansas City, MO 64117-2551 McLean, VA 22102
Phone No.: (816)221-1024 Phone No.: (703) 847-1400
Facsimile No.: (816) 474-1742 Facsimile No.: (703) 847-1401
By: /s/ Clifford W. Illig By: /s/ Gerald E. Bisbee, Jr., Ph.D.
Print Name: Clifford W. Illig Print Name: Gerald E. Bisbee, Jr., Ph.D.
Title: President Title: Chief Executive Officer and
Chairman
Date: 2/2/95 Date: 1/31/95
<PAGE> 16
Exhibit A
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
APACHE and Cerner agree that Cerner will not sublicense the APACHE Acute Care
Module to any of the following:
1. Baylor Health Care System, Dallas, TX
2. University of Michigan Hospitals, Ann Arbor, MI
3. The hospitals in the counties listed below, provided that ProMedica Health
Systems signs an Agreement with APACHE by July 31, 1995:
County, State
Lenawee, MI
Monroe, MI
Fulton, OH
Lucas, OH
Ottawa, OH
Sandusky, OH
Erie, OH
Huron, OH
Crawford, OH
Allen, OH
Henry, OH
Defiance, OH
<PAGE> 17
Exhibit B
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
Lab Specifications
UB92 Specifications
<PAGE> 18
Exhibit C
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
APACHE grants Cerner the right to use, distribute, demonstrate, and Sublicense
the APACHE Acute Care Module in the following countries:
United States of America
United Kingdom
Canada
Australia
Germany
Puerto Rico
<PAGE> 19
Exhibit D
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
APACHE per diem rates
The following are the daily and hourly billing rates for 1994 which will be
used for additional consulting support or training classes not provided for in
the Licensing Agreement. The billing rates are subject to annual changes.
<TABLE>
<CAPTION>
Description 1994 Daily Rate 1994 Hourly Rate
<S> <C> <C>
Dr. William Knaus $3,400 $425.00
Dr. Gerald Bisbee $3,400 $425.00
Project/Senior Manager $2,100 $262.50
Senior Research Physician $2,100 $262.50
Senior Biostatistician $1,700 $212.50
Manager $1,500 $187.50
Senior Database Manager $1,500 $187.50
Senior Technical Personnel $1,500 $187.50
Senior Nurse Analyst $1,000 $125.00
Technical Personnel $ 700 $ 87.50
</TABLE>
<PAGE> 20
Exhibit E
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
Operating Platforms
Digital Equipment VAX VMS
Digital Equipment Alpha VMS
RS 6000 AIX
<PAGE> 1
EXHIBIT 10.9
APACHE MEDICAL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
APACHE MEDICAL SYSTEMS, INC., a Delaware corporation (the "Company"),
hereby grants to CLEVELAND CLINIC FOUNDATION ("CCF"), an option to purchase a
total of one hundred eighty-eight thousand (188,000) shares (the "Shares") of
Common Stock of the Company, at the price provided herein.
1. Permitted Assignment to Clinician(s). The right to exercise this Option
with respect to certain of the Shares may be assigned at any time hereafter and
from time to time by CCF to F. George Estafanous, M.D., Thomas L. Higgins, M.D.
and/or Norman J. Starr, M.D. (individually, a "Clinician" and collectively,
the "Clinicians"), in the amounts set forth in Exhibit B, by delivering written
notice, signed by an authorized officer of CCF, to the Secretary of the Company
in person or by certified mail. Such notice shall state the name of the
Clinician(s) to whom such assignment is made and the number of Shares being
assigned, consistent with Exhibit B. The effect of any such assignment will be
as if, on the date hereof, the Company had executed a non qualified stock
option agreement in the same form as this Option, granting the right to
purchase the assigned Shares to the Clinician(s) to whom the assignment was
made. Each such assignment hereunder by CCF shall reduce the total number of
Shares that may be purchased by CCF under this Option.
2. Nature of the Option. This Option is a non-statutory option and is not
intended to qualify for any special tax benefits to CCF or the Clinicians.
3. Exercise Price. This exercise price is $1.50 for each share of Common
Stock.
4. Exercise of Option. Subject to Section 7 hereof, this Option shall be
exercisable during its term as follows:
(i) Right to Exercise. This Option may be exercised in one or more
tranches at any time from the date hereof through the tenth anniversary hereof.
This Option may not be exercised for a fraction of a share.
(ii) Method of Exercise. This Option shall be exercisable from time to
time by written notice which shall state the number of Shares in respect of
which this Option is being exercised. Such written notice shall be signed by
an authorized officer of CCF or a Clinician, as the case may be, and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the exercise price.
No Shares will be issued pursuant to the exercise of this Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then
be listed.
<PAGE> 2
(iii) Number of Shares Exercisable. Each exercise of this Option
hereunder shall reduce the total number of Shares that may thereafter be
purchased under this Option.
5. Representations. In the event the Shares purchasable pursuant to the
exercise of this Option have not been registered under the Securities Act of
1933, as amended ("Securities Act"), at the time this Option is exercised, an
authorized officer of CCF or a Clinician, as the case may be, shall,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company its or his Investment Representation Statement in the form attached
hereto as Exhibit A.
6. Method of Pennant. Payment of the exercise price shall be by cash or
check.
7. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require CCF or a Clinician, as the case may be, to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
8. Non-Transferability of Option. Except as permitted by Section 1 hereof,
this Option may not be sold, pledged, assigned, hypothecated, transferred or
disposed of by CCF or a Clinician in any manner other than by will or by the
laws of descent or distribution and may be exercised during the lifetime of
Clinician only by him. The terms of this Option shall be binding upon the
executors, administrators, heirs and successors of CCF and the Clinicians.
DATE OF GRANT: August 19, 1994
APACHE Medical Systems, Inc.
a Delaware corporation
By: /s/ BRION UMIDI
---------------------------
Brion Umidi
Vice President
By: /s/ ELIZABETH A. DRAPER
---------------------------
Elizabeth A. Draper
Secretary
APPROVED AS TO FORM
CCF-Office of
General Counsel
By [SIGNATURE ILLEGIBLE]
-------------------------
Date 8/19/94
----------------------
Agreed to this l9th day of
August, 1994
Cleveland Clinic Foundation
By: /s/ FLOYD D. LOOP
------------------------
Floyd D. Loop, M.D.
Executive Vice President
-2-
<PAGE> 3
Exhibit A
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: [CCF] or [Name of Clinician]
SELLER: APACHE MEDICAL SYSTEMS, INC.
COMPANY: APACHE MEDICAL SYSTEMS, INC.
SECURITY: COMMON STOCK
AMOUNT: [Insert number of Shares exercised.]
DATE: [Insert date of exercise.]
In connection with the purchase of the above-listed Securities, the Purchaser
represents to the Seller and to the Company, the following:
(a) [The Purchaser is] [I am] aware of the Company's business affairs and
financial condition, and [has] [have] acquired all such information about the
Company as [it] [I] deem[s] necessary and appropriate to enable [it] [me] to
reach an informed and knowledgeable decision to acquire the Securities. [The
Purchaser is] [I am] purchasing these Securities for [its] [my] own account for
investment and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
("Securities Act").
(b) [The Purchaser] [I] understand[s] that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of [its] [my] investment intent as expressed herein.
(c) [The Purchaser] [I] further understand[s] that the Securities may not
be sold publicly and must be held indefinitely unless they are subsequently
registered under the Securities Act or unless an exemption from registration is
available. [The Purchaser is] [I am] able, without impairing [its] [my]
financial condition, to hold the Securities for an indefinite period of time
and to suffer a complete loss on [its] [my] investment. [The Purchaser] [I]
understand[s] that the Company is under no obligation to [it] [me] to register
the Securities. In addition, [the Purchaser] [I] understand[s] that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered such
registration is not required in the option of counsel for the Company.
(d) [The Purchaser is] [I am] familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including,
-3-
<PAGE> 4
among other things: (i) the availability of certain public information about
the Company; (ii) the resale occurring not less than two years after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three (3) years the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any
three-month period not exceeding the specified limitations stated therein, if
applicable.
(e) [The Purchaser] [I] further understand[s] that at the time [it] [I]
wish[es] to sell the Securities there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, [it] [I] would be precluded from selling the
Securities under Rule 144 even if the two-year minimum holding period had been
satisfied. [It] [I] understand[s] that the Company is under no obligation to
[it] [me] to make Rule 144 available.
(f) [The Purchaser] [I] further understand[s] that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the Securities and Exchange Commission has
expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available from such offers or sales, and that
such persons and their respective brokers who participate in such transactions
do so at their own risk.
Signature of Purchaser:
[Insert typed name of CCF/Clinician]
Date: [Insert date of execution by CCF/Clinician]
-4-
<PAGE> 5
EXHIBIT B
OPTIONS TO BE DISTRIBUTED
TO CLINICIANS
<TABLE>
<CAPTION>
Name Number of Options
<S> <C>
F. George Estafanous, M.D. 28,200
Thomas L. Higgins, M.D. 28,200
Norman J. Starr, M.D 9,400
</TABLE>
-5-
<PAGE> 1
EXHIBIT 10.10
AGREEMENT
BETWEEN
THE GEORGE WASHINGTON UNIVERSITY
AND
APACHE MEDICAL SYSTEMS, INC.
August 19, 1994
<PAGE> 2
TABLE OF CONTENTS
Page
----
PREAMBLE .................................................................. 1
TERMS AND CONDITIONS ...................................................... 2
1. Certain Definitions ............................................... 2
2. University's License to AMS ....................................... 4
3. AMS's License to University ....................................... 4
4. IRU's Scientific Advice to AMS; Cooperative Matters ............... 5
5. AMS's Provision of APACHE III Management System ................... 7
6. AMS's Delivery of Common Shares ................................... 8
7. Price and Payment ................................................. 8
8. Enforcement of Copyright, Patent and Other Intellectual
Property Rights ................................................... 8
9. Restrictive Covenants on Proprietary Rights and
Confidentiality ................................................... 8
10. Joint Warranties and Indemnities of the Parties
Regarding Intellectual Property Rights ............................ 9
11. Notices, Instructions and Warnings to Third Parties
Regarding Use of APACHE Products .................................. 9
12. Status of the Parties ............................................. 10
13. Advertising Publicity and Disclosure .............................. 11
14. Confidential Information of the Parties ........................... 11
15. Effect of Restated Agreement ...................................... 11
16. Term .............................................................. 12
17. Termination ....................................................... 12
18. Successors and Assigns ............................................ 12
19. Notice ............................................................ 13
20. Miscellaneous ..................................................... 13
21. Effective Date .................................................... 13
- i -
<PAGE> 3
EXHIBIT 10.10
AGREEMENT
This Agreement ("Agreement"), between The George Washington
University, a not-for-profit District of Columbia Corporation (the
"University"), and APACHE Medical Systems, Inc., a Delaware corporation with
its principal place of business in McLean, Virginia ("AMS") (the University and
AMS is each a "Party" and are, together, the "Parties"), supersedes an earlier
agreement between the Parties (the "Restated Agreement") and sets forth the
terms and conditions under which the Parties will continue their business and
research relationship.
PREAMBLE
The University, through the ICU Research Unit (the "IRU") led by
William A. Knaus, M.D., has since 1978 pursued research into methodologies for
ranking, measuring, evaluating and managed care for critically ill patients
hospitalized in intensive care units ("ICUs"). That research continues and is
expanding in scope. Funding for this research has been provided by a number of
government and private sources, principally including the Agency for Health
Care Policy and Research ("AHCPR") and the Robert Wood Johnson Foundation. This
research has become known by the name APACHE and has proceeded through three
phases: APACHE I, APACHE II and APACHE III.
Because government and foundation support, while substantial, was
inadequate to permit collection of data and the creation of certain equations
necessary for development of APACHE III research, Dr. Knaus, with the
acquiescence of the University, initiated the incorporation and financing of
AMS. The University entered the Restated Agreement with AMS for the purpose of
establishing into a relationship to facilitate continuation of the IRU's
APACHE research program and, at the same time, to encourage the development of
commercial products based on the APACHE technology.
The Parties entered into the Restated Agreement on November 20, 1989,
replacing an agreement between them executed May 25, 1988. Based on experience
gained since 1988, the Parties intend to alter certain aspects of their
contractual relationship to improve the capacity of the IRU to continue its
research in the APACHE technology and related areas and to improve AMS's
ability further to develop the APACHE technology for commercial markets, all
for the purpose of improving health care.
Therefore, for the mutual consideration recited in this Agreement, the
Parties agree as follows:
<PAGE> 4
TERMS AND CONDITIONS
1. Certain Definitions. In addition to terms defined in text, the
following terms have these specified meanings for purposes of this Agreement:
a. APACHE: a trademark and service mark of AMS, which was transferred to
AMS by the University pursuant to the Restated Agreement as partial
consideration of AMS's collection of the APACHE III Database.
b. APACHE II Product: any product (and associated services) that is part
or a derivative work of the APACHE II Scoring System or any of its software
components (including documentation).
c. APACHE II Scoring System: the second iteration of the APACHE scoring
system developed by the IRU, containing a database, equations, and associated
documentation.
d. APACHE III Database: the national database of approximately 18,000 ICU
admissions collected from 1989 through 1990 at forty (40) United States
hospitals, by AMS, at its expense, and owned by AMS. This database was used to
develop the APACHE III Equations and, under the terms of the Restated Agreement,
was the subject of publicly funded research by the IRU in its development of
the APACHE III Prognostic Scoring System. This database does not include any
data collected or acquired by AMS (i) subsequent to December 31, 1990, or (ii)
outside the United States at any time.
e. APACHE III Equations: predictive equations developed and owned by AMS
that are part of the APACHE III Management System; these equations are not
derivative works of the equations in the APACHE III Prognostic Scoring System.
f. APACHE III Management System: the proprietary hardware and software
system developed by AMS, that applies the APACHE III Equations to data inputted
by a user, and includes associated data collection materials and documentation;
this system is distributed commercially.
g. APACHE III Product: any development, discovery, or invention (or
associated services) that includes all or part of, or is a derivative work of
the APACHE III Equations, the
-2-
<PAGE> 5
APACHE III Database, the Enhanced APACHE III Database, or the software, data
collection methodology and documentation elements of the APACHE III Management
System, whether or not such product is distributed commercially by AMS.
h. APACHE III Prognostic Scoring System: the scoring system, developed
by the IRU through research on the APACHE III Database, which is the subject of
continuing research and publication by the University, and which contains
equations separate from, and not derivative works of, the APACHE III Equations.
i. Confidential Information: With respect to a Party, it is the
information and data of a Party (the "Disclosing Party") that constitutes any of
the following: (i) trade secrets; (ii) business practices, policies or
procedures; (iii) personnel information; (iv) security measures, practices,
policies and procedures relating to documents, data, communications,
information, or personnel; (v) information which the Disclosing Party owns or
for which it has an exclusive license; and (vi) other information or data held
in confidence for or designated as confidential by the Disclosing Party.
Confidential Information shall not include either information in the public
domain which the other party, without having breached this Agreement, has
obtained from an independent, unaffiliated third party. Classification of
information as Confidential Information is not affected on the basis that third
parties may have access to such information, provided that such access is
subject to limitations or restrictions regarding the use of, access to, or
dissemination of such information. For purposes of this Agreement, and without
limiting the foregoing, the following constitute Confidential Information of
AMS: APACHE II Products; the APACHE II Scoring System; the APACHE III Database;
the Enhanced APACHE III Database; the APACHE III Equations; the APACHE III
Management System; and all APACHE III Products.
j. Enhanced APACHE III Database: The database created by AMS at its
expense and owned by AMS, which includes (i) the data collected in the
Netherlands from February 1, 1990 through December 31, 1990; (ii) all data
acquired, from
-3-
<PAGE> 6
January 1, 1991 up to the termination of this Agreement, by or for AMS and
relating to ICUs; and (iii) the APACHE III Database.
k. Research Use: use, non-commercial in nature (including the
publication of research results as provided herein), in connection with
research projects undertaken, with or without governmental, foundation,
corporate or other funding support, by a not-for-profit entity.
2. University's License to AMS. The University grants a perpetual
license to AMS as follows:
a. AMS shall have a fully paid, exclusive, worldwide license
(including the right to sublicense) to commercialize and distribute,
commercially or for research purposes, the APACHE II Scoring System and all
APACHE II Products, owned by the University, and derivative works thereof.
b. AMS shall have a fully paid, exclusive, worldwide license
(including the right to sublicense) to the University's rights, for the
purpose of commercializing and distributing, commercially or for research
purposes, the APACHE III Prognostic Scoring System, derivative works thereof,
and all derivative works of APACHE III Products, if any, owned by the
University.
c. AMS's license under this section is subject to its agreement
to make its APACHE III Database available pursuant to Section 3.b.2. In no
event, however, shall this limitation on AMS's licenses permit the University
to make public data to which it has access under an express written
confidentiality agreement with AMS (including, without limitation, Confidential
Information subject to Section 14, below) that specifically restricts, limits,
prohibits, or controls public access.
3. AMS's License to University. AMS grants a license (without the
right to sublicense) to the University as follows:
a. The University shall have access to and the right to use in
perpetuity the APACHE II Scoring System and all APACHE II Products for the
University's Research Use.
b. 1. The University shall have access to and the right to use
in perpetuity the Enhanced APACHE III Database for the University's Research
Use.
2. Pursuant to the University's obligations under Grant No.
H505787 from AHCPR, as represented by the University to AMS, AMS promises to
the University that AMS shall make the APACHE III Database, or portions
thereof, available to bona fide researchers upon request, solely for their
Research
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<PAGE> 7
Use. However, AMS does not make any commitment to make the APACHE III Database
available to any person or entity for other than Research Use. Further, AMS
may require any person or entity to whom it furnishes any of the APACHE III
Database to execute an appropriate confidentiality agreement substantially in
the form of Attachment 1. This subsection is solely for the benefit of the
University and it neither creates, nor is it intended to create, any
independent rights or benefits for AHCPR, independent researchers, or any other
third party.
c. For the term of this Agreement, and unless otherwise
specifically agreed in writing between the Parties, the University shall have
access to and the right to use, for Research Use, AMS's intellectual property
on which the University, through the IRU or otherwise, provides scientific
advice (including consulting or research services) under Section 4 of this
Agreement. No such research shall be undertaken without AMS's specific prior
written consent to the University's compliance with all applicable requirements
of any applicable research grant.
d. Any access to AMS's intellectual property (other than access
to the APACHE III Database as otherwise expressly authorized herein) by any
third party (excluding employees, faculty, and students of the University who
have executed the University's standard confidentiality and assignment of
rights agreements in the form attached as Attachment 2) shall be (i) limited to
the portion of the Enhanced APACHE III Database or other AMS intellectual
property that, in AMS's sole discretion, is relevant to the third party's
inquiry; (ii) subject to the terms of an Independent Research Agreement between
AMS and such third party; and (iii) available only from AMS, upon application
made to AMS, and at AMS's sole discretion.
e. The University shall have a perpetual, limited, royalty-free,
worldwide license for Research Use only in any future APACHE III Products (and
their derivative works) created during the term of this Agreement and for which
the University provides consulting or research services under this Agreement
prior to their creation.
f. AMS recognizes that the University shall have a perpetual
right to make fair comment that incidentally uses the mark "APACHE." AMS shall
take no action to prevent the University's fair comment to the extent it does
not reveal AMS's Confidential Information.
4. IRU's Scientific Advice to AMS; Cooperative Matters. The IRU
shall provide scientific advice to AMS in connection with AMS's continued
development of the APACHE research or its derivatives, including, without
limitation, commercial projects selected by AMS. To the extent that AMS seeks
scientific or other advice on matters or in connection with projects
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<PAGE> 8
or technology other than the APACHE research (as that research may continue to
develop), AMS and the University will agree, in writing, to specify the details
of each such assignment. In connection with the IRU's provision of scientific
advice to AMS under this Agreement:
a. During the term of this Agreement, the Parties will meet at
least quarterly and will negotiate in good faith on tasks and on the amount of
funds to be expended by each for continued work on APACHE III research and
its derivatives. However, the Parties' obligations in this regard are
contingent upon Dr. Knaus's remaining a faculty member of the University. In
the absence of bad faith, failure of the Parties to reach agreement on tasks
and expenditure levels under this subsection shall not be deemed a material
breach of this Agreement.
b. For the term of this Agreement, the University will make
available Dr. Knaus and his staff, at mutually agreeable times (subject to
Dr. Knaus's and his staff's other University obligations and Dr. Knaus's
continued employment at the University), to assist AMS as follows:
(i) to work with AMS to assure that AMS understands and can
fully utilize the Enhanced APACHE III Database;
(ii) to provide AMS with guidance and advice as appropriate in
the development of the APACHE III Management System and APACHE III Products,
including but not limited to rendering advice with respect to a
multi-institutional, nationally representative database, including reasonable
assistance in identifying and recruiting hospitals;
(iii) to sit on advisory committees organized by AMS for the
purpose of assisting AMS in the development of the APACHE III Management
System, APACHE III Products, or various research projects (such as AMS's
Cardiovascular Surgery and Cardiac Anesthesia Project); and
(iv) to perform research for or on behalf of AMS, at the
University, in accordance with grants to the University funded directly by or
indirectly through AMS.
c. The University shall not commit itself to any grant or
contract that will use, be based on, or otherwise implicate AMS' intellectual
property or property for which it has an exclusive commercial license hereunder
unless the University first notifies AMS, in writing, of such grants (together
with a copy of the proposed grant request and other relevant or supporting
documentation, and the University's summary analysis of how AMS's interests are
implicated by the grant), and AMS provides its written consent. Further, the
University shall not be required to undertake any research for AMS that will
prevent the University from complying with any existing obligations of the
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<PAGE> 9
University under the terms of grants or contracts to which the University is
subject.
d. The University represents and warrants that the terms of this
agreement, and the availability of any University employee to participate in
the research contemplated herein shall, for the term of this Agreement, not be
affected by the ownership of AMS's equity stock by the University or by an
employee, provided that any University employee's or employees' equity share,
in the aggregate, is less than a majority share.
e. AMS and the University will consult in advance regarding any
new research or scientific advice that AMS requests from the IRU that is to be,
or may be, funded in whole or part through grants or contracts between AMS and
third parties, including, among others, foundations and governmental entities.
The Parties shall cooperate in good faith to negotiate regarding any
then-existing or future grants or contracts so as to facilitate financial
support from third parties to the IRU for its scientific research; to assure
that the intellectual and other property rights created or otherwise implicated
by these activities are the subject of prior written agreements designed to
protect AMS's and the University's respective ownership interests, if any;
and to protect the rights of the third parties that are ultimately responsible
for the funding.
f. The University will give AMS advance copies of its
publications relating to the APACHE research or its derivatives and will
allow AMS a reasonable opportunity (of no less than thirty (30) calendar days)
to review, in advance, copies of publications for Confidential Information or
other non-releasable information in which AMS has an intellectual or other
property interest. All University research publications relating to the APACHE
technology or its derivatives shall set forth AMS's corporate name and its
business address for the purpose of directing either product inquiries or
requests for access to the database.
g. University research relating to any of the properties for
which AMS has received a license pursuant to Section 2, above, or for which the
University has received a license pursuant to Section 3, may not be conducted
by the University unless either i) the sponsor of such research is a
non-commercial entity and the research is not for a commercial purpose, or ii)
the research is conducted through grants or contracts from AMS pursuant to this
Agreement.
5. AMS's Provision of APACHE III Management System. AMS has
delivered to the University and completed installation of an APACHE III
Management System, all in accordance with the APACHE III Computer System
Agreement, at Attachment 3, executed concurrently with this Agreement. System
support for the APACHE III Management System shall be for thirty-six months
from the
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<PAGE> 10
completion of installation, as provided for in the APACHE III Computer System
Agreement. As set forth in the license under the APACHE III Computer System
Agreement, the University's continued use of the APACHE III Management System
beyond the 36-month system support period requires the University to obtain
system support from AMS at AMS's standard system support rates.
6. AMS's Delivery of Common Shares.
a. Within five (5) business days of AMS's receipt of the
Investment Representation Statement prepared pursuant to subsection 6.b, AMS
shall transfer and deliver to the University Twenty-Five Thousand (25,000)
shares of AMS common stock.
b. The University's acquisition and ownership of such common
stock shall be contingent upon the University's executing and delivering to
AMS the Investment Representation Statement set forth at Attachment 4.
c. For purposes of this Section 6, the Parties hereby adopt their
respective representations and warranties as set forth at Attachment 5.
7. Price and Payment. As consideration under this Agreement in
addition to the mutual obligations of the Parties, the University shall forego
and forgive receipt of [*] due to it from AMS under the Restated Agreement, and
forever release AMS from its obligation to pay any royalties or other amounts
due or provided for in the Restated Agreement.
8. Enforcement of Copyright, Patent and Other Intellectual Property
Riqhts. In the event a Party declines to enforce its copyright, patent, trade
secret or similar rights with respect to any APACHE II or III Product, or any
other APACHE product or research to which this Agreement applies (whether or
not issuing on applications filed in any country), then that Party shall
promptly notify the other Party of that decision. This notification shall
authorize the other Party to enforce all such rights. If the other Party, at
its expense, decides to enforce its intellectual property rights under this
section, then the Party declining to enforce its rights agrees to be joined in
litigation when necessary for enforcement, at the other Party's expense. The
Party enforcing its intellectual property rights shall be entitled to and
liable for all the benefits and liabilities resulting from its enforcement
actions.
9. Restrictive Covenants on Proprietary Rights and Confidentiality.
a. The University will require its employees who perform any
functions under this Agreement, or who are permitted access to AMS's
Confidential Information, to execute the form of
- ---------------
* Confidential portions omitted and filed separately with the Commission.
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<PAGE> 11
agreement set forth at Attachment 2. Such protocol shall include a provision,
for the benefit of AMS, binding the University's employees to protect AMS's
Confidential Information. Joint researchers, students, or others permitted
access to AMS property under license to the University shall be required by the
University to execute a similar protocol, reasonably acceptable to AMS, adapted
to reflect the relationship of that particular person to the University, as a
precondition to receiving such access. No third party access (other than to
the University's employees and students as necessary for the University's
research purposes) shall be permitted without the prior, express written
consent of AMS for each third party, consistent with Section 3.d.
b. AMS will require its employees and independent contractors to
assign to AMS all their rights in all APACHE III Products and their derivative
works, and to execute a proprietary rights and confidentiality agreement
substantially in the form found in Attachment 6.
c. The Parties will maintain this Agreement in confidence. Except
as may be required by law or as specifically agreed by the Parties in writing
in advance, each of the Parties may, in its discretion, disclose this Agreement
under conditions of confidentiality only to a grantor, potential grantor,
investor, potential investor, lender or potential lender, but will not
otherwise disclose this Agreement to any third party.
10. Joint Warranties and Indemnities of the Parties Regarding
Intellectual Property Rights.
a. Subject to the following subsection, each Party warrants to
the other that it possesses all necessary authority and all intellectual
property rights necessary to make that Party's license grants in this
Agreement. Each Party will indemnify and hold harmless the other for any
material breach of this warranty.
b. Each Party warrants that its employees and independent
contractors who have performed work on or related to APACHE III Products have
executed agreements substantially as described in Section 9, except as
disclosed in Attachment 7.
c. Neither Party makes any warranty to the other regarding patent
rights in and to any APACHE II or APACHE III Product.
11. Notices, Instructions and Warnings to Third Parties Regarding Use
of APACHE Products.
a. To the extent that, pursuant to the terms of this Agreement,
AMS has expressly consented to the University's use, in a grant or contract of
which the University is a recipient, of intellectual property either owned by
AMS or to which AMS
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has an exclusive commercial license hereunder, the University agrees to include
on all copies of such intellectual property any notices, proprietary legends,
or the like, that may be required by such grants or contracts, or by operation
of laws or regulations governing such contracts, or as otherwise needed to
protect AMS's interests in such intellectual property, including any notices
regarding the sources of funds supporting the University's research on APACHE
projects under this Agreement. The University agrees that it will not modify,
alter, delete, erase, overwrite, or deface any notice or legend affixed by AMS
to any tangible item pursuant to this section without the prior express,
written consent of AMS.
b. AMS shall include notices, instructions and warnings to users
of APACHE II and III Products as set forth in Attachment 8. AMS shall have the
right to modify those notices as appropriate giving due regard to its business
needs and to new research, product development and changing requirements of
law.
12. Status of the Parties.
a. The University and AMS is each an independent contractor and
licensee of the other under this Agreement. Neither Party is, and neither Party
shall represent to any third party that it is, an agent, partner, or joint
venturer of the other for any purpose whatever. The University's shareholdings,
if any, in AMS shall not alter these relationships.
b. Without the prior written approval of the University, no
University employee who is directly involved in APACHE research shall, while so
involved, own a majority interest in or be an officer, director or employee of
AMS. No University employee directly involved in providing scientific advice,
or in scientific research, related to APACHE research or to AMS shall receive
any compensation or any right to receive compensation from AMS for these
activities. To the extent that AMS has actual knowledge that a person is a
University employee, AMS will notify the University in writing at least thirty
(30) days before any University employee directly involved in scientific
research relating to APACHE research or to AMS assumes any restricted position
in AMS or on its Board of Directors, or becomes a paid consultant to AMS or any
licensee or sublicensee of AMS. Reimbursed costs incurred by any University
employee or the University itself in connection with the University's services
to AMS shall not be compensation under this Agreement. Further, no University
employee is prohibited by this Agreement from owning or acquiring less than a
majority of the common shares of AMS (or their equivalents), and dividends
declared and paid on account of these shares shall not be compensation under
this Agreement. Additionally, compensation paid to University employees by the
University for work done by such employees pursuant to funding received by the
University from AMS shall not be deemed indirect payments by AMS to the
employees for purposes of this provision.
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<PAGE> 13
c. Notwithstanding the foregoing, the University hereby gives its
approval for Dr. Knaus to serve as a member of AMS's Board of Directors, and
permits him to receive reimbursement for the expenses incurred by him for
marketing and non-scientific consultation services rendered at AMS's request.
13. Advertising Publicity and Disclosure.
a. Except as required by law, AMS will not use the University's
name in any advertising or descriptive or instructional material in any medium
without the University's specific prior written consent, which the University
may withhold in its discretion. Consent is hereby given for AMS to identify the
University as an AMS shareholder, a purchaser of the APACHE III Management
System, and the original developer of the technology inspired by the APACHE
methodology, and as the situs of APACHE-related research performed by Dr. Knaus
and his staff.
b. No press release or public disclosure, except as required by
law, either written or oral, of the transactions contemplated by this
Agreement, shall be made without the prior knowledge and written consent of the
University and AMS.
14. Confidential Information of the Parties. Each Party will take all
reasonable measures (including appropriate action by instruction, agreement and
otherwise with its employees, agents, students, and others, as the case may be,
to inform them of the trade secret, proprietary, and confidential nature of the
other Party's Confidential Information) to ensure that the Disclosing Party's
Confidential Information shall be maintained by the other Party (the "Receiving
Party") and all its personnel (including agents, students, or others who are
permitted access, if applicable) in strictest confidence, shall not be divulged
within the Receiving Party's organization except to personnel who require
knowledge of particular information, and shall not be divulged to any third
party except in accordance with the prior written consent of the Disclosing
Party or in obedience to any appropriate court or agency order or legal
process. In the case of a disclosure compelled by court or agency order or
legal process, the Party in receipt of such order or process shall give the
Disclosing Party as much warning as is reasonably feasible of the pendency of
any such proceeding or process so that the Disclosing Party may intervene to
protect its interests. In the event the Party in receipt of such order or
process cannot give the Disclosing Party at least two business days' warning
prior to the return date, such Party shall make a reasonable attempt to secure
an extension of time in which to comply with such order or process. This
section shall survive the termination of this Agreement.
15. Effect of Restated Agreement. This Agreement supersedes all terms
of the Restated Agreement that have not been fully performed as of the
Effective Date of this Agreement.
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<PAGE> 14
Except in such respect, the Restated Agreement shall be of no further force or
effect.
16. Term. The term of this Agreement begins on its Effective Date,
and shall end at 11:59 p.m. on May 25, 2003.
17. Termination.
a. Either Party may terminate this Agreement at any time by the
giving of written notice effective immediately in the event that the other
Party fails to discharge any material obligation or to remedy any material
default under this Agreement for a period continuing more than thirty (30) days
after the aggrieved Party shall have given the other Party written notice
specifying the failure or default, and the failure or default continues to
exist as of the date upon which the aggrieved Party terminates this Agreement.
b. Except as set forth in subsections 17.c and 17.d, all licenses
and all warranties that have not by their specific terms expired on an earlier
date certain shall survive the termination of this Agreement. Licenses that
are specified in this Agreement as being for the term of this Agreement shall
expire as of the date of termination.
c. If this Agreement is terminated due to AMS's material default,
AMS shall immediately return to the University all of the University's tangible
Confidential Information, of whatever kind and description, in AMS's possession
or control.
d. If this Agreement is terminated due to the University's
material default, the University shall immediately return to AMS all of AMS's
tangible Confidential Information, of whatever kind and description, in the
University's possession or control.
e. Termination of this Agreement shall not affect any rights or
obligations that accrued before termination. Specifically, and without
limiting the foregoing, each Party agrees, subsequent to the termination of
this Agreement, to maintain the confidentiality of the Confidential
Information of the other Party without regard to which Party, if any,
materially breached this Agreement.
18. Successors and Assigns. This Agreement shall be binding upon
the successors and assigns of both Parties, and no assignment or subcontract
shall be made by either Party without the prior written consent of the other,
except in the case of any assignment to a third party purchasing all or
substantially all of a Party's assets. Any attempt by either Party to assign or
subcontract this Agreement in whole or part contrary to the foregoing provisions
shall be invalid.
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<PAGE> 15
19. Notice. Notice to either Party shall be deemed given the first
business day after dispatch by prepaid overnight express service or courier or
via prepaid U.S. Express Mail, return receipt requested. Notice shall be
addressed to either Party at that address as it shall have provided to the other
under this section.
20. Miscellaneous.
a. This Agreement constitutes the entire agreement between the
Parties with respect to this subject matter and may be amended only in a
writing executed by both of them. Amendments will be so denominated, serially
numbered and signed by an officer of each Party.
b. In the event of conflict between this Agreement and any of its
Attachments, the text of this Agreement shall prevail. Section headings are for
convenience only and shall not be used in any manner to construe this Agreement.
Wherever the context permits, "or" shall be given both its conjunctive and
disjunctive meanings.
c. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the District of Columbia as they apply to
agreements executed and fully to be performed in the District (that is, without
reference to the District's choice of law rules).
d. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the Party sought to be charged therewith, and
any waiver shall apply only to the specific events or situations which it
describes, and, unless it specifies to the contrary, shall not be continuing.
e. If any part or provision of this Agreement shall be void or
voidable by a Party as the result of its being contrary to federal, state or
local law, regulation or ordinance, or if any section, subsection or term shall
be finally declared void or unenforceable by any court or agency of competent
jurisdiction, the remainder of this Agreement shall, to the maximum
practicable extent, continue in full force and effect.
21. Effective Date. This Agreement shall become effective (the
"Effective Date") on the date indicated below as the date signed by the latter
party to sign this Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed in duplicate by their duly authorized corporate officers.
THE GEORGE WASHINGTON APACHE MEDICAL SYSTEMS, INC.
UNIVERSITY
By: /s/ ROGER E. MEYER, M.D. By: /s/ BRION D. UMIDI
------------------------- -----------------------------
Roger E. Meyer, M.D. Name: Brion D. Umidi
Vice President for Title: Vice President
Medical Affairs
Executive Dean
Date: 11-9-94 Date: August 19, 1994
----------------------- ---------------------------
By: /s/ LOUIS H. KATZ
-------------------------
Louis H. Katz
Vice President and Treasurer
Date: 11/15/94
-----------------------
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<PAGE> 17
ATTACHMENT 1
AGENCY FOR HEALTH CARE POLICY AND RESEARCH
CONFIDENTIALITY AGREEMENT
By your signature below, you certify to the Agency for Health Care
Policy and Research ("AHCPR") that you are a clinician, scientist or other
researcher, and that you plan to conduct academic research using the following
database(s) (initial the space next to each of the databases that you plan to
use):
____ APACHE III Master Database
Each of the databases listed above uses arbitrary record designators to
protect patient anonymity, and identifies hospitals only within aggregate
categories. You agree to preserve this confidentiality, and to avoid any
attempt to infer the identity of any patient, physician or institution.
Upon receipt of this form executed by you, APACHE grants to you,
personally as principal researcher, and to your institution as your sponsor, a
limited, royalty-free, non-exclusive license, for academic research purposes
only, in the database(s). The scope of this license includes any and all use of
the data necessary or desirable to conduct your research, prepare it for
publication (via peer review, referee, or comparable procedure), publish in
appropriate scientific journals, and present your data, procedures and other
aspects of your research for audit or other review by granting agencies, peers
or supervisors within your institution or your discipline. Without limitation,
"academic research" does not include research or development conducted,
sponsored or financed in part by assigning commercial rights (as opposed to your
institution's having customary work-for-hire or similar rights as your employer
or sponsor).
This license does not grant the right to publish or otherwise use any of
the databases for commercial purposes, including, without limitation, to
prepare, publish or otherwise use derivative works for commercial as opposed to
academic research purposes. You shall not remove any copyright or other notice
from any database as delivered to you, or make or permit any copy to be made
without such notices, and shall take reasonable precautions to prevent
unauthorized use or copying or the database.
Executed: ___________________________________ ___________
(date)
Receipt acknowledged: _______________________ ___________
(date)
<PAGE> 18
ATTACHMENT 2
[To be provided by the University]
<PAGE> 19
APPENDIX I
Letter of Appointment
____________________ , 198__
Dear :
This is to inform you of your appointment for an indefinite period as
of with salary at the annual rate of $ . The
appointment is effective March 1, 1988, and is subject to all the conditions
and terms of the grants and contracts on which you are working, to the
performance requirements of the grants and contracts as judged by the Principal
Investigator and to the availability of funds from the awards. Your duties
will be assigned by your Principal Investigator.
Your acceptance of employment constitutes an agreement that you will
comply with The George Washington University's Patent Policy, including
provisions of P.L. 96-517 (see enclosed memorandum), and that you will assist
the University to abide by the terms of the grants and contracts to which you
devote time or effort for compensation, including those terms having to do with
inventions and copyrights.
Please sign and return a copy of this letter to indicate your
acceptance of employment under the above-stated conditions.
Sincerely,
Anthony G. Coates
Associate Vice President for
Academic Affairs and Research
Enclosure
______________________________
Signature
_______________________________
Date
<PAGE> 20
APPENDIX II
Employee Confidentiality Protocol
Any person employed by The George Washington University (the
"University") under a Letter of Appointment in the form attached hereto as
Appendix I (hereinafter "Employee") will, the course of his/her employment with
the University, from time to time have access to confidential and proprietary
information regarding AMS and APACHE ("Acute Physiologic and Chronic Health
Evaluation") which will be valuable and unique assets of the University and
AMS, including without limitation the list of AMS's clients; the plan of
operation and finances of AMS and its affiliates; technology, products and
devices licensed to or by, or manufactured or sold by, AMS or its affiliates;
and other secret or confidential information, technology and trade secrets.
Employee will, from time to time, be entrusted with confidential papers,
drawings, specifications, plans, technology and other important proprietary
information from present or potential clients and customers of AMS or its
affiliates. During and subsequent to his/her employment with the University,
Employee will keep confidential and not disclose, other than in the regular and
proper course of business, any such confidential, secret or proprietary
information of AMS and its affiliates, or of any client or potential client of
AMS or its affiliates. Upon termination of his/her employment with the
University, Employee will return to the University all documents, drawings,
specifications, plans, software, computer programs and any other information or
whatever kind and in whatever form acquired during the course of his/her
employment with the University.
<PAGE> 21
ATTACHMENT 3
APACHE(Registered Trademark) III
COMPUTER SYSTEM AGREEMENT
This Computer System Agreement ("Agreement") is between APACHE Medical
Systems, Inc. ("AMS") and the client identified on the signature page below
("Client").
AMS has developed certain computer software programs and computer systems
for use by hospitals in managing intensive care units or monitoring the usage
and performance of such units, or both. Client wishes to acquire such a
computer system from AMS. Therefore, in consideration of the mutual covenants
contained herein, the parties agree as follows:
1. Definitions.
Certain terms used in this Agreement are defined as set forth below; other
terms are defined in the body of this Agreement (including Schedules). All
references to "Schedules" are references to Schedules to this Agreement. All
references to "this Agreement" shall include all Schedules, addenda and
exhibits to this Computer System Agreement which are referenced herein or in
the attached Purchase Schedule.
"Application Programs" shall mean the APACHE III Management System software
modules indicated in the Purchase Schedule, including the database dictionary
and data entry screens, and System Documentation.
"ICU" shall mean a collective reference to intensive care and step-down care
units, collectively.
"Implementation Guide" shall have the meaning ascribed to it in Section 6(a)
"Installation Dates" shall mean (i) the date on which Notice of Installation
is delivered to Client for the System (excluding the Standard Interface
Software modules) and, (ii) the date on which Notice of Installation is
delivered to Client for the Standard Interface Software.
"Client's ICU" shall mean Client's specific ICU (or ICUs) contemplated by
this Agreement, as indicated in the Purchase Schedule under "Stated Use."
"Licensed Data" shall have the meaning ascribed to it in Section 8(a).
"Licensed Software" shall have the meaning ascribed to it in Section 3(a).
"Manual" shall mean the APACHE III Management System user guides, as the
same may be amended by AMS from time to time.
"Notice of Installation" shall mean the notice that AMS will deliver to
Client apprising Client that (i) AMS has completed the installation and testing
of the System (excluding the Standard Interface Software modules) and, (ii) AMS
has completed the installation and testing of the Standard Interface Software,
respectively.
"Operating System" shall mean the operating system software identified on
the Purchase Schedule.
"Purchased Equipment" shall mean the computer hardware identified on the
Purchase Schedule.
"Standard Interface Software" shall mean APACHE III Management System
Admission, Discharge and Transfer ("ADT"), Laboratory and Monitor interface
module software which requires that Client's systems provide interfaces
compatible with the Standard Interface Software Specifications.
"Standard Interface Specifications" shall mean the technical requirements
for the Standard Interface Software.
"Stated Use" shall mean use of the Licensed Software only (i) on the
Purchased Equipment for the sole purpose of running the Application Programs,
(ii) for Client's internal business purposes, and (iii) in accordance with the
limitations with respect to number of beds, servers, non-server workstations
and number and address of ICUs indicated on the Purchase Schedule.
"Support Policy" shall have the meaning ascribed to it in Section 9(a).
"Enhanced Support" shall have the meaning ascribed to it in Section 9(c).
"Supporting Software" shall mean the Third Party Vendor software
sublicensed to Client as indicated on the Purchase Schedule.
<PAGE> 22
"System" shall mean the APACHE III Management System, which shall include the
Purchased Equipment, the Application Programs, the Operating System, the
Supporting Software and, the Standard Interface Software provided by AMS to
Client under this Agreement.
"System Documentation" means the Manual, Standard Interface Specifications,
documentation entitled "Support Policy", Training Materials and Implementation
Guide concerning the features, functions or operation of the System, as the
same may be amended or supplemented by AMS from time to time.
"Third Party Vendors" shall mean Oracle Corporation ("Oracle"), Sun
Microsystems, Inc. ("Sun") and any other developer or distributor of Supporting
Software or of the Operating System sublicensed hereunder.
"Total System Fee" shall mean the total system fees indicated on the
Purchase Schedule.
"Training Materials" shall have the meaning ascribed to it in Section 6(d).
2. Sale of Purchased Equipment.
AMS hereby agrees to sell, and Client agrees to buy, the Purchased
Equipment. Upon delivery of the Purchased Equipment to Client, the title to the
Purchased Equipment shall transfer to Client. Client grants and AMS reserves a
purchase money security interest in the Purchased Equipment until AMS receives
Client's full payment of the Total System Fee. [Begin strikeout text] Client
appoints AMS or its agent as Client's attorney-in-fact to sign and file such
UCC financing statements or other documents on Client's behalf, in such public
offices as AMS deems appropriate to perfect AMS's security interest. [End
strikeout text]
3. Grant of Licenses; Limitations.
(a) AMS hereby grants the following to Client for use only within the
scope of the Stated Use: (i) a non-exclusive, non-transferable license to use
the Application Programs; and (ii) non-exclusive, non-transferable runtime
sublicenses for the Supporting Software and the Operating System. The
Application Programs, Supporting Software, and Operating System shall be
referred to collectively herein as the "Licensed Software," and the licenses
and sublicenses therefor shall be referred to collectively herein as the
"Licenses." This license grant does not include the right to grant sublicenses.
(b) All Licensed Software shall remain the exclusive property of AMS or the
relevant Third Party Vendor. Client agrees to use the Licensed Software only on
the terms and conditions set forth in this Agreement.
(c) Client shall not use any Supporting Software: (i) to create tables or
alter tables outside the scope of those necessary to the operation of the
Application Programs; (ii) to modify forms created by the Application Programs
or to generate new forms, except as necessary to the operation of the
Application Programs; or (iii) in any other manner outside the scope of the
Application Programs, including, without limitation, for general database
management.
(d) Upon AMS's request, Client shall certify to one or more of the
Third-Party Vendors that Client is using the relevant Supporting Software
within the scope of the sublicense.
(e) Client may make up to two (2) archival or back-up copies, of Licensed
Software for each site identified on the Purchase Schedule. Such copy or copies
shall bear AMS's copyright notice and Third Party Vendors' copyright notices,
if applicable, as they appear on the copy of Licensed Software delivered by
AMS.
(f) Client is entitled to one Manual per workstation, as indicated on the
Purchase Schedule. Client may obtain additional Manuals at AMS's then-existing
fee for such Manuals. The Manuals and all other System Documentation are
licensed to Client solely for internal use in connection with the Licensed
Software and shall not be reproduced or distributed without AMS's prior written
consent.
(g) Client shall not make any Licensed Software available on any
timesharing, service bureau, rental or similar basis. Client shall not
disassemble, decompile, decrypt, extract, reverse engineer or attempt to
reverse engineer any Licensed Software, nor cause or permit anyone else to do
so.
(h) Only object code is licensed hereby, and the right to modify or enhance
any Licensed Software or to prepare any derivative works is expressly excluded.
If Client modifies or enhances any Licensed Software, or if
<PAGE> 23
Client combines the Licensed Software with other software, in addition to any
other rights and remedies AMS may have, AMS shall be under no obligation to
support the Licensed Software and all warranties of Licensed Software under
this Agreement shall be null and void. The foregoing shall apply even if Client
is a government entity claiming a right to modify the Licensed Software. All
modifications to Licensed Software shall be the property of AMS and shall be
subject to all of the restrictions contained in this Agreement.
(i) Client shall not publish the result of any benchmark tests evaluating or
reporting the performance of any Supporting Software developed or distributed
by Oracle.
(j) Oracle and Sun require that AMS notify Client that neither the Oracle
nor Sun computer software that is being sublicensed to Client nor the Sun
hardware that is being sold to Client under this Agreement were specifically
developed, manufactured or licensed for use in (i) any nuclear or aviation
application, or (ii) in the case of Sun's software and hardware, for use in any
life support or weapons systems or other hazardous environments requiring
fail-safe controls, or (iii) in the case of Oracle's software, for use in any
medical, mass transit or other inherently dangerous application. Neither Oracle
nor Sun shall be liable for any claims or damages arising from such use.
(k) The license grant under Section 3(a) shall include AMS's Standard
Interface Software indicated on the Purchase Schedule, provided that Client
pays applicable fees indicated on the Purchase Schedule. The Standard Interface
Software is designed to permit electronic capture of data from the information
systems operated by the Client and specified on the Purchase Schedule, provided
such information systems meet the Standard Interface Specifications. Client
shall make available adequate support from the manufacturers or developers of
Client's other information systems and access to such systems as may be
necessary or desirable to implement the Standard Interface Software.
(l) If the System is being acquired by or on behalf of the United States
government or any other entity seeking or applying rights similar to those
customarily claimed by the United States government, the following applies: All
Licensed Software, Licensed Data and System Documentation are "restricted
computer software" (under FARS 52.227-19) or "commercial computer software"
(under DFARS 252.227-7013(c)(ii)) and are hereby licensed with "restricted
rights." If the provisions relating to "restricted rights" do not apply to all
or a portion of the System Documentation or Licensed Data -- then such
Documentation or Licensed Data or the affected portion is licensed with
"limited rights." Utilization of any Licensed Software, Licensed Data and
System Documentation shall be subject to the restrictions specified in the
applicable Federal Acquisitions Regulations and all other restrictions
contained in this Agreement.
4. Pricing and Payment; Taxes.
(a) Client agrees to pay for the Purchased Equipment and Licensed Software,
Standard Interface Software, Integration and Installation, Training and
Implementation, System Support, and, if applicable, professional services, all
as set forth on the Purchase Schedule, either collectively or under such
individual headings.
(b) Client shall reimburse AMS for its reasonable travel, lodging and meal
expenses incurred in connection with the installation and testing of the
System, the initial training, any applicable professional services and any
additional or subsequent on-site training, and any Enhanced Support (as defined
in Section 9(c)).
(c) Failure by Client to make any payment within 30 days of when such
payments are due shall result in the imposition of an interest charge on any
unpaid amount at an annual rate equivalent to the lesser of (i) 1 1/2 % per
month and (ii) the highest rate allowable by law.
(d) Client shall pay all sales, use, transfer or other taxes, whether
federal, state or local, however designated, with the exception of any taxes
based upon the income of AMS, which are levied or imposed by reason of this
Agreement or Client's use of the Purchased Equipment or Licensed Software,
regardless of whether such taxes are identified on any Schedule or in any
invoice, and Client shall indemnify AMS in the event Client fails to pay such
taxes. In the event Client claims that it is a tax-exempt organization not
subject to certain taxes, Client shall inform AMS in writing of the taxes to
which Client's exemption applies. AMS will not invoice Client for such taxes,
provided that Client shall indemnify AMS and hold it harmless against any taxes
and applicable interest or penalties to the extent not covered by Client's
exemption.
<PAGE> 24
Upon request by AMS, Client shall provide AMS with a copy of Client's tax
exemption certificate.
5. Installation and Testing of System.
(a) Client shall be responsible for adequately preparing its facility for
installation including, without limitation, providing a suitable location and
environment for all equipment, in accordance with applicable manufacturer's
standards, testing the local area network ("LAN") to be used in connection with
the System, providing the cabling and all other electrical linkages and
establishing modem connections with AMS. Client shall provide a dedicated
telephone line for access to the System by AMS during the installation process
and for so long as this Agreement is in effect.
(b) AMS shall test the System and shall deliver to Client the Notice of
Installation for the System and for the Standard Interface Software, when the
System or Standard Interface Software, respectively, is operational.
6. APACHE Coordinator; Training, and System Use.
(a) Client shall designate the appropriate professional staff with ICU and
clinical data collection experience or knowledge to serve as APACHE
Coordinator, as set forth in AMS's "Implementation Guide" which describes both
required and recommended procedures for installation and implementation of the
System. The APACHE Coordinator shall be AMS's primary contact with Client for
implementation of this Agreement and installation and operation of the System.
AMS shall be entitled to rely on instructions and decisions communicated to it
by the APACHE Coordinator.
(b) AMS shall provide its standard initial on-site training of the APACHE
Coordinator and other employees and medical staff designated by Client. The
initial training shall begin on a mutually agreeable date.
(c) ONLY THOSE EMPLOYEES AND MEDICAL STAFF OF CLIENT WHO HAVE RECEIVED
TRAINING THROUGH AMS, OR WHO HAVE BEEN CERTIFIED IN WRITING BY CLIENT AS HAVING
RECEIVED COMPARABLE IN-HOUSE TRAINING, WILL BE ALLOWED TO ENTER OR VERIFY DATA,
OR OTHERWISE USE THE SYSTEM.
(d) AMS shall provide Client with one set of training manuals for each
trainee. Such manuals and all other training materials provided by AMS in
connection with the System are referred to collectively in this Agreement as
"Training Materials". Client shall be responsible for informing AMS, at least
five (5) days prior to the training session, of the number of employees and
medical staff who will participate in the training and for ensuring that all
such persons receive the Training Materials.
(e) If Client requests, AMS shall provide additional or subsequent training
at AMS's then-applicable rates and pursuant to mutually agreeable arrangements.
It is Client's responsibility to maintain adequate and appropriate training
levels for its employees and medical staff.
(f) Client shall be solely responsible for collecting, coding, inputting and
assuring the quality of the information necessary to apply the System to
analyze patient information for patients treated in Client's ICU who are 16
years or older and who otherwise meet the criteria for inclusion in the System
as described in the System Documentation (the "Patients"). The Patients shall
be selected in strict accordance with the selection procedures described in the
System Documentation, including, without limitation, the procedures for
consecutive and random selection set forth therein. Client shall consistently
apply the System diagnostic criteria and System data quality assurance
procedures, all in accordance with AMS's protocols and procedures as indicated
in the Application Programs and System Documentation. Client is solely
responsible for the accuracy and completeness of its data.
(g) The System is intended for use as a decision support system only.
Although the System provides information that may enhance the quality of
clinical reasoning and provides useful information for quality improvement and
quality assurance, it is not a substitute for the professional judgment of a
clinician or hospital administrator and in no event should information provided
by the System be the sole or primary basis for decision making or clinical
reasoning. The notice contained in this paragraph and all other notices
contained in this Agreement or in any System Documentation (collectively,
"Notices") are incorporated into this Agreement by this reference. Client and
its employees and medical staff who have received the training set forth in
this Section 6 shall
<PAGE> 25
be responsible for conveying the Notices to the rest of Client's employees and
medical staff who rely on or use any of the results generated by the System.
7. Initial Pilot Study; Quality Review.
After the initial on-site training, the parties shall commence a pilot study
consisting of data collection on at least: (i) 50 consecutive Patients; or (ii)
all consecutive Patients admitted over a six week period; whichever occurs
first. Client shall provide such data as directed along with supporting written
documentation for a sample of patient medical records selected by AMS in
consultation with the APACHE Coordinator, so that AMS can assess the quality of
Client's data collection and input activities. AMS may require a second pilot
study if quality problems are found in the initial pilot study. AMS shall have
the right to conduct additional periodic reviews of data to ensure that Client
is properly collecting and inputting data into the System. If AMS determines
that the data does not meet the requirements of Section 6(g) and this Section
7, Client shall not publish the results generated by the System from the data
(the "Results"), without first complying with the following procedures: Client
shall notify AMS in writing at least sixty (60) days prior to its publication
of any Results, that it desires to publish such Results and shall provide AMS
with the names of the proposed recipients, journal or other document in which
the Results would appear, the date of the proposed publication and all other
relevant details requested by AMS, along with a copy of the text of the
proposed publication. AMS shall have the right to prohibit, restrict or limit
publication of the Results, including, without limitation, requiring that
Client disclaim the Results in any publication, using disclaimer language
acceptable to AMS. Notwithstanding the foregoing, so long as Client provides
AMS with the written notice described in this Section 7 and incorporates
disclaimer language acceptable to AMS, Client may provide regulatory agencies
such as the Food and Drug Administration ("FDA") with Results to the extent
necessary to satisfy Client's obligations under applicable law. Nothing herein
shall be construed to (i) restrict or limit Client's obligations to comply
fully with its responsibilities described in the System Documentation or in
this Agreement, including, without limitation, Paragraphs 6(f) and (g) of this
Agreement, (ii) create any obligation on or responsibility of AMS for the
completeness, appropriateness or accuracy of any data or (iii) permit any
publication of any of AMS's "Confidential Information", as that term is defined
in Section 16.
8. Data Access.
(a) In addition to the data transmitted by Client pursuant to Section 7 for
quality review purposes, within 30 days of the end of each calendar quarter,
Client shall permit AMS to retrieve or Client shall deliver to AMS via modem
all data entered into the System; provided that individual patient names,
numbers or other patient identification information shall not be included,
except as specifically requested by AMS for (i) data review, (ii) bug reporting
or (iii) quality assurance purposes. Such data shall be referred to as the
"Licensed Data."
(b) AMS shall have a perpetual, world-wide, royalty-free right and license
(i) to use, in any manner, the Licensed Data and to analyze and incorporate the
Licensed Data in databases, reports, scores or scoring systems generated
therefrom, and (ii) to create and distribute works and derivative works based
on the Licensed Data, in each case provided the confidentiality of patient
information is protected as required by law.
9. System Support.
(a) AMS or its qualified subcontractors shall provide standard System
support ("System Support") as described in AMS's written policy and procedures
concerning System Support, as the same may be amended from time to time
("Support Policy"). System Support shall include (i) access to telephone
consultation 24 hours per day, 7 days per week, (ii) updates, patches, bypasses
and other corrections to any of the Licensed Programs that are generally
provided to AMS's other clients without additional charge (collectively,
"Updates") and (iii) all repairs to or replacement of Purchased Equipment,
subject to availability and manufacturers' limitations on maintenance coverage.
If appropriate in AMS's sole judgment, AMS shall arrange for on-site support,
provided that if AMS concludes that the visit or repairs, or both, resulted
from Client's error, omission or negligence, or Client's failure to maintain
the System or any component thereof, or from equipment or software not provided
by AMS, Client shall reimburse AMS for such visit, including reasonable travel,
lodging and meal expenses incurred in connection with such visit and any
repairs at AMS's then-applicable rates. If Client's site is located more than
50 miles from the nearest base office of AMS or
<PAGE> 26
one of its Third Party Vendors providing on-site support, Client shall be
responsible for AMS's or its Third Party Vendors' incremental charge for
on-site visits.
(b) The System Support shall commence upon delivery of the Notice of
Installation of the System (excluding the Standard Interface Software) and
continue until this Agreement is terminated, provided that AMS shall be under
no obligation to provide System Support (other than as may be required to
fulfill its warranty obligation under Section 11) if Client fails to pay any
periodic System Support Fee within 30 days of when such payment is due as set
forth on the Purchase Schedule, including such increases in fees as reflect
AMS's then-current rates for System Support, not to exceed the Consumer Price
Index plus 4% per year.
(c) All other support which falls outside of the Support Policy ("Enhanced
Support") shall be billed at AMS's rates then in effect. Such Enhanced Support
shall include, without limitation, reports developed or prepared by AMS other
than reports prepared in connection with the initial pilot study.
(d) AMS shall be under no obligation to provide support services for
problems resulting from (i) Client's failure to perform any of its obligations
under this Agreement, (ii) Client's use of any portion of the System in
violation of any provision of this Agreement, including, without limitation,
the provisions governing Stated Use, (iii) Client's neglect or misuse of any
portion of the System, or (iv) any other cause beyond the range of normal
software and hardware support.
(e) AMS shall support only the two (2) most current available versions of
the Licensed Software programs. If AMS replaces any Licensed Software program
with any Update, as defined in Section 9(a), all obligations of AMS hereunder
to support the superseded version of the Licensed Software shall cease sixty
(60) days after the date AMS delivers the Update to Client. AMS may, in its
sole discretion, from time to time, add additional features to, or otherwise
upgrade, the Licensed Software ("Upgrades"). Upgrades will be provided to
Client upon payment of AMS's fee therefor on the terms and conditions agreed to
by the parties in writing.
10. Client's Maintenance Obligations.
In addition to all other responsibilities described in this Agreement,
Client shall:
(a) Regularly back up magnetic storage media (i.e., hard or fixed disks),
clean its keyboards, disk drives and other components, and generally perform
end-user maintenance tasks, including, without limitation, end-user tasks
described in the Support Documentation, and
(b) Assist AMS in identifying, documenting and rectifying any problems that
may occur.
11. Warranty.
AMS warrants that (i) for ninety (90) days following the Installation Date
of the System (excluding the Standard Interface software), and (ii) for ninety
(90) days following the Installation Date of the Standard Interface Software,
the System, if used in accordance with the Stated Use and the System
Documentation, will operate in substantial conformance with the standards for
performance specified in the then-current System Documentation. Such Standards
shall be referred to herein as the "System Standards". AMS does not warrant
that the System will operate uninterrupted or be error free. This limited
warranty shall not apply to the extent any non-conformity to the System
Standards arises directly or indirectly from the provision to AMS of inaccurate
system configuration information by Client or Client's manufacturers or
developers (other than AMS).
12. Disclaimer of Warranties.
THE WARRANTY SET FORTH IN PARAGRAPH 11 IS THE SOLE AND EXCLUSIVE WARRANTY
MADE BY AMS WITH RESPECT TO THE SYSTEM AND SERVICES PROVIDED UNDER THIS
AGREEMENT AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
ARE HEREBY EXPRESSLY DISCLAIMED.
13. Limitations of Liability and Exclusive Remedy.
(a) NEITHER PARTY SHALL BE RESPONSIBLE TO THE OTHER PARTY FOR ANY LOST
PROFITS, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND
<PAGE> 27
(INCLUDING, TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN
CONNECTION WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(b) AMS's liability to Client for any loss whatsoever shall not exceed the
aggregate amount of payments by Client to AMS during the twelve (12) months
immediately preceding the loss.
(c) No action, regardless of form, arising out of or under this Agreement
may be brought by either party more than one year after the cause of action
accrues.
(d) Section 13(b) notwithstanding, the SOLE AND EXCLUSIVE obligation of AMS
and the SOLE AND EXCLUSIVE remedy of Client with respect to the warranty
contained in Section 11, shall be, in AMS's sole discretion, for AMS to either
(i) exercise reasonable efforts to cause the System to operate in substantial
conformance with the System Standards, or (ii) refund to Client the cost of
that portion of the System that is not operating in conformity with the System
Standards (or, if the nonconformity renders the System unusable, the cost of
the System). This remedy shall not be available to the extent that (i) the
System is used other than in accordance with the terms of this Agreement or any
System Documentation or is damaged due to Client's error, misuse or neglect,
(ii) the data is not entered properly by Client or is lost, destroyed or is
damaged due to Client's error, misuse or neglect, (iii) Client modifies the
System, or (iv) the Application Programs are run on software or hardware other
than the Supporting Software or Purchased Equipment.
14. No Third-Party Vendor Warranties or Liabilities.
Neither the Licenses granted hereunder nor any other provision of this
Agreement shall be construed to (i) make any warranty, express or implied, on
behalf of Third Party Vendors, including, without limitation, any warranty of
merchantability or fitness for a particular purpose; or (ii) otherwise create
any liability of Third Party Vendors for any damages, whether direct, indirect,
incidental, or consequential arising from the use of the Purchased Equipment,
the Operating System or Supporting Software. Third Party Vendors shall be third
party beneficiaries of this Section 14 and of all other applicable provisions
of this Agreement.
15. Indemnification.
(a) Client and its employees and medical staff shall be solely responsible
for all decisions involving patient care, utilization management and peer
review. Client shall have no recourse against AMS for any loss, damage, or
costs relating to or resulting from the use or misuse of the System.
(b) Client shall defend, indemnify and hold AMS and its subcontractors and
affiliates and each of the Third Party Vendors harmless from all losses,
damages, costs, and expenses, including without limitation attorneys' fees and
court costs, arising from or in connection with (i) the use or misuse of the
System by Client or any component thereof, (ii) any breach of any
representation, warranty or covenant of Client under this Agreement, or (iii)
any disclosure of patient identifiers to AMS in violation of applicable law or
hospital procedures. Client shall conduct such defense with attorneys selected
by it at its expense, and shall have sole control over the conduct of such
defense. AMS shall promptly notify Client of any asserted or threatened claim
that may be subject to this indemnity, and shall cooperate with Client in
conducting the defense.
(c) Provided Client promptly notifies AMS of any asserted or threatened
claim that may be subject to this indemnity, and cooperates with AMS in
conducting the defense, AMS shall defend (or in AMS's discretion settle),
indemnify and hold Client harmless from all losses, damages, costs, and
expenses, including without limitation attorney's fees and court costs, arising
from or in connection with any third party claim of copyright, patent or trade
secret infringement under United States law resulting from Client's use of the
System in accordance with this Agreement. AMS shall conduct such defense, at
its expense, with attorneys selected by it, and shall have sole control over
the conduct of such defense and all settlement negotiations. AMS shall not have
any liability under this Section 15(c) if a claim of infringement is based in
whole or in part upon (i) the modification of the Licensed Software or Licensed
Data by anyone other than AMS or (ii) the use of the System, or any portion
thereof, (aa) outside the scope of the license granted hereunder; (bb) in
combination with other hardware, software or data not furnished by AMS; (cc) in
practicing any infringing process; or (dd) in a manner for which it was not
designed or specified by AMS. If, as a
<PAGE> 28
result of a claim of infringement for which client is entitled to indemnity
hereunder, AMS is enjoined from using the System, or if AMS believes that such
injunction is likely or that the System is likely to become the subject of a
claim of infringement, AMS may, in its sole discretion and at its expense,
procure for client the right to continue to use the System, replace or modify
the System so as to make it noninfringing, or terminate this Agreement and
refund the unamortized portion of the license fees previously paid by Client
for the use of the System. Calculation of the unamortized portion of the
license fees shall be based upon three (3) years' straight line depreciation.
If the claim of infringement affects only a portion of the System, then AMS's
obligations described in the preceding two sentences shall apply only to the
item(s) affected. This Section 15(c) states the entire and exclusive obligation
of AMS to Client for any claim of infringement relating to the System. The
provisions of this Section 15(c) shall survive termination of this Agreement.
16. Confidentiality.
(a) "Confidential Information" means all nonpublic information provided to
or learned by Client, its agents, staff or employees in connection with the
activities contemplated by this Agreement, whether in tangible or intangible
form, including, without limitation, all computer programs (whether in source
or object code), flow charts, algorithms, data, databases, rules, templates,
forms, protocols, methodologies, procedures, techniques and approaches relating
to the System, the System Documentation, AMS's prices, fees and payment terms
and Client's patient records. Confidential Information shall not include
information already known to a party at the time of disclosure, as shown by the
party's records, information which has been publicly disclosed in a lawful
manner, or information which is rightfully received from a third party in a
lawful manner. Statistical summary results of Patient records that do not
reveal individual patient identifying information shall not be confidential
information.
(b) Each party shall hold in strict confidence and not disclose the other's
Confidential Information to any third party, except for disclosure to third
party consultants who are retained by the Client from time to time as part of
the Client's medical staff. Client shall disclose Confidential Information only
to its employees, medical staff and third party consultants who (i) have signed
a confidentiality agreement with Client and (ii) need to know such Confidential
Information to adequately perform their responsibilities under this Agreement
or to use the System as contemplated by this Agreement. Such written
confidentiality agreements signed by each of Client's employees, medical staff
and third party consultants who will require access to AMS's Confidential
Information will be reasonably acceptable to AMS and, at a minimum, will
protect AMS's Confidential Information in a substantially similar manner to
Client's own confidential information. Client will provide copies of all such
confidentiality agreements upon AMS's request. Client is responsible for
ensuring the compliance of its employees, medical staff and third party
consultants with the foregoing confidentiality obligations. In the event that
the FDA or other regulatory body or any court requires information from Client
that might reasonably fall within the above definition of AMS's Confidential
Information, Client shall notify AMS in writing at least ten (10) days prior to
the proposed disclosure and AMS, in consultation with Client, shall determine
the appropriate steps in order to adequately safeguard AMS's Confidential
Information, including, without limitation, in the case of a proceeding in a
court or other tribunal, obtaining a protective order. Nothing in the foregoing
shall limit AMS's right to use the Licensed Data described in Section 8 in
accordance with the terms of that Section.
17. Term and Termination.
(a) The term of this Agreement shall begin on The effective date set forth
at the end of this Agreement (the "Effective Date") and shall continue in
effect unless terminated pursuant to this Section 17.
(b) Commencing with the first full calendar year of this Agreement,
following payment of the Total System Fee, either party may terminate this
Agreement effective at the end of any calendar year by delivering written
notice to the other party at least ninety (90) days prior to the end of such
year.
(c) Client may terminate this Agreement upon written notice to AMS if AMS
has not delivered its Notice of Installation of the System (exclusive of
Standard Interface Software) within one-hundred eighty (180) days after the
estimated date set forth on the Purchase Schedule and such delay is caused
solely by AMS. In such case, Client shall be entitled to a refund of the
Licensed Software and Purchased Equipment fees paid by Client to
<PAGE> 29
AMS hereunder, provided that the items of Purchased Equipment are first
returned to AMS.
(d) AMS may terminate this Agreement by written notice to Client:
(i) effective ten (10) days after Client's receipt of such notice, if
Client exceeds the scope of any of the Licenses granted hereunder and does not
cure the same within such ten (10) day period or fails to comply with the
provisions of Section 16;
(ii) effective thirty (30) days after Client's receipt of notice, in
the event that Client (A) fails to make any payment required under this
Agreement when due, or (B) defaults on any other material obligation or
covenant or breaches any material representation or warranty hereunder; if
Client has not cured such default within such thirty (30) day notice period.
(e) Without limiting any right of termination described above, AMS may
terminate any sublicense granted hereunder ten (10) days after delivery of
notice to Client if Client has exceeded the scope of the sublicense and does
not cure the same within such ten (10) day period.
18. Consequences of Termination.
(a) The Licenses granted hereunder shall automatically terminate when either
AMS or Client terminates this Agreement.
(b) Promptly after termination, Client shall:
(i) discontinue use of and return to AMS all copies of the Licensed
Software, together with all copies of System Documentation and all other
materials respecting the Licensed Software;
(ii) purge all copies of the Licensed Software and all portions
thereof from Client's Purchased Equipment and from any storage medium or device
in which Client may have placed such material; and
(iii) certify in writing to AMS that Client has complied with all of
its obligations under this Section 18.
(c) Termination of this Agreement shall not relieve Client of its
obligations to AMS that arose prior to termination or that survive termination,
including, without limitation, its obligations to pay all monies due and owing
under this Agreement. All such amounts shall be paid no later than ten (10)
days following termination.
19. Dispute Resolution.
(a) Disputes under any provision of the Computer System Agreement (including
any schedules, addenda or exhibits thereto) not resolved between the Client and
AMS within 10 days shall be resolved in accordance with the following
procedures. The parties shall refer the dispute to the Chief Executive Officer
of each party, who shall have authority to resolve the dispute between the
parties. Such executives shall use all reasonable efforts to confer in person
or by telephone within 48 hours after referral of a dispute, and thereafter as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the dispute. If the matter has not been resolved within 10 days of
referral of the dispute to such executives, the parties shall proceed in
accordance with Sections 19(b)-(d). All negotiations pursuant to this paragraph
are confidential and shall be treated as compromise and settlement negotiations
for purposes of the Federal Rules of Evidence and state rules of evidence.
(b) If the efforts described in the preceding paragraph fail to resolve the
dispute, the parties shall institute binding arbitration proceedings pursuant
to the Commercial Arbitration Rules of the American Arbitration Association,
provided that this provision shall not apply if a third party which is a
necessary party to the arbitration refuses to participate. The arbitrators will
have the power to award any legal or equitable remedy, including without
limitation, specific performance. Arbitration will be conducted in a mutually
agreeable location. Arbitration will not be a condition to a party's exercise
of its termination rights under this Agreement.
(c) Each party will have the same discovery rights as are afforded under the
Federal Rules of Civil Procedure, including such discovery of third parties as
is necessary to resolve the controversy. Each party shall bear its own costs
(e.g., filing, attorney and expert witness fees) and shall share equally the
costs of the arbitration (e.g., arbitrator, court reporter and hearing room
fees). The arbitration will be conducted by three arbitrators, one of whom will
be specified in writing by each party within
<PAGE> 30
five (5) business days of either party's receipt of the other party's demand
for arbitration, and one of whom will be chosen by the other two, or, if the
other two fail to choose the third within five (5) business days of their
designation by the parties, by the American Arbitration Association. The
arbitrators shall provide detailed, written findings of fact and conclusions of
law to the parties in support of any award or decision the arbitrators make.
(d) Notwithstanding the foregoing, either party may seek a preliminary
injunction or other provision of judicial relief if in its judgment such action
is necessary to avoid irreparable damage or to preserve the status quo. Despite
such action, the parties will continue to participate in good faith in the
procedures specified in this Section 19.
20. General.
(a) AMS shall accept risk of loss on all Purchased Equipment and Licensed
Software until the same has been delivered to Client. Client shall be
responsible for all freight, shipping, insurance and handling charges.
(b) If no due date is set forth in this Agreement or the relevant invoice,
payment for goods or services rendered by AMS in connection with this Agreement
shall be made by Client within 30 days of receipt of the relevant invoice.
(c) The obligations of either party hereunder (other than the obligation to
make any payment hereunder) shall be excused in the event of labor
disturbances, riots, acts of war or terrorism, fires, power surges or power
failures, governmental acts, acts of God, fires, floods, failure of third-party
suppliers to deliver, or any other cause beyond the control of such party, for
so long as such cause for non-performance exists.
(d) This Agreement, including the Purchase Schedule and all other schedules,
addenda and exhibits referenced in this Agreement or in the Purchase Schedule,
contains the entire Agreement between AMS and Client concerning the subject
matter hereof and supersedes all prior and contemporaneous proposals,
discussions, understandings and all other agreements or representations, oral
and written, between the parties relating to the subject matter hereof.
(e) In addition to the provisions that by their terms survive, the
provisions contained in Sections 11-16 and Section 19 shall survive termination
of this Agreement.
(f) All notices required by this Agreement shall be in writing, shall be
effective upon receipt, and shall be delivered by (i) hand, (ii) certified
mail, return receipt requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or overnight courier
service) addressed to the other party at the address or facsimile number set
forth herein on the Purchase Schedule, or at such address or facsimile number
as to which such party from time to time may give proper notice to the other
party. Notices shall be deemed to have been received: if hand delivered, when
so delivered; five days after deposit as certified mail; on the date scheduled
for delivery if sent by courier; and on the date shown on the report generated
by the sending machine if sent by facsimile. All notices shall be effective
upon receipt or, if later, deemed receipt.
(g) The parties irrevocably agree that service of process by mail as
provided in Section 20(f) shall be sufficient service for personal jurisdiction
of the party so served.
(h) If any provision of this Agreement or any portion thereof is declared
invalid or unenforceable, such provision shall be limited and construed so as
to make it enforceable consistent with the parties' manifest intentions or, if
such limitation or construction is not possible, such provision will be deemed
stricken from this Agreement. In such event, all other provisions of this
Agreement will remain in full force and effect, unless such enforcement would
result in an injustice or be inconsistent with the purposes of this Agreement.
(i) This Agreement may be assigned by either party with the prior written
consent of the other party, provided that no written consent is necessary if
the assignment is to an entity controlled by, controlling or under common
control with the party making the assignment.
(j) No waiver of any term of this Agreement shall be valid unless in a
writing signed by the party against whom the waiver is sought to be enforced.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any
<PAGE> 31
way the right to require such performance at any time hereafter.
(k) Nothing in this Agreement is intended to create a relationship between
AMS and Client other than that of independent contractors and neither party,
nor any of its employees or staff, shall be construed to be the agent, employee
or representative of the other.
(l) This Agreement may not be modified, altered or amended except by a
written instrument executed by both parties.
(m) This Agreement and performance hereunder shall be governed by and
construed in accordance with the laws of the District of Columbia.
(n) Client acknowledges that the unauthorized use or distribution of any
portion of the Licensed Software, Manual or Standard Interface Software, or a
violation of the provisions of this Agreement relating to the protection of
Confidential Information would cause AMS irreparable harm, and agrees that AMS
would be entitled to injunctive relief prohibiting such unauthorized use or
distribution, or such breach, in addition to any other right or remedy AMS
might have in law or equity.
(o) The Purchase Schedule and all other schedules, addenda and exhibits
indicated in the Purchase Schedule are incorporated into this Agreement by this
reference.
The parties have executed this Agreement by their duly authorized
representatives, effective as of the date of the last to sign as set forth
below.
CLIENT
THE GEORGE WASHINGTON UNIVERSITY
2300 I Street, N.W.
Suite 713
Washington, D.C. 20037
- -----------------------------
Phone Number
- -----------------------------
Facsimile Number
By:__________________________
Print Name:__________________
Title:_______________________
Date:________________________
APACHE MEDICAL SYSTEMS, INC.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102
Phone No.: (703) 847-1400
Facsimile No.: (703) 847-1401
By:__________________________
Print Name:__________________
Title:_______________________
Date:________________________
<PAGE> 32
Purchase Schedule
to the Computer System Agreement
between APACHE Medical Systems, Inc. ("AMS")
and The George Washington University ("Client")
<TABLE>
<CAPTION>
ITEM DESCRIPTION PRICE/FEE
<S> <C>
1. APACHE III Management System
Application Programs, including;
Clinical Decision Support,
Utilization Monitor,
On-Site Research, and
Ad-Hoc Reporting.
2. Supporting Software and Purchased Equipment:
See itemized list on next page.
3. Integration and Installation Services:
4. Training and Implementation Services:
5. Standard Interface Software:
TOTAL SYSTEM FEE: INCLUDED
6. Annual System Support Fee for thirty-six months: Included
</TABLE>
PAYMENT SCHEDULE:
The Total System Fee (items 1 - 5 above) is included as a part of the Agreement
Between The George Washington University and APACHE Medical Systems, Inc.
The annual System Support Fee (item 6 above) for thirty-six (36) months from
Notice of Installation (excluding Standard Interface Software) is included as a
part of the Agreement Between The George Washington University and APACHE
Medical Systems, Inc. After the expiration of the thirty-six month period, the
annual System Support Fee will be payable at the beginning of each calendar
year for the following year. The fee for System Support shall be at AMS'
current standard System Support rates.
DATE OF NOTICE OF INSTALLATION OF THE SYSTEM (EXCLUSIVE OF INTERFACES):
Notice of Installation occurred on November 18, 1993.
LIMITATION ON GRANT OF LICENSE:
The continued use of the System by Client beyond the expiration of the
thirty-six (36) month period from Notice of Installation (excluding Standard
Interface Software) requires Client to obtain Annual System Support at AMS'
current standard System Support rates.
<PAGE> 33
ITEMIZED SUPPORTING SOFTWARE AND PURCHASED EQUIPMENT:
External Mass Storage
1.05 GB External SCSI Disk
5 GB 8 mm Tape Drive
644 MB CD-ROM Drive
Print Server Option Pack
SPARC Printer
NEWSprint Software
SBUS Printer Card
Telebit V.32bis 14400 bps Modem
SPARCstation classic with:
16" Color Monitor
8 MB Memory
207 MB Internal SCSI Drive
1.44 MB Floppy Disk Drive
16 MB Memory Expansion
Country Kit with;
Keyboard
Mouse
Cables
Sun OS Software Media
Sun OS License, 2 users
Motif Runtime Software License
OPERATING SYSTEM: Sun OS and OSF Motif
DESCRIPTION OF CLIENT INFORMATION SYSTEMS FOR WHICH AMS WILL PROVIDE STANDARD
INTERFACE SOFTWARE WITH THE SYSTEM: SMS Admission, Discharge &
Transfer System ("ADT") and Cerner Laboratory System
SUBLICENSED SUPPORTING SOFTWARE: Sublicensed Oracle Corporation programs are:
Relational Data Base Management System (RDBMS), SQL*Forms, Transaction
Processing Option, SQL*Plus and SQL*Net. Non-Oracle Corporation sublicensed
programs are: Sybase SQR Report Writer; Open Software Foundation Motif; and IXOS
Software GMBH, iXVIEW/SQL.
"Sun OS", "SPARCstation" and "SPARCserver" are trademarks of Sun Microsystems,
Inc.
THE FOLLOWING SCHEDULES ARE INCORPORATED IN THE COMPUTER SYSTEM AGREEMENT, IN
ADDITION TO THIS PURCHASE SCHEDULE: None
<PAGE> 34
DEFINITION OF STATED USE:
Specific
Number of Beds: 20
Number of Servers: 1
Number of Non-Server
Workstations: 0
Number of Client's ICUs: 1
Location of Client's ICU(s): The George Washington University Hospital
901 23rd Street
Washington, D.C. 20037
CONTACT AND ADDRESS FOR NOTICES:
TO AMS:
APACHE Medical Systems, Inc.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102
Attention: Karen Erikson
Phone No: (703)847-1400
Facsimile No: (703) 847-1401
TO CLIENT:
The George Washington University
2300 I Street, N.W.
Suite 713
Washington, D.C. 20037
Attention: John C. LaRosa, M.D.
Phone No:
Facsimile No:
<PAGE> 35
ATTACHMENT 4
------------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: GEORGE WASHINGTON UNIVERSITY
COMPANY: APACHE MEDICAL SYSTEMS, INC.
SECURITY: COMMON STOCK
AMOUNT: 25,000 SHARES
In connection with the purchase of the above-listed Securities, the Purchaser
represents to the Company, the following:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired all such information about the Company as
it deems necessary and appropriate to enable it to reach an informed and
knowledgeable decision to acquire the Securities. The Purchaser is purchasing
these Securities for its own account for investment and not with a view to, or
for the resale in connection with, any "distribution" thereof for purposes of
the Securities Act of 1933, as amended ("Securities Act").
(b) The Purchaser understands that the Securities have not been
registered under the Securities Act nor qualified under any state securities
laws, in reliance upon a specific exemption therefrom, which exemption depends
upon, among other things, the bona fide nature of its investment intent as
expressed herein.
(c) The Purchaser further understands that the Securities may not be
sold publicly and must be held indefinitely unless they are subsequently
registered under the Securities Act or unless an exemption from registration is
available. The Purchaser is able, without impairing its financial condition, to
hold the Securities for an indefinite period of time and to suffer a complete
loss on its investment. The Purchaser understands that the Company is under no
obligation to it to register the Securities. In addition, the Purchaser
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the option of counsel for the
Company.
(d) The Purchaser is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, including, among
other things: (i) the availability of certain public information about the
Company; (ii) the resale occurring not less than two (2) years after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three (3) years the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as
<PAGE> 36
said term is defined under the Securities Exchange Act of 1934) and the amount
of securities being sold during any three-month period not exceeding the
specified limitations stated therein, if applicable.
(e) The Purchaser recognizes that no public market exists for the
Securities, and no representation has been made to the Purchaser that such
public market will exist in the future. The Purchaser further understands that
at the time it wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements
of Rule 144, and that, in such event, it would be precluded from selling the
Securities under Rule 144 even if the two-year minimum holding period had been
satisfied. It understands that the Company is under no obligation to it to
make Rule 144 available.
(f) The Purchaser further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the Securities and Exchange Commission has
expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available from such offers or sales, and that
such persons and their respective brokers who participate in such transactions
do so at their own risk.
GEORGE WASHINGTON UNIVERSITY
----------------------------------
By: ------------------------------
Its: -----------------------------
Date: , 1994
---------------
-2-
<PAGE> 37
ATTACHMENT 5
A. REPRESENTATIONS AND WARRANTIES OF AMS
AMS represents and warrants, as follows:
1. AMS is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, with a principal place of
business presently located in McLean, VA.
2. Neither the execution and delivery of this Agreement nor compliance
with the terms and provisions hereof will conflict with or result in the breach
of any term, condition or provision of the Certificate of Incorporation, or
By-Laws of AMS, or of any agreement, deed, contract, mortgage, indenture, writ,
order, decree, commitment or instrument to which AMS is a party or by which it
or its assets or properties is bound, or constitute a default (or an event
which, with the lapse of time or the giving of notice, or both, would
constitute of default) thereunder.
3. There is no suit, claim, action, litigation or proceeding,
administrative or judicial or governmental investigation, pending or to the
best knowledge of AMS threatened, against AMS or involving any of its
properties and assets, including without limitation, any claim, proceeding, or
litigation for the purpose of challenging, enjoining or prevention the
execution and delivery of this Agreement, the performance of the terms and
conditions hereof or the consummation of the transaction contemplated hereby.
To the best knowledge of AMS, there is no reasonable basis upon which any suit,
claim, action, litigation, proceeding or investigation could be brought or
initiated. AMS is not subject to or in default under any order, writ,
injunction, or decree of any court or governmental authority.
4. This Agreement is and will be the legal, valid and binding obligation
of AMS enforceable against it in accordance with its terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' right generally and the that the remedy of specific performance and
injunctive or other equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefore may be
brought.
5. AMS represents and warrants to the University that the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate
action.
<PAGE> 38
(ATTACHMENT 5, CONTINUED)
B. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNIVERSITY
The University represents and warrants as follows:
1. The University is a not-for-profit corporation duly organized, validly
existing, and in good standing under the laws of the District of Columbia, with
a principal place of business located in the District of Columbia.
2. Neither the execution and delivery of this Agreement, nor compliance
with the terms and provisions hereof, will conflict with or result in the
breach of any term, condition or provision of the Certificate of Incorporation,
or By-Laws of the University or of any agreement, deed, contract, mortgage,
indenture, writ, order, decree, commitment or instrument to which the
University is a party or by which it or its assets or properties is bound, or
constitute a default (or an event which, with the lapse of time or the giving
of notice, or both, would constitute a default) thereunder.
3. There is no suit, action, litigation or proceeding, administrative or
judicial, or governmental investigation, pending or to the best knowledge of
threatened, against or involving any of its properties and assets, including
without limitation, any claim, proceeding, or litigation for the purpose of
challenging, enjoining or preventing the execution and delivery of this
Agreement, the performance of the terms and conditions hereof or the
consummation of the transaction contemplated hereby. To the best knowledge of
the University, there is no reasonable basis upon which any suit, claim,
action, litigation, proceeding or investigation could be brought or initiated.
The University is not subject to or in default under any order, writ,
injunction, or decree of any court or governmental authority.
4. This Agreement is and will be the legal, valid and binding obligation
of enforceable against it in accordance with its terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' right generally and that the remedy of specific performance and
injunctive or other equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefore may be
brought.
5. The University represents and warrants to AMS that the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate
action.
<PAGE> 39
ATTACHMENT 6
APACHE MEDICAL SYSTEMS, INC.
PROPRIETARY INFORMATION, INVENTIONS,
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
I recognize that APACHE MEDICAL SYSTEMS, INC., a Delaware corporation,
together with its subsidiaries and affiliates (collectively, the "Company"), is
engaged in a continuous program of research, development and production
respecting its business, present and future.
I understand that:
A. As part of my employment by the Company, I am expected to make new
contributions and inventions of value to the Company;
B. My employment creates a relationship of confidence and trust between me
and the Company with respect to any information:
(1) Applicable to the business of the Company; or
(2) Applicable to the business of any client or customer of the
Company, which may be made known to me by the Company or by any
client or customer of the Company, or learned by me in such context
during the period of my employment.
C. The Company possesses and will continue to possess information that has
been created, discovered, developed, or otherwise become known to the Company
(including, without limitation, information created, discovered, developed, or
made known by me during the period of or arising out of my employment by the
Company) and/or in which property rights have been assigned or otherwise
conveyed to the Company, which information has commercial value in the business
in which the Company is or may become engaged. All of the aforementioned
information is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, processes, structures, formulas, data and know-how, improvements,
inventions, product concepts, techniques, marketing plans, strategies,
forecasts, customer lists and information about the Company's employees and/or
consultants (including without limitation, the compensation, job responsibility
and job performance of such employees and/or consultants).
- 1 -
<PAGE> 40
D. As used herein, the period of my employment includes any time in which
I may be retained by the Company as a director or consultant.
In consideration of my employment or if I am already an employee of the
Company, any continued employment and the sum of ten dollars ($10) and other
good and valuable consideration, receipt of which is hereby acknowledged, as
the case may be, and the compensation received by me from the Company from time
to time, I hereby agree as follows:
1. OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary Information
shall be the sole property of the Company and its assigns, and the Company and
its assigns shall be the sole owner of all patents, copyrights and other rights
in connection therewith, including but not limited to the right to make
application for statutory protection. I hereby assign to the Company any rights
I may have or acquire in such Proprietary Information. At all times, both
during my employment by the Company and after its termination, I will keep in
confidence and trust all Proprietary Information, and I will not use or
disclose any Proprietary Information or anything directly relating to it
without the written consent of the Company, except as may be necessary in the
ordinary course of performing my duties as an employee of the Company and only
for the benefit of the Company. Notwithstanding the foregoing, it is understood
that, at all such times, I am free to use (a) information in the public domain
not as a result of a breach of this Agreement and (b) my own skill, knowledge,
know-how and experience to whatever extent and in whatever way I wish, in each
case consistent with any obligations as an employee of the Company.
2. SOLE EMPLOYMENT. I agree that during the period of my employment by the
Company I will not, without the Company's express written consent, engage in
any employment or business other than for the Company.
3. DELIVERY OF DOCUMENTS AND DATA. In the event of the termination of my
employment by me or by the Company for any reason, I will deliver to the
Company all documents and data of any nature pertaining to my work with the
Company, I will not take with me or deliver to anyone else any documents or
data of any description or any reproduction of any description containing or
pertaining to any Proprietary Information and I will sign and deliver the
"Termination Certification" attached hereto as Exhibit B.
4. DISCLOSURE OF INVENTIONS. I will promptly disclose to the Company, or
any persons designated by it, all improvements, inventions, designs, ideas,
works of authorship, copyrightable works, discoveries, trademarks, copyrights,
trade secrets, formulas, processes, techniques, know-how, and data, whether or
not patentable, made or conceived or reduced to practice or learned by me,
either alone or jointly with others, during the period of my employment
(whether or not during normal working hours) which are related to or useful in
the actual or anticipated business of the Company, or result from tasks
assigned me by the Company
- 2 -
<PAGE> 41
or result use of premises or equipment owned, leased or contracted for by the
Company (all said improvements, inventions, designs, ideas, works of
authorship, copyrightable works, discoveries, trademarks, copyrights, trade
secrets, formulas, processes, techniques, know-how, data, patent applications,
continuation applications, continuation-in-part applications, file wrapper
continuation applications and divisional applications shall be collectively
hereinafter called "Inventions.").
5. ASSIGNMENT OF AND ASSISTANCE ON INVENTIONS. I hereby assign to the
Company any rights I may have or acquire in all Inventions and agree that all
Inventions shall be the sole property of the Company and its assigns, and the
Company and its assigns shall be the sole owner of all patents, copyrights and
other rights in connection therewith. I further agree to assist the Company in
every proper way (but at the Company's expense) to obtain and from time to time
enforce patents, copyrights or other rights on said Inventions in any and all
countries, and to that end I will execute all documents necessary:
(a) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) letters, patent, copyrights
or other analogous protection in any country throughout the world
and when so obtained or vested to renew and restore the same; and
(b) to defend any opposition proceedings or petitions or applications
for revocation of such letters patent, copyright or other
analogous protection.
In the event the Company is unable, after reasonable effort, to secure my
signature on any patent, copyright or other analogous protection relating to
any Invention, whether because of my physical or mental incapacity or for any
other reason whatsoever, I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents as my agent and attorney-in-fact,
to act for and do all other lawfully permitted acts to further the prosecution
and issuance of letters patent, copyrights or other analogous protection
thereon with the same legal force and effect as if executed by me (and this
appointment shall be deemed to be coupled with an interest and irrevocable). My
obligation to assist the Company in obtaining and enforcing patents and
copyrights for such Inventions in any and all countries shall continue beyond
the termination of my employment, but the Company shall compensate me at a
reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance.
I acknowledge that all original works of authorship which are made by me
(solely or jointly with others) within the scope of my employment and which are
protectable by copyright are being created at the instance of the Company and
are "works made for hire," as that term is defined in the United States
Copyright Act (17 USCA, Section 101). If such laws are inapplicable or in the
event that such works, or any part thereof, are determined by a court of
competent jurisdiction not to be a work made for hire under the United States
copyright laws, this agreement shall operate as an irrevocable and
unconditional assignment by me to the
- 3 -
<PAGE> 42
company of all copyrights throughout the world, including the right to prepare
derivative works and the right to all renewals and extensions) in such works in
perpetuity.
6. PRIOR INVENTIONS. All improvements, inventions, designs, ideas, works
of authorship, copyrightable works, discoveries, trademarks, copyrights, trade
secrets, formulas, processes, techniques, know-how and data relevant to the
subject matter of my employment by the Company which have been made or
conceived or first reduced to practice by me alone or jointly with others prior
to my engagement by the Company shall be deemed "Inventions" for the purposes
of this Agreement except as set forth on Exhibit A hereto.
7. NO BREACH OF DUTY. I represent that my performance of all the terms of
this Agreement and as an employee of the Company does not, and to the best of
my present knowledge and belief, will not breach any agreement or duty to keep
in confidence proprietary information acquired by me in confidence or in trust
prior to my employment by the Company. I have not entered into, and I agree I
will not enter into, any agreement either written or oral in conflict herewith.
I am not at the present time restricted from being employed by the Company or
entering into this Agreement.
8. NO PRIOR EMPLOYER PROPERTY. I understand as part of the consideration
for the offer of employment extended to me by the Company and of my employment
or continued employment by the Company, that I have not brought and will not
bring with me to the Company or use in the performance of my responsibilities
at the Company any materials or documents of a former employer which are not
generally available to the public, unless I or the Company have obtained
written authorization from the former employer for their possession and use.
Accordingly, this is to advise the Company that the only materials or
documents of a former employer which are not generally available to the public
that I will bring to the Company or use in my employment are identified on
Exhibit A attached hereto, and as to each such item, I represent that I have
obtained prior to the effective date of my employment with the Company written
authorization for their possession and use in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality or duty that I have to former
employers, and I agree that I shall fulfill at such obligations during my
employment with the Company.
9. NON-SOLICITATION. During the term of my employment by the company, and
for twelve months thereafter, I shall not, directly or indirectly, without the
prior written consent of the Company solicit or induce any employee of the
Company to leave the employ of the Company or hire for any purpose any employee
of the Company or any employee who has left the employment of the Company
within six months of the termination of said employee's involvement with the
Company.
- 4 -
<PAGE> 43
10. AGREEMENT NOT TO COMPETE. I agree that during the period of my
employment with the Company and for a period of three (3) years thereafter (the
"Non-Compete Period"), I will not, directly or indirectly (whether as an owner,
stockholder, partner, lender, investor, director, officer, employee, consultant
or otherwise) own, manage, control, participate in, consult with, render
services for, or otherwise engage in, any competitive business, or solicit or
assist any other person (corporate, natural or other) to engage in any such
activity (the "Non-Compete"). "Competitive business" means developing, selling,
licensing or otherwise merchandising computer programs, databases and related
manuals, service and knowhow, for the purpose(s) of: (i) managing the quality
and utilization of patient care or related services using risk-adjusted
outcomes measures; and (ii) assessing and/or predicting the mortality and other
treatment outcomes of hospital patients or outpatients; or (iii) otherwise
recording patient health factors in connection with predicting their treatment
or managing clinical productivity using risk-adjusted outcomes measures. If the
Company expands the scope of its business during my employment period, the
definition of competitive business shall be revised. Such revision shall be
mutually agreeable amongst the Company and myself. This Non-compete is intended
to apply to the territories where the Company now operates, as well as those
the Company may enter during the Non-compete Period. If I have any proposed
activity which may fall within the scope of this Non-compete, I shall provide
the Company with a reasonable specific description of the proposed activity,
and shall negotiate in good faith to determine if we can arrive at a mutually
agreeable definition of activities which do not conflict with this Non-compete.
Ownership of not more than 1% or the outstanding securities of any class of any
corporation that are listed on a natural securities exchange or traded in the
over-the-counter market shall not be considered a breach of this Paragraph 10.
I recognize, understand, agree and acknowledge that the Company has a
legitimate and necessary interest in protecting its goodwill and Proprietary
Information. I further affirm, represent, and acknowledge that in the event of
my termination of employment with the Company, my experience and capabilities
are such that the enforcement of this Agreement will not prevent me from
obtaining employment in another line of business different from that carried on
by the Company and permitted under this Agreement. I further affirm, represent
and acknowledge that I have received valuable consideration for entering into
this Agreement.
11. NO EMPLOYMENT AGREEMENT. I agree that the Company is not by reason of
this Agreement obligated to continue me in its employment.
12. REMEDIES FOR BREACH. I agree that any breach of this Agreement by me
would cause irreparable damage to the Company and that, in the event of such
breach, the Company shall have, in addition to any and all remedies of law, the
right to an injunction, specific performance or other equitable relief to
prevent or redress the violation of my obligations hereunder.
- 6 -
<PAGE> 44
13. SEPARABILITY. If any provision hereof shall be declared unenforceable
for any reason, such unenforceability shall not affect the enforceability of
the remaining provisions of this Agreement. Further, such provision shall be
reformed and construed to the extent permitted by law to that it would be
valid, legal and enforceable to the maximum extent possible.
14. EFFECTIVE DATE. This Agreement shall be effective as of the first day
of my employment with the Company, namely
_______________________________________________________.
15. ASSIGNABILITY. This Agreement shall be binding upon me, my heirs,
executors, assigns, and administrators, shall inure to the benefit of the
Company, its successors, and assigns, and shall survive the termination of my
employment by the Company, regardless of the manner of such termination.
16. APPLICABLE LAW. This Agreement shall in all respects be governed by,
and contained and enforced in accordance with the laws of the State of
Delaware.
Date:_________________________ By:_____________________________
(Signature)
Name:___________________________
(Print Name)
ACCEPTED AND AGREED TO:
APACHE MEDICAL SYSTEMS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
- 6 -
<PAGE> 45
EXHIBIT A
APACHE MEDICAL SYSTEMS, INC.
1901 Pennsylvania Ave., N.W., Suite 900
Washington, D.C. 20006
Gentlemen:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by you (the "Company") which
have been made or conceived or first reduced to practice by me alone or jointly
with others prior to my engagement by the Company which shall not be deemed
"Inventions" for purposes of the foregoing Proprietary Information, Inventions,
Non-Competition and Non-Solicitation Agreement:
____________ No inventions or improvements
____________ See below
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
____________ Additional sheets attached
2. I propose to bring to my employment the following materials and
documents of a former employer which are not generally available to the public,
which materials and documents may be used in my employment:
____________ No materials
____________ See below
_____________________________________________________________
- 7 -
<PAGE> 46
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
____________ Additional sheets attached.
The signature below confirms that my continued possession and use of these
materials is authorized by my former employer.
Date:_________________________ By:_____________________________
(Signature)
Name:___________________________
(Print Name)
- 8 -
<PAGE> 47
ATTACHMENT 7
The following performed work on or related to APACHE III Products but
did either not execute an agreement substantially as described in Section 9 or
the University cannot confirm from its records that such agreements were
executed:
Paul Bastos
Elizabeth A. Draper
Rosemarie B. Hakim
Angelica Kasprzak
Theodore Lotring
Michael W. Lyons
Diane Reba
Janet Smith
Juan Vegarra
<PAGE> 48
ATTACHMENT 8
NOTICES, INSTRUCTIONS AND WARNINGS
[THE BOLDFACE "NOTICE" WILL BE ADDED TO THE SCREEN TO APPEAR EACH TIME THE
SYSTEM BOOTS UP]
REQUIRED USE FOR THE APACHE(Registered Trademark) III MANAGEMENT SYSTEM
NOTICE: DO NOT ATTEMPT TO ACCESS OR USE THE APACHE III SYSTEM UNLESS YOU
HAVE COMPLETED AN APACHE III TRAINING SESSION AND THOROUGHLY READ
THE APACHE III USER'S MANUALS.
[THE FOLLOWING POINTS ARE COVERED IN THE COMPUTER SYSTEM AGREEMENT AND WILL
ALSO BE INCLUDED IN THE WRITTEN TRAINING MATERIALS.]
o The APACHE III system is intended for use as a decision support system
only. Although the system provides information that may enhance the
quality of clinical reasoning, it is not a substitute for the
professional judgment of a clinician. In no event should information
provided by the system be the sole basis for clinical decision-making.
o Information generated by the APACHE III system should not be relied upon
as the sole or primary basis for peer review or performance evaluations
of physicians or other personnel who use the system. While comparisons of
risk predictions generated by the APACHE III system with actual patient
outcomes may provide useful information for quality improvement and
quality assurance and can suggest areas for further study, such
comparisons should not be relied upon as a primary or sole basis for
drawing conclusions concerning individual competence or performance.
[THE FOLLOWING POINTS ARE COVERED VERBALLY BY THE TRAINING INSTRUCTOR AND WILL
BE INCLUDED IN THE WRITTEN TRAINING MATERIALS.]
o The APACHE III database consists of historical records that are updated
periodically. As a result, the treatment it represents is by definition
out of date. In practical terms, therapy for most illnesses has not
changed substantially since the records were collected. The system may
give misleading risk estimates, however, for patients with diseases for
which recent treatment advances have markedly cut mortality, length of
stay or other outcome measurements.
o For patients with rare conditions or with unusual presentations of common
conditions, risk may not be accurately estimated by this or other
analytic techniques.
o Predictive estimates must always be placed in an appropriate clinical
context. A risk estimate for a critically ill patient whose clinical
status is rapidly changing is unlikely to remain constant.
<PAGE> 49
o Before risk predictions provided by the system are utilized in clinical
decision-making, the clinician should verify the accuracy of patient data
entered into the system by; (a) evaluating the magnitude of the
confidence intervals quantifying the uncertainty of the point estimates;
(b) reviewing the total number of patients in the database within the
patient's specific disease category; and (c) carefully scrutinizing
selection and other potential confounding biases.
o The risk estimates are derived entirely from the experience of ICU
patients; therefore the system calculates mortality risk based on the
assumption that the patient is currently receiving ICU care.
o Computer programs are rarely error-free. It is possible that the APACHE
III system installed at your facility contains programming errors that
may affect the accuracy of risk predictions.
<PAGE> 50
Apache(Registered Trademark) III
COMPUTER SYSTEM AGREEMENT
This Computer System Agreement ("Agreement") is between APACHE Medical
Systems, Inc. ("AMS") and the client identified on the signature page below
("Client").
AMS has developed certain computer software programs and computer systems
for use by hospitals in managing intensive care units or monitoring the usage
and performance of such units, or both. Client wishes to acquire such a
computer system from AMS. Therefore, in consideration of the mutual covenants
contained herein, the parties agree as follows:
1. Definitions.
Certain terms used in this Agreement are defined as set forth below; other
terms are defined in the body of this Agreement (including Schedules). All
references to "Schedules" are references to Schedules to this Agreement. All
references to "this Agreement" shall include all Schedules, addenda and
exhibits to this Computer System Agreement which are referenced herein or in
the attached Purchase Schedule.
"Application Programs" shall mean the APACHE III Management System software
modules indicated in the Purchase Schedule, including the database dictionary
and data entry screens, and System Documentation.
"ICU" shall mean a collective reference to intensive care and step-down care
units, collectively.
"Implementation Guide" shall have the meaning ascribed to it in Section 6(a)
"Installation Dates" shall mean (i) the date on which Notice of Installation
is delivered to Client for the System (excluding the Standard Interface
Software modules) and, (ii) the date on which Notice of Installation is
delivered to Client for the Standard Interface Software.
"Client's ICU" shall mean Client's specific ICU (or ICUs) contemplated by
this Agreement, as indicated in the Purchase Schedule under "Stated Use."
"Licensed Data" shall have the meaning ascribed to it in Section 8(a).
"Licensed Software" shall have the meaning ascribed to it in Section 3(a).
"Manual" shall mean the APACHE III Management System user guides, as the
same may be amended by AMS from time to time.
"Notice of Installation" shall mean the notice that AMS will deliver to
Client apprising Client that (i) AMS has completed the installation and testing
of the System (excluding the Standard Interface Software modules) and, (ii) AMS
has completed the installation and testing of the Standard Interface Software,
respectively.
"Operating System" shall mean the operating system software identified on
the Purchase Schedule.
"Purchased Equipment" shall mean the computer hardware identified on the
Purchase Schedule.
"Standard Interface Software" shall mean APACHE III Management System
Admission, Discharge and Transfer ("ADT"), Laboratory and Monitor interface
module software which requires that Client's systems provide interfaces
compatible with the Standard Interface Software Specifications.
"Standard Interface Specifications" shall mean the technical requirements
for the Standard Interface Software.
"Stated Use" shall mean use of the Licensed Software only (i) on the
Purchased Equipment for the sole purpose of running the Application Programs,
(ii) for Client's internal business purposes, and (iii) in accordance with the
limitations with respect to number of beds, servers, non-server workstations
and number and address of ICUs indicated on the Purchase Schedule.
"Support Policy" shall have the meaning ascribed to it in Section 9(a).
"Enhanced Support" shall have the meaning ascribed to it in Section 9(c).
"Supporting Software" shall mean the Third Party Vendor software sublicensed
to Client as indicated on the Purchase Schedule.
<PAGE> 51
"System" shall mean the APACHE III Management System, which shall include the
Purchased Equipment, the Application Programs, the Operating System, the
Supporting Software and, the Standard Interface Software provided by AMS to
Client under this Agreement.
"System Documentation" means the Manual, Standard Interface Specifications,
documentation entitled "Support Policy", Training Materials and Implementation
Guide concerning the features, functions or operation of the System, as the
same may be amended or supplemented by AMS from time to time.
"Third Party Vendors" shall mean Oracle Corporation ("Oracle"), Sun
Microsystems, Inc. ("Sun") and any other developer or distributor of Supporting
Software or of the Operating System sublicensed hereunder.
"Total System Fee" shall mean the total system fees indicated on the
Purchase Schedule.
"Training Materials" shall have the meaning ascribed to it in Section 6(d).
2. Sale of Purchased Equipment.
AMS hereby agrees to sell, and Client agrees to buy, the Purchased
Equipment. Upon delivery of the Purchased Equipment to Client, the title to the
Purchased Equipment shall transfer to Client. Client grants and AMS reserves a
purchase money security interest in the Purchased Equipment until AMS receives
Client's full payment of the Total System Fee. [Begin strikeout text] Client
appoints AMS or its agent as Client's attorney-in-fact to sign and file such
UCC financing statements or other documents on Client's behalf, in such public
offices as AMS deems appropriate to perfect AMS's security interest. [End
strikeout text]
3. Grant of Licenses; Limitations.
(a) AMS hereby grants the following to Client for use only within the scope
of the Stated Use: (i) a non-exclusive, non-transferable license to use the
Application Programs; and (ii) non-exclusive, non-transferable runtime
sublicenses for the Supporting Software and the Operating System. The
Application Programs, Supporting Software, and Operating System shall be
referred to collectively herein as the "Licensed Software," and the licenses and
sublicenses therefor shall be referred to collectively herein as the "Licenses."
This license grant does not include the right to grant sublicenses.
(b) All Licensed Software shall remain the exclusive property of AMS or the
relevant Third Party Vendor. Client agrees to use the Licensed Software only on
the terms and conditions set forth in this Agreement.
(c) Client shall not use any Supporting Software: (i) to create tables or
alter tables outside the scope of those necessary to the operation of the
Application Programs; (ii) to modify forms created by the Application Programs
or to generate new forms, except as necessary to the operation of the
Application Programs; or (iii) in any other manner outside the scope of the
Application Programs, including, without limitation, for general database
management.
(d) Upon AMS's request, Client shall certify to one or more of the
Third-Party Vendors that Client is using the relevant Supporting Software
within the scope of the sublicense.
(e) Client may make up to two (2) archival or back-up copies, of Licensed
Software for each site identified on the Purchase Schedule. Such copy or copies
shall bear AMS's copyright notice and Third Party Vendors' copyright notices,
if applicable, as they appear on the copy of Licensed Software delivered by
AMS.
(f) Client is entitled to one Manual per workstation, as indicated on the
Purchase Schedule. Client may obtain additional Manuals at AMS's then-existing
fee for such Manuals. The Manuals and all other System Documentation are
licensed to Client solely for internal use in connection with the Licensed
Software and shall not be reproduced or distributed without AMS's prior written
consent.
(g) Client shall not make any Licensed Software available on any
timesharing, service bureau, rental or similar basis. Client shall not
disassemble, decompile, decrypt, extract, reverse engineer or attempt to
reverse engineer any Licensed Software, nor cause or permit anyone else to do
so.
(h) Only object code is licensed hereby, and the right to modify or enhance
any Licensed Software or to prepare any derivative works is expressly excluded.
If Client modifies or enhances any Licensed Software, or if
<PAGE> 52
Client combines the Licensed Software with other software, in addition to any
other rights and remedies AMS may have, AMS shall be under no obligation to
support the Licensed Software and all warranties of Licensed Software under
this Agreement shall be null and void. The foregoing shall apply even if Client
is a government entity claiming a right to modify the Licensed Software. All
modifications to Licensed Software shall be the property of AMS and shall be
subject to all of the restrictions contained in this Agreement.
(i) Client shall not publish the result of any benchmark tests evaluating or
reporting the performance of any Supporting Software developed or distributed
by Oracle.
(j) Oracle and Sun require that AMS notify Client that neither the Oracle
nor Sun computer software that is being sublicensed to Client nor the Sun
hardware that is being sold to Client under this Agreement were specifically
developed, manufactured or licensed for use in (i) any nuclear or aviation
application, or (ii) in the case of Sun's software and hardware, for use in any
life support or weapons systems or other hazardous environments requiring
fail-safe controls, or (iii) in the case of Oracle's software, for use in any
medical, mass transit or other inherently dangerous application. Neither Oracle
nor Sun shall be liable for any claims or damages arising from such use.
(k) The license grant under Section 3(a) shall include AMS's Standard
Interface Software indicated on the Purchase Schedule, provided that Client
pays applicable fees indicated on the Purchase Schedule. The Standard Interface
Software is designed to permit electronic capture of data from the information
systems operated by the Client and specified on the Purchase Schedule, provided
such information systems meet the Standard Interface Specifications. Client
shall make available adequate support from the manufacturers or developers of
Client's other information systems and access to such systems as may be
necessary or desirable to implement the Standard Interface Software.
(l) If the System is being acquired by or on behalf of the United States
government or any other entity seeking or applying rights similar to those
customarily claimed by the United States government, the following applies: All
Licensed Software, Licensed Data and System Documentation are "restricted
computer software" (under FARS 52.227-19) or "commercial computer software"
(under DFARS 252.227-7013(c)(ii)) and are hereby licensed with "restricted
rights." If the provisions relating to "restricted rights do not apply to all
or a portion of the System Documentation or Licensed Data" then such
Documentation or Licensed Data or the affected portion is licensed with
"limited rights." Utilization of any Licensed Software, Licensed Data and
System Documentation shall be subject to the restrictions specified in the
applicable Federal Acquisitions Regulations and all other restrictions
contained in this Agreement.
4. Pricing and Payment; Taxes.
(a) Client agrees to pay for the Purchased Equipment and Licensed Software,
Standard Interface Software, Integration and Installation, Training and
Implementation, System Support, and, if applicable, professional services, all
as set forth on the Purchase Schedule, either collectively or under such
individual headings.
(b) Client shall reimburse AMS for its reasonable travel, lodging and meal
expenses incurred in connection with the installation and testing of the
System, the initial training, any applicable professional services and any
additional or subsequent on-site training, and any Enhanced Support (as defined
in Section 9(c)).
(c) Failure by Client to make any payment within 30 days of when such
payments are due shall result in the imposition of an interest charge on any
unpaid amount at an annual rate equivalent to the lesser of (i) 1 1/2 % per
month and (ii) the highest rate allowable by law.
(d) Client shall pay all sales, use, transfer or other taxes, whether
federal, state or local, however designated, with the exception of any taxes
based upon the income of AMS, which are levied or imposed by reason of this
Agreement or Client's use of the Purchased Equipment or Licensed Software,
regardless of whether such taxes are identified on any Schedule or in any
invoice, and Client shall indemnify AMS in the event Client fails to pay such
taxes. In the event Client claims that it is a tax-exempt organization not
subject to certain taxes, Client shall inform AMS in writing of the taxes to
which Client's exemption applies. AMS will not invoice Client for such taxes,
provided that Client shall indemnify AMS and hold it harmless against any taxes
and applicable interest or penalties to the extent not covered by Client's
exemption.
<PAGE> 53
Upon request by AMS, Client shall provide AMS with a copy of Client's tax
exemption certificate.
5. Installation and Testing of System.
(a) Client shall be responsible for adequately preparing its facility for
installation including, without limitation, providing a suitable location and
environment for all equipment, in accordance with applicable manufacturer's
standards, testing the local area network ("LAN") to be used in connection with
the System, providing the cabling and all other electrical linkages and
establishing modem connections with AMS. Client shall provide a dedicated
telephone line for access to the System by AMS during the installation process
and for so long as this Agreement is in effect.
(b) AMS shall test the System and shall deliver to Client the Notice of
Installation for the System and for the Standard Interface Software, when the
System or Standard Interface Software, respectively, is operational.
6. APACHE Coordinator; Training, and System Use.
(a) Client shall designate the appropriate professional staff with ICU and
clinical data collection experience or knowledge to serve as APACHE
Coordinator, as set forth in AMS's "Implementation Guide" which describes both
required and recommended procedures for installation and implementation of the
System. The APACHE Coordinator shall be AMS's primary contact with Client for
implementation of this Agreement and installation and operation of the System.
AMS shall be entitled to rely on instructions and decisions communicated to it
by the APACHE Coordinator.
(b) AMS shall provide its standard initial on-site training of the APACHE
Coordinator and other employees and medical staff designated by Client. The
initial training shall begin on a mutually agreeable date.
(c) ONLY THOSE EMPLOYEES AND MEDICAL STAFF OF CLIENT WHO HAVE RECEIVED
TRAINING THROUGH AMS, OR WHO HAVE BEEN CERTIFIED IN WRITING BY CLIENT AS HAVING
RECEIVED COMPARABLE IN-HOUSE TRAINING, WILL BE ALLOWED TO ENTER OR VERIFY DATA,
OR OTHERWISE USE THE SYSTEM.
(d) AMS shall provide Client with one set of training manuals for each
trainee. Such manuals and all other training materials provided by AMS in
connection with the System are referred to collectively in this Agreement as
"Training Materials". Client shall be responsible for informing AMS, at least
five (5) days prior to the training session, of the number of employees and
medical staff who will participate in the training and for ensuring that all
such persons receive the Training Materials.
(e) If Client requests, AMS shall provide additional or subsequent training
at AMS's then-applicable rates and pursuant to mutually agreeable arrangements.
It is Client's responsibility to maintain adequate and appropriate training
levels for its employees and medical staff.
(f) Client shall be solely responsible for collecting, coding, inputting and
assuring the quality of the information necessary to apply the System to
analyze patient information for patients treated in Client's ICU who are 16
years or older and who otherwise meet the criteria for inclusion in the System
as described in the System Documentation (the "Patients"). The Patients shall
be selected in strict accordance with the selection procedures described in the
System Documentation, including, without limitation, the procedures for
consecutive and random selection set forth therein. Client shall consistently
apply the System diagnostic criteria and System data quality assurance
procedures, all in accordance with AMS's protocols and procedures as indicated
in the Application Programs and System Documentation. Client is solely
responsible for the accuracy and completeness of its data.
(g) The System is intended for use as a decision support system only.
Although the System provides information that may enhance the quality of
clinical reasoning and provides useful information for quality improvement and
quality assurance, it is not a substitute for the professional judgment of a
clinician or hospital administrator and in no event should information provided
by the System be the sole or primary basis for decision making or clinical
reasoning. The notice contained in this paragraph and all other notices
contained in this Agreement or in any System Documentation (collectively,
"Notices") are incorporated into this Agreement by this reference. Client and
its employees and medical staff who have received the training set forth in
this Section 6 shall
<PAGE> 54
be responsible for conveying the Notices to the rest of Client's employees and
medical staff who rely on or use any of the results generated by the System.
7. Initial Pilot Study; Quality Review.
After the initial on-site training, the parties shall commence a pilot study
consisting of data collection on at least: (i) 50 consecutive Patients; or (ii)
all consecutive Patients admitted over a six week period; whichever occurs
first. Client shall provide such data as directed along with supporting written
documentation for a sample of patient medical records selected by AMS in
consultation with the APACHE Coordinator, so that AMS can assess the quality of
Client's data collection and input activities. AMS may require a second pilot
study if quality problems are found in the initial pilot study. AMS shall have
the right to conduct additional periodic reviews of data to ensure that Client
is properly collecting and inputting data into the System. If AMS determines
that the data does not meet the requirements of Section 6(g) and this Section
7, Client shall not publish the results generated by the System from the data
(the "Results"), without first complying with the following procedures: Client
shall notify AMS in writing at least sixty (60) days prior to its publication
of any Results, that it desires to publish such Results and shall provide AMS
with the names of the proposed recipients, journal or other document in which
the Results would appear, the date of the proposed publication and all other
relevant details requested by AMS, along with a copy of the text of the
proposed publication. AMS shall have the right to prohibit, restrict or limit
publication of the Results, including, without limitation, requiring that
Client disclaim the Results in any publication, using disclaimer language
acceptable to AMS. Notwithstanding the foregoing, so long as Client provides
AMS with the written notice described in this Section 7 and incorporates
disclaimer language acceptable to AMS, Client may provide regulatory agencies
such as the Food and Drug Administration ("FDA") with Results to the extent
necessary to satisfy Client's obligations under applicable law. Nothing herein
shall be construed to (i) restrict or limit Client's obligations to comply
fully with its responsibilities described in the System Documentation or in
this Agreement, including, without limitation, Paragraphs 6(f) and (g) of this
Agreement, (ii) create any obligation on or responsibility of AMS for the
completeness, appropriateness or accuracy of any data or (iii) permit any
publication of any of AMS's "Confidential Information", as that term is defined
in Section 16.
8. Data Access.
(a) In addition to the data transmitted by Client pursuant to Section 7 for
quality review purposes, within 30 days of the end of each calendar quarter,
Client shall permit AMS to retrieve or Client shall deliver to AMS via modem
all data entered into the System; provided that individual patient names,
numbers or other patient identification information shall not be included,
except as specifically requested by AMS for (i) data review, (ii) bug reporting
or (iii) quality assurance purposes. Such data shall be referred to as the
"Licensed Data."
(b) AMS shall have a perpetual, world-wide, royalty-free right and license
(i) to use, in any manner, the Licensed Data and to analyze and incorporate the
Licensed Data in databases, reports, scores or scoring systems generated
therefrom, and (ii) to create and distribute works and derivative works based
on the Licensed Data, in each case provided the confidentiality of patient
information is protected as required by law.
9. System Support.
(a) AMS or its qualified subcontractors shall provide standard System
support ("System Support") as described in AMS's written policy and procedures
concerning System Support, as the same may be amended from time to time
("Support Policy"). System Support shall include (i) access to telephone
consultation 24 hours per day, 7 days per week, (ii) updates, patches, bypasses
and other corrections to any of the Licensed Programs that are generally
provided to AMS's other clients without additional charge (collectively,
"Updates") and (iii) all repairs to or replacement of Purchased Equipment,
subject to availability and manufacturers' limitations on maintenance coverage.
If appropriate in AMS's sole judgment, AMS shall arrange for on-site support,
provided that if AMS concludes that the visit or repairs, or both, resulted
from Client's error, omission or negligence, or Client's failure to maintain
the System or any component thereof, or from equipment or software not provided
by AMS, Client shall reimburse AMS for such visit, including reasonable travel,
lodging and meal expenses incurred in connection with such visit and any
repairs at AMS's then-applicable rates. If Client's site is located more than
50 miles from the nearest base office of AMS or
<PAGE> 55
one of its Third Party Vendors providing on-site support, Client shall be
responsible for AMS's or its Third Party Vendors' incremental charge for
on-site visits.
(b) The System Support shall commence upon delivery of the Notice of
Installation of the System (excluding the Standard Interface Software) and
continue until this Agreement is terminated, provided that AMS shall be under
no obligation to provide System Support (other than as may be required to
fulfill its warranty obligation under Section 11) if Client fails to pay any
periodic System Support Fee within 30 days of when such payment is due as set
forth on the Purchase Schedule, including such increases in fees as reflect
AMS's then current rates for System Support, not to exceed the Consumer Price
Index plus 4% per year.
(c) All other support which falls outside of the Support Policy ("Enhanced
Support") shall be billed at AMS's rates then in effect. Such Enhanced Support
shall include, without limitation, reports developed or prepared by AMS other
than reports prepared in connection with the initial pilot study.
(d) AMS shall be under no obligation to provide support services for
problems resulting from (i) Client's failure to perform any of its obligations
under this Agreement, (ii) Client's use of any portion of the System in
violation of any provision of this Agreement, including, without limitation,
the provisions governing Stated Use, (iii) Client's neglect or misuse of any
portion of the System, or (iv) any other cause beyond the range of normal
software and hardware support.
(e) AMS shall support only the two (2) most current available versions of
the Licensed Software programs. If AMS replaces any Licensed Software program
with any Update, as defined in Section 9(a), all obligations of AMS hereunder
to support the superseded version of the Licensed Software shall cease sixty
(60) days after the date AMS delivers the Update to Client. AMS may, in its
sole discretion, from time to time, add additional features to, or otherwise
upgrade, the Licensed Software, ("Upgrades"). Upgrades will be provided to
Client upon payment of AMS's fee therefor on the terms and conditions agreed to
by the parties in writing.
10. Client's Maintenance Obligations.
In addition to all other responsibilities described in this Agreement,
Client shall:
(a) Regularly back up magnetic storage media (i.e., hard or fixed disks),
clean its keyboards, disk drives and other components, and generally perform
end-user maintenance tasks, including, without limitation, end-user tasks
described in the Support Documentation, and
(b) Assist AMS in identifying, documenting and rectifying any problems that
may occur.
11. Warranty.
AMS warrants that (i) for ninety (90) days following the Installation Date
of the System (excluding the Standard Interface software), and (ii) for ninety
(90) days following the Installation Date of the Standard Interface Software,
the System, if used in accordance with the Stated Use and the System
Documentation, will operate in substantial conformance with the standards for
performance specified in the then-current System Documentation. Such Standards
shall be referred to herein as the "System Standards". AMS does not warrant
that the System will operate uninterrupted or be error free. This limited
warranty shall not apply to the extent any non-conformity to the System
Standards arises directly or indirectly from the provision to AMS of inaccurate
system configuration information by Client or Client's manufacturers or
developers (other than AMS).
12. Disclaimer of Warranties.
THE WARRANTY SET FORTH IN PARAGRAPH 11 IS THE SOLE AND EXCLUSIVE WARRANTY
MADE BY AMS WITH RESPECT TO THE SYSTEM AND SERVICES PROVIDED UNDER THIS
AGREEMENT AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
ARE HEREBY EXPRESSLY DISCLAIMED.
13. Limitations of Liability and Exclusive Remedy.
(a) NEITHER PARTY SHALL BE RESPONSIBLE TO THE OTHER PARTY FOR ANY LOST
PROFITS, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND
<PAGE> 56
(INCLUDING, TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN
CONNECTION WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(b) AMS's liability to Client for any loss whatsoever shall not exceed the
aggregate amount of payments by Client to AMS during the twelve (12) months
immediately preceding the loss.
(c) No action, regardless of form, arising out of or under this Agreement
may be brought by either party more than one year after the cause of action
accrues.
(d) Section 13(b) notwithstanding, the SOLE AND EXCLUSIVE obligation of AMS
and the SOLE AND EXCLUSIVE remedy of Client with respect to the warranty
contained in Section 11, shall be, in AMS's sole discretion, for AMS to either
(i) exercise reasonable efforts to cause the System to operate in substantial
conformance with the System Standards, or (ii) refund to Client the cost of
that portion of the System that is not operating in conformity with the System
Standards (or, if the nonconformity renders the System unusable, the cost of
the System). This remedy shall not be available to the extent that (i) the
System is used other than in accordance with the terms of this Agreement or any
System Documentation or is damaged due to Client's error, misuse or neglect,
(ii) the data is not entered properly by Client or is lost, destroyed or is
damaged due to Client's error, misuse or neglect, (iii) Client modifies the
System, or (iv) the Application Programs are run on software or hardware other
than the Supporting Software or Purchased Equipment.
14. No Third-Party Vendor Warranties or Liabilities.
Neither the Licenses granted hereunder nor any other provision of this
Agreement shall be construed to (i) make any warranty, express or implied, on
behalf of Third Party Vendors, including, without limitation, any warranty of
merchantability or fitness for a particular purpose; or (ii) otherwise create
any liability of Third Party Vendors for any damages, whether direct, indirect,
incidental, or consequential arising from the use of the Purchased Equipment,
the Operating System or Supporting Software. Third Party Vendors shall be third
party beneficiaries of this Section 14 and of all other applicable provisions
of this Agreement.
15. Indemnification.
(a) Client and its employees and medical staff shall be solely responsible
for all decisions involving patient care, utilization management and peer
review. Client shall have no recourse against AMS for any loss, damage, or
costs relating to or resulting from the use or misuse of the System.
(b) Client shall defend, indemnify and hold AMS and its subcontractors and
affiliates and each of the Third Party Vendors harmless from all losses,
damages, costs, and expenses, including without limitation attorneys' fees and
court costs, arising from or in connection with (i) the use or misuse of the
System by Client or any component thereof, (ii) any breach of any
representation, warranty or covenant of Client under this Agreement, or (iii)
any disclosure of patient identifiers to AMS in violation of applicable law or
hospital procedures. Client shall conduct such defense with attorneys selected
by it at its expense, and shall have sole control over the conduct of such
defense. AMS shall promptly notify Client of any asserted or threatened claim
that may be subject to this indemnity, and shall cooperate with Client in
conducting the defense.
(c) Provided Client promptly notifies AMS of any asserted or threatened
claim that may be subject to this indemnity, and cooperates with AMS in
conducting the defense, AMS shall defend (or in AMS's discretion, settle),
indemnify and hold Client harmless from all losses, damages, costs, and
expenses, including without limitation attorney's fees and court costs, arising
from or in connection with any third party claim of copyright, patent or trade
secret infringement under United States law resulting from Client's use of the
System in accordance with this Agreement. AMS shall conduct such defense, at
its expense, with attorneys selected by it, and shall have sole control over
the conduct of such defense and all settlement negotiations. AMS shall not have
any liability under this Section 15(c) if a claim of infringement is based in
whole or in part upon (i) the modification of the Licensed Software or Licensed
Data by anyone other than AMS or (ii) the use of the System, or any portion
thereof, (aa) outside the scope of the license granted hereunder; (bb) in
combination with other hardware, software or data not furnished by AMS; (cc) in
practicing any infringing process; or (dd) in a manner for which it was not
designed or specified by AMS. If, as a
<PAGE> 57
result of a claim of infringement for which client is entitled to indemnity
hereunder, AMS is enjoined from using the System, or if AMS believes that such
injunction is likely or that the System is likely to become the subject of a
claim of infringement, AMS may, in its sole discretion and at its expense,
procure for client the right to continue to use the System, replace or modify
the System so as to make it non infringing, or terminate this Agreement and
refund the unamortized portion of the license fees previously paid by Client
for the use of the System. Calculation of the unamortized portion of the
license fees shall be based upon three (3) years' straight line depreciation.
If the claim of infringement affects only a portion of the System, then AMS's
obligations described in the preceding two sentences shall apply only to the
item(s) affected. This Section 15(c) states the entire and exclusive obligation
of AMS to Client for any claim of infringement relating to the System. The
provisions of this Section 15(c) shall survive termination of this Agreement.
16. Confidentiality.
(a) "Confidential Information" means all nonpublic information provided to
or learned by Client, its agents, staff or employees in connection with the
activities contemplated by this Agreement, whether in tangible or intangible
form, including, without limitation, all computer programs (whether in source
or object code), flow charts, algorithms, data, databases, rules, templates,
forms, protocols, methodologies, procedures, techniques and approaches relating
to the System, the System Documentation, AMS's prices, fees and payment terms
and Client's patient records. Confidential Information shall not include
information already known to a party at the time of disclosure, as shown by the
party's records, information which has been publicly disclosed in a lawful
manner, or information which is rightfully received from a third party in a
lawful manner. Statistical summary results of Patient records that do not
reveal individual patient identifying information shall not be confidential
information.
(b) Each party shall hold in strict confidence and not disclose the other's
Confidential Information to any third party, except for disclosure to third
party consultants who are retained by the Client from time to time as part of
the Client's medical staff. Client shall disclose Confidential Information only
to its employees, medical staff and third party consultants who (i) have signed
a confidentiality agreement with Client and (ii) need to know such Confidential
Information to adequately perform their responsibilities under this Agreement
or to use the System as contemplated by this Agreement. Such written
confidentiality agreements signed by each of Client's employees, medical staff
and third party consultants who will require access to AMS's Confidential
Information will be reasonably acceptable to AMS and, at a minimum, will
protect AMS's Confidential Information in a substantially similar manner to
Client's own confidential information. Client will provide copies of all such
confidentiality agreements upon AMS's request. Client is responsible for
ensuring the compliance of its employees, medical staff and third party
consultants with the foregoing confidentiality obligations. In the event that
the FDA or other regulatory body or any court requires information from Client
that might reasonably fall within the above definition of AMS's Confidential
Information, Client shall notify AMS in writing at least ten (10) days prior to
the proposed disclosure and AMS, in consultation with Client, shall determine
the appropriate steps in order to adequately safeguard AMS's Confidential
Information, including, without limitation, in the case of a proceeding in a
court or other tribunal, obtaining a protective order. Nothing in the foregoing
shall limit AMS's right to use the Licensed Data described in Section 8 in
accordance with the terms of that Section.
17. Term and Termination.
(a) The term of this Agreement shall begin on the effective date set forth
at the end of this Agreement (the "Effective Date") and shall continue in
effect unless terminated pursuant to this Section 17.
(b) Commencing with the first full calendar year of this Agreement,
following payment of the Total System Fee, either party may terminate this
Agreement effective at the end of any calendar year by delivering written
notice to the other party at least ninety (90) days prior to the end of such
year.
(c) Client may terminate this Agreement upon written notice to AMS if AMS
has not delivered its Notice of Installation of the System (exclusive of
Standard Interface Software) within one-hundred eighty (180) days after the
estimated date set forth on the Purchase Schedule and such delay is caused
solely by AMS. In such case, Client shall be entitled to a refund of the
Licensed Software and Purchased Equipment fees paid by Client to
<PAGE> 58
AMS hereunder, provided that the items of Purchased Equipment are first
returned to AMS.
(d) AMS may terminate this Agreement by written notice to Client:
(i) effective ten (10) days after Client's receipt of such notice, if
Client exceeds the scope of any of the Licenses granted hereunder and does not
cure the same within such ten (10) day period or fails to comply with the
provisions of Section 16;
(ii) effective thirty (30) days after Client's receipt of notice, in
the event that Client (A) fails to make any payment required under this
Agreement when due, or (B) defaults on any other material obligation or
covenant or breaches any material representation or warranty hereunder; if
Client has not cured such default within such thirty (30) day notice period.
(e) Without limiting any right of termination described above, AMS may
terminate any sublicense granted hereunder ten (10) days after delivery of
notice to Client if Client has exceeded the scope of the sublicense and does
not cure the same within such ten (10) day period.
18. Consequences of Termination.
(a) The Licenses granted hereunder shall automatically terminate when either
AMS or Client terminates this Agreement.
(b) Promptly after termination, Client shall:
(i) discontinue use of and return to AMS all copies of the Licensed
Software, together with all copies of System Documentation and all other
materials respecting the Licensed Software;
(ii) purge all copies of the Licensed Software and all portions
thereof from Client's Purchased Equipment and from any storage medium or device
in which Client may have placed such material; and
(iii) certify in writing to AMS that Client has complied with all of
its obligations under this Section 18.
(c) Termination of this Agreement shall not relieve Client of its
obligations to AMS that arose prior to termination or that survive termination,
including, without limitation, its obligations to pay all monies due and owing
under this Agreement. All such amounts shall be paid no later than ten (10)
days following termination.
19. Dispute Resolution.
(a) Disputes under any provision of the Computer System Agreement (including
any schedules, addenda or exhibits thereto) not resolved between the Client and
AMS within 10 days shall be resolved in accordance with the following
procedures. The parties shall refer the dispute to the Chief Executive Officer
of each party, who shall have authority to resolve the dispute between the
parties. Such executives shall use all reasonable efforts to confer in person
or by telephone within 48 hours after referral of a dispute, and thereafter as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the dispute. If the matter has not been resolved within 10 days of
referral of the dispute to such executives, the parties shall proceed in
accordance with Sections 19(b)-(d). All negotiations pursuant to this paragraph
are confidential and shall be treated as compromise and settlement negotiations
for purposes of the Federal Rules of Evidence and state rules of evidence.
(b) If the efforts described in the preceding paragraph fail to resolve the
dispute, the parties shall institute binding arbitration proceedings pursuant
to the Commercial Arbitration Rules of the American Arbitration Association,
provided that this provision shall not apply if a third party which is a
necessary party to the arbitration refuses to participate. The arbitrators will
have the power to award any legal or equitable remedy, including without
limitation, specific performance. Arbitration will be conducted in a mutually
agreeable location. Arbitration will not be a condition to a party's exercise
of its termination rights under this Agreement.
(c) Each party will have the same discovery rights as are afforded under the
Federal Rules of Civil Procedure, including such discovery of third parties as
is necessary to resolve the controversy. Each party shall bear its own costs
(e.g., filing, attorney and expert witness fees) and shall share equally the
costs of the arbitration (e.g., arbitrator, court reporter and hearing room
fees). The arbitration will be conducted by three arbitrators, one of whom will
be specified in writing by each party within
<PAGE> 59
five (5) business days of either party's receipt of the other party's demand
for arbitration, and one of whom will be chosen by the other two, or, if the
other two fail to choose the third within five (5) business days of their
designation by the parties, by the American Arbitration Association. The
arbitrators shall provide detailed, written findings of fact and conclusions of
law to the parties in support of any award or decision the arbitrators make.
(d) Notwithstanding the foregoing, either party may seek a preliminary
injunction or other provision of judicial relief if in its judgment such action
is necessary to avoid irreparable damage or to preserve the status quo. Despite
such action, the parties will continue to participate in good faith in the
procedures specified in this Section 19.
20. General.
(a) AMS shall accept risk of loss on all Purchased Equipment and Licensed
Software until the same has been delivered to Client. Client shall be
responsible for all freight, shipping, insurance and handling charges.
(b) If no due date is set forth in this Agreement or the relevant invoice,
payment for goods or services rendered by AMS in connection with this Agreement
shall be made by Client within 30 days of receipt of the relevant invoice.
(c) The obligations of either party hereunder (other than the obligation to
make any payment hereunder) shall be excused in the event of labor
disturbances, riots, acts of war or terrorism, fires, power surges or power
failures, governmental acts, acts of God, fires, floods, failure of third-party
suppliers to deliver, or any other cause beyond the control of such party, for
so long as such cause for non-performance exists.
(d) This Agreement, including the Purchase Schedule and all other schedules,
addenda and exhibits referenced in this Agreement or in the Purchase Schedule,
contains the entire Agreement between AMS and Client concerning the subject
matter hereof and supersedes all prior and contemporaneous proposals,
discussions, understandings and all other agreements or representations, oral
and written, between the parties relating to the subject matter hereof.
(e) In addition to the provisions that by their terms survive, the
provisions contained in Sections 11-16 and Section 19 shall survive termination
of this Agreement.
(f) All notices required by this Agreement shall be in writing, shall be
effective upon receipt, and shall be delivered by (i) hand, (ii) certified
mail, return receipt requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or overnight courier
service) addressed to the other party at the address or facsimile number set
forth herein on the Purchase Schedule, or at such address or facsimile number
as to which such party from time to time may give proper notice to the other
party. Notices shall be deemed to have been received: if hand delivered, when
so delivered; five days after deposit as certified mail; on the date scheduled
for delivery if sent by courier; and on the date shown on the report generated
by the sending machine if sent by facsimile. All notices shall be effective
upon receipt or, if later, deemed receipt.
(g) The parties irrevocably agree that service of process by mail as
provided in Section 20(f) shall be sufficient service for personal jurisdiction
of the party so served.
(h) If any provision of this Agreement or any portion thereof is declared
invalid or unenforceable, such provision shall be limited and construed so as
to make it enforceable consistent with the parties' manifest intentions or, if
such limitation or construction is not possible, such provision will be deemed
stricken from this Agreement. In such event, all other provisions of this
Agreement will remain in full force and effect, unless such enforcement would
result in an injustice or be inconsistent with the purposes of this Agreement.
(i) This Agreement may be assigned by either party with the prior written
consent of the other party, provided that no written consent is necessary if
the assignment is to an entity controlled by, controlling or under common
control with the party making the assignment.
(j) No waiver of any term of this Agreement shall be valid unless in a
writing signed by the party against whom the waiver is sought to be enforced.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any
<PAGE> 60
way the right to require such performance at any time hereafter.
(k) Nothing in this Agreement is intended to create a relationship between
AMS and Client other than that of independent contractors and neither party,
nor any of its employees or staff, shall be construed to be the agent, employee
or representative of the other.
(l) This Agreement may not be modified, altered or amended except by a
written instrument executed by both parties.
(m) This Agreement and performance hereunder shall be governed by and
construed in accordance with the laws of the District of Columbia.
(n) Client acknowledges that the unauthorized use or distribution of any
portion of the Licensed Software, Manual or Standard Interface Software, or a
violation of the provisions of this Agreement relating to the protection of
Confidential Information would cause AMS irreparable harm, and agrees that AMS
would be entitled to injunctive relief prohibiting such unauthorized use or
distribution, or such breach, in addition to any other right or remedy AMS
might have in law or equity.
(o) The Purchase Schedule and all other schedules, addenda and exhibits
indicated in the Purchase Schedule are incorporated into this Agreement by this
reference.
The parties have executed this Agreement by their duly authorized
representatives, effective as of the date of the last to sign as set forth
below.
CLIENT
THE GEORGE WASHINGTON UNIVERSITY
2300 I Street, N.W.
Suite 713
Washington, D.C. 20037
- ------------------------------------
Phone Number
- ------------------------------------
Facsimile Number
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------------
Print Name:_________________________
Title:______________________________
Date:_______________________________
/s/ ROGER E. MEYER, M.D.
- ------------------------------------
Roger E. Meyer, M.D.
Vice President for Medical Affairs
and Executive Dean
APACHE MEDICAL SYSTEMS, INC.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102
Phone No.: (703) 847-1400
Facsimile No.: (703) 847-1401
By: /s/ Brion Umidi
---------------------------------
Print Name: Brion Umidi
-------------------------
Title: Vice President
------------------------------
Date: August 19, 1994
-------------------------------
<PAGE> 61
Purchase Schedule
to the Computer System Agreement
between APACHE Medical Systems, Inc. ("AMS")
and The George Washington University ("Client")
<TABLE>
<CAPTION>
ITEM DESCRIPTION PRICE/FEE
<S> <C>
1. APACHE III Management System
Application Programs, including;
Clinical Decision Support,
Utilization Monitor,
On-Site Research, and
Ad-Hoc Reporting.
2. Supporting Software and Purchased Equipment:
See itemized list on next page.
3. Integration and Installation Services:
4. Training and Implementation Services:
5. Standard Interface Software:
TOTAL SYSTEM FEE: INCLUDED
6. Annual System Support Fee for thirty-six months: Included
</TABLE>
PAYMENT SCHEDULE:
The Total System Fee (items 1 - 5 above) is included as a part of the Agreement
Between The George Washington University and APACHE Medical Systems, Inc.
The annual System Support Fee (item 6 above) for thirty-six (36) months from
Notice of Installation (excluding Standard Interface Software) is included as a
part of the Agreement Between The George Washington University and APACHE
Medical Systems, Inc. After the expiration of the thirty-six month period, the
annual System Support Fee will be payable at the beginning of each calendar
year for the following year. The fee for System Support shall be at AMS'
current standard System Support rates.
DATE OF NOTICE OF INSTALLATION OF THE SYSTEM (EXCLUSIVE OF INTERFACES):
Notice of Installation occurred on November 18, 1993.
LIMITATION ON GRANT OF LICENSE:
The continued use of the System by Client beyond the expiration of the
thirty-six (36) month period from Notice of Installation (excluding Standard
Interface Software) requires Client to obtain Annual System Support at AMS'
current standard System Support rates.
<PAGE> 62
ITEMIZED SUPPORTING SOFTWARE AND PURCHASED EQUIPMENT:
External Mass Storage
1.05 GB External SCSI Disk
5 GB 8 mm Tape Drive
644 MB CD-ROM Drive
Print Server Option Pack
SPARC Printer
NEWSprint Software
SBUS Printer Card
Telebit V.32bis 14400 bps Modem
SPARCstation classic with:
16" Color Monitor
8 MB Memory
207 MB Internal SCSI Drive
1.44 MB Floppy Disk Drive
16 MB Memory Expansion
Country Kit with;
Keyboard
Mouse
Cables
Sun OS Software Media
Sun OS License, 2 users
Motif Runtime Software License
OPERATING SYSTEM: Sun OS and OSF Motif
DESCRIPTION OF CLIENT INFORMATION SYSTEMS FOR WHICH AMS WILL PROVIDE STANDARD
INTERFACE SOFTWARE WITH THE SYSTEM: SMS Admission, Discharge &
Transfer System ("ADT") and Cerner Laboratory System
SUBLICENSED SUPPORTING SOFTWARE: Sublicensed Oracle Corporation programs are:
Relational Data Base Management System (RDBMS), SQL*Forms, Transaction
Processing Option, SQL*Plus and SQL*Net. Non-Oracle Corporation sublicensed
programs are: Sybase SQR Report Writer; Open Software Foundation Motif; and
IXOS Software GMBH, iXVIEW/SQL.
"Sun OS", "SPARCstation" and "SPARCserver" are trademarks of Sun Microsystems,
Inc.
THE FOLLOWING SCHEDULES ARE INCORPORATED IN THE COMPUTER SYSTEM AGREEMENT, IN
ADDITION TO THIS PURCHASE SCHEDULE: None
<PAGE> 63
DEFINITION OF STATED USE:
Specific
Number of Beds: 20
Number of Servers: 1
Number of Non-Server
Workstations: 0
Number of Client's ICUs: 1
Location of Client's ICU(s): The George Washington University Hospital
901 23rd Street
Washington, D.C. 20037
CONTACT AND ADDRESS FOR NOTICES:
TO AMS:
APACHE Medical Systems, Inc.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102
Attention: Karen Erikson
Phone No: (703)847-1400
Facsimile No: (703) 847-1401
TO CLIENT:
The George Washington University
2300 I Street, N.W.
Suite 713
Washington, D.C. 20037
Attention: John C. LaRosa, M.D.
Phone No:
Facsimile No:
<PAGE> 1
EXHIBIT 10.11
[LETTERHEAD]
March 13, 1995
Gerald T. O'Conner, Ph.D., D.Sc.
Northern New England Cardiovascular Disease Study Group
c/o Clinical Research Section
Department of Medicine
Dartmouth-Hitchcock Medical Center
Lebanon, New Hampshire 03756
Dear Gerry,
We are delighted to present this letter agreement (the "Agreement") for the
purpose of outlining the terms under which the Northern New England
Cardiovascular Disease Study Group ("NNECVDSG") will provide APACHE Medical
Systems, Inc. ("APACHE") with access to databases and risk models for
inclusion into new products currently under development at APACHE. The terms
of our agreement are as follows:
RIGHTS AND LICENSES, LIMITATIONS
1. NNECVDSG grants to APACHE an exclusive license, for a term of five (5)
years to use the NNECVDSG databases, including the right to incorporate such
databases into APACHE products and services, described in the Proposal to
APACHE Medical Systems, Inc. from the Northern New England Cardiovascular
Disease Study Group dated March 7, 1995 ("Proposal"). [Begin strikeout text]
This grant also includes an exclusive license for any databases related to
Cardiovascular Disease developed by NNECVDSG during the term of this
Agreement. [End strikeout text] Such databases are hereinafter
collectively known as "Databases".
2. NNECVDSG acknowledges APACHE's right to incorporate any published NNECVDSG
risk models related to Cardiovascular Disease into APACHE products and
services. This includes any NNECVDSG Risk Models published during the term of
this Agreement. The published risk models are listed on Exhibit A.
3. NNECVDSG grants to APACHE an exclusive license to incorporate into APACHE
products and services NNECVDSG risk models related to Cardiovascular Disease
awaiting publication that are already developed or are developed during the
term of this Agreement. This exclusivity dissolves upon publication and is not
intended in any manner to prohibit or delay publication of scientific reports.
The unpublished risk models are not in the public domain. The risk models
awaiting publication are listed on Exhibit B. The risk models described in
Exhibits A and B and all risk models, published or unpublished, related to
Cardiovascular Disease developed during the term of this Agreement are
hereinafter collectively known as "Risk Models".
NNECVDSG and APACHE shall work together to decide upon a mutually agreeable
delivery schedule for the Databases and Risk Models. The parties anticipate
that NNECVDSG shall deliver the Databases and Risk Models to APACHE
approximately thirty (30) days from execution of this Agreement.
NNECVDSG shall maintain all ownership rights with regard to the Databases and
Risk Models. APACHE shall own the rights to any material modifications
thereof, data resulting from material modifications and any new risk models
based on the database that are developed by APACHE. APACHE may use NNECVDSG's
name when referring to APACHE products or services that have incorporated the
Databases or Risk Models.
APACHE agrees not to publish in scientific journals the results of an analysis
of the Databases unless mutually agreed to by the parties as part of a
collaborative effort.
APACHE agrees that it will not enter into any agreements for a third party
vendor to distribute APACHE products or services that incorporate the Databases
or Risk Models unless NNECVDSG consents. Notwithstanding the above, APACHE may
enter into such an agreement with regards to CardioMac.
<PAGE> 2
PAYMENT
APACHE will pay to NNECVDSG a total of [* ] each year for
five (5) years. Such amount will be paid to NNECVDSG monthly in the amount of
[* ]. The payments shall be due on the fifteenth of each month.
The first payment shall be prorated for the month in which the Databases and
Risk Models are received by APACHE. The parties agree that Dartmouth College
shall accept payment on behalf of NNECVDSG. NNECVDSG acknowledges that payment
of the above amounts to Dartmouth College will satisfy APACHE's payment
obligations to NNECVDSG.
UPDATES AND SUPPORT
NNECVDSG and APACHE shall work together to decide upon a mutually agreeable
schedule for updates of the Databases and Risk Models. The parties anticipate
that NNECVDSG shall provide APACHE with updates to the Databases approximately
every six (6) months or, if the Databases are updated more often, whenever
NNECVDSG updates the Databases. NNECVDSG shall provide APACHE with updates to
the Risk Models whenever NNECVDSG updates such Risk Models.
NNECVDSG shall provide technical assistance to APACHE for the purpose of
providing assistance to APACHE regarding the Databases and Risk Models.
TERM AND TERMINATION
The term of this Agreement shall begin on the effective date set forth at the
end of this Agreement (the "Effective Date") and shall continue in effect for a
term of five (5) years.
Either party may terminate this Agreement upon thirty (30) days written notice,
if the other party has defaulted on any material obligation or covenant or
breached any material representation or warranty and has not cured such default
within the thirty (30) day notice period.
The exclusivity of the rights granted hereunder shall automatically terminate
when this Agreement is terminated or expires. After termination or expiration,
APACHE may continue to use only the versions of the Databases and Risk Models
received by APACHE through the date of termination. The provisions regarding
Termination, Warranty, Indemnity, Limitation of Liability and Confidentiality
shall survive termination of this Agreement. APACHE is obligated to NNECVDSG
only for the monthly payments through the date of termination. When this
Agreement is terminated, the last payment by APACHE will be prorated for the
portion of the month that elapsed before termination.
WARRANTY
NNECVDSG warrants the following:
1. NNECVDSG has the right to grant an exclusive license to APACHE for
the Databases and Risk Models.
2. To the best of NNECVDSG's knowledge, the use of the Databases and
Risk Models do not infringe upon any copyright, trademark or other
intellectual property right of a third party.
3. The use and distribution of the Databases and Risk Models by APACHE
does not cause NNECVDSG to be in breach of any agreement to which it is
a party.
4. The Databases are not in the public domain and NNECVDSG will
safeguard the Databases and not allow them to fall into the public
domain.
THE WARRANTIES SET FORTH ABOVE ARE THE SOLE AND EXCLUSIVE WARRANTIES MADE BY THE
PARTIES WITH RESPECT TO THIS AGREEMENT AND ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED.
- ------------
* Confidential portions omitted
and filed separately with the 2
Commission.
<PAGE> 3
LIMITATIONS OF LIABILITY
NEITHER PARTY SHALL BE RESPONSIBLE TO THE OTHER PARTY FOR ANY LOST PROFITS,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING,
TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION
WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
No action, regardless of form, arising out of or under this Agreement may be
brought by either party more than one year after the cause of action accrues.
INDEMNIFICATION
APACHE shall defend, indemnify and hold NNECVDSG and its directors, officers,
employees and agents harmless from all losses, damages, costs, and expenses,
including without limitation attorneys' fees and court costs, arising from or
in connection with the use of the Database or Risk Models by APACHE. APACHE
shall conduct such defense with attorneys selected by it at its expense, and
shall have sole control over the conduct of such defense.
[BEGIN STRIKE OUT TEXT]
NNECVDSG shall defend, indemnify and hold APACHE and its directors, officers,
employees and agents harmless from all losses, damages, costs, and expenses,
including without limitation attorney's fees and court costs, arising from or
in connection with (i) any breach of any representation, warranty or covenant
of NNECVDSG under this Agreement or (ii) any third party claim of copyright,
patent or trade secret infringement resulting from APACHE's or its licensees
use of the Databases and Risk Models. NNECVDSG shall conduct such defense with
attorneys selected by it at its expense, and shall have sole control over the
conduct of such defense.
[END STRIKE OUT TEXT]
Each party shall promptly notify the other party of any asserted or threatened
claims that may be subject to any of the indemnities in this Section, and shall
cooperate with the other party in conducting the defense.
CONFIDENTIALITY
Each party will, and shall cause its employees to, hold in strict confidence all
Confidential Information. Confidential Information means all non-public
information provided to or learned by either party, its agents, staff or
employees in connection with the activities contemplated by this Agreement
including but not limited to the patient identifiers, individual hospital
identifiers and physician identifiers contained in the Databases, the risk
models that are awaiting publication by NNECVDSG and the terms and conditions of
this Agreement. The published risk models shall not be Confidential
Information. Nothing in this Section shall prevent APACHE from incorporating
the Databases or Risk Modules into APACHE products and services. Statistical
summary results of Patient records that do not reveal individual patient,
hospital or physician identifying information shall not be Confidential
Information.
MISCELLANEOUS
This Agreement, including all exhibits and attachments, contains the entire
Agreement between APACHE and NNECVDSG concerning the subject matter hereof and
supersedes all prior and contemporaneous proposals, discussions, understandings
and all other agreements or representations, oral and written, between the
parties relating to the subject matter hereof.
Please sign the enclosed copy of this letter where indicated below on behalf of
NNECVDSG, and return it to me. It will then constitute a binding agreement
between APACHE and NNECVDSG with respect to the Databases and Risk Models.
3
<PAGE> 4
We are looking forward to commencing work on this project and to continuing the
excellent relationship we have enjoyed thus far with NNECVDSG.
Sincerely, NORTHERN NEW ENGLAND
CARDIOVASCULAR DISEASE
STUDY GROUP
/s/ Gerald E. Bisbee, Jr., Ph.D. Accepted By: /s/ Gerald T. O'Connor
- -------------------------------- -----------------------------------
Gerald E. Bisbee, Jr., Ph.D. Print Name: Gerald T. O'Connor
Chairman and Title: Research Director, NNECVDSG
Chief Executive Officer Date: March 24, 1995
4
<PAGE> 5
EXHIBIT A
RISK MODELS: PUBLISHED OR UNDER REVIEW:
- - CABG in-hospital mortality
- - PTCA in-hospital mortality
- - PTCA non-fatal adverse outcomes
EXHIBIT B
RISK MODELS: UNDER DEVELOPMENT OR DEVELOPED BUT NOT YET PUBLISHED:
- - Stroke associated with CABG surgery
- - Mediastinitis/sternal dehiscence associated with CABG surgery
- - Mortality associated with aortic valve surgery
- - Long-term survival associated with CABG surgery
- - Length of stay: CABG, PTCA
- - Long-term survival associated with PTCA procedures
- - Functional health status and symptom status following revascularization
DELIVERY SCHEDULE
The data sets specified in the contract are about 60 megabytes of data. We will
create transport files under SAS 6.08 on Dartmouth's VAX running VMS 6.1 and
create an unlabeled ASCII 9 track tape for the initial transfer of data to
APACHE. These data will be delivered to APACHE Medical Systems by June 1, 1995.
Future data transfer will occur annually, on or around June 1. We will create
SAS transport files of the new records only and either create an 8 mm tar format
tape under IBM AIX 3.* for APACHE or place the data in an area accessible to
APACHE via ftp.
<PAGE> 1
EXHIBIT 11.1
APACHE MEDICAL SYSTEMS, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
YEAR ENDED THREE MONTHS
12/31/95 3/31/96
---------- ------------
<S> <C> <C>
Income applicable to common shares:
Net loss...................................................... $(3,807,585) $ (951,173)
Increase in earnings resulting from conversion of convertible
debt(3).................................................... 154,333 77,500
----------- ----------
Loss applicable to common shares...................... $(3,653,252) $ (873,673)
=========== ==========
Weighted average common shares outstanding:
Weighted average number of common shares outstanding(1)....... 1,075,458 1,075,575
Assumed conversion of preferred shares........................ 3,335,547 3,350,932
Assumed conversion of convertible debt(3)..................... 122,257 122,257
Cheap stock options and warrants(2)........................... 77,117 77,117
----------- ----------
Total weighted average common shares.................. 4,610,379 4,625,881
=========== ==========
(Loss) per common share......................................... $ (.79) $ (.19)
=========== ==========
</TABLE>
- ---------------
(1) After considering the 1-for-2.86 reverse stock split in conjunction with the
offering.
(2) Pursuant with Securities and Exchange Commission Staff Accounting Bulletin
No. 83, all common and common stock equivalent shares issued during the
twelve-month period prior to the filing of the initial public offering, even
when anti-dilutive, have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and the
expected initial public offering price of $13.00 per share.
(3) Assumes the conversion took place at January 1, 1995, or the date of
issuance of the convertible security if later.
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
APACHE Medical Systems, Inc.
The audits referred to in our report dated March 22, 1996, included the related
consolidated financial statement schedule for each of the years in the three
year period ended December 31, 1995, included in the registration statement.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein and to the references to
our Firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
KPMG Peat Marwick LLP
McLean, Virginia
June 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 4,035,787 2,626,806
<SECURITIES> 0 0
<RECEIVABLES> 1,610,759 2,392,641
<ALLOWANCES> 190,800 190,800
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,742,902 5,121,781
<PP&E> 2,887,115 2,893,073
<DEPRECIATION> 1,496,114 1,654,462
<TOTAL-ASSETS> 7,909,321 7,085,860
<CURRENT-LIABILITIES> 4,224,759 4,358,568
<BONDS> 1,078,687 1,114,001
20,731,878 21,029,333
0 0
<COMMON> 30,758 30,762
<OTHER-SE> (18,343,192) (19,628,139)
<TOTAL-LIABILITY-AND-EQUITY> 7,909,321 7,085,860
<SALES> 7,024,105 1,258,700
<TOTAL-REVENUES> 7,091,235 1,277,575
<CGS> 0 0
<TOTAL-COSTS> 2,866,055 732,949
<OTHER-EXPENSES> 7,549,875 2,155,195
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 482,890 38,974
<INCOME-PRETAX> (3,807,585) (1,649,543)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,807,585) (1,649,543)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,807,985) (1,649,543)
<EPS-PRIMARY> (0.79) (0.19)
<EPS-DILUTED> (0.79) (0.19)
</TABLE>
