<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SIMIONE CENTRAL HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8082 22-3209241
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
6600 POWERS FERRY ROAD
ATLANTA, GEORGIA 30339
(770) 644-6500
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------------
JAMES A. TRAMONTE, ESQ.
GENERAL COUNSEL AND SECRETARY
SIMIONE CENTRAL HOLDINGS, INC.
6600 POWERS FERRY ROAD
ATLANTA, GEORGIA 30339
(770) 644-6500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD H. MILLER, ESQ. JOHN J. EGAN III, ESQ.
MARK A. LOEFFLER, ESQ. GOODWIN, PROCTER & HOAR LLP
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP TWENTY-FOURTH FLOOR
SIXTEENTH FLOOR EXCHANGE PLACE
191 PEACHTREE STREET, N.E. BOSTON, MASSACHUSETTS 02109-2881
ATLANTA, GEORGIA 30303 (617) 570-1000
(404) 572-6600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), 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 statement 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value..... 3,220,000 $13.00 $41,860,000 $12,685
======================================================================================================================
</TABLE>
(1) Includes 420,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 and based on the
average of the bid and asked prices of the Registrant's Common Stock as of
April 15, 1997. The proposed maximum offering price per share has been
adjusted to reflect the Registrant's proposed 1-for-2 reverse stock split.
---------------------
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.
================================================================================
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED APRIL 21, 1997
PROSPECTUS
2,800,000 SHARES
[LOGO]
SIMIONE CENTRAL HOLDINGS, INC.
COMMON STOCK
Of the 2,800,000 shares of Common Stock offered hereby, 1,950,000 shares
are being sold by the Company and 850,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The Common Stock of the Company is quoted on the OTC Bulletin Board, a
service provided by Nasdaq (the "OTC Bulletin Board"), under the symbol SCHI,
and the closing bid price on April 15, 1997 was $6.25. See "Price Range of
Common Stock and Dividend Policy." The Company has applied to have the Common
Stock approved for quotation on the Nasdaq National Market under the symbol
SCHX.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3).............. $ $ $ $
===============================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) One of the Selling Stockholders has granted to the Underwriters a 30-day
option to purchase up to 420,000 additional shares of Common Stock solely to
cover over-allotments, if any. If all such shares are purchased, the total
Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
-----------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
JEFFERIES & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
<PAGE> 3
AVAILABLE INFORMATION
Simione Central Holdings, Inc. (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission"). The
reports and other information filed by the Company with the Commission in
accordance with the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at Seven World
Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at its principal
office in Washington, D.C. at prescribed rates. Such reports, proxy statements
and other information concerning the Company can be inspected at the offices of
the National Association of Securities Dealers, Inc., Reports Section, at 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web
site at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with any amendments or supplements thereto, the "Registration
Statement") relating to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or other document 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 qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
------------------
"InfoMed" is a service mark of the Company. MAPP(TM) is a trademark of the
Company. All other trademarks and tradenames referred to in this Prospectus are
the property of their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus,
and the financial statements and notes thereto.
THE COMPANY
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company is the result
of the merger of Central Health Management Services, Inc. ("CHMS") and InfoMed
Holdings, Inc. ("IMHI") (the "IMHI Acquisition") completed in October 1996. The
Company offers two comprehensive and flexible software solutions which utilize a
core platform of applications and incorporate specialized selected modules,
based on customer-demand, and allow customers to generate and utilize
comprehensive financial, operational and clinical information. The Company's
Shared Resource Solution offers customers an outsourcing opportunity which
incorporates the Company's proprietary NAHC IS system software. Under this
arrangement, the Company operates a data center which stores customer data and
allows them real-time, secure access through a wide area communications network.
The Company's In-House Solution, STAT 2, offers similar functionality, but is
licensed to customers for use on their own computer systems. In addition to
these two systems solutions and related software support services, the Company's
home health care consulting services, acquired in January 1996, assist providers
in addressing the challenges of reducing costs, maintaining quality,
streamlining operations and re-engineering organizational structures. The
Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
Historically, the home health care industry has been highly fragmented and
characterized by small, local providers offering a limited range of services.
With the advent of managed care and integrated delivery systems, home health
care providers have had to expand their geographic scope and range of product
and service offerings in order to obtain referrals. As a result of these
developments, the home health care industry has entered into a period of rapid
consolidation. This consolidation, along with measures to address ongoing cost
pressures, has led home health care providers to increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. The Company believes
that many existing home health care information systems are inadequate to
address the changing needs of home health care providers. Generally, these
systems were designed to generate patient billing information and cost reports
for Medicare reimbursement, and, as a result, may be unable to provide the
detailed information required for meaningful business analyses.
As a result of its system and service offerings, the Company believes it is
uniquely positioned to meet the ongoing demands of home health care providers.
The Company's objective is to enhance its position as a leading provider of
solutions to the home health care industry by: (i) leveraging its existing
customer base; (ii) generating recurring revenue; (iii) capitalizing on changing
industry dynamics; (iv) expanding through acquisitions and strategic alliances;
and (v) broadening system and service lines. The Company markets its systems and
services through a direct sales force which consists of two national sales
managers and 11 sales representatives located throughout the United States.
During 1996, the Company had over 500 customers nationwide, comprised of
hospital-based companies, large and small free-standing home health care
providers, alternate-site care organizations, integrated delivery systems and
government-managed organizations, including Columbia/HCA Healthcare Corporation,
Tenet Healthcare Corporation, Home Health First, Mercy Health Services and
Advocate Health System.
The Company's executive offices are located at 6600 Powers Ferry Road,
Atlanta, Georgia 30339, and its telephone number is (770) 644-6500.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 1,950,000 shares
Common Stock offered by the Selling Stockholders... 850,000 shares
Common Stock to be outstanding after the
offering......................................... 7,936,117 shares(1)
Use of proceeds.................................... For general corporate purposes and
working capital, including potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............. SCHX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 2,425 $ 5,208 $ 12,110 $ 13,222 $ 25,995
Costs of net revenues..................... 1,962 4,328 7,694 8,154 14,698
Selling, general and administrative....... 262 810 2,959 3,095 7,037
Research and development.................. 125 276 2,165 2,929 5,677
Amortization and depreciation............. -- -- -- -- 785
Purchased in-process research and
development............................ -- -- -- -- 12,574
Severance and other restructuring
charges................................ -- -- -- -- 1,215
Income (loss) from operations............. 76 (206) (708) (956) (15,991)
Net loss per share(2)..................... $ (3.71)
Weighted average common shares(2)......... 4,288
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,385 $26,319
Working capital (deficit)................................. (1,203) 21,731
Total assets.............................................. 18,776 41,710
Long-term obligations..................................... 2,986 2,986
Shareholders' equity...................................... 4,680 27,614
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding at March 7, 1997. Excludes
approximately 1,460,580 shares of Common Stock reserved for issuance under
the Company's stock option plans and individual stock option grants, of
which approximately 1,419,700 options were issued and outstanding at a
weighted average exercise price of $4.85 and 587,519 shares reserved for
issuance upon the exercise of outstanding warrants at a weighted average
exercise price of $1.86. See "Capitalization," "Management -- Stock Plans,"
"Description of Capital Stock" and Note 12 of Notes to Consolidated
Financial Statements of the Company.
(2) The number of shares used to compute the net income or loss per share
reflects the 2,994,856 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1, 12 and 16 of the Notes to the Consolidated
Financial Statements of the Company.
(3) Adjusted to give effect to the sale of Common Stock offered hereby at an
assumed public offering price of $13.00 per share and the receipt of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
------------------------------
Except as otherwise noted, all information in this Prospectus (i) reflects
a 1-for-2 reverse stock split which is subject to stockholder approval and will
be effected upon effectiveness of this Registration Statement (the "Stock
Split"), (ii) reflects the historical financial information for CHMS, the
acquiror of IMHI for financial reporting purposes, and includes the results of
operations for IMHI only from October 8, 1996, the date upon which the IMHI
Acquisition was consummated, and (iii) assumes no exercise of the Underwriters'
over-allotment option. See "Description of Capital Stock" and "Underwriting."
4
<PAGE> 6
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered hereby.
History of Operating Losses; Uncertain Profitability; Limited Operating
History. The Company incurred a net loss of approximately $16 million for the
year ended December 31, 1996 and has not achieved profitability on a quarterly
or annual basis since the year ended December 31, 1992. There can be no
assurance that any of the Company's business strategies will be successful or
that the Company will be able to achieve consistent revenue growth or
profitability on a quarterly or annual basis. Given the impact of the IMHI
Acquisition and the acquisition of the home health care consulting division of
Simione & Simione CPAs ("Simione & Simione") in January 1996 (the "Simione
Acquisition"), the Company's historical operating results may not be indicative
of future performance. Furthermore, the Company has only been operating its
current mix of businesses for a limited period of time. From its inception until
January 1996, the Company was operated as a subsidiary of Central Health Holding
Company, Inc. ("CHHC"). In addition, the Company has a limited number of
customers for its Shared Resource Solution. Prior to the IMHI Acquisition and
the entering into of various contracts with affiliates of Columbia/HCA
Healthcare Corporation ("Columbia/HCA"), the Company obtained substantially all
of its revenues from affiliates. Moreover, there can be no assurance that the
Company will be able to successfully implement its business strategy or that it
will be able to successfully integrate the businesses acquired or operate those
businesses on a profitable basis. See "-- Risks Associated with Renegotiation
and Renewal of Contracts," "-- Dependence on Major Customers," "The Company,"
"Unaudited Pro Forma Condensed Consolidated Statement of Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Associated with Health Care Reform; Uncertainty in the Home Health
Care Industry. The health care industry is subject to changing political,
economic and regulatory influences that may affect the procurement practices and
operations of home health care organizations. The Company's systems and services
are designed to function within the structure of the health care financing and
reimbursement system currently being used in the United States. The Company
believes that the commercial value and appeal of its systems and services may be
adversely affected if the current health care financing and reimbursement system
were to be materially changed. During the past several years, the United States
health care industry has been subject to an increase in governmental regulation
of, among other things, reimbursement rates, and certain proposals to reform
various aspects of the United States health care system have periodically been
considered by Congress. These proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for the Company's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in the Company's systems and services. The Company cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.
The recent growth in the home health care industry has been accompanied by
both increasing consolidation in the industry and efforts by public and private
payors to impose cost containment measures on the industry. The Company's
business, financial condition and results of operations would be materially
adversely affected if the Company's installed customer base and potential
customer base were materially reduced as a result of consolidation, compounded
by the growth in managed care organizations, or if customers deferred purchasing
decisions on information systems or professional services because of concerns
about the impact of consolidation and potential cost containment measures.
Moreover, the enterprises formed as a result of consolidation could have greater
bargaining power, which may lead to price erosion of the Company's systems and
services. The failure of the Company to maintain adequate price levels would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, other legislative or market-driven
5
<PAGE> 7
reforms could have unpredictable effects on the Company's business, financial
condition and results of operations. See "Business -- Industry Overview" and
"-- Government Regulation and Health Care Reform."
Risks Associated with Renegotiation and Renewal of Contracts. A
significant number of the Company's contracts with Columbia/HCA provide that the
pricing terms may be renegotiated in the event that the Health Care Financing
Administration ("HCFA") replaces the current cost-based Medicare reimbursement
system for home health care with a Prospective Payment System ("PPS"), providing
for fixed payments per episode of care. The Company derives a substantial amount
of its revenues from the Columbia/HCA contracts. No assurance can be given that
the Company will be able to renegotiate the pricing terms of such contracts on
favorable terms in the event HCFA implements PPS for home health care, nor that
other customers will not seek to renegotiate their contracts. In addition,
implementation of PPS for home health care could have a material adverse impact
on the Company's customers and potential customers and may require the Company
to make pricing concessions in order to maintain its current customer base or
generate new sales of its systems and services. The failure of the Company to
maintain adequate price levels would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
contracts with Columbia/HCA also provide for a reduction in the payments to the
Company in the event and to the extent that such payments are determined not to
be a reimbursable cost under Medicare. In addition, a significant portion of the
Company's revenues are derived from maintenance contracts that are subject to
annual renewal. The loss of a significant amount of the Company's maintenance
contracts or a determination that payments currently made by Columbia/HCA are
not reimbursable could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Customers."
Risks Related to the Columbia/HCA Guaranty. In connection with the
negotiation of various information, support and management services agreements
(the "Columbia Agreements") entered into on November 1, 1996 by and between
Simione Central, Inc., a wholly-owned subsidiary of the Company ("SCI"), and
certain affiliates of Columbia/HCA, Columbia/HCA required that SCI enter into a
guaranty of certain indemnity obligations of the former stockholders of CHHC,
including Mr. Gary M. Bremer, the Company's Chairman of the Board, to those
Columbia/HCA affiliates (the "Guaranty") for potential liabilities relating to
the Central Health Holding Company Employee Stock Ownership Plan Trust (the
"Plan") or its participants, including potential liabilities resulting from the
ongoing investigation of the Plan by the Department of Labor and the Internal
Revenue Service's audit of certain issues related to the Plan. Also on November
1, 1996, the Plan was converted into the Simione Central Holdings, Inc. Profit
Sharing Plan (the "Profit Sharing Plan") and sponsorship of the Plan was
transferred from CHHC to the Company. Under the terms of the Guaranty, SCI
guarantees Columbia/HCA against losses arising from: (i) Plan losses arising
from a fiduciary breach, prohibited transaction or other violation of law
relating to the Plan; or (ii) liabilities related to the Plan which are not paid
by the former stockholders of CHHC other than the Plan but only to the extent
such losses are not recovered by Columbia/HCA through other indemnity provisions
of the stock purchase agreement. Columbia/HCA's other sources of potential
recovery include amounts accrued on CHHC's closing balance sheet at the time of
sale and escrow accounts established for the benefit of Columbia/HCA by the
former stockholders of CHHC. SCI's maximum liability under the Guaranty is
limited to $20 million. Pursuant to the Guaranty, SCI agreed that on each date
that a guaranteed obligation is required to be paid to Columbia/HCA, SCI shall
grant Columbia/HCA a security interest equal to the amount of the guaranteed
obligation in all of SCI's accounts receivable. SCI also granted to Columbia/HCA
and the parties to the Columbia Agreements the right to offset any liability
arising under the Guaranty against any payments due from such parties to SCI for
information, management and support services. At December 31, 1996, no claims
had been made under the Guaranty and currently the Company does not anticipate
incurring any losses associated with the Guaranty. Any obligations arising under
the Guaranty that must be satisfied by SCI may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"-- Risks Associated with Current Investigation and Audit," "The Company" and
"Certain Transactions."
6
<PAGE> 8
Risks Associated with Current Investigation and Audit. The Plan, for which
the Company is the sponsor, is currently under investigation by the Department
of Labor ("DOL"), and the Internal Revenue Service ("IRS") is also auditing
certain issues relating to the Plan. Neither the DOL nor the IRS has instituted
proceedings against the Company or the Plan. The Company cannot predict whether
any claims will be asserted against it in the future. Any claims or litigation,
with or without merit, can be costly and could result in a diversion of
management's attention. Moreover, any adverse determination could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Risks Related to the Columbia/HCA Guaranty."
Risks Associated with Long Sales and Implementation Cycles. The sales
cycle for home health care information systems is lengthy. The Company's sales
cycle is subject to delays associated with the lengthy approval process that
typically accompanies significant capital expenditures, customer budgeting
cycles and changes in customer budgets, changes or the anticipation of changes
in the regulatory environment affecting home health care organizations, changes
in the customer's strategic information system initiatives, changes in
technology and standards, new product announcements and releases, competing
information system projects within the customer organization, consolidation in
the home health care industry in general, the highly sophisticated nature of the
Company's systems and competition in the market for home health care information
systems. Additionally, during the sales process, the Company expends substantial
time, effort and funds preparing a contract proposal, demonstrating the system,
arranging visits to customer reference sites and negotiating the contract. For
these and other reasons, the Company's sales cycle is lengthy and the Company
does not have the ability to predict when or if the sales process with a
prospective customer will result in a signed contract. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Backlog."
The time required to implement the Company's systems can vary significantly
depending on the needs and skill sets of its customers. Implementation of the
Company's Shared Resource and In-House Solutions typically requires 3 to 12
months depending on a number of factors, including the size of the customer, the
system licensed, the legacy systems to be interfaced, the customer's current
hardware and network infrastructure and information systems expertise, the
degree of customization requested by the customer and the customer's
installation schedule. This period may be longer if unforeseen technical,
integration or other problems arise during the implementation process, if the
Company has insufficient trained implementation personnel to handle several
installations simultaneously or if a customer decides to delay the
implementation schedule. If implementation is delayed, then payments and revenue
recognition will also be delayed. Any failure by the Company to implement its
home health care information systems on a timely basis could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Backlog."
Risks Associated with Acquisitions. The Company has, in part, expanded its
systems and services through acquisitions, such as the IMHI Acquisition and the
Simione Acquisition. There is significant competition for acquisition
opportunities in the health care information systems industry, which may
intensify and increase the cost of capitalizing on such opportunities. The
Company may compete for acquisition opportunities with other companies that have
significantly greater financial and management resources, larger installed
customer bases, better name recognition, and greater sales and marketing
capabilities. Acquisitions also involve numerous risks, including the
difficulties in the assimilation of operations, systems and services, 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 limited or no direct expertise and the potential loss of key
employees from the acquired companies. In addition, acquisitions may involve
potentially dilutive issuances of equity securities, the expenditure of
significant funds and the incurrence of significant charges associated with the
amortization of goodwill or other intangible assets, write-offs of purchased
in-process research and development costs and/or future write-downs of the
recorded values of assets acquired, any of which could adversely affect the
Company's business, financial condition and results of operations. The Company
currently has no agreements, commitments or understandings with respect
7
<PAGE> 9
to any such acquisitions, and there can be no assurance that the Company will be
able to find suitable acquisition candidates or to successfully negotiate and
consummate any such acquisitions. There can also be no assurance that any
acquisition will result in long-term benefits to the Company or that management
will be able to manage effectively the resulting business. See "The Company" and
"Business -- Strategy."
Risks Related to Management of Growth. The Company is currently
experiencing a period of rapid growth and expansion which could place a
significant strain on the Company's personnel and resources. The Company's
growth has resulted in an increase in the level of responsibility for both
existing and new management personnel. The Company has sought to manage its
current and anticipated growth through the recruitment of additional management
and technical personnel and the implementation of internal systems and controls.
At the present time, the Company is in the process of integrating its accounting
functions and converting certain of IMHI's management information systems. The
failure to manage growth effectively could adversely affect the Company's
business, financial condition and results of operations. See
"Business -- Strategy" and "Management."
Risks Associated with a Highly Competitive Market. Competition in the
market for home health care information systems and services is intense and is
expected to increase. The Company believes that the primary factors affecting
competition are system performance and reliability, customer support, service,
system flexibility and ease of use, pricing, potential for providing
enhancements, reputation and financial stability. The Company's competitors
include other providers of home health care information systems and services,
management companies and home health care consulting firms. Furthermore, other
major health care information companies not presently offering home health care
information systems, or major information system companies not currently in the
health care industry, could develop the technology and enter the Company's
markets. The Company believes its most significant competitors are Delta Health
Systems (owned partially by Shared Medical Systems Corp.), Springfield Products
Group (formerly known as Management Software, Inc. and owned by HBO & Co.),
Patient Care Technologies, Inc. (partially owned by Meditec), Home Care
Information Systems, Inc. (recently acquired by Medic Computer Systems, Inc.),
and the home health care management division of Olsten Corp. Increased
competition could result in price reductions, reduced gross margins, and loss of
market share, any of which could materially adversely affect the Company's
business, financial condition and results of operations. In addition, many of
the Company's competitors and potential competitors have significantly greater
financial, technical, product development, marketing and other resources and
market recognition than the Company. Many of the Company's competitors also
currently have, or may develop or acquire, substantial installed customer bases
in the home health care industry. As a result of these factors, the Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their systems and services than the Company.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect its business, financial
condition and results of operations. See "Business -- Competition."
Risks Related to Government Regulation. The confidentiality of patient
records and the circumstances under which such records may be released for
inclusion in databases maintained on the Company's systems are subject to
substantial regulation by state governments and certain federal legislation
governing specialized medical information and records. Although compliance with
these laws and regulations is principally the responsibility of the hospital,
physician or other home health care provider with access to the Company's
information systems, regulations governing patient confidentiality rights are
evolving rapidly. For example, the Health Insurance Portability and
Accountability Act of 1996 includes provisions directing the Secretary of the
Department of Health and Human Services to adopt standards governing the
electronic transmission of data in connection with a number of transactions
involving health information, including submission of health claims. These
standards are to cover security measures and safeguards with respect to health
information, as well as standardization of data, assignment of identifiers and
authentication of electronic signatures. Additional legislation governing the
dissemination of medical record information has been proposed at both
8
<PAGE> 10
the state and federal level. This legislation may require holders of such
information to implement security measures, which may be difficult to implement
and costly to the Company. There can be no assurance that changes to state or
federal laws and regulations will not materially restrict the ability of home
health care providers to submit information from patient records to the
Company's systems or impose requirements which are incompatible with the
Company's current systems. Any such changes would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Government Regulation and Health Care Reform."
The United States Food and Drug Administration (the "FDA") is responsible
for assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer products are subject to regulation when
they are used or are intended to be used in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the body. Although the
Company believes that its systems are not subject to FDA regulation, the FDA
could determine in the future that predictive applications of the Company's
systems could make them clinical decision tools subject to FDA regulation.
Compliance with FDA regulations could be burdensome, time consuming and
expensive. The Company also could become subject to future legislation and
regulations concerning the manufacture and marketing of medical devices and
health care information systems. These could increase the costs and time
necessary to market new systems and could affect the Company in other respects
not presently foreseeable. The Company cannot predict the effect of possible
future legislation and regulation. See "Business -- Government Regulation and
Health Care Reform."
Risks Associated with Potential Variability in Quarterly Operating
Results. The Company's quarterly revenues and operating results may vary
significantly as a result of a variety of factors, including: the Company's long
sales and implementation cycles; the demand for the Company's systems and
services; the number, timing and significance of announcements and releases of
system upgrades by the Company and its competitors; the termination of, or a
reduction in, offerings of the Company's systems and services; the loss of
customers due to consolidation in the home health care industry; the timing of
revenue recognition; the investments by the Company in marketing, sales,
research and development, and administrative personnel necessary to support the
Company's anticipated operations; software defects and other system quality
factors; and general economic conditions. As a result of the varying size of
each customer contract, combined with the Company's method of revenue
recognition, quarterly results are likely to be significantly affected by small
changes in the number of customer contracts in process during a particular
quarter. The Company may experience delays in recognizing revenue in the future,
particularly considering the complexity and large scale of implementation of the
Company's systems. See "-- Risks Associated with Long Sales and Implementation
Cycles." In addition, since the purchase of the Company's systems generally
involves a significant commitment of capital, any downturn in any potential
customer's business or the economy in general, including changes in the home
health care market, could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the Company's
operating expense levels are relatively fixed and, to a large degree, are based
on anticipated revenues. If revenues are below expectations, results of
operations are likely to be disproportionately affected. For these reasons, the
Company believes that period to period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Related to Dependence on Principal Products; New System Development,
Acceptance and Enhancement. The Company presently derives a significant portion
of its revenue from its Shared Resource Solution and its In-House Solution.
Although the Company intends to broaden its offerings through the development
and introduction of new solutions and possible acquisitions in the future, there
can be no assurance of the Company's success in this regard, and any factor
adversely affecting the market for either the Shared Resource Solution or the
In-House Solution would have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, since the
market for the Company's systems is characterized by rapid technological
progress and changing customer needs, the Company believes that continued growth
and future success will depend
9
<PAGE> 11
on the successful introduction of new solutions and further enhancements to
existing systems. There can be no assurance that the Company will be able to
enter into new sales contracts at the current rate or to maintain the current
pricing for its systems. There can be no assurance that the Company's
enhancements will be completed, released or successfully marketed. Because of
the long development and sales cycles for new systems and enhancements, the
failure to complete development or secure market acceptance of the Company's
enhancements could have a material adverse effect on the Company's business,
financial condition and results of operations. See " -- Risks Associated with
Long Sales and Implementation Cycles" and "Business -- Systems and Services."
Risks Related to Dependence on Certain Key Personnel. The Company depends
to a significant extent on key management, technical and marketing personnel.
The Company's growth and future success will depend in large part on its ability
to attract, motivate and retain highly qualified personnel, including management
personnel of acquired companies. Competition for such personnel in the software
and information systems industries is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
The Company does not have employment agreements with any of its executive
officers or key employees other than Mr. Gary M. Bremer, the Company's Chairman
of the Board, and Mr. William J. Simione, Jr., the Company's Vice Chairman of
the Board and Executive Vice President. The Company does not have "key person"
life insurance on any of its personnel. The loss of key personnel, particularly
the loss of more than one member of the Company's executive management team, or
the inability to hire or retain qualified personnel, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
Dependence on Major Customers. For the year ended December 31, 1996,
Columbia/HCA affiliates accounted for approximately 22% of the Company's net
revenue. The Company presently anticipates that Columbia/HCA will account for a
substantial portion of the Company's revenue for the fiscal year ending December
31, 1997. The loss of any of the Columbia/HCA affiliates as a customer or any
one or more of the Company's other large customers could have a material adverse
effect on the Company's business, financial conditions and results of
operations. The federal government is currently conducting an extensive
investigation of Columbia/HCA and its home health care referral and
reimbursement practices. Any adverse actions or determinations arising out of
such investigation could also have a material adverse impact on the Company's
business, financial condition and results of operations. See "The Company" and
"Business -- Customers."
Dependence on Relationship with IBM. The Company's Shared Resource
Solution utilizes a data center and data communications provided by Integrated
Systems Solutions Corporation ("IBM Global Services"), a subsidiary of
International Business Machines Corporation ("IBM"). The Company has
historically derived substantial revenues and expects to derive a substantial
portion of its future revenues from its Shared Resource Solution. In addition,
the Company recently entered into a marketing agreement with IBM pursuant to
which IBM will market the Company's Share Resource Solution to IBM's customers.
The Company's future results, therefore, depend on continued market acceptance
of IBM Global Services' products and services, the technical support given by
IBM Global Services and the financial success of IBM. A termination of the
Company's contract with IBM Global Services or any reduction in demand for IBM
Global Services' products and services or its ability to deliver quality
products and support services on a timely basis would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's contract with IBM Global Services for the support of the Shared
Resource Solution is non-exclusive, with a ten year term that expires on
December 31, 2005, and can be terminated by either party under certain
circumstances. There can be no assurance that the contract will be renewed or,
if renewed, that the contract will then be on terms favorable to the Company.
See "Business -- Strategy," "-- Systems and Services" and "-- Sales and
Marketing."
Dependence on Proprietary Software. The Company's success is dependent to
a significant extent on its ability to protect its proprietary rights to the
software incorporated in its systems. The Company depends upon a combination of
trade secret, copyright and trademark laws, license agreements,
10
<PAGE> 12
nondisclosure and other contractual provisions and various security measures to
protect its proprietary rights. There can be no assurance that the legal
protections afforded to the Company or the precautions taken by the Company will
be adequate to prevent misappropriation of the Company's technology. In
addition, these protections do not prevent independent third-party development
of functionally equivalent or superior technologies, systems or services, or the
obtaining of a patent with respect to the Company's technology by third parties.
Any infringement or misappropriation of the Company's proprietary software could
have a material adverse effect on the Company's business, financial condition
and results of operations.
As the number of home health care software systems increases and the
functionality of these systems further overlap, health care information systems
may increasingly become subject to infringement claims. Third parties have
asserted trademark and patent infringement claims against the Company. Although
there has been no litigation with respect to such claims, there can be no
assurance that the Company will not be subject to litigation in the future or
additional infringement claims. The Company believes that its current systems
and products do not infringe on the patent or trademark rights of any third
parties. There has, however, been substantial litigation and uncertainty
regarding copyright, patent and other intellectual property rights involving
computer software companies and there can be no assurance that the Company will
prevail in any infringement litigation brought against it. Any claims or
litigation, with or without merit, could be costly and could result in a
diversion of management's attention which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Adverse determinations in such claims or litigation may require the Company to
cease selling certain systems or products, obtain a license and/or pay damages,
any of which could also have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Proprietary Rights and Product Protection."
Risk Related to Dependence on Third Party Licenses. Certain principal
components of the Company's systems are licensed from third parties. While the
Company believes that the terms of such licenses are adequate to protect the
Company's investments in its systems, any factor that adversely affects the
Company's ability to retain the benefits of such licenses could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, in the event of termination or non-renewal of such
licenses, there can be no assurance that the Company will be able to enter into
similar licenses on equivalent terms. See "Business -- Technology."
Risk of System Defects; Failure to Meet Performance Criteria. Systems as
complex as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although the
Company conducts extensive testing, the Company has in the past released systems
that contain defects, has discovered software errors in certain of its
enhancements and applications after their introduction and, as a result, has
experienced delays in recognizing revenues and incurred higher than expected
operating expenses during certain periods in order to correct these errors.
Moreover, the Company's systems are used in a home health care setting to
collect and analyze home health care information used in the treatment of
patients as well as billing and collection. As a result, the Company expects
that its customers and potential customers have a greater sensitivity to system
defects than customers for software products generally. In addition, some
customer contracts may provide that the system is warranted to meet certain
performance criteria concerning response time and system availability. Failure
of a customer's system to meet these performance criteria could constitute a
material breach under such contracts, and could delay or impede revenue
recognition and require that the Company incur additional expense in order to
make the system meet these performance criteria. There can be no assurance that,
despite testing by the Company and by current and potential customers, errors or
performance failures will not occur in new product enhancements or applications
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, diversion of development resources to correct such
errors or failures, increased service and warranty costs, or claims by customers
against the Company, any of which could have a material adverse effect upon the
Company's business, financial condition and results of operations.
11
<PAGE> 13
Risks Associated with Product Liability. The Company's systems are used in
connection with the treatment of patients. Any failure by the Company's systems
to provide accurate, reliable and timely information, or to adequately protect
the confidentiality of the information, could result in claims against the
Company. The Company maintains insurance to protect against claims associated
with the use of its systems, but there can be no assurance that its current
insurance coverage would adequately cover any claims asserted against the
Company or that such insurance will continue to be available to the Company on
reasonable terms or at all. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. Even
unsuccessful claims could result in the Company incurring significant ligation
expense, diversion of management time and resources or damage to the Company's
reputation. There can be no assurance that the Company will not be subject to
product liability claims that will result in liability in excess of its
insurance coverage, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the future
at commercially reasonable rates.
Risks Associated with Control by Directors and Executive Officers. Upon
completion of this offering, the directors and executive officers of the
Company, and their affiliates, as a group, will beneficially own approximately
35% of the outstanding shares of Common Stock. As a result, these stockholders
acting together would be able to exert considerable influence over the election
of the Company's directors and the outcome of most corporate actions requiring
stockholder approval, such as certain amendments to the Company's Certificate of
Incorporation. Additionally, the directors and executive officers will have
significant influence over the policies and operations of the Company's
management and the conduct of the Company's business. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change of
control of the Company and consequently could affect the market price of the
Common Stock. In addition, pursuant to an agreement among the Company and
various stockholders, the Company must use its reasonable efforts to cause the
election to the Board of Directors of two designees of certain five percent or
more holders of the Common Stock of the Company. See "Management," "Principal
and Selling Stockholders" and "Certain Transactions."
Potential Effect of Anti-Takeover Provisions. The Company's Board of
Directors has the authority to issue shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. In addition, certain
provisions of Delaware law applicable to the Company could have the effect of
delaying, deterring or preventing a change in control of the Company. These
provisions, and certain other provisions of the Company's Bylaws, could have the
effect of delaying or preventing a tender offer for the Common Stock or other
changes of control or management of the Company, which could adversely affect
the market price of the Common Stock. See "Description of Capital Stock."
Risks of Sales of Common Stock Upon Expiration of Rule 144 Holding Period;
Risk of Registration Rights. Sales of substantial amounts of Common Stock in
the public market after this offering could adversely affect the prevailing
market price of the Common Stock. Upon completion of this offering, there will
be 7,936,117 shares of Common Stock of the Company outstanding (exclusive of
shares covered by outstanding stock options or warrants and assuming no exercise
of the Underwriters' over-allotment option). Of these shares, approximately
1,983,220 shares outstanding as of March 7, 1997 and the 2,800,000 shares sold
in this offering will be freely transferrable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any shares
held by or for the account of an "affiliate" of the Company, as that term is
defined in Rule 144, as amended effective April 29, 1997 ("Rule 144"),
promulgated under the Securities Act, or by an individual or entity subject to a
contractual restriction on resale. Approximately 3,152,897 of the remaining
shares of Common Stock
12
<PAGE> 14
are held by existing stockholders and are "restricted securities" as that term
is defined in Rule 144 under the Securities Act (the "Restricted Securities").
Approximately 3,083,356 shares of the Restricted Securities will become eligible
for sale on October 9, 1997, subject to compliance with the volume limitations
and other restrictions of Rule 144 and subject to the expiration of a lock-up
agreement (the "Lock-Up Agreement") which expires 90 days from the date of this
Prospectus. Hambrecht & Quist LLC may in its sole discretion and at any time
without notice, release all of or any portion of the securities subject to the
Lock-Up Agreement. In addition, the Company sponsored Profit Sharing Plan will
own 1,374,008 shares of Common Stock after this offering (assuming no exercise
of the Underwriters' over-allotment option), which shares are required to be
distributed by the trustee of the Profit Sharing Plan to participants or sold by
the trustee to fund cash distributions to participants. As of March 7, 1997, the
Company has granted certain securityholders, including the Profit Sharing Plan,
registration rights, including demand rights, with respect to 4,771,500
currently outstanding shares of Common Stock, and 1,905,758 shares of Common
Stock issuable upon exercise of outstanding warrants and stock options, pursuant
to outstanding warrant and registration rights agreements. See "Description of
Capital Stock -- Registration Rights." If the Company were required to include
shares held by holders of registration rights or by the Profit Sharing Plan in a
Company-initiated registration, or if the Profit Sharing Plan's trustee sold or
distributed shares of the Company's Common Stock to Profit Sharing Plan
participants, the sale of such shares could have a material adverse effect on
the market price of the Common Stock. In addition, as of March 7, 1997, the
Company has reserved approximately 1,460,580 shares of Common Stock for issuance
pursuant to the Company's stock option plans and individual stock option grants,
of which approximately 1,419,700 shares are represented by currently outstanding
options. A total of 587,519 shares of Common Stock are also reserved for
issuance upon the exercise of outstanding warrants. See "Shares Eligible for
Future Sale."
Possible Volatility of Stock Price. Factors such as the announcement of
acquisitions or the introduction of new systems by the Company or its
competitors, quarter to quarter variations in the Company's operating results
and changes in earnings estimates by analysts, governmental regulatory action,
general trends and market conditions in the technology, health care and emerging
growth company sectors, as well as other factors, may have a significant impact
on the market price of the Common Stock. Moreover, trading volumes in the
Company's Common Stock have been low historically and could exacerbate price
fluctuations in the Common Stock. Further, the stock market has on occasion
experienced extreme price and volume fluctuations, which have particularly
affected the market prices of the equity securities of many technology companies
and which have often been unrelated to the operating performance of such
companies. These broad market fluctuations may materially and adversely affect
the market price of the Common Stock. See "Price Range of Common Stock and
Dividend Policy."
Absence of Dividends. The Company has never declared or paid any cash
dividends on its Common Stock. The Company currently intends to retain future
earnings, if any, for future growth and does not anticipate paying any cash
dividends in the foreseeable future. See "Price Range of Common Stock and
Dividend Policy."
Risks Associated with the Control of Use of Proceeds by the Board of
Directors and Management. Of the Company's approximately $22.9 million in net
proceeds from this offering, the Company expects to use substantially all the
proceeds for unspecified general corporate purposes and working capital,
including potential strategic acquisitions. Accordingly, management and the
Board of Directors of the Company will have complete discretion as to the
application of substantially all of the funds raised in this offering. See
" -- Risks Associated with Control by Directors and Executive Officers" and "Use
of Proceeds."
Risks Arising from Substantial Dilutive Effect of the Offering. Purchasers
of the shares of Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of their Common
Stock. See "Dilution."
13
<PAGE> 15
THE COMPANY
Central Health Management Services, Inc. ("CHMS") was incorporated in
September 1991 as a wholly-owned subsidiary of Central Health Holding Company,
Inc. ("CHHC"), a home health care provider, to provide information and
management support services to home health care providers. Central Health
Services, Inc. ("CHS"), also a wholly-owned subsidiary of CHHC, provided similar
services to home health care agencies owned by CHHC. On January 1, 1996, CHHC
transferred to CHMS at book value the assets and employees related to CHS's
information and certain clinical and financial support services. Accordingly,
the consolidated financial statements contained herein give effect to the
reorganization of these entities under common control and reflect the combined
operating results of CHMS and the transferred CHS operations. On January 17,
1996, CHHC completed a pro-rata distribution of the outstanding common stock of
CHMS to the stockholders of CHHC. On January 18, 1996, CHMS amended its articles
of incorporation to change its name to Simione Central Holding, Inc. For
purposes hereof, however, Simione Central Holding, Inc. will continue to be
referred to herein as CHMS.
Subsequent to the distribution, CHMS began to actively pursue a strategy
designed to enhance and expand the business solutions it could offer to home
health care providers. In January 1996, CHMS acquired the home health care
consulting division of Simione & Simione, CPAs ("Simione & Simione"), a provider
of consulting services to the home health care industry with significant
expertise in strategic planning, Medicare compliance and operational
re-engineering. On October 8, 1996, CHMS and InfoMed Holdings, Inc. ("IMHI"), a
publicly traded provider of information solutions for home health care
providers, merged in a transaction that was accounted for as a reverse
acquisition for financial reporting purposes. In connection with the merger,
IMHI issued approximately 4.0 million shares of its common stock in exchange for
all the outstanding common stock of CHMS, and the former stockholders of CHMS
thereby acquired control of IMHI. As a result, CHMS is considered the acquiring
company, and the historical financial statements of CHMS became the historical
financial statements of IMHI and include the results of operations of IMHI only
from the effective date of the merger. However, under the rules and regulations
of the Commission, IMHI is deemed to continue as the registrant.
Prior to the merger, shares of IMHI common stock traded on the OTC Bulletin
Board under the symbol "IMHI." Effective December 19, 1996, IMHI changed its
name to Simione Central Holdings, Inc. (the "Company") and changed its stock
symbol to "SCHI" effective December 24, 1996.
14
<PAGE> 16
USE OF PROCEEDS
Assuming a public offering price of $13.00 per share, the net proceeds to
the Company from the sale of the 1,950,000 shares of Common Stock offered by the
Company hereby, after deducting the underwriting discounts and estimated
offering expenses payable by the Company, are estimated to be approximately
$22.9 million. The Company intends to use the net proceeds from this offering
for general corporate purposes and working capital, including potential
strategic acquisitions in order to expand the Company's system and service
offerings. There can be no assurance that any acquisitions will be made, and the
Company has no agreements or commitments with respect to any acquisition.
Pending such uses, the net proceeds will be invested in short-term, investment
grade securities, certificates of deposits or obligations issued or guaranteed
by the United States government. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock of the Company has been traded on the OTC Bulletin Board
under the symbol SCHI since December 24, 1996, and prior thereto traded on the
OTC Bulletin Board under the symbol IMHI from December 21, 1995 to December 24,
1996. Prior to December 21, 1995, the Common Stock traded on the Nasdaq SmallCap
Market under the symbol IMHI. The table below sets forth the reported quarterly
high and low sales prices for the Common Stock on the Nasdaq SmallCap Market for
the period January 1, 1995 to December 20, 1995, and the quarterly high and low
bid prices for the Common Stock on the OTC Bulletin Board for the period
December 21, 1995 to December 31, 1996, and also takes into account the change
from the Nasdaq SmallCap Market to the OTC Bulletin Board. In addition,
over-the-counter prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1995
1st Quarter............................................... $2.63 $2.00
2nd Quarter............................................... 2.63 1.50
3rd Quarter............................................... 2.25 .88
4th Quarter............................................... 1.32 1.00
1996
1st Quarter............................................... 1.75 .75
2nd Quarter............................................... 3.25 .88
3rd Quarter............................................... 5.38 1.88
4th Quarter............................................... 6.63 4.00
1997
1st Quarter............................................... 7.75 4.25
2nd Quarter (through April 15, 1997)...................... 6.25 5.88
</TABLE>
On April 15, 1997, the last reported closing bid price of the Common Stock
was $6.25 per share. As of March 7, 1997, there were approximately 120 holders
of record of the Common Stock. The information set forth above does not reflect
the Stock Split.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, for
future growth and does not anticipate paying any cash dividends in the
foreseeable future.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 as adjusted to reflect the sale by the Company of the
1,950,000 shares of Common Stock offered hereby at an assumed offering price of
$13.00 per share, and the receipt by the Company of net proceeds therefrom of
approximately $22.9 million. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable and capital lease obligations, less current
portion................................................... $ 2,986 $ 2,986
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized; no shares issued or outstanding............ -- --
Common Stock, $.001 par value; 20,000,000 shares
authorized; 5,952,166 shares issued and outstanding;
7,902,166 shares issued and outstanding as
adjusted(1)............................................ 6 8
Additional paid-in-capital................................ 23,216 46,148
Stock subscription receivable............................. (850) (850)
Accumulated deficit....................................... (17,692) (17,692)
------------ ------------
Total shareholders' equity............................. 4,680 27,614
------------ ------------
Total capitalization................................. $ 7,666 $ 30,600
============ ============
</TABLE>
- ------------------------------
(1) As of December 31, 1996, excludes: (i) approximately 1,406,637 additional
shares of Common Stock issuable upon the exercise of outstanding options at
a weighted average exercise price of $4.58, of which 960,494 shares are
issuable under presently exercisable options at a weighted average exercise
price of $3.02; and (ii) 587,519 shares issuable upon exercise of
outstanding warrants at a weighted average exercise price of $1.86. See
"Management -- Stock Plans," "Description of Capital Stock" and Notes to
Consolidated Financial Statements of the Company.
16
<PAGE> 18
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
their Common Stock from the assumed offering price. As of December 31, 1996, the
Company had a net tangible deficit of approximately $(1,243,057), or $(.21) per
share of Common Stock. "Net tangible book value per share" represents the amount
of total tangible assets, less total liabilities, divided by the total number of
shares of Common Stock outstanding. Without taking into account any other change
in the net tangible deficit after December 31, 1996, other than to give effect
to the receipt by the Company of the net proceeds from the sale of the shares of
Common Stock offered by the Company hereby at the assumed offering price, the
pro forma net tangible book value as of December 31, 1996 would have been
approximately $21,690,881, or $2.74 per share. This represents an immediate
increase in net tangible book value of $2.95 per share to existing stockholders
and an immediate dilution of $10.26 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $13.00
Net tangible deficit per share before this offering.... $(0.21)
Increase in net tangible book value per share
attributable to new investors......................... 2.95
------
Pro forma net tangible book value per share after this
offering.................................................. 2.74
------
Dilution per share to new investors......................... $10.26
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, the differences between existing stockholders (including 268,164 shares
purchased by an existing stockholder for which the consideration is an
outstanding note receivable for $850,000) and purchasers of shares in the
offering (at the assumed offering price of $13.00) with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 5,952,166 75.3% $23,227,550 47.8% $ 3.90
New investors............. 1,950,000 24.7 25,350,000 52.2 13.00
--------- ---- ----------- ----
Total........... 7,902,166 100% $48,577,550 100%
========= ==== =========== ====
</TABLE>
The computations in the tables above exclude an aggregate of 1,994,156
shares of Common Stock issuable upon the exercise of outstanding stock options
and warrants as of December 31, 1996 as follows: (i) 1,406,637 shares issuable
upon the exercise of outstanding stock options at a weighted average exercise
price of $4.58 per share, of which 960,494 shares are issuable under exercisable
options at a weighted average exercise price of $3.02; and (ii) 587,519 shares
issuable upon the exercise of outstanding warrants at a weighted average
exercise price of $1.86 per share. To the extent that these options and warrants
are exercised, there will be further dilution to new investors. See
"Capitalization," "Management -- Stock Plans" and Note 12 of Notes to
Consolidated Financial Statements of the Company.
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1996 has been prepared to reflect the
IMHI Acquisition as if the acquisition had occurred on January 1, 1996. The
unaudited pro forma condensed consolidated statement of operations is based on
the audited consolidated financial statements of the Company for the year ended
December 31, 1996 and the unaudited results of operations of IMHI from January
1, 1996 to October 8, 1996, as adjusted by the pro forma adjustments described
below using estimates and certain assumptions that management deems appropriate.
The unaudited pro forma condensed consolidated statement of operations does
not purport to be indicative of actual results that would have been achieved had
the IMHI Acquisition actually been completed as of January 1, 1996, and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- --------------------------
IMHI
THE COMPANY JAN. 1, 1996
YEAR ENDED TO OCTOBER 8, 1996
DEC. 31, 1996 (UNAUDITED) ADJUSTMENTS(1) COMBINED
------------- ------------------ -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Information services................ $ 14,849 $5,714 $ 20,563
Systems............................. 459 3,066 3,525
Support and consulting services..... 10,687 -- 10,687
-------- ------- ------ --------
Total net revenues................ 25,995 8,780 34,775
Costs and expenses:
Costs of information services....... 8,258 2,009 10,267
Costs of systems.................... 346 329 675
Costs of support and consulting
services.......................... 6,094 -- 6,094
Selling, general and
administrative.................... 7,037 3,532 10,569
Research and development............ 5,677 1,391 7,068
Amortization and depreciation....... 785 1,134 $ 446 2,365
Purchased in-process research and
development....................... 12,574 -- 12,574
Severance and other restructuring
charges........................... 1,215 -- 1,215
-------- ------- ------ --------
Total costs and expenses.......... 41,986 8,395 446 50,827
-------- ------- ------ --------
Income (loss) from operations.......... (15,991) 385 (446) (16,052)
Other income (expense):
Interest expense.................... (115) -- (115)
Interest and other income........... 207 120 327
-------- ------- ------ --------
Net income (loss)................. $(15,899) $ 505 $ (446) $(15,840)
======== ======= ====== ========
Net loss per share................ $ (3.71) $ (2.76)
======== ========
Weighted average common shares......... 4,288 5,747
======== ========
</TABLE>
- ------------------------------
(1) The pro forma adjustment relating to the IMHI Acquisition includes an
additional nine months of amortization expense related to allocation of
purchase price to intangible assets and a reduction in depreciation expense
related to a reduction in the value of fixed assets acquired.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data in the table as of and for the
years ended December 31, 1993, 1994, 1995 and 1996 are derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data as of and for the year ended December 31, 1992 are derived from
unaudited financial statements but, in the opinion of the Company's management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the information in accordance with generally
accepted accounting principles. The selected consolidated financial data as of
and for the year ended December 31, 1996 include the operating results of
Simione & Simione acquired effective January 1, 1996 and IMHI for the period
October 8, 1996 (the effective date of the IMHI Acquisition) to December 31,
1996. As of and for the years ended December 31, 1992, 1993, 1994 and 1995, the
Company was a subsidiary of CHHC. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Information services.................. $ 721 $1,891 $ 4,875 $ 5,387 $ 14,849
Systems............................... -- -- -- -- 459
Support and consulting services....... 1,704 3,317 7,235 7,835 10,687
------ ------ ------- ------- --------
Total net revenues.................. 2,425 5,208 12,110 13,222 25,995
Costs and expenses:
Costs of information services......... 596 1,343 2,492 2,630 8,258
Costs of systems...................... -- -- -- -- 346
Costs of support and consulting
services............................ 1,366 2,985 5,202 5,524 6,094
Selling, general and administrative... 262 810 2,959 3,095 7,037
Research and development.............. 125 276 2,165 2,929 5,677
Amortization and depreciation......... -- -- -- -- 785
Purchased in-process research and
development......................... -- -- -- -- 12,574
Severance and other restructuring
charges............................. -- -- -- -- 1,215
------ ------ ------- ------- --------
Total costs and expenses............ 2,349 5,414 12,818 14,178 41,986
------ ------ ------- ------- --------
Income (loss) from operations............ 76 (206) (708) (956) (15,991)
Other income (expense):
Interest expense...................... -- -- -- -- (115)
Interest and other income............. -- -- -- -- 207
------ ------ ------- ------- --------
Net income (loss)................... $ 76 $ (206) $ (708) $ (956) $(15,899)
====== ====== ======= ======= ========
Net income (loss) per share(1)...... $ 0.03 $(0.07) $ (0.24) $ (0.32) $ (3.71)
====== ====== ======= ======= ========
Weighted average common shares(1).......... 2,995 2,995 2,995 2,995 4,288
====== ====== ======= ======= ========
DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
----------- ------ ------- ------- --------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................ $1,243 $2,620 $ 463 $ 323 $ 3,385
Working capital (deficit)................ 77 (130) (837) 189 (1,203)
Total assets............................. 1,568 2,907 1,340 1,828 18,776
Long-term obligations.................... -- -- -- -- 2,986
Shareholders' equity (deficit)........... 77 (130) (837) 650 4,680
</TABLE>
- ------------------------------
(1) The number of shares used to compute the net income or loss per share
reflects the 2,994,856 shares issued in the reorganization of the Company on
January 17, 1996. See Notes 1, 12 and 16 of the Notes to the Consolidated
Financial Statements of the Company.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act and are subject to the safe harbor created by such
sections. When used in this Prospectus, the words "believe," "anticipate,"
"estimate," "expect," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. The Company's actual
results may differ significantly from the results discussed in such
forward-looking statements. When appropriate, certain factors that could cause
results to differ materially from those projected in the forward-looking
statements are enumerated. See also "Risk Factors" for additional factors. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
HISTORY
Central Health Management Services, Inc. ("CHMS") was incorporated in
September 1991 as a wholly-owned subsidiary of Central Health Holding Company,
Inc. ("CHHC"), a home health care provider, to provide information and
management support services to home health care providers. Central Health
Services, Inc. ("CHS"), also a wholly-owned subsidiary of CHHC, provided similar
services to home health care agencies owned by CHHC. On January 1, 1996, CHHC
transferred to CHMS at book value the assets and employees related to CHS's
information and certain clinical and financial support services. Accordingly,
the consolidated financial statements contained herein give effect to the
reorganization of these entities under common control and reflect the combined
operating results of CHMS and the transferred CHS operations. On January 17,
1996, CHHC completed a pro-rata distribution of the outstanding common stock of
CHMS to the stockholders of CHHC. On January 18, 1996, CHMS amended its articles
of incorporation to change its name to Simione Central Holding, Inc. For
purposes hereof, however, Simione Central Holding, Inc. will continue to be
referred to herein as CHMS.
In January 1996, CHMS acquired all of the assets of the home health care
consulting division of Simione & Simione, CPAs ("Simione & Simione") for $2
million in cash. The entire purchase price was allocated to goodwill and is
being amortized over a ten year period. Simione & Simione provides consulting
services to the home health care industry with significant expertise in
strategic planning, Medicare compliance and operational re-engineering.
On October 8, 1996, CHMS and InfoMed Holdings, Inc. ("IMHI"), a publicly
traded provider of information solutions for home health care providers, merged
in a transaction that was accounted for as a reverse acquisition for financial
reporting purposes. In connection with the merger, IMHI issued approximately 4.0
million shares of its common stock in exchange for all the outstanding common
stock of CHMS, and the former stockholders of CHMS thereby acquired control of
IMHI. As a result, CHMS is considered the acquiring company, and the historical
financial statements of CHMS became the historical financial statements of IMHI
and include the results of operations of IMHI only from the effective date of
the merger. On December 19, 1996, IMHI changed its name to Simione Central
Holdings, Inc. (the "Company"). The Company accounted for the acquisition using
the purchase method. Accordingly, the $16.8 million purchase price was allocated
to the assets acquired and liabilities assumed based upon their estimated fair
values, with approximately $12.6 million allocated to purchased in-process
research and development, which was written off as of the date of the
acquisition. In addition, approximately $4.2 million of the purchase price was
allocated to certain identifiable intangible assets and will be amortized over
the related assets' useful lives which range from 4 to 11 years.
20
<PAGE> 22
As a result of the change in focus of the Company's business from providing
services to affiliates of CHHC, the Company incurred severance and certain other
restructuring costs totalling approximately $1.2 million in the fourth quarter
of 1996. These expenses primarily relate to the severance of several key
employees and costs incurred in a buyout of an equipment lease no longer useful
to the Company. See "The Company."
OVERVIEW
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed environment. The Company offers two systems
which provide a core platform of software applications and can also incorporate
specialized selected modules to enable customers to generate and utilize
comprehensive financial, operational and clinical information. The Company's
Shared Resource Solution offers customers an outsourcing opportunity which
incorporates the Company's proprietary NAHC IS system software. Under this
arrangement, the Company operates a data center which stores customer data and
allows them real-time, secure access through a wide area communications network.
The Company's In-House Solution, STAT 2, offers similar functionality, but is
licensed to customers for use on their own computer systems. In addition to
these two system solutions, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others. During 1996, the Company had over 500
customers nationwide.
The Company enters into multi-year contracts (generally 3 to 5 years) with
its customers in connection with its Shared Resource Solution and its provision
of agency support services. In general, these contracts provide for the payment
of monthly fees based on the number of billed home care visits made by the
customer. Revenues derived under these contracts are recognized monthly as the
related services are rendered and typically range from several hundred thousand
dollars to several million dollars per year. As a result, the loss of any of
these contracts could have a material adverse impact on the Company's business,
financial condition and results of operations.
The Company sells its In-House Solution, STAT 2, pursuant to non-exclusive
license agreements which provide for the payment of a one-time license fee. In
accordance with SOP 91-1, these revenues are recognized when products are
delivered and the collectibility of fees is probable, provided that no
significant obligations remain under the contract. Revenues derived from the
sale of software products requiring significant modification or customization
are recognized based upon the percentage of completion method. The price of the
Company's In-House Solution varies depending on the number of software modules
licensed and the number of users accessing the system and can range from thirty
thousand dollars to a few million dollars. The Company generally requires
payment of a deposit upon the signing of a customer order as well as certain
additional payments prior to delivery. As a result, the Company's balance sheet
reflects significant customer deposits.
Third party software and computer hardware revenues are recognized when the
related products are shipped. Software support agreements are generally
renewable for one year periods, and revenue derived from such agreements is
recognized ratably over the period of the agreements. The Company has
historically maintained high renewal rates with respect to its software support
agreements. The Company charges for software implementation, training and
technical consulting services as well as management consulting services on an
hourly or daily basis. The price of such services varies depending on the level
and expertise of the related professionals. These revenues are recognized as the
related services are performed.
The Company typically experiences long sales cycles for information systems
and agency support services, which may extend up to one year. In addition, the
implementation period related to its
21
<PAGE> 23
information systems can range from three months to one year. See "Risk
Factors -- Risks Associated with Long Sales and Implementation Cycles."
The Company defines recurring revenues as revenues derived under multi-year
contracts in addition to annual software support agreements. These revenues were
approximately $5.8 million, or 58% of total net revenues, for the three months
ended December 31, 1996 and $7.4 million, or 29% of total net revenues, for the
year ended December 31, 1996. The Company anticipates that recurring revenues
may represent a greater portion of its total net revenues in the foreseeable
future.
For the years ended December 31, 1994 and 1995, and for the ten months
ended October 31, 1996, 71%, 69% and 63%, respectively, of the Company's total
net revenues were derived from contracts with home health care agencies
wholly-owned by CHHC. These contracts were terminated October 31, 1996, in
connection with the sale of CHHC to Columbia/HCA. Revenues derived from these
contracts were recorded in an amount equal to the costs of the services
provided, and, as a result, the Company recognized no operating profit under
these contracts. Subsequent to the sale of CHHC to Columbia/HCA, affiliates of
Columbia/HCA entered into multi-year contracts with the Company to provide its
Shared Resource Solution as well as agency support services to certain of the
home health care agencies formerly owned by CHHC. The Company believes that its
current contracts with the Columbia/HCA affiliates were negotiated on an
arms-length basis. The historical results of operations attributable to the
terminated CHHC contracts may not therefore be indicative of future results of
operations. For the three months ended December 31, 1996, the Company derived
39% of its total net revenues from contracts with affiliates of Columbia/HCA
which were entered into on November 1, 1996. The loss of any of the Columbia/HCA
contracts could have a material adverse impact on the Company's business,
financial position and results of operations. See "Risk Factors -- History of
Operating Losses; Uncertain Profitability; Limited Operating History," "-- Risks
Associated with Renegotiation and Renewal of Contracts" and "-- Dependence on
Major Customers."
The Company believes that continued development and enhancement of its
software systems is critical to its future success, and anticipates that the
total amount of research and development expense will continue to increase, but
should decrease as a percentage of total net revenues as the Company grows its
revenues. Costs incurred to establish the technological feasibility of computer
software products are expensed as incurred. The Company's policy is to
capitalize costs incurred between the point of establishing technological
feasibility and general release only when such costs are material. As of
December 31, 1996, the Company had no capitalized computer software development
costs.
BACKLOG
The Company had backlog associated with its In-House Solution of
approximately $4.9 million on December 31, 1996. Backlog consists of the
unrecognized portion of contractually committed software license fees, hardware,
estimated installation fees and professional services. The length of time
required to complete an implementation depends on many factors outside the
control of the Company, including the state of the customer's existing
information systems and the customer's ability to commit the personnel and other
resources necessary to complete the implementation process. As a result, the
Company may be unable to predict accurately the amount of revenue it will
recognize in any period and therefore can make no assurances that the amounts in
backlog will be recognized in the next twelve months.
The Company enters into multi-year contracts with its customers in
connection with its Shared Resource Solution. In general, these contracts
provide for the payment of monthly fees based on the number of billed home care
visits made by the customer. Accordingly, the Company does not maintain a
backlog with respect to its Shared Resource Solution.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items from
the consolidated statements of operations expressed as a percentage of net total
revenues. The Company's historical operating results are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
PERCENTAGE OF NET REVENUES:
Net revenues:
Information services................................. 40.3% 40.7% 57.1%
Systems.............................................. -- -- 1.8
Support and consulting services...................... 59.7 59.3 41.1
----- ----- -----
Total net revenues................................ 100.0 100.0 100.0
Costs and expenses:
Costs of information services........................ 20.5 19.9 31.8
Costs of systems..................................... -- -- 1.3
Costs of support and consulting services............. 43.0 41.8 23.4
Selling, general and administrative.................. 24.4 23.4 27.1
Research and development............................. 17.9 22.1 21.8
Amortization and depreciation........................ -- -- 3.0
Purchased in-process research and development........ -- -- 48.4
Severance and other restructuring charges............ -- -- 4.7
----- ----- -----
Total costs and expenses.......................... 105.8 107.2 161.5
----- ----- -----
Loss from operations................................... (5.8) (7.2) (61.5)
Other income (expense):
Interest expense..................................... -- -- (0.5)
Interest and other income............................ -- -- 0.8
----- ----- -----
Net loss.......................................... (5.8)% (7.2)% (61.2)%
===== ===== =====
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Revenues. Total net revenues increased $12.8 million, or 97.0%, to
$26.0 million in 1996 from $13.2 million in 1995. This increase in total net
revenues includes $3.4 million attributable to the business acquired in the
Simione Acquisition completed in January 1996, $2.4 million attributable to the
business acquired in the IMHI Acquisition completed in October 1996, a net
increase of $3.0 million in revenues from contracts with affiliates of CHHC, and
the remaining increase principally attributable to revenues from new customers.
Net revenues from information services include revenues from the Company's
Shared Resource Solution, software support, implementation, training and
technical consulting services. These revenues increased $9.4 million, or 174.1%,
to $14.8 million in 1996 from $5.4 million in 1995. This increase includes $2.0
million attributable to the business acquired in the IMHI Acquisition, $5.4
million from contracts with affiliates of CHHC, and the remaining increase
primarily attributable to revenues from new customers.
Net revenues from system sales include revenues from software licenses and
computer hardware sales. Net revenues from system sales were approximately
$500,000 in 1996 and were attributable entirely to the business acquired in the
IMHI Acquisition.
Net revenues from support and consulting services include revenues from
management consulting and agency support services. These revenues increased $2.9
million, or 37.2%, to $10.7 million in 1996 from $7.8 million in 1995. This
increase includes $3.8 million in revenues from new and existing customers and
$3.4 million attributable to the business acquired in the Simione Acquisition,
offset by
23
<PAGE> 25
decreases of $2.4 million from agency support revenues from affiliates of CHHC,
and $1.9 million in agency support revenues from Healthfield, Inc. See Note 14
to Consolidated Financial Statements of the Company.
Cost of Revenues. Total cost of revenues increased $6.5 million, or 79.3%,
to $14.7 million in 1996 from $8.2 million in 1995. As a percentage of total net
revenues, total cost of revenues decreased to 56.5% in 1996 from 61.7% in 1995.
This dollar increase includes $2.4 million in costs attributable to the business
acquired in the Simione Acquisition, approximately $800,000 in costs
attributable to the business acquired in the IMHI Acquisition and the remaining
increase primarily resulting from the increased cost of computer and
communication technology.
Cost of information services increased $5.7 million, or 219.2%, to $8.3
million in 1996 from $2.6 million in 1995. As a percentage of information
services revenue, these costs increased to 55.6% in 1996 from 48.8% in 1995. The
increase relates principally to an increase of $3.9 million in data center and
communications network costs as the Company continued to maintain its own data
center and communications network while simultaneously converting to a data
center and communications network provided by IBM Global Services. As a result
of the phase-out of its data center and communications network, the Company
anticipates that the fixed cost component of these expenses should decrease as a
percentage of related revenues in the future. This $3.9 million increase
includes a one-time transition and conversion charge of approximately $900,000
associated with the IBM Global Services contract. Additionally, the increase in
the cost of information services includes approximately $500,000 in costs
attributable to the business acquired in the IMHI Acquisition.
The cost of system sales was approximately $300,000 in 1996 and was
attributable entirely to the business acquired in the IMHI Acquisition. Such
costs relate principally to third party software and equipment.
Cost of support and consulting services increased approximately $600,000,
or 10.9%, to $6.1 million in 1996 from $5.5 million in 1995. As a percentage of
support and consulting services revenues, these costs decreased to 57.0% in 1996
from 70.5% in 1995. The dollar increase in these costs includes $2.4 million
associated with the business acquired in the Simione Acquisition, offset by a
cost reduction of $1.8 million resulting from the termination of the agency
support contract with Healthfield, Inc. The reduction as a percentage of support
and consulting services revenues results from the reduction in revenues from
contracts with CHHC and Healthfield, Inc. which were priced at the cost of
services provided.
Selling, General and Administrative. Selling, general and administrative
expenses increased $3.9 million to $7.0 million in 1996 from $3.1 million in
1995. As a percentage of total net revenues, selling, general, and
administrative expenses were 27.1% in 1996 compared with 23.4% in 1995. These
increases were attributable principally to approximately $1.1 million in costs
related to the business acquired in the IMHI Acquisition and an increase of $1.2
million in sales and marketing costs primarily associated with the marketing
rollout of the Company's Shared Resource Solution. The remaining increase
relates to additional salary and benefit costs as well as administrative
infrastructure costs associated with establishing the Company as a separate
business entity from CHHC. As the Company continues to expand its sales and
administrative infrastructure, the Company believes that selling, general and
administrative expenses should remain constant or decrease as a percentage of
net revenues.
Research and Development. Research and development expenses increased $2.8
million to $5.7 million in 1996 from $2.9 million in 1995. As a percentage of
total net revenues, research and development expenses remained relatively
constant at 21.8% in 1996 and 22.1% in 1995. The dollar increase was
attributable principally to $1.2 million in increased salary and benefit costs
associated with the Company's software enhancement efforts and approximately
$400,000 related to the business acquired in the IMHI Acquisition. The Company
anticipates that the total dollar amount of research and development expense
will continue to increase although such expenses should not increase as a
percentage of total net revenues assuming that the Company's revenues continue
to increase in the future.
24
<PAGE> 26
Amortization and Depreciation. Amortization and depreciation for 1996
includes approximately $200,000 attributable to the Simione Acquisition in
January 1996, approximately $200,000, representing three months' amortization,
attributable to the IMHI Acquisition in October 1996, and approximately $400,000
associated with the depreciation and amortization of purchased software,
furniture, and equipment.
Purchased In-Process Research and Development. In connection with the IMHI
Acquisition, the purchase price of $16.8 million was allocated based on relative
fair value of the assets acquired and liabilities assumed. Pursuant to a study
conducted by an independent third party valuation firm, $12.6 million of the
purchase price was allocated to purchased in-process research and development
and, in accordance with generally accepted accounting principles, was charged to
operations as it was not deemed to have reached technological feasibility and
had no alternative future use. Subsequent to the IMHI Acquisition, the Company
completed the development of certain in-process versions of software products
and has scheduled further enhancements to each of these products. Additionally,
the Company has a two year development plan to enhance many of the software
modules of the Company's STAT 2 system. It is anticipated that the Company will
incur a significant amount of research and development expense in connection
with the completion of its development plans.
Severance and Other Restructuring Charges. As a result of the change in
focus of the Company's business from providing services to affiliates of CHHC,
the Company incurred severance and certain other restructuring costs totalling
$1.2 million in the fourth quarter of 1996. These expenses primarily relate to
the severance of several key employees and costs to buyout a lease of equipment
no longer useful to the Company.
Other Income (Expense). Interest expense in 1996 of approximately $100,000
resulted from borrowings under the Company's line of credit agreements and
capital lease obligations. Interest income of approximately $200,000 in 1996
resulted from interest earned on stock subscription receivables and cash
balances.
Income Taxes. The Company has not incurred or paid any income taxes since
its inception. At December 31, 1996, the Company had net operating loss ("NOL")
carryforwards for federal and state income tax purposes of $6.0 million, which
will expire at various dates through 2011, if not utilized. The Company also has
research and development and alternative minimum tax credits ("tax credits") of
approximately $96,000 available to reduce future income tax liabilities. The Tax
Reform Act of 1986, as amended, contains provisions that limit the NOL and tax
credit carryforwards available to be used in any given year when certain events
occur, including additional sales of equity securities and other changes in
ownership. As a result, certain of the NOL and tax credit carryforwards may be
limited as to their utilization in any year. The Company has concluded that it
is more likely than not that these NOL and tax credit carryforwards will not be
realized based on a weighing of available evidence at December 31, 1996, and as
a result a 100% deferred tax valuation allowance has been recorded against these
assets. Of the $2.0 million deferred tax asset at December 31, 1996,
approximately $500,000 relates to the IMHI Acquisition and, if and when
realized, will result in a credit to intangible assets recorded in the
acquisition.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Revenues. Total net revenues increased $1.1 million, or 9.1%, to $13.2
million in 1995 from $12.1 million in 1994. This increase was principally
attributable to revenues from new customers.
Net revenues from information services increased approximately $500,000, or
10.2%, to $5.4 million in 1995 from $4.9 million in 1994. Net revenues from
support and consulting services increased approximately $600,000, or 8.3%, to
$7.8 million in 1995 from $7.2 million in 1994.
Cost of Revenues. Total cost of revenues increased approximately $500,000,
or 6.5%, to $8.2 million in 1995 from $7.7 million in 1994. As a percentage of
total net revenues, total cost of revenues
25
<PAGE> 27
decreased to 61.7% in 1995 from 63.5% in 1994. The dollar increase relates
principally to increases in salary and benefits expenses.
Selling, General and Administrative. Selling, general and administrative
expenses increased approximately $100,000 to $3.1 million in 1995 from $3.0
million in 1994. As a percentage of total net revenues, selling, general and
administrative expenses were 23.4% in 1995 compared with 24.4% in 1994.
Research and Development. Research and development expenses increased
approximately $700,000 to $2.9 million in 1995 from $2.2 million in 1994. As a
percentage of total net revenues, research and development expenses were 22.1%
in 1995 and 17.9% in 1994. The dollar increase is attributable principally to
increased salary, benefit and contract programmer costs associated with the
Company's software enhancement efforts.
26
<PAGE> 28
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and will likely
continue to be subject to significant fluctuations. The Company believes that
the acquisitions of Simione & Simione and IMHI may cause a seasonal pattern in
its operating results in the future. Additionally, revenues can also be expected
to vary significantly as a result of acceleration or delay of system
implementations due to customer requirements or other factors beyond the
Company's control, fluctuations in demand for existing systems and services and
the Company's ability to manage successfully any future growth. The sales cycles
related to its systems offerings and agency support contracts can be long and
difficult to predict, resulting in variability of revenues. The unpredictability
of revenues could in any quarter result in a shortfall relative to quarterly
expectations. Many other factors may contribute to fluctuations in the Company's
operating results. Accordingly, the Company believes that period-to-period
comparisons of results of operations are not necessarily meaningful and should
not be relied upon as any indication of future performance.
The following table sets forth certain unaudited consolidated quarterly
financial data for each of the eight quarters for the period ended December 31,
1996. This information is unaudited, but, in the opinion of the Company's
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the information in accordance
with generally accepted accounting principles. These quarterly results of
operations are not necessarily indicative of future operating results.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
------------------------------------------ ------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Information services................ $1,302 $1,198 $1,327 $1,560 $3,361 $3,303 $3,680 $ 4,505
Systems............................. -- -- -- -- -- -- -- 459
Support and consulting services..... 1,894 1,742 1,931 2,268 1,804 2,045 1,839 4,999
------ ------ ------ ------ ------ ------ ------ --------
Total net revenues.............. 3,196 2,940 3,258 3,828 5,165 5,348 5,519 9,963
Costs and expenses:
Costs of information services....... 589 556 637 847 1,812 1,793 1,954 2,700
Costs of systems.................... -- -- -- -- -- -- -- 346
Costs of support and consulting
services.......................... 1,236 1,168 1,338 1,782 1,407 1,421 1,300 1,966
Selling, general and
administrative.................... 693 654 750 999 1,138 1,164 1,354 3,381
Research and development............ 656 619 709 945 1,114 1,233 1,333 1,996
Amortization and depreciation....... -- -- -- -- 105 127 130 423
Purchased in-process research and
development....................... -- -- -- -- -- -- -- 12,574
Severance and other restructuring
charges........................... -- -- -- -- -- -- -- 1,215
------ ------ ------ ------ ------ ------ ------ --------
Total costs and expenses........ 3,174 2,997 3,434 4,573 5,576 5,738 6,071 24,601
------ ------ ------ ------ ------ ------ ------ --------
Income (loss) from operations......... 22 (57) (176) (745) (411) (390) (552) (14,638)
Other income (expense):
Interest expense.................... -- -- -- -- (6) (20) (27) (63)
Interest and other income........... -- -- -- -- 19 68 59 62
------ ------ ------ ------ ------ ------ ------ --------
Net income (loss)............... $ 22 $ (57) $ (176) $ (745) $ (398) $ (342) $ (520) $(14,639)
====== ====== ====== ====== ====== ====== ====== ========
Net income (loss) per share..... $ 0.01 $(0.02) $(0.06) $(0.25) $(0.12) $(0.09) $(0.13) $ (2.47)
====== ====== ====== ====== ====== ====== ====== ========
Weighted average common shares........ 2,995 2,995 2,995 2,995 3,284 3,959 3,959 5,926
</TABLE>
27
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
From its inception, the Company principally funded its operations through
borrowings of $3.5 million from CHS. In November 1995, CHHC made a capital
contribution of $2.4 million to the Company which was used to repay indebtedness
to CHS. During 1996, the Company repaid $1.1 million remaining in borrowings
from CHS.
In January 1996, CHHC made a cash capital contribution of $4.0 million to
the Company. Additionally, in March 1996, the Company issued common stock in the
amount of $3.1 million of which $2.2 million had been collected as of December
31, 1996.
In January 1996, the Company established line of credit agreements which
provided for aggregate borrowing of $2.5 million which had been fully drawn as
of December 31, 1996. The cumulative proceeds from the Company's equity
infusions and debt financings have provided sufficient funds to support the
Company's operating activities. As of December 31, 1996, the Company had cash
and cash equivalents of $3.4 million.
The Company made capital expenditures (including capital leases) totaling
approximately $400,000 and $1.3 million during 1995 and 1996, respectively. In
January 1996, the Company completed the Simione Acquisition for $2.0 million in
cash. In October 1996, the Company completed the IMHI Acquisition resulting in
an increased cash balance of approximately $700,000.
As of December 31, 1996, the Company had a working capital deficit of $1.2
million. The Company's current liabilities as of December 31, 1996 include
customer deposits of $1.7 million and unearned revenues of $2.0 million which
will not require the use of cash by the Company in the future.
The Company believes that the net proceeds from the Common Stock to be sold
by the Company in the offering, together with available funds and cash generated
from operations, will be sufficient to meet the Company's operating
requirements, assuming no change in the operation of the Company's business, for
at least the next twelve months. While the Company continually evaluates
potential acquisitions, the Company has no present agreements or commitments
with respect to any acquisitions, nor are negotiations regarding any
acquisitions currently ongoing.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share," which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The restated basic and diluted earnings or
loss per share to be reported upon adoption of SFAS No. 128 will not differ from
amounts reported under existing accounting rules for all periods reported by the
Company through December 31, 1996.
28
<PAGE> 30
BUSINESS
The Company is a leading provider of integrated systems and services
designed to enable home health care providers to more effectively operate their
businesses and compete in a managed care environment. The Company offers two
systems which provide a core platform of software applications and can also
incorporate specialized selected modules to enable customers to generate and
utilize comprehensive financial, operational and clinical information. The
Company's Shared Resource Solution offers customers an outsourcing opportunity
which incorporates the Company's proprietary NAHC IS system software. Under this
arrangement, the Company operates a data center which stores customer data and
allows them real-time, secure access through a wide area communications network.
The Company's In-House Solution, STAT 2, offers similar functionality, but is
licensed to customers for use on their own computer systems. In addition to
these two systems solutions, the Company's home health care consulting services
assist providers in addressing the challenges of reducing costs, maintaining
quality, streamlining operations and re-engineering organizational structures.
The Company also provides comprehensive agency support services which include
administrative, billing and collection, training, reimbursement and financial
management services, among others.
The Company has recently introduced the following four new products: (i)
MAPPScan, a point-of-care product for its Shared Resource Solution, which uses
scanning technology to collect outcomes data by encounter and over an entire
episode of care using a consistent methodology; (ii) STAT 2 Medical Records, a
point-of-care product for its In-House Solution, which is designed to improve
productivity by using handheld units to process patient information from the
point-of-care; (iii) STATScan, a Windows-based imaging system, which scans and
stores paper forms into a customer's STAT 2 system; and (iv) TELTime, an
interactive voice response system, which records visit, mileage, payroll and
billing data from field staff using telephones in place of computers.
During 1996, the Company had over 500 customers nationwide, including
hospital-based companies, large and small free-standing home health care
providers, alternate-site care organizations, integrated delivery systems and
government-managed organizations. The Company's customers include Columbia/HCA,
Tenet Healthcare Corporation ("Tenet"), Home Health First, a Texas not-for-
profit corporation whose members include Baylor Health Care System, Presbyterian
Healthcare Home Health Services and The Visiting Nurse Association of Texas
("Home Health First"), Mercy Health Services, a Michigan not-for-profit
corporation ("Mercy"), and Advocate Health System ("Advocate").
INDUSTRY OVERVIEW
Home health care is one of the fastest growing segments of the health care
industry, with total estimated expenditures having increased to approximately
$35 billion in 1995, from approximately $13 billion in 1990. The increasing
importance of home health care has principally been a result of significant
economic pressures within the health care industry. In recent years, U.S. health
care expenditures have increased rapidly and exceeded $1 trillion in 1995. In
response to these escalating expenditures, payors, such as Medicare and managed
care organizations, have applied increasing pressure on physicians, hospitals
and other providers to contain costs. This pressure has led to the growth of
lower cost alternate-site care, such as home health care, and to reduced
hospital admissions and lengths of stay. In addition, home health care has grown
rapidly as a result of advances in medical technology, which have facilitated
the delivery of services in alternate sites, demographic trends, such as an
aging population, and preferences among patients to receive care in their homes.
Home health care consists of many elements, including skilled nursing,
durable medical equipment ("DME"), intravenous and infusion therapy ("IV
Therapy") and hospice. Historically, this industry has been highly fragmented
and characterized by small, local providers offering a limited range of
services. With the advent of managed care and integrated delivery systems, home
health care providers have had to expand their geographic scope and range of
product and service offerings in order to obtain referrals. In addition, the
overall growth in the home health care industry has allowed providers to grow
and realize increased operating efficiencies. As a result of these developments,
the home health care industry has entered into a period of rapid consolidation.
29
<PAGE> 31
Medicare currently reimburses a majority of home health care services at
amounts that cannot exceed the costs of services provided, resulting in a direct
relationship between the number of home health care visits and reimbursements.
As home health care expenditures have increased, HCFA, which administers
Medicare reimbursement for home health care, has been attempting to contain
these costs by a number of methods, including PPS, which would limit
reimbursement to a fixed amount for all services rendered per episode of care.
In addition to the potential impact of PPS, the growth in the number of Medicare
members enrolling in managed care plans, which have also begun to take measures
to contain costs, will have a significant impact on how providers may operate
profitably.
As a result of consolidation and measures to address ongoing cost
pressures, home health care providers will increasingly require enhanced
management expertise, specialized industry knowledge and standardized financial,
operational and clinical information in order to compete. The Company believes
that many existing home health care information systems are inadequate to
address the changing needs of home health care providers. Generally, these
systems were designed to generate patient billing information and cost reports
for Medicare reimbursement, and, as a result, may be unable to provide the
detailed information required for meaningful business analyses.
THE SIMIONE CENTRAL SOLUTIONS
The Company offers a comprehensive set of solutions to address the changing
needs of home health care providers which include information systems and
support, consulting services and agency support services. The Company's systems
and services are designed to enable home health care providers to generate and
utilize comprehensive financial, operational and clinical information and
address organizational issues in order to make informed decisions, more
effectively operate their businesses and compete in a managed care and PPS
environment. These solutions can be packaged and customized to serve the
individual needs of customers.
[Graphic illustration listing in pyramid form the services and solutions offered
by the Company.]
STRATEGY
The Company's objective is to enhance its position as a leading provider of
solutions to the home health care industry. Principal elements of the Company's
strategy include:
- Leverage Existing Customer Base. The Company currently has a base of
over 500 customers nationwide. The Company believes that a significant
opportunity exists to cross-sell its existing systems and services as
well as introduce new systems and enhancements.
- Generate Recurring Revenue. The Company generates recurring revenue
through a combination of annually renewable maintenance agreements and
multi-year service contracts. These sources of revenue collectively
accounted for 29% of the Company's net revenues in
30
<PAGE> 32
1996. The Company also attempts to maximize recurring revenue
opportunities through a combination of periodic system enhancements
and comprehensive customer service.
- Capitalize on Changing Industry Dynamics. As the home health care
industry consolidates, the Company believes it is well positioned to
increase its market share by leveraging its existing relationships
with large providers such as Columbia/HCA and Tenet. The Company also
believes its comprehensive solutions will become increasingly
important to home health care providers as they address the challenges
presented by health care reform and as integrated delivery systems
become more prevalent.
- Expand Through Acquisitions and Strategic Alliances. Through
selective strategic acquisitions, the Company intends to continue to
expand its system and service offerings, expand its customer base and
increase its market share. The Company also intends to selectively
establish strategic alliances to expand its system and service
offerings and grow its distribution capabilities. For example, the
Company has recently entered into a marketing agreement with IBM to
leverage IBM's presence in the hospital and integrated delivery system
marketplace.
- Broaden System and Service Lines. The Company has recently released a
Windows-based imaging system for medical records, an interactive voice
response system and two automated clinical point-of-care products. The
Company intends to continue to develop and enhance its systems and
services, and is developing several new products and enhancements,
including a mobile data collection clinical product, currently
scheduled to be released in the third quarter of 1997.
SYSTEMS AND SERVICES
The Company provides a comprehensive set of solutions for home health care
providers through a broad range of systems and services, including: (i) two
information systems, consisting of its Shared Resource Solution and its In-House
Solution; (ii) software support services; (iii) comprehensive agency support
services; and (iv) consulting services. These systems and services are designed
to address the evolving operational, clinical, financial and strategic needs of
home health care providers as illustrated below.
[Graphic illustration enumerating the various strategic, operational, financial
and clinical needs of home health care providers.]
31
<PAGE> 33
INFORMATION SYSTEMS
The Company offers two comprehensive and flexible software solutions to
meet various customer's needs. Each of these solutions offers similar
functionality and incorporates applications that address core requirements of
home health care providers, including: patient intake; scheduling; human
resources; accounts receivable; accounts payable; inventory management;
point-of-care; and treatment plan modules, among others. These applications are
designed to provide real-time reporting capabilities, speed information
processing, reduce redundant data entry, improve efficiencies and assist
management with making informed decisions. In addition to the core elements
common to both solutions, the Shared Resource Solution provides occurrence
tracking, purchase management, human resources and fixed asset management
modules, while the In-House Solution provides hospice, IV Therapy, DME, imaging,
telephony and cost report modules.
[Graphic illustration of the various applications of the Shared Resource
Solution and the In-House Solution and functionality migration of the
solutions.]
Shared Resource Solution. The Company's Shared Resource Solution offers an
outsourcing opportunity which incorporates the Company's proprietary NAHC IS
system software. Under this arrangement, the Company operates a data center
which stores customer data and allows customers real-time, secure access through
a wide area communications network. The services provided by the Company include
processing access to computer and communication hardware, disaster recovery
services, new technology and capacity upgrades and software support. NAHC IS
host systems, which are maintained by IBM Global Services, can be accessed by
customers using their own workstations or LAN-based PCs over secure network
connections, which allow customers to input, modify, access and analyze data on
a real-time basis.
The Shared Resource Solution allows customers to reduce up-front capital
costs and minimize the need for in-house technical personnel. Moreover,
customers obtain immediate expansion capabilities and automatic system upgrades
and enhancements. The Company believes that the Shared Resource Solution is
well-suited for the needs of a consolidating industry since it allows customers
to avoid having to deploy and maintain extensive networks. The Company prices
its Shared Resource Solution under two different pricing models which result in
recurring monthly user fees based on either the number of users accessing the
system or the number of billed home health care visits. Revenues derived from
contracts for these services typically range from several hundred thousand
dollars to several million dollars per year.
32
<PAGE> 34
In-House Solution. For customers who have already made, or are planning to
make, a significant investment in a data center, wide area communications
network and information systems personnel, the Company offers its In-House
Solution, STAT 2. STAT 2 is licensed to customers for use on their own computer
system and allows them to manage their financial, operational and clinical data.
Similar to the NAHC IS system, the STAT 2 system allows a customer to exchange
clinical and financial information with external systems in either a real-time
or batch mode through interface engine technology or customized interfaces.
Customers obtain non-exclusive licenses of STAT 2 system software modules for a
license fee and contract for annual maintenance and support services. The STAT 2
system can be loaded on a customer's existing customer hardware or on new
hardware ordered by the Company on behalf of the customer for installed
delivery. License fees are determined by the number of software modules licensed
and by the number of users accessing the system and can range from thirty
thousand dollars to a few million dollars.
Functionality Migration. The Company currently has efforts underway to
migrate the functionality of certain unique applications for accessibility under
either solution. These efforts include migration of (i) MAPP and occurrence
tracking capabilities to the STAT 2 system, and (ii) hospice, IV Therapy, DME,
imaging and telephony capabilities to the NAHC IS system.
NEW PRODUCTS
MAPP. The Company has recently introduced initial versions of its Managed
Avenues of Patient Progress ("MAPP") point-of-care products. These products are
separately licensed from the NAHC IS system and offer a means of documenting the
provision of home health care services and patient outcomes. MAPP collects
outcomes data by encounter and over an entire episode of care using a consistent
methodology for data collection. MAPP incorporates HCFA data elements and
utilizes pre-defined pathways, which may be customized by the user and guide
patient care delivery. The Company has developed a functional level of care
model and over 80 clinical pathways related to specific medical diagnoses. MAPP
also generates cost data associated with clinical care, tracks outcomes
variances and records patient satisfaction. MAPP's clinical functionality is
based on home health care specific clinical knowledgeware developed through
years of practical application and clinical research.
The Company has recently introduced MAPPScan, a version of MAPP, which will
use scanning technology to input clinical data. The Company will be releasing a
beta version of MAPP Plus, which will utilize fully-automated front-end data
collection via a mobile, pen-based computer and will have enhanced data analysis
capabilities. The Company is currently developing a version of MAPP which would
integrate directly with NAHC IS system software modules and provide users with a
seamless interface. Also under development is a palmtop version of MAPP, which
would significantly lower a customer's hardware costs.
STAT 2 Medical Records. STAT 2 Medical Records is designed to help
In-House Solution customers improve patient care while reducing costs through
improved productivity. STAT 2 Medical Records allows field staff, using handheld
point-of-care units, to enter, update and transmit patient information from
remote locations to the home office via modem connection, updating the central
STAT 2 system on a real-time basis. Customers can use STAT 2 Medical Records to
measure outcomes, establish or import clinical pathways and report on variances
to a care plan. STAT 2 Medical Records is comprised of modules which are
integrated with other clinical, financial and operational STAT 2 system software
modules for collaborative reporting and analysis.
STATScan. STATScan is a Windows-based imaging system which scans and
stores paper forms into a customer's STAT 2 system. Documents are scanned,
digitized, stored on optical disks, indexed according to user defined fields and
recalled for instant use. STATScan also provides an automated workflow
application which allows the user to define the flow of image information to
various groups within the organization. STATScan also provides increased
security and control of information, faster information retrieval and an
enhanced ability to share information in a real-time environment.
33
<PAGE> 35
TELTime. TELTime is an interactive voice response system which records
visit, mileage, payroll and billing data from field staff using telephones in
place of computers. This data can be automatically exported into the STAT 2
system payroll and billing modules. TELTime is designed to provide users with a
more cost effective way to record data and produce records, and can accelerate a
customer's billing activities.
SERVICE SOLUTIONS
Software Support Services. The Company believes that providing
comprehensive software support services to customers is critical to its success
in the home health care industry. The Company employs 86 professionals dedicated
to this effort who provide the following services:
Implementation: Implementation services include an assessment of
existing customer business processes, project
planning, system training, business process
re-engineering and data conversion assistance.
Training: Training services are offered on a continuing basis
to existing customers either at the customer's site
or at a Company location.
Software Support: The Company offers on-call telephone software
support seven days a week and provides maintenance
releases on a periodic basis. Releases of new STAT
2 system software enhancements are generally made
available to customers annually. NAHC IS system
software enhancements are made available to
customers as they are released.
Technical Consulting: The Company provides software customization and
integration, technical audits of the customer's
information systems, integration and network
planning, and strategic and tactical information
systems planning.
Under the In-House Solution, software support services represent a source
of recurring revenue, as these services are provided through annual renewable
service contracts. Support services for the Shared Resource Solution, however,
are included as part of the service fee paid by the customer. Other services are
generally charged on a time and materials usage basis. The Company's technical
personnel also provide on-site and on-call hardware support in conjunction with
its STAT 2 system.
Consulting Services. The Company's home health care consulting services
assist providers in addressing the challenges of a managed care and PPS
environment, such as reducing the cost of delivering care while maintaining or
improving quality of care, streamlining operational structures and
re-engineering organizational structures. The Company's consulting operations,
which were acquired in January 1996, have been providing consulting advice to
the home health care industry since 1963. The consulting staff is comprised of
27 professionals with home health care industry specific experience. Consulting
engagements generally focus on:
<TABLE>
<S> <C> <C>
Strategic Planning Marketing Studies Acquisition Due Diligence
Operational Reviews Business Valuations Quality Assurance Reviews
Reimbursement Consultation Organizational Reviews Operational Re-engineering
Medicare Compliance Medical Records Cost Report Preparation
</TABLE>
The Company provides consulting services on a time and materials usage
basis. The Company believes that its consulting services group effectively
complements its information systems and services, provides a valuable outlook on
the changing home health care industry and is a source of innovative ideas for
the Company's information systems enhancements. Furthermore, consulting services
are designed to build new customer relationships and provide opportunities for
the sale of additional information systems and services.
34
<PAGE> 36
Agency Support Services. For home health care providers seeking to address
the challenges posed by changing industry dynamics, the Company provides
comprehensive agency support services to supplement their core competencies. The
Company's agency support services provide day-to-day personnel outsourcing for
certain critical customer operational functions. For new customers, the Company
will initially analyze and re-engineer, as appropriate, all aspects of a
customer's home health care operation. These services are provided by over 50
home health care specialists. This combination of services is designed to enable
customers to create an efficient organizational structure that seeks to provide
both cost-effective results and promotes the delivery of high quality patient
care. Components of these services include:
<TABLE>
<S> <C> <C>
Management Oversight Clinical Program Development Compliance & Ethics Audits
Training & Development Fiscal Intermediary Relations Community Awareness Programs
Human Resources Operations/Systems Management Accounting Support
Reimbursement Planning Billing/Collection Budget Preparation/Analysis
</TABLE>
The Company provides agency support services under multi-year contracts.
Fees for these services are billed monthly. The Company believes the delivery of
agency support services provides another valuable opportunity to introduce its
information systems and services to an additional customer base.
CUSTOMERS
During 1996, the Company had over 500 customers nationwide, including
hospital-based companies, large and small free-standing home health care
providers, alternate-site care organizations, integrated delivery systems and
government-managed organizations. The Company's customers include Columbia/HCA,
Tenet, Home Health First, Mercy and Advocate. The Company presently anticipates
that Columbia/HCA will account for a substantial portion of the Company's
consolidated net revenues for the current fiscal year. A significant number of
the Columbia/HCA contracts provide that the pricing terms may be renegotiated in
the event that HCFA replaces the current cost-based Medicare reimbursement
system for home health care with PPS, providing for fix payments per episode of
care. In addition, the Columbia/HCA contracts provide for a reduction in the
payments to the Company in the event and to the extent that such payments are
determined not to be a reimbursable cost under Medicare. Although the Company
believes that such payments are reimbursable, certain components of such
reimbursements have been subject to increasing scrutiny and there can be no
assurance that payments under the Columbia/HCA contracts will not be subject to
challenge. Except for Columbia/HCA, no other customer account is expected to
account for 10% or more of the Company's consolidated net revenues during the
year ending December 31, 1997. Some of the Company's representative customers
include:
<TABLE>
<S> <C>
HOSPITAL-BASED ALTERNATE-SITE
Columbia/HCA Healthcare Corporation APRIA Health Care Group
Mercy Health Services Karmanos Cancer Institute
Mount Sinai Medical Center Home Health Agency Massachusetts Easter Seal Society
Tenet Healthcare Corp. Valentine Services Company, Inc.
FREE STANDING FOR PROFIT INTEGRATED DELIVERY SYSTEMS
Associated Professional Home Health Care Health Group of Alabama
Lifetime Medical Home Care Home Health First
Nurses Unlimited Sisters of Providence in Oregon
Shamrock VN and HHA Agency University of Penn Health Systems
FREE STANDING NOT-FOR-PROFIT GOVERNMENT-MANAGED
Advocate Health System Community Home Health Agency, Rochester, NY
VNA of Greater Philadelphia Orleans County Health Department, Milwaukee, WI
VNS of Greater Woonsocket Putnam County Health Department, Brewster, NY
VNA Health Care, Inc. South Carolina Department of Health, Columbia, SC
</TABLE>
35
<PAGE> 37
SALES AND MARKETING
The Company markets its systems and services through a direct sales force
which consists of two national sales managers and 11 sales representatives
located throughout the United States. The Company also employs a marketing and
sales support staff of 13 people to assist its sales force. Recognizing the
importance of maintaining good communication and obtaining valuable input from
its customers, the Company sponsors national user group meetings. Regional user
groups have also been established to discuss customer comments, suggestions,
industry trends and related system issues.
Strategic Relationships. The Company has entered into a cooperative
marketing agreement with IBM, whereby IBM health care marketing representatives
will market and receive commissions related to the sales of the Company's
systems. The Company believes that this relationship should provide additional
opportunities focused primarily on the hospital and integrated delivery system
marketplace. In addition, NAHC Plus, Inc., a wholly-owned for-profit subsidiary
of the National Association for Home Care and Hospice ("NAHC"), has exclusively
licensed its name to the Company for use in connection with the Company's NAHC
IS system. The Company believes that this endorsement and the Company's
relationship with NAHC Plus, Inc. should be beneficial to the Company in its
marketing efforts as it provides a direct link to the home health care
industry's main trade association and its members. The Company is also exploring
other strategic alliances to broaden its sales and marketing activities.
BACKLOG
The Company had backlog associated with its In-House Solution of $4.9
million at December 31, 1996. Backlog consists of the unrecognized portion of
contractually committed software license fees, hardware, estimated installation
fees and professional services. The length of time required to complete an
implementation depends on many factors outside the control of the Company,
including the state of the customer's existing information systems and the
customer's ability to commit the personnel and other resources necessary to
complete the implementation process. As a result, the Company may be unable to
predict accurately the amount of revenue it will recognize in any period and,
therefore, can make no assurances that the amounts in backlog will be recognized
in the next twelve months.
The Company enters into multi-year contracts with its customers in
connection with its Shared Resource Solution. In general, these contracts
provide for the payment of monthly fees based on the number of billed home care
visits made by the customer. Accordingly, the Company does not maintain a
backlog with respect to its Shared Resource Solution.
TECHNOLOGY
The NAHC IS host systems, built around IBM AS/400 RISC technology, are
located in a secure and commercially hardened IBM Global Services data center
site. Access to these host systems is provided via a secure, fully-managed,
multi-protocol wide area network, which is also maintained by IBM Global
Services. Customers can interface with the NAHC IS system through a wide range
of deployable site/desktop technologies. The NAHC IS system also incorporates
certain financial applications provided by Infinium Software, Inc. (formerly
known as Software 2000, Inc.).
The STAT 2 system operates on multiple operating systems and is designed
for use on microcomputers, LAN-based PCs, IBM RS/6000 and DEC Alpha hardware.
The STAT 2 system can be implemented on client/server or host/dumb terminal
architecture and offers SQL-compliant databases in both configurations. The
system allows any Windows SQL report writer to access the STAT 2 system database
and to merge data with other customer SQL-compliant databases. Similar to the
NAHC IS system, the STAT 2 system allows a customer to exchange clinical and
financial information with external systems in either a real-time or batch mode
through interface engine technology or customized interfaces.
The Company's systems are dependent upon many third-party software and
hardware products and related services, including Infinium Software, Inc. and
IBM Global Services. There can be no assurance that financial or other
difficulties experienced by such third-party vendors will not have an
36
<PAGE> 38
adverse effect on the Company's abilities to provide its systems or that the
Company will be able to replace such third-party products and services if they
become unavailable.
RESEARCH AND DEVELOPMENT
The Company maintains a staff of approximately 71 programmers, systems
analysts, quality assurance analysts and documentation specialists who monitor
developments in the computer software and health care industries and who
continuously work to enhance the Company's systems. The Company's research and
development expenses were approximately $5.7, $2.9 and $2.2 million for the
years ended 1996, 1995 and 1994, respectively. In addition, the Company incurred
approximately $12.6 million of purchased in-process research and development
expense in 1996 related to the IMHI Acquisition.
NAHC IS system research and development plans include integration of the
MAPP handheld technology, introduction of standards-based database technology,
integration compatibility with other systems, incorporation of fifth generation
design methodologies and implementation of open architecture. STAT 2 system
research and development plans include upgrading key modules to a graphical user
interface. Additionally, STATScan is being enhanced with data capture
capabilities which are expected to enable customers to eliminate time card and
billing data entry, thereby reducing staff costs.
Under joint development for both the NAHC IS and STAT 2 systems are two new
features. The first is a mobile client, based on Lotus Notes, which could become
web-enabled and operate as a laptop or portable device that supports Windows CE.
The second feature would allow a customer's staff to scan medical records into
the host application to reduce redundant data entry, providing a cost-effective
approach for customers whose business model does not support full deployment of
handheld technology.
The Company recognizes the need to respond to the rapid technological
change that is occurring in the software and health care industries. There can
be no assurance, however, that the Company will be able to develop products on a
timely basis or that its future products will fully address the needs of its
current or prospective customers.
COMPETITION
Competition in the market for home health care information systems and
services is intense and is expected to increase. The Company believes that the
primary factors affecting competition are system performance and reliability,
customer support, service, system flexibility and ease of use, pricing,
potential for providing enhancements, reputation and financial stability. The
Company's competitors include other providers of home health care information
systems and services, management companies and home health care consulting
firms. Furthermore, other major health care information companies not presently
offering home health care information systems, or major information system
companies not currently in the health care industry, could develop the
technology and enter the Company's markets. The Company believes its most
significant competitors are Delta Health Systems (owned partially by Shared
Medical Systems Corp.), Springfield Products Group (formerly known as Management
Software, Inc. and owned by HBO & Co.), Patient Care Technologies, Inc.
(partially owned by Meditec), Home Care Information Systems, Inc. (recently
acquired by Medic Computer Systems, Inc.), and the home health care management
division of Olsten Corp. Increased competition could result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect the Company's business, financial condition and results of
operations. In addition, many of the Company's competitors and potential
competitors have significantly greater financial, technical, product
development, marketing and other resources and market recognition than the
Company. Many of the Company's competitors also currently have, or may develop
or acquire, substantial installed customer bases in the home health care
industry. As a result of these factors, the Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
37
<PAGE> 39
sale of their systems and services than the Company. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations.
PROPRIETARY RIGHTS AND PRODUCT PROTECTION
The Company has registered the service mark "InfoMed" and owns the
copyrights on its STAT 2 system. The Company also has pending applications to
register trademarks related to its MAPP product. The Company depends upon a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions and various security measures to
protect its proprietary rights. There can be no assurance that the legal
protections afforded to the Company or the precautions taken by the Company will
be adequate to prevent misappropriation of the Company's technology. In
addition, these protections do not prevent independent third-party development
of functionally equivalent or superior technologies, systems or services, or the
obtaining of a patent with respect to the Company's technology by third parties.
Any infringement or misappropriation of the Company's proprietary software could
have a material adverse effect on the Company. As the number of home health care
software information systems increases and the functionality of these systems
further overlap, health care information systems may increasingly become subject
to infringement claims. Third parties have asserted trademark and patent
infringement claims against the Company. Although there has been no litigation
with respect to such claims, there can be no assurance that the Company will not
be subject to litigation in the future or additional infringement claims. The
Company believes that its current systems and products do not infringe on the
patent or trademark rights of any third parties. There has, however, been
substantial litigation and uncertainty regarding copyright, patent and other
intellectual property rights involving computer software companies and there can
be no assurance that the Company will prevail in any infringement litigation
brought against it. Any claims or litigation, with or without merit, could be
costly and could result in a diversion of management's attention which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Adverse determinations in such claims or litigation
may require the Company to cease selling certain systems or products, obtain a
license and/or pay damages, any of which could also have a material adverse
effect on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION AND HEALTH CARE REFORM
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of home health care organizations. During the past several years, the United
States health care industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates, and certain proposals to
reform various aspects of the United States health care system have periodically
been considered by Congress. These proposals may result in increased government
involvement in home health care and otherwise change the operating environment
for the Company's customers. Home health care organizations may react to these
proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments in the Company's systems and services. The Company cannot
predict what impact, if any, such factors might have on its business, financial
condition and results of operations.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in databases maintained on the
Company's systems are subject to substantial regulation by state governments and
certain federal legislation governing specialized medical information and
records. Although compliance with these laws and regulations is principally the
responsibility of the hospital, physician or other home health care provider
with access to the Company's information systems, regulations governing patient
confidentiality rights are evolving rapidly. For example, the Health Insurance
Portability and Accountability Act of 1996 includes provisions directing the
Secretary of the Department of Health and Human Services to adopt standards
governing the
38
<PAGE> 40
electronic transmission of data in connection with a number of transactions
involving health information, including submission of health claims. These
standards are to cover security measures and safeguards with respect to health
information, as well as standardization of data, assignment of identifiers and
authentication of electronic signatures. 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 additional security measures which may be difficult to implement and
costly to the Company. There can be no assurance that changes to state or
federal laws and regulations will not materially restrict the ability of home
health care providers to submit information from patient records to the
Company's systems or impose requirements which are incompatible with the
Company's current systems.
The FDA is responsible for assuring the safety and effectiveness of medical
devices under the Federal Food, Drug and Cosmetic Act. Computer products are
subject to regulation when they are used or are intended to be used in the
diagnosis of disease or other conditions, or in the cure, mitigation, treatment
or prevention of disease, or are intended to affect the structure or function of
the body. Although the Company believes that its systems are not subject to FDA
regulation, the FDA could determine in the future that predictive applications
of the Company's systems could make them clinical decision tools subject to FDA
regulation. Compliance with FDA regulations could be burdensome, time consuming
and expensive. The Company also could become subject to future legislation and
regulations concerning the manufacture and marketing of medical devices and
health care information systems. These could increase the costs and time
necessary to market new systems and could affect the Company in other respects
not presently foreseeable. The Company cannot predict the effect of possible
future legislation and regulation.
EMPLOYEES
As of April 3, 1997, the Company employed approximately 307 employees. The
Company believes that its future success depends in large part upon recruiting,
motivating and retaining highly skilled and qualified employees in all aspects
of the Company's business. None of the Company's employees is represented by a
labor union. The Company believes that its employee relations are good.
PROPERTIES
The Company's principal executive offices are located at 6600 Powers Ferry
Road, Atlanta, Georgia 30339. The principal executive offices consist of
approximately 61,940 square feet under two separate subleases that expire on
December 31, 1997 and December 31, 2002.
The Company also leases approximately 20,291 square feet of office space in
Pompano Beach, Florida pursuant to a lease that expires on December 31, 2000,
and approximately 6,500 square feet of office space in Hamden, Connecticut
pursuant to a month-to-month lease. The landlords of both of these offices are
companies comprised of certain directors and related parties of the Company. See
"Certain Transactions." In addition, the Company leases small offices in
Westborough, Massachusetts and Pennington, New Jersey.
The Company believes that its present facilities are adequate to meet the
Company's current and foreseeable needs.
LEGAL PROCEEDINGS
While the Company is periodically involved in litigation incidental to its
business, there are no material legal proceedings to which the Company or any of
its subsidiaries is a party that would have a material adverse effect on the
business, financial condition and results of operations of the Company.
39
<PAGE> 41
MANAGEMENT
The executive officers and directors of the Company, and their respective
ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
Gary M. Bremer............................ 57 Chairman of the Board
James R. Henderson........................ 51 President and Chief Executive Officer and
Director
William J. Simione, Jr.................... 55 Vice Chairman of the Board and Executive
Vice President
Gary W. Rasmussen......................... 42 Chief Operating Officer
Lori Nadler Siegel........................ 33 Chief Financial Officer and Treasurer
James A. Tramonte......................... 46 General Counsel and Secretary
Murali Anantharaman(1).................... 39 Director
Richard D. Jackson(2)..................... 59 Director
Barrett C. O'Donnell(1)(2)................ 43 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Gary M. Bremer has served as Chairman of the Board of the Company since
October 8, 1996 and served as the Company's Chief Executive Officer from October
8, 1996 to April 10, 1997. Mr. Bremer has also served as the Chairman of the
Board and Chief Executive Officer of CHMS since September 1991. From 1978 until
October 1996, Mr. Bremer served as President and Chief Executive Officer of CHHC
and CHS. Mr. Bremer has also served as a director of NAHC since 1987. Mr. Bremer
has 22 years of experience in the home health care industry.
James R. Henderson has served as Chief Executive Officer of the Company
since April 10, 1997 and has served as President of the Company since October 8,
1996. Mr. Henderson has also served as the President of CHMS since September
1996 and as a director of the Company and CHMS since October 8, 1996 and
December 1996, respectively. From July 1992 to November 1995, Mr. Henderson
served as Executive Vice President for National Data Corporation, an information
services company. From February 1991 to June 1992, he served as Executive Vice
President, Worldwide Sales, Marketing and Operations, of QMS, Inc., a computer
hardware company. From 1987 to January 1992, he served as Executive Vice
President of Dun and Bradstreet Software Services, Inc., a client server
software solutions company. Mr. Henderson has 29 years of experience in the
information services industry.
William J. Simione, Jr. is a certified public accountant who has served as
Vice Chairman of the Board and Executive Vice President of the Company since
October 8, 1996, and has 31 years of experience in the home health care
industry. From January 1996 until October 1996, Mr. Simione served as the
President of Simione Central, Inc., a wholly-owned subsidiary of CHMS ("SCI").
From January 1975 until December 1995, Mr. Simione was Managing Partner of the
Home Health Care Consulting Division of Simione & Simione. Since September 1995,
Mr. Simione has also served as a director and an audit committee member of
Personnel Group of America, Inc., a leading provider of personnel staffing and
home health services.
Gary W. Rasmussen is a certified public accountant who has served as Chief
Operating Officer of the Company and CHMS since October 8, 1996 and June 1996,
respectively. From June 1996 to October 1996, Mr. Rasmussen served as Chief
Operating Officer of CHHC. He also served as Chief Financial Officer of CHHC
from January 1996 to May 1996, and as Chief Financial Officer of CHS from
October 1994 to December 1995. Mr. Rasmussen served as Chief Financial Officer
of Surgical Health Corporation, an outpatient surgery center company, from May
1992 until September 1994, and was an Audit Partner with Ernst & Young LLP from
October 1987 to May 1992.
Lori Nadler Siegel is a certified public accountant who has served as the
Chief Financial Officer and Treasurer of the Company and CHMS since October 8,
1996 and June 1996, respectively. From June 1996 to October 1996, Ms. Siegel
served as Chief Financial Officer of CHHC. From January 1995 until May 1996, Ms.
Siegel served as Assistant Vice President of Finance for CHS after holding
various accounting and finance positions at CHS from July 1991 until December
1994.
James A. Tramonte is a certified public accountant who has served as
General Counsel and Secretary of the Company since October 8, 1996 and as
General Counsel of CHMS since October 1995.
40
<PAGE> 42
Mr. Tramonte has also served as Secretary of CHMS since September 1996. He
previously served as General Counsel of CHHC from January 1996 to October 1996
and was Deputy General Counsel of CHS from April 1993 through December 1995. He
served in the capacity of counsel with the Atlanta law firm of Glass,
McCullough, Sherrill & Harrold from January 1993 to March 1993, and from 1988
through December 1992, Mr. Tramonte was a partner with the Atlanta law firm of
Hurt, Richardson, Garner, Todd & Cadenhead.
Murali Anantharaman has served as a director of the Company since October
8, 1996. From January 1996 to October 8, 1996, Mr. Anantharaman was a director
of IMHI. Mr. Anantharaman has been a partner at EGL Holdings, Inc. ("EGL"), a
venture capital firm, since 1987.
Richard D. Jackson has served as a director of the Company since December
1996. Mr. Jackson served as Vice Chairman of First Financial Management Corp., a
financial services company, from January 1995 to August 1996 and as Chief
Operating Officer and Senior Executive Vice President from June 1993 to December
1995. From 1990 through May 1993, he served as Vice Chairman and Chief Executive
Officer of Georgia Federal Bank, Atlanta, Georgia. Mr. Jackson is currently a
director of ANACOMP, Inc., a service provider to and manufacturer of
micrographic machines and equipment, and of Schweitzer Mauduit International,
Inc., a manufacturer of tobacco papers and wrappers.
Barrett C. O'Donnell has served as a director of the Company since October
8, 1996. Mr. O'Donnell served as Chairman of the Board of IMHI from October 1992
to October 8, 1996 and as Chief Executive Officer from November 1994 to October
8, 1996. From 1978 to present, Mr. O'Donnell has been Chairman of the Board,
President and Chief Executive Officer of O'Donnell Davis, Inc. ("ODD"), a
consulting and investment advisory services company.
All directors are elected annually by the holders of Common Stock. Each
director holds office until the next Annual Meeting of Stockholders and until
his successor is elected and qualified or until his earlier resignation or
removal.
DIRECTOR COMPENSATION
Directors who are officers of the Company receive no additional
compensation for serving on the Board of Directors. Directors who are not
officers of the Company, except Messrs. Anantharaman and O'Donnell, receive fees
of $1,000, $500 and $250 for each Board, Committee, and telephone meeting,
respectively, attended. All directors receive reimbursement for certain expenses
in connection with attendance at Board and Committee meetings. Further, upon
election to the Board of Directors, each outside director will be entitled to
receive an option for 5,000 shares of Common Stock with the exercise price equal
to the fair market value of the Common Stock on the date of the grant and
vesting in three equal annual installments. See "-- Stock Plans -- Director
Option Plan."
The Company has a verbal consulting arrangement with ODD, a consulting and
investment advisory services company, whereby ODD provides consulting services
on general business operations and corporate investments and assistance with
respect to merger or acquisition opportunities. Mr. O'Donnell, a director of the
Company, is the Chairman of the Board, President and Chief Executive Officer and
a 75% stockholder of ODD. Currently, ODD is paid $12,000 per month plus expenses
for such services. The fees were determined by negotiation between the parties.
The amount paid to ODD by IMHI for consulting services totaled $122,570,
$155,901 and $157,064, including expenses, in the years ended December 31, 1994,
1995 and 1996, respectively. For the year ended December 31, 1996, the Company
paid $43,749, including expenses, for such consulting services. See "Certain
Transactions."
The Company has a consulting agreement with EGL, a venture capital firm,
whereby EGL provides consulting services on general business operations and
corporate investments including financial analysis, review of industry trends
and assistance with respect to merger or acquisition opportunities. EGL and the
Company have agreed to terminate this consulting agreement immediately prior to
the consummation of this offering. Mr. Anantharaman, a director of the Company,
is a partner of EGL. The consulting agreement expires on June 30, 1999 and
provides for a monthly consulting fee of $5,000 plus expenses. The fees were
determined by negotiation between the parties. The amount paid to EGL by IMHI
under the consulting agreement totaled $44,530, $64,868 and $49,346, including
expenses, in the years ended December 31, 1994, 1995 and 1996, respectively. For
the year ended
41
<PAGE> 43
December 31, 1996, the Company paid $15,000, including expenses, under the
consulting agreement. See "Certain Transactions."
Prior to becoming a director of the Company, Mr. Jackson was paid an
aggregate of $11,000 for assistance with a series of strategic planning meetings
during the summer of 1996. See "Certain Transactions."
For a description of certain options granted to certain directors of the
Company, see "-- Grants of Stock Options." In addition to the option grants
described in such section, options for an aggregate of 83,019 shares of Common
Stock were granted to EGL by IMHI at an exercise price of $6.25 per share on
September 23, 1996. Mr. Anantharaman, a director of the Company, is a partner of
EGL. Additional options for 25,000 shares of Common Stock and 66,981 shares of
Common Stock were granted to ODD by IMHI at an exercise price of $7.00 per share
on August 28, 1996, and $6.25 per share on September 23, 1996, respectively. Mr.
O'Donnell, a director of the Company, is the Chairman of the Board, President
and Chief Executive Officer and a 75% stockholder of ODD.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's accounting
practices and financial results, consults with and reviews the services provided
by the Company's independent accountants and reviews and approves (with the
concurrence of a majority of the disinterested directors of the Company)
transactions, if any, with affiliated parties. The current members of the Audit
Committee are Messrs. Anantharaman and O'Donnell. The Compensation Committee
reviews and recommends to the Board of Directors the compensation and benefits
of all the executive officers of the Company, administers the Company's
compensation and benefit plans, and reviews general policies relating to
compensation and benefits of employees of the Company. The current members of
the Compensation Committee are Messrs. Jackson and O'Donnell.
EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth all compensation paid by IMHI and the
Company for the years ended December 31, 1996, 1995 and 1994 to the Chief
Executive Officer and to certain other most highly compensated executive
officers (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) --------------------
--------------------------- NUMBER OF SECURITIES ALL OTHER
SALARY BONUS UNDERLYING OPTION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) GRANTS(#) ($)
- --------------------------- ---- -------- -------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Gary M. Bremer..................... 1996 $340,000(3) $ 40,000 183,324 $ 8,656(4)
Chairman of the Board and 1995 -- -- -- --
former Chief Executive Officer(2) 1994 -- -- -- --
Barrett C. O'Donnell............... 1996 -- -- 91,981 186,533(6)
Former Chairman of the 1995 -- -- 45,000 111,103(6)
Board and Chief 1994 -- -- -- 120,170(6)
Executive Officer of IMHI(5)
James R. Henderson................. 1996 225,000(3) -- 202,526 --
President and Chief Executive 1995 -- -- -- --
Officer 1994 -- -- -- --
William J. Simione, Jr............. 1996 300,000(3) -- 60,557 --
Vice Chairman of the Board and 1995 -- -- -- --
Executive Vice President 1994 -- -- -- --
Gary W. Rasmussen.................. 1996 200,000(3) -- 24,773 4,344(4)
Chief Operating Officer 1995 -- -- -- --
1994 -- -- -- --
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) --------------------
--------------------------- NUMBER OF SECURITIES ALL OTHER
SALARY BONUS UNDERLYING OPTION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) GRANTS(#) ($)
- --------------------------- ---- -------- -------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
James A. Tramonte.................. 1996 150,000(3) -- 24,773 3,794(4)
General Counsel and 1995 -- -- -- --
Secretary 1994 -- -- -- --
Jay Shevins........................ 1996 173,891 -- -- 2,900(8)
Former Senior 1995 193,193 1,275 -- --
Vice President of IMHI(7) 1994 189,303 250 5,750 6,842(8)
</TABLE>
- ------------------------------
(1) Does not include the value of perquisites and other personal benefits
provided to the Named Executive Officers which in the aggregate did not
exceed the lesser of $50,000 or 10% of such officer's salary and bonus.
(2) Mr. Bremer served as Chief Executive Officer of the Company from October 8,
1996 until April 10, 1997.
(3) Represents the annualized salary the executive officer would have received
had he joined the Company on January 1, 1996. Messrs. Bremer, Henderson,
Simione, Rasmussen and Tramonte joined the Company on October 8, 1996. The
annualized salary set forth herein is based on payments made by the
Registrant from October 8, 1996 until December 31, 1996.
(4) Represents life insurance and disability insurance premium payments.
(5) Mr. O'Donnell served as Chairman of the Board and Chief Executive Officer of
IMHI until October 8, 1996.
(6) Represents amounts paid to ODD by IMHI and the Company for consulting and
investment advisory services. Mr. O'Donnell is the Chairman of the Board,
President and Chief Executive Officer and a 75% shareholder of ODD. See
"-- Director Compensation."
(7) Mr. Shevins served as Senior Vice President of IMHI until October 8, 1996.
Mr. Shevins continues to serve as Senior Vice President of InfoMed, Inc., a
subsidiary of the Company.
(8) Represents reimbursements for certain medical expenses.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options by IMHI and the Company to the Named
Executive Officers during the year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEE IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Bremer.............. 165,157 18.09% $ 3.16 1/18/06 $ 328,218 $ 831,768
18,167 1.99 5.00 9/04/06 57,126 144,768
Barrett C. O'Donnell........ 25,000 2.74 7.00 8/28/06 110,057 278,905
66,981 7.34 6.25 9/23/06 263,275 667,190
James R. Henderson.......... 27,526 3.02 5.00 9/04/06 86,555 219,347
175,000 19.17 10.50 10/08/06 1,155,594 2,928,502
William J. Simione, Jr...... 38,536 4.22 3.16 1/18/06 76,583 194,076
22,021 2.41 5.00 9/04/06 69,244 175,479
Gary W. Rasmussen........... 2,752 .30 3.16 1/18/06 5,469 13,860
22,021 2.41 5.00 9/04/06 69,244 175,479
James A. Tramonte........... 2,752 .30 3.16 1/18/06 5,469 13,860
22,021 2.41 5.00 9/04/06 69,244 175,479
Jay Shevins................. -- -- -- -- -- --
</TABLE>
43
<PAGE> 45
- ---------------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the Commission and therefore are not intended to
forecast possible future appreciation, if any, of the price of the Common
Stock. The actual value, if any, that an executive officer may ultimately
realize will depend on the excess of the stock price over the exercise price
on the date the stock option is exercised. Therefore, there can be no
assurance that the value realized by an executive officer upon actual
exercise of the stock options granted in 1996 will be at or near the
Potential Realizable Value indicated in the table.
STOCK OPTION EXERCISES AND FISCAL YEAR END STOCK OPTION VALUE
The following table sets forth information concerning the exercise of stock
options and the value of unexercised stock options held at the end of the fiscal
year ended December 31, 1996 by each Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Bremer............. $ -- $ -- 165,157 18,167 $ 902,583 $ 65,855
Barrett C. O'Donnell....... -- -- 252,581 -- 1,347,996 --
James R. Henderson......... -- -- -- 202,526 -- 99,782
William J. Simione, Jr..... -- -- 38,536 22,021 210,599 79,826
Gary W. Rasmussen.......... -- -- 2,752 22,021 15,040 79,826
James A. Tramonte.......... -- -- 2,752 22,021 15,040 79,826
Jay Shevins................ -- -- 7,110 -- 25,087 --
</TABLE>
- ---------------
(1) Dollar values were calculated by determining the difference between the fair
market value of the underlying securities at year-end ($8.625 per share) and
the exercise price of the options. Fair market value of the underlying
securities at year-end reflects the Stock Split and assumes that the fair
market value of such underlying securities would have in fact increased from
$4.3125 (actual) per share to $8.625 (adjusted) per share.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Gary M. Bremer, its
Chairman of the Board. The agreement provides for an initial base salary of
$329,000 and, commencing in 1997, an annual bonus of $70,000 if the Company
achieves certain financial results. In addition, Mr. Bremer receives up to
$46,000 per year for certain car, membership and insurance allowances. The
agreement was signed on December 10, 1996 and has an initial three year term
which will renew for additional one year terms unless terminated by either
party. The agreement further provides that if Mr. Bremer is terminated for any
reason other than for cause (as defined in the agreement), or if Mr. Bremer
terminates the agreement for good reason (as defined in the agreement), he shall
be entitled to the compensation remaining under the current term of the
agreement. The agreement contains non-compete provisions restricting Mr. Bremer
during the term of the agreement and for one year thereafter.
SCI has an employment agreement with Mr. William J. Simione, Jr., Vice
Chairman of the Board and an Executive Vice President of the Company. The
agreement provides for a base salary of $300,000 plus certain benefits and a
potential bonus to be paid at the discretion of the Board of Directors. The
agreement was signed on January 1, 1996 and has an initial five year term that
can be renewed for
44
<PAGE> 46
additional one year terms unless terminated by either party. The agreement
provides for different severance payments if there is a change in control of the
Company based upon the circumstances and timing of Mr. Simione's termination of
employment with respect to the change in control. The agreement also contains a
non-compete provision restricting Mr. Simione during the term of the agreement
and for one year thereafter.
STOCK PLANS
Director Option Plan. The Company maintains the Simione Central Holdings,
Inc. 1997 Nonqualified Formula Stock Option Plan (the "Director Plan"). The
Board of Directors has reserved 25,000 shares of Common Stock for issuance
pursuant to awards that may be made under the Director Plan subject to
adjustment as provided therein. The number of shares of Common Stock associated
with any forfeited option are added back to the number of shares that can be
issued under the Director Plan.
The awards under the Director Plan are determined by the express terms of
the Director Plan. The Director Plan will be administered by a committee (the
"Committee"), the members of which are appointed by the Board of Directors. The
Committee will consist of at least one or more members of the Board of Directors
who will not receive a grant of an option under the Director Plan and who are
not currently eligible to receive a grant of an option under the Director Plan.
The members of the Committee are currently Mr. James R. Henderson and Mr.
William J. Simione, Jr. The Committee will have the authority in its sole
discretion to interpret the Director Plan, to grant options under and accordance
with the provisions of the Director Plan, and to make all other determinations
and to take all other actions it deems necessary or advisable for the
implementation and administration of the Director Plan.
Only nonemployee directors of the Company are eligible to participate in
the Director Plan. The Director Plan contemplates awards that are granted upon a
nonemployee director's initial appointment to the Board of Directors providing
an option to purchase 5,000 shares of Common Stock at a price per share exercise
price equal to the then fair market value of a share of Common Stock.
The Director Plan was effective on January 1, 1997 and will continue to be
effective until ten years after the earlier of the effective date of the
Director Plan or the date the stockholders approve the Director Plan, unless
sooner terminated by the Board of Directors.
The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are subject
to adjustment in the event of any recapitalization of the Company or similar
event, effective without receipt of consideration. The number of shares of stock
subject to options granted in connection with awards are also subject to
adjustment in such events. In the event of certain corporate reorganizations and
similar events, the options may be adjusted or, with regard to vested options,
cashed out depending upon the nature of the event. As of April 1, 1997, options
for 5,000 shares of Common Stock have been granted under the Director Plan.
1996 Stock Option Plan. The Company maintains the 1996 Stock Option Plan
(the "Stock Option Plan"). The Stock Option Plan provides for the grant of
incentive stock options and non-qualified stock options to key employees,
officers, directors, consultants and affiliates of the Company. The Board of
Directors has reserved 528,504 shares of Common Stock for issuance pursuant to
awards that may be made under the Stock Option Plan, subject to adjustment as
provided therein. The number of shares of Common Stock associated with any
forfeited option are added back to the number of shares that can be issued under
the Stock Option Plan.
Awards under the Stock Option Plan will be determined by the Compensation
Committee of the Board of Directors. The Stock Option Plan permits the
Compensation Committee to make awards of options (the "Options") to purchase
shares of Common Stock.
The number of shares of Common Stock as to which an Option is granted and
to whom any Option is granted will be determined by the Compensation Committee,
subject to the provisions of the Stock
45
<PAGE> 47
Option Plan. The Compensation Committee will determine whether an Option is an
incentive stock option or a non-qualified stock option at the time the Option is
granted.
The exercise price of an Option is established by the Compensation
Committee. The exercise price of an incentive stock option may not be less than
the fair market value of the Common Stock on the date of the grant (or less than
110% of the fair market value if the participant controls more than 10% of the
voting power of the Company or a subsidiary). Nonqualified stock options may be
made exercisable at a price equal to, less than or more than the fair market
value of the Common Stock on the date that the Option is awarded. The
Compensation Committee may permit an Option exercise price to be paid in any
form permitted in the agreement, including, but not limited to, cash or delivery
of shares.
The term of an Option shall be specified in the applicable option
agreement; provided that, the Option is only exercisable to the extent the
Option is vested pursuant to a written vesting formula in the option agreement.
The term of an incentive stock option may not exceed ten years from the date of
grant; however, any incentive stock option granted to a participant who controls
more than 10% of the voting power of the Company or a subsidiary will not be
exercisable after the expiration of five years after the date the Option is
granted. Subject to any further limitations in an option agreement, in the event
of a participant's termination of employment, an incentive stock option will
become unexercisable no later than three months after the date of such
termination of employment; provided, however, that if such termination of
employment is due to death or disability, one year shall be substituted for the
three-month period.
The Stock Option Plan was effective on January 12, 1996 and will continue
to be effective until ten years after the earlier of the effective date of the
Stock Option Plan or the date the stockholders approved the Stock Option Plan,
unless sooner terminated by the Board of Directors.
If the number of shares of Common Stock are increased or reduced by a
recapitalization, merger, consolidation, or similar capital adjustment, an
appropriate adjustment will be made to the number of shares under the Stock
Option Plan and subject to outstanding Options. In the event of a sale of
substantially all of the shares of Common Stock or property of the Company or a
merger, consolidation, dissolution, or liquidation of the Company, the
Compensation Committee has the right to terminate the Options granted under the
Stock Option Plan, to the extent provided in the applicable option agreement.
The Stock Option Plan may be amended, terminated, or suspended by the Board
of Directors. However, the Board of Directors cannot, except as provided in the
preceding paragraph, alter the number of shares that may be issued under the
Stock Option Plan or the exercise price of Options issued under the Stock Option
Plan. No such action by the Board of Directors may adversely affect the rights
of a holder of an Option without the holder's consent. As of March 28, 1997,
528,220 shares of Common Stock have been issued under the Stock Option Plan.
1994 Plan. The Company maintains the 1994 Incentive Stock Option and
Nonqualified Option Plan (the "1994 Plan"). The 1994 Plan authorizes the grant
of options (the "Options") for up to 100,000 shares of Common Stock of the
Company. The Company has registered the shares with the Commission on a
Registration Statement on Form S-8. The number of shares of Common Stock
associated with any forfeited Option are added back to the number of shares that
can be issued under the 1994 Plan. Awards under the 1994 Plan are determined by
the Compensation Committee. Key employees of the Company, its subsidiaries and
affiliates are eligible to be granted options under the 1994 Plan.
The 1994 Plan permits the Compensation Committee, in its discretion, to
determine which employees of the Company will be granted an Option, the number
of shares to be covered by each of the Options, and the time or times at which
the Options will be granted. However, no employee may receive an Option to
purchase more than 25,000 shares of Common Stock in a year. The 1994 Plan
permits the Compensation Committee to grant incentive stock options and
non-qualified stock options.
46
<PAGE> 48
The exercise price of an Option under the 1994 Plan will not be less than 100%
of the fair market value of the Common Stock at the time of the grant of the
Option. The exercise price of an incentive stock option for a participant who
owns more than 10% of the combined voting power of all classes of stock of the
Company or a subsidiary may not be less than 110% of the fair market value at
the time the incentive stock option is granted.
Options must be exercised by the end of the earlier of ten years from the
date of grant, or three months after the participant ceases to be an employee,
or such certain date provided under the terms of the Option. However, any
incentive stock option granted to a person who immediately after such Option is
granted controls more than 10% of the total combined voting power of all classes
of shares of stock of the Company or a subsidiary must be exercised no later
than five years from the date of the grant. In the event that the participant's
employment is terminated, the Option may, in the discretion of the Compensation
Committee, immediately terminate. If a participant who held an Option under the
1994 Plan dies while employed by the Company, the Option may be exercised within
six months after his death. If a participant becomes disabled or retires, any
Option held by the participant may be exercised by the participant for a period
of one year from the date of such disability or retirement or until the
expiration of the term stated on the Option, whichever period is shorter.
However, if the participant dies during the one year period, any unexercised
Option held by the participant shall be exercisable for a period of six months
from the date of death or until expiration of the stated term of the Option,
whichever term is shorter.
In the event of changes in the outstanding shares of Common Stock by reason
of share dividends, split-ups, recapitalization, mergers, consolidations,
combination or exchange of shares, separations, reorganizations, or
liquidations, the number and class of shares available under the 1994 Plan, in
any plan year and the maximum number of shares as to which Options may be
granted to any participant will be correspondingly adjusted by the Compensation
Committee.
The 1994 Plan will terminate and an Option will not be granted under the
1994 Plan after the day that is ten years from the date the 1994 Plan was
adopted. The Compensation Committee at any time may terminate, modify or amend
the 1994 Plan; provided, however, that any amendment which changes (i) the
maximum number of shares to which Options may be granted under the 1994 Plan,
(ii) the Option price other than to change the manner of determining the fair
market value of the Common Stock, (iii) the provisions relating to the
determination of employees to whom options will be granted and the number of
shares covered by such options, and (iv) the provisions relating to adjustments
to be made upon changes in capitalization will be subject to stockholder
approval. As of March 28, 1997, 99,400 options under the 1994 Plan have been
granted.
INCENTIVE PLAN
The Company maintains the Simione Central Holdings, Inc. Omnibus
Equity-based Incentive Plan (the "Incentive Plan"). The Incentive Plan provides
the Company with increased flexibility to grant equity-based compensation to key
employees, officers, directors, consultants and affiliates of the Company. The
Board of Directors has reserved 250,000 shares of Common Stock for issuance
pursuant to awards that may be made under the Incentive Plan, subject to
adjustment as provided therein. The number of shares of Common Stock associated
with any forfeited Stock Incentive (as defined below) are added back to the
number of shares that can be issued under the Incentive Plan.
The Incentive Plan is subject to approval of the stockholders within twelve
months after adoption of the Incentive Plan. The Incentive Plan was adopted by
the Board of Directors on March 26, 1997. If such approval is not obtained, any
stock incentives granted under the Incentive Plan will be void.
47
<PAGE> 49
Awards under the Incentive Plan will be determined by the Compensation
Committee of the Board of Directors. The Incentive Plan permits the Compensation
Committee to make awards of a variety of equity-based incentives, including
stock awards, incentive stock options and non-qualified stock options to
purchase shares of Common Stock, stock appreciation rights, phantom shares,
performance unit appreciation rights, and dividend equivalent rights
(collectively, "Stock Incentives").
Grants under the Incentive Plan are determined by the Compensation
Committee. Stock Incentives issuable may be made exercisable or settled at such
prices and may be made forfeitable or terminable under such terms as are
established by the Compensation Committee, to the extent not otherwise
inconsistent with the terms of the Incentive Plan. Each Stock Incentive will be
evidenced by a Stock Incentive Agreement or made subject to the terms of a Stock
Incentive Program, each containing terms and restrictions as the Compensation
Committee may deem appropriate. No participant, however, may be granted during
any one year period rights to shares of Common Stock under options and stock
appreciation rights which, in the aggregate, exceed 100,000 shares of Common
Stock.
The exercise price of an option is established by the Compensation
Committee. The exercise price of an incentive stock option may not be less than
the fair market value of the Common Stock on the date of the grant (or less than
110% of the fair market value if the participant controls more than 10% of the
voting power of the Company or a subsidiary). Nonqualified stock options may be
made exercisable at a price equal to, less than or more than the fair market
value of the Common Stock on the date that the option is awarded. The
Compensation Committee may permit an option exercise price to be paid in cash or
by the delivery of previously-owned shares of Common Stock, or to be satisfied
through a cashless exercise executed through a broker or by having a number of
shares of Common Stock otherwise issuable at the time of exercise withheld.
The term of an option will be specified in the applicable Stock Incentive
Agreement. The term of an incentive stock option may not exceed ten years from
the date of grant; however, any incentive stock option granted to a participant
who controls more than 10% of the voting power of the Company or a subsidiary
will not be exercisable after the expiration of five years after the date the
option is granted. Subject to any further limitations in a Stock Incentive
Agreement, in the event of a participant's termination of employment, an
incentive stock option will become unexercisable no later than three months
after the date of such termination of employment; provided, however, that if
such termination of employment is due to death or disability, one year will be
substituted for the three-month period.
Stock Incentives generally are not transferable or assignable during a
holder's lifetime. However, Stock Incentives may include exercise, conversion or
settlement rights to a holder's estate or personal representative in the event
of the holder's death or disability. At the Compensation Committee's discretion,
Stock Incentives that are subject to termination upon termination of employment
may be cancelled, accelerated, paid or continued, subject to the terms of the
applicable Stock Incentive Agreement and to the provisions of the Incentive
Plan.
The number of shares of Common Stock reserved for issuance in connection
with the grant or settlement of Stock Incentives or to which a Stock Incentive
is subject, as the case may be, and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company. In
the event of certain corporate reorganizations, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the
Compensation Committee, provided such adjustment is not inconsistent with the
terms of the Incentive Plan or any agreement reflecting the terms of a Stock
Incentive.
Although the Incentive Plan may be amended by the Board of Directors
without stockholder approval, the Board of Directors also may condition any such
amendment upon stockholder approval if stockholder approval is deemed necessary
or appropriate in consideration of tax, securities or other
48
<PAGE> 50
laws. No such action by the Board of Directors may adversely affect the rights
of a holder of a Stock Incentive without the holder's consent.
PROFIT SHARING PLAN
The Simione Central Holdings, Inc. Profit Sharing Plan (the "Profit Sharing
Plan") is a frozen plan and currently covers only those employees of the Company
who were participating in the Profit Sharing Plan as of November 1, 1996 and
former employees of CHHC with balances under the Profit Sharing Plan. No other
individuals are expected to become eligible participants in the Profit Sharing
Plan after November 1, 1996. The Company has no current plans to make further
contributions to the Profit Sharing Plan.
If the participant's employment is terminated and the participant's account
balance is $3,500 or less, payment of benefits will be made in a lump sum as
soon as administratively practicable after the close of the plan year in which
the termination occurs. A participant may elect to receive benefit payments in
either cash or Common Stock. In general, the Profit Sharing Plan provides that
participants may elect to receive distributions (i) commencing as soon as
administratively feasible after the end of the plan year in which the employee
terminates employment in cash paid in installments over five or more years, (ii)
commencing at the end of the sixth year following termination, in a cash lump
sum or cash installments over less than five years, or (iii) in Common Stock to
the extent the participant's account is invested in Common Stock. CHHC employees
participating in the Profit Sharing Plan as of the effective date of the CHHC
disposition are entitled to distributions from the Profit Sharing Plan as if
they terminated employment. As of March 28, 1997, the Profit Sharing Plan held
2,124,008 shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently comprised
of Messrs. Richard D. Jackson and Barrett C. O'Donnell. Mr. O'Donnell served as
Chairman of the Board and Chief Executive Officer of IMHI from November 1994 to
October 8, 1996. Mr. Jackson did not serve as an officer or employee of the
Company or any of its subsidiaries during the year ended December 31, 1996.
Except as set forth under "-- Director Compensation" and "Certain Transactions,"
there were no material transactions between the Company and any of the members
of the Compensation Committee during the year ended December 31, 1996.
49
<PAGE> 51
CERTAIN TRANSACTIONS
On March 31, 1994, IMHI sold $1.65 million of newly issued 10% Class A
Convertible Preferred Stock (the "Preferred Stock") through a private placement
to ODD and EGL. The financing included obtaining $1 million in cash from EGL and
the conversion of $650,000 of debt of IMHI held by ODD into the Preferred Stock.
The proceeds of the Preferred Stock were used, in part, to pay down $200,000 on
IMHI's line of credit which was guaranteed by ODD thereby reducing ODD's
obligations thereunder. In addition, the private placement included a commitment
from ODD and EGL to purchase, under certain circumstances, up to an additional
$1.5 million of the Preferred Stock to provide funding for acquisition purposes.
On February 24, 1995, IMHI sold $1,000,000 of newly issued Preferred Stock
through a private placement to ODD and EGL. The proceeds from the sale were used
for general working capital purposes except for $90,000 which was used to retire
amounts due to ODD. The Preferred Stock was entitled to annual dividends of no
less than the annual dividends declared for the common stock of IMHI plus 10%
per annum of the consideration received by IMHI for the issuance of the
Preferred Stock. Such dividends were payable in quarterly installments. The
number of shares of common stock of IMHI issuable upon conversion of the
Preferred Stock was determined by the original issue price of the Preferred
Stock divided by $2. In connection with the February 24, 1995 Preferred Stock
sale described above, EGL received 37,500 warrants to purchase 375,000 shares of
common stock of IMHI and ODD received 12,500 warrants to purchase 125,000 shares
of common stock of IMHI. Each warrant allowed for the purchase of 10 shares of
common stock of IMHI at a price of $1.00 per share. ODD owns more than 5% of the
Company's Common Stock. In addition, Mr. Barrett C. O'Donnell, a director of the
Company, is the Chairman of the Board, President and Chief Executive Officer of
ODD. Mr. Murali Anantharaman, a director of the Company, is a partner in EGL.
On March 31, 1994, IMHI entered into a First Refusal Agreement with Mr.
Frederick Neufeld, ODD, EGL and Mercury Asset Management, PLC. The First Refusal
Agreement provided that if any such party desired to sell shares of the
Preferred Stock it must first offer the shares to IMHI and the other parties on
the same terms as those which it proposed to sell the stock and in accordance
with the procedures set forth in such agreement. This agreement was terminated
in connection with the IMHI Acquisition.
On February 28, 1995, IMHI entered into a settlement agreement with Mr.
Neufeld, whereby Mr. Neufeld resigned as an employee, officer and director of
IMHI. Pursuant to the terms of the agreement, IMHI agreed to pay Mr. Neufeld a
total of $225,000 in 25 equal monthly installments of $9,000 commencing in March
1995, and to provide certain additional benefits through February 1996, and Mr.
Neufeld agreed to release and surrender options to purchase 34,000 shares of the
IMHI common stock. The agreement also prohibited Mr. Neufeld from competing in
any business of IMHI (as such phrase is defined in the agreement) until
September 1, 1996.
On October 5, 1994, IMHI received a total of $295,000 for working capital
purposes from the following related parties: $130,000 from ODD, $120,000 from
EGL and $45,000 from Dr. Zola Horovitz, a former director of IMHI. Promissory
notes for such amounts were issued to such parties. Under the terms of the
notes, the total principal plus interest at 11% per annum, was due and payable
on December 6, 1994. Any principal or interest not paid when due drew interest
thereafter at 20% per annum until paid. The notes were paid in full including
interest on January 4, 1996.
On January 1, 1996, IMHI entered into a lease agreement with Gateway LLC
with respect to the Company's Pompano Beach office. ODD owns 70% of Gateway LLC
and more than 5% of the Company's Common Stock. In addition, Mr. O'Donnell, a
director of the Company, is the Chairman of the Board, President and Chief
Executive Officer and a 75% stockholder of ODD. Pursuant to the lease agreement,
Gateway LLC leases approximately 20,291 square feet to the Company for a term of
five years that commenced on January 1, 1996. The Company has an option to renew
the lease for an additional five year term. Rental payments from IMHI and the
Company for the year ended December 31, 1996 totaled $272,869. The scheduled
annual rental payments for the remaining term are $223,201 during year two,
$233,347 during year three, $243,492 during year four and $253,638 during
50
<PAGE> 52
year five. The lease payments were determined by negotiation between the
parties. The Company believes that the terms of the lease agreement are at least
as favorable as could have been obtained elsewhere for similar facilities from
unaffiliated third parties.
During 1996, the Company entered into various capital lease agreements with
National Leasing, Inc. Mr. Gary M. Bremer, Chairman of the Board of the Company,
Mr. William J. Simione, Jr., Vice Chairman of the Board and Executive Vice
President of the Company, and Mr. Gary W. Rasmussen, Chief Operating Officer of
the Company, each respectively owns a 33.33% interest in National Leasing, Inc.
Each lease is for a three year term and provides for an interest rate of 14%.
Interest expense related to such capital leases totaled $22,215 during the year
ended December 31, 1996. The terms of the various lease agreements were
determined by negotiation between the parties. The Company believes that the
terms of the lease agreements are at least as favorable as could have been
obtained for similar assets from unaffiliated third parties.
On January 17, 1996, the Company entered into a lease agreement with S&S
Realty with respect to the Company's Hamden, Connecticut office. Mr. Simione
owns 45% of S&S Realty. Pursuant to the lease agreement, S&S Realty leases
approximately 6,500 square feet to the Company on a month-to-month basis. Rental
payments for the year ended December 31, 1996 totaled $112,539. The scheduled
annual rental payments for the remaining term are $10,833 per month. The lease
payments were determined by negotiation between the parties.
The Named Executive Officers listed below entered into promissory notes in
the amounts listed below in connection with money borrowed from the Company for
the purchase of Common Stock. Each promissory note was dated March 5, 1996 with
all principal and interest (5.05% per annum) due on December 5, 1996. Each such
promissory note was paid in full except for the promissory note of Mr. Bremer,
which has a current outstanding principal balance of $850,000 and has been
extended until such time as Mr. Bremer no longer personally guarantees $1.5
million of the Company's $2.5 million credit facility. The Company's $2.5
million credit facility is secured by the pledge of a $1 million certificate of
deposit of the Company. Pursuant to an agreement among Mr. Bremer and other
stockholders of the Company, any liability of Mr. Bremer as a result of calls on
Mr. Bremer's guarantee will be shared equally by Mr. Bremer, ODD and EGL.
<TABLE>
<S> <C>
Gary M. Bremer.............................................. $900,000
William J. Simione, Jr...................................... $225,000
Gary W. Rasmussen........................................... $ 90,000
</TABLE>
On October 7, 1996 and as a condition to the consummation of the IMHI
Acquisition, EGL, ODD, Mr. Anantharaman and certain other holders of shares of
IMHI Preferred Stock entered into an agreement with IMHI (the "Preferred Stock
Agreement"). Pursuant to the Preferred Stock Agreement, such holders agreed to
exchange all of their respective shares of Preferred Stock for Common Stock
based on a conversion price of $4.00 per share. In addition, such holders
received shares of Company Common Stock in lieu of cash dividends that were
payable on their respective shares of Preferred Stock. Mr. Anantharaman is a
partner in EGL. EGL is an affiliate of Rowan, which is a more than 5% beneficial
owner of the Common Stock. Mr. O'Donnell is a director and officer of ODD. ODD
is also a more than 5% beneficial owner of the Common Stock. In connection with
the Preferred Stock Agreement (i) Rowan received approximately 483,550 shares of
Common Stock, (ii) ODD received approximately 265,350 shares of Common Stock,
and (iii) Mr. Anantharaman received approximately 1,000 shares of Common Stock.
In addition, pursuant to the Preferred Stock Agreement, until the later of
EGL and ODD and their respective affiliates owning 5% or more of the Common
Stock or October 7, 1999, EGL and ODD are each entitled to designate one person
reasonably acceptable to the Company's Board of Directors to serve as a director
of the Company, and the Company shall use all reasonable efforts to cause the
election of such designees. Furthermore, EGL and ODD and their respective
affiliates agreed to be present, in person or by proxy, at every stockholder
meeting and to vote in favor of all nominees to the Company's Board of Directors
as approved by such Board, provided EGL's and ODD's designees are
51
<PAGE> 53
included with such nominees. Currently, Mr. Anantharaman is EGL's designee and
Mr. O'Donnell is ODD's designee to the Board of Directors.
On November 1, 1996, SCI entered into the Columbia Agreements with certain
affiliates of Columbia/HCA. As part of the negotiation of the Columbia
Agreements, Columbia/HCA required that SCI guarantee certain indemnity
obligations of the former stockholders of CHHC, including Mr. Bremer, to those
Columbia/HCA affiliates (the "Guaranty") for potential liabilities relating to
the Central Health Holding Company Employee Stock Ownership Plan Trust (the
"Plan") or its participants, including potential liabilities resulting from the
ongoing investigation of the Plan by the Department of Labor and the Internal
Revenue Service's audit of certain issues related to the Plan. The Plan was
converted into the Profit Sharing Plan and sponsorship of the Plan was
transferred from CHHC to the Company. Under the terms of the Guaranty, SCI
guarantees Columbia/HCA against losses arising from: (i) Plan losses arising
from a fiduciary breach, prohibited transaction or other violation of law
relating to the Plan; or (ii) liabilities related to the Plan which are not paid
by the former stockholders of CHHC other than the Plan, but only to the extent
such liabilities are not recovered by Columbia/HCA through other indemnity
provisions of the stock purchase agreement. Columbia/HCA's other sources of
potential recovery include amounts accrued on CHHC's closing balance sheet at
the time of sale and escrow accounts established for the benefit of Columbia/HCA
by the former stockholders of CHHC. SCI's maximum liability under the Guaranty
is limited to $20 million for obligations arising before November 1, 1997, $17.5
million for obligations arising before November 1, 1998, $15 million for
obligations arising before November 1, 1999, $15 million for obligations arising
before November 1, 2000 and $0 thereafter. At no time during the term of the
Guaranty shall SCI's liability exceed $20 million in the aggregate. Pursuant to
the Guaranty, SCI agreed that on each date that a guaranteed obligation is
required to be paid to Columbia/HCA, SCI shall grant Columbia/HCA a security
interest equal to the amount of the guaranteed obligation in all of SCI's
accounts receivable. SCI also granted to Columbia/HCA and the parties to the
Columbia Agreements the right to offset any liability arising under the Guaranty
against any payments due from such parties to SCI for information, management
and support services. At December 31, 1996, no claims had been made under the
Guaranty and currently the Company does not anticipate incurring any losses
associated with the Guaranty. See "Risk Factors -- Risks Related to the
Columbia/HCA Guaranty."
Mr. G. Blake Bremer, the son of Mr. Bremer, is currently serving as an
Assistant Vice President of the Company. As compensation for his services, Mr.
Blake Bremer is expected to be paid approximately $100,000 in 1997. Ms. Lori
Yawn Ferrero, the Company's Director of Human Resources, and Ms. Martha
Elizabeth Cavaiani, the Director of Marketing of the Company, are the
sisters-in-law of Mr. Gary M. Bremer. Ms. Ferrero and Ms. Cavaiani are each
expected to be paid approximately $83,200 and $82,600, respectively, in 1997 for
their services. In addition, Mr. William J. Simione, III, the son of Mr.
Simione, is currently serving as a Consulting Manager of the Company. As
compensation for his services, Mr. William J. Simione, III is expected to be
paid approximately $69,000 in 1997.
Mr. Jay Shevins served as a Senior Vice President of IMHI until October 8,
1996 and is presently serving as the Senior Vice President of InfoMed, Inc. On
September 9, 1994, Mr. Shevins entered into a severance agreement with IMHI
pursuant to which he will receive the equivalent of one years' salary if his
employment is terminated for any reason other than gross negligence or a breach
of fiduciary duty.
For a description of consulting arrangements between the Company and
certain directors, see "Management -- Director Compensation."
52
<PAGE> 54
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information at March 7, 1997 and as adjusted
to reflect the sale of shares by the Company and the Selling Stockholders, with
respect to (i) any person known to the Company to be the beneficial owner of
more than five percent of the Common Stock, (ii) all directors of the Company,
(iii) all Named Executive Officers, (iv) any Selling Stockholder, and (v) all
directors and executive officers as a group. The Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
the shares of Common Stock, except as noted below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
SHARES BENEFICIALLY OWNED NUMBER AFTER THE OFFERING
NAME AND ADDRESS ------------------------- OF SHARES ----------------------
OF BENEFICIAL OWNER NUMBER(1) PERCENT(2) OFFERED NUMBER(1) PERCENT(2)
------------------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Simione Central Holdings, Inc........... 2,124,008 35.5% 750,000 1,374,008 17.3%
Profit Sharing Plan Trust
c/o Trust Company of Knoxville, Inc.
620 Market Street, Suite 300
Knoxville, TN 37902
O'Donnell Davis, Inc.(3) ............... 1,124,473 17.6 -- 1,124,473 13.5
P.O. Box 7395
Princeton, NJ 08543
Barrett C. O'Donnell(4)................. 1,124,473 17.6 -- 1,124,473 13.5
P.O. Box 7395
Princeton, NJ 08543
Murali Anantharaman(5).................. 957,639 15.0 -- 957,639 11.5
2830 Shurburne Drive
Alpharetta, GA 30301
Gary M. Bremer(6)....................... 877,901 14.3 -- 877,901 10.8
6600 Powers Ferry Road
Atlanta, GA 30339
Rowan Nominees Limited(7)............... 884,873 14.0 -- 884,873 10.7
33 King William Street
London, EC4R 9AS
Howard B. Krone......................... 440,622 7.4 -- 440,622 5.6
3633 Tuxedo Road
Atlanta, GA 30305
Frederick Neufeld(8).................... 127,700 2.1 100,000 27,700 *
8 Hiland Drive
Belle Mead, NJ 08502
William J. Simione, Jr.(9).............. 117,408 2.0 -- 117,408 1.5
James R. Henderson...................... 15,774 * -- 15,774 *
Gary W. Rasmussen(10)................... 35,136 * -- 35,136 *
James A. Tramonte(11)................... 20,368 * -- 20,368 *
Richard D. Jackson...................... -- -- -- -- --
Jay Shevins(12)......................... 32,310 * -- 32,310 *
All directors and executive officers as
a group (9 persons)................... 3,152,403 45.1 -- 3,152,403 35.3
</TABLE>
53
<PAGE> 55
- ---------------
* Less than 1%
(1) Pursuant to Rule 13d-3 under the Exchange Act, beneficial ownership of a
security consists of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared investment power (including
the power to dispose or direct the disposition) with respect to a security
through any contract, arrangement, understanding, or relationship. The
number of shares of Common Stock includes the number of shares of Common
Stock which are subject to the exercise of options or warrants within 60
days of the date of this Prospectus.
(2) Percentages were calculated based on the ratio of the number of shares of
Common Stock beneficially owned by such beneficial owner as of the date of
this Prospectus to the sum of (a) the total number of outstanding shares of
Common Stock as of the date of this Prospectus and (b) the number of shares
of Common Stock issuable upon exercise of options or warrants held by the
applicable beneficial owner exercisable within 60 days of the date of this
Prospectus.
(3) Includes 135,000 shares issuable upon exercise of warrants and 252,581
shares issuable upon exercise of options.
(4) Mr. O'Donnell is a stockholder, director and officer of ODD. Accordingly,
pursuant to Rule 13d-3 under the Exchange Act, he is deemed to be an
indirect beneficial owner of the Company's securities beneficially owned by
ODD.
(5) Includes 2,964 shares as to which Mr. Anantharaman has sole voting power,
19,802 shares issuable upon exercise of options, 544,097 shares related to
Rowan Nominees Limited ("Rowan"), 50,000 shares issuable upon exercise of
warrants related to EGL, 309,833 shares issuable upon exercise of warrants
related to Rowan, and 30,943 shares issuable upon exercise of options
related to Rowan.
(6) Includes 165,157 shares issuable upon exercise of options. Excludes any
interest Mr. Bremer has in the Profit Sharing Plan.
(7) Includes 309,833 shares issuable upon exercise of warrants and 30,943
shares issuable upon exercise of options.
(8) Represents shares issuable upon exercise of options.
(9) Includes 38,536 shares issuable upon exercise of options.
(10) Includes 2,752 shares issuable upon the exercise of options. Excludes any
interest Mr. Rasmussen has in the Profit Sharing Plan.
(11) Includes 2,752 shares issuable upon the exercise of options. Excludes any
interest Mr. Tramonte has in the Profit Sharing Plan.
(12) Includes 7,110 shares issuable upon exercise of options.
For a description of a voting agreement among the Company, ODD, EGL, Mr.
Anantharaman and certain of their affiliates, see "Certain Transactions."
54
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares,
of which 20,000,000 shares have been designated Common Stock, par value $0.001
per share, and 10,000,000 shares have been designated Preferred Stock, par value
$0.001 per share. As of March 7, 1997 there were 5,986,117 shares of Common
Stock outstanding, held by 120 stockholders of record. In addition, there are
2,007,219 shares of Common Stock issuable pursuant to outstanding stock options
and warrants to purchase such shares. The following summary description of the
capital stock of the Company is also qualified in its entirety by reference to
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), which have been
incorporated by reference as exhibits to the Registration Statement.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders and to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor,
subject to preferences that may be applicable to any outstanding Preferred
Stock. In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All of the outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable. The rights,
privileges and preferences of Common Stock are subject to, and could be
adversely affected by, the issuance of Preferred Stock.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Board of Directors has
the authority to issue up to 10,000,000 shares of Preferred Stock in one or more
classes or series. Within the limitations established by law, the Board of
Directors is authorized to fix or alter the dividends rights, dividend rates,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences, conversion rights, voting rights and
other rights of any unissued shares of Preferred Stock, and to fix and amend the
number of shares constituting any issued or unissued series and the designation
thereof, or any of the foregoing. The issuance of Preferred Stock in certain
circumstances may have the effect of delaying, deterring or preventing a change
in control of the Company, may discourage bids for the Company's Common Stock at
a premium over the market price of the Common Stock and may adversely affect the
market price of, and the voting and other rights of the holders of, the Common
Stock. The Company currently has no shares of Preferred Stock outstanding and no
plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CERTIFICATE AND BYLAW PROVISIONS
The Company is not subject to the provisions of Section 203 of the General
Corporation Law of Delaware which governs certain "business combinations" and
which could prohibit or delay a merger, takeover or other change in control of
the Company. The Company's Bylaws, however, provide that special meetings of the
stockholders may only be called by the President of the Company or by the Board
of Directors. The General Corporation Law of Delaware further provides that in
order for any matter to be presented at a special meeting of the stockholders,
such matter must be included in the advance notice to the stockholders. The
foregoing provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of the Company.
55
<PAGE> 57
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law or
transactions in which the director derived an improper personal benefit.
Further, the Bylaws contain provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
REGISTRATION RIGHTS
Holders of approximately 4,771,500 shares of Common Stock and warrants and
options to purchase 1,905,758 shares of Common Stock have certain demand or
piggyback registration rights, subject to certain conditions and limitations.
Holders of demand registration rights (the "Demand Rights Holders") are entitled
to require the Company to register all or part of their respective shares for
public resale up to two times with respect to all Demand Right Holders excluding
the Profit Sharing Plan, and up to three times with respect to the Profit
Sharing Plan, but in no event more than three times collectively, subject to
certain conditions and limitations, whether or not the Company proposes to
register its Common Stock for sale. The rights of the Demand Rights Holders are
provided under the terms of a Registration Rights Agreement between the Company
and certain of the holders of registrable shares. The Company is obligated,
within 45 days after it becomes eligible for use of certain registration
statement forms that permit filings made by the Company under the Exchange Act
to be incorporated by reference, to file and seek to maintain a "shelf"
registration permitting resales of such shares from time to time subject to
certain limitations. In connection with these registrations, the Company is
obligated to pay all of the expenses of such registrations, other than
underwriters' and brokers' discounts and commissions. In addition, the Company
will, subject to certain limitations, indemnify any selling stockholder from and
against any liabilities arising under the Securities Act in connection with such
registrations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Company's Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
56
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of this
offering, the Company will have 7,936,117 shares of Common Stock outstanding
(assuming no exercise of outstanding stock options and warrants). In addition,
outstanding stock options and warrants to acquire 1,514,077 shares of Common
Stock are immediately exercisable as of the date of this Prospectus. Of the
7,936,117 shares to be outstanding upon completion of this offering,
approximately 1,983,220 shares outstanding as of March 7, 1997 and the 2,800,000
shares sold in this offering will be freely transferable without restriction
under the Securities Act, except for any shares held by or for the account of an
"affiliate" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act, or by an individual or entity subject to a contractual
restriction on resale. Approximately 3,152,897 of the remaining shares of Common
Stock are held by existing stockholders and are "restricted securities" as that
term is defined in Rule 144 ("Restricted Securities"). Approximately 3,083,356
shares of the Restricted Securities will become eligible for sale on October 9,
1997, subject to the expiration of the Lock-Up Agreement beginning 90 days after
the date of this Prospectus.
The executive officers and directors of the Company, the Selling
Stockholders and certain other stockholders, who in the aggregate will
beneficially hold approximately 4,994,733 shares of Common Stock after this
offering (assuming no exercise of the Underwriters' over-allotment option), have
agreed not to offer, sell or otherwise dispose of Common Stock during the 90-day
period following the date of this Prospectus without the prior written consent
of Hambrecht & Quist LLC (the "Lock-Up Agreement"). The Company has also agreed
not to offer, sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock, except issuances under the Company's outstanding stock
option plans and warrants, for a period of 90 days after the date of this
Prospectus, without the prior written consent of Hambrecht & Quist LLC.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the meaning
of Rule 144 for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) 1% of the
then outstanding shares of the Company's Common Stock (approximately 79,361
shares immediately after the offering); or (ii) the average weekly trading
volume of the Company's Common Stock in the applicable market during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission, or if no notice is required, the date of receipt of the order to
execute the transaction. Sales under Rule 144 are also subject to certain manner
of sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who owns Restricted Securities
that were purchased from the Company (or any affiliate) at least two years
previously, is entitled to sell such shares under Rule 144(k) (subject to the
foregoing Lock-Up Agreement, if applicable) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
A total of approximately 1,460,580 shares of Common Stock are reserved for
issuance under the Company's stock option plans and individual stock option
grants, of which approximately 1,419,700 options were issued and outstanding as
of March 7, 1997. The Company has filed a registration statement on Form S-8
under the Securities Act covering 100,000 shares of Common Stock reserved for
issuance under the 1994 Plan. See "Management -- Stock Plans." A total of
587,519 shares are also reserved for issuance upon the exercise of outstanding
warrants.
The Company intends to file a registration statement on Form S-8 to
register the Common Stock reserved for issuance under the Company's other stock
option plans (the "Plans"). Shares of Common Stock issued under any of the Plans
after the effective date of a registration statement registering Common Stock
issued or issuable under a Plan, and Common Stock outstanding under such Plan,
will be eligible for resale in the open market, except for shares held by
affiliates and shares subject to any contractual restrictions including any
applicable Lock-up Agreement.
57
<PAGE> 59
In addition, the Profit Sharing Plan will own 1,374,008 shares of Common
Stock after this offering (assuming no exercise of the Underwriters'
over-allotment option). Prior to the adoption of the Profit Sharing Plan by the
Company, CHHC was the sponsor of the Profit Sharing Plan. CHHC employees
participating in the Profit Sharing Plan as of the effective date of the CHHC
disposition are entitled to distributions from the Profit Sharing Plan as if
they terminated employment. Also, former employees of CHHC previously employed
by the Company who terminated employment with the Company during 1996 are also
entitled to distributions from the Profit Sharing Plan. In general, the Profit
Sharing Plan provides that participants may elect to receive distributions (i)
commencing as soon as administratively feasible after the end of the plan year
in which the employee terminates employment, in cash paid in installments over
five or more years, (ii) commencing at the end of the sixth year following
termination, in a cash lump sum or cash installments over less than five years,
or (iii) in Common Stock to the extent the participant's account is invested in
Common Stock. Distributions will generally be made as soon as administratively
feasible after the end of the year following termination of employment, but may
be delayed pending the Profit Sharing Plan's receipt from the Internal Revenue
Service of a determination that the Profit Sharing Plan continues to comply with
the requirements for tax qualification under the Internal Revenue Code of 1986,
as amended. The Company does not anticipate that distributions of Common Stock
will be made to eligible terminated participants prior to the third quarter of
1997. Sales of Common Stock by the Profit Sharing Plan or participants could
have a material adverse effect on the market price of the Common Stock.
The Company has granted registration rights to certain of its stockholders.
See "Description of Capital Stock -- Registration Rights."
58
<PAGE> 60
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
Hambrecht & Quist LLC, Jefferies & Company, Inc. and The Robinson-Humphrey
Company, Inc. (the "Underwriters"), have severally agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of shares
of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
Jefferies & Company, Inc....................................
The Robinson-Humphrey Company, Inc. ........................
---------
Total.............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and the Selling
Stockholders, their counsel and the Company's independent auditors. The nature
of the Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
In connection with past services provided by Jefferies & Company, Inc.
("Jefferies") to the Company, on October 8, 1996 the Company granted Jefferies a
warrant to purchase shares of Common Stock. Pursuant to the terms of such
warrant, as of April 10, 1997, Jefferies has the right to purchase 51,679 shares
of Common Stock at an exercise price of $6.23 per share. The warrant expires on
October 8, 1999.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the 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 other dealers.
After the public offering of the shares, the offering price and other selling
terms may be changed by the Underwriters. The Underwriters have informed the
Company that the Underwriters do not intend to confirm sales of accounts over
which they exercise discretionary authority.
One of the Selling Stockholders has granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 420,000 additional shares of Common Stock, respectively, at the
public offering price, less the underwriting discount, set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock offered hereby. Such Selling Stockholder will be
obligated, pursuant to the option, to sell shares to the Underwriters to the
extent the option is exercised. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
Certain stockholders of the Company, including the Selling Stockholders and
the directors and executive officers of the Company, who will own in the
aggregate 4,994,733 shares of Common Stock after this offering (assuming no
exercise of the Underwriters' over-allotment option), have agreed,
59
<PAGE> 61
subject to certain exceptions, not to offer, sell or otherwise dispose of any
shares of Common Stock beneficially owned by them during the 90-day period
following the date of this Prospectus without the prior approval of Hambrecht &
Quist LLC. In addition, the Company has agreed not to offer, sell, grant any
option to purchase or otherwise dispose of any shares of Common Stock during the
90-day period after the date of this Prospectus without the prior approval of
Hambrecht & Quist LLC, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its current stock option plans and under
currently outstanding options and warrants and may issue shares of Common Stock
in connection with certain acquisition transactions, provided such shares are
subject to the 90-day Lock-Up Agreement. Sales of such shares in the future
could adversely affect the market price of the Common Stock. Hambrecht & Quist
LLC may, in its sole discretion, release any of the shares subject to the
Lock-Up Agreements at any time without notice.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
60
<PAGE> 62
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company and the Selling Stockholders by Powell, Goldstein, Frazer &
Murphy LLP, Atlanta, Georgia. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts.
CHANGE IN ACCOUNTANTS
Effective January 23, 1997, the Company appointed Ernst & Young LLP as the
Company's independent accountants for the fiscal year ended December 31, 1996
and replaced Arthur Andersen LLP. The decision to change accountants was
approved by the Audit Committee of the Board of Directors of the Company acting
pursuant to authority granted by the Board of Directors.
Arthur Andersen LLP's reports on IMHI's Financial Statements for the three
years ended June 30, 1996 contained no adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the last three fiscal years ended June 30, 1996, there were no
disagreements between IMHI and Arthur Andersen LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to IMHI during the last three fiscal years
or in the subsequent interim period to the date hereof.
During the last three fiscal years and subsequent interim period to the
date hereof, the Company did not consult with Ernst & Young LLP regarding any of
the matters or events set forth in Item 304(a)(2)(I) and (ii) of Regulation S-K.
EXPERTS
The financial statements of the Company for the years ended December 31,
1994, 1995 and 1996 included in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing. The financial
statements of IMHI for the fiscal years ended June 30, 1994, 1995 and 1996
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report. The financial
statements in connection with Simione & Simione, CPAs -- Consulting Division (a
Division of Simione & Simione, CPAs, a Partnership) for the fiscal years ended
December 31, 1994 and 1995 have been included in reliance on the reports of
McGladrey & Pullen, LLP, independent auditors, given on the authority of that
firm as experts in accounting and auditing.
61
<PAGE> 63
SIMIONE CENTRAL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF SIMIONE CENTRAL
HOLDINGS, INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-3
Consolidated Statements of Operations for the Three Years
Ended December 31, 1996................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the Three Years Ended December 31, 1996............... F-5
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1996................................... F-6
Notes to Consolidated Financial Statements.................. F-7
CONSOLIDATED FINANCIAL STATEMENTS OF INFOMED HOLDINGS, INC.
Report of Independent Public Accountants.................... F-20
Consolidated Balance Sheets as of June 30, 1995 and 1996 and
September 30, 1996 (Unaudited)............................ F-21
Consolidated Statements of Operations for the Three Years
Ended June 30, 1996 and Three-Month Periods Ended
September 30, 1995 and 1996 (Unaudited)................... F-22
Consolidated Statements of Stockholders' Equity (Deficit)
for the Three Years Ended June 30, 1996................... F-23
Consolidated Statements of Cash Flows for the Three Years
Ended June 30, 1996 and Three-Month Periods Ended
September 30, 1995 and 1996 (Unaudited)................... F-24
Notes to Consolidated Financial Statements.................. F-25
FINANCIAL STATEMENTS OF SIMIONE & SIMIONE, CPAS --CONSULTING
DIVISION (A DIVISION OF SIMIONE & SIMIONE, CPAS, A
PARTNERSHIP)
Independent Auditor's Report................................ F-33
Statements of Net Assets as of December 31, 1994 and 1995... F-34
Statements of Divisional Operations for the Two Years Ended
December 31, 1995......................................... F-35
Statements of Divisional Equity for the Two Years Ended
December 31, 1995......................................... F-36
Statements of Divisional Cash Flows for the Two Years Ended
December 31, 1995......................................... F-37
Notes to Financial Statements............................... F-38
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Simione Central Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Simione
Central Holdings, Inc. as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simione Central Holdings, Inc. as of December 31, 1995 and 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Atlanta, Georgia
March 21, 1997, except for Note 16, as
to which the date is
, 1997
THE FOREGOING REPORT IS IN THE FORM THAT WILL BE SIGNED UPON THE EFFECTIVE
DATE OF THE ONE-FOR-TWO REVERSE STOCK SPLIT DESCRIBED IN NOTE 16 TO THE
FINANCIAL STATEMENTS.
Atlanta, Georgia
April 15, 1997
ERNST & YOUNG LLP
F-2
<PAGE> 65
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 323,023 $ 3,384,728
Accounts receivable, net of allowance for doubtful
accounts of $13,600 and $1,063,014, respectively....... 761,557 5,651,415
Note receivable from officer.............................. 252,075 --
Prepaid expenses and other current assets................. 30,360 870,729
----------- ------------
Total current assets.............................. 1,367,015 9,906,872
Purchased software, furniture and equipment, net............ 424,000 1,867,996
Intangible assets, net...................................... 36,831 5,922,755
Restricted cash and other assets............................ -- 1,078,056
----------- ------------
Total assets...................................... $ 1,827,846 $ 18,775,679
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 60,491 $ 3,199,353
Accrued compensation expense.............................. 40,894 666,650
Due to former parent company.............................. 1,076,855 --
Accrued liabilities....................................... -- 3,251,636
Customer deposits......................................... -- 1,679,565
Unearned revenues......................................... -- 2,006,044
Current portion of capital lease obligations.............. -- 306,466
----------- ------------
Total current liabilities......................... 1,178,240 11,109,714
Notes payable and capital lease obligations, less current
portion................................................... -- 2,986,267
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized at December 31, 1996; none issued or
outstanding............................................ -- --
Common stock, 100 no par shares and 20,000,000 $.001 par
shares authorized at December 31, 1995 and 1996,
respectively; 11 and 5,952,166 shares issued and
outstanding at December 31, 1995 and 1996,
respectively........................................... 2,443,013 5,952
Additional paid-in capital................................ -- 23,216,050
Stock subscription receivable............................. -- (850,000)
Accumulated deficit....................................... (1,793,407) (17,692,304)
----------- ------------
Total shareholders' equity........................ 649,606 4,679,698
----------- ------------
Total liabilities and shareholders' equity........ $ 1,827,846 $ 18,775,679
=========== ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 66
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues:
Information services................................. $ 4,875,012 $ 5,387,044 $ 14,848,861
Systems.............................................. -- -- 459,045
Support and consulting services...................... 7,235,332 7,834,999 10,686,735
----------- ----------- ------------
Total net revenues........................... 12,110,344 13,222,043 25,994,641
Costs and expenses:
Cost of information services......................... 2,492,261 2,630,208 8,258,458
Cost of systems...................................... -- -- 345,748
Cost of support and consulting services.............. 5,202,109 5,523,706 6,093,971
Selling, general and administrative.................. 2,958,371 3,095,293 7,037,446
Research and development............................. 2,165,217 2,928,961 5,676,898
Amortization and depreciation........................ -- -- 784,502
Purchased in-process research and development........ -- -- 12,573,931
Severance and other restructuring charges............ -- -- 1,214,669
----------- ----------- ------------
Total costs and expenses..................... 12,817,958 14,178,168 41,985,623
----------- ----------- ------------
Loss from operations................................... (707,614) (956,125) (15,990,982)
Other income (expense):
Interest expense..................................... -- -- (114,817)
Interest and other income............................ -- -- 206,902
----------- ----------- ------------
Net loss............................................... $ (707,614) $ (956,125) $(15,898,897)
=========== =========== ============
Net loss per share..................................... $ (0.24) $ (0.32) $ (3.71)
=========== =========== ============
Weighted average common shares......................... 2,994,856 2,994,856 4,287,956
=========== =========== ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 67
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON PAID-IN SUBSCRIPTION ACCUMULATED
SHARES STOCK CAPITAL RECEIVABLE DEFICIT
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993....................... 11 $ -- $ -- $ -- $ (129,668)
Net loss................... -- -- -- -- (707,614)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1994....................... 11 -- -- -- (837,282)
Capital contribution from
former parent company... -- 2,443,013 -- -- --
Net loss................... -- -- -- -- (956,125)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1995....................... 11 2,443,013 -- -- (1,793,407)
Capital contribution from
former parent company... -- 4,000,000 -- -- --
Distribution of 2,994,856
shares of no par common
stock and cancellation
of 11 shares of common
stock held by CHHC...... 2,994,845 -- -- -- --
Issuance of 964,418 shares
of no par Class A common
stock................... 964,418 3,051,369 -- (850,000) --
Purchase and cancellation
of 918 shares of no par
Class A common stock not
exchanged in reverse
acquisition............. (918) (9,866) -- -- --
Exchange of 3,958,356
shares of no par Class A
and B common stock for
3,958,356 shares of IMHI
$.001 par value common
stock................... -- (9,480,558) 9,480,558 -- --
Issuance of 1,949,269
shares of IMHI $.001 par
value common stock for
purchase of IMHI in
reverse acquisition..... 1,949,269 1,949 13,514,288 -- --
Issuance of 44,541 shares
of $.001 par value
common stock as
compensation and from
exercise of stock
options and warrants.... 44,541 45 221,204 -- --
Net loss................... -- -- -- -- (15,898,897)
---------- ----------- ----------- --------- ------------
Balance at December 31,
1996....................... 5,952,166 $ 5,952 $23,216,050 $(850,000) $(17,692,304)
========== =========== =========== ========= ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 68
SIMIONE CENTRAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (707,614) $ (956,125) $(15,898,897)
Adjustments to reconcile net loss to net cash used in
operating activities:
Purchased in-process research and development......... -- -- 12,573,931
Provision for doubtful accounts....................... -- -- 395,046
Amortization and depreciation......................... -- -- 784,502
Value assigned to stock purchase warrant.............. -- -- 100,000
Stock compensation expense............................ -- -- 58,500
Loss on sale of assets................................ -- -- 3,636
Changes in assets and liabilities:
Accounts receivable................................... (598,843) 95,360 (3,305,003)
Prepaid expenses and other current assets............. 8,397 (47,017) (553,630)
Other assets.......................................... -- -- (26,925)
Accounts payable...................................... 26,528 (11,414) 2,264,539
Accrued compensation expense.......................... (17,148) 23,158 142,867
Accrued liabilities................................... (13,902) (7,771) 768,284
Customer deposits..................................... -- -- 272,724
Unearned revenues..................................... -- -- 616,518
----------- ---------- ------------
Net cash used in operating activities......... (1,302,582) (903,809) (1,803,908)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of consulting division of Simione & Simione.... -- -- (2,000,000)
Cash received in reverse acquisition of IMHI............ -- -- 750,202
Purchase of software, furniture and equipment........... -- (424,000) (635,997)
Increase in restricted cash............................. -- -- (1,000,000)
Purchase of intangible assets........................... -- -- (64,123)
----------- ---------- ------------
Net cash used in investing activities......... -- (424,000) (2,949,918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from former parent company......... -- -- 4,000,000
Proceeds from notes payable............................. -- -- 2,499,800
Issuance of common stock, net of cash expenses.......... -- -- 2,191,503
Advances from (payments to) former parent company....... (854,704) 1,440,309 (1,076,855)
Repayment (issuance) of note receivable from officer.... -- (252,075) 252,075
Principal payments on capital lease obligations......... -- -- (45,741)
Payments of related party notes......................... -- -- (68,000)
Proceeds from exercise of stock options and warrants.... -- -- 62,749
----------- ---------- ------------
Net cash provided by (used in) financing
activities.................................. (854,704) 1,188,234 7,815,531
----------- ---------- ------------
Net (decrease) increase in cash and cash
equivalents................................. (2,157,286) (139,575) 3,061,705
Cash and cash equivalents, beginning of year............ 2,619,884 462,598 323,023
----------- ---------- ------------
Cash and cash equivalents, end of year.................. $ 462,598 $ 323,023 $ 3,384,728
=========== ========== ============
Supplemental disclosure of non-cash investing and
financing activities:
Capital contribution from former parent company....... $ -- $2,443,013 $ --
Software, furniture and equipment obtained through
capital leases..................................... -- -- 690,490
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 69
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Background: Incorporated in September 1991, as a wholly-owned subsidiary
of Central Health Holding Company, Inc. ("CHHC"), Central Health Management
Services, Inc. ("CHMS") provided information and management support services to
home health care providers. Central Health Services, Inc. ("CHS"), also a
wholly-owned subsidiary of CHHC, provided similar services to home health care
agencies owned by CHHC. On January 1, 1996, CHHC transferred at book value the
assets and employees related to CHS's information services and certain clinical
and financial support services to CHMS. Accordingly, the consolidated financial
statements give effect to the reorganization of these entities under common
control and reflect the combined operating results of CHMS and the transferred
CHS operations. On January 17, 1996, CHHC completed a pro-rata distribution of
the outstanding common stock of CHMS to its shareholders.
On October 8, 1996, InfoMed Holdings, Inc. ("IMHI") and CHMS merged in a
transaction accounted for as a reverse acquisition for financial reporting
purposes. In connection with the merger, IMHI issued 3,958,356 shares of its
common stock in exchange for all the outstanding common stock of CHMS, and
thereby, the former shareholders of CHMS acquired control of IMHI. As a result,
CHMS is considered the acquiring company; hence, the historical financial
statements of CHMS became the historical financial statements of IMHI and
include the results of operations of IMHI only from the effective acquisition
date. On December 19, 1996, IMHI changed its name to Simione Central Holdings,
Inc. (the "Company").
Overview: The Company is a leading provider of integrated systems and
services designed to enable home health care providers to more effectively
operate their businesses and compete in a managed care environment. The Company
offers two systems which provide a core platform of software applications and
can also incorporate specialized selected modules to enable customers to
generate and utilize comprehensive financial, operational and clinical
information. The Company's Shared Resource Solution offers customers an
outsourcing opportunity which incorporates the Company's proprietary NAHC IS
system software. Under this arrangement, the Company operates a data center
which stores customer data and allows them real-time, secure access through a
wide area communications network. The Company's In-House Solution, STAT 2,
offers similar functionality, but is licensed to customers for use on their own
computer systems. In addition to these two systems solutions, the Company's home
health care consulting services assist providers in addressing the challenges of
reducing costs, maintaining quality, streamlining operations and re-engineering
organizational structures. The Company also provides comprehensive agency
support services which include administrative, billing and collection, training,
reimbursement and financial management services, among others.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 70
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Revenues are derived from shared resource information management services,
agency support services, the licensing and sub-licensing of software, the sale
of computer hardware, professional and technical consulting services,
implementation and training services, software maintenance and support services,
as well as home health care management consulting services. Shared resource
information management and agency support services are provided under
contractual arrangement with terms typically ranging from three to five years.
Revenues from these contracts are recognized monthly as the related services are
rendered. Application software licenses, computer hardware and third-party
software revenues are recognized when the related products are delivered and
collectibility of fees is determined to be probable, provided that no
significant obligation remains under the contract. Revenues derived from the
sale of software licenses requiring significant modification or customization
are recorded based upon percentage of completion using labor hours or contract
milestones. Software support revenues are recognized ratably over the term of
the related agreement. All other service revenues are recognized as the related
services are performed.
CONCENTRATIONS AND MAJOR CUSTOMERS
The Company sells its systems and services to various companies in the
health care industry. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Current operations are charged with an allowance for doubtful
accounts based upon experience and any unusual circumstances which affect the
collectibility of receivables. Amounts deemed uncollectible are charged against
this allowance.
During 1994, 1995 and through October 1996, the Company derived the
majority of its revenue from services provided to its former parent company, see
Note 13. In addition, the Company had other major customers which comprised the
following percentages of total net revenue:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 19% 14% --
Customer B.................................................. -- -- 22%
</TABLE>
The Company is dependent upon certain third party software licenses as well
as certain contractual arrangements for provision of certain of its services,
see Note 15.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
RESTRICTED CASH
The Company's restricted cash of $1,000,000 is invested in a certificate of
deposit and secures $1,000,000 of borrowings outstanding under the Company's
lines of credit agreements, see Note 6.
PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment is stated at cost. Depreciation
is calculated for financial reporting purposes using the straight-line method
over the estimated useful lives (ranging from 1 to 10 years) of the assets or
lease term, whichever is shorter.
F-8
<PAGE> 71
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of computer
software products are research and development expense and are charged to
expense as incurred. The Company capitalizes costs incurred between the point of
establishing technological feasibility and general release when such costs are
material. As of December 31, 1996, the Company has no capitalized computer
software development costs.
INTANGIBLE ASSETS
Intangible assets arising principally from the accounting for acquired
businesses are amortized using the straightline method over the estimated useful
lives of the related assets which range from 4 to 11 years. The Company reviews
its long-lived and intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. The
measurement of possible impairment is based upon determining whether projected
undiscounted future cash flow from the use of the asset is less than the
carrying amount of the asset. As of December 31, 1996, in the opinion of
management, there has been no such impairment.
INCOME TAXES
The Company accounts for income taxes using the liability method which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and the tax bases of assets and liabilities.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number
of common shares outstanding during the period. The 2,994,856 shares of Class A
common stock issued in the reorganization of the Company on January 17, 1996
(see Note 12) have been treated as outstanding for all periods presented. Fully
diluted loss per share does not differ significantly from the primary loss per
share. Common stock equivalents relate to shares potentially issuable under
outstanding options and warrant agreements and are included in the loss per
share calculation if dilutive.
STOCK BASED COMPENSATION
Stock options are accounted for under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
The Company has included the pro forma equivalent disclosure information
required by SFAS No. 123, see Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and restricted cash: The carrying amounts
reported in the balance sheet for cash and cash equivalents and restricted cash
approximate their fair value.
Notes payable: The carrying amounts of the Company's notes payable
approximate their fair value.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In 1996 the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121
requires impairment losses to be recorded
F-9
<PAGE> 72
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
adoption of SFAS No. 121 did not have an impact on the Company's financial
statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1996
financial statement presentation.
2. ACQUISITIONS
On October 8, 1996, IMHI merged with CHMS. IMHI provides a comprehensive
package of software applications for home health care providers marketed under
the name STAT 2. In connection with the acquisition, each issued and outstanding
share of CHMS common stock was converted into and exchanged for the right to
receive .22021 shares of IMHI common stock as of the effective date. As a
result, IMHI issued 3,958,356 shares of common stock to CHMS's shareholders. In
addition, each of the outstanding shares of IMHI Class A Convertible Preferred
Stock was converted into and exchanged for shares of IMHI common stock and all
outstanding options and warrants to purchase CHMS common stock as of the
effective date were converted into the right to purchase shares of IMHI common
stock, provided that the number of shares to be so purchased and the respective
exercise prices thereof have been adjusted by the exchange ratio. The merger was
accounted for as a reverse acquisition under the purchase method of accounting.
As a result, for accounting purposes CHMS was considered as having acquired
IMHI. The historical financial statements of CHMS became the historical
financial statements of IMHI and include the results of operations of both
companies from the effective date. All share amounts have been retroactively
restated giving effect to the .22021 exchange ratio of CHMS shares for IMHI
shares. CHMS had been on a December 31 fiscal year end, and, therefore, the
fiscal year end of IMHI was changed to December 31. Effective December 19, 1996,
IMHI changed its name to Simione Central Holdings, Inc.
The purchase price of approximately $16,797,000 (including $760,000 of
acquisition costs and net liabilities assumed of $2,521,000) was allocated based
on the relative fair values of the assets acquired and liabilities assumed.
Approximately $12,574,000 of the purchase price was allocated to purchased in-
process research and development. This in-process research and development had
not reached technological feasibility and had no alternative future use, and
therefore, was charged to operations as of the acquisition date. In addition,
$4,223,000 of the purchase price was allocated to certain identifiable
intangible assets and will be amortized over the related assets estimated useful
life, see Note 5. The purchase price was determined based on the estimated value
of the outstanding 1,949,269 shares of IMHI common stock and options and
warrants to purchase IMHI common stock outstanding at the merger date.
Effective January 1, 1996, the Company purchased the assets of Simione &
Simione, CPA's -- Consulting Division (a division of Simione & Simione, CPAs, a
Partnership) ("Simione & Simione") for $2,000,000 in cash. Simione & Simione
provided a wide range of home health care consulting services. This acquisition
was accounted for using the purchase method. The entire purchase price was
allocated to goodwill and is being amortized over 10 years.
F-10
<PAGE> 73
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- CONTINUED
Pro forma information giving effect to the acquisitions as if they took
place on January 1, 1995, is as follows (unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996
------------ -----------
<S> <C> <C>
Net revenues............................................... $ 29,222,668 $34,774,875
Net loss................................................... (18,803,490) (3,266,402)
Net loss per share......................................... (3.80) (0.56)
</TABLE>
The 1995 pro forma net loss includes the $12,574,000 charge to operations
for the in-process research and development purchased. This pro forma
information does not purport to be indicative of the results that actually would
have occurred if the acquisitions had been effective on the dates indicated or
which may be obtained in the future.
3. LEASE RECEIVABLES
The Company provides lease financing to certain customers related to sales
of software licenses and computer hardware. Lease terms are generally five
years. Future minimum lease payments under these sales-type leases as of
December 31, 1996, of which the current portion is classified in accounts
receivable, are as follows:
<TABLE>
<S> <C>
1997........................................................ $105,432
1998........................................................ 28,212
--------
133,644
Interest portion............................................ (13,616)
--------
$120,028
========
</TABLE>
4. PURCHASED SOFTWARE, FURNITURE AND EQUIPMENT
Purchased software, furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- ----------
<S> <C> <C>
Equipment................................................... $ -- $ 855,428
Purchased software.......................................... 424,000 840,064
Furniture................................................... -- 491,666
Leasehold improvements...................................... -- 58,388
-------- ----------
424,000 2,245,546
Accumulated depreciation.................................... -- (377,550)
-------- ----------
$424,000 $1,867,996
======== ==========
</TABLE>
F-11
<PAGE> 74
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- AMORTIZATION
1995 1996 PERIOD
------- ---------- ------------
<S> <C> <C> <C>
Developed technology................................. $ -- $2,054,000 4 years
Goodwill............................................. -- 2,000,000 10 years
Trade name........................................... -- 1,142,000 11 years
Other................................................ 36,831 1,128,025 6-10 years
------- ----------
36,831 6,324,025
Accumulated amortization............................. -- (401,270)
------- ----------
$36,831 $5,922,755
======= ==========
</TABLE>
6. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
During 1996, a wholly-owned subsidiary of the Company entered into line of
credit agreements with a bank which provide for aggregate borrowing of
$2,500,000 and, as renewed, expire on January 17, 1998. Borrowings of $1,000,000
under these agreements bear interest at 8.72% and borrowings of $1,500,000 bear
interest at the bank's prime rate. Borrowings under these agreements aggregated
$2,499,800 at December 31, 1996, and are secured by a certificate of deposit of
$1,000,000, the subsidiary's accounts receivable, and certain other assets.
Additionally, borrowings under these agreements aggregating $1,500,000 are
personally guaranteed by a major shareholder and executive officer of the
Company.
The Company has entered into lease agreements with a related party (see
Note 14) for certain office and computer equipment and furniture with
approximate aggregate cost and net book value of $690,000 and $624,000,
respectively, at December 31, 1996. Additionally, the Company has other
equipment under capital leases with approximate aggregate cost and net book
value of $139,000 and $121,000, respectively, at December 31, 1996. Amortization
of these assets is included in the Company's depreciation expense and amounted
to approximately $84,000 for 1996.
Aggregate annual rental commitments under these capital leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1997........................................................ $ 373,197
1998........................................................ 341,752
1999........................................................ 222,513
---------
Total minimum payments............................ 937,462
Amount representing interest................................ (144,529)
---------
Present value of future minimum lease payments.............. $ 792,933
=========
</TABLE>
7. OPERATING LEASES
The Company leases its office facilities and certain furniture and
equipment under various operating lease agreements, some of which are with
related parties (see Note 14). These leases require the Company to pay taxes,
insurance and maintenance expenses, and provide for renewal options at the then
fair market rental value of the property. Amounts expensed under operating
leases were
F-12
<PAGE> 75
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OPERATING LEASES -- CONTINUED
approximately $1,569,000, $1,554,000 and $3,699,000 for the years ended December
31, 1994, 1995, 1996, respectively.
Future aggregate annual rental payments for operating leases with
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1997........................................................ $1,819,000
1998........................................................ 1,580,000
1999........................................................ 1,243,000
2000........................................................ 1,249,000
2001........................................................ 995,000
Thereafter.................................................. 994,000
----------
Total............................................. $7,880,000
==========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
On November 1, 1996, a wholly-owned subsidiary of the Company entered into
a series of five year contracts to provide shared resource information
management and agency support services to several affiliates of Columbia/HCA
Health Care Corporation ("Columbia/HCA"). As part of the negotiation of these
contracts, Columbia/HCA required that this subsidiary guarantee certain
obligations of the former shareholders of CHHC, as it related to the
administration and potential liabilities to the Central Health Holding Company,
Inc. Employee Stock Ownership Plan ( the "Plan") or its participants. Under the
terms of this guaranty agreement (the "Guaranty"), this subsidiary agreed to
guarantee Columbia/HCA against losses arising from the following: (i)
liabilities relating to the Plan for losses resulting from a fiduciary breach,
prohibited transaction or other violation of law relating to the Plan and (ii)
liabilities relating to the Plan which are not paid by the former stockholders
of CHHC other than the Plan, but only to the extent such losses are not
recovered by Columbia/HCA through other indemnity provisions of its agreement
with the former shareholders of CHHC. These indemnity provisions include amounts
accrued on CHHC's closing balance sheet at the time of sale and recoveries from
escrow accounts established for the benefit of Columbia/HCA by CHHC's former
shareholders. This subsidiary's maximum liability under the Guaranty is
$20,000,000 for claims of loss arising before November 1, 1997, $17,500,000 for
claims arising before November 1, 1998, and $15,000,000 for claims arising
before November 1, 2000. There is no liability for any claims arising after
November 1, 2000. However, the aggregate maximum liability under the Guaranty is
$20,000,000. Pursuant to the Guaranty, the subsidiary agreed that on each date
that a guaranteed obligation is required to be paid to Columbia/HCA, the
subsidiary shall grant to Columbia/HCA a security interest equal to the amount
of the guaranteed obligation in all the subsidiary's accounts receivable. This
subsidiary also granted to Columbia/HCA the right to offset any liability
arising under the Guaranty against any obligation of Columbia/HCA or its
affiliates to the subsidiary. The Department of Labor has an open investigation
relating to the Plan, and the Internal Revenue Service is also auditing certain
issues related to the Plan. At December 31, 1996, no claims had been made under
the Guaranty and the Company does not currently anticipate incurring any loss
associated with the Guaranty.
The Company is engaged in various legal and regulatory proceedings arising
in the normal course of business which management believes will not have a
material adverse effect on its financial position or results of operations.
F-13
<PAGE> 76
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SEVERANCE AND OTHER RESTRUCTURING CHARGES
As a result of the change in focus of the Company's business from providing
services to affiliates of CHHC, the Company incurred severance and certain other
restructuring costs totaling $1,215,000 in the fourth quarter of 1996. These
costs primarily relate to severance of seven terminated key employees and costs
to buyout a lease of equipment no longer useful to the Company. As of December
31, 1996, payments of $347,000 had been made against the accrued severance and
other restructuring charges.
10. INCOME TAXES
The Company has not incurred or paid any income taxes since its inception.
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. The components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss..................................... $ 237,880 $ 2,270,669
Accrued liabilities.................................... -- 547,259
Allowance for doubtful accounts........................ -- 409,119
Unearned revenues...................................... -- 304,934
Tax credit carryforward................................ -- 95,830
Other.................................................. 46,121 62,356
--------- -----------
Total deferred tax assets................................ 284,001 3,690,167
Deferred tax liabilities:
Purchased intangible assets............................ -- (1,532,009)
Depreciation........................................... -- (159,087)
--------- -----------
Total deferred tax liabilities........................... -- (1,691,096)
--------- -----------
Net deferred tax assets.................................. 284,001 1,999,071
Valuation allowance...................................... (284,001) (1,999,071)
--------- -----------
$ -- $ --
========= ===========
</TABLE>
The Company has approximately $5,975,000 of net operating losses for income
tax purposes available to offset future taxable income. Such losses expire
$3,159,000 in 2010 and $2,816,000 in 2011 and may be subject to certain
limitations for changes in ownership. Additionally, the Company has research and
development and alternative minimum tax credits of approximately $96,000 which
expire in years 2009 through 2011. A valuation allowance reducing net deferred
tax assets recognized to zero has been recorded based on management's assessment
that it is not "more likely than not" that the assets are realizable as of
December 31, 1996.
Approximately $500,000 of the net deferred tax assets related to the IMHI
acquisition will result in a credit to intangible assets if and when recognized.
F-14
<PAGE> 77
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES -- (CONTINUED)
Actual income tax expense differs from the "expected" amount (computed by
applying the U.S. Federal corporate income tax rate of 34% to income or loss
before income taxes) as follows for 1996:
<TABLE>
<S> <C>
Tax benefit computed at statutory rates..................... $(5,405,624)
State income taxes, net of Federal effect................... (635,956)
Non-deductible purchased in-process research and
development............................................... 4,778,094
Other, net.................................................. 14,264
Change in valuation allowance............................... 1,249,222
-----------
Income tax........................................ $ --
===========
</TABLE>
Prior to 1996, the Company's taxable loss was included in the consolidated
tax return of the former parent company. The former parent company utilized net
operating losses generated by the Company and did not allocate any benefit from
use of the net operating losses to the Company.
11. EMPLOYEE BENEFIT PLANS
CHHC sponsored the Central Health Holding Company, Inc. Employee Stock
Ownership Plan (the "Plan"), which covered substantially all full-time employees
of CHHC and its wholly-owned subsidiaries and was funded by cash contributions
from CHHC and its wholly-owned subsidiaries. The major asset of the Plan was
shares of CHHC common stock acquired by the Plan. In connection with the pro
rata distribution of the common stock of CHMS (see Note 1), the Plan received
shares of the Company's common stock. All of the Plan's assets are allocated to
each eligible employee's account and are held in trust until the employee's
termination, retirement, total disability or death. In connection with the sale
of CHHC to Columbia/HCA, the Plan was converted from an employee stock ownership
plan to the Simione Central Holdings, Inc. Profit Sharing Plan Trust, and the
sponsorship of the Plan was transferred from CHHC to the Company.
The consolidated financial statements include the Company's share of
employee benefit expense related to the Plan for the CHMS employees and also the
CHS employees (see Note 1). This expense was approximately $474,000 and $439,000
in 1994 and 1995, respectively.
The Company has adopted 401(k) plans that cover substantially all
employees. The Company contributes to the plans based upon the dollar amount of
each participant's contribution. The Company made contributions to these plans
of approximately $54,000 in 1996.
12. SHAREHOLDERS' EQUITY
In November 1995, CHHC made a capital contribution of $2,443,013 to the
Company, which used the proceeds to repay indebtedness of $2,443,013 to CHS.
CHMS was a separate legal entity and a wholly-owned subsidiary of CHHC as
of December 31, 1995. On January 6, 1996, CHMS formed CHMS Transitory Corp.
("Transitory Corp."). Transitory Corp. issued 2,994,856 shares of Class A Common
Stock and one share of Class B Common Stock, all of which were held by CHMS. On
January 16, 1996, CHMS and Transitory Corp. merged with Transitory Corp. as the
survivor. The 11 shares of CHMS Common Stock held by CHHC were canceled and CHHC
received the Class A and Class B Common Stock of Transitory Corp. Immediately
subsequent to the merger, Transitory Corp. amended it articles of incorporation
and changed its name to Central Health Management Services, Inc. On January 17,
1996, CHHC completed a pro-rata distribution to its shareholders of all the
outstanding capital stock of CHMS. The distribution was accomplished through
F-15
<PAGE> 78
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
the issuance of 3.411 Class A shares of CHMS common stock for each share of
CHHC's common stock held by the respective shareholder.
On January 17, 1996, CHHC made a $4,000,000 cash capital contribution to
CHMS. On March 5 and 22, 1996, employees of CHMS purchased 964,418 shares of
Class A Common Stock for aggregate consideration of $3,051,369. These shares
were purchased under the terms of a stock subscription agreement whereby 10% was
due at the date of purchase and the remainder was due on December 5, 1996. Stock
subscription receivable of $850,000 reported as a reduction to common stock
represents the amount not yet collected as of December 31, 1996. This amount is
due from a major shareholder and executive officer of the Company who has
personally guaranteed $1,500,000 of the Company's borrowings under its line of
credit agreements. The Company has agreed to defer payment of this receivable
until this individual is relieved from his personal guarantee of the Company's
indebtedness.
Holders of approximately 4,771,500 shares of common stock and warrants and
options to purchase 1,905,758 shares of common stock have certain demand or
piggyback registration rights, subject to certain conditions and limitations,
which entitle the holders to require the Company to register all or part of
their shares for public resale.
As of December 31, 1996, the Company has reserved 2,067,049 shares of
common stock for future issuance upon exercise of warrants and options to
purchase common stock. See Note 16.
STOCK OPTIONS
The Company has established two stock option plans, the 1994 Incentive
Stock Option and Non-Qualified Stock Option Plan (the "1994 Plan") and the 1996
Stock Option Plan (the "1996 Plan"), under which the Company is authorized to
grant options to purchase an aggregate of 628,504 shares of common stock.
Options granted under these plans must have an exercise price not less than the
fair market value at the date of grant. In addition to options granted under the
1994 Plan and 1996 Plan, the Company has granted non-plan options to certain
related parties. Such non-plan options were granted with exercise prices equal
to fair market value on the date of grant.
The Company had no stock option activity prior to 1996. A summary of the
Company's stock option activity for 1996 follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Granted..................................................... 751,260 $6.08
Assumed in IMHI purchase.................................... 722,174 2.90
Exercised................................................... (26,748) 1.04
Forfeited................................................... (40,049) 5.00
---------
Outstanding at December 31, 1996............................ 1,406,637 $4.58
=========
</TABLE>
F-16
<PAGE> 79
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- -------- ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.74 -- $2.26........................... 417,028 5.4 $1.34 417,028 $1.34
3.00 -- 5.26........................... 569,611 9.5 3.90 360,968 3.26
6.26 -- 10.50........................... 419,998 9.9 8.72 182,498 6.42
--------- ---------
1,406,637 8.4 $4.58 960,494 $3.02
========= =========
</TABLE>
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123 as if the Company had accounted for employee stock option grants
under the fair value method of SFAS No. 123. The fair value for options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996: risk-free interest rates of
6%; no dividends; a volatility factor of the expected market price of the
Company's common stock of 0.6; and a weighted-average expected life of the
options of 3.5 years. In addition, options assumed in the purchase of IMHI have
been included in the fair value estimates as if the options assumed were granted
by the Company on the purchase date and using an assumed exercise price of the
value of IMHI shares issued in the acquisition. The weighted average fair value
of options granted during 1996 was $1.80.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of the
stock options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss and net loss per share for 1996 were $(17,492,350)
and $(4.08), respectively.
STOCK PURCHASE WARRANTS
At December 31, 1996, the Company had outstanding warrants to purchase
shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
------- -------- -----------------
<C> <C> <S>
500,000 $ 1.00 February 24, 2005
77,519 6.22 October 8, 1999
10,000 11.26 --
-------
587,519
=======
</TABLE>
All outstanding warrants are exercisable except for a warrant to purchase
77,519 shares, for which the number of exercisable shares may be reduced
depending on the Company's closing stock price preceding April 9, 1997.
F-17
<PAGE> 80
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY -- (CONTINUED)
During 1996, the Company issued, and the holder exercised, a warrant for
the purchase of 11,010 shares of common stock at $3.16 per share.
13. TRANSACTIONS WITH FORMER PARENT COMPANY
The Company derived revenue from charges for the services provided to the
home health care agencies owned by CHHC. The charges were recorded, for purposes
of these consolidated financial statements, in an amount equal to the cost of
the services being provided and therefore generated no operating profit.
Revenues of $8,575,000, $9,077,000 and $12,051,000 were recognized in 1994,
1995, and 1996, respectively. In addition, CHHC charged the Company a management
fee for services provided to the Company. These services include facilities
management, legal, accounting, administrative, executive and office support
during 1994 and 1995. During 1996, the services provided were limited to legal
and executive. CHHC's charges are based on the allocated direct cost of the
various services being provided. Management fees in the amount of $3,164,000,
$3,594,000 and $432,000 were incurred in 1994, 1995, and 1996, respectively.
These arrangements terminated effective October 31, 1996.
Prior to 1996, the Company was charged by CHHC for its share of
self-insured medical and dental claims. The Company's share of expenses for this
program was $146,000 in both 1994 and 1995.
14. RELATED PARTY TRANSACTIONS
The note receivable from officer outstanding at December 31, 1995 was
payable on demand, bearing interest at the monthly federal short-term rate. The
Company received full payment of the note in 1996.
Gateway LLC, a company owned in part by a director of the Company, leases
an office facility to the Company under the terms of an agreement, which expires
January 1, 2001. Rent expense and related operating expenses paid to Gateway LLC
by the Company were $82,000 in 1996. Future annual rental payments under this
lease are $223,000 in 1997, $233,000 in 1998, $243,000 in 1999, and $254,000 in
2000.
A major shareholder and executive officer of the Company, along with
certain other shareholders, are shareholders of Healthfield, Inc.
("Healthfield"). The Company entered into a management services agreement with
Healthfield in February 1994. Healthfield paid the Company approximately
$2,287,000 and $1,913,000 in management fees during 1994 and 1995, respectively,
for certain administrative and financial services rendered to Healthfield in
accordance with the agreement. The management services agreement with
Healthfield was terminated in December 1995.
A major shareholder and executive officer along with certain other
executive officers of the Company are shareholders of National Leasing, Inc.
("National"). During 1996, the Company entered into various three-year capital
leases with National. Monthly payments to National under these lease agreements
are $23,600 and totaled $70,000 in 1996.
A shareholder of the Company owns a Company which leased computer equipment
to the Company during 1996 under an operating lease which expired in December
1996. Total payments in 1996 related to this lease were approximately $497,000.
A shareholder and executive officer of the Company is a partner in an
entity that leases an office facility to the Company on a month-to-month basis
for $10,800 per month. Rent expense and related operating expenses paid to this
entity were $112,000 in 1996.
F-18
<PAGE> 81
SIMIONE CENTRAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- CONTINUED
The Company has consulting agreements with two entities in which certain
directors of the Company have ownership interests. Aggregate monthly consulting
fees paid to these two entities approximate $20,000 and totaled $59,000 in 1996.
15. LICENSE AGREEMENTS
Certain software applications of the Company's Shared Resource Solution
incorporate software licensed from third parties. Under this license agreement,
the Company is obligated to pay royalties based on the volume of transactions
processed by the Company. Certain other agreements obligate the Company to pay
royalties based on a fixed percentage of net collected revenues from sales of
covered systems. In January 1996, the Company entered into an agreement with IBM
Global Services ("IBM") under which the Company obtains data processing and
network communication services. The agreement with IBM is for a ten year period
expiring December 31, 2005, and requires the Company to pay fees based on the
volume of transactions processed. The agreement requires minimum annual payments
and is cancelable by the Company for a stated termination charge.
16. SUBSEQUENT EVENTS
On March 26, 1997, the Company's Board of Directors approved the Simione
Central Holdings, Inc. Omnibus Equity-Based Incentive Plan (the "Incentive
Plan") and the Simione Central Holdings, Inc. Non-Qualified Formula Stock Option
Plan (the "Director Plan"), both of which are subject to shareholder approval.
The Company has reserved 250,000 and 25,000 shares of common stock for future
issuance under the Incentive Plan and Director Plan, respectively.
On , 1997, the Company effected a one-for-two reverse stock
split of the Company's outstanding common stock. All share and per share amounts
have been restated to reflect the reverse stock split for all periods presented.
F-19
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InfoMed Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of InfoMed
Holdings, Inc. (a Delaware Corporation) and subsidiaries as of June 30, 1995 and
1996 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended June
30, 1996. 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 InfoMed
Holdings, Inc. and subsidiaries as of June 30, 1995 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
September 23, 1996
F-20
<PAGE> 83
INFOMED HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------------- -------------
1995 1996 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 643,429 $ 1,116,222 $ 750,202
Accounts receivable, less allowance for doubtful
accounts of $2,044,000 $1,427,000, and $1,460,000
(unaudited), respectively......................... 1,623,587 1,759,865 2,434,625
Inventories.......................................... 338,175 157,475 101,034
Assets held for sale................................. 2,954,560 -- --
Prepaid expenses and other current assets............ 115,836 62,195 114,855
----------- ----------- -----------
Total current assets......................... 5,675,587 3,095,757 3,400,716
Property and equipment, at cost, net................... 719,441 670,497 630,750
Receivables due after one year, less allowance for
doubtful accounts of $76,000 in 1995 and $0 in
1996................................................. 148,857 66,763 1,366
Intangible assets, at cost, net........................ 749,995 124,995 9,583
Other assets........................................... 116,579 72,225 68,508
----------- ----------- -----------
Total assets......................................... $ 7,410,459 $ 4,030,237 $ 4,110,923
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 1,681,032 $ 170,188 $ 143,187
Accounts payable..................................... 3,053,604 1,258,680 874,323
Accrued compensation and benefits.................... 457,599 653,223 664,889
Other accrued liabilities............................ 1,134,669 1,734,868 1,543,131
Customer deposits.................................... 2,485,929 975,746 1,406,841
Unearned revenue..................................... 1,194,302 1,105,533 1,389,526
----------- ----------- -----------
Total current liabilities.................... 10,007,135 5,898,238 6,021,897
Long-term debt, less current portion................... 122,585 79,099 79,099
Other liabilities...................................... -- 33,883 33,883
----------- ----------- -----------
Total liabilities...................................... 10,129,720 6,011,220 6,134,879
----------- ----------- -----------
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.001 par value; 315,000
shares authorized; 265,000 shares issued and
outstanding....................................... 265 265 265
Common stock, $.001 par value; 20,000,000 shares
authorized; 2,307,204; 2,336,244; and 2,367,676
(unaudited) shares issued and outstanding,
respectively...................................... 2,307 2,337 2,368
Additional paid-in capital........................... 4,406,360 4,423,033 4,434,947
Accumulated deficit.................................. (6,946,725) (6,167,350) (6,222,268)
Treasury stock, 45,367 and 58,967 shares, at cost,
respectively...................................... (181,468) (239,268) (239,268)
----------- ----------- -----------
Total stockholders' deficit.................. (2,719,261) (1,980,983) (2,023,956)
----------- ----------- -----------
Total liabilities and stockholders'
deficit.................................... $ 7,410,459 $ 4,030,237 $ 4,110,923
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-21
<PAGE> 84
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software and equipment.......... $10,224,698 $ 5,473,930 $ 5,836,055 $1,886,325 $ 667,469
Maintenance and other
services..................... 8,555,835 9,023,070 7,637,670 1,873,136 1,884,632
----------- ----------- ----------- ---------- ----------
Total revenue........... 18,780,533 14,497,000 13,473,725 3,759,461 2,552,101
----------- ----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of software and
equipment.................... 5,623,365 5,394,489 1,272,699 813,280 424,314
Cost of maintenance and other
services..................... 2,952,303 3,444,266 2,490,623 551,985 557,552
Research and development........ 1,001,032 1,473,712 2,003,402 622,843 379,125
Selling, general and
administrative............... 6,900,495 8,794,469 6,246,715 1,619,877 1,006,987
Amortization and depreciation
expense...................... 1,422,488 1,721,360 955,815 248,607 178,412
Severance charge................ -- 304,283 -- -- --
----------- ----------- ----------- ---------- ----------
Total costs and
expenses.............. 17,899,683 21,132,579 12,969,254 3,856,592 2,546,390
----------- ----------- ----------- ---------- ----------
Income (loss) from operations..... 880,850 (6,635,579) 504,471 (97,131) 5,711
OTHER INCOME (EXPENSE):
Gain on sale of assets.......... -- -- 437,665 146,088 --
Interest income (expense),
net.......................... 86,082 (62,636) 19,799 (1,030) 5,621
Other income.................... -- -- 82,440 -- --
----------- ----------- ----------- ---------- ----------
Income (loss) before income tax
provision....................... 966,932 (6,698,215) 1,044,375 47,927 11,332
Income tax provision.............. 163,000 -- -- -- --
----------- ----------- ----------- ---------- ----------
Net income (loss)................. $ 803,932 $(6,698,215) $ 1,044,375 $ 47,927 $ 11,332
=========== =========== =========== ========== ==========
EARNINGS (LOSS) PER SHARE:
PRIMARY:
Earnings (loss) per share......... $ 0.26 $ (2.99) $ 0.22 $ (0.01) $ (0.02)
=========== =========== =========== ========== ==========
Shares used in computation........ 2,936,285 2,304,770 3,580,288 2,318,445 2,348,155
=========== =========== =========== ========== ==========
FULLY DILUTED:
Earnings per share................ $ 0.24 $ N/A $ N/A $ N/A $ N/A
=========== =========== =========== ========== ==========
Shares used in computation........ 3,357,064 N/A N/A N/A N/A
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-22
<PAGE> 85
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN (ACCUMULATED TREASURY
STOCK STOCK CAPITAL DEFICIT) STOCK TOTAL
----------- ------ ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993.......... $ -- $ -- $1,189,080 $ (815,587) $ -- $ 373,493
Exchange of shares................ -- 2,277 570,957 -- -- 573,234
Exercise of common stock
options......................... -- 21 7,898 -- -- 7,919
Issuance of preferred stock, net
of costs........................ 165 -- 1,629,835 -- -- 1,630,000
Receipt of common shares for
payment of debt................. -- -- -- -- (181,468) (181,468)
Dividends on convertible preferred
stock........................... -- -- -- (51,500) -- (51,500)
Net income........................ -- -- -- 803,932 -- 803,932
---- ------ ---------- ----------- --------- -----------
Balance at June 30, 1994.......... 165 2,298 3,397,770 (63,155) (181,468) 3,155,610
Issuance of preferred stock....... 100 -- 999,900 -- -- 1,000,000
Exercise of common stock
options......................... -- 2 1,217 -- -- 1,219
Exercise of warrants.............. -- 7 7,473 -- -- 7,480
Dividends on convertible preferred
stock........................... -- -- -- (185,355) -- (185,355)
Net loss.......................... -- -- -- (6,698,215) -- (6,698,215)
---- ------ ---------- ----------- --------- -----------
Balance at June 30, 1995.......... 265 2,307 4,406,360 (6,946,725) (181,468) (2,719,261)
Exercise of common stock
options......................... -- 30 16,673 -- -- 16,703
Repurchase of stock............... -- -- -- -- (57,800) (57,800)
Dividends on convertible preferred
stock........................... -- -- -- (265,000) -- (265,000)
Net income........................ -- -- -- 1,044,375 -- 1,044,375
---- ------ ---------- ----------- --------- -----------
Balance at June 30, 1996.......... $265 $2,337 $4,423,033 $(6,167,350) $(239,268) $(1,980,983)
==== ====== ========== =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-23
<PAGE> 86
INFOMED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------------- -------------------------
1994 1995 1996 1995 1996
---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ 803,932 $(6,698,215) $1,044,375 $ 47,927 $ 11,332
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Amortization and depreciation..................... 1,422,488 1,721,360 955,815 248,607 178,412
Provision for bad debt expense.................... 407,360 1,597,782 558,926 65,000 32,801
Provision for severance charge.................... -- 304,283 -- -- --
Gain on sale of assets............................ -- -- (437,665) (146,088) --
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECTS
FROM ACQUIRED ASSETS AND LIABILITIES IN 1994:
(Increase) decrease in accounts and other
receivables..................................... (2,492,992) 730,118 (413,110) 171,237 (642,164)
(Increase) decrease in inventories................ 571,534 (1,163) 180,700 53,067 56,441
(Increase) decrease in prepaid expenses and other
assets.......................................... 2,834 (38,434) 97,995 (6,079) (48,943)
Increase (decrease) in accounts payable........... 6,135 616,630 (1,794,924) (663,690) (384,357)
Increase (decrease) in accrued compensation and
benefits........................................ (158,392) (430,432) 195,624 (386,075) (246,321)
Increase (decrease) in other accrued
liabilities..................................... 81,508 142,817 335,199 -- --
Increase (decrease) in customer deposits and
unearned revenue................................ 386,660 2,185,771 (1,515,462) (504,010) 715,088
Increase (decrease) in other liabilities.......... (48,424) (131,076) 33,883 -- --
---------- ----------- ---------- ---------- ----------
Net cash provided by (used for) operating
activities.......................................... 982,643 (559) (758,644) (1,120,104) (327,711)
---------- ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (327,942) (245,601) (362,098) (95,830) (23,253)
Proceeds from sale of certain assets of Script
Systems, Inc...................................... -- -- 2,766,987 2,767,000 --
Proceeds from sale of building...................... -- -- 421,975 -- --
Increase in capitalized software costs and other
intangibles....................................... (813,429) (874,325) -- -- --
Increase in organization and share exchange costs... (77,791) -- -- -- --
Pharmacy software sold.............................. 37,758 -- -- -- --
Addition of cash from Script Systems, Inc........... 46,758 -- -- -- --
---------- ----------- ---------- ---------- ----------
Net cash provided by (used for) investing
activities.......................................... (1,134,646) (1,119,926) 2,826,864 2,671,170 (23,253)
---------- ----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on bank debt..................... (465,457) (148,247) (1,040,000) (553,019) (27,001)
Principal payments on notes and capitalized
leases............................................ -- (60,337) (219,330) -- --
Proceeds from (repayments of) related party notes... -- 295,000 (295,000) -- --
Proceeds from issuance of common stock.............. 7,919 -- -- -- --
Proceeds from issuance of preferred stock, net of
costs............................................. 980,000 1,000,000 -- -- --
Proceeds from exercise of warrants and options...... -- 8,699 16,703 8,811 11,945
Proceeds from sale-leaseback........................ -- 225,371 -- -- --
Purchase of treasury stock.......................... -- -- (57,800) (30,000) --
Escrow funds held by bank........................... -- -- -- (525,000) --
Dividends paid on preferred stock................... (77,750) (41,250) -- -- --
---------- ----------- ---------- ---------- ----------
Net cash provided by (used for) financing
activities.......................................... 444,712 1,279,236 (1,595,427) (1,099,208) (15,056)
---------- ----------- ---------- ---------- ----------
Net increase in cash and cash equivalents............. 292,709 158,751 472,793 451,858 (366,020)
Cash and cash equivalents, beginning of year.......... 191,969 484,678 643,429 643,429 1,116,222
---------- ----------- ---------- ---------- ----------
Cash and cash equivalents, end of year................ $ 484,678 $ 643,429 $1,116,222 $1,095,287 $ 750,202
========== =========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................ $ 186,413 $ 111,585 $ 94,310 $ 35,852 $ --
========== =========== ========== ========== ==========
Preferred dividends accrued -- not paid............... $ -- $ 144,105 $ 265,000 $ 66,250 $ 66,250
========== =========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-24
<PAGE> 87
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: InfoMed Holdings, Inc. ("IMHI") through its
operating subsidiary, InfoMed, Inc. ("InfoMed") designs, markets, services and
supports information systems which are sold in the home health industry.
On August 26, 1993, pursuant to the terms of an exchange offer, IMHI
combined business operations of InfoMed and Script Systems, Inc. ("Script"), a
provider of management information systems and services to medical offices,
clinics and hospital departments. The exchange was accounted for as a purchase
of Script by InfoMed with 2,276,905 common shares of IMHI exchanged for the
common and preferred shares of InfoMed and Script. The financial results of
Script have been included in the accompanying consolidated financial statements
from the date of the combination. On August 28, 1995, IMHI completed the sale of
substantially all assets of Script (see Note 12).
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of IMHI and its subsidiaries, InfoMed and Script. All significant
intercompany accounts and transactions have been eliminated.
MANAGEMENT ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION: Revenue from the sale of software licenses and
hardware is generally recognized upon shipment of the product, provided that no
significant obligations remain and collection of the receivables is considered
probable. Revenues derived from contracts requiring significant production,
modification, or customization of software are recorded based on percentage of
completion using labor hours or contract milestones. Revenue from software
maintenance agreements is deferred and recognized ratably over the term of the
agreements. Revenue from and the related costs associated with hardware
maintenance agreements are recognized upon signing of the contract by the
customer since future obligations are assigned to a third party and no
additional costs are incurred upon the assignment to the third party. Revenue
from training and consulting is recognized as the related services are
performed.
CONCENTRATION OF CREDIT RISK: IMHI sells its products to various companies
in the healthcare industry. IMHI performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. IMHI maintains an allowance for uncollectible accounts receivable
based upon expected collectibility of all accounts receivable.
CASH EQUIVALENTS: All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents. Market
value of cash equivalents approximates cost.
INVENTORIES: Inventories, which primarily consist of equipment to be
delivered to customers, are stated at the lower of cost, using the first-in,
first-out (FIFO) method, or market.
F-25
<PAGE> 88
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed for financial reporting purposes on the straight-line
method over the estimated useful lives of the assets, or lease term, whichever
is shorter, and are as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION LIFE
-------------------- ---------
<S> <C>
Buildings................................................... 33 years
Furniture and fixtures...................................... 5-7 years
Equipment................................................... 3-5 years
Leasehold improvements...................................... 10 years
</TABLE>
INTANGIBLE ASSETS: Intangible assets primarily represents certain software
costs for products and product enhancements that are capitalized after
technological feasibility has been established. These costs are amortized
ratably using the straight-line method over the estimated useful lives of the
assets as set forth in Note 4. During 1996, IMHI reviewed its product
development process and determined that technological feasibility is currently
being established upon completion of a working model. Costs incurred in 1996
between completion of the working model and the point at which the product is
ready for general release have been insignificant. Therefore, IMHI capitalized
no costs in 1996. Capitalized software development costs amounted to $813,429
and $874,325 in 1994 and 1995, respectively. Amortization of capitalized
software development costs, which is included in amortization and depreciation
in the accompanying consolidated statements of operations, aggregated $496,272
in 1994, $749,084 in 1995 and $663,602 in 1996. Research and development
expenditures, other than those qualifying for software capitalization, are
charged to expense in the period incurred.
IMHI reviews its long-lived and intangible assets for impairment whenever
events or changes in circumstances indicate the carrying amount may not be
recoverable. The measurement of possible impairment is based on determining
whether projected undiscounted future cash flows from the use of the asset is
less than the carrying amount of the asset. As of June 30, 1996, in the opinion
of management, there has been no such impairment.
INCOME TAXES: Income taxes are provided for in accordance with Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The statement
requires IMHI follow the liability method of accounting for income taxes which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and the tax bases of assets and liabilities.
EARNINGS (LOSS) PER SHARE: Primary earnings per common share is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of shares and share equivalents outstanding during the period.
Fully diluted earnings per share is computed by dividing net income (loss)
available to common stock holders by the number of shares and share equivalents
outstanding at the end of the period assuming the conversion of the Preferred
Stock. Common stock equivalents are included in the earnings (loss) per share
calculation unless such equivalents are antidilutive. Fully diluted earnings per
share are not presented for the years ended June 30, 1995 and 1996 because fully
diluted earnings per share amounts for these periods do not differ significantly
from primary earnings per share.
STOCK BASED COMPENSATION: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123.
"Accounting for Stock-Based Compensation" ("SFAS No. 123") which establishes
financial accounting and reporting standards for stock based employee
compensation plans. Companies are encouraged, rather than required to adopt a
new method that accounts for stock compensation awards based on their fair value
using an option pricing model. Companies that do not adopt this method will have
to make pro forma disclosures of net income as if the fair value based method of
accounting required by this standard had been applied.
F-26
<PAGE> 89
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMHI is required to adopt SFAS No. 123 effective July 1, 1996. IMHI has elected
to adopt the disclosure requirement of the pronouncement.
PRESENTATION AND RECLASSIFICATIONS: Certain items in the 1994 and 1995
Consolidated Financial Statements have been reclassified for comparative
purposes.
UNAUDITED INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements included all adjustments,
consisting only of normal recurring accruals, which IMHI considers necessary for
a fair presentation of the financial position of IMHI as of September 30, 1996
and the results of operations for the three months ended September 30, 1995 and
1996, as presented in the accompanying unaudited interim financial statements.
NOTE 2. LEASE RECEIVABLES
IMHI provides financing to certain customers on sales of software and
equipment. Lease terms are generally five years. Future minimum lease payments
under these sales-type leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $134,399
1998........................................................ 72,038
--------
206,437
Less: interest portion...................................... 27,184
--------
$179,253
========
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land........................................................ $ 81,149 $ --
Building and improvements................................... 161,746 --
Equipment................................................... 1,117,280 1,442,546
Furniture and fixtures...................................... 184,657 197,646
Leasehold improvements...................................... 103,876 24,484
---------- ----------
1,648,708 1,664,676
Less: accumulated depreciation.............................. 929,267 994,179
---------- ----------
$ 719,441 $ 670,497
========== ==========
</TABLE>
NOTE 4. INTANGIBLE ASSETS
Intangible assets consisted of the following at June 30:
<TABLE>
<CAPTION>
ESTIMATED
LIFE
(IN YEARS) 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Software development costs, net of accumulated
amortization of $1,125,054 and $1,745,054,
respectively......................................... 3 $734,162 $114,162
Organization and share exchange costs, net of
accumulated amortization of $9,167 and $14,167,
respectively......................................... 5 15,833 10,833
-------- --------
$749,995 $124,995
======== ========
</TABLE>
F-27
<PAGE> 90
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. DEBT
Debt consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Line of credit.............................................. $ 600,000 $ --
Note payable to Bank........................................ 440,000 --
Note payable to members of the Board of Directors and their
affiliates, interest at 11%............................... 295,000 --
Notes payable to Fred Neufeld (Note 11)..................... 205,920 102,010
Capitalized leases.......................................... 255,538 147,277
Other....................................................... 7,159 --
---------- ----------
1,803,617 249,287
Less: current portion....................................... 1,681,032 170,188
---------- ----------
Total long term debt.............................. $ 122,585 $ 79,099
========== ==========
</TABLE>
At June 30, 1995, $600,000 was outstanding under an $800,000 line of credit
agreement with United Jersey Bank (the "Bank"). This line of credit expired on
October 31, 1995, was fully repaid, and was not renewed. Borrowing under the
line required interest at 1% above the Bank's floating base rate (which averaged
9.9% and 9.0% in 1995 and 1996, respectively). Maximum and average borrowings
under the line were $600,000 and $480,000, respectively, during 1996.
Under a Loan and Security Agreement with the Bank the note payable to Bank
required monthly payments of principal of $10,000 plus interest at the Bank's
floating base rate, which averaged 9.0% during 1996, plus 1.0%. The loan was
repaid on March 31, 1996.
On October 5, 1994, IMHI executed promissory notes totaling $295,000 with
certain members of its Board of Directors and their affiliates. The proceeds of
the notes were used for short-term working capital needs. Under the terms of the
notes, the total principal, plus interest at 11% per annum, was due and payable
on December 6, 1994. The notes were paid in full on January 4, 1996.
Interest of $58,900, $5,512 and $41,607 was paid to related parties in
1994, 1995 and 1996, respectively.
In August 1994, IMHI entered into a sale-leaseback agreement. Under the
agreement, the Company sold fixed assets, predominantly computer equipment with
a book value of approximately $247,000, and leased them back for a period of
forty-eight months. IMHI has received a total of $225,371 relating to this
agreement.
The amount of annual principal payments for the next three fiscal years are
as follows:
<TABLE>
<S> <C>
1996........................................................ $170,188
1997........................................................ 72,668
1998........................................................ 6,431
--------
$249,287
========
</TABLE>
NOTE 6. PREFERRED STOCK AND COMMON STOCK
Pursuant to an agreement dated February 24, 1995, IMHI sold securities
consisting of (i) 100,000 shares of 10% Convertible Preferred Stock; and (ii)
100,000 warrants to purchase common stock to certain members of its Board of
Directors and their affiliates at a price of $10 per security. Each
F-28
<PAGE> 91
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrant allows for the purchase of 10 shares of common stock at a price of $.50
per share. The total proceeds from the sale, which were used for general working
capital purposes, were $1,000,000.
During 1994, IMHI's former President tendered 45,367 shares of IMHI's
common stock to IMHI, valued at $181,468 (fair market value at date of tender),
in order to repay a portion of outstanding loans and interest due to the
Company. The remaining balance was eliminated in connection with the severance
agreement discussed in Note 11.
On March 31, 1994 IMHI issued 165,000 shares of 10% Convertible Preferred
Stock through a private placement to O'Donnell Davis and EGL Holdings and
Affiliates ("EGL") for $1,000,000 in cash and conversion of $650,000 of debt
held by O'Donnell Davis. The Convertible Preferred Stock is entitled to
dividends of no less than the annual dividends declared for the common stock
plus 10% per annum of the consideration received by IMHI for the issuance of the
Convertible Preferred Stock. Dividends are payable in quarterly installments.
The number of common stock shares issuable upon conversion of the
Convertible Preferred Stock is determined by the original issue price of the
convertible preferred stock divided by $2. IMHI has agreed to reserve 2,075,000
shares of its common for conversion of the Convertible Preferred Stock.
Under an Incentive Stock Option and Nonqualified Stock Option Plan (the
"Plan"), a maximum of 200,000 shares of common stock have been reserved for
issuance under the Plan and no more than 50,000 shares may be granted to any one
employee in any Plan year. The option price shall be at least 100% of the fair
market value of the shares at the time of granting the options. Additionally,
any option granted to a 10% stockholder must have an option price of at least
110% of the fair market value of the share at the time of granting the option.
Options are not exercisable prior to the expiration of twelve months following
the date of grant and must be exercised within ten years from the date of grant.
However, options to 10% or greater stockholders must be exercised within five
years from the date of grant.
The following is a summary of certain information pertaining to common
stock options and common stock warrants.
<TABLE>
<CAPTION>
WARRANTS OPTIONS
-------- ---------
<S> <C> <C>
Balance at June 30, 1993.................................... 36,800 942,164
Issued ($3.25).............................................. -- 25,000
Expired ($0.37 - $9.05)..................................... (10,000) (60,612)
Exercised ($0.37)........................................... -- (21,488)
------- ---------
Balance at June 30, 1994.................................... 26,800 885,064
Issued ($0.50 - $2.13)...................................... 100,000 2,000
Expired ($0.37 - $6.55)..................................... -- (77,740)
Exercised ($0.37 - $1.10)................................... (6,800) (2,011)
------- ---------
Balance at June 30, 1995.................................... 120,000 807,313
Issued ($1.13 - $2.00)...................................... -- 309,247
Expired ($1.10 - $5.95)..................................... -- (25,540)
Exercised ($0.37 - $1.10)................................... -- (29,040)
------- ---------
Balance at June 30, 1996.................................... 120,000 1,061,980
======= =========
</TABLE>
At June 30, 1996, all of the warrants (which are convertible into ten
shares of common stock) and 1,049,760 of the options were exercisable.
F-29
<PAGE> 92
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. INCOME TAXES
The components of the income tax provision for continuing operations are as
follows for the years ended June 30:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $ -- $ -- $ --
State........................................ 30,000 -- --
Deferred....................................... 133,000 -- --
-------- -------- --------
$163,000 $ -- $ --
======== ======== ========
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expenses for financial and income tax reporting purposes. The
deferred tax provision of $133,000 for the year ended June 30, 1994 relates to
Script's book income. Due to the utilization of Script's net operating loss
carryforwards, there was no taxable income and such utilization was reflected as
a reduction of goodwill.
Deferred income taxes reflect the net effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts of assets and liabilities. As of June 30, 1995 and
1996, the components of IMHI's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
Capitalized software costs............................... $ 432,000 $ 44,000
Amortization and depreciation............................ 126,000 151,000
------------ -----------
Gross deferred tax liabilities........................... 558,000 195,000
------------ -----------
Net operating loss carryforwards......................... 2,890,000 805,000
Bad debts................................................ 856,000 499,000
Accrued liabilities...................................... 188,000 138,000
Deferred income.......................................... 94,000 359,000
------------ -----------
Gross deferred tax asset................................. 4,028,000 1,801,000
------------ -----------
Deferred tax asset valuation allowance................... (3,470,000) (1,606,000)
------------ -----------
Net deferred tax asset................................... $ -- $ --
============ ===========
</TABLE>
Due to the uncertainty of realization of the deferred tax asset, a
valuation allowance has been established.
Income tax provision (benefit) from continuing operations at the statutory
income tax rate is reconciled below to the total tax expense recorded for
financial statement purposes for the years ended June 30:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit) from continuing
operations at the US federal statutory rate of
35%............................................ $ 328,757 $(2,277,000) $ 365,000
State taxes, net of federal income tax effect.... 13,200 -- --
Amortization of nondeductible intangibles........ 84,205 207,000 35,000
Utilization of net operating loss................ (289,274) -- (416,000)
Non-recognition of net operating loss............ -- 2,028,000 --
Other............................................ 26,112 42,000 16,000
--------- ----------- -----------
$ 163,000 $ -- $ --
========= =========== ===========
</TABLE>
F-30
<PAGE> 93
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1996, IMHI has net operating loss carryforwards of
approximately $2,300,000 for tax purposes which are subject to certain
limitations as to their use and expire through 2010. InfoMed has investment and
other tax credit carryforwards of approximately $73,000 which expire in 2009.
NOTE 8. COMMITMENTS AND CONTINGENCIES
IMHI leases its office facilities and certain computer equipment under
various operating lease agreements (see Note 10). These leases require the
Company to pay taxes, insurance and maintenance expenses, and provide for
renewal options at the then fair market rental value of the property.
The aggregate annual rental commitments under all non-cancelable operating
leases as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $226,000
1998........................................................ 237,000
1999........................................................ 247,000
2000........................................................ 258,000
2001........................................................ 269,000
</TABLE>
Rental expense was $583,021, $598,547 and $567,425 for the years ended June
30, 1994, 1995 and 1996, respectively.
IMHI has employment and consulting agreements (see Note 10) which require
future minimum compensation of $96,000 in 1997 and $60,000 in 1998 and 1999.
IMHI is engaged in various legal proceedings which management believes will
not have a material adverse effect on its financial position or results of
operations. IMHI is involved in certain other claims, litigation and/or
regulatory matters arising in the normal course of business which are not
considered material.
NOTE 9. PROFIT SHARING PLAN
InfoMed has a nonqualified employee incentive plan which provides for
profit sharing contributions at the discretion of management. Employees become
vested over a 15 year period. There were no contributions made in 1994, 1995, or
1996.
NOTE 10. RELATED PARTY TRANSACTIONS
Since January 7, 1992, EGL has been retained by IMHI to provide consulting
services on corporate investments. The consulting agreement extends through June
30, 1999, and provides for a monthly consulting fee of $5,000 plus expenses.
Payments for expenses totaled $24,012 for 1994, $2,993 for 1995, and $4,731 for
1996. Two partners of EGL are also Directors of IMHI.
O'Donnell Davis, which is 75% owned by the Chairman of IMHI, provided
consulting services to IMHI of $161,792, $147,817 and $175,000 plus expenses
relating to travel of $9,560, $35,270 and $30,100 in 1994, 1995 and 1996,
respectively, under terms of an amended agreement which expired December 31,
1994. However, O'Donnell Davis continues to provide management and consulting
services for a monthly fee of $14,583 plus expenses.
A shareholder in O'Donnell Davis is a partner in a firm which provides
legal services to IMHI. Fees for services provided amounted to $166,860,
$199,273 and $140,492 in 1994, 1995 and 1996, respectively.
Gateway, LLC, a company owned in part by certain members of IMHI's Board of
Directors and their affiliates, leases an office facility to IMHI under the
terms of an agreement, which was renewed as
F-31
<PAGE> 94
INFOMED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of January 1, 1996, for a period of five years with a five year renewal option.
Prior to August 1, 1994, the property was owned by O'Donnell Davis. Rent expense
and related operating expenses were $128,166 in 1994, $191,258 in 1995 and
$197,772 in 1996.
NOTE 11. SEVERANCE CHARGE
On February 28, 1995, IMHI entered into a Settlement Agreement (the
"Agreement") with its President who terminated his employment with IMHI and a
severance charge of approximately $304,000 was recorded. Under the terms of the
Agreement, the President receives monthly payments of $9,000 on a non-interest
bearing promissory note through March 1, 1997. In addition, certain employee
benefits remained in effect through February 1996. Loans to the former President
of $84,664 have been offset against the severance amounts payable.
NOTE 12. SALE OF ASSETS
On August 28, 1995, IMHI sold substantially all of the assets of Script to
Medic Computer Systems, Inc. ("Medic") for $2,967,000 resulting in a gain of
approximately $146,000 which is included in the gain on sale of assets. The book
value on the date of sale of the assets and liabilities sold were as follows:
accounts receivable of $518,000, fixed assets of $172,000, software development
costs of $422,000, other intangibles of $2,245,000, less deferred maintenance of
$546,000 and other liabilities of $114,000. IMHI retained the obligations to
deliver and the rights to revenue of the backlogged Script orders while Medic
assumed ongoing support and maintenance obligations.
On a pro forma basis, IMHI, without Script, would have generated
$11,446,000 of revenues, net income of $50,000 and a net loss per share of $0.06
for the year ended June 30, 1996.
On October 23, 1995, IMHI sold certain property with a book value of
$130,400 for $421,975.
NOTE 13. SUBSEQUENT EVENT
On September 5, 1996, IMHI and Central Health Management Services, Inc.
("CHMS") entered into an Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which CHMS will be merged with a wholly-owned subsidiary of IMHI. In
connection therewith, each issued and outstanding share of CHMS common stock
will be converted into and exchanged for the right to receive 0.22021 shares
(approximately 8,000,000 shares) of IMHI's common stock (the "Exchange Ratio").
Any shares of CHMS common stock held by IMHI or any of its subsidiaries, any
shares held in treasury by CHMS and any shares held by subsidiaries of CHMS will
be canceled and retired and no consideration will be issued in exchange
therefore. In addition, any shareholders of CHMS who fail to deliver certain
representations in connection with the receipt of IMHI's common stock in the
merger will receive cash in lieu of shares of IMHI's common stock, provided 95%
or more of the outstanding shares of CHMS deliver such representations. Under
terms of the Merger Agreement, all outstanding options and warrants to purchase
CHMS common stock will be converted into the right to purchase shares of IMHI's
common stock, provided that the number of shares to be purchased and related
exercise prices shall be adjusted by the Exchange Ratio. The transaction is
subject to approval by the shareholders of CHMS, appropriate regulatory
approvals and the satisfaction of certain other conditions contained in the
Merger Agreement.
F-32
<PAGE> 95
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Simione Central, Inc.
Atlanta, Georgia
We have audited the accompanying statements of net assets of Simione &
Simione, CPAs (a Partnership) -- Consulting Division (a division of Simione &
Simione, CPAs) as of December 31, 1994 and 1995, and the related statements of
divisional operations, divisional equity and divisional cash flows for each of
the years in the two year period ended December 31, 1995. These financial
statements are the responsibility of Simione & Simione, CPA's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of Simione & Simione,
CPAs -- Consulting Division as of December 31, 1994 and 1995, and the results of
its operations and its cash flows for each of the years in the two year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
McGladrey & Pullen LLP
New Haven, Connecticut
November 25, 1996
F-33
<PAGE> 96
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF NET ASSETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS (NOTES 5 AND 6)
Current Assets
Cash........................................................ $ 22,061 $ 10,239
Accounts receivable and unbilled services, less allowance
for doubtful accounts 1994 $66,362:1995 $82,416........... 577,057 708,522
Other assets (Note 4)....................................... 10,033 4,814
-------- --------
Total assets...................................... $609,151 $723,575
======== ========
LIABILITIES AND DIVISIONAL PARTNERSHIP EQUITY
Current Liabilities
Line of credit (Note 2)..................................... $ 64,391 $ 76,558
Current maturities of long-term debt (Note 3)............... 65,115 77,430
Accounts payable............................................ 71,707 128,614
Loans payable from partners (Note 4)........................ 12,674 14,159
Accrued expenses............................................ 27,054 13,300
-------- --------
Total current liabilities......................... $240,941 $310,061
Long-term debt, less current maturities (Note 3)............ 130,230 77,430
-------- --------
Total liabilities................................. 371,171 387,491
Commitments (Notes 5 and 7)
Net Asset, Divisional Equity................................ 237,980 336,084
-------- --------
Total liabilities and divisional partnership equity......... $609,151 $723,575
======== ========
</TABLE>
See Notes to Financial Statements.
F-34
<PAGE> 97
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF DIVISIONAL OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Net services................................................ $1,882,437 $2,350,120
---------- ----------
Operating expenses.......................................... 1,051,667 1,355,589
General and administrative expenses......................... 277,581 301,243
---------- ----------
1,329,248 1,656,832
---------- ----------
OPERATING INCOME............................................ 553,189 693,288
---------- ----------
Other income (expense)
Interest income............................................. 5,750 11,566
Interest expense............................................ (25,426) (25,454)
Other....................................................... 6,168 13,252
---------- ----------
(13,508) (636)
---------- ----------
Net income.................................................. $ 539,681 $ 692,652
========== ==========
</TABLE>
See Notes to Financial Statements.
F-35
<PAGE> 98
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF DIVISIONAL EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Balance, beginning.......................................... $ 142,273 $ 237,980
Net income.................................................. 539,681 692,652
Net transfers............................................... (443,974) (594,548)
---------- ----------
Balance, ending............................................. $ 237,980 $ 336,084
========== ==========
</TABLE>
See Notes to Financial Statements.
F-36
<PAGE> 99
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
STATEMENTS OF DIVISIONAL CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 539,681 $ 692,652
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts........................ 7,657 16,054
Decrease (increase) in accounts receivable and unbilled
services.............................................. (146,261) (147,529)
Decrease (increase) in other assets.................... 13,027 5,219
(Decrease) increase in accounts payable................ 19,888 56,907
(Decrease) increase in accrued expenses................ 2,229 (13,754)
--------- ---------
Net cash provided by operating activities............ 436,221 609,549
--------- ---------
Cash flows from financing activities
Net financing obtained from (provided to) partnership..... 25,793 (28,308)
Loans payable from partners, net.......................... (1,177) 1,485
Net transfers............................................. (443,974) (594,548)
--------- ---------
Net cash used in financing activities..................... (419,358) (621,371)
--------- ---------
Net increase (decrease) in cash...................... 16,863 (11,822)
Cash at beginning of year................................... 5,198 22,061
--------- ---------
Cash at end of year......................................... $ 22,061 $ 10,239
========= =========
</TABLE>
See Notes to Financial Statements.
F-37
<PAGE> 100
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Simione & Simione, CPA's, a Partnership ("Partnership") is a public
accounting firm based in Hamden, Connecticut. Simione & Simione,
CPA's -- Consulting Division ("Simione & Simione"), a division of the
Partnership provides consulting services primarily serving the healthcare
industry. The Partnership also operated the audit and accounting division and
the tax division. The results of these divisions are not included in these
financial statements.
A summary of the Partnership's significant accounting policies follows:
FINANCIAL STATEMENT PRESENTATION
Divisional balance sheets of Simione & Simione include accounts receivable
and unbilled services which are attributable specifically to consulting services
provided by Simione & Simione. Balance sheet accounts that are not directly
attributed to Simione & Simione are allocated based on a ratio of Simione &
Simione accounts receivable and unbilled services to total accounts receivable
and unbilled services of the Partnership. The statement of operations of Simione
& Simione includes direct service revenue and expenses (primarily payroll) as
well as an allocation of indirect operating expenses of the Partnership.
Expenses which were not directly attributable to Simione & Simione were
allocated on a pro-rata basis to each of the three divisions operated by the
Partnership. For the years ended December 31, 1994 and 1995 approximately
$303,000 and $320,000 of indirect operating expenses were allocated to Simione &
Simione. Management believes that the allocations made were reasonable and
include all expenses incurred on behalf of the division.
The accompanying financial statements do not necessarily indicate the
financial position, results of operations or cash flows that would have been
obtained if the division had been operated as an independent entity.
PERSONAL ASSETS AND LIABILITIES AND PARTNERS' SALARIES
In accordance with generally accepted methods of presenting partnership
financial statements, the divisional financial statements do not include the
personal assets and liabilities of the partners including their obligation for
income taxes on their distribution shares of net income of the partnership, nor
any provision for income tax expense.
The expenses shown on the statements of divisional operations do not
include any salaries to the partners.
REVENUE RECOGNITION
Revenue is recognized when services are performed.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Included among the material reported amounts and disclosures
that require extensive use of estimates is the allocation of indirect
Partnership operating expenses. Actual results could differ from those
estimates.
F-38
<PAGE> 101
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LINE OF CREDIT
The Partnership had a $150,000 line of credit with a bank which subsequent
to December 31, 1995 was repaid. This line of credit was collateralized by
substantially all assets of the Partnership and was personally guaranteed by the
partners. Interest was payable monthly at the prime rate as published in The
Wall Street Journal (8.25% at December 31, 1995) plus 1.5 percent.
3. LONG-TERM DEBT
Long-term debt of the Partnership consisted of the following at December
31, 1994 and 1995:
<TABLE>
<S> <C>
Note payable Bank, $12,500 due monthly plus interest at the
prime rate as published by the Wall Street Journal (8.25%
at December 31, 1995) plus 1.5 percent, through December
4, 1997, secured by substantially all assets of the
Partnership and personally guaranteed by the partners... $300,000
========
</TABLE>
Subsequent to December 31, 1995 this note was repaid in full by the
Partnership.
4. RELATED PARTY TRANSACTIONS
The Partnership rented their offices from S & S Realty, which is owned by
certain partners, under an operating lease which expired December 31, 1994.
Beginning January 1, 1995, the Partnership rented this facility on a month to
month basis. The rent paid to S & S Realty during each of those years was
approximately $156,000.
At December 31, 1994, approximately $23,000 was due from S & S Realty to
the Partnership. The allocated amount, $10,003, is classified as other asset at
December 31, 1994.
At December 31, 1994 and 1995, the Partnership had outstanding loans
payable from the partners of approximately $29,000 and $27,000, respectively.
Net transfers reflected on the statements of divisional equity and cash
flows represent transfers to the Partnership to fund partner distributions and
to fund other divisions of the Partnership.
5. OPERATING LEASES
The Partnership has operating leases expiring in various years through
1998.
Future minimum payments, by year and in the aggregate, due under
significant noncancelable operating leases with initial or remaining terms of
one year or more, consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996........................................................ $47,997
1997........................................................ 37,145
1998........................................................ 212
-------
$85,354
=======
</TABLE>
Total lease expense of the Partnership for the years ended December 31,
1994 and December 31, 1995 approximated $37,000 and $17,000, respectively.
6. EMPLOYEE PROFIT SHARING PLAN
The Partnership maintains a 401(k) profit sharing plan for the benefit of
substantially all of its employees who meet certain minimum eligibility
requirements and who elect to participate. Under the terms of the Plan,
participants can contribute up to 20 percent of their pay to the extent
permitted by law. The Partnership may make discretionary matching contributions
to the Plan up to 50 percent of
F-39
<PAGE> 102
SIMIONE & SIMIONE, CPAS -- CONSULTING DIVISION
(A DIVISION OF SIMIONE & SIMIONE, CPAS, A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the employees' first 10 percent of compensation contributed. Participants are
immediately vested in their contribution and vest completely in Partnership
contributions after five years of service. The Partnership has not made any
contributions to the Plan
7. SALE OF SIMIONE & SIMIONE -- CONSULTING ASSETS
Effective January 1, 1996, the Partnership sold all of the assets used by
their consulting division including tangible property, contracts, leases, books
and records, customer lists, prepaid expenses and goodwill for $2,000,000 in
cash to CHMS. Under terms of this agreement, the partners agree not to compete
in any competing business, as defined in the agreement, through December 31,
2001. The purchase price was allocated to goodwill.
On September 5, 1996, InfoSub, Inc., a subsidiary of IMHI and CHMS entered
into an agreement and plan of merger. The merger was consummated on October 8,
1996.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH
The carrying amounts of this financial instrument approximates fair value
because of the short maturity of this financial instrument.
LONG-TERM DEBT
The carrying amount of long-term debt approximates fair value because the
rates are similar to quoted market prices for debt with similar requirements.
9. MAJOR CUSTOMER
During the year 1995 one client provided approximately $273,000 of revenue
to Simione & Simione. At December 31, 1995 this client owed Simione & Simione
$154,000.
F-40
<PAGE> 103
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY
SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COM-
PANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............. 2
Prospectus Summary................ 3
Risk Factors...................... 5
The Company....................... 14
Use of Proceeds................... 15
Price Range of Common Stock and
Dividend Policy................. 15
Capitalization.................... 16
Dilution.......................... 17
Unaudited Pro Forma Condensed
Consolidated Statement of
Operations...................... 18
Selected Consolidated Financial
Data............................ 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 20
Business.......................... 29
Management........................ 40
Certain Transactions.............. 50
Principal and Selling
Stockholders.................... 53
Description of Capital Stock...... 55
Shares Eligible for Future Sale... 57
Underwriting...................... 59
Legal Matters..................... 61
Change in Accountants............. 61
Experts........................... 61
Index to Financial Statements..... F-1
</TABLE>
======================================================
======================================================
2,800,000 SHARES
SIMIONE CENTRAL
HOLDINGS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
HAMBRECHT & QUIST
JEFFERIES & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
======================================================
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the Company in connection with the issuance and
distribution of the Common Stock being registered.
<TABLE>
<CAPTION>
AMOUNTS
--------
<S> <C>
Securities and Exchange Commission registration fee......... $ 12,685
National Association of Securities Dealers, Inc. filing
fee....................................................... 4,686
Nasdaq National Market listing fee.......................... 37,465
Blue Sky fees and expenses.................................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving expenses............................. *
Transfer Agent and Registrar fee............................ *
Miscellaneous............................................... *
--------
Total............................................. $800,000
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is organized under the laws of the State of Delaware. The
Delaware General Corporation Law, as amended (the "DGCL"), provides that a
Delaware corporation has the power generally to indemnify its directors,
officers, employees and other agents (each, a "Corporate Agent") against
expenses and liabilities (including amounts paid in settlement) in connection
with any proceeding involving such person by reason of his being a Corporate
Agent, other than a proceeding by or in the right of the corporation, if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, such person had no reasonable cause to believe his conduct
was unlawful. In the case of an action brought by or in the right of the
corporation, indemnification of a Corporate Agent against expenses is permitted
if such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation; however, no
indemnification is permitted in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to such indemnification. To the
extent that a Corporate Agent has been successful on the merits of such
proceeding, whether or not by or in the right of the corporation, or in the
defense of any claim, issue or matter therein, the corporation is required to
indemnify the Corporate Agent for expenses in connection therewith. Expenses
incurred by a Corporate Agent in connection with a proceeding may, under certain
circumstances, be paid by the corporation in advance of the final disposition of
the proceeding as authorized by the board of directors. The power to indemnify
and advance the expenses under the DGCL does not exclude other rights to which a
Corporate Agent may be entitled under the certificate of incorporation, bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
Under the DGCL, a Delaware corporation has the power to purchase and
maintain insurance on behalf of any Corporate Agent against any liabilities
asserted against and incurred by him in such capacity, whether or not the
corporation has the power to indemnify him against such liabilities under the
DGCL.
II-1
<PAGE> 105
As permitted by the DGCL, the Company's Certificate of Incorporation, as
amended, and Bylaws, as amended, contain a provision which limit the personal
liability of directors for monetary damages for breach of their fiduciary duties
as directors except to the extent such limitation of liability is prohibited by
the DGCL. In accordance with the DGCL, these provisions do not limit the
liability of any director for any breach of the director's duty of loyalty to
the Company or its stockholders; for acts of omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; for certain
unlawful payments of dividends or stock repurchases under Section 174 of the
DGCL; or for any transaction from which the director derives an improper
personal benefit. These provisions do not limit the rights of the Company or any
stockholder to seek an injunction or any other non-monetary relief in the event
of a breach of a director's fiduciary duty. In addition, these provisions apply
only to claims against a director arising out of his role as a director and do
not relieve a director from liability for violations of statutory law, such as
certain liabilities imposes on a director under the federal securities laws.
In addition, the Company's Certificate of Incorporation, as amended, and
Bylaws, as amended, provide for the indemnification of directors and officers
for certain fines, liabilities, costs and expenses incurred by them in
connection with the defense or settlement of claims asserted against them in
their capacities as directors and officers to the fullest extent authorized by
the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 8, 1996, CHMS and IMHI merged in a transaction that was
accounted for as a reverse acquisition for financial reporting purposes. In
connection with the merger, IMHI issued approximately 7.9 million shares of its
common stock in exchange for all the outstanding common stock of CHMS, and the
former shareholders of CHMS thereby acquired control of IMHI. The IMHI common
stock issued in connection with the merger was not registered with the
Commission upon reliance on Section 4(2) under the Securities Act of 1933, as
amended (the "Securities Act"). Accordingly, the IMHI common stock received in
connection with the merger is restricted stock and subject to Rule 144 under the
Securities Act. IMHI shareholder approval was not required or obtained in
connection with the merger.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (Registration Number 33-57150) as
filed with the Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) as filed with the Securities and Exchange
Commission).
3.3 -- Amended and Restated Bylaws of the Company.
3.4 -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference
to Exhibit 3.5 of the Company's Form 10-K for the fiscal
year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
4.1* -- Specimen Stock Certificate of the Company.
</TABLE>
II-2
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.2 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Company's Certificate of Incorporation and Bylaws governing
the rights of holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those shareholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those shareholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated October 8, 1996 filed with the Securities and Exchange
Commission).
5.1* -- Opinion of Powell, Goldstein, Frazer & Murphy LLP.
9.1 -- Form of Simione Central Holding, Inc., Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A.
Curtis Eade, James A. Tramonte, John Isett, Cindy Lumpkin,
Douglas E. Caddell, Robert J. Simione, Kenneth L. Wall,
Allen K. Seibert, III, Jerry Sevy, Larry Clark, Lori N.
Siegel, Gary M. Bremer, Richard A. Parlontieri, and James K.
Henderson (Incorporated by reference to Exhibit 9.1 of the
Company's Form 10-K for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission).
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as
of September 5, 1996 by and among InfoMed Holdings, Inc.,
Simione Central Holding, Inc. and InfoSub, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated September 5, 1996 as filed
with the Securities and Exchange Commission).
10.2 -- Form of InfoMed Holdings, Inc. Amended and Restated Share
Warrant for the Purchase of Common Stock of InfoMed
Holdings, Inc. dated October 5, 1996 between InfoMed
Holdings, Inc. and each of O'Donnell Davis, Rowan Nominees
Ltd., David O. Ellis, Richard V. Lawry, Salvatore A.
Massaro, Murali Anantharaman, Kathleen E.J. Ellis, Jeremy
Ellis, Karen Ellis, Gemma Ellis, Thomas M. Rogers, Jr., and
Arnold Schumacher (Incorporated by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K dated October 8,
1996 as filed with the Securities and Exchange Commission).
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock
of Simione Central Holding, Inc., dated April 12, 1996
between Simione Central Holding, Inc. and Home Health First,
a Texas not-for-profit corporation (Incorporated by
reference to Exhibit 10.3 of the Company's Form 10-K for the
fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.4 -- Common Stock Warrant of InfoMed Holdings, Inc. dated October
8, 1996 between Jefferies & Company, Inc. and InfoMed
Holdings, Inc. (Incorporated by reference to Exhibit 10.4 of
the Company's Form 10-K for the fiscal year ended December
31, 1996 as filed with the Securities and Exchange
Commission).
</TABLE>
II-3
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.5 -- Settlement Agreement, dated February 28, 1995, between the
Company and Frederick Neufeld (Incorporated by reference to
Exhibit 5.5 of the Company's Current Report on Form 8-K
dated March 7, 1995 as filed with the Securities and
Exchange Commission).
10.6 -- Form of 1996 Incentive Stock Option Agreement dated
September 4, 1996 by and between Simione Central Holding,
Inc. and each of James R. Henderson, William J. Simione,
Jr., Robert Simione, Katherine Wetherbee, Sheldon Berman,
Betty Gordon, William J. Simione, III, J. Blake Bremer,
Craig Luigart, Kenneth L. Wald, Marty Cavaiani, Lori
Ferrero, Douglas E. Caddell, Andy Anello and A. Curtis Eade
(Incorporated by reference to Exhibit 10.6 of the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.7 -- Form of 1996 Non Qualified Stock Option Agreement dated
September 4, 1996 between Simione Central Holding, Inc. and
each of Gary M. Bremer, James A. Tramonte, Gary W.
Rasmussen, Don VanderBeke and Lori N. Siegel (Incorporated
by reference to Exhibit 10.7 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.8 -- Form of Stock Option Agreement dated October 7, 1996 between
InfoMed Holdings, Inc., and Reid Horovitz, Zola Horovitz,
O'Donnell Davis, Inc., EGL Holdings, Inc., David O. Ellis,
Erin Dosdourian, Rodger Johnson, Richard V. Lawry, Salvatore
Massaro and Murali Anantharaman (Incorporated by reference
to Exhibit 10.8 of the Company's Form 10-K for the fiscal
year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.9 -- Stock Purchase Agreement dated March 31, 1994 among
O'Donnell Davis, Inc., the Company, Frederick Neufeld, EGL
Holdings, Inc. and Mercury Asset Management, plc
(Incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission).
10.11 -- Stock Purchase Agreement dated March 31, 1994 among EGL
Holding Inc., the Company, Frederick Neufeld, O'Donnell
Davis, Inc. and Mercury Asset Management, plc (Incorporated
by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1994 as filed with the Securities and
Exchange Commission).
10.12 -- First Refusal Agreement among O'Donnell Davis, Inc., InfoMed
Holdings, Inc., EGL Holdings, Inc. and Mercury Asset
Management, plc (Incorporated by reference to the Company's
Form 10-K for the fiscal year ended June 30, 1994 as filed
with the Securities and Exchange Commission).
10.13 -- 1994 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission).
10.14 -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended (Incorporated by reference to
Exhibit 10.10 of the Company's Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.15 -- Simione Central Holding, Inc. 1996 Stock Option Plan.
10.16 -- Simione Central Holdings, Inc. Section 125 Plan effective
date January 1, 1997 sponsored by the Company (Incorporated
by reference to Exhibit 10.11 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.17 -- Simione Central Holdings, Inc. Omnibus Equity-based
Incentive Plan.
10.18 -- Simione Central Holdings, Inc. 1997 Nonqualified Formula
Stock Option Plan.
10.19 -- Headquarters at Gateway Lake Lease Agreement dated January
1, 1996 by and between Gateway LLC and InfoMed Holdings,
Inc. (Incorporated by reference to Exhibit 10.54 of the
Company's Form 10-K for the fiscal year ended June 30, 1996
as filed with the Securities and Exchange Commission).
</TABLE>
II-4
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.20 -- Sublease dated November 22, 1996 between Environmental
Design International, Ltd. and Simione Central, Inc.
(Incorporated by reference to Exhibit 10.13 of the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.21 -- Consent and Estoppel Certificate and Assignment dated
October 29, 1996 between Resurgens Plaza South Associates,
L.P., Simione Central, Inc. and Central Health Services,
Inc. (Incorporated by reference to Exhibit 10.14 of the
Company's Form 10-K for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission).
10.22 -- Executive Employment Agreement dated December 10, 1996
between InfoMed Holdings, Inc. and Gary M. Bremer
(Incorporated by reference to Exhibit 10.15 of the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.23 -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr.
(Incorporated by reference to Exhibit 10.16 of the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.24 -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc., and EGL Holdings, Inc. (Incorporated by
reference to Exhibit 10.17 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.25 -- Information Systems Management Agreement dated January 4,
1996 between Integrated Systems Solutions Corporation and
Central Health Management Services, Inc. (Incorporated by
reference to Exhibit 10.18 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.26* -- Licensing Agreement dated October 1, 1995 by and between
NAHC Plus, Inc. and Central Health Management Services, Inc.
10.27 -- Master Software License Agreement Number 96-2283 dated
October 31, 1996 by and between Software 2000, Inc. and
Simione Central Holding, Inc. (Incorporated by reference to
Exhibit 10.20 of the Company's Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.28 -- Micronetics Design Corporation Value Added Reseller
Agreement Renewal dated July 10, 1996 between Micronetics
Design Corporation and InfoMed Holdings, Inc. (Incorporated
by reference to Exhibit 10.19 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.29 -- IBM Vendor Marketing Programs Cooperative Services Agreement
dated December 16, 1996 between IBM Corporation and Simione
Central Holding, Inc. (Incorporated by reference to Exhibit
10.23 of the Company's Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.30 -- Lease Agreement dated March 18, 1996 between National
Leasing, Inc. and Simione Central, Inc. (Incorporated by
reference to Exhibit 10.22 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.31 -- Guaranty Agreement dated October 31, 1996 by Simione
Central, Inc. in favor of HCA, Inc. (Incorporated by
reference to Exhibit 10.21 of the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.32 -- Stock Purchase Agreement dated February 24, 1995 among
O'Donnell Davis, Inc., InfoMed Holdings, Inc., EGL Holdings,
Inc., and Mercury Asset Management, plc (Incorporated by
reference to Exhibit 5.7 of the Company's Current Report on
Form 8-K dated March 7, 1995 as filed with the Securities
and Exchange Commission).
</TABLE>
II-5
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.33 -- Stock Purchase Agreement dated February 24, 1995 among EGL
Holdings Inc., InfoMed Holdings, Inc., O'Donnell Davis, Inc.
and Mercury Asset Management, plc (Incorporated by reference
to Exhibit 5.8 of the Company's Current Report on Form 8-K
dated March 7, 1995 filed with the Securities and Exchange
Commission).
11.1 -- Statement re: computation of per share earnings.
16.1 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated January 27, 1997 filed with the Securities
and Exchange Commission).
21.1 -- Subsidiaries of the Company (Incorporated by reference to
Exhibit 21.1 of the Company's Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of McGladrey & Pullen, LLP.
23.4* -- Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in its opinion filed as Exhibit 5.1).
24.1 -- Power of Attorney (appears on the signature page to this
Registration Statement).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be provided by amendment.
(b) Financial Statement Schedules
The following financial statement schedule of Simione Central Holdings,
Inc. is included in Part II of the Registration Statement:
Report of Ernst & Young LLP, Independent Auditors
Schedule II -- Valuation and Qualifying Accounts
Except for the financial statement schedule listed above, the financial
statement schedules for which provision is made in the applicable accounting
regulations of the Commission are either not required under the related
instructions or are inapplicable and have therefore been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE> 110
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, 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 Company 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,
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-7
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia on April 21,
1997.
SIMIONE CENTRAL HOLDINGS, INC.
By: /s/ GARY M. BREMER
------------------------------------
Gary M. Bremer
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears on
the signature pages to this Registration Statement constitutes and appoints
James R. Henderson, Gary W. Rasmussen, Lori Nadler Seigel and James A. Tramonte,
and each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for the undersigned and in his or
her name, place, and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with all
exhibits hereto and other documents in connection herewith with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents and
each of them, full power and authority to do so and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 21, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY M. BREMER Chairman of the Board April 21, 1997
- -----------------------------------------------------
Gary M. Bremer
/s/ JAMES R. HENDERSON President, Chief Executive April 21, 1997
- ----------------------------------------------------- Officer and Director
James R. Henderson (principal executive officer)
/s/ LORI NADLER SIEGEL Chief Financial Officer and April 21, 1997
- ----------------------------------------------------- Treasurer (principal
Lori Nadler Siegel financial and accounting
officer)
/s/ WILLIAM J. SIMIONE, JR. Vice Chairman of the Board and April 21, 1997
- ----------------------------------------------------- Executive Vice President
William J. Simione, Jr.
/s/ MURALI ANANTHARAMAN Director April 21, 1997
- -----------------------------------------------------
Murali Anantharaman
</TABLE>
II-8
<PAGE> 112
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD D. JACKSON Director April 21, 1997
- -----------------------------------------------------
Richard D. Jackson
/s/ BARRETT C. O'DONNELL Director April 21, 1997
- -----------------------------------------------------
Barrett C. O'Donnell
</TABLE>
II-9
<PAGE> 113
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Simione Central
Holdings, Inc. as of December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996, and have issued our opinion thereon dated
March 21, 1997, except for Note 16, as to which the date is April , 1997
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Atlanta, Georgia
March 21, 1997, except for Note 16, as
to which the date is , 1997
THE FOREGOING REPORT IS IN THE FORM THAT WILL BE SIGNED UPON THE EFFECTIVE
DATE OF THE ONE-FOR-TWO REVERSE STOCK SPLIT DESCRIBED IN NOTE 16 TO THE
FINANCIAL STATEMENTS.
ERNST & YOUNG LLP
Atlanta, Georgia
April 15, 1997
S-1
<PAGE> 114
SIMIONE CENTRAL HOLDINGS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED ADDITIONS
BALANCE AT TO DUE TO BALANCE AT
BEGINNING COSTS AND PURCHASE OF END OF
OF PERIOD EXPENSES INFOMED DEDUCTIONS(1) PERIOD
---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for Doubtful Accounts..... $13,600 $395,046 $780,701 $126,333 $1,063,014
======= ======== ======== ======== ==========
Year ended December 31, 1995
Allowance for Doubtful Accounts..... $ -- $ 13,600 $ -- $ -- $ 13,600
======= ======== ======== ======== ==========
Year ended December 31, 1994
Allowance for Doubtful Accounts..... $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ==========
</TABLE>
- ---------------
(1) Write-offs of uncollectible accounts.
S-2
<PAGE> 115
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Registration on
Statement S-4 (Registration Number 33-57150) as filed with
the Securities and Exchange Commission).
3.2 -- Amendment to the Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4 (Registration Number
33-57150) ended December 31, 1996 as filed with the
Securities and Exchange Commission).
3.3 -- Amended and Restated Bylaws of the Company.
3.4 -- Certificate of Ownership Merging Simione Central Holdings,
Inc. into InfoMed Holdings, Inc. (Incorporated by reference
to Exhibit 3.5 to the Company's Form 10-K for the fiscal
year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
4.1* -- Specimen Stock Certificate of the Company.
4.2 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Company's Certificate of Incorporation and Bylaws governing
the rights of holders of securities of the Company.
4.3 -- Registration Rights Agreement dated October 7, 1996 by and
among InfoMed Holdings, Inc., those shareholders of Simione
Central Holding, Inc. appearing as signatories to the
Registration Rights Agreement, and those shareholders of
InfoMed Holdings, Inc. appearing as signatories to the
Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated October 8, 1996 filed with the Securities and Exchange
Commission).
5.1* -- Opinion of Powell, Goldstein, Frazer & Murphy LLP.
9.1 -- Form of Simione Central Holding, Inc., Shareholders Voting
Agreement and Irrevocable Proxy dated March 5, 1996 by and
among Howard B. Krone, William J. Simione, Jr., Gary
Rasmussen, G. Blake Bremer, Katherine L. Wetherbee, A.
Curtis Eade, James A. Tramonte, John Isett, Cindy Lumpkin,
Douglas E. Caddell, Robert J. Simione, Kenneth L. Wall,
Allen K. Seibert, III, Jerry Sevy, Larry Clark, Lori N.
Siegel, Gary M. Bremer, Richard A. Parlontieri, and James K.
Henderson (Incorporated by reference to Exhibit 9.1 to the
Company's Form 10-K for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission).
9.2 -- Agreement dated as of October 7, 1996 by and among InfoMed
Holdings, Inc., EGL Holdings, Inc., Mercury Asset Management
plc, O'Donnell Davis, Inc., Barrett O'Donnell and certain
other holders of the Class A Convertible Preferred Stock of
InfoMed Holdings, Inc. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K dated
October 8, 1996 as filed with the Securities and Exchange
Commission).
10.1 -- Amended and Restated Agreement and Plan of Merger dated as
of September 5, 1996 by and among InfoMed Holdings, Inc.,
Simione Central Holding, Inc. and InfoSub, Inc.
(Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K dated September 5, 1996 as filed
with the Securities and Exchange Commission).
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <C> <S> <C>
10.2 -- Form of InfoMed Holdings, Inc. Amended and Restated Share
Warrant for the Purchase of Common Stock of InfoMed
Holdings, Inc. dated October 5, 1996 between InfoMed
Holdings, Inc. and each of O'Donnell Davis, Rowan Nominees
Ltd., David O. Ellis, Richard V. Lawry, Salvatore A.
Massaro, Murali Anantharaman, Kathleen E.J. Ellis, Jeremy
Ellis, Karen Ellis, Gemma Ellis, Thomas M. Rogers, Jr., and
Arnold Schumacher (Incorporated by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K dated October 8,
1996 as filed with the Securities and Exchange Commission).
10.3 -- Warrant to Purchase 100,000 shares of Class A Common Stock
of Simione Central Holding, Inc., dated April 12, 1996
between Simione Central Holding, Inc. and Home Health First,
a Texas not-for-profit corporation (Incorporated by
reference to Exhibit 10.3 to the Company's Form 10-K for the
fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.4 -- Common Stock Warrant of InfoMed Holdings, Inc. dated October
8, 1996 between Jefferies & Company, Inc. and InfoMed
Holdings, Inc. (Incorporated by reference to Exhibit 10.4 to
the Company's Form 10-K for the fiscal year ended December
31, 1996 as filed with the Securities and Exchange
Commission).
10.5 -- Settlement Agreement, dated February 28, 1995, between the
Company and Frederick Neufeld (Incorporated by reference to
Exhibit 5.5 of the Company's Current Report on Form 8-K
dated March 7, 1995 as filed with the Securities and
Exchange Commission).
10.6 -- Form of 1996 Incentive Stock Option Agreement dated
September 4, 1996 by and between Simione Central Holding,
Inc. and each of James R. Henderson, William J. Simione,
Jr., Robert Simione, Katherine Wetherbee, Sheldon Berman,
Betty Gordon, William J. Simione, III, J. Blake Bremer,
Craig Luigart, Kenneth L. Wald, Marty Cavaiani, Lori
Ferrero, Douglas E. Caddell, Andy Anello and A. Curtis Eade
(Incorporated by reference to Exhibit 10.6 to the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.7 -- Form of 1996 Non Qualified Stock Option Agreement dated
September 4, 1996 between Simione Central Holding, Inc. and
each of Gary M. Bremer, James A. Tramonte, Gary W.
Rasmussen, Don VanderBeke and Lori N. Siegel (Incorporated
by reference to Exhibit 10.7 to the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.8 -- Form of Stock Option Agreement dated October 7, 1996 between
InfoMed Holdings, Inc., and Reid Horovitz, Zola Horovitz,
O'Donnell Davis, Inc., EGL Holdings, Inc., David O. Ellis,
Erin Dosdourian, Rodger Johnson, Richard V. Lawry, Salvatore
Massaro and Murali Anantharaman (Incorporated by reference
to Exhibit 10.8 to the Company's Form 10-K for the fiscal
year ended December 31, 1996 as filed with the Securities
and Exchange Commission).
10.9 -- Stock Purchase Agreement dated March 31, 1994 among
O'Donnell Davis, Inc., the Company, Frederick Neufeld, EGL
Holdings, Inc. and Mercury Asset Management, plc
(Incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission).
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <C> <S> <C>
10.11 -- Stock Purchase Agreement dated March 31, 1994 among EGL
Holding Inc., the Company, Frederick Neufeld, O'Donnell
Davis, Inc. and Mercury Asset Management, plc (Incorporated
by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1994 as filed with the Securities and
Exchange Commission).
10.12 -- First Refusal Agreement among O'Donnell Davis, Inc., InfoMed
Holdings, Inc., EGL Holdings, Inc. and Mercury Asset
Management, plc (Incorporated by reference to the Company's
Form 10-K for the fiscal year ended June 30, 1994 as filed
with the Securities and Exchange Commission).
10.13 -- 1994 Incentive Stock Option and Non-Qualified Stock Option
Plan (Incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1994 as filed with the
Securities and Exchange Commission).
10.14 -- Simione Central Holdings, Inc. Profit Sharing Plan dated
October 31, 1996, as amended (Incorporated by reference to
Exhibit 10.10 to the Company's Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.15 -- Simione Central Holding, Inc. 1996 Stock Option Plan.
10.16 -- Simione Central Holdings, Inc. Section 125 Plan effective
date January 1, 1997 sponsored by the Company (Incorporated
by reference to Exhibit 10.11 to the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.17 -- Simione Central Holdings, Inc. Omnibus Equity-based
Incentive Plan.
10.18 -- Simione Central Holdings, Inc. 1997 Nonqualified Formula
Stock Option Plan.
10.19 -- Headquarters at Gateway Lake Lease Agreement dated January
1, 1996 by and between Gateway LLC and InfoMed Holdings,
Inc. (Incorporated by reference to Exhibit 10.54 to the
Company's Form 10-K for the fiscal year ended June 30, 1996
as filed with the Securities and Exchange Commission).
10.20 -- Sublease dated November 22, 1996 between Environmental
Design International, Ltd. and Simione Central, Inc.
(Incorporated by reference to Exhibit 10.13 to the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.21 -- Consent and Estoppel Certificate and Assignment dated
October 29, 1996 between Resurgens Plaza South Associates,
L.P., Simione Central, Inc. and Central Health Services,
Inc. (Incorporated by reference to Exhibit 10.14 to the
Company's Form 10-K for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission).
10.22 -- Executive Employment Agreement dated December 10, 1996
between InfoMed Holdings, Inc. and Gary M. Bremer
(Incorporated by reference to Exhibit 10.15 to the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.23 -- Executive Employment Agreement dated January 1, 1996 between
Simione Central, Inc. and William J. Simione, Jr.
(Incorporated by reference to Exhibit 10.16 to the Company's
Form 10-K for the fiscal year ended December 31, 1996 as
filed with the Securities and Exchange Commission).
10.24 -- Agreement dated October 4, 1996 by and between InfoMed
Holdings, Inc., and EGL Holdings, Inc. (Incorporated by
reference to Exhibit 10.17 to the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <C> <S> <C>
10.25 -- Information Systems Management Agreement dated January 4,
1996 between Integrated Systems Solutions Corporation and
Central Health Management Services, Inc. (Incorporated by
reference to Exhibit 10.18 to the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.26* -- Licensing Agreement dated October 1, 1995 by and between
NAHC Plus, Inc. and Central Health Management Services, Inc.
10.27 -- Master Software License Agreement Number 96-2283 dated
October 31, 1996 by and between Software 2000, Inc. and
Simione Central Holding, Inc. (Incorporated by reference to
Exhibit 10.20 to the Company's Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
10.28 -- Micronetics Design Corporation Value Added Reseller
Agreement Renewal dated July 10, 1996 between Micronetics
Design Corporation and Central Health Management Services,
Inc. (Incorporated by reference to Exhibit 10.19 to the
Company's Form 10-K for the fiscal year ended December 31,
1996 as filed with the Securities and Exchange Commission).
10.29 -- IBM Vendor Marketing Programs Cooperative Services Agreement
dated December 16, 1996 between IBM Corporation and Simione
Central Holding, Inc. (Incorporated by reference to Exhibit
10.23 to the Company's Form 10-K for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange
Commission).
10.30 -- Lease Agreement dated March 18, 1996 between National
Leasing, Inc. and Simione Central, Inc. (Incorporated by
reference to Exhibit 10.22 to the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.31 -- Guaranty Agreement dated October 31, 1996 by Simione
Central, Inc. in favor of HCA, Inc. (Incorporated by
reference to Exhibit 10.21 to the Company's Form 10-K for
the fiscal year ended December 31, 1996 as filed with the
Securities and Exchange Commission).
10.32 -- Stock Purchase Agreement dated February 24, 1995 among
O'Donnell Davis, Inc., InfoMed Holdings, Inc., EGL Holdings,
Inc., and Mercury Asset Management, plc (Incorporated by
reference to Exhibit 5.7 of the Company's Current Report on
Form 8-K dated March 7, 1995 as filed with the Securities
and Exchange Commission).
10.33 -- Stock Purchase Agreement dated February 24, 1995 among EGL
Holdings Inc., InfoMed Holdings, Inc., O'Donnell Davis, Inc.
and Mercury Asset Management, plc (Incorporated by reference
to Exhibit 5.8 of the Company's Current Report on Form 8-K
dated March 7, 1995 filed with the Securities and Exchange
Commission).
11.1 -- Statement re: computation of per share earnings.
16.1 -- Letter re change in Certifying Accountant (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K dated January 27, 1997 filed with the Securities
and Exchange Commission).
21.1 -- Subsidiaries of the Company (Incorporated by reference to
Exhibit 21.1 to the Company's Form 10-K for the fiscal year
ended December 31, 1996 as filed with the Securities and
Exchange Commission).
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Arthur Andersen LLP.
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <C> <S> <C>
23.3 -- Consent of McGladrey & Pullen, LLP.
23.4* -- Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in its opinion filed as Exhibit 5.1).
24.1 -- Power of Attorney (appears on the signature page to this
Registration Statement).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be provided by amendment.
<PAGE> 1
EXHIBIT 1.1
SIMIONE CENTRAL HOLDINGS, INC.
SHARES(1)
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
---------------------------------------------------
, 1997
HAMBRECHT & QUIST LLC
JEFFERIES & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
as Representatives of the
Several Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Simione Central Holdings, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell shares of its authorized but unissued
Common Stock, $.001 par value (herein called the Common Stock), and Simione
Central Holdings, Inc. Profit Sharing Plan Trust (herein called the Plan) and
[ ] (herein called [ ] and, together with the Plan, called the
Selling Securityholders) propose to sell an aggregate of shares of Common
Stock of the Company (said
shares of Common Stock being herein called the Underwritten Stock). The Trust
Company of Knoxville Inc. as Trustee of the Plan (herein called the Trustee)
shall be a party to this Agreement for the limited purpose of making the
representations and warranties set forth in Section 2(c). The Company and
[ ] propose to grant to the Underwriters (as hereinafter defined) an
option to purchase up to additional shares of Common Stock (herein called
the Option Stock and with the Underwritten Stock herein collectively called the
Stock). The Common Stock is more fully described in the Registration Statement
and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and
warrant that you have been authorized by each of the other Underwriters to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
1. Registration Statement. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333- ), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements, all
- ---------------
(1) Plus an option to purchase from the Company and [ ] up to
additional shares to cover over-allotments.
<PAGE> 2
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus, including the documents incorporated by reference therein, relating
to the Stock first filed with the Commission pursuant to Rule 424(b) and Rule
430A (or if no such filing is required, as included in the Registration
Statement) and, in the event of any supplement or amendment to such prospectus
after the Effective Date, shall also mean (from and after the filing with the
Commission of such supplement or the effectiveness of such amendment) such
prospectus as so supplemented or amended. The term Preliminary Prospectus as
used in this Agreement shall mean each preliminary prospectus, including the
documents incorporated by reference therein, included in such registration
statement prior to the time it becomes effective.
2. Representations and Warranties of the Company and the Selling
Securityholders. (a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement and the Prospectus and as
currently being conducted, and is duly qualified as a foreign corporation
and in good standing in all jurisdictions in which the character of the
property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified
would not have a material adverse effect on the business, properties,
condition (financial or otherwise), income or business prospects of the
Company and its subsidiaries, taken as a whole (herein called a Material
Adverse Effect). The outstanding shares of capital stock of each such
subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable and are owned by the Company free and clear of all liens,
encumbrances and security interests, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in any such subsidiary are outstanding. The Company does not own
or control, directly or indirectly, any corporation, association or other
entity other than the subsidiaries listed in Exhibit 21.1 of the
Registration Statement. All capital stock issued by the Company and its
subsidiaries during the past three years has been issued in accordance with
all applicable Federal and state laws, rules and regulations.
(ii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
Material Adverse Change, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has
entered into any material transaction not referred to in the Registration
Statement and the Prospectus.
(iii) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, nor instituted
proceedings for that purpose or to the knowledge of the Company, threatened
to issue such an order or institute such proceedings. The Registration
Statement and the Prospectus comply, and on the Closing Date (as defined in
Section 5(a) hereof) and any later date on which Option Stock is to be
purchased, the Registration Statement and the Prospectus will comply, in
all material respects, with the provisions of the Securities Act and the
rules and regulations of the Commission thereunder. On the Effective Date
and on the Closing Date and any later date on which Option Stock may be
purchased, neither the Registration Statement nor any amendment thereto
contained or will contain any untrue statement of a material fact or
omitted or will omit to state any material fact
2
<PAGE> 3
required to be stated therein or necessary in order to make the statements
therein not misleading; on the Effective Date and on the Closing Date and
any later date on which Option Stock may be purchased, neither the
Prospectus or any supplements thereto contained or will contain any untrue
statement of a material fact or omitted or will omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations
and warranties in this subparagraph (iii) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in
reliance upon and in conformity with information furnished in writing to
the Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus under the caption "Underwriting". There are no
contracts or documents of the Company or any of its subsidiaries which
would be required by the Securities Act or by the rules and regulations of
the Commission to be filed as exhibits to the Registration Statement which
have not been so filed.
The Registration Statement, in the form delivered to you, has been
declared effective under the Securities Act, and no post-effective
amendment to the Registration Statement has been filed as of the date of
this Agreement. The Company has caused to be delivered to you copies of the
Registration Statement and each Preliminary Prospectus and has consented to
the use of such copies for the purposes permitted by the Securities Act.
(iv) The authorized, issued and outstanding capital stock of the
Company and the outstanding long term debt of the Company is as described
in the Prospectus. The Stock is duly and validly authorized, is (or, in the
case of shares of the Stock to be sold by the Company, will be, when issued
and sold to the Underwriters as provided herein) duly and validly issued,
fully paid and nonassessable, free of preemptive rights and conforms to the
description thereof in the Prospectus. There are no outstanding options,
warrants or other rights granted to or by the Company to purchase shares of
Common Stock or other securities of the Company other than as described in
the Prospectus; and no such option, warrant or other rights has been
granted to any person, the exercise of which would cause such person to own
more than five percent of the Common Stock outstanding immediately after
the offering other than as described in the Prospectus. No person or entity
holds a right to require or participate in the registration under the
Securities Act of shares of Common Stock of the Company which right has not
been waived by the holders thereof as of the date hereof with respect to
the registration of shares pursuant to the Registration Statement, and
except as described in the Prospectus, no person holds a right to require
registration under the Securities Act of shares of Common Stock of the
Company at any other time. The Company is not a party to any agreement or
understanding, and has no knowledge of any agreement or understanding,
granting any person or entity a right of participation with respect to the
sale of shares of the Stock by the Company or the Selling Securityholders.
No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the transfer and sale of the
Stock to be sold by the Selling Securityholders or the issuance and sale of
the Stock as contemplated herein.
(v) The Company and its subsidiaries now hold, and at the Closing Date
will hold, all consents, approvals, authorizations, orders, registrations,
qualifications, licenses, certificates and permits from state, Federal and
other regulatory authorities which are necessary to own, lease, and operate
their properties and the conduct of the business of the Company and its
subsidiaries taken as a whole (except where the defined failure to hold
such consent, approval, authorization, order, registration, qualification,
license, certificate or permit would not have a Material Adverse Effect).
No such consent, approval, authorization, order, registration,
qualification, license, certificate or permit contains a materially
burdensome restriction not adequately described in the Registration
Statement and the Prospectus. Neither the Company nor any of its
subsidiaries is in violation of its corporate charter or bylaws, or in
default in the performance or observance of any provision of any
obligation, agreement, covenant or condition contained in any bond,
debenture or in any contract, lease, indenture, mortgage, loan agreement,
joint venture or other agreement
3
<PAGE> 4
or instrument to which the Company or such subsidiary is a party or by
which it or any of its properties is bound or is in violation of any law,
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign.
(vi) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries owns or possesses adequate
rights to use sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals and governmental authorizations to conduct
their businesses as now conducted and as proposed to be conducted; the
expiration of any trademarks, trade names, patent rights, copyrights,
licenses, approvals or governmental authorizations of the Company or its
subsidiaries would not have a Material Adverse Effect; and the Company has
no knowledge of any material infringement by the Company or its
subsidiaries of trademarks, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others, and there is no
claim being made against the Company or its subsidiaries regarding
trademark, trade name, patent, copyright, license, trade secret or other
infringement which could have a Material Adverse Effect nor, to the best of
the Company's knowledge, is there a basis therefore.
(vii) This Agreement has been duly authorized, executed and delivered
by the Company; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, (A) any indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the property of the Company or any of
the subsidiaries is bound, (B) the corporate charter or bylaws of the
Company or any of the subsidiaries or (C) (assuming the making of all
filings required under Rule 424(b) or Rule 430A and the due qualification
of the Stock for public offering by the Underwriters under state and
foreign securities laws) any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or over the properties of the Company.
(viii) Except as set forth in the Prospectus, there is not any action,
investigation, suit or proceeding before or with any court or
administrative agency, at law or in equity, pending against the Company or
any subsidiary or to which they may be subject and which, if determined
adversely, would individually or in the aggregate have a Material Adverse
effect, or prevent consummation of the transactions contemplated hereby.
(ix) The consolidated financial statements of (a) the Company and its
subsidiaries, (b) InfoMed Holdings, Inc. ("IMHI") and (c) Simione &
Simione, CPAs-Consulting Division ("S&S"), together, in each case, with the
related notes and schedules as set forth in the Registration Statement,
present fairly the consolidated financial position and the results of
operations of (a) the Company and its subsidiaries (b) IMHI and (c) S&S,
respectively, at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of results
for such periods have been made. The summary, selected, and pro forma
financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis consistent with the financial statements presented therein.
(x) The Company, its subsidiaries and IMHI have filed all Federal,
state and foreign income tax returns which have been required to be filed
(or have filed extensions therefor or obtained any required extensions in
connection therewith), and have paid all taxes indicated by said returns
and all assessments received by them or any of them to the extent that such
taxes have become due and are not being contested in good faith.
(xi) Each approval, consent, order, authorization, designation,
declaration or filing by or with any United States regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions herein contemplated (except
(A) such additional steps as may be
4
<PAGE> 5
required by the National Association of Securities Dealers, Inc. (herein
called the NASD), (B) as may be necessary to make the Registration
Statement effective (and to maintain such effectiveness) and to qualify the
Stock for public offering by the Underwriters under state and foreign
securities laws or (C) filings required under Rule 424(b) or Rule 430(A))
has been obtained or made and is in full force and effect.
(xii) Ernst & Young LLP, who has certified the financial statements
filed with the Commission as part of the Registration Statement, has
represented to the Company that they are independent public accountants as
required by the Securities Act and the rules and regulations thereunder.
(xiii) Arthur Andersen LLP and McGladrey & Pullen, LLP have
represented to the Company that they are independent public accountants as
required by the Securities Act and the rules and regulations thereunder.
(xiv) The Company and the subsidiaries have good and marketable title
or leasehold title, as the case may be, to all of the properties and assets
reflected in the financial statements (or as described in the Registration
Statement) hereinabove described, subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are not
material in amount.
(xv) Neither the Company nor any of its subsidiaries is involved in
any material labor dispute nor, to the knowledge of the Company, is any
such dispute threatened.
(xvi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a
summary of the terms of the Stock, are an accurate and complete description
of such terms in all material respects.
(xvii) The Company has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Stock.
(xviii) The Company has filed an application to list the Stock on the
Nasdaq National Market, and has received notification that the listing has
been approved, subject to notice of issuance of the Stock.
(xix) The Company and each of its subsidiaries maintain insurance of
the types and in the amounts generally deemed adequate for their business,
including, but not limited to, director and officer insurance, errors and
omission insurance, general liability insurance, fiduciary breach insurance
and insurance covering real and personal property owned or leased by the
Company or any of its subsidiaries against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(xx) The Company is not aware that (A) any executive officer, key
employee or significant group of employees of the Company or any of its
subsidiaries plans to terminate employment with the Company or any of its
subsidiaries or (B) any such executive officer or key employee is subject
to any non-competition, non-disclosure, confidentiality, employment,
consulting or similar agreement that would be violated by the present or
proposed business activities of the Company or any of its subsidiaries.
(xxi) The Company is not and, after giving effect to the offering and
sale of the Stock, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(xxii) The Company has timely and properly filed with the Commission
all reports and other documents required to have been filed with the
Commission.
5
<PAGE> 6
(xxiii) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local,
state and Federal environmental laws and regulations, except where failure
to be so in compliance would not have a Material Adverse Effect.
(xxiv) The Company does not know, of any failure of any party to
comply with any laws applicable with respect to the Plan. With respect to
the Plan, the Company does not know of any (a) "prohibited transaction," as
defined in Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975 of the Code, (b) breach of any
duty under ERISA, other applicable law or any agreement or (c)
non-deductible contribution, which, in the case of any of (a), (b) or (c),
could subject the Plan, the Company or any of its subsidiaries to liability
or a loss either directly or indirectly (including, without limitation,
through any obligation of indemnification or contribution) for any damages,
penalties, or taxes, or any other loss or expense which could have a
Material Adverse Effect.
(b) Each of the Selling Securityholders hereby represents and warrants as
follows (except with respect to the matters set forth in paragraph (ix) of this
Section 2(b), as to which only the Plan shall represent and warrant to):
(i) Such Selling Securityholder has good and marketable title to all
the shares of Stock to be sold by such Selling Securityholder hereunder,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, with full right and authority to deliver the same
hereunder, subject in the case of each Selling Securityholder, to the
rights of [ ] as Custodian (herein called the Custodian), and that
upon the delivery of and payment for such shares of the Stock hereunder,
the several Underwriters will receive good and marketable title thereto,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock to be
sold by such Selling Securityholder have been placed in custody under a
Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters and
the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity
of such Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
death, incapacity, dissolution, liquidation or other event.
(iii) To the extent that any statements or omissions made in the
Registration Statement, the Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder expressly
for use therein, the Registration Statement and the Prospectus conform, and
on the Closing Date, the Registration Statement and the Prospectus will
conform, in all material respects, to the provisions of the Securities Act
and the rules and regulations of the Commission thereunder. Such Selling
Securityholder has reviewed the Registration Statement and Prospectus and,
although such Selling Securityholder has not independently verified the
accuracy or completeness of all the information contained therein, nothing
has come to the attention of such Selling Securityholder that would
6
<PAGE> 7
lead such Selling Securityholder to believe that on the Effective Date, or
the Closing Date, or any later date on which Option Stock may be purchased
the Registration Statement contained or will contain any untrue statement
of a material fact or omitted or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or that on the Effective Date or, on the Closing
Date, or any later date on which Option Stock may be purchased the
Prospectus contained or will contain any untrue statement of a material
fact or omitted or will omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(iv) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power of Attorney and the Custody Agreement referred to herein, and
for the sale and delivery of the Stock to be sold by such Selling
Stockholder hereunder, have been obtained; and such Selling Stockholder has
full right, power and authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement and to sell, assign, transfer and
deliver the Stock to be sold by such Selling Stockholder hereunder.
(v) The sale of the Stock to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the charter or by-laws of such
Selling Stockholder or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder.
(vi) Without having undertaken to determine independently the accuracy
or completeness of either the representations or warranties of the Company
contained herein or the information contained in the Registration
Statement, such Selling Securityholder has no reason to believe that the
representations and warranties of the Company contained in this Section 2
are not true and correct, is familiar with the Registration Statement and
has no knowledge of any material facts conditions or information not
disclosed in the Registration Statement which has or may have a Material
Adverse Effect.
(vii) The sale of the Stock by such Selling Securityholder pursuant
hereto is not prompted by any information concerning the Company nor any of
its subsidiaries which is not set forth in the Registration Statement. The
information pertaining to such Selling Securityholder under the caption
"Principal and Selling Stockholders" in the Prospectus is complete and
accurate in all material respects.
(viii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Securityholder will deliver to you prior to or
at the Closing Date or any later date on which Option Stock is purchased a
properly completed and executed United States Treasury Department Form W-9
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(ix) The Plan is a profit sharing plan which is qualified under
Section 401(a) of the Internal Revenue Code 1986, as amended (the "Code"),
and the related trust is exempt from tax under Section 501(a) of the Code,
and is a duly organized, validly existing trust in good standing under the
laws of the jurisdiction of its organization. The Plan has received a
favorable determination letter from the Internal Revenue Service regarding
its qualification under Section 401(a) of the Code and has, in fact, been
qualified under such section from the effective date of the Plan
7
<PAGE> 8
through and including the Effective Date. The Plan is not aware of any
event or omission which would cause the Plan to lose its qualification
under such Code section. The Plan does not know of any failure of any party
to comply with any laws applicable with respect to the Plan. With respect
to the Plan, there has been no (a) "prohibited transaction," as defined in
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or Section 4975 of the Code, (b) breach of any duty under
ERISA, other applicable law or any agreement or (c) non-deductible
contribution, which, in the case of any of (a), (b) or (c), could subject
the Plan, the Company or any of its subsidiaries to liability or a loss
either directly or indirectly (including, without limitation, through any
obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other loss or expense which could have a Material Adverse
Effect. The execution, delivery and performance of this Agreement by the
Plan will not result in a "prohibited transaction," as defined in Section
406 of ERISA or Section 4975 of the Code. Except as set forth in the
Prospectus, no litigation or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to the Plan.
(c) The Trustee, individually and not in its capacity as trustee of the
Plan, represents and warrants as follows:
(i) The Trustee is a trust company duly organized, validly existing
and in good standing under the laws of the state of [Tennessee] and has all
requisite power and authority to act as Trustee and exercise trust powers
on behalf of the Plan. The Trustee has full corporate power and authority
to execute and deliver this Agreement on behalf of the Plan and to carry
out the transactions contemplated hereby.
(ii) The performance of this Agreement and the consummation of the
transactions contemplated herein will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under, (A)
any Plan documents, charter, by-laws, indenture, deed of trust, loan
agreement or other material agreement to which the Trustee is a party or by
which it is bound or (B) (assuming the making of all filings required under
Rule 424(b) or Rule 430A and the due qualification of the Stock for public
offering by the Underwriters under state and foreign securities laws) any
statute or order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Plan or over the properties of the Plan.
(iii) The execution, delivery and performance of this Agreement by the
Plan will not result in a "prohibited transaction," as defined in Section
406 of ERISA or Code Section 4975.
3. Purchase of the Stock by the Underwriters. (a) On the basis of the
representations and warranties and subject to the terms and conditions herein
set forth, the Company agrees to issue and sell shares of the Underwritten
Stock to the several Underwriters, each of the Selling Securityholders agree to
sell to the several Underwriters the respective aggregate number of shares of
the Underwritten Stock set forth opposite its name on Schedule II and each of
the Underwriters agrees to purchase from the Company and the Selling
Securityholders the respective aggregate number of shares of Underwritten Stock
set forth opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and the Selling Securityholders
and purchased by the several Underwriters shall be $ per share. The
obligation of each Underwriter to the Company and to the Selling Securityholders
shall be to purchase from the Company and the Selling Securityholders that
number of shares of the Underwritten Stock which represents the same proportion
of the total number of shares of the Underwritten Stock to be sold by each of
the Company and the Selling Securityholders pursuant to this Agreement as the
number of shares of the Underwritten Stock set forth opposite the name of such
Underwriter in Schedule I hereto represents of the total number of shares of the
Underwritten Stock to be purchased by all Underwriters pursuant to this
Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided
8
<PAGE> 9
in paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter
is to purchase only the respective number of shares of the Underwritten Stock
specified in Schedule 1.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers satisfactory to you for purchase of such shares
and portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Securityholders shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
neither the non-defaulting Underwriters nor the Company and the Selling
Securityholders shall make arrangements within the 24-hour periods stated above
for the purchase of all the shares of the Stock which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
or the Selling Securityholders to any non-defaulting Underwriter and without any
liability on the part of any non-defaulting Underwriter to the Company or the
Selling Securityholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
and [ ] grant an option to the several Underwriters to purchase, severally
and not jointly, up to shares in the aggregate of the Option Stock from the
Company and [ ] at the same price per share as the Underwriters shall pay
for the Underwritten Stock. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Stock by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth (30th) day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made as provided in Section 5 hereof. The number of shares of
the Option Stock to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Stock to be purchased by
the several Underwriters as such Underwriter is purchasing of the Underwritten
Stock, as adjusted by you in such manner as you deem advisable to avoid
fractional shares.
4. Offering by Underwriters. (a) The terms of the public offering by the
Underwriters of the Stock to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time
9
<PAGE> 10
to time change the public offering price after the closing of the initial public
offering and increase or decrease the concessions and discounts to dealers as
they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus (insofar as such information relates to the
Underwriters) constitutes the only information furnished by the Underwriters to
the Company for inclusion in the Registration Statement, any Preliminary
Prospectus, and the Prospectus, and you on behalf of the respective Underwriters
represent and warrant to the Company that the statements made therein are
correct.
5. Delivery of and Payment for the Stock. (a) Delivery of certificates for
the shares of the Underwritten Stock and the Option Stock (if the option granted
by Section 3(c) hereof shall have been exercised not later than 7:00 a.m., San
Francisco time, on the date two business days preceding the Closing Date), and
payment therefor, shall be made at the office of Hambrecht & Quist LLC, One Bush
Street, San Francisco, California 94104, at 7:00 a.m., San Francisco time, on
the third business day after the date of this Agreement, or at such time on such
other day, not later than five full business days after such third business day,
as shall be agreed upon in writing by the Company, the Selling Securityholders
and you. The date and hour of such delivery and payment (which may be postponed
as provided in Section 3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Hambrecht & Quist LLC, One Bush
Street, San Francisco, California 94104 at 7:00 a.m., San Francisco time, on the
third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the Selling
Securityholders, in each case by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least two business days before the
Closing Date, in the case of Underwritten Stock, and at least two business days
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 at least two business days prior to the Closing Date or, in
the case of the Option Stock, by 3:00 p.m., New York time, at least two business
days preceding the date of purchase. Time shall be of the essence and delivery
at the time and place specified above is a further condition to the obligations
of the Underwriters.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. Further Agreements of the Company and the Selling Securityholders. Each
of the Company and, with respect to the matters specifically designated in this
Section 6, the Selling Securityholders respectively covenants and agrees as
follows:
(a) The Company will prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule
430A; provided, however, that the Company will not file such Prospectus
under Rule 424(b) or any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or
10
<PAGE> 11
to which you shall have reasonably objected in writing or which is not in
compliance with the Securities Act or the rules and regulations of the
Commission. The Company will provide evidence satisfactory to the
Underwriters of the timely filing of the Prospectus filed under Rule 424(b)
and any registration statement filed under Rule 462(b). If the Company
elects to rely on Rule 462(b), the Company shall file a 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m.,
Washington D.C. time, on the date of this Agreement, and the Company shall
at the time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration
Statement or for any supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company and the Selling
Securityholders will make every reasonable effort to prevent the issuance
of such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the date hereof and, with
respect to documents filed after the date hereof, on or before the Closing
Date, deliver to you a signed copy of the Registration Statement as
originally filed and of each amendment thereto filed prior to the time the
Registration Statement becomes effective and, promptly upon the filing
thereof, a signed copy of each post-effective amendment, if any, to the
Registration Statement (together with, in each case, all exhibits thereto
unless previously furnished to you) and will also deliver to you, for
distribution to the Underwriters, a sufficient number of additional
conformed copies of each of the foregoing (but without exhibits) so that a
sufficient number of copies of each may be distributed to each Underwriter,
(ii) as promptly as possible deliver to you and send to the several
Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii)
thereafter from time to time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, likewise send
to the Underwriters as many additional copies of the Prospectus and as many
copies of any supplement to the Prospectus and of any amended prospectus,
filed by the Company with the Commission, as you may reasonably request for
the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement
or amend the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and file with
the Commission, at its own expense, a supplement or amendment to the
Prospectus so that the Prospectus as so supplemented or amended will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time such Prospectus is
delivered to such purchaser, not misleading. If, after the public offering
of the Stock by the Underwriters and during such period, the Underwriters
shall propose to vary the terms of offering thereof by reason of changes in
general market conditions or otherwise, you will advise the Company in
writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission, at its own expense, a
supplement or amendment to the Prospectus setting forth such variation. The
Company autho-
11
<PAGE> 12
rizes the Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection with the sale of the Stock in
accordance with the applicable provisions of the Securities Act and the
applicable rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement or amendment to the
Prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter
or dealer, in keeping such qualifications in good standing under said
securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports
filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder.
(i) Whether or not the transactions contemplated hereunder are
consummated or this Agreement terminated, the Company and the Selling
Securityholders jointly and severally agree to pay all costs and expenses
incident to the performance of their obligations under this Agreement,
including all costs and expenses incident to (i) the preparation, printing
and filing with the Commission and the NASD of the Registration Statement,
any Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished,
(iii) the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements
and amendments to the Prospectus referred to in paragraph (d) of this
Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees. The Selling Securityholders will pay any transfer taxes incident to
the transfer to the Underwriters of the shares the Stock being sold by the
Selling Securityholders.
(j) The Company and the Selling Securityholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for
blue sky fees and related disbursements (including, without limitation,
filing fees, counsel fees and disbursements and the cost of printing
memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the Stock under state
securities or blue sky laws and for filing fees incident to the review of
the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholders hereby agree to pay
and shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
12
<PAGE> 13
(l) The Company and each of the Selling Securityholders hereby agrees
that, without the prior written consent of Hambrecht & Quist LLC on behalf
of the Underwriters, the Company or such Selling Securityholder, as the
case may be, will not, for a period of 90 days following the Effective
Date, directly or indirectly, (i) issue, sell, offer, contract to sell,
make any short sale, pledge, issuer or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any of the
Company's equity securities or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire any of
the Company's equity securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic
consequences or ownership of any of the Company's equity securities,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of any of the Company's equity securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Stock to be
sold to the Underwriters pursuant to this Agreement, (B) shares of Common
Stock issued by the Company upon the exercise of options granted under the
stock option plans of the Company (the "Option Plans") or upon the exercise
of warrants outstanding as of the date hereof, all as described in the
Prospectus, and (C) options to purchase Common Stock granted under the
Option Plans.
(m) The Company agrees to use its best efforts to (i) cause all
holders of 5% or more of the outstanding Common Stock or options or
warrants therefor, and all of its directors and officers to agree that,
without the prior written consent of Hambrecht & Quist LLC on behalf of the
Underwriters, such persons will not, for a period of 90 days following the
Effective Date, directly or indirectly, (i) sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any of the Company's equity
securities or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire any of the Company's
equity securities or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or
ownership of the Company's equity securities, whether any such transaction
described in clause (a) or (b) above is to be settled by delivery of any of
the Company's equity securities, in cash or otherwise; and (ii) enforce any
rights it may have to cause all holders of 5% or more of the outstanding
Common Stock or options or warrants therefor, directors and officers to
ensure that they do not take any of the foregoing actions during the
above-mentioned 90-day period.
(n) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was
not and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder. The Company
will apply the net proceeds of the sale of the Stock sold by it
substantially in accordance with its statements under the caption "Use of
Proceeds" in the Prospectus.
(o) If at any time during the 90-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
7. Indemnification and Contribution. (a) The Company and the Selling
Securityholders jointly and severally agree to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the
13
<PAGE> 14
Securities Exchange Act of 1934, as amended, or the common law or otherwise, and
the Company and the Selling Securityholders jointly and severally agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus constituting a part thereof and any Rule 462(b)
Registration Statement) or any post-effective amendment thereto (including any
Rule 462(b) Registration Statement), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter for use under the caption "Underwriting" in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto, and (2) the indemnity agreement contained in this
paragraph (a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Stock which is the
subject thereof (or to the benefit of any person controlling such Underwriter)
if at or prior to the written confirmation of the sale of such Stock a copy of
the Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of
noncompliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company and the Selling Securityholders contained in
this paragraph (a) and the representations and warranties of the Company and the
Selling Securityholders contained in Section 2 hereof shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus constituting a part thereof and
any Rule 462(b) Registration Statement) or any post-effective amendment thereto
(including any Rule 462(b) Registration Statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have
14
<PAGE> 15
filed with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such indemnifying Underwriter for use under the
caption "Underwriting" in the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying
15
<PAGE> 16
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in paragraph (a) or (b) of this
Section 7 (i) in such proportion as is appropriate to reflect the relative
benefits received by each indemnifying party from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, or actions in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Securityholders on the one hand
and the Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the Selling Securityholders and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Stock. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparation or defense against any action or claim which is the subject of this
paragraph (d). Notwithstanding the provisions of this paragraph (d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
8. Termination. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company and the Custodian on
behalf of the Selling Securityholders if after the date of this Agreement
trading in the Common Stock shall have been suspended, or if there shall have
occurred (i) the engagement in hostilities or an escalation of major hostilities
by the United States or the declaration of war or a national emergency by the
United States on or after the date hereof, (ii) any outbreak of hostilities or
other national or international calamity or crisis or change in
16
<PAGE> 17
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, or the
NASD Automated Quotation System or The Nasdaq Stock Market, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any Federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either Federal or New York State
authorities or (vi) the taking of any action by any Federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the accuracy
of the representations and warranties on the part of the Company and the Selling
Securityholders herein set forth and the performance by the Company and by the
Selling Securityholders of all of their respective obligations to be performed
hereunder, in each case at or prior to the Closing Date and any later date on
which Option Stock is to be purchased, as the case may be, and to the following
further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Goodwin, Procter & Hoar LLP, counsel for
the Underwriters.
(c) You shall have received from Powell, Goldstein, Frazer & Murphy
LLP, counsel for the Company, and , counsel for the Selling
Securityholders and , counsel for the Trustee, opinions,
addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex A and Annex B hereto, respectively, and if
Option Stock is purchased at any date after the Closing Date, additional
opinions from counsel to the Company and counsel to the Selling
Securityholders, as the case may be, addressed to the Underwriters and
dated such later date, confirming that the statements expressed as of the
Closing Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment filed with
the Commission, (iii) since the respective dates as of which information is
given in the
17
<PAGE> 18
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, and,
since such dates, except in the ordinary course of business, neither the
Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
(iv) neither the Company nor any of its subsidiaries has any material
contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not any pending or known
threatened legal proceedings to which the Company or any of its
subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company, the
Selling Securityholders and the Trustee herein are true and correct in all
material respects as of the Closing Date and any later date on which Option
Stock is to be purchased, as the case may be, (viii) there has not been any
material change in the market for securities in general or in political,
financial or economic conditions from those reasonably foreseeable as to
render it impracticable in your reasonable judgment to make a public
offering of the Stock, or a material adverse change in market levels for
securities in general (for those of companies in particular) or financial
or economic conditions which render it inadvisable to proceed, and (xix)
there has not occurred any circumstances described in clauses (i), (ii),
(iii), (iv), (v) or (vi) of Section 8 hereof.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received from Ernst & Young LLP a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company and its
subsidiaries within the meaning of the Securities Act and the applicable
published rules and regulations thereunder and based upon the procedures
described in its letter delivered to you concurrently with the execution of
this Agreement (herein called the Original Letter), but carried out to a
date not more than three business days prior to the Closing Date or such
later date on which Option Stock is purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter
are accurate as of the Closing Date or such later date, as the case may be,
and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change,
or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries which, in
your sole judgment, makes it impractical or inadvisable to proceed with the
public offering of the Stock or the purchase of the Option Stock as
contemplated by the Prospectus. [Arthur Andersen LLP and McGladrey &
Pullen, LLP]
(g) You shall have received from Ernst & Young LLP a letter stating
that their review of the Company's system of internal accounting controls,
to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at Decem-
18
<PAGE> 19
ber 31, 1996, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
holders of 5% or more of the outstanding Common Stock or options or
warrants therefore, directors and officers agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, substantially to the effect of the
agreements of such persons set forth in Section 6(m) hereof.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Goodwin, Procter & Hoar LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Custodian on behalf of the Selling Securityholders. Any such
termination shall be without liability of the Company or the Selling
Securityholders to the Underwriters and without liability of the Underwriters to
the Company or the Selling Securityholders; provided, however, that (i) in the
event of such termination, the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part of
the Company or the Selling Securityholders to perform any agreement herein, to
fulfill any of the conditions herein, or to comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you and such failure of condition is not
because of any refusal, inability or failure of the Company or the Selling
Securityholders to perform any agreement herein, to fulfill any condition herein
or to comply with any provisions hereof. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to their other
obligations under Section 7 of this Agreement, the Company and the Selling
Securityholders hereby jointly and severally agree to reimburse on a quarterly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission,
19
<PAGE> 20
described in paragraph (a) of Section 7 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 11 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company or the Selling
Securityholders, shall be mailed, telegraphed or delivered to it at its office,
6600 Powers Ferry Road, Atlanta, Georgia 30331, Attention: Gary Rasmussen. All
notices given by telegraph shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
20
<PAGE> 21
SIGNATURES
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
SIMIONE CENTRAL HOLDINGS, INC.
By
--------------------------------------
SELLING SECURITYHOLDERS
By
--------------------------------------
Attorney-in-Fact
TRUSTEE
By
--------------------------------------
Name:
Title:
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
JEFFERIES & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
By Hambrecht & Quist LLC
By
- -----------------------------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
21
<PAGE> 22
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
Hambrecht & Quist LLC.......................................
Jefferies & Company, Inc....................................
The Robinson-Humphrey Company, Inc..........................
Total.............................................
</TABLE>
22
<PAGE> 23
[SCHEDULE II]
[SELLING SECURITYHOLDERS]
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME AND ADDRESS OF SELLING SECURITYHOLDERS TO BE SOLD
------------------------------------------- ----------
<S> <C>
Simione Central Holdings, Inc...............................
Profit Sharing Plan Trust...................................
C/o Trust Company of Knoxville, Inc.........................
20 Market Street, Suite 300
Knoxville, TN 37902
Total.............................................
</TABLE>
23
<PAGE> 24
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
COUNSEL FOR THE COMPANY
[EXCEPT AS OTHERWISE INDICATED, ALL REFERENCES TO THE COMPANY SHOULD INCLUDE ALL
SUBSIDIARIES]
(i) Each of the Company and its subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in all jurisdictions in which the character of the property
owned or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would not
have a material adverse effect on the business, properties, condition (financial
or otherwise), income or business prospects of the Company and its subsidiaries,
taken as a whole), and has full corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement and the Prospectus and as currently being conducted; all the issued
and outstanding shares of capital stock of each of subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and are owned by the Company free and clear of all liens,
encumbrances and security interests, and to the best of such counsel's
knowledge, no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in such subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of 10,000,000
shares of Preferred Stock, par value $.001 per share, of which no shares will be
outstanding, and 20,000,000 shares of Common Stock, par value $.001 per share,
of which there are outstanding [ ] shares (including the Underwritten
Stock and the shares of Option Stock); proper corporate proceedings have been
taken to validly authorize such authorized capital stock; all of the outstanding
shares of such capital stock (or, in the case of shares of the Stock sold by the
Company, will be, when issued and sold to the Underwriters as provided in the
Underwriting Agreement) have been duly and validly issued and are fully paid and
nonassessable; and no preemptive rights of, or rights of refusal in favor of,
stockholders exist with respect to the Stock, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company and, to
the knowledge of such counsel, there are no contractual preemptive rights that
have not been waived, rights of first refusal or rights of co-sale which exist
with respect to the Stock being sold by the Selling Securityholders or the issue
and sale of the Stock by the Company;
(iii) except as disclosed in or specifically contemplated by the
Registration Statement, to the knowledge of such counsel, there are no
outstanding options, warrants or other rights calling for the issuance of, and
no commitments, plans or arrangements to issue, any shares of capital stock of
the Company or any security convertible or exchangeable for capital stock of the
Company;
(iv) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(v) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial [and statistical] data
contained therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Securities Act and
with the rules and regulations of the Commission thereunder;
(vi) the information required to be set forth in the Registration Statement
in answer to Item 9, Item 10 (insofar as it relates to such counsel) and Item
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items, and, to the best of such counsel's knowledge, the
description of the Company's stock option plans and the options granted and
which may be granted thereunder and the options and warrants granted otherwise
than under such plans set forth in the Prospectus
A-1
<PAGE> 25
accurately and fairly presents the information required to be shown with respect
to said plans, options and warrants to the extent required by the Securities Act
and the rules and regulations of the Commission thereunder;
(vii) such counsel does not know of any franchises, contracts, leases,
documents or legal or governmental proceedings, pending or threatened, which in
the opinion of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(ix) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, the Certificate of Incorporation or Bylaws of the Company
or any of its subsidiaries or any agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or any applicable law
or regulation, or so far as is known to such counsel, any order, writ,
injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(x) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the issuance or sale of the Stock or
consummation of the transactions contemplated in the Underwriting Agreement,
except such as have been obtained under the Securities Act and such as may be
required under state securities or blue sky laws in connection with the purchase
and distribution of the Stock by the Underwriters;
(xii) The Stock has been duly authorized for listing on the National Market
System upon official notice of issuance.
(xiii) neither the Company nor any of its subsidiaries is an "investment
company" or an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940;
(xiv) such counsel has no reason to believe that the Registration Statement
or the Prospectus (A) contains any untrue statement of a material fact with
respect to patents, trade secrets, trademarks, service marks or other
proprietary information or materials owned or used by the Company, or the manner
of its use thereof, or any allegation on the part of any person that the Company
is infringing any patent rights, trade secrets, trademarks, service marks or
other proprietary information or materials of any such person or (B) omits to
state any material fact relating to patents, trade secrets, trademarks, service
marks or other proprietary information or materials owned or used by the
Company, or the manner of its use thereof, or any allegation of which such
counsel has knowledge, that is required to be stated in the Registration
Statement or the Prospectus or is necessary to make the statements therein not
misleading;
(xv) to the best of such counsel's knowledge there are no legal or
governmental proceedings pending relating to patent rights, trade secrets,
trademarks, service marks or other proprietary information or materials of the
Company, and to the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or others;
(xvi) such counsel does not know of any contracts or other documents,
relating to governmental regulation affecting the Company or the Company's
patents, trade secrets, trademarks, service marks or other proprietary
information or materials of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the Registration
Statement or the Prospectus that are not filed or described as required;
A-2
<PAGE> 26
(xvii) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials, of others which, in
the judgment of such counsel, could affect materially the use thereof by the
Company or result in material liability to the Company, and to the best of such
counsel's knowledge there are no infringements by others of any of the Company's
patents, trade secrets, trademarks, service marks or other proprietary
information or materials;
(xviii) to the best of such counsel's knowledge, the Company owns or
possesses sufficient licenses or other rights to use all patents, trade secrets,
trademarks, service marks or other proprietary information or materials
necessary to conduct the business now being or proposed to be conducted by the
Company as described in the Prospectus; and
(xix) the Company and its subsidiaries are in all material respects in
compliance with and conduct their business in conformity with all applicable
Federal and state laws, rules and regulations; otherwise than are set forth in
the Registration Statement and the Prospectus, no respective change in any of
such Federal or state laws, rules or regulations has been adopted which, when
made effective would have a material adverse effect on the operations of the
Company and its subsidiaries prospective; and the statements made in the
Registration Statement under the caption "Regulation" are true and correct and
fairly represent the information required to be disclosed.
---------------------
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial data contained or incorporated by reference therein, as to which such
counsel need not express any opinion or belief) at the Effective Date contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, that the Prospectus (except as to the financial statements and
schedules and other financial data contained or incorporated by reference
therein, as to which such counsel need not express any opinion or belief) as of
its date or at the Closing Date (or any later date on which Option Stock is
purchased), contained or contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of Delaware upon opinions
of local counsel satisfactory in form and scope to counsel for the Underwriters.
Copies of any opinions so relied upon shall be delivered to the Representatives
and to counsel for the Underwriters and the foregoing opinion shall also state
that counsel knows of no reason the Underwriters are not entitled to rely upon
the opinions of such local counsel.
A-3
<PAGE> 27
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF
COUNSEL TO THE SELLING SECURITYHOLDERS
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Securityholders and the Custody
Agreement between the Selling Securityholders and [ ], as Custodian,
and the Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the Selling Securityholders; the Custody Agreement
entered into by, and the Power of Attorney given by, the Selling Securityholder
is valid and binding on the Selling Securityholder; and the Selling
Securityholder has full legal right and authority to enter into the Underwriting
Agreement and to sell, transfer and deliver in the manner provided for in the
Underwriting Agreement, the Shares of stock being sold by the Selling
Securityholder;
(ii) the sale by the Selling Securityholders of the shares of Stock and the
consummation of the transactions as contemplated by the Underwriting Agreement
will not conflict with or result in a breach or violation of, or a default
under, any charter or bylaws of the Selling Securityholders or any statute,
indenture, mortgage, deed of trust, agreement or instrument known to such
counsel to which any of the Selling Securityholders is a party or by which any
Selling Securityholder is bound or by which any of the properties or assets of
the Selling Securityholders is subject, or any applicable law or regulation, or
so far as is known to such counsel, any order, writ, injunction or decree, of
any jurisdiction, court or governmental instrumentality;
(iii) good and marketable title to the shares of Stock sold by the Selling
Securityholders under the Underwriting Agreement, free and clear of all liens,
encumbrances, equities, security interests and claims, has been transferred to
the Underwriters who have severally purchased such shares of Stock under the
Underwriting Agreement, assuming for the purpose of this opinion that the
Underwriters purchased the same in good faith without notice of any adverse
claims;
(iv) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the underwriters;
(v) to the knowledge of such counsel, there will be no contractual
preemptive rights that have not been waived or rights of first refusal or rights
of co-sale which exist with respect to the Stock being sold by the Selling
Securityholder;
(vi) the Plan is a profit sharing plan which is qualified under Section
401(a) of the Code, and the related trust is exempt from tax under Section
501(a) of the Code, and is a duly organized, validly existing trust in good
standing under the laws of the state of [ ] and has full power and
authority to execute and deliver the Underwriting Agreement and carry out the
transactions contemplated thereby. The execution, delivery and performance of
the Underwriting Agreement by the Plan will not result in a "prohibited
transaction," as defined in Section 406 of ERISA or Section 4973 of the Code.
[from counsel to the Plan only]; and
(vii) The Trustee is a trust company duly organized, validly existing and
in good standing under the laws of the state of [Tennessee] and has all
requisite power and authority to act as Trustee and exercise trust powers on
behalf of the Plan. The Trustee has full corporate power and authority to
execute and deliver this Agreement on behalf of the Plan and to carry out the
transactions contemplated hereby [from counsel to the Trustee only].
B-1
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF
SIMIONE CENTRAL HOLDINGS, INC.
(FORMERLY KNOWN AS INFOMED HOLDINGS, INC.
(A DELAWARE CORPORATION)
Article I
STOCKHOLDERS
Section 1.1. Annual Meeting. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2 Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors or the
President. Special meetings may not be called by any other person or persons.
Section 1.3 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Section 1.4 Adjournments. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5 Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these bylaws,
the holders of a majority of the outstanding shares of stock entitled to vote at
the meeting, present in person or by proxy, shall constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 1.4 of these
bylaws until a quorum is present.
Section 1.6 Organization. Meetings of stockholders shall be presided over
by the person designated by the Board of Directors. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.7 Voting; Proxies. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by the
stockholder that has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years after its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of
stockholders
1
<PAGE> 2
need not be by written ballot and need not be conducted by inspectors unless the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at such meeting shall so
determine. At all meetings of stockholders for the election of directors, a
plurality of the votes cast shall be sufficient to elect directors, unless
otherwise provided in the certificate of incorporation. All other elections and
questions shall, unless otherwise provided by law or by the certificate of
incorporation or these bylaws, be decided by the vote of holders of a majority
of the outstanding shares of stock entitled to vote thereon present in person or
by proxy at the meeting, provided that (except as otherwise required by law or
by the certificate of incorporation) the Board of Directors may require a larger
vote upon any election or question.
Section 1.8 Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or express
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which shall not preclude the date upon which the
resolution fixing the record date is adopted by the Board of Directors. The
record date for determining stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, shall not be more than sixty
nor less than ten days before the date of such meeting. If no record date is
fixed, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
The record date to determine the stockholders entitled to consent to
corporate action in writing without a meeting shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by the General Corporation Law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by the General Corporation Law, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action.
Section 1.9 List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
Section 1.10 Action by Consent of Shareholders. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
2
<PAGE> 3
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less that the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of taking of
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number; Qualifications. The number of directors shall be
determined from time to time by resolution of the Board of Directors. Directors
need not be stockholders.
Section 2.2 Elections; Resignation; Removal; Vacancies. The board of
Directors shall initially consist of the persons elected as such by the
incorporator. At the first annual meeting of stockholders and each annual
meeting thereafter, the stockholders shall elect Directors to replace those
Directors whose terms then expire. Any Director may resign at any time upon
written notice to the Corporation. Stockholders may remove Directors with or
without cause. Any vacancy occurring in the Board of Directors for any cause may
be filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum, or by a plurality of the votes
cast at a meeting of stockholders, and each Director so elected shall hold
office until the expiration of the term of office of the Director whom he has
replaced.
Section 2.3 Regulate Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
time as the Board of Directors may from time to time determine, and if so
determined, notice of the meeting shall be given.
Section 2.4 Special Meeting. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the President, or by any member of the Board of Directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting, not later than the second day before the date of the special meeting.
Section 2.4 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
bylaw shall constitute presence in person at such meeting.
Section 2.6 Quorum; Vote Required for Action. At all meetings of the Board
of Directors a majority of the whole Board shall constitute a quorum for the
transaction of business. Except in cases in which the certificate of
incorporation or these bylaws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 2.7 Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.8 Informal Action by Directors. Unless otherwise restricted by
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee.
3
<PAGE> 4
ARTICLE III
COMMITTEES
Section 3.1 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
power or authority to amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law, fix the
designation and any of the preferences or rights of the shares), adopt an
agreement of merger or consolidation, recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommend to the stockholders a dissolution of the Corporation or a
revocation of dissolution, or amend these bylaws; and, unless the resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 3.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
ARTICLE IV
OFFICERS
Section 4.1 Generally. The officers of the Corporation shall be a
Chairman, one or more Vice Chairmen, a Chief Executive Officer, a Chief
Operating Officer, a Chief Financial Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 4.11 of this Article IV. The Chairman, one or more Vice Chairmen, the
Chief Executive Officer, the Chief Operating Officer, the President, one or more
Vice Presidents, the Secretary and the Treasurer, shall be elected by the Board
of Directors at its first meeting after each annual meeting of the shareholders.
The failure to hold such election shall not of itself terminate the term of
office of any officer. Any number of offices may be held simultaneously by the
same person except that the person serving as Chief Financial Officer may not
serve simultaneously as the Chief Executive Officer. The Chairman and any Vice
Chairman shall be Directors of the Corporation. All other officers may, but need
not, the Directors. Any officer may resign at any time upon written notice to
the Corporation.
Any officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
4
<PAGE> 5
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
Section 4.2 Powers and Duties of the Chairman. The Chairman shall preside
at all meetings of the shareholders and of the Board of Directors at which he
shall be present and shall have such other duties as may from time to time be
assigned by these Bylaws or by the Board of Directors.
Section 4.3 Powers and Duties of the Vice Chairman. The Vice Chairman or
Chairman shall have such powers to perform such duties as may from time to time
be assigned by the Board of Directors or the Chairman. In the absence of the
Chairman, the Vice Chairman (or if more than one, one of the Vice Chairmen as
designated by the Board of Directors) shall preside at all meetings of the
shareholders and the Board of Directors at which he shall be present.
Section 4.4 Powers and Duties of the Chief Executive Officer. The Chief
Executive Officer shall be the chief executive officer of the Corporation and,
subject to the control of the Board of Directors, shall have general charge and
control of all its business and affairs and shall perform all duties incident to
the office of the Chief Executive Officer; he may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, notes and other
evidence of indebtedness, contracts or other instruments, except in cases in
which the signing and execution thereof shall have been expressly excluded from
the Chief Executive Officer and delegated to some other officer or agent of the
Corporation by the Board of Directors. In the absence or disability of the
Chairman and all Vice-Chairmen, the Chief Executive Officer shall preside at all
meetings of the shareholders and shall have such other powers and perform such
other duties as may from time to time be assigned by him by these Bylaws or by
the Board of Directors.
Section 4.5 Powers and Duties of the Chief Operating Officer. The Chief
Operating Officer shall be the principal operating officer of the Corporation
with authority as such, and at the request of the Chief Executive Officer or in
his absence or disability to act, shall perform the duties and exercise the
functions of the Chief Executive Officer, and when so acting shall have such
other powers and perform such other duties as may from time to time be assigned
to him by the Board of Directors or Chief Executive Officer.
Section 4.6 Powers and Duties of the Chief Financial Officer. The Chief
Financial Officer shall be the chief accounting officer of the Corporation; he
shall see that the books of account and other accounting records of the
Corporation are kept in proper form and accurately; and, in general, he shall
perform all the duties incident to the office of Chief Financial Officer of the
Corporation and such other duties as may from time to time be assigned to him by
the Board of Directors or the Chief Executive Officer.
Section 4.7 Powers and Duties of the President. The President shall act as
a general executive officer of the Corporation and shall have such other powers
and perform such other duties as may from time to time be assigned to him by
these bylaws or by the Board of Directors or by the Chief Executive Officer.
Section 4.8 Powers and Duties of the Vice President. Each Vice President
shall perform all duties incident to the office of Vice President and shall have
such other powers and perform such other duties as may from time to time be
assigned to him by these Bylaws or by the Board of Directors or the Chief
Executive Officer.
Section 4.9 Powers and Duties of the Secretary. The Secretary shall keep
the minutes of any meetings of the Board of Directors and the minutes of all
meetings of the shareholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the Chief Executive
Officer shall authorize and direct; he shall have charge of the stock
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors or the Chief Executive Officer shall direct,
all of which shall at all
5
<PAGE> 6
reasonable times be open to the examination of any Director, upon application,
at the office of the Corporation during business hours; he shall be the
custodian of the general books and records of the Corporation maintained in the
ordinary course of business or otherwise; and he shall perform all duties
incident to the office of Secretary and shall also have such other powers and
shall perform such other duties as may from time to time be assigned to him by
these Bylaws or the Board of Directors or the Chief Executive Officer.
Section 4.10 Powers and Duties of the Treasurer. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into this hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or depository or depositaries as the Board of Directors may designate; he
shall sign all receipts and vouchers for payments made to the Corporation kept
for the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of by him and whenever required by the Board of Directors or
the Chief Executive Officer shall render statements of such accounts; and he
shall perform all duties incident to the office of Treasurer and shall also have
such other powers and shall perform such other duties as may from time to time
be assigned to him by these Bylaws or by the Board of Directors or the Chief
Executive Officer.
Section 4.11 Additional Officers. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including
Controllers, Assistant Treasurers, Assistant Secretaries and Assistant Financial
Officers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors or the Chief Executive Officer.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
Section 4.12 Giving of Bond by Officers. All officers of the Corporation,
if required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such amounts and
with such conditions and security as the Board shall require.
Section 4.13 Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer, the President or any Vice President shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meetings of
shareholders of any corporation in which the Corporation may hold stock, and at
any such meetings shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
Section 4.14 Compensation of Officers. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors."
ARTICLE V
STOCK
Section 5.1 Certificates. Every holder of stock shall be entitled to have
a certificate representing the number of shares owned by him in the Corporation
signed by or in the name of the Corporation by the Chief Executive Officer, the
President or a Vice President, and by the Treasurer or the Secretary of the
Corporation. Any of or all the signatures on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a
6
<PAGE> 7
certification shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 5.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate issued by it that is alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of such certification or the
issuance of the new certificate.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 6.2 Waiver of Notice of Meeting of Stockholders, Directors and
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 6.3 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely because
the director or officer is present at or participates in the meeting of the
Board or committee thereof which authorized the contract or transaction or
solely because his or their votes are counted for such purpose, if: (i) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (2)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
Section 6.4 Form of Records. All records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 6.5 Amendment of Bylaws. These bylaws may be altered or repealed,
and new bylaws made, by the Board of Directors. The stockholders may make
additional bylaws and may alter and repeal any bylaws whether adopted by them or
otherwise.
7
<PAGE> 8
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7.1. Right to Indemnification. The Corporation hereby indemnifies
each officer and director of the Corporation (including the heirs, executors,
administrators, or estate of the officer or director) to the fullest extent
permitted or authorized by current or future legislation or by current or future
judicial or administrative decision (but, in the case of any future legislation
or decision, only to the extent that it permits the Corporation to provide
broader indemnification rights than permitted prior to the legislation or
decision), against all fines, liabilities, costs and expenses, including
attorneys' fees, asserted against the officer or director or incurred by him in
his capacity as a director or officer, or arising out of his status as a
director or officer. The foregoing right of indemnification shall not be
exclusive of other rights to which those seeking indemnification may be
entitled. The Corporation may maintain insurance, at its expense, to protect
itself and all officers and directors against fines, liabilities, costs and
expenses, whether or not the Corporation would have the legal power to indemnify
them directly against such liability.
Section 7.2. Advances. Costs, charges and expenses (including attorneys'
fees) incurred by an officer or director in defending a civil or criminal suit,
action or proceeding shall be paid by the Corporation in advance of the final
disposition of the suit, action or proceeding, provided that the officer or
director shall repay all amounts advanced if it is ultimately determined that
the officer or director is not entitled to be indemnified by the Corporation as
authorized by this Article or as authorized by current or future legislation
(but, with respect to future legislation, only to the extent that it provides
conditions less burdensome than those previously provided).
Section 7.3. Savings Clause. If this Article or any portion of it is
invalidated on any ground by a court of competent jurisdiction, the Corporation
nevertheless indemnifies each officer and director of the Corporation to the
fullest extent permitted by all portions of this Article that have not been
invalidated and to the fullest extent permitted by law.
/s/ James A. Tramonte
--------------------------------------
Secretary
8
<PAGE> 1
EXHIBIT 10.15
CENTRAL HEALTH MANAGEMENT SERVICES, INC.
1996 STOCK OPTION PLAN
THIS INDENTURE is made this 17th day of January 1996, by CHMS
Transitory Corp., a Georgia Corporation (hereinafter called the "Company");
INTRODUCTION:
The Company desires to promote in its employees and consultants and the
employees and consultants of certain of its affiliates the strongest interest in
the growth and success of the business of the Company, the assurance that they
will share in the prosperity of the business of the Company, and the incentive
to remain in the employ of the Company. To that end the Company desires to
provide those individuals who are eligible hereunder with incentive stock
options or non-qualified stock options to purchase shares of the Company and,
accordingly, has formulated the stock option plan herein embodied.
NOW, THEREFORE, the Company does hereby establish the Central Health
Management Services, Inc. 1996 Stock Option Plan (hereinafter called the "Plan")
so that it shall read in its entirety as follows:
<PAGE> 2
CENTRAL HEALTH MANAGEMENT SERVICES, INC.
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 DEFINITIONS....................................................... 3
SECTION 2 ADMINISTRATION.................................................... 4
SECTION 3 ELIGIBILITY....................................................... 4
SECTION 4 SHARES SUBJECT TO PLAN............................................ 5
SECTION 5 TERMS AND CONDITIONS.............................................. 5
SECTION 6 ADDITIONAL TERMS AND CONDITIONS
OF INCENTIVE STOCK OPTIONS....................................... 6
SECTION 7 TERM OF PLAN...................................................... 6
SECTION 8 INDEMNIFICATION OF COMMITTEE...................................... 7
SECTION 9 AMENDMENT AND TERMINATION OF THE PLAN.............................. 7
SECTION 10 NO OBLIGATION TO EXERCISE OPTION.................................. 7
SECTION 11 CHANGE IN CAPITALIZATION.......................................... 7
SECTION 12 GENERAL RESTRICTION............................................... 8
SECTION 13 RIGHTS AS A STOCKHOLDER........................................... 8
SECTION 14 CHOICE OF LAW..................................................... 8
</TABLE>
-2-
<PAGE> 3
SECTION 1 DEFINITIONS
Wherever used herein, the masculine pronoun shall be deemed to include
the feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:
1.1 "Act" means the Securities Exchange Act of 1934.
1.2 "Agreement" means an agreement setting forth the terms and
conditions of an option granted pursuant to the terms of the Plan.
1.3 "Board of Directors" means the Board of Directors of the Company.
1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Committee" means the committee appointed by the Board of Directors
to administer the Plan.
1.6 "Option" means an option to purchase Shares of the Company granted
pursuant to and in accordance with the provisions of the Plan.
1.7 "Optionee" means an individual who is granted an Option pursuant to
and in accordance with the provisions of the Plan.
1.8 "Option Shares" means Shares subject to and issued pursuant to an
exercise of an Option granted under the Plan.
1.9 "Parent" means a corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
1.10 "Share" means a share of Class A common stock of the Company.
1.11 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
-3-
<PAGE> 4
SECTION 2 ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall be
comprised of at least two members of the Board of Directors and shall be
appointed by the Board of Directors (provided that for purposes of determining
the terms and provisions of Options for members of the Committee, the Board of
Directors may appoint an alternative Committee of two or more officers of the
Company (the "Alternative Committee") who solely for such purposes will be
treated as the Committee hereunder), but after the first registration of an
equity security of the Company under Section 12 of the Act, all persons on the
Committee shall be both "disinterested persons," as defined in Rule 16b-3 as
promulgated under the Act, and "outside directors" within the meaning of Code
Section 162(m) and the regulations thereunder. The Board of Directors may from
time to time remove members from or add members to the Committee. Vacancies on
the Committee shall be filled by the Board of Directors. Acts approved by a
majority of the members of the Committee (who do not have a personal financial
interest in such action) in a meeting at which a quorum is present or acts
approved unanimously by the members of the Committee without a meeting shall be
the valid acts of the Committee. A quorum shall be present at any meeting of the
Committee which a majority of the Committee members attend. The Committee shall
have full authority in its discretion to determine the officers, key employees,
consultants, and directors of the Company or its affiliates to whom Options
shall be granted and the terms and provisions of Options, subject to the Plan.
Subject to the provisions of the Plan, the Committee shall have full and
conclusive authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the Agreements and to make all other determinations necessary or
advisable for the proper administration of the Plan. The Committee's
determinations under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan (whether or not such persons are similarly situated). The Committee's
decisions shall be final and binding. The Committee may delegate to any member
of the Board of Directors or officer of the Company the administrative authority
to interpret the provisions of the Plan or any Agreement.
SECTION 3 ELIGIBILITY
Options may be granted only to officers, key employees, consultants,
and directors of the Company, or any affiliate of the Company; provided,
however, that directors who serve on the Committee shall not be eligible to
receive awards that are subject to Section 16 of the Act while they are members
of the Committee and that an incentive stock option may only be granted to an
employee of the Company or any Subsidiary or Parent. The aggregate fair market
value of Shares determined as of the date of grant in accordance with Plan
Section 5(b) with respect to which Options intended to meet the requirements of
Code Section 422 ("Incentive Stock Options") become exercisable for the first
time by an individual during any calendar year under all plans of the Company
and its Parents or Subsidiaries shall not exceed $100,000; provided further,
that if the limitation is exceeded, the incentive stock option(s) which cause
the limitation to be exceeded shall be treated as non-qualified stock option(s).
-4-
<PAGE> 5
SECTION 4 SHARES SUBJECT TO PLAN
4.1 The aggregate number of Option Shares which may be issued under the
Plan shall at no time exceed 4,800,000. The number of Shares with respect to
which an Option may be granted to any individual shall be determined by the
Committee. The limitations established by this Section shall be subject to
adjustment in accordance with the provisions of the Plan.
4.2 In the event that an Option expires or is terminated for any
reason, the Option Shares allocable to the unexercised portion of such Option
may again be subjected to an Option under the Plan.
SECTION 5 TERMS AND CONDITIONS
5.1 Grant of Option. Each Option granted pursuant to the Plan shall be
authorized by the Committee.
5.2 Stock Option Agreement. Each Option shall be evidenced by an
Agreement, in such form and containing such terms and conditions as the
Committee from time to time may determine, provided that each Agreement shall:
(a) state whether the Option is an incentive stock option as
defined in Section 422 of the Code ("Incentive Stock Option") or a
nonqualified stock option;
(b) state the number of Option Shares to which it pertains.
The exercise price of each Option Share shall be at least 100% of the
fair market value of a Share on the date the Committee grants the
Option. If Shares are:
(1) actively traded on any national securities
exchange or NASDAQ system that reports their closing prices,
fair market value shall be the closing price per share at the
close of the trading day immediately preceding the date the
Committee grants the Option;
(2) otherwise traded over the counter, fair market
value shall be the arithmetic mean of the final bid and asked
prices for the Shares as reported for the trading day
immediately preceding the date the Committee grants the
Option; or
(3) not publicly traded, the Committee shall consider
any factors that affect fair market value, and shall determine
fair market value without regard to any restriction other than
a restriction which by its terms will never lapse;
-5-
<PAGE> 6
(c) state the exercise price and exercise period. The exercise
price may be paid in any form permitted in the Agreement, which may
include, but is not limited to cash or delivery of Shares;
(d) provide that the Option is exercisable, with respect to
the number of Shares to which it pertains, only if and to the extent
that the Optionee is vested pursuant to the vesting formula provided in
the Agreement.
5.3 Withholding. The Company shall deduct any taxes required to be
withheld by federal, state and local government with respect to all Options. The
Company shall have the right to require the recipient to remit an amount
sufficient to satisfy such tax withholding requirements and such payment as is
required shall be made in any form permitted in the Agreement, which may include
but is not limited to cash or through an election by the Participant to reduce
the number of shares of Stock he will receive
SECTION 6 ADDITIONAL TERMS AND CONDITIONS
OF INCENTIVE STOCK OPTIONS
In addition to the terms and conditions set forth in Section 5 of the
Plan, each Agreement evidencing the grant of an Incentive Stock Option shall
provide that:
(a) the Option is not exercisable by the Optionee after the expiration
of ten (10) years from the date of grant of the Option; and
(b) notwithstanding the provisions of Plan Section 5.2(b), if the
optionee owns, pursuant to the ownership attribution rules of Code
Section 424(d) and the Treasury Department regulations promulgated
thereunder, stock possessing more than 10% of the total combined voting
power of all of the stock of the Company or of any Parent or Subsidiary
at the time the Committee grants him an Option, the option price shall
be at least 110% of the fair market value as determined in Plan Section
5(b) on the date the Committee grants the Option, and, notwithstanding
Plan Section 6(a), the Agreement shall provide that the Option is not
exercisable after the expiration of five (5) years from the date the
Committee grants the Option.
SECTION 7 TERM OF PLAN
The Plan shall be effective on the date hereof and shall continue to be
effective until ten (10) years following the earlier of the effective date of
the Plan or the date the stockholders approve the Plan, unless sooner terminated
by the Board of Directors. The Company shall submit the Plan to its stockholders
for approval within twelve (12) months of the adoption of the Plan by the Board
of Directors. Failure to receive their approval shall cause as of the date of
grant all Incentive Stock Options to be nonqualified stock options.
-6-
<PAGE> 7
SECTION 8 INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification that the members of
the Committee may have, each member of the Committee shall be indemnified by the
Company against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which it may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by it in
settlement thereof (provided the settlement has received the prior approval of
the Company) or paid by it in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in the action, suit or proceeding that the Committee member is liable
for negligence or misconduct in the performance of its duties; provided that
promptly after institution of the action, suit or proceeding the Committee
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend such matter. Upon the delivery to the Committee member of
written notice of assumption by the Company of the defense of such matter, the
Company will not be responsible to the Committee member for any further fees and
disbursements relating to the defense of such matter, including fees and
disbursements of counsel.
SECTION 9 AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may, insofar as permitted by law, from time to
time, with respect to any Shares at the time not subject to Options, suspend or
terminate the Plan or revise or amend it in any respect whatsoever; provided
however that the Board of Directors may not (other than pursuant to Section 11
of this Agreement) alter the number of shares that may be issued under the terms
of the Plan or the exercise price at which such Options shall be issued under
the terms of the Plan.
SECTION 10 NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee
to exercise the Option.
SECTION 11 CHANGE IN CAPITALIZATION
If the number of Shares shall be increased or reduced by a change in
par value, split-up, stock split, reverse stock split, reclassification, merger,
consolidation, distribution of stock dividends or similar capital adjustments,
an appropriate adjustment shall be made by the Committee in the number and kind
of Shares available for the granting of Options under the Plan. In addition, the
Committee shall make an appropriate adjustment in the number and kind of Shares
as to which outstanding Options, or the portions thereof then unexercised, shall
be exercisable, to the end that the Optionee's proportionate interest shall be
maintained as before the occurrence of the event. The adjustment in outstanding
Options shall be made
-7-
<PAGE> 8
without change in the total price applicable to the unexercised portion of the
Option and with a corresponding adjustment in the Option price per share. Any
fractional Shares resulting from such adjustments shall be eliminated. All
adjustments made by the Committee under this Section shall be conclusive.
Notwithstanding the foregoing paragraph, the Committee reserves the
right, to the extent provided in the applicable Agreement, in the event of a
sale of substantially all the Shares or property of the Company or the merger or
consolidation of the Company, or a dissolution or liquidation of the Company, to
terminate the Options granted under the Plan prior to the times set forth in
Plan Section 5.
SECTION 12 GENERAL RESTRICTION
Notwithstanding anything contained herein or in any of the Agreements
to the contrary, no purported exercise of any Option shall be effective without
the written approval of the Company, which may be withheld to the extent that
the exercise, either individually or in the aggregate together with the exercise
of other previously exercised stock Options and/or offers and sales pursuant to
any prior or contemplated offering of securities, would, in the sole and
absolute judgment of the Company, require the filing of a registration statement
with the United States Securities and Exchange Commission or with the securities
commission of any state. The Company shall avail itself of any exemptions from
registration contained in applicable federal and state securities laws which are
reasonably available to the Company on terms which, in its sole and absolute
discretion, it deems reasonable and not unduly burdensome or costly. Each
Optionee shall, prior to the exercise of an Option, deliver to the Company such
information, representations and warranties as the Company may reasonably
request in order for the Company to be able to satisfy itself that the Shares to
be acquired pursuant to the exercise of an Option is being acquired in
accordance with the terms of an applicable exemption from the securities
registration requirements of applicable federal and state securities laws.
SECTION 13 RIGHTS AS A STOCKHOLDER
An Optionee or a transferee of an Option shall have no rights as a
stockholder with respect to any Option or Option Shares until the date of the
issuance of a stock certificate to him for the Option Shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date the stock certificate is issued, except as
otherwise provided in the Plan.
SECTION 14 CHOICE OF LAW
The law of the State of Georgia shall govern the Plan to the extent
that federal law does not apply.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on
the ____ day of January 1996.
CHMS TRANSITORY CORP.
By: /s/ Gary M. Bremer
-------------------------------------
Title: President
----------------------------------
ATTEST:
/s/ G. Blake Bremer
- --------------------------
Title: Secretary
----------------
[CORPORATE SEAL]
-9-
<PAGE> 10
FIRST AMENDMENT TO THE
SIMIONE CENTRAL HOLDING, INC.
1996 STOCK OPTION PLAN
(FORMERLY KNOWN AS THE
CENTRAL HEALTH MANAGEMENT SERVICES, INC.
1996 STOCK OPTION PLAN)
This First Amendment made on the 27th day of February 1996, by Simione
Central Holding, Inc., a Georgia, USA corporation (hereinafter called the
"Company");
W I T N E S S E T H:
WHEREAS, on January 12, 1996, the Company adopted the Central Health
Management Services, Inc. 1996 Stock Option Plan (the "Plan").
WHEREAS, on January 18, 1996, the Company changed its name from
"Central Health Management Services, Inc." to "Simione Central Holding, Inc."
WHEREAS, the Company desires to change the name of the Plan.
NOW, THEREFORE, the Company does hereby amend the Plan, effective
January 18, 1996, to rename the Plan as the "Simione Central Holding, Inc. 1996
Stock Option Plan".
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed on the date first above written.
SIMIONE CENTRAL HOLDING, INC.
By: /s/ William J. Simione, Jr.
----------------------------------
Title: President
-------------------------------
ATTEST:
/s/ G. Blake Bremer
- -----------------------------
Title: Secretary
-------------------
[CORPORATE SEAL]
<PAGE> 1
EXHIBIT 10.17
SIMIONE CENTRAL HOLDINGS, INC.
OMNIBUS EQUITY-BASED INCENTIVE PLAN
<PAGE> 2
SIMIONE CENTRAL HOLDINGS, INC.
OMNIBUS EQUITY-BASED INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
SECTION 1 DEFINITIONS.......................................................... 1
1.1 Definitions..................................................... 1
SECTION 2 THE STOCK INCENTIVE PLAN............................................. 3
2.1 Purpose of the Plan............................................. 3
2.2 Stock Subject to the Plan....................................... 3
2.3 Administration of the Plan...................................... 3
2.4 Eligibility and Limits.......................................... 4
SECTION 3 TERMS OF STOCK INCENTIVES............................................ 4
3.1 Terms and Conditions of All Stock Incentives.................... 4
3.2 Terms and Conditions of Options................................. 5
(a) Option Price........................................... 5
(b) Option Term............................................ 5
(c) Payment................................................ 6
(d) Conditions to the Exercise of an Option................ 6
(e) Termination of Incentive Stock Option.................. 6
(f) Special Provisions for Certain Substitute Options...... 6
3.3 Terms and Conditions of Stock Appreciation Rights............... 7
(a) Settlement............................................. 7
(b) Conditions to Exercise................................. 7
3.4 Terms and Conditions of Stock Awards............................ 7
3.5 Terms and Conditions of Dividend Equivalent Rights.............. 7
(a) Payment................................................ 7
(b) Conditions to Payment.................................. 8
3.6 Terms and Conditions of Performance Unit Awards................. 8
(a) Payment................................................ 8
(b) Conditions to Payment.................................. 8
3.7 Terms and Conditions of Phantom Shares.......................... 8
(a) Payment................................................ 8
(b) Conditions to Payment.................................. 8
3.8 Treatment of Awards Upon Termination of Employment.............. 9
SECTION 4 RESTRICTIONS ON STOCK................................................ 9
4.1 Escrow of Shares................................................ 9
4.2 Restrictions on Transfer........................................ 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 5 GENERAL PROVISIONS................................................... 10
5.1 Withholding..................................................... 10
5.2 Changes in Capitalization; Merger; Liquidation.................. 10
5.3 Cash Awards..................................................... 11
5.4 Compliance with Code............................................ 11
5.5 Right to Terminate Employment................................... 11
5.6 Non-alienation of Benefits...................................... 11
5.8 Termination and Amendment of the Plan........................... 12
5.9 Stockholder Approval............................................ 12
5.10 Choice of Law................................................... 12
5.11 Effective Date of Plan.......................................... 12
</TABLE>
ii
<PAGE> 4
SIMIONE CENTRAL HOLDINGS, INC.
OMNIBUS EQUITY-BASED INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Board of Directors" means the board of directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means the committee appointed by the Board of
Directors to administer the Plan.
(d) "Company" means Simione Central Holdings, Inc., a Delaware
corporation.
(e) "Disability" has the same meaning as provided in the
long-term disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any affiliate of the Company for
the Participant. If no long-term disability plan or policy was ever maintained
on behalf of the Participant or, if the determination of Disability relates to
an Incentive Stock Option, Disability shall mean that condition described in
Code Section 22(e)(3), as amended from time to time. In the event of a dispute,
the determination of Disability shall be made by the Committee and shall be
supported by advice of a physician competent in the area to which such
Disability relates.
(f) "Disposition" means any conveyance, sale, transfer,
assignment, pledge or hypothecation, whether outright or as security, inter
vivos or testamentary, with or without consideration, voluntary or involuntary.
(g) "Dividend Equivalent Rights" means certain rights to
receive cash payments as described in Plan Section 3.5
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
(i) "Exercise Price" means the price per share of Stock
purchasable under any Option.
(j) "Fair Market Value" with regard to a date means (1) the
closing price at which Stock shall have been sold on the last trading date prior
to that date as reported by the Nasdaq Stock Market (or, if applicable, as
reported by a national securities exchange selected by the Committee on which
the shares of Stock are then actively traded) and published in The Wall Street
Journal, (2) if Stock is not traded on a securities exchange, but is reported by
the Nasdaq Stock Market and market information is published on a regular basis
<PAGE> 5
in the Wall Street Journal, the average of the published high and low sales
prices for the last business day prior to that date as published in the Wall
Street Journal, (3) if such market information is not published on a regular
basis, the average of the high bid and low asked prices of Stock in the
over-the-counter market on the last business day prior to that date, as
reported by the Nasdaq Stock Market, or, if not so reported, by a generally
accepted reporting service, or (4) if Stock is not publicly traded, as
determined in good faith by the Committee with due consideration being given to
(i) the most recent independent appraisal of the Company, if such appraisal is
not more than twelve months old and (ii) the valuation methodology used in any
such appraisal provided that, for purposes of granting awards other than
Incentive Stock Options, Fair Market Value of the shares of Stock may be
determined by the Committee by reference to the average market value determined
over a period certain or as of specified dates, to a tender offer price for the
shares of Stock (if settlement of an award is triggered by such an event) or to
any other reasonable measure of fair market value.
(k) "Option" means a non-qualified stock option or an
incentive stock option.
(l) "Over 10% Owner" means an individual who at the time an
Incentive Stock Option is granted owns Stock possessing more than 10% of the
total combined voting power of the Company or one of its Subsidiaries,
determined by applying the attribution rules of Code Section 424(d).
(m) "Participant" means an individual who receives a Stock
Incentive hereunder.
(n) "Performance Unit Award" refers to a performance unit
award described in Plan Section 3.6.
(o) "Phantom Shares" refers to the rights described in Plan
Section 3.7.
(p) "Plan" means the Simione Central Holdings, Inc. Omnibus
Equity-based Incentive Plan.
(q) "Stock" means the Company's common stock, no par value.
(r) "Stock Appreciation Right" means a stock appreciation
right described in Plan Section 3.3.
(s) "Stock Award" means a stock award described in Plan
Section 3.4.
(t) "Stock Incentive Agreement" means an agreement between the
Company and a Participant or other documentation evidencing an award of a Stock
Incentive.
(u) "Stock Incentive Program" means a written program
established by the Committee, pursuant to which Stock Incentives are awarded
under the Plan under terms, conditions and restrictions set forth in such
written program.
2
<PAGE> 6
(v) "Stock Incentives" means, collectively, Dividend
Equivalent Rights, Options, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Stock Awards.
(w) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if,
with respect to incentive stock options, at the time of the granting of the
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
(x) "Termination of Employment" means the termination of the
employee-employer relationship between a Participant and the Company and its
affiliates, regardless of whether severance or similar payments are made to the
Participant for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, Disability or retirement. The
Committee shall, in its absolute discretion, determine the effect of all matters
and questions relating to a Termination of Employment, including, but not by way
of limitation, the question of whether a leave of absence constitutes a
Termination of Employment.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive
to officers, key employees, consultants, and directors of the Company and its
affiliates to stimulate their efforts toward the continued success of the
Company and to operate and manage the business in a manner that will provide for
the long-term growth and profitability of the Company; (b) encourage stock
ownership by officers, key employees, consultants, and directors by providing
them with a means to acquire a proprietary interest in the Company, acquire
shares of Stock, or to receive compensation which is based upon appreciation in
the value of Stock; and (c) provide a means of obtaining, rewarding and
retaining key personnel.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
Section 5.2, 500,000 shares of Stock (the "Maximum Plan Shares") are
hereby reserved exclusively for issuance pursuant to Stock Incentives, all or
any portion of which may be issued pursuant to Options. At no time shall the
Company have outstanding Stock Incentives subject to Section 16 of the Exchange
Act and shares of Stock issued in respect of Stock Incentives in excess of the
Maximum Plan Shares; for this purpose, the outstanding Stock Incentives and
shares of Stock issued in respect of Stock Incentives shall be computed in
accordance with Rule 16b-3(a)(1) as promulgated under the Exchange Act. To the
extent permitted by Rule 16b-3(a)(1) as promulgated under the Exchange Act, the
shares of Stock attributable to the nonvested, unpaid, unexercised, unconverted
or otherwise unsettled portion of any Stock Incentive that is forfeited or
cancelled or expires or terminates for any reason without becoming vested, paid,
exercised, converted or otherwise settled in full shall again be available for
purposes of the Plan.
2.3 Administration of the Plan. The Plan shall be administered by the
Committee, which shall be comprised of at least two members of the Board of
Directors who may be "outside directors" within the meaning of Code Section
162(m) and the regulations thereunder. The Committee shall have full authority
in its discretion to determine the officers, key employees, consultants, and
3
<PAGE> 7
directors of the Company or its affiliates to whom Stock Incentives shall be
granted and the terms and provisions of Stock Incentives, subject to the Plan.
Subject to the provisions of the Plan, the Committee shall have full and
conclusive authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Stock Incentive Agreements or Stock Incentive
Programs and to make all other determinations necessary or advisable for the
proper administration of the Plan. The Committee's determinations under the Plan
need not be uniform and may be made by it selectively among persons who receive,
or are eligible to receive, awards under the Plan (whether or not such persons
are similarly situated). The Committee's decisions shall be final and binding on
all Participants. The Committee may delegate to any member of the Board of
Directors or officer of the Company the administrative authority to (a)
interpret the provisions of the Plan, any Stock Incentive Agreement or any Stock
Incentive Program; and (b) determine the treatment of Stock Incentives upon a
Termination of Employment, as contemplated in Plan Section 3.8.
2.4 Eligibility and Limits. Stock Incentives may be granted only to
officers, key employees, consultants, and directors of the Company, or any
affiliate of the Company; that an incentive stock option may only be granted to
an employee of the Company or any Subsidiary. In the case of incentive stock
options, the aggregate Fair Market Value (determined as at the date an incentive
stock option is granted) of stock with respect to which stock options intended
to meet the requirements of Code Section 422 become exercisable for the first
time by an individual during any calendar year under all plans of the Company
and its Subsidiaries shall not exceed $100,000; provided further, that if the
limitation is exceeded, the incentive stock option(s) which cause the limitation
to be exceeded shall be treated as non-qualified stock option(s).
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 Terms and Conditions of All Stock Incentives.
(a) The number of shares of Stock as to which a Stock
Incentive shall be granted shall be determined by the Committee in its sole
discretion, subject to the provisions of Section 2.2 as to the total number of
shares available for grants under the Plan and subject to the limits on Options
and Stock Appreciation Rights described in the following sentence. To the extent
required under Section 162(m) of the Code and the regulations thereunder for
compensation to be treated as qualified performance-based compensation, the
maximum number of shares of Stock with respect to which Options or Stock
Appreciation Rights may be granted during any one year period to any employee
shall not exceed 200,000.
(b) Each Stock Incentive shall either be evidenced by a Stock
Incentive Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine to be appropriate, or, except for
Options or Stock Appreciation Rights, be made subject to the terms of a Stock
Incentive Program, containing such terms, conditions and restrictions as the
Committee may determine to be appropriate. Each Stock Incentive Agreement or
Stock Incentive Program shall be subject to the terms of the Plan and any
provisions contained in the Stock Incentive Agreement or Stock Incentive Program
that are inconsistent with the Plan shall be null and void.
4
<PAGE> 8
(c) The date a Stock Incentive is granted shall be the date on
which the Committee has approved the terms and conditions of the Stock Incentive
and has determined the recipient of the Stock Incentive and the number of shares
covered by the Stock Incentive and has taken all such other action necessary to
complete the grant of the Stock Incentive.
(d) Any Stock Incentive may be granted in connection with all
or any portion of a previously or contemporaneously granted Stock Incentive.
Exercise or vesting of a Stock Incentive granted in connection with another
Stock Incentive may result in a pro rata surrender or cancellation of any
related Stock Incentive, as specified in the applicable Stock Incentive
Agreement or Stock Incentive Program.
(e) Stock Incentives shall not be transferable or assignable
except by will or by the laws of descent and distribution. Stock Incentives
shall be exercisable, during the Participant's lifetime, only by the
Participant; or in the event of the Disability of the Participant, by the legal
representative of the Participant; or in the event of the death of the
Participant, by the legal representatives of the Participant's estate or if no
legal representative has been appointed, by the successor in interest determined
under the Participant's will.
3.2 Terms and Conditions of Options. Each Option granted under the Plan
shall be evidenced by a Stock Incentive Agreement. At the time any Option is
granted, the Committee shall determine whether the Option is to be an incentive
stock option described in Code Section 422 or a non-qualified stock option, and
the Option shall be clearly identified as to its status as an incentive stock
option or a non-qualified stock option. Incentive stock options may only be
granted to employees of the Company or any Subsidiary. At the time any incentive
stock option granted under the Plan is exercised, the Company shall be entitled
to legend the certificates representing the shares of Stock purchased pursuant
to the Option to clearly identify them as representing the shares purchased upon
the exercise of an incentive stock option. An incentive stock option may only be
granted within ten (10) years from the earlier of the date the Plan is adopted
or approved by the Company's stockholders.
(a) Option Price. Subject to adjustment in accordance with
Section 5.2 and the other provisions of this Section 3.2, the Exercise Price
under (i) any non-qualified stock option shall be as set forth in the applicable
Stock Incentive Agreement which may be Fair Market Value on the date of grant or
less than or greater than such Fair Market Value; and (ii) any incentive stock
option shall be as set forth in the applicable Stock Incentive Agreement, but in
no event shall it be less than the Fair Market Value on the date the incentive
stock option is granted. With respect to each grant of an incentive stock option
to a Participant who is an Over 10% Owner, the Exercise Price shall not be less
than 110% of the Fair Market Value on the date the Option is granted.
(b) Option Term. Any incentive stock option granted to a
Participant who is not an Over 10% Owner shall not be exercisable after the
expiration of ten (10) years after the date the Option is granted. Any incentive
stock option granted to a Participant who is an Over 10% Owner shall not be
exercisable after the expiration of five (5) years after the date the Option is
granted. The term of any non-qualified stock option shall be as specified in the
applicable Stock Incentive Agreement.
5
<PAGE> 9
(c) Payment. Payment for all shares of Stock purchased
pursuant to exercise of an Option shall be made in any form or manner authorized
by the Committee in the Stock Incentive Agreement, including, but not limited
to, (i) cash, (ii) by delivery to the Company of a number of shares of Stock
which have been owned by the holder for at least six (6) months prior to the
date of exercise having an aggregate Fair Market Value of not less than the
product of the Exercise Price multiplied by the number of shares the Participant
intends to purchase upon exercise of the Option on the date of delivery; (iii)
in a cashless exercise through a broker; or (iv) by having a number of shares of
Stock withheld, the Fair Market Value of which as of the date of exercise is
sufficient to satisfy the Exercise Price. In its discretion, the Committee also
may authorize (at the time an Option is granted or thereafter) Company financing
to assist the Participant as to payment of the Exercise Price on such terms as
may be offered by the Committee in its discretion. If a Stock Incentive
Agreement so provides, the Participant may be granted a new Option to purchase a
number of shares of Stock equal to the number of previously owned shares of
Stock tendered in payment for each share of Stock purchased pursuant to the
terms of the Stock Incentive Agreement. Any such new Option shall be subject to
the terms and conditions of the Stock Incentive Agreement pursuant to which such
new Option is granted. Payment of the Exercise Price shall be made at the time
that the Option or any part thereof is exercised, and no shares shall be issued
or delivered upon exercise of an Option until full payment has been made by the
Participant. The holder of an Option, as such, shall have none of the rights of
a stockholder.
(d) Conditions to the Exercise of an Option. Each Option
granted under the Plan shall be exercisable by whom, at such time or times, or
upon the occurrence of such event or events, and in such amounts, as the
Committee shall specify in the Stock Incentive Agreement; provided, however,
that subsequent to the grant of an Option, the Committee, at any time before
complete termination of such Option, may accelerate the time or times at which
such Option may be exercised in whole or in part and may permit the Participant
or any other designated person to exercise the Option, or any portion thereof,
for all or part of the remaining Option term, notwithstanding any provision of
the Stock Incentive Agreement to the contrary.
(e) Termination of Incentive Stock Option. With respect to an
incentive stock option, in the event of Termination of Employment of a
Participant, the Option or portion thereof held by the Participant which is
unexercised shall expire, terminate, and become unexercisable no later than the
expiration of three (3) months after the date of Termination of Employment;
provided, however, that in the case of a holder whose Termination of Employment
is due to death or Disability, one (1) year shall be substituted for such three
(3) month period. For purposes of this Subsection (e), Termination of Employment
of the Participant shall not be deemed to have occurred if the Participant is
employed by another corporation (or a parent or subsidiary corporation of such
other corporation) which has assumed the incentive stock option of the
Participant in a transaction to which Code Section 424(a) is applicable.
(f) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section 3.2, any Option issued
in substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same
6
<PAGE> 10
terms and conditions (including the applicable vesting and termination
provisions) as those contained in the previously issued option being replaced
thereby.
3.3 Terms and Conditions of Stock Appreciation Rights. Each Stock
Appreciation Right granted under the Plan shall be evidenced by a Stock
Incentive Agreement. A Stock Appreciation Right shall entitle the Participant to
receive the excess of (1) the Fair Market Value of a specified or determinable
number of shares of the Stock at the time of payment or exercise over (2) a
specified or determinable price which, in the case of a Stock Appreciation Right
granted in connection with an Option, shall be not less than the Exercise Price
for that number of shares subject to that Option. A Stock Appreciation Right
granted in connection with a Stock Incentive may only be exercised to the extent
that the related Stock Incentive has not been exercised, paid or otherwise
settled.
(a) Settlement. Upon settlement of a Stock Appreciation Right,
the Company shall pay to the Participant the appreciation in cash or shares of
Stock (valued at the aggregate Fair Market Value on the date of payment or
exercise) as provided in the Stock Incentive Agreement or, in the absence of
such provision, as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Right
granted under the Plan shall be exercisable or payable at such time or times, or
upon the occurrence of such event or events, and in such amounts, as the
Committee shall specify in the Stock Incentive Agreement; provided, however,
that subsequent to the grant of a Stock Appreciation Right, the Committee, at
any time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised or paid in whole or in part.
3.4 Terms and Conditions of Stock Awards. The number of shares of Stock
subject to a Stock Award and restrictions or conditions on such shares, if any,
shall be as the Committee determines, and the certificate for such shares shall
bear evidence of any restrictions or conditions. Subsequent to the date of the
grant of the Stock Award, the Committee shall have the power to permit, in its
discretion, an acceleration of the expiration of an applicable restriction
period with respect to any part or all of the shares awarded to a Participant.
3.5 Terms and Conditions of Dividend Equivalent Rights. A Dividend
Equivalent Right shall entitle the Participant to receive payments from the
Company in an amount determined by reference to any cash dividends paid on a
specified number of shares of Stock to Company stockholders of record during the
period such rights are effective. The Committee may impose such restrictions and
conditions on any Dividend Equivalent Right as the Committee in its discretion
shall determine, including the date any such right shall terminate and may
reserve the right to terminate, amend or suspend any such right at any time.
(a) Payment. Payment in respect of a Dividend Equivalent Right
may be made by the Company in cash or shares of Stock (valued at Fair Market
Value on the date of payment) as provided in the Stock Incentive Agreement or
Stock Incentive Program, or, in the absence of such provision, as the Committee
may determine.
7
<PAGE> 11
(b) Conditions to Payment. Each Dividend Equivalent Right
granted under the Plan shall be payable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the applicable Stock Incentive Agreement or Stock Incentive Program;
provided, however, that subsequent to the grant of a Dividend Equivalent Right,
the Committee, at any time before complete termination of such Dividend
Equivalent Right, may accelerate the time or times at which such Dividend
Equivalent Right may be paid in whole or in part.
3.6 Terms and Conditions of Performance Unit Awards. A Performance Unit
Award shall entitle the Participant to receive, at a specified future date,
payment of an amount equal to all or a portion of the value of a specified or
determinable number of units (stated in terms of a designated or determinable
dollar amount per unit) granted by the Committee. At the time of the grant, the
Committee must determine the base value of each unit, the number of units
subject to a Performance Unit Award, the performance factors applicable to the
determination of the ultimate payment value of the Performance Unit Award and
the period over which Company performance shall be measured. The Committee may
provide for an alternate base value for each unit under certain specified
conditions.
(a) Payment. Payment in respect of Performance Unit Awards may
be made by the Company in cash or shares of Stock (valued at Fair Market Value
on the date of payment) as provided in the applicable Stock Incentive Agreement
or Stock Incentive Program or, in the absence of such provision, as the
Committee may determine.
(b) Conditions to Payment. Each Performance Unit Award granted
under the Plan shall be payable at such time or times, or upon the occurrence of
such event or events, and in such amounts, as the Committee shall specify in the
applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Performance Unit Award, the
Committee, at any time before complete termination of such Performance Unit
Award, may accelerate the time or times at which such Performance Unit Award may
be paid in whole or in part.
3.7 Terms and Conditions of Phantom Shares. Phantom Shares shall
entitle the Participant to receive, at a specified future date, payment of an
amount equal to all or a portion of the Fair Market Value of a specified number
of shares of Stock at the end of a specified period. At the time of the grant,
the Committee shall determine the factors which will govern the portion of the
rights so payable, including, at the discretion of the Committee, any
performance criteria that must be satisfied as a condition to payment. Phantom
Share awards containing performance criteria may be designated as Performance
Share Awards.
(a) Payment. Payment in respect of Phantom Shares may be made
by the Company in cash or shares of Stock (valued at Fair Market Value on the
date of payment) as provided in the applicable Stock Incentive Agreement or
Stock Incentive Program, or, in the absence of such provision, as the Committee
may determine.
(b) Conditions to Payment. Each Phantom Share granted under
the Plan shall be payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Phantom Share, the Committee, at
8
<PAGE> 12
any time before complete termination of such Phantom Share, may accelerate the
time or times at which such Phantom Share may be paid in whole or in part.
3.8 Treatment of Awards Upon Termination of Employment. Except as
otherwise provided by Plan Section 3.2(e), any award under this Plan to a
Participant who has experienced a Termination of Employment may be cancelled,
accelerated, paid or continued, as provided in the applicable Stock Incentive
Agreement or Stock Incentive Program, or, in the absence of such provision, as
the Committee may determine. The portion of any award exercisable in the event
of continuation or the amount of any payment due under a continued award may be
adjusted by the Committee to reflect the Participant's period of service from
the date of grant through the date of the Participant's Termination of
Employment or such other factors as the Committee determines are relevant to its
decision to continue the award.
SECTION 4 RESTRICTIONS ON STOCK
4.1 Escrow of Shares. Any certificates representing the shares of Stock
issued under the Plan shall be issued in the Participant's name, but, if the
applicable Stock Incentive Agreement or Stock Incentive Program so provides, the
shares of Stock shall be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive
Program providing for transfer of shares of Stock to the Custodian shall appoint
the Custodian as the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive Program, with
full power and authority in the Participant's name, place and stead to transfer,
assign and convey to the Company any shares of Stock held by the Custodian for
such Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Incentive Agreement or Stock Incentive Program. During the
period that the Custodian holds the shares subject to this Section, the
Participant shall be entitled to all rights, except as provided in the
applicable Stock Incentive Agreement or Stock Incentive Program, applicable to
shares of Stock not so held. Any dividends declared on shares of Stock held by
the Custodian shall, as the Committee may provide in the applicable Stock
Incentive Agreement or Stock Incentive Program, be paid directly to the
Participant or, in the alternative, be retained by the Custodian or by the
Company until the expiration of the term specified in the applicable Stock
Incentive Agreement or Stock Incentive Program and shall then be delivered,
together with any proceeds, with the shares of Stock to the Participant or to
the Company, as applicable.
4.2 Restrictions on Transfer. The Participant shall not have the right
to make or permit to exist any Disposition of the shares of Stock issued
pursuant to the Plan except as provided in the Plan or the applicable Stock
Incentive Agreement or Stock Incentive Program. Any Disposition of the shares of
Stock issued under the Plan by the Participant not made in accordance with the
Plan or the applicable Stock Incentive Agreement or Stock Incentive Program
shall be void. The Company shall not recognize, or have the duty to recognize,
any Disposition not made in accordance with the Plan and the applicable Stock
Incentive Agreement or Stock Incentive Program, and the shares so transferred
shall continue to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
9
<PAGE> 13
SECTION 5 GENERAL PROVISIONS
5.1 Withholding. The Company shall deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan or upon the vesting of any Stock Award, the
Company shall have the right to require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares or the vesting of such Stock Award. A Participant may pay the withholding
tax in cash, or, if the applicable Stock Incentive Agreement or Stock Incentive
Program provides, a Participant may elect to have the number of shares of Stock
he is to receive reduced by, or with respect to a Stock Award, tender back to
the Company, the smallest number of whole shares of Stock which, when multiplied
by the Fair Market Value of the shares of Stock determined as of the Tax Date
(defined below), is sufficient to satisfy federal, state and local, if any,
withholding taxes arising from exercise or payment of a Stock Incentive (a
"Withholding Election"). A Participant may make a Withholding Election only if
both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the
date on which the amount of tax required to be withheld is determined (the "Tax
Date") by executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable except
on six months advance written notice delivered to the Company; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 Changes in Capitalization; Merger; Liquidation.
(a) The number of shares of Stock reserved for the grant of
Options, Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares,
Stock Appreciation Rights and Stock Awards; the number of shares of Stock
reserved for issuance upon the exercise or payment, as applicable, of each
outstanding Option, Dividend Equivalent Right, Performance Unit Award, Phantom
Share and Stock Appreciation Right and upon vesting or grant, as applicable, of
each Stock Award; the Exercise Price of each outstanding Option and the
specified number of shares of Stock to which each outstanding Dividend
Equivalent Right, Phantom Share and Stock Appreciation Right pertains shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a subdivision or combination of shares or the
payment of a stock dividend in shares of Stock to holders of outstanding shares
of Stock or any other increase or decrease in the number of shares of Stock
outstanding effected without receipt of consideration by the Company.
(b) In the event of or anticipation of a merger, consolidation
or other reorganization of the Company or tender offer for shares of Stock, the
Committee may make such adjustments with respect to awards and take such other
action as it deems necessary or appropriate to reflect such merger,
consolidation, reorganization or tender offer, including, without limitation,
the substitution of new awards, the termination or adjustment of outstanding
awards, the acceleration of awards or the removal of restrictions on outstanding
awards. Any adjustment pursuant to this Section 5.2 may provide, in the
Committee's discretion, for the elimination without payment therefor of any
fractional
10
<PAGE> 14
shares that might otherwise become subject to any Stock Incentive, but shall not
otherwise diminish the then value of the Stock Incentive.
(c) The existence of the Plan and the Stock Incentives granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
5.3 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times and
in such amounts as determined by the Committee in its discretion, a cash amount
which is intended to reimburse such person for all or a portion of the federal,
state and local income taxes imposed upon such person as a consequence of the
receipt of the Stock Incentive or the exercise of rights thereunder.
5.4 Compliance with Code. All incentive stock options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all incentive stock options granted hereunder shall be construed in
such manner as to effectuate that intent.
5.5 Right to Terminate Employment. Nothing in the Plan or in any Stock
Incentive shall confer upon any Participant the right to continue as an employee
or officer of the Company or any of its affiliates or affect the right of the
Company or any of its affiliates to terminate the Participant's employment at
any time.
5.6 Non-alienation of Benefits. Other than as specifically provided
with regard to the death of a Participant, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
5.7 Restrictions on Delivery and Sale of Shares; Legends. Each Stock
Incentive is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Stock Incentive upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Incentive or the purchase or delivery
of shares thereunder, the delivery of any or all shares pursuant to such Stock
Incentive may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Stock Incentives then outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to a Stock Incentive, that the Participant or other recipient of a Stock
Incentive represent, in writing, that the shares received pursuant to the Stock
Incentive are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities laws. The Company
may include on certificates representing shares delivered pursuant to a Stock
Incentive such legends referring to the
11
<PAGE> 15
foregoing representations or restrictions or any other applicable restrictions
on resale as the Company, in its discretion, shall deem appropriate.
5.8 Termination and Amendment of the Plan. The Board of Directors at
any time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of a Stock Incentive shall adversely
affect the rights of the Participant under such Stock Incentive.
5.9 Stockholder Approval. The Plan shall be submitted to the
stockholders of the Company for their approval within twelve (12) months before
or after the adoption of the Plan by the Board of Directors of the Company. If
such approval is not obtained, any Stock Incentive granted hereunder shall be
void.
5.10 Choice of Law. The laws of the State of Georgia shall govern the
Plan, to the extent not preempted by federal law.
5.11 Effective Date of Plan. The Plan shall become effective March 26,
1997, the effective date of its adoption by the Board of Directors, subject,
however, to the approval of the Plan by the Company's shareholders.
SIMIONE CENTRAL HOLDINGS, INC.
By: /s/ Gary M. Bremer
--------------------------------------
Title: Chairman/CEO
--------------------------------------
ATTEST:
/s/ James A. Tramonte
- ------------------------------
Secretary
[Corporate Seal]
12
<PAGE> 1
EXHIBIT 10.18
SIMIONE CENTRAL HOLDINGS, INC.
1997 NONQUALIFIED FORMULA STOCK OPTION PLAN
THIS INDENTURE is made effective the 1st day of January, 1997, by
Simione Central Holdings, Inc., a Georgia corporation (hereinafter called the
"Company");
INTRODUCTION
The Company is adopting the Simione Central Holdings, Inc. 1997
Nonqualified Formula Stock Option Plan (the "Plan") to provide nonemployee
directors with non-qualified stock options ("Options"). The Board of Directors
of the Company believes this Plan will promote personal interest in the welfare
of the Company by, and provide incentive to, the individuals who are primarily
responsible both for the regular operations of and for shaping and carrying out
the long term plans of the Company, thus facilitating the continued growth and
financial success of the Company.
<PAGE> 2
SIMIONE CENTRAL HOLDINGS, INC.
1997 NONQUALIFIED FORMULA STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 DEFINITIONS..................................................... 1
SECTION 2 ADMINISTRATION.................................................. 1
SECTION 3 ELIGIBILITY..................................................... 2
SECTION 4 SHARES SUBJECT TO PLAN.......................................... 2
SECTION 5 FORMULA AND TERMS AND CONDITIONS................................ 2
SECTION 6 TERM OF PLAN.................................................... 3
SECTION 7 INDEMNIFICATION OF COMMITTEE.................................... 4
SECTION 8 AMENDMENT AND TERMINATION OF THE PLAN........................... 4
SECTION 9 NO OBLIGATION TO EXERCISE OPTION................................ 4
SECTION 10 ADJUSTMENT IN OPTION SHARES AND EXERCISE PRICE................. 4
SECTION 11 WITHHOLDING TAXES.............................................. 5
SECTION 12 RIGHTS AS A STOCKHOLDER........................................ 5
SECTION 13 GOVERNING LAW................................................... 5
</TABLE>
-i-
<PAGE> 3
SECTION 1 DEFINITIONS
Wherever used herein, the masculine pronoun shall be deemed to include
the feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:
1.1 "Act" means the Securities Exchange Act of 1934.
1.2 "Affiliate" means (a) an entity that directly or through one or
more intermediaries is controlled by the Company, and (b) any entity in which
the Company has a significant equity interest, as determined by the Company.
1.3 "Agreement" means a stock option agreement, which is an agreement
subject to the terms of the Plan.
1.4 "Board of Directors" means the Board of Directors of the Company.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Committee" means the committee appointed by the Board of Directors
to administer the Plan.
1.7 "Director" means a director of the Company.
1.8 "Employee" means any person who is employed by the Company or an
Affiliate for purposes of the Federal Insurance Contributions Act and any
consultant retained to provide services (other than in the capacity of a
director) to the Company or an Affiliate.
1.9 "Option" means an option to purchase Shares of the Company granted
pursuant to and in accordance with the provisions of the Plan.
1.10 "Optionee" means a Director who is granted an Option pursuant to
and in accordance with the provisions of the Plan.
1.11 "Option Shares" means Shares subject to and issued pursuant to an
exercise of an Option granted under the Plan.
1.12 "Share" means a share of Common Stock of the Company and/or any
share or shares of stock of another corporation or corporations issued in
exchange for a share of Common Stock of the Company as a result of a merger,
consolidation or other adjustment to the capital structure of the Company.
SECTION 2 ADMINISTRATION
2.1 Delegation to Committee. The Plan shall be administered by the
Committee. The members of the Committee shall be appointed by the Board of
Directors. The Committee shall consist of at least one or more members of the
Board of Directors who have not received a grant of
-1-
<PAGE> 4
an Option under the Plan which remains outstanding and who are not currently
eligible to receive a grant of an Option under the Plan. The Board of Directors
may from time to time remove members from or add members to the Committee.
Vacancies on the Committee shall be filled by the Board of Directors.
2.2 Committee Actions. The Committee shall select one of its members as
chairman, and shall hold meetings at such times and places as it may determine.
Acts approved by the majority of the Committee in a meeting at which a quorum is
present or acts reduced to or approved in writing by a majority of the members
of the Committee shall be the valid acts of the Committee. A quorum shall be
present at any meeting of the Committee which a majority of the Committee
members attend.
2.3 Finality. The Committee shall have the authority in its sole
discretion to interpret the Plan, to grant Options under and in accordance with
the provisions of the Plan, and to make all other determinations and to take all
other actions it deems necessary or advisable for the implementation and
administration of the Plan or Agreements thereunder, except to the extent such
powers are herein reserved by the Board of Directors. All actions of the Board
of Directors and the Committee shall be final, conclusive, and binding upon the
Optionees. No member of the Board of Directors or the Committee shall be liable
for any action taken or decision made in good faith relating to the Plan or any
grant of an Option thereunder.
SECTION 3 ELIGIBILITY
Directors who are not Employees shall be eligible to receive Options
under the Plan on the terms and subject to the restrictions hereinafter set
forth.
SECTION 4 SHARES SUBJECT TO PLAN
4.1 The aggregate number of Option Shares which may be issued under the
Plan shall at no time exceed 50,000 Shares. The limitations established by this
Section shall be subject to adjustment in accordance with the provisions of the
Plan.
4.2 In the event that an Option expires or is terminated for any
reason, the Option Shares allocable to the unexercised portion of such Option
may again be subjected to an Option under the Plan.
4.3 In the event that an Optionee delivers Shares as payment of the
exercise price for an Option, such Shares may be subjected to Options under this
Plan.
SECTION 5 FORMULA AND TERMS AND CONDITIONS
5.1 Each person who is not an Employee and first becomes a Director
in 1996 or thereafter shall be granted an Option to purchase 10,000 Shares on
the date specified by the Committee, but in no event later than thirty (30)
days after the person becomes a Director.
-2-
<PAGE> 5
5.2 Each Director who is not an Employee will receive an annual grant
equal to -0- Shares on the January 1 of each year he serves as a Director
who is not an Employee.
5.3 The exercise price of each share granted pursuant to an Option
shall be the Fair Market Value of a Share on the day the Option is granted, or
if there is no reported closing price on such date, the reported closing price
for the first day immediately preceeding the date of grant for which a closing
price has been reported. "Fair Market Value" means:
(1) the closing price at which Shares shall have been
sold on the last trading date prior to that date as reported
by the Nasdaq Stock Market (or, if applicable, as reported by
a national securities exchange selected by the Committee on
which the shares of Stock are then actively traded) and
published in The Wall Street Journal,
(2) if Shares are not traded on a securities
exchange, but are reported by the Nasdaq Stock Market and
market information is published on a regular basis in The Wall
Street Journal, the average of the published high and low
sales prices for the last business day prior to that date as
published in The Wall Street Journal,
(3) if such market information is not published on a
regular basis, the average of the high bid and low asked
prices of Shares in the over-the-counter market on that date,
or if there are no reported prices on such date, the reported
average of such prices of the Shares for the first date
immediately preceeding the date of grant for which such
prices were reported by the Nasdaq reporting service, or
(4) if Shares are not publicly traded, as determined
in good faith by the Committee with due consideration being
given to (i) the most recent independent appraisal of the
Company, if such appraisal is not more than twelve months old
and (ii) the valuation methodology used in any such appraisal
provided that, for purposes of granting awards other than
incentive stock options, Fair Market Value of the Shares may
be determined by the Committee by reference to the average
market value determined over a period certain or as of
specified dates, to a tender offer price for the Shares (if
settlement of an award is triggered by such an event) or to
any other reasonable measure of fair market value.
5.4 Each Option granted pursuant to this Plan shall be authorized by
the Committee, shall be evidenced by an Agreement and shall be subject to such
additional terms as set forth in the Agreement.
SECTION 6 TERM OF PLAN
The Plan shall be effective on the date hereof and shall continue to be
effective until ten (10) years following the earlier of the effective date of
the Plan or the date the stockholders approve the Plan, unless sooner terminated
by the Board of Directors pursuant to Section 8 hereof. The Company shall submit
the Plan to its stockholders for approval within twelve (12) months of the
adoption of the Plan by the Board of Directors.
-3-
<PAGE> 6
SECTION 7 INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification that the members of
the Committee may have, each member of the Committee shall be indemnified by the
Company against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which it may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by it in
settlement thereof (provided the settlement has received the prior approval of
the Company) or paid by it in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in the action, suit or proceeding that the Committee member is liable
for negligence or misconduct in the performance of its duties; provided that
promptly after institution of the action, suit or proceeding the Committee
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend such matter. Upon the delivery to the Committee member of
written notice of assumption by the Company of the defense of such matter, the
Company will not be responsible to the Committee member for any further fees and
disbursements relating to the defense of such matter, including fees and
disbursements of counsel.
SECTION 8 AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors at any time may amend or terminate the Plan
without shareholder approval; provided, however, that the Board of Directors may
condition any amendment on the approval of the shareholders of the Company if
such approval is necessary or advisable with respect to tax, securities or other
applicable laws to which the Company, this Plan, optionees or eligible employees
or directors are subject. No amendment or termination of the Plan shall
adversely affect the rights of an optionee with regard to his Options without
his consent.
SECTION 9 NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee
to exercise the Option.
SECTION 10 ADJUSTMENT IN OPTION SHARES AND EXERCISE PRICE
If (i) the number of Shares shall be increased or reduced by a change
in par value, split-up, stock split, reverse stock split, reclassification,
merger, consolidation, distribution of stock dividends or similar capital
adjustments, or (ii) the Company engages in a transaction for which the
Committee determines an adjustment is appropriate, then the Committee may make
an adjustment in the number and kind of Shares available for the granting of
Options under the Plan. In addition, the Committee may, in its sole and absolute
discretion, make an adjustment in the number, kind and price of Shares as to
which outstanding Options, or the portions thereof then unexercised, shall be
exercisable, to
-4-
<PAGE> 7
the end that the Optionee's proportionate interest is maintained as before the
occurrence of the event. The adjustment in outstanding Options will be made
without change in the total price applicable to the unexercised portion of the
Option and, if necessary, with a corresponding adjustment in the Option price
per share. Any fractional Shares resulting from such adjustments shall be
eliminated. All adjustments made by the Committee under this Section shall be
conclusive.
Notwithstanding the foregoing paragraph, the Committee shall have the
right to terminate the Options granted under the Plan in consideration of the
payment to the Optionees of the difference between (a) and (b) where (a) equals
the then Fair Market Value of the Option Shares to the extent vested and (b)
equals the Option price of the Option Shares to the extent vested.
Alternatively, upon termination of an Option granted under the Plan, the
Committee may grant the Optionee a substitute option to acquire an equity
interest in an Affiliate in the manner set forth in an Agreement.
SECTION 11 WITHHOLDING TAXES
Whenever the Company proposes or is required to issue Shares to an
optionee who is or was an employee of the Company or a Subsidiary, or to his
legatee or legal representative under this Plan, pursuant to the exercise of an
Option granted under this Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirement, if any, prior to the delivery of
any certificate or certificates for such Shares. An optionee must pay the
withholding tax in cash or by certified check or by the Company deducting a
sufficient number of Shares from the Option Shares issued to satisfy withholding
taxes, in accordance with the Agreement.
SECTION 12 RIGHTS AS A STOCKHOLDER
An Optionee or a transferee of an Optionee shall have no rights as a
stockholder with respect to any Option or Option Shares until the date of the
issuance of a stock certificate to him for the Option Shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date the stock certificate is issued, except as
otherwise provided in the Plan.
SECTION 13 GOVERNING LAW
The laws of the State of Georgia shall govern this Plan.
-5-
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused the Plan to be executed as
of the day and year first above written.
SIMIONE CENTRAL HOLDINGS, INC.
By: /s/ Gary M. Bremer
----------------------------------------
Title: Chairman/CEO
-------------------------------------
ATTEST:
By: /s/ James A. Tramonte
--------------------------
Title: Secretary
-----------------------
[CORPORATE SEAL]
-6-
<PAGE> 1
Exhibit 11.1 - Statement re: computation of per-share earnings
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96
-------- -------- --------
Primary
<S> <C> <C> <C>
Weighted average shares outstanding 2,994,856 2,994,856 4,287,956
Net effect of dilutive stock options
based on the treasury stock method
using average market price - - -
--------- --------- ----------
Total 2,994,856 2,994,856 4,287,956
========= ========= ==========
Net loss (707,614) (956,125) (15,898,897)
Net loss per share (0.24) (0.32) (3.71)
========= ========= ==========
Fully diluted
Weighted average shares outstanding 2,994,856(1) 2,994,856(1) 4,287,956(1)
Net effect of dilutive stock options-
based on the treasury stock method
using the higher of ending or average market price - - -
--------- --------- ----------
Total 2,994,856 2,994,856 4,287,956
========= ========= ==========
Net loss (707,614) (956,125) (15,898,897)
========= ========= ==========
Net loss per share (0.24) (0.32) (3.71)
========= ========= ==========
</TABLE>
- -------------
(1) Prior to January 16, 1996 the Company was a subsidiary of Central Health
Holding Company, Inc. and had only 11 shares of common stock issued and
outstanding. The 2,994,856 shares issued in the reorganization of the
Company on January 17, 1996 have been treated as outstanding for all
periods presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 21, 1997 (except for Note 16, as to which the
date is April__, 1997), in the Registration Statement (Form S-1 No. 33-_______)
and related Prospectus of Simione Central Holdings, Inc. for the registration
of 2,750,000 shares of its common stock.
Atlanta, Georgia
April___, 1997
THE FOREGOING REPORT IS IN THE FORM THAT WILL BE SIGNED UPON THE EFFECTIVE DATE
OF THE ONE-FOR-TWO REVERSE STOCK SPLIT DESCRIBED IN NOTE 16 TO THE FINANCIAL
STATEMENTS.
ERNST & YOUNG LLP
ATLANTA, GEORGIA
APRIL 15, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simione Central Holdings, Inc.:
As independent public accountants, we hereby consent to the use of our report
dated September 23, 1996 relating to the consolidated financial statements of
InfoMed Holdings, Inc. and subsidiaries as of June 30, 1995 and 1996 and for
each of the three years in the period ended June 30, 1996 and all references
to our Firm included in or made part of this Form S-1 registration statement.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
April 15, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report, dated November 25, 1996 relating to the financial statements of Simione
& Simione, CPAs - Consulting Division (a Division of Simione & Simione, CPAs, a
Partnership). We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
McGladrey & Pullen, LLP
New Haven, Connecticut
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT 27.1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIMIONE CENTRAL FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,384,728
<SECURITIES> 0
<RECEIVABLES> 6,714,429
<ALLOWANCES> 1,063,014
<INVENTORY> 0
<CURRENT-ASSETS> 9,906,872
<PP&E> 2,245,546
<DEPRECIATION> 377,550
<TOTAL-ASSETS> 18,775,679
<CURRENT-LIABILITIES> 11,109,714
<BONDS> 0
0
0
<COMMON> 5,952
<OTHER-SE> 4,673,746
<TOTAL-LIABILITY-AND-EQUITY> 18,775,679
<SALES> 25,994,641
<TOTAL-REVENUES> 25,994,641
<CGS> 0
<TOTAL-COSTS> 14,698,177
<OTHER-EXPENSES> 27,287,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,817
<INCOME-PRETAX> (15,898,897)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,898,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,898,897)
<EPS-PRIMARY> (3.71)
<EPS-DILUTED> (3.71)
</TABLE>
