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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 000-22005
MEDIRISK, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2256400
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification Number)
TWO PIEDMONT CENTER, SUITE 400 30305-1502
3565 PIEDMONT ROAD, N.E. (Zip Code)
ATLANTA, GEORGIA
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (404) 364-6700
---------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the registrant (3,382,196 shares) on March 24, 1998:
$76,099,410.
The number of shares of Common Stock of the Registrant outstanding as of
March 24, 1998 was 4,492,802 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain of the information called for by Part III is incorporated by
reference to the definitive Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held May 21, 1998, which will be filed not
later than 120 days after December 31, 1997.
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PART I
ITEM 1. BUSINESS
Medirisk, Inc. (together with its subsidiaries, "Medirisk" or the
"Company") is a provider of proprietary database products, decision-support
software and analytical services to the health care industry. The Company's
products and services enable its customers to make objective comparisons of the
financial costs and clinical outcomes of physician services to customer-specific
and industry benchmarks, assess patient satisfaction with specific managed care
plans, and obtain information concerning the background and credentials of
physicians. These capabilities assist health care industry participants in
measuring the performance of health care payors and providers.
Applications for Medirisk's products include pricing managed care
contracts, evaluating physician fee schedules and utilization of physician
services, comparing provider outcomes and health plan performance, credentialing
and recruiting physicians, developing health care delivery networks, and
marketing health care services. The Company actively sells its products to over
1,000 major customers, including leading health plans, insurers, hospitals,
large multi-specialty physician groups, physician practice management companies,
employers, and pharmaceutical companies, as well as to several hundred smaller
customers, including single-specialty physician groups. Medirisk believes that
it is the leading provider of clinical and financial database products comprised
of physician-oriented content and managed care member satisfaction information
in the United States.
Medirisk built its databases by collecting, standardizing and normalizing
more than three billion health care transaction records. Medirisk's databases
include records submitted by the Company's customers under an ongoing data
collection plan, data generated from the results of periodic proprietary surveys
of health care providers, consumers, managed care plans and other payors, and
data gathered from various regulatory and governmental agencies. Medirisk
believes the long-standing relationships under which it collects data and the
data interpretation methodologies utilized by the Company represent significant
competitive advantages. Medirisk's databases are regularly updated to reflect
changes in the industry and, in the case of its market performance and clinical
performance databases, to take into consideration secondary factors such as co-
morbidity, case mix and demographics. These attributes permit customers to
compare objectively their financial and clinical performance to industry or
customer-specific benchmarks contained in the Company's databases with
specificity and precision.
INDUSTRY OVERVIEW
The U.S. health care industry has grown dramatically in recent years.
According to the Health Care Financing Administration ("HCFA"), health care
expenditures have increased from less than $250 billion, or approximately 9% of
the gross domestic product, in 1980 to in excess $1.0 trillion, or approximately
14% of the gross domestic product, in 1996. Payors are responding to escalating
costs by seeking to transfer the financial risk associated with the delivery of
health care to providers under capitated or other managed care arrangements. As
managed care arrangements become increasingly prevalent, both payors and
providers are under intense pressure to deliver health care at the lowest total
cost while ensuring high quality results. To achieve this goal, payors and
providers must understand procedure cost and utilization rates as well as
demonstrate improved outcomes. The evolving impact of managed care has increased
physicians' receptivity to a variety of practice affiliation and employment
structures and, consequently, the need for data that can be used to verify
physician qualifications.
Traditional health care information systems have focused on the
administrative aspects of health care (i.e., accounting, billing, patient
scheduling). Medirisk believes there is an increasing trend toward reimbursement
structures for health care services which require sophisticated financial
information management and a growing awareness that most health care costs are
related to the clinical (rather than administrative) aspects of the delivery of
care. The result has been a growing demand for databases incorporating
financial, clinical and analytical tools that leverage this data in order to
assess managed care contracts, analyze outcomes, evaluate managed care member
satisfaction, verify the qualifications of providers and meet ongoing
<PAGE> 3
accreditation requirements. While some payors and providers have recently
adopted new information systems that allow them to capture cost, utilization and
clinical outcomes data regarding their own businesses, they generally have not
been able to use such data effectively. To gain perspective on the marketplace
and to analyze the potential impact of managed care contracts, payors and
providers need benchmark data against which they can compare the data they have
collected regarding their own businesses, as well as information relating to
statistical differences in health care costs and outcomes among urban, suburban
and rural markets. While broad, public-sector data have previously been
available, payors and providers increasingly seek more in-depth, region-specific
health care information, which requires access to both private- and
public-sector data.
The health care information industry is highly fragmented and undergoing
consolidation, as vendors and service providers seek to build market share and
compete more effectively. Many existing health care information businesses have
been created by entrepreneurs who are knowledgeable in the areas of data
products and technology, but these businesses typically lack the sophisticated
marketing organizations, sales effort, capital and general management skills and
processes that are required to generate sustainable revenue expansion. Combined
with the burdens associated with product development and rapid technological
change, these issues pose significant challenges to health care information
companies that lack breadth of management experience, economies of scale and
access to capital. As a result of these factors, many smaller health care
information companies with technologically sophisticated products and a
reputation for quality service have become attractive acquisition candidates for
vendors and service providers seeking to reach critical mass.
STRATEGY
Medirisk's objective is to become the leading provider of proprietary
database products, decision-support software and analytical services to payors,
providers, employers, pharmaceutical companies and other health care industry
participants. To attain this objective, Medirisk is pursuing the following
strategy:
Leverage the Company's Existing Customer Base. Medirisk believes the
increasing demand for health care information, coupled with its broad
customer base, provides a substantial opportunity for internal growth. The
Company has long-standing relationships with its customers and believes it
has developed a reputation for providing objective, value-added information
products. The Company intends to leverage these relationships by
cross-selling additional products and services to existing customers and
increasing product penetration through sales to other operating units,
departments or divisions of existing customers.
Emphasize Recurring Revenue. Medirisk seeks to maximize recurring
revenue by emphasizing multi-year contracts and contract renewals. A
substantial portion of Medirisk's revenue is generated by the licensing of
products on an annual or multi-year basis. The Company believes that its
high rate of recurring revenue results principally from significant revenue
enhancements or cost savings achieved by Medirisk's customers when they use
the Company's products, as well as from the customer's ongoing need for
current information due to the rapid pace of change within the health care
industry. The Company's recurring revenue percentage has been in excess of
70% for each of the last four years.
Develop New Products and Decision-Support Tools. Medirisk actively
develops new products, product enhancements and decision-support tools and,
in 1997, introduced several new products and product enhancements. The
Company expects to introduce additional new products and product
enhancements during 1998. Ultimately, the Company intends to
cross-correlate existing and future databases in an effort to develop
integrated product offerings. For example, Medirisk believes that by
linking its market performance, clinical performance and physician
credentials products, cost and quality can be evaluated together with
outcomes for specific physicians, thus permitting true management of care
by allowing customers to compare the financial costs and expected outcomes
of competing treatment regimens or providers, and to measure health care
consumer satisfaction.
Acquire and Integrate Complementary Products and Businesses. Medirisk
intends to acquire additional companies, products, databases and other
resources to expand into related areas and to increase market share within
the Company's existing product lines. Medirisk believes that the
acquisition
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of new products and customers creates compelling cross-selling
opportunities, enhances the development of new products by facilitating
cross-correlation of existing and acquired products, and provides
significant operating leverage. See "Acquisitions."
ACQUISITIONS
Medirisk believes the selective acquisition of complementary businesses
results in a more rapid expansion of its product line and enables it to leverage
its sales and marketing organization. As a result, Medirisk has invested
significant resources to build the business platform necessary to be a
consolidator in the fragmented health care information services industry. In
1997, Medirisk acquired four companies that provide complementary products and
services. The Company believes the acquisition of these entities created
significant cross-selling opportunities among its respective product offerings,
increased its market share within existing product lines and provided product
and customer expansion opportunities.
As part of a systematic approach to implementing its acquisition strategy,
Medirisk has corporate resources dedicated to identifying, analyzing and
pursuing targeted acquisition candidates. The Company currently is tracking a
database of more than 300 companies, of which approximately 100 meet its primary
acquisition criteria for product type, revenue and customer base. Of primary
interest to Medirisk are: (i) health care information products focused on
benchmark and outcomes data; (ii) software products that assist in data
collection and analysis; (iii) health care consulting firms; and (iv) products
that assist in the delivery and use of Medirisk's databases.
Medirisk believes that its existing infrastructure, in combination with
management's experience in acquiring and integrating new companies and products,
will facilitate the continued successful implementation of its acquisition
strategy.
PRODUCTS AND SERVICES
Medirisk provides products and services designed to enable its customers to
measure and assess the performance of health care services in the United States.
At the core of the Company's products and services are several proprietary
databases. The detailed nature of Medirisk's databases provides precise data
that customers can use to address specific decision-making needs and offers the
Company's customers competitive advantages. Medirisk also provides
decision-support software tools that enhance the utility of its database
products, as well as customized analytical services. The Company's flexible
product design enables customers to license the specific information they need
based on variables such as geographic region, medical specialty, clinical
procedure and timeframe.
The following table briefly describes the content and use of the Company's
products:
MEDIRISK PRODUCTS
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CLINICAL PHYSICIAN
MARKET PERFORMANCE PERFORMANCE CREDENTIALS
------------------ ----------- -----------
<S> <C> <C>
Physician Fee
Payments Clinical Outcomes Credentialing
Utilization Patterns Recruiting
Member Satisfaction
</TABLE>
Medirisk has developed its databases and decision-support software for ease
of use. All of the Company's decision-support software, is Microsoft
Windows(R)-based and is compatible with a variety of hardware and software
applications. The Company's databases can be imported into standard software
programs including Microsoft Excel(R), Lotus 1-2-3(R), FoxPro(R), Quattro
Pro(R), Dbase(R) and others, and can be imported and exported to separate
decision-support and practice administration programs provided by companies such
as HBO & Company, Medic Computer Systems, Inc., Shared Medical Systems
Corporation, IDX Systems Corporation, Medical Manager Corporation and Transition
Systems, Inc.
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Market Performance Products
Medirisk's market performance products provide customers with comprehensive
proprietary data and decision support tools for use in analyzing physician fees,
health care utilization patterns and member satisfaction with managed care plans
in the United States. The following is a description of the Company's primary
market performance products:
CareData Reports(TM). CareData Reports are reports that are created
utilizing information accumulated and analyzed by the Company regarding
consumer satisfaction with managed health care. Based on this data,
CareData Reports rank specific health plans. Comparative market analysis is
available for 26 geographic markets and 170 health plans. To collect data
used in CareData Reports, the Company conducts health care consumer surveys
that are sponsored by approximately 400 major employers and measure patient
satisfaction with approximately 150 aspects of managed health care. The
Company's CareData Reports product line is utilized by health plans to
assess their competitive position and quality of care, by employers to
evaluate health plans and by pharmaceutical companies to target potential
markets for their products.
MEDIRISK(SM) Physician Fee Database. The Physician Fee Database
reports reimbursement rates for medical procedures for various types of
payors and specific geographic markets across the United States. The
Physician Fee Database provides data concerning reimbursement levels that
providers are accepting from managed care plans and other payors, rather
than fees charged by those providers, a distinction critical to an accurate
understanding of market conditions. Fee data in the Physician Fee Database
are tracked by the AMA's CPT codes, which define all current medical
procedures and are segregated into 287 separate market areas in the United
States (compared to 89 market areas that were tracked by HCFA in 1997).
Medirisk believes that the Physician Fee Database divides the United States
into more geographic markets than most competing products, thereby allowing
customers to make more precise fee decisions. A customer can license data
for a specific market, state or region or for the entire United States.
MEDIRISK(SM) Procedure Utilization Database. The Procedure Utilization
Database provides frequently updated utilization data for all medical
procedures included in the Company's Physician Fee Database. This database
can be used to model the anticipated utilization of a specific service for
a certain population profile. The database is offered on a state-specific
basis and can be adjusted for age and gender.
MEDIRISK(TM) Capitation Manager. Capitation Manager is a
Windows(R)-based decision-support application that integrates Medirisk's
Physician Fee Database and Procedure Utilization Database and calculates
capitation rates based on customer-provided pricing and demographic
assumptions. Using Capitation Manager, the customer enters the demographic
profile of a group proposed to be covered in a capitated arrangement, the
services to be provided and proposed capitated pricing for those services.
Using these assumptions in combination with the Company's databases,
Capitation Manager calculates the expected utilization of the services to
be provided and compares the proposed capitated pricing to managed care,
fee-for-service, Medicare and other fee benchmarks tracked by the Company
within a specific market.
Clinical Performance Products
Medirisk offers clinical performance products that enable customers to
measure clinical outcomes across a full range of care within a variety of
medical specialties. Clinical outcomes are generally defined as the change in a
patient's health status as a result of therapy or care delivered by a health
care professional. Clinical outcomes are measured empirically using standard
health status scales to assess the patient prior to the delivery of therapy or
care, while such care is being delivered and after treatment is terminated. The
data included in these products are gathered by Company-certified clinicians,
automated patient information systems and Medirisk's patient interview staff
using the Company's standardized outcomes scales. Comparing customer data with
norms derived from Medirisk's database, Medirisk prepares reports detailing
customers' clinical performance based on a number of independent measures
including patient acuity, medical and functional improvement, resource
utilization, length of stay/duration of treatment, cost of treatment and
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patient satisfaction. Medirisk's clinical performance products assist both
payors and providers with (i) measuring and predicting outcomes of treatment
regimens; (ii) making normalized comparisons of facilities and providers; (iii)
establishing benchmarks for clinical quality improvement; (iv) developing
standards for clinical practice; (v) generating analytical reports for
communicating with customers and their constituents; and (vi) substantiating
quality for managed care contracting and accreditation needs.
Medirisk markets its clinical performance products primarily to health care
providers, and its products are currently available to track clinical outcomes
in ambulatory surgery, rehabilitation, orthopaedics, occupational health, pain
management, neurological care, wound care, respiratory care, nutrition and
infection therapy.
In March 1997, Medirisk's clinical performance products were listed on the
Joint Commission on Accreditation of HealthCare Organizations' ("JCAHO") roster
of vendors who have acceptable clinical performance measurement systems to
support ORYX, JCAHO's new accreditation initiative. The ORYX initiative requires
health care organizations to select an outcomes measurement standard from
JCAHO's list of acceptable performance measurement systems in order to receive
JCAHO accreditation. The ORYX initiative currently covers hospitals, long-term
care organizations, integrated delivery networks, health plans and
provider-sponsored organizations.
Physician Credentials Products
Medirisk provides database products, software and outsourced services
designed to enable its customers to access detailed information concerning the
background and credentials of physicians in the United States. The Company's
physician credentials products facilitate its customers' ability to establish or
improve physician recruiting efforts on a cost-effective basis, develop health
care networks and market the provider component of health care services.
Medirisk's physician credentials products also aid hospital and managed care
customers in verifying the credentials of physicians and other providers with
whom they work. Hospitals, managed care organizations and other health care
industry participants are required to verify and periodically re-verify such
credentials in order to maintain accreditation by organizations such as the
National Committee for Quality Assurance ("NCQA") and JCAHO. The Company's
credentials service has successfully completed all 10 of the audits of
credentialing processes conducted by NCQA. The Company's physician database is
comprised in part of physician data from the AMA's Physician MasterFile. All
physician information is further validated and enhanced by personal telephone
interviews with the physicians conducted by members of Medirisk's staff. Current
products include:
Provider Credential Verification Report(TM). The Provider Credential
Verification Report is a report that provides customers with an efficient
and cost-effective means to verify electronically the key professional
credentials of participating health care practitioners using primary source
data. When joined with the Company's electronic processing of a National
Practitioner Database and/or Federation of State Medical Boards query, and
written verification of a practitioner's hospital privileges, malpractice
insurance coverage and claims history, the Provider Credential Verification
Report becomes the central component of the Company's credential and
verification service.
PrimeSource(TM). PrimeSource is a credential verification database
provided in CD-ROM format. This database is an accurate, cost-effective way
to verify a physician's credentials. PrimeSource includes records for the
following: state licenses and sanctions; Drug Enforcement Agency
registrations and sanctions; US medical school education records from 1979
to the present; US residency program training records from 1983 to the
present; board certifications from the American Board of Medical
Specialties; Medicare Universal Provider Identification Numbers; and
Medicare and Medicaid sanctions. PrimeSource is updated quarterly, and
customers are billed only for the reports they generate.
PracticeMatch(TM). PracticeMatch is a Windows(R)-based
decision-support software system that provides in-house physician
recruiters with on-line access to the Company's physician database. By
establishing a series of search and selection criteria, customers obtain
information about physicians who satisfy specified criteria. The customer
can then print or download the information for use in building in-house
databases, generating recruiting status reports and tracking recruiting
expenses associated with
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specific candidates. The PracticeMatch product is constructed from
proprietary records of approximately 135,000 physicians developed in part
from data in the AMA's Physician MasterFile.
DATA ACQUISITION METHODOLOGY
In designing its products and services, Medirisk emphasizes quality and
ease of use. Medirisk uses proprietary data engineering methodologies to
standardize and interpret data in order to ensure that its products are as
comprehensive, accurate and current as possible. The detailed nature of the
Company's databases provides precise data that customers can use to address
their specific decision-making needs. Furthermore, Medirisk's data engineering
methodologies are designed to ensure that its databases are free of bias. The
resulting objectivity of Medirisk's products and services allows the Company to
market its products to a broad range of health care industry participants and
improves the credibility of its databases as benchmarking tools.
The Company collects data for inclusion in its databases and related
products in a variety of ways, including its customer data collection program
and its regular surveys of managed care organizations, providers, employers and
consumers. To encourage customers to participate in some components of its data
collection program, Medirisk offers price discounts in return for access to
customers' raw claims data and other health care transaction records. Medirisk's
surveys are conducted on a regular basis, with special surveys conducted from
time to time to address new issues and emerging trends. Once the data are
collected, Medirisk's database personnel clean and analyze the data before they
are included in the Company's databases. Medirisk uses proprietary processes to
validate data by standardizing, normalizing and formatting the submitted data
and then applies its database methodologies to segment the data.
Medirisk's databases are regularly updated to reflect changes in the
industry and, in the case of its market performance and clinical performance
databases, to take into consideration secondary factors such as co-morbidity,
case mix and demographics. These attributes permit customers to compare
objectively their financial and clinical performance to industry or
customer-specific benchmarks contained in the Company's databases with
specificity and precision.
Market Performance Products. The data used in Medirisk's market
performance products have been collected through (i) Medirisk's customer data
collection program, whereby customers provide their medical claims or other
health care transaction data to the Company on a regular basis, (ii) surveys of
more than 1,600 managed care organizations, (iii) purchases of certain data
sets, and (iv) maintenance of a customer-support database. Included in the
Physician Fee Database and Procedure Utilization Database are approximately 3.0
billion private sector transaction records, including actual managed care
transaction data and negotiated fee schedules. While Medirisk's market
performance databases include public-sector data, they focus primarily on
private-sector data derived from transaction data and clinical records
contributed by Medirisk's customers and obtained from other sources. These
private- and public-sector data are not commingled, thus permitting more precise
benchmarking of data relevant to the private health care marketplace. The
Company believes that private-sector data are more useful for comparative
purposes than public-sector data and that Medirisk's comprehensive compilation
of private-sector data represents a competitive advantage for the Company. For
the Company's CareData Reports products, Medirisk conducts annual patient
surveys regarding consumer satisfaction with managed care. These surveys are
sponsored by approximately 400 major employers and measure member satisfaction
with approximately 150 aspects of managed care including satisfaction with
provider panels, pharmacy benefit management and overall health plan design.
Clinical Performance Products. Medirisk obtains data for its clinical
outcomes databases from its clinical outcomes customers and other
Company-certified sources. To facilitate collection of outcomes measurements,
the Company provides its customers with data-collection tools that are tailored
to the customer's clinical record-keeping environment. Medirisk collects the
data through customer submission, automated patient information systems and
direct patient interviews conducted by the Company's clinical interview staff.
Data collection software or optical scan forms are used to collect data directly
from the clinician in the absence of automated patient systems. To enhance the
reliability and integrity of customer-submitted data, Medirisk will include in
its outcomes database only information received from customer-
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affiliated clinicians who are trained and certified by Medirisk in rating
patient performance and in data-collection protocols.
Physician Credentials Products. The data included in Medirisk's physician
credentials credentialing products are obtained from publicly available sources
or are licensed, leased or purchased from the source of the data. Sources of
data for credentialing products include state medical boards, the Drug
Enforcement Agency, HCFA, the American Board of Medical Specialties, the
American Association of Medical Colleges and the National Association of Social
Workers. The data used in Medirisk's physician credentials recruiting products
are collected from publicly available sources and the AMA Physician MasterFile,
and are verified personal telephone interviews with each physician. Medirisk
employs professional interview personnel who contact physicians directly, gather
the required information, record the information in the automated database and
send a hard copy to each physician for verification. The Company believes that
the fact that each physician profiled in the Company's recruiting database has
personally verified the information and knows that he or she is tracked in the
database ensures the highest quality profile and offers a significant
competitive advantage over unverified databases. In addition, the Company is the
exclusive licensee of the AMA to share and enhance portions of the AMA's
Physician MasterFile. This relationship greatly enhances the quality and
availability of information about practicing physicians.
CUSTOMERS
The unbiased nature of Medirisk's databases enables the Company to market
its products to a wide range of health care industry participants, including
managed care plans, indemnity insurers, integrated delivery systems, hospitals,
specialty health care providers, physician practice management companies,
physician practices, consulting firms and pharmaceutical firms. None of the
Company's customers, other than HEALTHSOUTH, Corporation accounted for a
material amount of the Company's revenues in 1997. During 1997, revenues from
HEALTHSOUTH represented approximately 16% of Medirisk's total revenues. Most of
Medirisk's major customers, which are defined as generating annualized revenue
of more than $5,000, license products in only one of the product areas offered
by the Company. Medirisk has approximately 1,000 major customers that in the
aggregate account for more than 90% of the Company's revenue.
PRODUCT DELIVERY
The Company's products are delivered to customers on CD ROM, diskette,
magnetic tape, on-line access or hard copy depending upon customer preference.
Medirisk believes that there are readily available alternative sources of supply
for all of the media on which its products are delivered.
COMPETITION
Medirisk faces intense competition in providing health care information
products and services. Competitors vary in size, scope and breadth of product
and service offerings. The Company competes with different competitors in each
of its target markets, and certain of such competitors have substantially
greater resources than those of the Company. In addition, several large
horizontally integrated information services companies, including Dow Jones, IMS
Healthcare, First Data Corporation, National Data Corporation, United Healthcare
and Thomson Publishing, have developed and are marketing information products
and services to the health care industry. The Company believes that it is likely
that one or more of such companies may become more direct competitors of the
Company either by acquiring existing competitors or by developing and marketing
their own products. Many of these larger companies are engaged in the processing
of health care claims and, thus, have access to substantial claims- and
cost-related data from which they could build competing databases or which they
could license to other competitors of the Company. The Company also competes
with the internal information resources and systems of certain of its
prospective and existing customers. The Company believes that the principal
competitive factors in its target markets include the breadth and quality of
database and applications offerings, access to proprietary data, the proprietary
nature of methodologies and technical resources, price and the effectiveness of
marketing and sales efforts.
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EMPLOYEES
On March 24, 1998, the Company had 209 full-time employees. Of these, 19
were corporate personnel, 34 were sales and marketing personnel and 156 were
involved in operations and product development. None of the Company's employees
is covered by a collective bargaining agreement. The Company considers relations
with its employees to be good.
ITEM 2. PROPERTIES
Medirisk's corporate headquarters occupy approximately 16,000 square feet
of an office building located in Atlanta, Georgia, under a lease expiring in
March 1999, with one optional five-year renewal term. Medirisk also leases
office space in Chicago, Illinois; St. Louis, Missouri; Rockville, Maryland; New
York, New York; and St. Paul, Minnesota. The Company believes that such offices
are adequate for the Company's current requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims arising in the normal course of
business. In the opinion of management of the Company, although the outcomes of
these claims are uncertain, in the aggregate they are not likely to have a
material adverse effect on the Company's business, financial condition and
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"MDMD." The following table sets forth the high and low sales prices for the
Common Stock for the quarters indicated as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
PRICE RANGE
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HIGH LOW
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FISCAL YEAR ENDED DECEMBER 31, 1997:
Fourth Quarter............................................ $12.250 $10.250
Third Quarter............................................. 10.875 7.375
Second Quarter............................................ 8.375 6.250
First Quarter (from January 28, 1997)..................... 10.500 7.625
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on March 24, 1998 was $22.50 per share. As of March 24, 1998 the Company
had 31 stockholders of record.
The Company has not declared or paid any cash dividends or distributions on
its Common Stock since 1991. It is the policy of the Company's Board of
Directors to retain earnings to support operations and to finance continued
growth of the Company rather than to pay dividends. Payments of future
dividends, if any, will be at the discretion of the Company's Board of
Directors. The Credit Agreement between the Company and NationsBank N.A.
contains restrictions on the payment of dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
In June 1997, in connection with, and as partial consideration for, the
acquisition of CIVS, Inc., the Company issued 129,166 shares of Common Stock to
various shareholders of CIVS, Inc. In August 1997, in
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connection with, and as partial consideration for, the acquisition of CareData
Reports, Inc., the Company issued 14,516 shares of Common Stock to various
shareholders of CareData Reports, Inc. All of such transactions were conducted
without an underwriter or other placement agent, and the Company claims that all
of such transactions were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from
the audited consolidated financial statements of the Company and its
subsidiaries. The consolidated financial statements and related notes as of
December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997, together with the related report of KPMG Peat Marwick
LLP, independent certified public accountants, are included elsewhere in this
Form 10-K. As a result of the Company's acquisitions of CIVS, Inc., CareData
Reports, Inc. and Medsource, Inc. and certain assets of Staff-Link, Inc.
(collectively, the "1997 Acquisitions"), the Company's historical financial
statements are not representative of financial results to be expected for future
periods. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and Notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.......................................... $ 2,447 $ 2,894 $ 3,655 $ 8,904 $16,749
Salaries, wages and benefits..................... 1,675 1,893 2,578 6,093 7,910
Other operating expenses......................... 507 731 956 2,314 4,374
Depreciation and amortization.................... 75 143 193 787 1,304
Acquired in-process research and development
costs and integration costs(1)................. -- -- -- 6,180 4,575
------- ------- ------- ------- -------
Operating income (loss).......................... 190 127 (72) (6,470) (1,414)
Interest income (expense), net................... (41) (54) (66) (703) 345
Other income (expense)........................... 18 -- -- (57) --
Provision for income taxes....................... -- -- -- -- (707)
------- ------- ------- ------- -------
Income (loss) before extraordinary item.......... 167 73 (138) (7,230) (1,776)
Extraordinary item: loss on early extinguishment
of debt(1)(2).................................. -- -- -- -- (806)
------- ------- ------- ------- -------
Net income (loss)................................ $ 167 $ 73 (138) (7,230) (2,582)
======= =======
Accretion of Series A Convertible Preferred
Stock.......................................... (92) -- --
Series A and Series B Convertible Preferred Stock
dividend requirement........................... (202) (202) (25)
------- ------- -------
Net loss attributable to common stock.......... $ (432) $(7,432) $(2,607)
======= ======= =======
Loss per common share -- basic and diluted(3):
Loss per share before extraordinary item......... $ (0.30) $ (4.84) $ (0.46)
Loss per share -- extraordinary item............. -- -- (0.21)
------- ------- -------
Net loss per common share...................... $ (0.30) $ (4.84) $ 0.67)
======= ======= =======
Weighted average number of common shares used in
calculating net loss per share of common
stock -- basic and diluted(3).................. 1,427 1,536 3,918
======= ======= =======
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................ $ 33 $ 321 $ 197 $(2,495) $ 4,181
Total assets..................................... 1,035 1,111 1,263 8,456 20,658
Long-term debt and capital lease obligations
excluding current portion...................... 127 172 151 7,195 165
Redeemable preferred stock....................... 1,838 2,210 2,302 -- --
Stockholders' equity (deficit)................... (1,714) (1,928) (2,333) (4,823) 16,184
</TABLE>
- ---------------
(1) In connection with the 1997 Acquisitions, the Company recorded non-recurring
charges related to acquired in-process research and development costs and
planned integration costs. Excluding these charges and the extraordinary
loss, operating income, net income and income per common share -- diluted
for the year ended December 31, 1997 would have been $3.2 million, $2.1
million, and $0.45, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 2 of Notes to
Consolidated Financial Statements of the Company.
(2) As a result of the application of a portion of the net proceeds of the
Company's initial public offering to repay indebtedness, the Company
incurred a one-time, non-recurring, non-cash charge of $806,000 with respect
to accelerated amortization of original issue discount on certain Senior
Subordinated Notes and related deferred financing costs. Due to the
Company's losses, no income tax benefit was applied to the extraordinary
loss presented.
(3) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements of the Company. Historical losses for 1993 and 1994 per share are
not presented as they are not meaningful due to the mandatory conversion of
all outstanding shares of the Company's Series A and Series B Convertible
Preferred Stock into Common Stock which occurred upon completion of the
Company's initial public offering in January 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the more
detailed information and consolidated financial statements and accompanying
notes, as well as the other financial information appearing elsewhere in this
Prospectus. Except for historical information, the following discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Forward Looking Statements."
OVERVIEW
Medirisk is a provider of proprietary database products, decision-support
software and analytical services to the health care industry. The Company's
products and services enable its customers to make objective comparisons of the
financial costs and clinical outcomes of physician services to customer-specific
and industry benchmarks, assess patient satisfaction with specific managed care
plans, and access information concerning the background and credentials of
physicians. These capabilities assist health care industry participants in
measuring the performance of health care payors and providers.
Applications of Medirisk's products include pricing managed care contracts,
evaluating physician fee schedules and utilization of physician services,
comparing provider outcomes and health plan performance, credentialing and
recruiting physicians, developing health care delivery networks, and marketing
health care services. The Company actively sells its products to over 1,000
major customers, including leading health plans, insurers, hospitals, large
multi-specialty physician groups, physician practice management companies,
employers, and pharmaceutical companies, as well as several hundred smaller
customers, including single-
10
<PAGE> 12
specialty physician groups. Medirisk believes that it is the leading provider of
clinical and financial database products comprised of physician-oriented content
and managed care consumer satisfaction information in the United States.
ACQUISITIONS
Following the completion of its initial public offering in January 1997,
Medirisk significantly expanded its operations by acquiring four companies. The
acquisition of businesses with complementary products and services has broadened
the Company's customer base, created additional cross-selling opportunities,
increased market share for existing products and resulted in new product
extensions and enhancements. The following summarizes these recent transactions.
- In May 1997, Medirisk acquired substantially all of the assets of
Staff-Link, Inc. ("Staff-Link") of St. Louis, Missouri, a provider of a
physician database and related software utilities designed to assist
health care organizations with their in-house recruiting efforts.
Staff-Link's customer base increased the market share of the Company's
physician credentials products.
- In June 1997, Medirisk acquired CIVS, Inc. ("CIVS") of Rockville,
Maryland, a leading national provider of physician credentialing services
and information products to health care organizations. The acquisition of
CIVS added new customers to the Company's physician credentials product
line and broadened the range of products and outsourced services offered
by the Company.
- In August 1997, Medirisk acquired CareData Reports, Inc. ("CareData") of
New York, New York, which creates reports analyzing consumer satisfaction
with more than 150 aspects of managed health care plans and ranks
specific health plans accordingly. CareData's products are used by
managed care plans to assess their competitive position and quality of
care, by employers to evaluate health plans and by pharmaceutical
companies to target potential markets for their products.
- In November 1997, Medirisk acquired Medsource, Inc. ("Medsource") of St.
Paul, Minnesota, which licenses databases of physician information for
use in recruiting physicians and developing health care networks. The
acquisition strengthened the Company's physician credentials product line
and extended the application of these products to the administrative and
the marketing functions of health care organizations.
In connection with the 1997 Acquisitions, the Company acquired intangible
assets which are being amortized over various useful lives. The amortization
periods are based on, among other things, the nature of the products and
markets, the competitive position of the acquired companies and the adaptability
to changing market conditions of the acquired companies. The Company recorded
amortization expense related to the 1997 Acquisitions of $300,000 for the year
ended December 31, 1997.
Also in connection with these acquisitions, the Company recorded
non-recurring charges related to in-process research and development costs of
$3.1 million for CIVS, $975,000 for CareData and $300,000 for Medsource. The
amount of each of these non-recurring charges was equal to the estimated current
fair value, based on the adjusted cash flows (discounted by a risk-adjusted
weighted average cost of capital of 24% for CIVS and Care Data and 29% for
Medsource), of specifically identified technologies for which technological
feasibility had not yet been established pursuant to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed" and for which future alternative uses did
not exist. Similar charges could result in the future as a result of additional
acquisitions accounted for as purchases.
The Company incurred approximately $200,000 of integration costs during
1997 for the 1997 acquisitions.
As a result of the 1997 Acquisitions, the Company's historical financial
statements are not representative of financial results to be expected for future
periods. See Note 2 of Notes to Consolidated Financial Statements of the
Company.
11
<PAGE> 13
SOURCES OF REVENUE
The Company provides services and licenses its products primarily pursuant
to single- and multi-year contracts which provide for the payment of
nonrefundable annual fees, often in advance of use or shipment, or of quarterly
fees that are generally billed in advance of service delivery. The products are
segregated into three types: market performance, clinical performance and
physician credentials products. The market performance products provide
customers with information from the Company's market performance product
databases. Revenue on these sales is recognized upon the delivery of the data.
The Company also licenses the exclusive right to market the results of its
managed care consumer satisfaction surveys. Revenue from the licenses of
disease-specific customized surveys to the pharmaceutical industry is recognized
as the related costs of producing the survey are incurred, and revenue from
noncustomized data licensing is recognized upon delivery. The clinical
performance products revenues relate to the delivery of services and are
recognized over the contract terms as the services are provided. The physician
credentials products consist of (i) data and services provided to customers over
time, for which revenue is recognized ratably over the life of the contract, and
(ii) credentials reports that validate physicians' education, training and other
matters, for which revenue is recognized upon delivery of the completed reports.
Customer service revenues are recognized ratably over the service contract
period. All other revenue, including fees for training, consulting fees, and
other miscellaneous services, is recognized upon the performance of the
applicable services.
The Company's revenue is composed of both recurring revenue from the
Company's current customer base as well as revenue from new customers. The
Company defines its recurring revenue percentage with respect to any particular
period as the quotient, expressed as a percentage, of (i) revenue recognized
during such period from a sale of a product to a customer who purchased a
similar product in the prior period divided by (ii) the Company's total revenue
in the prior period. In determining its recurring revenue percentage, the
Company includes in its revenue the revenue of entities acquired during the
period as if such acquisitions had occurred at the beginning of the prior
period. The Company does not include revenue in its recurring revenue percentage
to the extent that such revenue exceeds total revenue in the prior period. The
Company's recurring revenue percentage has been in excess of 70% for each of the
last four years.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenue represented by the respective items.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenue..................................................... 100% 100% 100%
Salaries, wages and benefits................................ 71 69 47
Other operating expenses.................................... 26 26 26
Depreciation and amortization............................... 5 9 8
Acquired in-process research and development costs and
integration costs......................................... -- 69 27
--- --- ---
Operating loss.............................................. (2) (73) (8)
Interest income (expense), net.............................. (2) (8) 2
Other expense............................................... -- -- --
Provision for income taxes.................................. -- -- (4)
Extraordinary item: loss on early extinguishment of debt.... -- -- (5)
--- --- ---
Net loss.................................................... (4)% (81)% (15)%
=== === ===
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue in 1997 was $16.7 million, an increase of $7.8 million or
88% over 1996. The increase was primarily attributable to the acquisitions of
CIVS and CareData, effective in June 1997 and August 1997,
12
<PAGE> 14
respectively. Revenue recognized by these acquired companies represented
approximately $4.3 million, or 55% of the total increase. The Company's revenue
without the impact of the revenue from the 1997 Acquisitions increased 45% for
1997 over 1996 as a result of a combination of factors, including the revenue of
a company acquired in March 1996 whose revenues were not included in the
Company's revenues for the entire year in 1996, increases in the volume of
products licensed and revenue attributable to an increase in the Company's sales
and marketing personnel. The volume increase was principally attributable to
licenses to new and existing customers for existing products and product
extensions.
Salaries, wages and benefits. Salaries, wages and benefits in 1997 were
$7.9 million, an increase of $1.8 million or 30% over 1996. This increase was
primarily the result of the acquisitions of CIVS and CareData and growth in the
revenues of the Company's other business units. Salaries, wages and benefits
decreased as a percentage of revenue during 1997 to 47% as compared to 68% for
the same period in 1996. This decrease resulted primarily from leveraging the
Company's existing administrative, sales and marketing personnel as revenue
increased through both acquisitions and internal growth.
Other operating expenses. Other operating expenses in 1997 were $4.4
million, an increase of $2.1 million or 89% over 1996, principally as a result
of the acquisitions of CIVS and CareData. Other operating expenses remained
generally consistent at 26% of revenue in 1997 and 1996.
Depreciation and amortization. Depreciation and amortization in 1997 was
$1.3 million, an increase of $517,000 or 66% over 1996. This increase resulted
primarily from the 1997 Acquisitions. As a percentage of revenue, depreciation
and amortization for 1997 and 1996 was 8% and 9%, respectively.
Acquired in-process research and development costs and integration
costs. In connection with the 1997 Acquisitions, the Company acquired the
ongoing research and development activities of each entity and incurred certain
integration expenses. At the effective date of each acquisition the Company
recorded non-recurring charges resulting from expensing acquired in-process
research and development costs. In 1997, the acquired in process research and
development costs and integration costs totaled $4.6 million, or 27% of revenue.
Interest income (expense), net. Net interest income in 1997 was $345,000,
an increase of $1.0 million over 1996. The increase was a result of the
extinguishment of debt with the proceeds of the Company's initial public
offering and the interest income earned on the net proceeds of that offering.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Revenue in 1996 was $8.9 million, an increase of $5.2 million or
144% over 1995. The increase was primarily attributable to the acquisitions of
Formations in Health Care, Inc. ("Formations") and PracticeMatch, Inc.
("PracticeMatch") effective in January and March 1996, respectively. Revenue
recognized by these acquired companies represented approximately $4.9 million,
or 93% of the total increase. The Company's revenue without the impact of the
revenue from the acquired companies increased 9% for 1996 over 1995 as a result
of a combination of factors, including increases in the volume of financial
products licensed and revenue attributable to an increase in the Company's sales
and marketing personnel. The volume increase was principally attributable to
licenses to new and existing customers as a result of product enhancements and
extensions.
Salaries, wages and benefits. Salaries, wages and benefits in 1996 were
$6.1 million, an increase of $3.5 million or 136% over 1995. This increase was
primarily the result of the acquisitions of Formations and PracticeMatch and, to
a lesser extent, growth in the Company's administrative, sales and marketing
infrastructure. Salaries, wages and benefits decreased as a percentage of
revenue in 1996 to 69% as compared to 71% in 1995. This decrease resulted
primarily from leveraging the Company's administrative, sales and marketing
personnel as revenue increased through both acquisitions and internal growth.
Other operating expenses. Other operating expenses in 1996 were $2.3
million, an increase of $1.4 or 142% over 1995, principally as a result of the
acquisition of Formations and PracticeMatch. Other operating expenses remained
constant at 26% of revenue in 1996 and in 1995.
13
<PAGE> 15
Depreciation and amortization. Depreciation and amortization in 1996 was
$787,000, an increase of $593,000 or 307% over 1995. This increase resulted from
the acquisitions of Formations and PracticeMatch. As a percentage of revenue,
depreciation and amortization for 1996 and 1995 was 9% and 5%, respectively.
Acquired in-process research and development costs. In connection with the
acquisition of Formations and PracticeMatch, the Company acquired the ongoing
research and development activities of each entity. At the effective date of
each acquisition the Company recorded non-recurring charges resulting from
expensing acquired in-process research and development costs. These charges
totaled $6.2 million, or 69% of revenue, in 1996.
Interest income (expense), net. Net interest expense in 1996 was $703,000,
an increase of $638,000 or 975% over 1995. The increase was a result of interest
due on Senior Subordinated Notes issued during 1996 to finance the acquisition
of PracticeMatch as well as interest expense on the acquisition notes issued to
the sellers of PracticeMatch.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial data
of the Company for 1996 and 1997. In the opinion of the Company's management
this unaudited information has been prepared on the same basis as the audited
information and includes all adjustments necessary to present fairly the
information set forth therein. The operating results for any quarter are not
necessarily indicative of results for any future period:
<TABLE>
<CAPTION>
1996 QUARTER ENDED 1997 QUARTER ENDED
-------------------------------------- --------------------------------------
MAR. 31 JUN. 30 SEPT. 30 DEC. 31 MAR. 31 JUN. 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues................... $ 1,577 $2,297 $2,380 $2,650 $2,650 $ 3,243 $4,677 $6,179
Salaries, wages and
benefits................. 1,121 1,637 1,630 1,705 1,762 1,718 2,036 2,394
Other operating expenses... 356 650 579 729 646 894 1,309 1,525
Depreciation and
amortization............. 96 226 228 237 201 249 352 502
Acquired in-process
research and development
costs.................... $ 6,180 -- -- -- -- 3,100 1,064 411
------- ------ ------ ------ ------ ------- ------ ------
Operating income (loss).... (6,176) (216) (57) (21) 41 (2,718) (84) 1,347
Interest income (expense),
net...................... (52) (214) (216) (221) 41 157 103 44
Other expense.............. -- (37) (3) (17) -- -- -- --
Provision for income
taxes.................... -- -- -- -- -- -- -- (707)
------- ------ ------ ------ ------ ------- ------ ------
Income (loss) before
extraordinary item....... -- -- -- -- 82 (2,561) 19 684
Extraordinary item......... -- -- -- -- (806) -- -- --
------- ------ ------ ------ ------ ------- ------ ------
Net income (loss).......... $(6,228) $ (467) $ (276) $ (259) $ (724) $(2,561) $ 19 $ 684
======= ====== ====== ====== ====== ======= ====== ======
</TABLE>
The Company's quarterly revenues and operating results have varied
significantly in the past. Quarterly results have fluctuated as a result of a
variety of factors including but not limited to the following: the Company's
sales cycle; staffing changes in the Company's sales and marketing organization;
changes in the Company's resources; demand for the Company's products; the
timing of significant new customer contracts; the non-renewal of significant
customer contracts; the timing of acquisitions; competitive conditions in the
industry; changes in customer budgets; and general economic factors.
Furthermore, the Company has experienced a seasonal pattern in its operating
results, with a greater proportion of the Company's revenue and operating
profitability occurring in the second half of the year. The Company attributes
this seasonality to a combination of factors including budgeting and other
factors affecting the health care industry generally, the compounding effect of
historical renewal schedules (which typically results in greater license
renewals in the third and fourth quarters) and internal staffing and growth
issues. The Company believes the licensing and subsequent renewal pattern of its
market performance products are more seasonal than its other products and
14
<PAGE> 16
expects the addition of new products, including those from acquisitions, to
moderate, but not end, this seasonal effect.
A significant portion of the Company's expenses are relatively fixed, and
the amount and timing of increases in such expenses are based in large part on
the Company's expectations concerning future revenue. If revenues are below
expectations in any given quarter, the adverse effect may be magnified by the
Company's inability to adjust spending quickly enough to compensate for the
revenue shortfall. Accordingly, even a small variation from expected revenue
could have a material adverse effect on the Company's results of operations for
a given quarter.
SOFTWARE CAPITALIZATION
In addition to acquisitions, the Company seeks to expand its product
offerings through internal product development. Prior to 1996, the Company
expensed internal development costs due to the nominal costs incurred between
technological feasibility and product release. In 1997 the Company began
capitalizing internal product development costs which were incurred after
technological feasibility had been established and prior to general product
release. Capitalized software development costs net of accumulated amortization
totaled $1.0 million at December 31, 1997.
INCOME TAXES
The Company recorded income tax expense of $707,000 during 1997 due to
limitations on the utilization of net operating loss carryforwards and the
nondeductability of certain acquired in-process research and development costs
to offset taxable income. At December 31, 1997, the Company had net operating
loss carryforwards of approximately $1.9 million for federal income tax
purposes. The net operating loss carryforwards expire beginning in 2006 through
2011. The total gross deferred tax asset was approximately $3.5 million as of
December 31, 1997 and has been reduced to zero by a valuation allowance and
offsetting deferred income tax liabilities of approximately $1.0 million.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and the tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Applying the provisions of SFAS 109 to
the Company, particularly considering the Company's history of net losses, the
Company was unable to support a conclusion consistent with SFAS 109 that it is
more likely than not that it will generate future taxable income during the loss
carryforward periods; therefore, the Company has provided a full valuation
allowance against its net deferred tax assets. In determining that a valuation
allowance was required, management primarily considered such factors as the
Company's history of operating losses and expected near-term future losses and
earnings, the nature of the Company's deferred tax assets, the absence of
significant excess of appreciated asset value over the tax basis of the
Company's net assets, the absence of taxable income in prior carryback years and
the potential for deferred tax assets resulting from future business
acquisitions. Although management's operating plans assume taxable and operating
income in future periods, historical performance has produced an accumulated
deficit of $12.4 million at December 31, 1997. Consequently, the Company has
provided a full valuation allowance against its net deferred tax assets until
such time as the Company produces sufficient taxable and operating income to
support a lower valuation allowance.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $1.9 million, which expire beginning in 2006 through 2011. Under
Internal Revenue Code Section 382, the Company's use of net operating loss
carryforwards is limited to approximately $1.1 million per year as a result of
the Company's initial public offering completed in January 1997 (see Note 8(h)
of Notes to Consolidated Financial Statements). Approximately $1.0 million of
the net operating loss at December 31, 1997 relates to loss carryforwards
acquired in connection with the 1997 Acquisitions. Accordingly, such losses are
limited to income generated by the acquired entity as well as substantial annual
limitations.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its initial public offering of Common Stock in
January 1997 and received approximately $22.6 million in net proceeds.
Approximately $9.1 million of these net proceeds were used to repay a senior
subordinated note and certain notes issued in connection with the Company's
acquisition of PracticeMatch, to pay accrued dividends on the Company's Series A
and Series B Convertible Preferred Stock and to repay a bridge loan provided by
NationsBank. In 1997, the Company used $11.4 million of the remaining net
proceeds of its initial public offering for working capital and general
corporate purposes, including the funding of the 1997 Acquisitions and
development of new products.
In March 1997, NationsBank and the Company entered into a Credit Agreement
under which a $10.0 million revolving credit facility (the "NationsBank
Revolver") is available to the Company. The NationsBank Revolver is secured by
substantially all of the Company's assets. Under the terms of the NationsBank
Revolver the Company may, subject to customary terms, conditions and covenants,
borrow up to $10.0 million to fund working capital needs, new product
development and acquisitions. The Credit Agreement for the NationsBank Revolver
provides for interest at varying rates based on LIBOR and NationsBank's prime
rate and will mature on March 28, 1999. Under the terms of the NationsBank
Revolver, the Company is subject to various restrictive covenants regarding,
among other things, payment of any dividends, capital expenditures limitations,
incurrence of indebtedness from others in excess of certain amounts, and
consummation of certain mergers and acquisitions without the consent of
NationsBank. Financial covenants include, but are not limited to, maintaining
debt to capitalization ratios, minimum net worth ratios, debt service coverage
ratios and cash flow leverage ratios. No amounts were outstanding under the
Credit Agreement during 1997.
The Company currently has no specific plans with respect to the use of the
remaining $2.1 million of the net proceeds of its initial public offering or the
NationsBank Revolver, and the Company's cash flow from operations has generally
been sufficient to fund the liquidity needs of the Company other than
acquisitions and new product development. The Company anticipates that
borrowings under the NationsBank Revolver and the remaining net proceeds of the
initial public offering will be used principally for working capital and general
corporate purposes, for potential acquisitions of complementary businesses or
products in the health care information industry and for the development of
additional products. Pending the application of the remaining net proceeds of
its initial public offering, the Company has invested such proceeds in
short-term, interest-bearing, investment-grade securities.
In January 1996, the Company and HealthPlan Services Corporation ("HPSC")
entered into a Securities Purchase Agreement, under which HPSC purchased 280,623
shares of Series B Convertible Preferred Stock for $2.0 million and agreed to
purchase up to $10.0 million in original principal amount of Senior Subordinated
Notes. In connection with the issuance of the Senior Subordinated Notes, the
Company agreed to issue warrants to purchase up to 432,101 shares of Common
Stock for $0.015 per share. In March 1996, the Company issued $6.9 million in
original principal amount of the Senior Subordinated Notes to HPSC and warrants
to purchase 298,150 shares of Common Stock. (In February 1998, these warrants
were exercised.) The Company used $1.5 million of the proceeds from the sale of
Series B Convertible Preferred Stock to complete the acquisition of Formations.
Medirisk used approximately $5.4 million of the proceeds from the issuance of
the Senior Subordinated Notes to complete the acquisition of PracticeMatch. In
addition, in connection with the PracticeMatch acquisition, the Company issued
acquisition notes to the sellers in an aggregate principal amount of $1.1
million. The HPSC Senior Subordinated Notes, a NationsBank bridge loan and the
acquisition notes were repaid in full upon the completion of the Company's
initial public offering in January 1997. Upon such repayment HPSC's obligation
to purchase additional Senior Subordinated Notes terminated.
The Company had working capital of $4.2 million as of December 31, 1997 as
compared to a working capital deficit of $2.5 million as of December 31, 1996.
This increase is primarily due to the receipt of the net proceeds of the
Company's initial public offering.
Net cash used by operating activities totaled $697,000 for the year ended
December 31, 1997, as compared $762,000 for the prior year. The decrease in cash
used of $65,000 was primarily the result of the timing of customer payments.
16
<PAGE> 18
Net cash used in investing activities was approximately $9.3 million for
the year ended December 31, 1997, as compared to $7.3 million for the prior
year. In 1996, $7.0 million was used to fund the acquisitions of Formations and
PracticeMatch, while, in 1997, $7.4 million was used to fund the 1997
Acquisitions. The remaining $1.9 million of net cash used in investing
activities in the year ended December 31, 1997 was used to fund fixed asset
purchases and software development.
Net cash provided by financing activities was $13.1 million for the year
ended December 31, 1997, as compared to $8.2 million for the same period in the
prior year. As previously discussed, in 1997 the Company retained $13.5 million
of the net proceeds from its initial public offering, and the cash provided in
1996 resulted from the net proceeds under the HPSC Securities Purchase
Agreement.
The Company believes that the remaining proceeds of its initial public
offering, borrowings under the NationsBank Revolver and cash generated from
operations will be sufficient to meet the capital expenditure and working
capital needs for the Company's operations for the near term. The Company's
future liquidity and cash requirements will depend on a wide range of factors,
including costs associated with development of new products, enhancements of
existing products and acquisitions. Although the Company has no present
commitments or agreements regarding acquisitions, the Company's strategy is to
acquire additional complementary products and businesses. If the remaining
proceeds of the initial public offering, borrowings under the NationsBank
Revolver and cash flow from operations are not sufficient to fund such
acquisitions, the Company will be required to seek additional financing, and
there can be no assurance that such financing will be available in amounts and
on terms acceptable to the Company.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130"). SFAS No. 130 requires companies to display, with the
same prominence as other financial statements, the components of comprehensive
income. SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company's financial
statements will include the disclosure of comprehensive income in accordance
with the provisions of SFAS No. 130 beginning the first quarter of 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS No. 131"). SFAS No. 131 requires that an enterprise disclose certain
information about operating segments. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company will
evaluate the need for such disclosures at that time.
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2
is effective for financial statements for fiscal years beginning after December
15, 1997. The Company does not expect that adoption of SOP 97-2 will
significantly affect its results of operations.
YEAR 2000 COMPLIANCE
The Company is addressing the Year 2000 compliance issues on the software
that it licenses and uses in its products and on the software that it uses
internally. Based on its current analysis, the Company believes that Year 2000
compliance will not have a material effect on its business, operations or
financial condition, as remediation costs either have been incurred or the costs
estimated to be incurred are not material.
17
<PAGE> 19
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
results of operations for the periods presented. Substantial increases in costs,
particularly the cost of labor for product development, marketing and sales,
could have an adverse impact on the Company's business, operating results and
financial condition.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements contained in the Company's filings with the Securities and Exchange
Commission (the "Commission") and its reports to stockholders. Statements made
in this Annual Report on Form 10-K, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief, as well as on assumptions made by, and information
currently available to, management, and are made pursuant to, and in reliance
upon, the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. The Company's actual results may differ materially from the results
anticipated in these forward-looking statements due to numerous
factors,including the following: History of Operating Losses and Uncertain
Profitability; Risks Related to Growth; Risks of Integration of Acquired
Operations; Dependence on Data Sources and AMA Licenses; Dependence on
Intellectual Property Rights; Uncertainty and Consolidation in the Health Care
Industry; Risks of Rapid Technological Change; Intense Competition; Risks of
Customer Concentration; Potential for System Defects; Concentration of
Ownership; Dependence on Key Personnel; Variable Quarterly Operating Results and
Seasonality; No Prior Public Market and Possible Volatility of Stock Price;
Potential Adverse Effects of Substantial Number of Shares Eligible for Future
Sale; Adverse Impact of Anti-takeover Provisions; No Dividends; and Risks
Associated with Unspecified Use of Proceeds. For a more complete discussion of
these factors, please see the section entitled "Risk Factors" in the Company's
Registration Statement on Form S-1, as amended, as originally filed with the
Commission on September 28, 1996, Registration Number 33-12311.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements of Medirisk and
its subsidiaries, consisting of the Consolidated Balance Sheets as of December
31, 1997 and 1996, and the related Consolidated Statements of Operations,
Consolidated Statements of Stockholders' Equity and Consolidated Statements of
Cash Flows for each of the three years in the three-year period ended December
31, 1997, together with the Notes to Consolidated Financial Statements. SEE
SECTION F, OF THIS REPORT, WHICH INFORMATION IS INCORPORATED INTO THIS ITEM 8 BY
REFERENCE.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers, directors and director nominees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mark A. Kaiser.................................... 40 Chairman of the Board, Chief Executive
Officer and President
Kenneth M. Goins, Jr.............................. 39 Executive Vice President and Chief
Financial Officer
Thomas C. Kuhn.................................... 35 Vice President -- Finance and
Administration
O. B. Rawls....................................... 47 Senior Vice President and Group General
Manager
Keith O. Cowan(2)................................. 41 Director
Michael J. Finn(1)................................ 48 Director
William M. McClatchey, M.D(1)..................... 49 Director
James K. Murray, III(1)........................... 35 Director
Robert P. Pinkas(2)............................... 44 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Mark A. Kaiser joined the Company in 1991 and has served as Chairman of the
Board, Chief Executive Officer and President of the Company. Mr. Kaiser has been
a director of the Company since 1991. Prior to being recruited to Medirisk, Mr.
Kaiser's experience included senior and executive management positions in sales
and marketing for health care and technology companies. Before joining Medirisk,
Mr. Kaiser was Vice President of Sales and Marketing for Charter Medical
Corporation, the nation's largest chain of psychiatric hospitals. Mr. Kaiser was
Senior Vice President of Marketing at TelecomUSA, where he worked from the early
stages of the company until its acquisition by MCI Communications Corporation.
Mr. Kaiser was involved in TelecomUSA's acquisition and consolidation of more
than 50 companies, and he co-managed the consolidation of the TelecomUSA
customer base onto standard MCI products. Mr. Kaiser holds Bachelor of Science
degrees in Computer Science and Mathematics from Furman University.
Kenneth M. Goins, Jr., has served as Vice President, Finance and
Administration and Chief Financial Officer of the Company from joining Medirisk
in April 1996 until December 1996 when he was elected Executive Vice President.
Prior to joining the Company from 1985 until April 1996, Mr. Goins served in
various capacities with First Data Corporation ("FDC") and its predecessors
First Financial Management Corporation ("FFMC") and MicroBilt Corporation
("MBC"). From 1995 until April 1996, Mr. Goins was Vice President of Financial
Planning and Analysis for FDC, a major financial information services company
based in Atlanta. FDC acquired FFMC in October of 1995, where Mr. Goins served
as Vice President of Financial Planning and Analysis from June 1994 until
October 1995. During the last half of his tenure at FFMC and FDC, Mr. Goins also
served as Chief Financial Officer for Unified Merchant Services, a credit card
processing joint venture with NationsBank. From 1985 until June 1994, when it
was acquired by FFMC, Mr. Goins was an officer of MBC. He served at various
times as the Executive Vice President, Chief Financial Officer and Controller of
MBC, an Atlanta-based computer software services company, from 1985 through its
initial public offering and until MBC was acquired by FFMC. While at MBC and
FFMC, Mr. Goins was involved in a number of acquisitions in the information and
software industries. Prior to his employment with MBC, Mr. Goins was employed in
various capacities by Colonial Life and Accident Insurance Company, based in
Columbia, South Carolina. Mr. Goins holds a Bachelor of Science degree in
Business Administration from the University of South Carolina and is a Licensed
Certified Public Accountant.
19
<PAGE> 21
Thomas C. Kuhn has been Controller of the Company since he joined the
Company in 1996. Mr. Kuhn was appointed principal accounting officer of the
Company in March 1998, after having been appointed Vice President -- Finance and
Administration of the Company in August 1997. Prior to joining the Company, from
1992 to 1996 Mr. Kuhn served in various capacities with FDC and its predecessors
FFMC and MBC. From May 1995 until joining the Company in May 1996, Mr. Kuhn was
Vice President of Working Capital Management for FFMC as well as having
additional financial planning and analysis responsibilities with FDC. From March
1992 until May of 1995, Mr. Kuhn served as Controller of MBC. Prior to his
employment at MBC, Mr. Kuhn was in public accounting with Clayton, Miller and
Company in Atlanta, Georgia, from August 1987 until March 1992, and with Arthur
Young and Company in Atlanta, Georgia, from September of 1984 until August 1987.
Mr. Kuhn holds a Bachelor of Science degree in Business Administration from the
University of South Carolina and is a Licensed Certified Public Accountant.
O.B. Rawls has been Senior Vice President and Group General Manager of the
Company since he joined the Company in December 1997. Prior to joining the
Company, from April 1995 to December 1997, Mr. Rawls held several positions with
First Data Corporation; his most recent being from June 1997 until December 1997
as General Manager International Partnership in which he negotiated and
implemented an international merchant processing joint venture. Mr. Rawls served
as President of Unified Merchant Services, a credit card processing joint
venture with NationsBank. From 1983 until 1995, Mr. Rawls was an executive with
NationsBank and its predecessor NCNB National Bank, his final position being
Senior Vice President/Division Executive of Merchant Card Services for
NationsBank from 1993 until 1995. Mr. Rawls holds a Bachelor of Science Degree
from East Carolina University and an Executive Masters of Business
Administration from Queens College.
Keith O. Cowan has been a Director of the Company since 1997. Mr. Cowan has
served as Vice President -- Corporate Development for BellSouth Corporation
since May 1996. He is responsible for managing the merger and acquisition
activities of BellSouth and its subsidiaries, including the identification of
acquisition candidates, and the structuring and negotiation of transactions.
Prior to joining BellSouth, Mr. Cowan was associated with Alston & Bird, a law
firm based in Atlanta, Georgia, for 14 years, becoming a partner in the firm in
1990. His experience included the representation of public and private clients
in corporate and securities transactions. During his last five years at Alston &
Bird, Mr. Cowan specialized in the health care and insurance industries. Alston
& Bird is the Company's legal counsel. Mr. Cowan holds a Bachelor of Arts degree
from the University of North Carolina and a Juris Doctor degree from the
University of Virginia.
Michael J. Finn has been a Director of the Company since 1992. Mr. Finn is
President and a Director of Brantley Capital Corporation, a publicly-traded
closed-end investment company ("BCC"), and is President and a director of
Brantley Capital Management, Ltd., investment advisor to BCC ("BCM"). Since
1995, Mr. Finn has also served as a general partner of the general partners of
Brantley Venture Partners II, L.P. ("BVP II") and Brantley Venture Partners III,
L.P. ("BVP III"), venture capital firms located in Cleveland, Ohio. From 1987 to
1995, Mr. Finn was Vice President of the Venture Capital Group of Sears
Investment Management Co. in Chicago, Illinois. Mr. Finn is also a director of
Rhomas Group, Inc., Silvon Software, and Pediatric Services of America, Inc. Mr.
Finn has been an active investor in small businesses since 1976 and holds
Bachelor of Science degree in Urban Planning and Master of Science degrees in
Land Economics and Finance from Michigan State University.
William M. McClatchey, M.D., F.A.C.P., F.A.C.R. has been a Director of the
Company since 1997. Dr. McClatchey is a physician practicing in Atlanta,
Georgia, specializing in primary care internal medicine and rheumatology. Dr.
McClatchey has practiced medicine at the Piedmont Clinic in Atlanta since 1979.
Dr. McClatchey was a member of the Board of Directors of BankSouth Corporation,
N.A., and served as Chairman of its Community Development Committee. He is a
member of the American College of Physicians, serving on its Committee on
Medical Informatics from 1986 until 1992 and as Chairman of that committee from
1990 to 1992. Dr. McClatchey was a member of the Health Policy Advisory
Committee of the Center for Strategic and International Studies in 1993 and
served as Chairman of the Study Group on Preventive Health and Infrastructure in
1993. Dr. McClatchey is President and serves on the Board of Trustees of Georgia
Health Decisions, Inc. a community-based not-for-profit organization working for
20
<PAGE> 22
comprehensive health care reform in Georgia. Dr. McClatchey is a member of the
Georgia Coalition for Health, a 32-member group charged by Governor Zell Miller
to devise a proposal to reform Georgia's Medicaid program. In addition, Dr.
McClatchey is a member of the Board of Directors and Executive Committee of the
Georgia Health Policy Center at Georgia State University and a member of the
Information Systems Steering Committee for Promina Health System, Atlanta,
Georgia.
James K. Murray, III, has been a Director of the Company since January
1996. Since December, 1997, Mr. Murray has been Executive Vice President and
Chief Financial Officer of Sykes HealthPlan Services, Inc. ("SHPS"), a joint
venture between HealthPlan Services Corporation and Sykes Enterprises,
Incorporated. SHPS is an information technology company that provides a full
complement of benefits outsourcing services to companies worldwide. From 1995
until 1997, Mr. Murray was Executive Vice President and Chief Financial Officer
of HealthPlan Services Corporation, a Tampa, Florida-based health care services
company providing marketing, distribution, administrative and cost containment
services on behalf of health care payors. Prior to joining HealthPlan Services
from 1990 until October 1995, Mr. Murray was President and Chief Executive
Officer of Plant State Bank, a federally-insured commercial bank in Hillsborough
County, Florida. From 1985 to 1990, Mr. Murray was an accountant with Arthur
Andersen & Co. in Atlanta, Georgia. Mr. Murray is also on the board of directors
of DynaBit U.S.A., Inc., an international value added distributor of computer
parts and components. Mr. Murray holds a Bachelor of Science degree in
Accounting and a Master of Science degree in Finance from the University of
Virginia. Mr. Murray is a Licensed Certified Public Accountant.
Robert P. Pinkas has been a Director of the Company since 1991. Mr. Pinkas
is currently Chairman of the Board, Chief Executive Officer, Treasurer and a
director of Brantley Capital Corporation. Mr. Pinkas was the founding partner of
Brantley Venture Partners, L.P., a venture capital fund started in 1987 ("BVP
I"). Mr. Pinkas also led the formation of BVP II and BVP III. He serves as a
general partner of the general partners of BVP I, BVP II, and BVP III and has
worked with these and related investment partnerships since 1981. Mr. Pinkas
currently serves as Chairman of the Board of Gliatech, Inc. as well as a
director of Quad Systems Corporation, Pediatric Services of America, Inc. and
Waterlink, Inc. Mr. Pinkas holds Bachelor of Arts degree in Government and a
Master of Science degree in History from Harvard University and a Juris Doctor
degree from the University of Pennsylvania.
Under the terms of the Company's Bylaws, the members of the Board of
Directors are divided into three classes, each of which serves a term of three
years. Each class is to consist, as nearly as possible, of one-third of the
total number of directors. The terms of Messrs. Finn and Murray will expire in
1998, the terms of Messrs. Kaiser and Pinkas will expire in 1999, and the terms
of Mr. Cowan and Dr. McClatchey will expire in 2000.
The section entitled "Section 16(a) Beneficial Owner Reporting Compliance"
appearing in the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 21, 1998 will set forth certain information with
respect to the directors and executive officers of the Registrant and is
incorporated by reference herein.
21
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during the fiscal year ended December 31, 1997 for the Chief
Executive Officer of the Company and the Chief Financial Officer of the Company
and for Paul A. Rodwick, former Chief Operating Officer and Executive Vice
President of the Company, who resigned those positions in October 1997. The
Chief Executive Officer and the Chief Financial Officer of the Company and Mr.
Rodwick are referred to as the "Named Executive Officers." None of the other
executive officers of the Company received total annual salary and bonus in
excess of $100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
NAME AND PRINCIPAL POSITIONS SALARY BONUS OTHER
- ---------------------------- -------- ------- -------
<S> <C> <C> <C>
Mark A. Kaiser.............................................. $200,500 $95,000 --
Chairman of the Board, Chief Executive Officer and
President
Kenneth M. Goins, Jr. ...................................... $141,711 $50,000 --
Chief Financial Officer and Executive Vice President
Paul A. Rodwick............................................. $157,611 -- $43,848(1)
Former Chief Operating Officer and $29,166(2)
Executive Vice President
</TABLE>
- ---------------
(1) Represents value realized on options exercised during 1997. See "-- Fiscal
Year End Option Exercises and Option Values."
(2) Represents amounts paid to Mr. Rodwick for consulting services provided to
the Company following Mr. Rodwick's resignation.
OPTION GRANTS IN FISCAL 1997
The following table presents certain summary information concerning options
granted to the Named Executive Officers in the fiscal year ending December 31,
1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS TO APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM
OPTIONS IN EXERCISE EXPIRATION ---------------------
NAME GRANTED 1997(2) PRICE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Kaiser................ 32,480(1) 11% $ 7.500 6/02/07 $153,199 $388,236
Kenneth M. Goins, Jr.......... 16,240(1) 6% $ 7.625 3/21/07 $ 81,183 $202,618
26,280(1) 9% $10.500 11/07/07 $173,537 $439,777
Paul A. Rodwick............... 64,960(1) 23% $ 7.625 3/21/07 $324,731 $810,474
</TABLE>
- ---------------
(1) All options become exercisable as to 20% of the subject shares on each
anniversary of the date of grant.
(2) Does not include options issued under the Medirisk, Inc. Non Management
Directors Stock Option Plan.
22
<PAGE> 24
FISCAL YEAR END OPTION EXERCISES AND OPTION VALUES
The following table presents certain information concerning options
exercised by the Named Executive Officers in 1997 and the fiscal year-end value
of unexercised stock options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Kaiser.................. -- -- 123,424 68,858 $1,317,532 $470,505
Kenneth M. Goins, Jr. .......... -- -- 6,496 68,504 $ 67,289 $337,114
Paul A. Rodwick................. 12,992 $43,848 -- -- -- --
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option on the date of exercise and the
exercise price of the options exercised by the Named Executive Officer.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1997 and the exercise
price of the Named Executive Officers' options.
STOCK INCENTIVE PLANS
Medirisk Stock Incentive Plan. The Board of Directors of the Company
adopted and the stockholders of the Company approved the Medirisk, Inc. 1996
Stock Incentive Plan (the "1996 Incentive Plan"). Pursuant to the 1996 Incentive
Plan, awards are permitted to be granted in the form of non-qualified stock
options, incentive stock options, stock appreciation rights and shares of
restricted stock. In addition, the 1996 Incentive Plan provides for several
types of equity-based incentive compensation awards, namely performance units,
performance shares, phantom stock, unrestricted bonus stock and dividend
equivalent rights.
The 1996 Incentive Plan is administered by the Compensation Committee of
the Board of Directors. The Compensation Committee determines the persons to
whom, and the times at which, awards will be granted, the type of awards to be
granted and all other related terms and conditions of the awards, subject to
certain limitations set forth in the 1996 Incentive Plan. All officers and key
employees of the Company and its affiliates are eligible to participate in the
Incentive Plan.
A total of 580,645 shares of Common Stock are reserved for issuance
pursuant to the 1996 Incentive Plan. In the event of a Change in Control of the
Company (as defined in the 1996 Incentive Plan), stock incentives will become
fully vested without regard to the exercisability of the award or any other
conditions or restrictions. In connection with the Company's initial public
offering, the Company caused all then-existing outstanding options (which had
not been issued under any plan) to be surrendered in exchange for options with
identical terms issued under the 1996 Incentive Plan. As of March 24, 1997,
there were options for 523,023 shares of Common Stock outstanding under the 1996
Incentive Plan, and 36,080 shares of Common Stock are reserved for future
issuance under the 1996 Incentive Plan.
Medirisk, Inc. 1998 Qualified Employee Stock Purchase Plan. The Company's
Board of Directors has adopted, subject to stockholder approval at the Annual
Meeting of Stockholders to be held in May 1998, the Medirisk, Inc. 1998
Qualified Employee Stock Purchase Plan (the "ESPP"). If approved by the
stockholders at the Company's Annual Meeting of Stockholders to be held in May
1998, the ESPP will be effective as of its adoption by the stockholders, and
payroll deductions under the ESPP will begin on July 1, 1998. The purpose of the
ESPP is to encourage employees of the Company and any participating subsidiaries
to acquire a proprietary interest, or to increase their existing proprietary
interest, in the Company. The ESPP will be administered by the Compensation
Committee.
The total number of shares of Common Stock for which options may be granted
under the ESPP is 200,000 shares, subject to adjustment in accordance with the
ESPP. The ESPP permits participating employees to purchase shares of Common
Stock through payroll deduction for the lesser of (i) 85% of the fair market
value of the Common Stock on the first business day of an applicable purchase
period, or (ii) 85% of
23
<PAGE> 25
the fair market value of the Common Stock on the last business day of the
purchase period. Applicable purchase periods are the calendar quarters of each
fiscal year of the Company.
Each employee of the Company and each employee of any designated subsidiary
corporation of the Company that has adopted the ESPP for the benefit of its
employees (the Company and each such other corporation being referred to herein
as a "Participating Company") is eligible to participate in the ESPP, provided
such employee: (i) is regularly scheduled to work at least 20 hours each week
and at least five months in the calendar year, and (ii) immediately after the
grant of an option to him under the ESPP would own less than five percent of the
total combined voting power or value of all classes of stock of the Company or
any of its subsidiaries. As of March 24, 1998, there were approximately 200
employees eligible to participate in the ESPP, but no shares or options had been
issued under the ESPP.
Medirisk Non-Management Directors' Stock Option Plan. The Medirisk, Inc.
Non-Management Directors' Stock Option Plan provides for the issuance of
non-qualified stock options to directors of the Company who are not employed by
or otherwise affiliated with the Company. A total of 100,000 shares of Common
Stock are reserved for issuance pursuant to the Directors' Plan. The effective
date of the Directors' Plan was January 28, 1997, the effective date of the
Company's initial public offering. As of March 24, 1997, there were options for
75,000 shares of Common Stock outstanding under the Incentive Plan.
Medirisk, Inc. 1998 Long-Term Incentive Plan. The Board of Directors of
the Company has adopted, subject to stockholder approval at the Company's Annual
Meeting of Stockholders to be held in May, 1998, the Medirisk, Inc. 1998
Long-Term Incentive Plan (the "Long-Term Incentive Plan"). If approved by the
stockholders at the Annual Meeting, the Long-Term Incentive Plan will be
effective as of its adoption by the stockholders, and awards may be made at any
time following such approval, although it is the Company's intention to grant
awards with respect to shares remaining available under the 1996 Incentive Plan
before granting awards under the Long-Term Incentive Plan. Pursuant to the
Long-Term Incentive Plan, awards are permitted to be granted in the form of
non-qualified stock options, incentive stock options, stock appreciation rights
and shares of restricted stock. In addition, the Long-Term Incentive Plan
provides for several types of equity-based incentive compensation awards, namely
performance units, performance shares, phantom stock, unrestricted bonus stock
and dividend equivalent rights.
The Long-Term Incentive Plan will be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee determines the
persons to whom, and the times at which, awards will be granted, the type of
awards to be granted and all other related terms and conditions of the awards,
subject to certain limitations set forth in the Long-Term Incentive Plan. All
directors, officers and key employees of the Company and its affiliates are
eligible to participate in the Long-Term Incentive Plan.
A total of 500,000 shares of Common Stock will be reserved for issuance
pursuant to the Long-Term Incentive Plan. In the event of a Change in Control of
the Company (as defined in the Long-Term Incentive Plan), stock incentives will
become fully vested without regard to the exercisability of the award or any
other conditions or restrictions. As of March 24, 1997, there were no options or
other awards outstanding under the Long-Term Incentive Plan.
EMPLOYMENT AGREEMENT
Mr. Mark A. Kaiser is a party to an employment agreement dated as of May
31, 1996 with Medirisk pursuant to which he serves as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company. The agreement
is for an initial term of three years from the date of the agreement with
automatic one-year renewals thereafter, unless either party gives 60 days'
advance notice of nonrenewal. The agreement provides for an initial annual base
salary of $190,000, which may be increased annually at the discretion of the
Compensation Committee, and an annual target bonus equal to 50% of his base
salary for the applicable year, determined based upon Medirisk's performance
with respect to goals established by the Compensation Committee. Mr. Kaiser's
annual base salary was increased to $202,000 for 1997. Mr. Kaiser is also
entitled to participate in all of the Company's employee benefit plans. In
addition, under the agreement Mr. Kaiser was granted options to purchase up to
32,480 shares of Common Stock at $0.64 per share in 1996 and an additional
32,480 shares of Common Stock at $7.50 per share in May 1997. The agreement
provides
24
<PAGE> 26
that the Company shall grant Mr. Kaiser additional options to purchase 32,480
shares on May 31, 1998. These subsequent options will have an exercise price
equal to the fair market value of the Common Stock on May 31, 1998. All of the
options granted under the agreement vest ratably over five years from the date
of grant or immediately upon the sale or other change of control involving the
Company. Mr. Kaiser's agreement contains a nondisclosure covenant, as well as
covenants not to divert business or employees from the Company for one year
following termination. In the event Mr. Kaiser terminates his employment for
good reason, as defined in the agreement (which includes a voluntary termination
by Mr. Kaiser one year after a change of control involving the Company), or if
Medirisk terminates his employment other than for good cause, as defined in the
agreement, Mr. Kaiser shall be entitled to continue to receive his base salary
and all benefits until the later of May 31, 1999, or one year from the date of
termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James K. Murray, III, a member of the Company's Board of Directors, who was
a member of the Compensation Committee from January 1, 1997 until February 7,
1997, is also an Executive Vice President and Chief Financial Officer of Sykes
HealthPlan Services, Inc., a joint venture between Health Plan Services
Corporation and Sykes Enterprises, Incorporated. Prior to Mr. Murray's joining
the Board of Directors, the Company and HPSC entered into a Securities Purchase
Agreement, (the "Securities Purchase Agreement") pursuant to which the Company
issued to HPSC 280,623 shares of Series B Convertible Preferred Stock for $2.0
million and Senior Subordinated Notes in an original principal amount equal to
$6.9 million at par. At that time, the Company and HPSC entered into a
Registration Rights Agreement giving HPSC certain demand and piggyback
registration rights, a Shareholders' Agreement and Warrant Agreement. In
February 1998 HPSC exercised its warrants under the Warrant Agreement and
obtained 298,150 shares of Common Stock for a nominal purchase price upon such
exercise. Pursuant to the Securities Purchase Agreement, HPSC has the right to
name one person to be nominated to the Company's Board of Directors so long as
HPSC owns or has the right to acquire at least 162,400 shares of Common Stock.
In connection with the Company's initial public offering, during 1997 the
Company paid $6.9 million to HPSC in repayment of the HPSC Senior Subordinated
Notes, and the Series B Convertible Preferred Stock was automatically converted
into 182,292 shares of Common Stock.
25
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 24, 1998: (i) by each person
known to the Company to beneficially own more than five percent of the
outstanding Common Stock; (ii) by each executive officer and director of the
Company; and (iii) by all executive officers and directors of the Company as a
group. Unless otherwise indicated, the business address of each person listed
below is care of Medirisk, Inc., Two Piedmont Center, Suite 400, 3565 Piedmont
Road, N.E., Atlanta, Georgia 30305.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------
NAME NUMBER PERCENTAGE(1)
- ---- --------- -------------
<S> <C> <C>
Brantley Venture Partners II, L.P........................... 522,745(2) 11.4%
20600 Chagrin Boulevard
Suite 1150 Tower East
Cleveland, Ohio 44122
HealthPlan Services Corporation............................. 330,443 7.4
3501 Frontage Road
Tampa, Florida 33607
Mark A. Kaiser.............................................. 396,022(3) 8.6
Kenneth M. Goins, Jr........................................ 39,176(4) *
Keith O. Cowan.............................................. 4,333(5) *
Michael J. Finn............................................. 527,728(6) 11.5
William M. McClatchey, M.D.................................. 45,333(7) 1.0
James K. Murray, III........................................ 333,776(8) 7.4
Robert P. Pinkas............................................ 531,078(9) 11.5
Thomas C. Kuhn III.......................................... 3,199(10) *
O.B. Rawls.................................................. -- *
Laurence Powell............................................. 270,921 6.0
P.O. Box 501085
Atlanta, Georgia 31150
Robert Fleming Inc.......................................... 287,600 6.4
320 Park Avenue, 11th Floor
New York, New York 10022
All directors and executive officers as a group (10
members).................................................. 1,358,598 28.7
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentages of ownership are based on 4,492,802 shares of Common
Stock outstanding on March 24, 1998, adjusted as required by rules
promulgated by the Securities and Exchange Commission (the "SEC"). This
table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G (if any) filed with the
SEC. Unless otherwise indicated in the Footnotes to this table and subject
to community property laws where applicable, the Company believes that each
of the stockholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned. Any
security that any person named above has the right to acquire within 60
days is deemed to be outstanding for purposes of calculating the percentage
ownership of such person, but is not deemed to be outstanding for purposes
of calculating the ownership percentage of any other person.
(2) Includes warrants to purchase 97,440 shares of Common Stock.
(3) Includes options to purchase 126,022 shares of Common Stock.
(4) Includes (i) options to purchase 6,496 shares of Common Stock; and (ii) 200
shares held by Mr. Goins' minor children.
(5) Includes options to purchase 3,333 shares of Common Stock.
(6) Includes (i) options to purchase 3,333 shares of Common Stock, (ii) 522,745
shares owned by Brantley Venture Partners II, L.P. ("Brantley"). Mr. Finn
is a partner of a partnership which is itself a general
26
<PAGE> 28
partner of Brantley and, as such, may be deemed to share voting and investment
power with respect to the shares owned by Brantley. See Note 2 above.
(7) Includes (i) options to purchase 3,333 shares of Common Stock; (ii) 10,000
shares owned by Dr. McClatchey's wife; (iii) 4,000 shares owned by a trust
for the benefit of Dr. McClatchey's adult child, of which Dr. McClatchey is
trustee; and (iv) 2,000 shares owned by a trust for the benefit of Dr.
McClatchey's minor child, of which Dr. McClatchey is trustee.
(8) Includes (i) options to purchase 3,333 shares of Common Stock and (ii)
330,443 shares owned by HealthPlan Services Corporation ("HPSC"). Mr.
Murray was an executive officer of HPSC during a portion of 1997 and is
currently an executive officer of an affiliate of HPSC and, as such, may be
deemed to share voting and investment power with respect to the shares
owned by HPSC.
(9) Includes (i) options to purchase 3,333 shares of Common Stock, (ii) 522,745
shares owned by Brantley Venture Partners II, L.P. ("Brantley"). Mr. Pinkas
is a partner of a partnership which is itself a general partner of Brantley
and, as such, may be deemed to share voting and investment power with
respect to the shares owned by Brantley. See Note 2 above.
(10) Includes options to purchase 1,299 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section above entitled "Compensation Committee Interlocks and
Insider Participation."
27
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents incorporated by reference or filed with this report:
(1) Financial Statements.
The Financial Statements of the Company are listed in Item 8 of
Part II. (See Section F.)
(2) Financial Statement Schedules.
Independent Auditors' Report
Schedule II -- Valuation and Qualifying Accounts
(See Section S)
(3) Exhibits Incorporated by Reference or Filed with this Report.
The exhibits listed below are filed with or incorporated by reference into
this Annual Report on Form 10-K. The exhibits that are identified with an
asterisk (*) were previously filed as part of, and are hereby incorporated by
reference from, the Company's Registration Statement on Form S-1 (No. 333-12311)
filed with the Commission on September 19, 1996 and effective on January 28,
1997. Unless otherwise indicated the exhibit number corresponds to the exhibit
number incorporated by reference. ITEMS LISTED IN BOLDFACE CONSTITUTE MANAGEMENT
CONTRACTS OR COMPENSATORY PLANS OR ARRANGEMENTS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger dated as of August 27, 1996,
between Medirisk, Inc., a Florida corporation and Medirisk,
Inc., a Delaware corporation.*
2.2 -- Stock Purchase Agreement dated as of November 22, 1995,
between the Company and Pamella L. Leiter*
2.3 -- Stock Purchase Agreement dated as of March 8, 1996, between
the Company, Joseph E. Thomure, Susan P. Brandt, David
Rollins and Samuel E. Brandt.*
2.4 -- Stock Purchase Agreement dated June 24, 1997, by and among
the Company, CIVS, Inc. and the Shareholders of CIVs,
Inc.(1)
2.5 -- Stock Purchase Agreement dated August 28, 1997, by and among
the Company and the shareholders of CareData Reports,
Inc.(2)
3.1 -- Certificate of Incorporation of the Company.*
3.2 -- Bylaws of the Company.(4)
4.1 -- See Articles IV, VI, VII and IX of the Certificate of
Incorporation filed as Exhibit 3.1 and Articles I, II, III,
VI and VII of the Bylaws filed as Exhibit 3.2.
4.2 -- Specimen Stock Certificate of the Common Stock of the
Registrant.*
10.1 -- Securities Purchase Agreement dated January 8, 1996, between
the Company and HealthPlan Services Corporation (For
Exhibits F, G, J and E to the Securities Purchase Agreement,
see Exhibits 10.6, 10.7, 10.8 and 10.9 hereto).*
10.1.1 -- Amendment No. 1 to Securities Purchase Agreement.*
10.1.2 -- Amendment No. 2 to Securities Purchase Agreement.*
10.1.3 -- Amendment No. 3 to Securities Purchase Agreement.*
10.2 -- EMPLOYMENT AGREEMENT DATED AS OF MAY 31, 1996, BETWEEN THE
COMPANY AND MARK A. KAISER.*
10.3 -- INTENTIONALLY OMITTED
10.4 -- INTENTIONALLY OMITTED
10.5 -- License and Services Agreement dated as of December 19,
1997, between Medirisk of Illinois, Inc. and HEALTHSOUTH
Corporation.(4)++
10.6 -- Registration Rights Agreement dated as of January 9, 1996,
between the Company and Pamella L. Leiter.
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.7 -- INTENTIONALLY OMITTED
10.8 -- INTENTIONALLY OMITTED
10.9 -- INTENTIONALLY OMITTED
10.10 -- Registration Rights Agreement dated as of January 9, 1996,
between the Company and Health Plan Services Corporation*
10.11 -- Form of Indemnification Agreement between the Company and
each of its officers and directors.*
10.12 -- Form of Employee Shareholder Agreement.*
10.13 -- Medirisk, Inc. 1996 Stock Incentive Plan.*
10.14 -- Medirisk, Inc. 1996 Non-Management Directors Stock Option
Plan.*
10.15 -- Registration Agreement dated as of October 28, 1996, between
the Company, Brantley Venture Partners II, L.P., Chase
Manhattan Bank N.A., as Trustee, and Laurence H. Powell.*
10.16 -- Credit Agreement, dated as of March 28, 1997, between the
Company, as borrower, and NationsBank, N.A. (South), as
lender.(3)
11.1 -- Statements of computation of pro forma net loss per share of
common stock (unaudited).(4)
21.1 -- List of Subsidiaries of the Registrant.(4)
23.1 -- Consent of KPMG Peat Marwick LLP.(4)
24.1 -- Powers of Attorney (See page 53)
27.1 -- Financial Data Schedule - Medirisk, Inc. (for SEC use
only).(4)
27.2 -- Restated Financial Data Schedule - Medirisk, Inc. (for SEC
use only).(4)
</TABLE>
- ---------------
(1) Incorporated by reference from the Company's Current Report on Form 8-K
filed with the Commission on July 9, 1997.
(2) Incorporated by reference from the Company's Current Report on Form 8-K
filed with the Commission on September 15, 1997.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the Commission on March 31, 1997.
(4) Filed herewith.
++ Confidential Treatment pursuant to 17 CFR sec.sec. 200.80 and 240.24b-2 has
been requested regarding certain portions of the indicated Exhibit, which
portions have been separately filed with the Commission.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Registrant during the
fourth quarter of the fiscal year ended December 31, 1997.
29
<PAGE> 31
SECTION F
CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE> 32
FORM 10-K
MEDIRISK, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Medirisk, Inc. and Subsidiaries
Independent Auditors' Report.............................. 32
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... 33
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... 34
Consolidated Statements of Stockholders' Equity (deficit)
for the years ended December 31, 1997, 1996 and 1995... 35
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995....................... 36
Notes to Consolidated Financial Statements................ 37
</TABLE>
31
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medirisk, Inc.:
We have audited the accompanying consolidated balance sheets of Medirisk,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1997.
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 Medirisk,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 6, 1998
32
<PAGE> 34
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents................................. $ 3,515,931 $ 447,257
Accounts receivable, less allowances for doubtful accounts
of $147,557 and $97,439, at December 31, 1997 and 1996,
respectively............................................ 3,802,241 1,428,191
Prepaid expenses.......................................... 697,485 920,727
Note receivable from officer (note 10).................... 22,500 22,500
Other current assets...................................... 451,513 152,184
------------ -----------
Total current assets................................ 8,489,670 2,970,859
------------ -----------
Property and equipment (note 3)............................. 3,083,466 1,736,408
Less accumulated depreciation and amortization............ 1,444,489 893,601
------------ -----------
Property and equipment, net............................. 1,638,977 842,807
------------ -----------
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $537,218 and $180,493 at
December 31, 1997 and 1996, respectively (note 2)......... 7,555,902 3,128,347
Other intangible assets, less accumulated amortization of
$409,362 and $89,417 at December 31, 1997 and 1996,
respectively (note 2)..................................... 1,793,680 430,583
Software development costs, less accumulated amortization of
$96,508 and $19,911 at December 31, 1997 and 1996,
respectively.............................................. 1,008,398 101,058
Note receivable from officer, excluding current portion
(note 10)................................................. 67,500 90,000
Other assets................................................ 104,139 892,307
------------ -----------
$ 20,658,266 $ 8,455,961
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt and obligations
under capital leases (notes 4, 5, and 6)................ $ 168,493 $ 1,842,074
Accounts payable.......................................... 257,723 639,002
Accrued expenses.......................................... 757,975 448,749
Income taxes payable (note 7)............................. 815,791 --
Deferred revenue.......................................... 2,308,610 2,536,283
------------ -----------
Total current liabilities........................... 4,308,592 5,466,108
------------ -----------
Long-term debt and obligations under capital leases,
excluding current installments, principally related party
debt at December 31, 1996 (notes 4, 5, and 6)............. 165,251 7,194,897
Dividends payable (notes 8(b) and 8(d))..................... -- 618,010
------------ -----------
Total liabilities................................... 4,473,843 13,279,015
------------ -----------
Stockholders' equity (deficit) -- (note 8):
Preferred stock, $0.001 par value; 1,000,000 shares
authorized; none outstanding............................ -- --
Series A convertible preferred stock, $0.001 par value
(estimated unaccrued aggregate involuntary liquidation
preference $3,461,000 at December 31, 1996); no shares
authorized, issued, or outstanding at December 31, 1997;
3,000,000 shares authorized; 1,292,359 issued and
outstanding shares at December 31, 1996................. -- 1,292
Series B convertible preferred stock, $0.001 par value
(estimated unaccrued aggregate involuntary liquidation
preference $1,967,000 at December 31, 1996); no shares
authorized, issued, or outstanding at December 31, 1997;
400,000 shares authorized; 280,623 issued and
outstanding shares at December 31, 1996 (note 5)........ -- 281
Common stock, $0.001 par value; 20,000,000 shares
authorized; 4,193,346 and 709,943 issued and outstanding
shares at December 31, 1997 and 1996, respectively...... 4,193 710
Additional paid-in capital................................ 28,559,279 4,971,644
Accumulated deficit....................................... (12,379,049) (9,796,981)
------------ -----------
16,184,423 (4,823,054)
Commitments and contingencies (notes 6 and 8)............... -- --
------------ -----------
$ 20,658,266 $ 8,455,961
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 35
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenue (note 9)......................................... $16,748,839 $ 8,904,133 $3,654,692
Salaries, wages, and benefits............................ 7,909,600 6,092,792 2,577,416
Other operating expenses................................. 4,373,954 2,314,654 956,097
Depreciation and amortization............................ 1,304,155 786,849 193,399
Acquired in-process research and development costs and
integration costs (note 2)............................. 4,575,025 6,180,000 --
----------- ----------- ----------
Operating loss................................. (1,413,895) (6,470,162) (72,220)
Interest income (expense), net........................... 344,973 (703,542) (65,433)
Other expense, net....................................... -- (57,073) --
----------- ----------- ----------
Loss before income taxes and extraordinary
item......................................... (1,068,922) (7,230,777) (137,653)
Provision for income taxes (note 7)...................... (707,000) -- --
----------- ----------- ----------
Loss before extraordinary item................. (1,775,922) (7,230,777) (137,653)
Extraordinary item -- loss on early extinguishment of
debt (note 5).......................................... (806,146) -- --
----------- ----------- ----------
Net loss....................................... (2,582,068) (7,230,777) (137,653)
Accretion of discount on Series A convertible preferred
stock.................................................. -- -- (92,580)
Convertible preferred stock dividend requirement......... (24,673) (201,608) (201,608)
----------- ----------- ----------
Net loss attributable to common stock.......... $(2,606,741) $(7,432,385) $ (431,841)
=========== =========== ==========
Net loss per share of common stock -- basic and
diluted:...............................................
Loss per share before extraordinary item............... $ (0.46) $ (4.84) $ (0.30)
Loss per share -- extraordinary item................... (0.21) -- --
----------- ----------- ----------
Net loss per share of common stock............. $ (0.67) $ (4.84) $ (0.30)
=========== =========== ==========
Weighted average number of common shares used in
calculating net loss per share of common stock -- basic
and diluted............................................ 3,918,347 1,536,159 1,427,080
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 36
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
SERIES B
SERIES A CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ----------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ------- -------- ------ --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994.................. -- $ -- -- $ -- 649,730 $ 650 $ 492,330 $ (2,335,971)
Accretion of discount
on Series A
convertible preferred
stock (note 8(b))..... -- -- -- -- -- -- -- (92,580)
Issuance of common
stock................. -- -- -- -- 6,496 6 1,944 --
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- -- -- -- -- -- --
Accrued dividend
payable (note 8(b))... -- -- -- -- -- -- (201,608) --
Net loss............... -- -- -- -- -- -- -- (137,653)
---------- ------- -------- ----- --------- ------ ----------- ------------
Balance at December 31,
1995.................. -- -- -- -- 656,226 656 292,666 (2,566,204)
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $220,556
(notes 5 and 8)....... -- -- 280,623 281 -- -- 1,779,163 --
Conversion of Series A
convertible preferred
stock from redeemable
to nonredeemable (note
8(b))................. 1,292,359 1,292 -- -- -- -- 2,301,179 --
Issuance of common
stock, primarily in
acquisitions (note
2).................... -- -- -- -- 118,677 119 137,283 --
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- -- -- -- -- -- --
Forgiveness of note
receivable from
stockholder (note
8(c))................. -- -- -- -- -- -- -- --
Discount on issuance of
debt arising from
stock purchase
warrants (note 5)..... -- -- -- -- -- -- 573,111 --
Stock option
compensation expense.. -- -- -- -- -- -- 99,585 --
Accrued dividend
payable (note 8(b))... -- -- -- -- -- -- (201,608) --
Cancellation of
treasury stock........ -- -- -- -- (64,960) (65) (9,735) --
Net loss............... -- -- -- -- -- -- -- (7,230,777)
---------- ------- -------- ----- --------- ------ ----------- ------------
Balance at December 31,
1996.................. 1,292,359 1,292 280,623 281 709,943 710 4,971,644 (9,796,981)
Common stock issued in
initial public
offering (note
8(h))................. -- -- -- -- 2,300,000 2,300 22,623,371 --
Conversion of Series A
and Series B
convertible preferred
stock into common
stock (note 8(h))..... (1,292,359) (1,292) (280,623) (281) 1,021,80 1,022 551 --
Dividends paid on
Series A and Series B
convertible preferred
stock (note 8(h))..... -- -- -- -- -- -- (24,673) --
Issuance of common
stock in acquisitions
(note 2).............. -- -- -- -- 143,682 144 901,023 --
Stock option
exercises............. -- -- -- -- 20,243 20 101,929 --
Common stock
repurchased and
canceled.............. -- -- -- -- (2,331) (3) (14,566) --
Net loss............... -- -- -- -- -- -- -- (2,582,068)
---------- ------- -------- ----- --------- ------ ----------- ------------
Balance at December 31,
1997.................. -- $ -- -- $ -- 4,193,346 $4,193 $28,559,279 $(12,379,049)
========== ======= ======== ===== ========= ====== =========== ============
<CAPTION>
NOTE TOTAL
TREASURY STOCK RECEIVABLE STOCKHOLDERS'
----------------- FROM EQUITY
SHARES AMOUNT STOCKHOLDER (DEFICIT)
------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994.................. 64,960 $(9,800) $(75,000) $(1,927,791)
Accretion of discount
on Series A
convertible preferred
stock (note 8(b))..... -- -- -- (92,580)
Issuance of common
stock................. -- -- -- 1,950
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- 25,000 25,000
Accrued dividend
payable (note 8(b))... -- -- -- (201,608)
Net loss............... -- -- -- (137,653)
------- ------- -------- -----------
Balance at December 31,
1995.................. 64,960 (9,800) (50,000) (2,332,682)
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $220,556
(notes 5 and 8)....... -- -- -- 1,779,444
Conversion of Series A
convertible preferred
stock from redeemable
to nonredeemable (note
8(b))................. -- -- -- 2,302,471
Issuance of common
stock, primarily in
acquisitions (note
2).................... -- -- -- 137,402
Repayment of note
receivable from
stockholder (note
8(e))................. -- -- 14,000 14,000
Forgiveness of note
receivable from
stockholder (note
8(c))................. -- -- 36,000 36,000
Discount on issuance of
debt arising from
stock purchase
warrants (note 5)..... -- -- -- 573,111
Stock option
compensation expense.. -- -- -- 99,585
Accrued dividend
payable (note 8(b))... -- -- -- (201,608)
Cancellation of
treasury stock........ (64,960) 9,800 -- --
Net loss............... -- -- -- (7,230,777)
------- ------- -------- -----------
Balance at December 31,
1996.................. -- -- -- (4,823,054)
Common stock issued in
initial public
offering (note
8(h))................. -- -- -- 22,625,671
Conversion of Series A
and Series B
convertible preferred
stock into common
stock (note 8(h))..... -- -- -- --
Dividends paid on
Series A and Series B
convertible preferred
stock (note 8(h))..... -- -- -- (24,673)
Issuance of common
stock in acquisitions
(note 2).............. -- -- -- 901,167
Stock option
exercises............. -- -- -- 101,949
Common stock
repurchased and
canceled.............. -- -- -- (14,569)
Net loss............... -- -- -- (2,582,068)
------- ------- -------- -----------
Balance at December 31,
1997.................. -- $ -- $ -- $16,184,423
======= ======= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 37
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,582,068) $(7,230,777) $(137,653)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Acquired in-process research and development costs...... 4,375,000 6,180,000 --
Depreciation and amortization........................... 1,304,155 786,849 193,399
Loss due to early extinguishment of debt................ 806,146 -- --
Other................................................... -- 135,585 --
Decrease (increase) in:
Accounts receivable................................... (1,925,277) (447,120) (273,620)
Other assets.......................................... 137,848 (846,014) (5,339)
Increase (decrease) in:
Accounts payable...................................... (870,028) 353,520 83,456
Accrued expenses and other liabilities................ (175,425) 151,405 78,152
Deferred revenue...................................... (1,766,992) 154,158 76,921
----------- ----------- ---------
Net cash (used in) provided by operating
activities........................................ (696,641) (762,394) 15,316
----------- ----------- ---------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired........... (7,386,208) (6,925,393) --
Purchases of property and equipment....................... (948,833) (138,792) --
Additions to software development costs................... (983,937) (120,969) --
Repayment of (loan to) officer............................ 22,500 (112,500) --
----------- ----------- ---------
Net cash used in investing activities............... (9,296,478) (7,297,654) --
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock and stock option
exercises............................................... 22,727,620 15,084 1,950
Common stock repurchased and canceled..................... (14,569) -- --
Proceeds from issuance of Series B convertible preferred
stock................................................... -- 2,000,000 --
Payments for Series B convertible preferred stock issuance
costs................................................... -- (220,556) --
Payment of preferred stock dividends...................... (642,683) -- --
Proceeds from issuance of long-term debt, principally
related party........................................... -- 7,407,086 --
Payments for debt issuance costs.......................... -- (345,000) --
Payments on long-term debt and obligations under capital
leases.................................................. (9,008,575) (652,147) (167,053)
Repayment of note receivable from stockholder............. -- 14,000 25,000
----------- ----------- ---------
Net cash provided by (used in) financing
activities........................................ 13,061,793 8,218,467 (140,103)
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... $ 3,068,674 $ 158,419 $(124,787)
Cash and cash equivalents at beginning of period............ 447,257 288,838 413,625
----------- ----------- ---------
Cash and cash equivalents at end of period.................. $ 3,515,931 $ 447,257 $ 288,838
=========== =========== =========
Supplemental disclosure of cash flow information -- cash
paid during the period for interest....................... $ 129,771 $ 736,432 $ 65,433
=========== =========== =========
Supplemental disclosures of noncash activities:
Purchase of computer and office equipment under capital
lease arrangements...................................... $ -- $ 332,035 $ 191,563
=========== =========== =========
Discount on issuance of debt arising from stock purchase
warrants................................................ $ -- $ 573,111 $ --
=========== =========== =========
Accrual of dividend payable on Series A convertible
preferred stock......................................... $ -- $ 201,608 $ 201,608
=========== =========== =========
Acquisitions of businesses:
Fair value of assets acquired............................. $ 8,249,588 $ 4,909,167 $ --
Acquired in-process research and development costs........ 4,375,000 6,180,000 --
Fair value of liabilities assumed......................... (3,600,535) (2,961,849) --
Common stock issued....................................... (901,167) (122,318) --
Debt issued............................................... -- (1,076,000) --
----------- ----------- ---------
Total cash paid for acquisitions.................... 8,122,886 6,929,000 --
Cash acquired............................................... (736,678) (3,607) --
Net cash paid for acquisitions...................... $ 7,386,208 $ 6,925,393 $ --
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 38
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Medirisk, Inc. (the "Company") is a provider of proprietary database
products, decision-support software and analytical services to the health care
industry. The Company's products and services enable its customers to make
objective comparisons of the financial costs and clinical outcomes of physician
services to customer-specific and industry benchmarks, assess patient
satisfaction with specific managed care plans, and obtain information concerning
the background and credentials of physicians. These capabilities assist health
care industry participants in measuring the performance of health care payors
and providers.
Applications of Medirisk's products include pricing managed care contracts,
evaluating physician fee schedules and utilization of physician services,
comparing provider outcomes and health plan performance, credentialing and
recruiting physicians, developing health care delivery networks, and marketing
health care services. The Company actively sells its products to leading health
plans, insurers, hospitals, large multi-specialty physician groups, physician
practice management companies, employers, and pharmaceutical companies, as well
as smaller customers, including single-specialty physician groups.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet, income and expenses for the period, and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Medirisk,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents at December 31, 1997 and 1996 included amounts of
$2,106,963 and $145,897, respectively, invested in money market accounts with a
major brokerage firm. For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(d) Revenue Recognition
The Company provides services and licenses its products primarily pursuant
to single- and multi-year contracts which provide for the payment of
nonrefundable annual fees, often in advance of use or shipment, or of quarterly
fees generally billed in advance of service delivery. The products are
segregated into three types: market performance, clinical performance, and
physician credentials products. The market performance products provide
customers with information from the Company's market performance product
databases. Revenue on these sales is recognized upon the delivery of the data.
The Company also licenses the exclusive rights to market the results of its
managed care consumer satisfaction surveys. Revenue from the licenses of
disease-specific customized surveys to the pharmaceutical industry is recognized
as the related costs of producing the survey are incurred, and revenues from
noncustomized data licensing is recognized upon delivery. The clinical
performance products revenues relate to the delivery of services and are
recognized over the contract terms as the services are provided. The physician
credentials products consist of (i) data and services provided to customers over
time, for which revenue is recognized ratably over the life of the contract, and
(ii) credentials reports that validate physicians' education, training, and
other matters, for which revenue is recognized upon delivery of the completed
reports. Customer service revenues are recognized ratably over
37
<PAGE> 39
the service contract period. All other revenue, including fees for training,
consulting fees, and other miscellaneous services, is recognized upon the
performance of the applicable services.
(e) Deferred Revenue
Deferred revenue represents accounts receivable and payments to the Company
by customers in advance of revenue recognition.
(f) Accounts Receivable
The Company enters into multi-year, non-cancelable subscription contracts,
for which the associated receivables are recorded as accounts receivable and
deferred revenue when they become due. The contract balances are due at the
beginning of their respective annual anniversary dates.
(g) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Amortization of assets acquired under capital lease arrangements not
transferring ownership or without a bargain purchase option is recorded using
the straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter.
(h) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized using the straightline method over a period of 15 years. The
amortization period is based on, among other things, the nature of the products
and markets, the competitive position of the acquired companies, and the
adaptability to changing market conditions of the acquired companies. At each
balance sheet date, the Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate equal to the rate of return that would be required by the Company
for a similar investment with like risks.
(i) Other Intangible Assets
Other intangible assets are comprised mainly of acquired products and
acquired customer contracts. The costs of acquired products and acquired
customer contracts from business acquisitions are derived using a fair value
method of allocation. Other intangible assets are being amortized using the
straight-line method over five years. The Company makes an ongoing assessment of
the recoverability of its intangible assets by comparing the amount capitalized
for each asset to the estimated net realizable value ("NRV") of the asset. If
the NRV is less than the amount capitalized, a write-down to NRV is recorded.
(j) Research and Development Costs and Software Development Costs
Research and development costs are expensed as incurred. Amounts expensed
for research and development for the years ended December 31, 1997, 1996, and
1995, were $2,149,155, $951,645, and $221,943, respectively.
The Company capitalizes software development costs by project, commencing
when technological feasibility for the respective product is established and
concluding when the product is ready for general release to customers. The
Company makes an ongoing assessment of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated NRV of the product. If the NRV is less than the amount capitalized, a
write-down to NRV is recorded. The Company capitalized computer software
development costs of $983,937 and $120,969 for the years ended December 31, 1997
and 1996, respectively. Capitalized computer software development costs are
being amortized using the straight-
38
<PAGE> 40
line method over an estimated useful life of five years. Amortization expense
was $76,597 and $19,911 for the years ended December 31, 1997 and 1996,
respectively.
(k) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense to be recognized over the related vesting period
would generally be determined on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. On January 1, 1996,
the Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income (loss) and pro forma income (loss) per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25. The pro forma effects of SFAS 123
for 1997 and 1996 are presented in footnote 8(c). The effects of SFAS 123 for
1995 are not material to the Company's consolidated financial statements and,
therefore, the pro forma and other disclosure requirements have not been
presented.
(l) Net Loss Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available to
common shareholders is based on the weighted-average number of common shares
outstanding. Diluted earnings (loss) per common share available to common
shareholders is based on the weighted-average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options.
Retroactive restatement has been made to share and per share amounts for
the reverse stock split (see note 8(g)) and conversion of all of the Company's
Series A convertible preferred stock and Series B convertible preferred stock
into common stock which occurred upon consummation of the Company's initial
public offering in January 1997 (see note 8(h)). Weighted average number of
shares of common stock outstanding through December 31, 1996 has been calculated
pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98
("SAB 98") whereby common stock, options, warrants, or other potentially
dilutive instruments that are issued for nominal consideration ("nominal
issuances") during the periods covered by statements of operations included in
the Registration Statement for an initial public offering are reflected in
earnings per share calculations in a manner similar to a stock split or stock
dividend for which retroactive restatement is required. The Company had nominal
issuances in the periods covered by its Registration Statement for its initial
public offering. The computation of diluted net loss per share of common stock
was antidilutive in each of the periods presented; therefore, the amounts
reported for basic and diluted net loss per share are the same.
All prior period net loss per share data presented in these consolidated
financial statements have been restated to conform to the provisions of SFAS 128
and SAB 98.
(m) Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, on
January 1, 1996. This statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the
39
<PAGE> 41
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(n) Income Taxes
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
(2) BUSINESS ACQUISITIONS
1997 ACQUISITIONS
Staff-Link, Inc. ("Staff-Link")
In May 1997, the Company acquired substantially all of the assets of
Staff-Link of St. Louis, Missouri, a provider of a physician database and
related software utilities designed to assist health care organizations with
their in-house recruiting efforts. The Company purchased Staff-Link, Inc. for
$300,000 in cash and the assumption of net assets of $251,000. The acquisition
was accounted for using the purchase method of accounting with the results of
operations of the business acquired included from the effective date of the
acquisition. The acquisition resulted in acquired customer contracts of
approximately $527,000 and excess of cost over net assets acquired of
approximately $49,000.
CIVS, Inc. ("CIVS")
Effective June 1, 1997, the Company acquired all of the outstanding shares
of CIVS of Rockville, Maryland, a leading national provider of credentialing
services to hospitals and managed care organizations for approximately
$3,500,000 in cash and 129,166 shares of the Company's common stock and the
assumption of net assets of $76,000. The acquisition was accounted for using the
purchase method of accounting with the results of operations of the business
acquired included from the effective date of the acquisition. The acquisition
resulted in purchased in-process research and development costs of approximately
$3,100,000, acquired products of approximately $415,000, and excess of cost over
net assets acquired of approximately $1,100,000. Contingent consideration will
be paid by the Company based upon a multiple of CIVS's operating income over a
predetermined amount through 1999. These payments could be significant.
Contingent consideration ultimately paid will be added to excess cost over net
assets acquired and amortized prospectively.
CareData Reports, Inc. ("CareData")
Effective August 1, 1997, the Company acquired all of the outstanding
shares of CareData of New York, New York, which creates reports analyzing
consumer satisfaction with more than 150 aspects of managed health care plans
and ranks specific health plans accordingly. CareData's products are used by
managed care plans to assess their competitive position and quality of care, by
employers to evaluate health plans and by pharmaceutical companies to target
potential markets for their products. The Company purchased CareData for
approximately $4,100,000 in cash and 14,516 shares of Medirisk common stock. The
acquisition was accounted for using the purchase method of accounting with the
results of operations of the business acquired included from the effective date
of the acquisition. The acquisition resulted in in-process research and
development costs of approximately $975,000, acquired products of approximately
$200,000, and excess of cost over net assets acquired of approximately
$2,900,000. Contingent consideration will be paid by the Company based upon a
multiple of CareData's operating income over a predetermined amount through
1999. These payments could be significant. Contingent consideration ultimately
paid will be added to excess cost over net assets acquired and amortized
prospectively.
40
<PAGE> 42
Medsource, Inc. ("Medsource")
In November 1997, the Company acquired all of the outstanding shares of
Medsource of St. Paul, Minnesota, which licenses databases of physician
information for use in recruiting physicians, developing health care networks,
and marketing hospitals. The Company purchased Medsource for $250,000 in cash
and the assumption of net liabilities of $805,000. The acquisition was accounted
for using the purchase method of accounting with the results of operations of
the business acquired included from the effective date of the acquisition. The
acquisition resulted in purchased in-process research and development costs of
approximately $300,000, acquired products of approximately $125,000, and excess
of cost over net assets acquired of approximately $755,000. Contingent
consideration will be paid by the Company based upon a multiple of Medsource's
operating income over a predetermined amount through 1999. These payments could
be significant. Contingent consideration ultimately paid will be added to excess
cost over net assets acquired and amortized prospectively.
Integration Activities
The Company incurred approximately $200,000 of integration costs during
1997 for these 1997 acquisitions.
1996 ACQUISITIONS
Formations in HealthCare, Inc. ("Formations")
In January 1996, the Company acquired Formations of Chicago, Illinois for
approximately $1,475,000 in cash, 99,466 shares of the Company's common stock,
and options to purchase 28,947 shares of the Company's common stock at an
exercise price of $0.64 per share. Formations provides clinical performance
products that allow customers to measure outcomes across a range of care within
a variety of medical specialties. These products also enable both payers and
providers to measure clinical outcomes and apply that information to attract and
retain managed care arrangements and to improve quality of clinical care. The
acquisition was accounted for using the purchase method of accounting with the
results of operations of the business acquired included from the effective date
of the acquisition. The acquisition resulted in purchased in-process research
and development costs of approximately $1,040,000, acquired products of
approximately $170,000, and excess of cost over net assets acquired of
approximately $422,000.
PracticeMatch, Inc. ("PracticeMatch")
In March 1996, the Company acquired PracticeMatch of St. Louis, Missouri
for approximately $5,454,000 in cash and $1,076,000 in promissory notes and
assumed net liabilities of $1,897,002. PracticeMatch offers a database
containing detailed information concerning physicians who are candidates for new
practice affiliations. The Company licenses its physician database products to
assist customers in cost-effective in-house recruiting of physicians. The
acquisition was accounted for using the purchase method of accounting with the
results of operations of the business acquired included from the effective date
of the acquisition. The acquisition resulted in purchased in process research
and development costs of approximately $5,140,000, acquired products of
approximately $350,000, and excess of cost over net assets acquired of
approximately $2,887,000.
41
<PAGE> 43
PRO FORMA RESULTS
Unaudited pro forma results of operations as if the above acquisitions
occurred on January 1, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues.................................................... $19,767,000 $15,167,000
=========== ===========
Net income (loss)........................................... $ 134,000 $(2,216,000)
=========== ===========
Net income (loss) per share................................. $ 0.03 $ (1.32)
=========== ===========
</TABLE>
The pro forma results include the historical accounts of the Company and
the acquired entities adjusted to reflect the effects of the depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the assets acquired, additional interest expense
related to notes payable issued in connection with the acquisitions, and the
reversal of the nonrecurring acquired in-process research and development costs
recorded in connection with the acquisitions. The pro forma results are not
necessarily indicative of actual results which might have occurred had the
operations and management of the Company and the acquired entities been combined
in 1997 and 1996.
(3) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Furniture and fixtures...................................... $ 354,744 $ 344,365
Computer and office equipment............................... 2,523,240 1,329,294
Leasehold improvements...................................... 205,482 62,749
---------- ----------
$3,083,466 $1,736,408
========== ==========
</TABLE>
Included in property and equipment is equipment under capital lease
arrangements with a cost of $967,929 and $937,020 and accumulated amortization
of $671,563 and $533,983 at December 31, 1997 and 1996, respectively.
Amortization of equipment held under capital lease arrangements is included
in depreciation expense.
42
<PAGE> 44
(4) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- ----------
<S> <C> <C>
10% unsecured senior subordinated note payable; paid off in
1997 (see note 5)......................................... $ -- $6,900,000
10% unsecured notes payable resulting from PracticeMatch
acquisition; paid off in 1997............................. -- 1,076,000
Unsecured line of credit payable to bank; paid off in
1997...................................................... -- 507,086
9% unsecured note payable to related party; paid off in
1997...................................................... -- 137,228
Obligations under capital leases, due in monthly
installments expiring at various dates through February
2001, at varying interest rates, secured by property and
equipment (note 6(a))..................................... 214,631 416,657
Other debt assumed in an acquisition with varying interest
rates and maturity dates.................................. 119,113 --
-------- ----------
333,744 9,036,971
Less current installments................................... 168,493 1,842,074
-------- ----------
Total long-term debt and obligations under capital
leases, excluding current installments.......... $165,251 $7,194,897
======== ==========
</TABLE>
Future minimum debt payments and obligations under capital leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998........................................................ $168,493
1999........................................................ 153,081
2000........................................................ 10,483
2001........................................................ 1,687
--------
$333,744
========
</TABLE>
Based on the borrowing rates currently available to the Company for debt
with similar terms and average maturities, the fair value of long-term debt
approximates its carrying value.
On March 28, 1997, the Company entered into a two-year $10,000,000 line of
credit agreement (the "Credit Agreement") with a commercial bank. Borrowings
under the Credit Agreement accrue interest at either prime or LIBOR plus 1.65%
to 2.25%, depending on interest rate elections made by the Company and certain
financial ratio positions as defined in the Credit Agreement. Interest on
borrowings is payable monthly and principal is due at expiration of the Credit
Agreement, March 28, 1999. Borrowings under the Credit Agreement are subject to
certain customary financial covenants and dividend restrictions and are secured
by substantially all of the Company's assets. There were no borrowings under the
Credit Agreement during 1997.
(5) HEALTHPLAN SERVICES SECURITIES PURCHASE AGREEMENT (SEE NOTE 8(H))
On January 8, 1996, for the purpose of financing the Company's ongoing
acquisition program and working capital needs, the Company and HealthPlan
Services Corporation ("HPSC"), entered into a Securities Purchase Agreement (the
"Agreement"). Under the Agreement, HPSC purchased 280,623 shares of the
Company's Series B convertible preferred stock for $2,000,000 (see note 8) and
agreed to purchase up to $10,000,000 in original principal amount of senior
subordinated notes. In addition, HPSC would be issued warrants to purchase up to
432,101 shares of the Company's common stock for $0.015 per share, based upon
the amount of senior subordinated debt purchased. HPSC's obligation to purchase
senior subordinated notes under the Agreement terminated upon the earliest to
occur of (i) an initial public offering of the Company; (ii) a change of control
of the Company; (iii) an event of default; (iv) January 8, 1999; or (v) the
death or termination of employment of the Company's Chairman and Chief Executive
Officer.
43
<PAGE> 45
On March 13, 1996, the Company sold a $6,900,000 senior subordinated note
to HPSC. The note bore interest at 10% payable quarterly and was due upon the
earliest to occur of (i) an initial public offering by the Company; (ii) a
change of control of the Company; or (iii) at maturity on January 8, 2003.
Warrants to purchase 298,150 shares of the Company's common stock were issued to
HPSC in connection with issuance of this note. The proceeds received were
allocated to the notes and the warrants based on their relative fair values
resulting in a discount of $573,111 on the note, which was being amortized over
the life of the note.
On January 31, 1997, the Company consummated an initial public offering
(see note 8(h)). As a result, the Agreement was terminated and the $6,900,000
note payable to HPSC was repaid. The Company recorded a charge of $806,146 for
early extinguishment of debt relating to the unamortized note discount and
related deferred financing costs.
(6) COMMITMENTS
(a) Leases
The Company has entered into noncancelable capital and operating lease
agreements for office space, furniture and fixtures, and computer and office
equipment. Future minimum payments under all such noncancelable capital and
operating leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING DECEMBER 31, OPERATING (NOTE 4)
- ------------------------ ---------- ---------------
<S> <C> <C>
1998........................................................ $ 932,949 $170,403
1999........................................................ 631,256 58,305
2000........................................................ 538,818 11,558
2001........................................................ 402,299 1,925
2002 and thereafter......................................... 24,150 --
---------- --------
$2,529,472 $242,191
==========
Less amount representing interest and sales taxes........... 27,560
--------
$214,631
========
</TABLE>
Rental expense for noncancelable operating leases was $661,302, $412,407,
and $212,547 for the years ended December 31, 1997, 1996, and 1995,
respectively.
(b) Employment Agreement
The Company has entered into an Employment Agreement (the "Employment
Agreement") with the Company's Chairman and Chief Executive Officer (the "CEO").
The Employment Agreement provides for a base salary subject to annual increases
at the discretion of the compensation committee, annual performance bonuses
based upon attaining certain goals established by the compensation committee,
minimum annual stock option grants, and certain severance benefits in the event
of termination. The Employment Agreement expires on May 31, 1999 and is
automatically renewable for one-year terms thereafter, subject to termination by
the Company or the CEO upon 60 days' notice.
(c) Employee Benefit Plan
The Company maintains a 401(k) plan (the "Plan") for the benefit of all
eligible employees. The Plan provides for employer matching contributions at the
discretion of the Company's management. The Company has not paid or accrued an
amount for matching contributions since the inception of the Plan.
(7) INCOME TAXES
Income tax expense for the year ended December 31, 1997 was $707,000. All
of the $707,000 is current; $640,000 is federal and $67,000 is state tax
expense.
44
<PAGE> 46
Because of operating losses, net operating loss carryforwards, and other
factors, the Company did not provide any income tax expense for the years ended
December 31, 1996, and 1995. A reconciliation of the expected income tax
(benefit) expense (based on a U.S. Federal statutory tax rate of 34%) to the
actual income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense.......... $ (363,433) $(2,458,464) $(46,802)
In-process research and development costs expensed
for financial accounting purposes, not deductible
for tax purposes................................. 1,706,250 -- --
Increase (decrease) in the valuation allowance for
deferred income taxes............................ (568,217) 2,774,215 43,101
State income taxes, net of Federal income tax
effect........................................... (93,753) (361,539) (6,883)
Other.............................................. 26,153 45,788 10,584
---------- ----------- --------
Actual income taxes................................ $ 707,000 $ -- $ --
========== =========== ========
</TABLE>
The tax effects of temporary differences and carryforwards which give rise
to deferred income tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Acquired in-process research and development costs........ $2,116,682 $2,277,362
Net operating loss carryforwards.......................... 737,990 1,049,990
Deferred revenue.......................................... 99,510 201,276
Property and equipment depreciation differences........... 182,845 97,006
Other..................................................... 392,685 29,766
---------- ----------
Total gross deferred income tax assets............ 3,529,712 3,655,400
Less valuation allowance.................................... 2,540,121 3,108,338
---------- ----------
Deferred income tax assets, net of valuation
allowance....................................... 989,591 547,062
---------- ----------
Deferred income tax liabilities:
Intangible assets......................................... 462,186 547,062
Capitalized software costs................................ 527,405 --
---------- ----------
Net deferred income tax asset and liability....... $ -- $ --
========== ==========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1997 and 1996 was a (decrease) increase of $(568,217) and $2,774,215,
respectively. Deferred income tax assets and liabilities are initially
recognized for differences between the financial statement carrying amount and
the tax bases of assets and liabilities which will result in future deductible
or taxable amounts and operating loss and tax credit carryforwards. A valuation
allowance is then established to reduce the deferred income tax asset to the
level at which it is "more likely than not" that the tax benefits will be
realized. Realization of tax benefits of deductible temporary differences and
operating loss or credit carryforwards depends on having sufficient taxable
income of an appropriate character within the carryback and carryforward
periods. Sources of taxable income that may allow for the realization of tax
benefits include: (1) taxable income in the current year or prior years that is
available through carryback; (2) future taxable income that will result from the
reversal of existing taxable temporary differences; and (3) taxable income
generated by future operations.
The valuation allowance at December 31, 1997 includes approximately $1.0
million that will reduce goodwill if and when the tax benefits from an acquired
net operating loss are subsequently recognized.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $1.9 million, which expire beginning in 2006 through 2011. Under
Internal Revenue Code Section 382, the Company's use
45
<PAGE> 47
of net operating loss carryforwards is limited to approximately $1,100,000 per
year as a result of the Company's initial public offering completed in January
1997 (see note 8(h)). Approximately $1.0 million of the net operating loss at
December 31, 1997 relates to loss carryforwards acquired in connection with the
1997 Acquisitions. Accordingly, such losses are limited to income generated by
the acquired entity as well as substantial annual limitations.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Articles of Incorporation
On January 8, 1996, the Company's articles of incorporation were amended to
increase the number of authorized shares of common stock from 5,000,000 shares
to 20,000,000 shares and to establish 400,000 authorized shares of Series B
convertible preferred stock. On that same date, the Company's articles of
incorporation were amended to remove the redeemable feature from the Company's
Series A convertible preferred stock.
In September 1996, the Company was reincorporated in Delaware, and in
connection with such reincorporation, the Company's treasury stock was canceled
and an additional 1,000,000 shares of preferred stock were authorized. In
addition, the Company's articles of incorporation were amended such that the
Company's Series A and Series B convertible preferred stock would be canceled
and no longer authorized upon completion of an initial public offering (see note
8(h)).
(b) Series A and Series B Convertible Preferred Stock (see note 8(h))
Until January 1996, the Series A convertible preferred stock (Series A
"CPS") carried a mandatory redemption feature pursuant to a Stockholders'
Agreement which required the Company to redeem all outstanding shares of Series
A CPS on the seventh anniversary of the original issue date (April 5, 1998) at a
price equivalent to the liquidation price of $1.95. In January 1996, the
redemption feature was eliminated and the balance related to this security was
reclassified to stockholders' equity.
The holders of the Company's Series A CPS were entitled to dividends on a
cumulative basis at 8% which began on April 5, 1994. The holders of the
Company's Series B convertible preferred stock (Series B "CPS") were entitled to
dividends on a cumulative basis at 8% beginning on January 8, 1997. The Series A
CPS and Series B CPS were convertible at the option of the holder at any time
into common stock at a ratio of 0.6496 share for one share, subject to
adjustment in certain circumstances, and the holders of the Series A CPS and
Series B CPS carried voting power equivalent to the number of common shares into
which their preferred shares could be converted. Furthermore, the Company was
restricted from paying dividends on the Company's common stock until all unpaid
dividends on the Series A CPS and Series B CPS were paid. In no event could the
Series A CPS and Series B CPS dividends be paid until payment in full of the
senior subordinated note payable. These dividends payable were classified as
noncurrent at December 31, 1996 (see note 8(h)).
In the event of liquidation, holders of the Series A CPS and Series B CPS
were entitled to the sum of (a) $1.95 per preferred share for Series A CPS and
$7.13 per preferred share for Series B CPS, (b) all accrued and unpaid
dividends, and (c) the portion of the fair market value of the assets and
liabilities of the Company attributable to the Series A CPS and Series B CPS
holders determined by the number of common shares that would be held by the
Series A CPS and Series B CPS holders upon conversion to common stock.
Additionally, the Series A CPS and Series B CPS would automatically convert upon
the occurrence of certain future events such as an initial public offering, as
defined, and the Company was required to obtain prior approval of the holders of
the Series A CPS and Series B CPS to effect certain transactions. The holders of
the Series A CPS and Series B CPS also carried certain other rights and
privileges, as further defined in the agreements.
During 1994 notes payable of $300,000 and accrued interest of $18,000 were
converted into 318,000 shares of the Company's Series A CPS at a conversion
price of $1.00 per share. Until January 1996, the discount of $302,100 resulting
from the 1994 conversion, and the discount associated with the original issuance
46
<PAGE> 48
of the Series A CPS of $96,450, representing the difference between the recorded
value of the Series A CPS and the redemption value, were being accreted using
the straight-line method from issuance date through April 5, 1998, the first
date that the holders could have required redemption.
As a result of the Company's initial public offering in January 1997, the
Series A CPS and Series B CPS were converted into 1,021,809 shares of common
stock of the Company.
(c) Stock Options
The Company periodically grants stock options to encourage stock ownership
by, and retain the services of, certain key employees. Options granted are
determined at the discretion of the Board of Directors. All options granted are
earned over a five-year vesting period at 20% per year, and expire at the
earlier of three months after termination of employment or ten years from date
of grant.
In October 1996, the Board of Directors of the Company adopted the
Medirisk, Inc. 1996 Stock Incentive Plan (the "Incentive Plan") and the
Medirisk, Inc. Non-Management Directors' Stock Option Plan (the "Directors'
Plan"). A total of 580,645 shares of common stock have been reserved for
issuance under the Incentive Plan and 100,000 shares of common stock have been
reserved for issuance under the Directors' Plan.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its stock options. Under APB Opinion No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. However, SFAS 123 requires presentation of pro forma net
earnings (loss) and pro forma earnings (loss) per share as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of that statement. The pro forma effect for 1995 is
not material. For purposes of pro forma disclosure, the estimated fair value of
the options is amortized to expense over the vesting period. Under the fair
value method, the Company's net loss and loss per share would have been
increased as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net loss.................................................. $(3,062,437) $(7,239,628)
Loss per share............................................ $ (0.78) $ (4.71)
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, and the options generally have a five-year vesting period,
the pro forma effect will not be fully reflected until 1999.
The per share weighted-average fair values of stock options granted during
1997 and 1996 were $7.02 and $0.25, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Expected volatility......................................... 66% 0%
Expected dividend yield..................................... none none
Risk-free interest rate..................................... 6% 6%
Expected life of options.................................... 7 years 7 years
</TABLE>
47
<PAGE> 49
The following table summarizes option plan activity for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE
--------------------------
WEIGHTED
SHARES RANGE AVERAGE
------- --------------- --------
<S> <C> <C> <C>
Options outstanding at December 31, 1994........ 197,382 $0.30 - 0.64143 $0.33428
Granted......................................... 63,661 0.64143 0.64143
Exercised....................................... (6,496) 0.30 0.30
Canceled........................................ (37,027) 0.30 - 0.64143 0.36068
-------
Options outstanding at December 31, 1995........ 217,520 0.30 - 0.64143 0.42070
Granted......................................... 176,731 0.64143 0.64143
Exercised....................................... (11,693) 0.30 - 0.64143 0.58452
Canceled........................................ (63,630) 0.30 - 0.64143 0.57471
-------
Options outstanding at December 31, 1996........ 318,928 0.30 - 0.64143 0.50628
Granted......................................... 335,877 7.625-11.00 9.45027
Exercised....................................... (20,243) 0.30 - 7.625 5.03626
Canceled........................................ (60,240) 0.30 - 7.625 6.66576
-------
Options outstanding at December 31, 1997........ 574,322 $ 0.30 - 11.00 4.93386
=======
Options exercisable at December 31, 1997........ 160,196 $0.30 - 0.64143 $6.39429
======= =============== ========
</TABLE>
The following table summarizes information about options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AT AVERAGE WEIGHTED- EXERCISABLE AT WEIGHTED-
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- --------------- -------------- ---------------- -------------- -------------- --------------
<C> <C> <S> <C> <C> <C>
$ 0.30 - 5.00 303,405 78 months $ 0.51019 160,196 $0.39429
5.00 - 10.00 64,960 113 7.56250 -- --
10.00 - 15.00 205,957 118 10.62138 -- --
------- ---------------- --------- ------- --------
574,322 96 months $ 4.93382 160,196 $0.39429
======= ================ ========= ======= ========
</TABLE>
(d) Stockholders' Agreement (see note 8(h))
The Company is party to a Stockholders' Agreement (the "Stockholders'
Agreement") among all preferred and common stockholders of the Company which
includes restrictions and requirements, certain of which are disclosed below.
The Stockholders' Agreement establishes the composition of the Company's Board
of Directors and provides for restrictions on the transfer of the Company's
shares. Additionally, the Stockholders' Agreement provided for a one-time
dividend to Series A CPS holders equivalent to 4% of the original purchase price
of the Series A CPS. The dividend was cumulative and accrued from April 5, 1993
to April 5, 1994. In no event could the Series A CPS onetime dividend be paid
until payment in full of the senior subordinated note payable. This dividend
payable was classified as noncurrent at December 31, 1996.
The Company was required to reserve at all times common shares sufficient
to satisfy the exercise of all outstanding stock options and warrants, and to
satisfy the conversion of all Series A CPS and Series B CPS.
As a result of the Company's initial public offering in January 1997, the
Stockholders' Agreement was terminated and the dividend payable was paid (see
note 8(h)).
48
<PAGE> 50
(e) Certain Common Stock Transactions
In July 1994, 116,928 shares of common stock held in treasury were issued
to a stockholder in exchange for an unsecured promissory note of $75,000. The
note bore interest at 8.25% and was payable in three annual installments of
$25,000 each through 1997. A total of $39,000 was repaid on the note and the
remaining balance of $36,000 was forgiven in 1996 as consideration for entering
into a new employment agreement.
(f) Warrants
In 1993, the Company obtained $300,000 in financing through the issuance of
6% convertible unsecured promissory notes with attached warrants to acquire the
Company's common stock. Because the exercise price of the attached warrants
exceeded the fair value of the common stock, the Company allocated the $300,000
of proceeds to notes payable. The notes were convertible into the Company's
Series A CPS at a conversion price of $1.00 per share. In 1994, the notes
payable of $300,000 and accrued interest of $18,000 were converted into 318,000
shares of the Company's Series A CPS. The common stock purchase warrants give
the holders the right to acquire 194,880 shares of the Company's common stock at
an exercise price of $1.54 per share. The common stock purchase warrants expire
on June 23, 1998.
Also, as discussed in note 5, in March 1996, the Company issued to HPSC
warrants to purchase 298,150 shares of the Company's common stock at an exercise
price of $.015 per share. The common stock purchase warrants were exercised
subsequent to December 31,1997.
(g) Common Stock Reverse Split
In December 1996, the Company's Board of Directors approved an amendment to
its certificate of incorporation which effected a 0.6496-for-one reverse stock
split. All references to common stock, stock options, and warrants in these
consolidated financial statements have been adjusted to reflect this amendment
as if it had occurred prior to January 1, 1995.
(h) Initial Public Offering
On January 31, 1997, the Company sold 2,300,000 shares of its common stock
in an initial public offering in which it received approximately $22,626,000,
net of offering expenses of approximately $750,000. As a result of the
consummation of the offering, the Series A CPS and Series B CPS were converted
into 1,021,809 shares of common stock of the Company, the HPSC Agreement was
terminated, and the Stockholders' Agreement was terminated. In addition, all of
the Company's dividends payable and debt, excluding obligations under capital
leases, were repaid.
(9) MAJOR CUSTOMER
For the years ended December 31, 1997, 1996 and 1995, one customer
accounted for approximately 16%, 15%, and 9%, respectively, of total revenues.
(10) NOTE RECEIVABLE FROM OFFICER
In June 1996, the Company loaned $112,500 to an officer of the Company in
the form of an unsecured promissory note. The note is to be repaid in five equal
annual installments of $22,500 each, due and payable on the first through fifth
anniversaries of the date of the note. Interest accrues at a rate of 8.25% per
annum and is due and payable by the officer on the date each principal payment
is due. The first annual installment of $22,500 was paid in June 1997.
49
<PAGE> 51
SECTION S
FINANCIAL STATEMENT SCHEDULES
50
<PAGE> 52
SCHEDULE II
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Medirisk, Inc.
Under date of February 6, 1998, we reported on the consolidated balance
sheets of Medirisk, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in the annual report on Form 10-K for the year
1997. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule included in the annual report on Form 10-K for the year 1997. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
February, 6, 1998
51
<PAGE> 53
SCHEDULE II
MEDIRISK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGES TO
BEGINNING CHARGES TO COSTS AND NET BALANCE AT
DESCRIPTION OF PERIOD OTHER ACCOUNTS EXPENSES DEDUCTIONS END OF PERIOD
- ----------- ---------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1995
Allowance for doubtful accounts........ -- -- -- -- --
December 31, 1996
Allowance for doubtful accounts........ -- 47,439(1) 50,000 -- 97,439
December 31, 1997
Allowance for doubtful accounts........ 97,439 150,000(1) 92,000 191,882 147,557
</TABLE>
- ---------------
(1) Represents beginning balance in allowance for doubtful accounts of acquired
companies.
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 26, 1998.
MEDIRISK, INC.
By: /s/ KENNETH M. GOINS, JR.
------------------------------------
Kenneth M. Goins, Jr.
Executive Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark A. Kaiser and Kenneth M. Goins, jointly and
severally, his attorneys-in-fact, each with full power of substitution, for him
in any and all capacities, to sign any amendments to this Annual Report on Form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARK A. KAISER Chairman, Chief Executive March 26, 1998
- ----------------------------------------------------- Officer, President (principal
Mark A. Kaiser executive officer) and
Director
/s/ KENNETH M. GOINS, JR. Chief Financial Officer, March 26, 1998
- ----------------------------------------------------- Executive Vice President
Kenneth M. Goins, Jr. (principal financial officer)
/s/ KEITH O. COWAN Director March 26, 1998
- -----------------------------------------------------
Keith O. Cowan
/s/ MICHAEL J. FINN Director March 26, 1998
- -----------------------------------------------------
Michael J. Finn
/s/ WILLIAM M. MCCLATCHEY, M.D. Director March 26, 1998
- -----------------------------------------------------
William M. McClatchey, M.D.
/s/ JAMES K. MURRAY, III Director March 26, 1998
- -----------------------------------------------------
James K. Murray, III
/s/ ROBERT P. PINKAS Director March 26, 1998
- -----------------------------------------------------
Robert P. Pinkas
</TABLE>
53
<PAGE> 1
EXHIBIT 3.2
Bylaws of the Company
<PAGE> 2
================================================================================
BYLAWS
OF
MEDIRISK, INC.
================================================================================
ORIGINALLY ADOPTED 23 AUGUST 1996
AS AMENDED THROUGH 21 MAY 1997
<PAGE> 3
BYLAWS
OF
MEDIRISK, INC.
SECTION I
CAPITAL STOCK
SECTION 1.1. CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed in the name of the Corporation by
the Chairman of the Board of Directors or the President or a Vice President, and
by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation certifying the number of shares in the Corporation
owned by such holder. If such certificate is countersigned (a) by a transfer
agent other than the Corporation or its employee, or, (b) by a registrar other
than the Corporation or its employee, any other signature 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 certificate 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 such
person were such officer, transfer agent, or registrar at the date of issue.
SECTION 1.2. RECORD OWNERSHIP. A record of the name and address of the
holder of each certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the Corporation's books. The Corporation
shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
required by the laws of the State of Delaware.
<PAGE> 4
SECTION 1.3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or such person's attorney, lawfully constituted in writing, and
only upon the surrender of the certificate therefor and a written assignment of
the shares evidenced thereby, which certificate shall be canceled before the new
certificate is issued.
SECTION 1.4. LOST CERTIFICATES. Any person claiming a stock certificate
in lieu of one lost, stolen or destroyed shall give the Corporation an affidavit
as to such person's ownership of the certificate and of the facts which go to
prove its loss, theft or destruction. Such person shall also, if required by
policies adopted by the Board of Directors, give the Corporation a bond, in such
form as may be approved by the Corporation, sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of the certificate or the issuance of a new certificate.
SECTION 1.5. TRANSFER AGENTS; REGISTRARS; RULES RESPECTING
CERTIFICATES. The Board of Directors may appoint, or authorize any officer or
officers to appoint, one or more transfer agents and one or more registrars. The
Board of Directors may make such further rules and regulations as it may deem
expedient concerning the issue, transfer and registration of stock certificates
of the Corporation.
SECTION 1.6. RECORD DATE. The Board of Directors may fix in advance a
future date, not exceeding 60 days (nor, in the case of a stockholders' meeting,
less than ten days) preceding the date of any meeting of stockholders, payment
of dividend or other distribution, allotment of rights, or change, conversion or
exchange of capital stock or for the purpose of any other lawful action, as the
record date for determination of the stockholders entitled to notice of and to
vote at any such meeting and any adjournment thereof, or to receive any such
dividend or other distribution or allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, or to
participate in any such other lawful action, and in such case such stockholders
and only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of and to vote at such meeting and any
adjournment
-2-
<PAGE> 5
thereof, or to receive such dividend or other distribution or allotment of
rights, or to exercise such rights, or to participate in any such other lawful
action, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
SECTION II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL. The annual meeting of stockholders for the
election of directors and the transaction of such other proper business shall be
held, within or without the State of Delaware on such date and at such time as
shall be designated by the Board of Directors.
SECTION 2.2. SPECIAL. Special meetings of stockholders for any purpose
or purposes may be called by the Board of Directors, pursuant to a resolution
adopted by a majority of the members of the Board of Directors then in office,
or by the holders of shares representing not less than fifty percent of the
votes which may be cast at the meeting. Special meetings may be held at any
place, within or without the State of Delaware, as determined by the Board of
Directors. The only business which may be conducted at such a meeting, other
than procedural matters and matters relating to the conduct of the meeting,
shall be the matter or matters described in the notice of the meeting.
SECTION 2.3. NOTICE. Written notice of each meeting of stockholders,
stating the date, time, place and, in the case of a special meeting, the purpose
thereof, shall be given as provided by law by the Secretary or an Assistant
Secretary not less than ten days nor more than 60 days before such meeting
(unless a different time is specified by law) to every stockholder entitled by
law to notice of such meeting.
SECTION 2.4. LIST OF STOCKHOLDERS. A complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder, shall be prepared by the Secretary and shall be
open to the examination of any stockholder, for any
-3-
<PAGE> 6
purpose germane 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,
for at least ten days before the meeting and at the place of the meeting during
the whole time of the meeting.
SECTION 2.5. QUORUM. The holders of shares of stock entitled to cast a
majority of the votes on the matters at issue at a meeting of stockholders,
present in person or represented by proxy, shall constitute a quorum, except as
otherwise required by the Delaware General Corporation Law. In the event of a
lack of a quorum, the chairman of the meeting or a majority in interest of the
stockholders present in person or represented by proxy may adjourn the meeting
from time to time without notice other than announcement at the meeting, until a
quorum shall be obtained. At any such adjourned meeting at which there is a
quorum, any business may be transacted that might have been transacted at the
meeting originally called.
SECTION 2.6. ORGANIZATION AND PROCEDURE.
(a) The Chairman of the Board, or, in the absence of the Chairman of
the Board, the President, or, in the absence of the President, any Vice
President designated by the Board of Directors, shall preside at meetings of
stockholders. The Secretary of the Corporation shall act as secretary, but in
the absence of the Secretary, the presiding officer may appoint a secretary.
(b) At each meeting of stockholders, the chairman of the meeting shall
fix and announce the date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at the meeting and shall
determine the order of business and all other matters of procedure. Except to
the extent inconsistent with any such rules and regulations as adopted by the
Board of Directors, the chairman of the meeting may establish rules, which need
not be in writing, to maintain order for the conduct of the meeting, including,
without limitation, restricting attendance to bona fide stockholders of record
and their proxies and other persons in attendance at the invitation of the
chairman and making rules governing speeches and debates. The chairman of the
meeting acts in his or her absolute discretion and his or her rulings are not
subject to appeal.
-4-
<PAGE> 7
SECTION 2.7. STOCKHOLDER NOMINATIONS AND PROPOSALS.
(a) No proposal for a stockholder vote shall be submitted by a
stockholder (a "Stockholder Proposal") to the Corporation's stockholders unless
the stockholder submitting such proposal (the "Proponent") shall have filed a
written notice setting forth with particularity (i) the names and business
addresses of the Proponent and all persons acting in concert with the Proponent;
(ii) the name and address of the Proponent and the persons identified in clause
(i), as they appear on the Corporation's books (if they so appear); (iii) the
class and number of shares of the Corporation beneficially owned by the
Proponent and the persons identified in clause (i); (iv) a description of the
Stockholder Proposal containing all material information relating thereto; and
(v) such other information as the Board of Directors reasonably determines is
necessary or appropriate to enable the Board of Directors and stockholders of
the Corporation to consider the Stockholder Proposal. The presiding officer at
any stockholders' meeting may determine that any Stockholder Proposal was not
made in accordance with the procedures prescribed in these Bylaws or is
otherwise not in accordance with law, or is not appropriate for consideration at
that meeting based on valid considerations (including that the Stockholder
Proposal was not included in the proxy statement distributed to stockholders in
connection with the meeting), and if so determined, such officer shall so
declare at the meeting and the Stockholder Proposal shall be disregarded.
(b) Only persons who are selected and recommended by the Board of
Directors or the committee of the Board of Directors designated to make
nominations, or who are nominated by stockholders in accordance with the
procedures set forth in this Section 2.7, shall be eligible for election, or
qualified to serve, as directors. Nominations of individuals for election to the
Board of Directors of the Corporation at any annual meeting or any special
meeting of stockholders at which directors are to be elected may be made by any
stockholder of the Corporation entitled to vote for the election of directors at
that meeting by compliance with the procedures set forth in this Section 2.7.
Nominations by stockholders shall be made by written notice (a "Nomination
Notice"), which shall set forth (i) as to each individual nominated, (A) the
name, date of birth, business address and residence address of such individual;
(B) the business experience during the
-5-
<PAGE> 8
past five years of such nominee, including his or her principal occupations and
employment during such period, the name and principal business of any
corporation or other organization in which such occupations and employment were
carried on, and such other information as to the nature of his or her
responsibilities and level of professional competence as may be sufficient to
permit assessment of his or her prior business experience; (C) whether the
nominee is or has ever been at any time a director, officer or owner of 5% or
more of any class of capital stock, partnership interests or other equity
interest of any corporation, partnership or other entity; (D) any directorships
held by such nominee in any company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended; and (E) whether, in the last five years, such nominee has been
convicted in a criminal proceeding or has been subject to a judgment, order,
finding or decree of any federal, state or other governmental entity, concerning
any violation of federal, state or other law, or any proceeding in bankruptcy,
which conviction, order, finding, decree or proceeding may be material to an
evaluation of the ability or integrity of the nominee; and (ii) as to the person
submitting the Nomination Notice and any person acting in concert with such
person, (x) the name and business address of such person, (y) the name and
address of such person as they appear on the Corporation's books (if they so
appear), and (z) the class and number of shares of the Corporation that are
beneficially owned by such person. A written consent to being named in a proxy
statement as a nominee, and to serve as a director if elected, signed by the
nominee, shall be filed with any Nomination Notice. If the presiding officer at
any stockholders' meeting determines that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, he shall so declare
to the meeting and the defective nomination shall be disregarded.
(c) Nomination Notices and Stockholder Proposals shall be delivered to
the Secretary at the principal executive office of the Corporation 60 days or
more before the date of the stockholders' meeting if such Nomination Notice or
Stockholder Proposal is to be submitted at an
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annual stockholders' meeting (provided, however, that if such annual meeting is
called to be held before the date specified in Section 2.1 hereof, such
Nomination Notice or Stockholder Proposal shall be so delivered no later than
the close of business on the 15th day following the day on which notice of the
date of the annual stockholders' meeting was given). Nomination Notices and
Stockholder Proposals shall be delivered to the Secretary at the principal
executive office of the Corporation no later than the close of business on the
15th day following the day on which notice of the date of a special meeting of
stockholders was given if the Nomination Notice or Stockholder Proposal is to be
submitted at a special stockholders' meeting.
SECTION 2.8. VOTING. Unless otherwise provided by the Delaware General
Corporation Law, each stockholder shall be entitled to one vote, in person or by
written proxy, for each share held of record by such stockholder who is entitled
to vote generally in the election of directors. All elections for the Board of
Directors shall be decided by a plurality of the votes cast and all other
questions shall be decided by a majority of the votes cast, except as otherwise
required by the Delaware General Corporation Law or as provided for in the
Certificate of Incorporation or these Bylaws. Abstentions shall not be
considered to be votes cast.
SECTION 2.9. INSPECTORS. The Board of Directors by resolution shall, in
advance of any meeting of stockholders, appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated by the Board of Directors
as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the chairman
of the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by the Delaware General Corporation Law.
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SECTION III
BOARD OF DIRECTORS
SECTION 3.1. MANAGEMENT. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors.
SECTION 3.2. NUMBER; QUALIFICATION; ELECTION; TERM.
(a) The number of directors constituting the Board of Directors shall
not be less than three, nor more than twelve, the exact number to be determined
by a vote of the majority of the Directors then in office. The directors of the
Corporation (exclusive of any directors who are elected pursuant to the terms of
, and serve as representatives of the holders of, any series of preferred stock
of the Corporation) shall be referred to herein as "Classified Directors" and
shall be divided into three classes, with the first class referred to herein as
"Class 1," the second class as "Class 2," and the third class as "Class 3." If
the total number of Classified Directors equals a number divisible by three,
then the number of directors in each of Class 1, Class 2 and Class 3 shall be
that number of directors equal to the total number of directors divided by
three. If, however, the total number of Classified Directors equals a number
that is not divisible by three, each such class of directors shall consist of
that number of directors as nearly equal in number as possible to the total
number of directors divided by three, as determined by the Board of Directors in
advance of each respective election of directors by holders of shares of capital
stock of the Corporation then entitled to vote in such election. The term of
office of the initial Class 1 directors shall expire at the 1997 annual meeting
of stockholders, the term of office of the initial Class 2 directors shall
expire at the 1998 annual meeting of stockholders, and the term of office of the
initial Class 3 directors shall expire at the 1999 annual meeting of
stockholders, with each director to hold office until his successor shall have
been duly elected and qualified. At each annual meeting of stockholders,
commencing with the 1997 annual meeting, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his successor shall have been
duly elected and qualified..
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(b) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock issued by the Corporation shall have
the right, voting separately by series or by class (excluding holders of common
stock), to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features of such
directorships shall be governed by the terms of the Certificate of Incorporation
including any amendment to the Certificate of Incorporation that designates a
series of preferred stock) and such directors so elected by the holders of
preferred stock shall not be divided into classes pursuant to this Section 3.2
unless expressly provided by the terms of the Certificate of Incorporation.
SECTION 3.3. VACANCIES. Any or all Classified Directors may be removed
for cause at any annual or special meeting of stockholders, upon the affirmative
vote of the holders of a majority of the outstanding shares of each class of
capital stock then entitled to vote in person or by proxy at an election of such
Classified Directors, provided that notice of the intention to act upon such
matter shall have been given in the notice calling such meeting. Newly created
directorships resulting from any increase in the authorized number of Directors
and any vacancies occurring in the board of directors caused by death,
resignation, retirement, disqualification, removal or other termination from
office of any directors may be filled by the vote of a majority of the Directors
then in office, though less than a quorum, or by the affirmative vote, at a
special meeting of the stockholders called for the purpose of filling such
directorship, of the holders of a majority of the outstanding shares of capital
stock then entitled to vote in person or by proxy at such meeting. Each
successor directors so chosen shall hold office until the next election of the
class for which such director shall have been chosen and until his respective
successor shall have been duly elected and qualified. Any newly created or
eliminated directorships resulting from an increase or decrease in the
authorized number of directors shall be appointed or allocated by the Board of
Directors among the three classes of directors so as to maintain such classes as
nearly equal in number as possible.
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SECTION 3.4. RESIGNATION. A director may resign at any time by giving
written notice to the Chairman of the Board, to the President, or to the
Secretary. Unless otherwise stated in such notice of resignation, the acceptance
thereof shall not be necessary to make it effective; and such resignation shall
take effect at the time specified therein or, in the absence of such
specification, it shall take effect upon the receipt thereof.
SECTION 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without further notice at such time and such place as
shall from time to time be determined by the Board of Directors. A meeting of
the Board of Directors for the election of officers and the transaction of such
other business as may come before it may be held without notice immediately
following the annual meeting of stockholders.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or the President, or at
the request in writing of one-third of the members of the Board of Directors
then in office.
SECTION 3.7. NOTICE OF SPECIAL MEETINGS. Notice of the date, time and
place of each special meeting shall be mailed by regular mail to each director
at his or her designated address at least six (6) days before the meeting; or
sent by overnight courier to each director at his or her designated address at
least two (2) days before the meeting (with delivery scheduled to occur no later
than the day before the meeting); or given orally by telephone or other means,
or by telegraph or telecopy, or by any other means comparable to any of the
foregoing, to each director at his designated address at least twenty-four (24)
hours before the meeting; provided, however, that if less than five days' notice
is provided and one third of the members of the Board of Directors then in
office object in writing prior to or at the commencement of the meeting, such
meeting shall be postponed until five (5) days after such notice was given
pursuant to this sentence (or such shorter period to which a majority of those
who objected in writing agree), provided that notice of such postponed meeting
shall be given in accordance with this Section 3.7. The notice of the special
meeting shall state the general purpose of the meeting, but other routine
business may be conducted at the special meeting without such matter being
stated in the notice.
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SECTION 3.8. PLACE OF MEETINGS. The Board of Directors may hold their
meetings and have an office or offices inside or outside of the State of
Delaware.
SECTION 3.9. TELEPHONIC MEETING AND PARTICIPATION. Any or all of the
directors may, at their discretion, participate in a meeting of the Board of
Directors or any committee thereof by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at the meeting.
SECTION 3.10. ACTION BY DIRECTORS WITHOUT A MEETING. 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 of 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.
SECTION 3.11. QUORUM AND ADJOURNMENT. A majority of the directors then
holding office shall constitute a quorum. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Whether or not a quorum is present to conduct a meeting,
any meeting of the Board of Directors (including an adjourned meeting) may be
adjourned by a majority of the directors present, to reconvene at a specific
time and place. It shall not be necessary to give to the directors present at
the adjourned meeting notice of the reconvened meeting or of the business to be
transacted, other than by announcement at the meeting that was adjourned;
provided, however, notice of such reconvened meeting, stating the date, time,
and place of the reconvened meeting, shall be given to the directors not present
at the adjourned meeting in accordance with the requirements of Section 3.7
hereof.
SECTION 3.12. ORGANIZATION. The Chairman of the Board, or, in the
absence of the Chairman of the Board, the President, or in the absence of the
President, a member of the Board selected by the members present, shall preside
at meetings of the Board. The Secretary of the
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Corporation shall act as secretary, but in the absence of the Secretary, the
presiding officer may appoint a secretary.
SECTION 3.13. COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as the Board of Directors may determine. Any
director may serve the Corporation in any other capacity and receive
compensation therefor.
SECTION 3.14. PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board of Directors when a vote on any matter is
taken is deemed to have assented to the action taken unless he votes against or
abstains from the action taken, or unless at the beginning of the meeting or
promptly upon arrival the director objects to the holding of the meeting or
transacting specified business at the meeting. Any such dissenting votes,
abstentions or objections shall be entered in the minutes of the meeting
SECTION IV
COMMITTEES
The Board of Directors may, by resolutions passed by a majority of the
members of the Board of Directors, designate members of the Board of Directors
to constitute committees which shall in each case consist of such number of
directors, and shall have and may execute such powers as may be determined and
specified in the respective resolutions appointing them. Any such committee may
fix its rules of procedure, determine its manner of acting and the time and
place, whether within or without the State of Delaware, of its meetings and
specify what notice thereof, if any, shall be given, unless the Board of
Directors shall otherwise by resolution provide. Unless otherwise provided by
the Board of Directors or such committee, the quorum, voting and other
procedures shall be the same as those applicable to actions taken by the Board
of Directors. A majority of the members of the Board of Directors then in office
shall have the power to change the membership of any such committee at any time,
to fill vacancies therein and to discharge any such committee or to remove any
member thereof, either with or without cause, at any time.
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SECTION V
OFFICERS
SECTION 5.1. DESIGNATION. The required officers of the Corporation
shall be a Chairman of the Board, a President, a Chief Financial Officer, a
Secretary and a Treasurer. Such required officers may only be elected by the
Board of Directors and may not be appointed by any officer of the Corporation.
The Board of Directors may elect, or provide for the appointment of, such other
officers (including one or more Vice Presidents in such gradation as the Board
of Directors or the appointing officer may determine) or agents as may from time
to time appear necessary or advisable in the conduct of the business and affairs
of the Corporation. Any number of offices may be held by the same person.
SECTION 5.2. ELECTION TERM. At its first meeting after each annual
meeting of stockholders, the Board of Directors shall elect the required
officers and any other officers as it may determine. The term of each officer,
whether elected by the Board of Directors or appointed by another officer as
herein provided, shall be until the earlier to occur of (i) the death,
resignation or removal from office of such officer, or (ii) the first meeting of
the Board of Directors following the next annual meeting of stockholders and the
election (or appointment) and qualification of such officer's successor.
SECTION 5.3. RESIGNATION. Any officer may resign at any time by giving
written notice to the President or the Secretary. Unless otherwise stated in
such notice of resignation, the acceptance thereof shall not be necessary to
make it effective; and such resignation shall take effect at the time specified
therein or, in the absence of such specification, it shall take effect upon the
receipt thereof.
SECTION 5.4. REMOVAL. Any officer (whether elected by the Board of
Directors or appointed by another officer) may be removed at any time with or
without cause by the affirmative vote of a majority of the members of the Board
of Directors then in office. Any officer appointed by another officer may be
removed with or without cause by such officer or the Chief Executive Officer.
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SECTION 5.5. VACANCIES. A vacancy in any office (whether the officer
vacating such office was elected by the Board of Directors or appointed by
another officer) may be filled for the unexpired portion of the term by the
Board of Directors or, in the case of offices held by officers who may be
appointed by other officers, by any officer authorized to appoint such officer.
SECTION 5.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
have such powers and perform such duties as may be provided for herein and as
may be incident to the office and as may be assigned by the Board of Directors.
SECTION 5.7. CHIEF EXECUTIVE OFFICER. Unless another person has been
specifically elected Chief Executive Officer by the Board of Directors, and/or
in the event of a vacancy in the office of Chief Executive Officer, the Chairman
of the Board shall also serve as the Chief Executive Officer of the Corporation
with all powers and authority incident to the office of Chief Executive Officer,
and thereafter, at such time as the Board of Directors shall determine, the
Chief Executive Officer shall be such person as the Board of Directors may from
time-to-time thereafter elect. The Chief Executive Officer may only be elected
by the Board of Directors and may not be appointed by any officer of the
Corporation. The Chief Executive Officer shall be responsible for carrying out
the policies adopted by the Board of Directors.
SECTION 5.8. PRESIDENT. The President shall have general supervision of
the business of the Corporation and shall perform such other duties as may be
assigned by the Board of Directors.
SECTION 5.9. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have the custody and operation of the accounting books and records of the
Corporation and shall perform all acts incident to the position of Chief
Financial Officer, subject to the control of the Board of Directors.
SECTION 5.10. VICE PRESIDENT. Each Vice President shall have such
powers and perform such duties as may be provided for herein and as may be
assigned by the Chief Executive Officer, or the Board of Directors.
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SECTION 5.11. TREASURER. The Treasurer shall have charge of all funds
of the Corporation and shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors.
SECTION 5.12. SECRETARY. The Secretary shall keep the minutes, and give
notices, of all meetings of stockholders and directors and of such committees as
directed by the Board of Directors. The Secretary shall have charge of the
minute books, share records and seal of the Corporation, and such other books
and papers as the Board of Directors may require. The Secretary or any Assistant
Secretary is authorized to certify copies of extracts from minutes and of
documents in the Secretary's charge and anyone may rely on such certified copies
to the same effect as if such copies were originals and may rely upon any
statement of fact concerning the Corporation certified by the Secretary or any
Assistant Secretary. The Secretary shall perform all acts incident to the office
of Secretary, subject to the control of the Board of Directors.
SECTION 5.13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant
Secretaries and Assistant Treasurers shall have such powers and perform such
duties as usually pertain to their respective offices and as may be assigned by
the Board of Directors or an officer designated by the Board of Directors.
SECTION 5.14. COMPENSATION OF OFFICERS. The officers of the Corporation
shall receive such compensation for their services as the Board of Directors may
determine. The Board of Directors may delegate its authority to determine
compensation to designated officers of the Corporation.
SECTION 5.15. EXECUTION OF INSTRUMENTS. Checks, notes, drafts, other
commercial instruments, assignments, guarantees of signatures and contracts
(except as otherwise provided herein or by law) shall be executed by the
Chairman of the Board, Chief Executive Officer, President, any Vice President or
such officers or employees or agents as the Board of Directors or any of such
designated officers may direct.
SECTION 5.16. MECHANICAL ENDORSEMENTS. The Chief Executive Officer, the
Chairman, the President, any Vice President or the Secretary may authorize any
endorsement on behalf of the
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Corporation to be made by such mechanical means or stamps as any of such
officers may deem appropriate.
SECTION 5.17. APPOINTMENT OF OFFICERS AND AGENTS. The Chief Executive
Officer may appoint one or more Vice Presidents and such other officers,
assistant officers and agents as the Chief Executive Officer may determine. Any
such officers, assistant officers or agents so appointed shall perform such
duties and have such powers as from time to time may be delegated by the Chief
Executive Officer, and, unless the Chief Executive Officer otherwise directs,
such appointed officers and assistant officers shall perform such duties as are
generally performed by officers or assistant officers with equivalent
restrictions, if any, on title and shall have such other powers as may from
time-to-time be delegated by the Board of Directors.
SECTION VI
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION PROVISIONS IN CERTIFICATE OF
INCORPORATION. The provisions of this Section VI are intended to supplement
Article VI of the Certificate of Incorporation pursuant to Sections 6.2 and 6.3
thereof. To the extent that this Section VI contains any provisions inconsistent
with said Article VI, the provisions of the Certificate of Incorporation shall
govern. Terms defined in such Article VI shall have the same meaning in this
Section VI.
SECTION 6.2. INDEMNIFICATION OF EMPLOYEES. The Corporation shall
indemnify and advance expenses to its employees to the same extent as to its
directors and officers, as set forth in the Certificate of Incorporation and in
this Section VI of the Bylaws of the Corporation.
SECTION 6.3. UNDERTAKINGS FOR ADVANCES OF EXPENSES. If and to the
extent the Delaware General Corporation Law requires, an advancement by the
Corporation of expenses incurred by an indemnitee pursuant to clause (iii) of
the last sentence of Section 6.1(b) of the Certificate of Incorporation
(hereinafter an "advancement of expenses") shall be made only upon delivery to
the Corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of
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such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under Article VI of the Certificate of
Incorporation or otherwise.
SECTION 6.4. CLAIMS FOR INDEMNIFICATION. If a claim for indemnification
under Section 6.1 of the Certificate of Incorporation is not paid in full by the
Corporation within sixty (60) days after it has been received in writing by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty (20) days, the indemnitee may
at any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expense of prosecuting or defending such suit. In any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses only upon a final adjudication that,
the indemnitee has not met the applicable standard of conduct set forth in
Section 145 of the Delaware General Corporation Law (or any successor provision
or provisions). Neither the failure of the Corporation (including the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in Section 145 of the Delaware General
Corporation Law (or any successor provision or provisions), nor an actual
determination by the Corporation (including the Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
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indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to have or retain such
advancement of expenses, under Article VI of the Certificate of Incorporation or
this Section VI or otherwise, shall be on the Corporation.
SECTION 6.5. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, trustee, officer, employee or agent
of the Corporation or another enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
SECTION 6.6. SEVERABILITY. In the event that any of the provisions of
this Section VI (including any provision within a single section, paragraph or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
SECTION VII
MISCELLANEOUS
SECTION 7.1. SEAL. The Corporation shall have a suitable seal,
containing the name of the Corporation. The Secretary shall be in charge of the
seal and may authorize one or more duplicate seals to be kept and used by any
other officer or person.
SECTION 7.2. WAIVER OF NOTICE. Whenever any notice is required to be
given, a waiver thereof in writing, signed by the person or persons entitled to
the notice, whether before or after the time stated therein shall be deemed
equivalent thereto. 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.
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SECTION 7.3. VOTING OF STOCK OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board, the President,
any Vice President or such officers or employees or agents as the Board of
Directors or any of such designated officers may direct. Any such officer may,
in the name of and on behalf of the Corporation, take all such action as any
such officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may from time to time confer like powers upon any other
person or persons.
SECTION VIII
AMENDMENT OF BYLAWS
The Board of Directors, by the affirmative vote of a majority of the
whole Board of Directors, shall have power to amend, alter, change, adopt or
repeal the Bylaws of the Corporation at any regular or special meeting;
provided, however, that the stockholders entitled to vote may prescribe that any
Bylaw adopted by the stockholders may not be amended, altered, changed or
repealed by the Board of Directors. The stockholders entitled to vote also shall
have the power to amend, alter, change, adopt or repeal the Bylaws of the
Corporation at any annual or special meeting subject to the requirements of the
Certificate of Incorporation.
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EXHIBIT 10.5
License and Services Agreement dated as of December 19, 1997, between Medirisk
of Illinois, Inc. and HEALTHSOUTH Corporation
<PAGE> 2
[MEDIRISK LOGO]
FORMATIONS(SM) CLINICAL OUTCOMES SYSTEMS
LICENSE AND SERVICES AGREEMENT
THIS LICENSE AND SERVICES AGREEMENT is made and entered into as of the
19th day of December 1997, by and between MEDIRISK OF ILLINOIS, INC., an Indiana
corporation ("Medirisk"), and HEALTHSOUTH CORPORATION, a Delaware corporation
("Licensee").
BACKGROUND:
Medirisk has developed proprietary systems (collectively, the
"Systems," as more particularly hereinafter defined), whereby Medirisk compiles
and analyzes various types of information supplied to Medirisk by its customers
concerning the healthcare-related services and programs offered by each such
customer, and provides to each such customer reports and other materials which
allows the customer to compare the efficiency and effectiveness of the outcome
of its services and programs against national norms and/or its own performance
at its various facilities. Licensee desires to license from Medirisk for its use
certain products and services which constitute or are a part of the Systems. In
addition, as a material inducement to Licensee to enter into this Agreement,
Medirisk represents and warrants to Licensee that the Systems have been
determined by the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO") to meet the initial criteria for inclusion in JCAHO's future
accreditation process and have been included in JCAHO's initial list of
acceptable clinical performance measurement systems for use in meeting JCAHO
accreditation requirements for healthcare organizations. Medirisk is committed
to meeting future criteria established by JCAHO in this regard. JCAHO requires
that organizations seeking JCAHO accreditation select clinical performance
measures that together represent at least 20% of the organization's identified
patient population, and that in future years the requirements for the number of
measures and the percentage of the represented population will increase.
Medirisk has created various Performance Measures (the "Measures") which
correspond to the Instruments (as hereinafter defined) that comprise the
Systems. Licensee desires to obtain JCAHO accreditation for each of its
Applicable Facilities (as hereinafter defined), and to use one or more of the
Measures for clinical performance measurement purposes in this regard.
Medirisk acknowledges that due to Licensee's size and the volume and
breadth of services which Medirisk has previously provided to Licensee, Licensee
and Medirisk have been and will continue to be in a unique client-provider
relationship. In this regard, the overall scope of services to be performed for
Licensee are also unique to Licensee, and the parties have entered into the
attached Statement of Work to better describe the undertakings of both parties
under this Agreement.
NOW, THEREFORE, for and in consideration of the mutual undertakings of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1.0 DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings given thereto:
1.1 APPLICABLE FACILITY. The term "Applicable Facility" shall
refer to each facility of Licensee for which a completed and fully
signed Facility Enrollment Confirmation has been submitted to Medirisk.
1.2 APPLICABLE INSTRUMENT. The term "Applicable Instrument" shall
refer to each Clinical Ratings Instrument which comprises a portion of
the Selected System and which has been identified in the Facility
Enrollment Confirmation in question to be available for use at the
corresponding Applicable Facility.
<PAGE> 3
1.3 CERTIFICATION PROGRAM. The term "Certification Program" shall
collectively refer to the training program controlled and managed by
Medirisk and used only for Medirisk's purposes, that purpose being to
ensure that the Systems' Instruments and rating guidelines are
understood and uniformly applied by Licensee's Certified Raters.
1.4 CERTIFIED RATERS. The term "Certified Raters" shall have the
meaning given thereto in Section 8.2 hereof.
1.5 CLINICAL RATINGS INSTRUMENTS. The term "Clinical Rating
Instruments" shall collectively refer to a method for monitoring and
rating patient conditions in facility or home treatment programs and
encompasses Instruments which, as indicated in Section 2.0 hereof, may
or may not be proprietary to Medirisk.
1.6 DATA COLLECTION FORMS. The term "Data Collection Forms" shall
collectively refer to the optical scan sheets designed by Medirisk for
use by Licensee's Certified Raters to document and submit data to
Medirisk for compilation and analysis.
1.7 EFFECTIVE DATE. The "Effective Date" of this Agreement shall
be the date first set forth above.
1.8 FACILITY ENROLLMENT CONFIRMATION. The term "Facility
Enrollment Confirmation" shall refer to the confirmation document to be
prepared by Medirisk following submission by Licensee of each Facility
Enrollment Form (with respect to the particular facility of Licensee
referenced therein) and to then be signed by representatives of
Licensee's corporate office and of the facility, respectively, and
returned to Medirisk, all as more particularly set forth in Section 2.3
hereof.
1.9 FACILITY ENROLLMENT FORM. The term "Facility Enrollment Form"
shall refer to the form to be provided by Licensee to Medirisk pursuant
to Section 2.3 hereof, indicating, among other things, Licensee's
selection of: (i) each particular facility of Licensee to be covered
under the license granted hereunder; (ii) which Clinical Ratings
Instruments comprising a portion of the Selected System are to be
available for use at such facility; and (iii) which certification
program offered by Medirisk is to be provided to the personnel at such
facility for each such Instrument. The form of the Facility Enrollment
Form is attached hereto as Exhibit "A".
1.10 FACILITY OUTCOMES REPORT. The term "Facility Outcomes Report"
shall collectively refer to reports based on Medirisk's compilation and
analysis of Licensee's facility(ies) data and comparison of such data
with National Norms for use by Licensee's facility(ies) in evaluating
program efficiency and effectiveness.
1.11 INSTRUMENTS. The term "Instruments" shall collectively refer
to instruments of measurement utilized to provide outcomes measurements
and reports, including without limitation those instruments referred to
in Section 7.1 hereof. Each such instrument may be individually
referred to as an "Instrument."
1.12 JCAHO. The term "JCAHO" shall refer to the Joint Commission on
Accreditation of Healthcare Organizations.
1.13 MEASURES. The term "Measures" shall collectively refer to the
list of Medirisk Performance Measures attached to Exhibit "B" to this
Agreement.
1.14 NATIONAL DATABASE OF OUTCOMES DATA. The term "National
Database of Outcomes Data" shall collectively refer to the compilation
of data contributed to Medirisk by its various licensees' facilities
across the United States.
1.15 NATIONAL NORMS. The term "National Norms" shall refer to
Medirisk's compilations of industry norms derived from the National
Database of Outcomes Data and other sources.
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1.16 PERFORMANCE MEASURE DESIGNATION. The term "Performance Measure
Designation" shall refer to the form to be provided by Licensee to
Medirisk pursuant to Section 12.1 hereof, indicating Licensee's
selection of the initial Measures to be used at each Applicable
Facility. The form of the Performance Measure Designation is attached
hereto as Exhibit "B".
1.17 RATER CANDIDATE. The term "Rater Candidate" shall have the
meaning given thereto in Section 8.1 hereof.
1.18 SELECTED MEASURES. The term "Selected Measures" shall have the
meaning given thereto in Section 12.1 hereof.
1.19 SELECTED SYSTEM. The term "Selected System" shall collectively
refer to those Clinical Rating Instruments indicated in the Statement
of Work as having been selected by Licensee for licensing hereunder, as
well as those other parts of the Systems appurtenant thereto.
1.20 STATEMENT OF WORK. The term "Statement of Work" shall refer to
that certain Statement of Work between the parties attached hereto as
Attachment "A."
1.21 SYSTEMS. The term "Systems" shall refer to the FORMATIONS(SM)
Clinical Outcomes Systems, which collectively include the Clinical
Rating Instruments, Training Manuals, Certification Programs, Data
Collection Forms, data analysis programs, Facility Outcomes Reports,
optional custom reports, National Database of Outcomes Data and
National Norms.
1.22 TRAINING MANUALS. The term "Training Manuals" shall
collectively refer to all training materials, including but not limited
to, material explaining the use of the Clinical Rating Instruments
included in the Systems.
2.0 LICENSE.
2.1 GRANT OF LICENSE. Medirisk hereby grants to Licensee a
limited, nonexclusive, nontransferable world-wide license to use the
Selected System (i) solely for Licensee's internal purposes in
connection with outcomes measurements, reporting and profiling as
defined in this Agreement, and (ii) for the license fees and upon the
additional terms hereinafter set forth.
2.2 DISCLAIMER. Medirisk owns all rights in and to the
Instrumental Activities of Daily Living ("IADL") and Comorbid Disease
Status Instruments, as well as in and to the General Rehabilitation,
Medical and Orthopedic Outcomes Instruments. Notwithstanding the
foregoing, no claim of rights is made to the functional independence
measure or the Rancho Los Amigos Level of Cognitive Function Instrument
Rating. It is hereby agreed between the parties that nothing within the
scope of this Agreement and license shall be deemed a claim of
proprietary rights in, or a grant of license to Licensee by Medirisk
to, the functional independence measure or the Rancho Los Amigos Level
of Cognitive Function Instrument Rating. Notwithstanding the foregoing,
Medirisk agrees that it shall indemnify and hold Licensee harmless from
and against any liability of Licensee arising out of any assertion that
Licensee's utilization of the Selected System hereunder violates the
proprietary rights of any third party.
2.3 SCOPE OF LICENSE. This Agreement and license shall extend to
each of Licensee's facilities for which Licensee (i) pays a license fee
as required in Section 4.1 hereof and (ii) provides Medirisk with a
completed Facility Enrollment Confirmation signed by both a
representative of Licensee's corporate office and a representative of
the facility. The Facility Enrollment Confirmation for a particular
facility shall be prepared by Medirisk and sent to Licensee for review
and signature after Medirisk has received from Licensee the completed
Facility Enrollment Form for such facility, and shall set forth all of
the pertinent information disclosed in the Facility Enrollment Form for
such facility. The completed Facility Enrollment Form shall indicate
which Clinical Ratings Instruments that are a part of the Selected
System are to be available for use at such facility, as well as such
other information as may be requested in the form. Should Licensee
subsequently wish to extend this Agreement and license to apply to
additional facilities of Licensee, Licensee shall pay the license fee
per Applicable Facility as required in Section 4.1 hereof, provide
Medirisk with a completed Facility Enrollment Form for each such
additional facility, and have the resulting Facility Enrollment
Confirmation reviewed, executed and returned to Medirisk.
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2.4 DUTY NOT TO DISCLOSE. Licensee shall not transfer, provide or
disclose to any third party, or allow its employees or agents to
transfer, provide or disclose to any third party, any Training Manual
or form provided to it by Medirisk under the license granted herein.
Licensee shall not copy (whether by means of photocopying or otherwise)
any Training Manuals or forms. The foregoing restrictions shall not
apply where compliance with the order of a judicial or administrative
authority requires such items to be so disclosed, provided that in such
event Licensee shall provide Medirisk with prompt written (or if not
practicable to do so, oral) notice of such action so that Medirisk may
seek to obtain an appropriate protective order.
2.5 SOURCE ACKNOWLEDGMENT. If Licensee or any facility or employee
thereof reproduces or otherwise uses, in any document prepared by
Licensee, for any purpose, excerpts or data from Facility Outcomes
Reports or custom reports or analysis provided by Medirisk to Licensee,
including but not limited to purposes of marketing, contracting, public
relations, or any other external purpose, Licensee shall in such
document expressly acknowledge and disclose Medirisk as the source of
such information by inserting the following language in a conspicuous
location in said document(s): "Certain data reproduced herein has been
compiled and analyzed by Medirisk of Illinois, Inc., in connection with
the author's utilization of the FORMATIONS(SM) Clinical Outcomes
Systems."
2.6 ASSIGNMENT. Neither party may assign, transfer, sell, donate,
pledge as security, license or sublicense this Agreement or any of its
rights or obligations hereunder, in whole or in part, by operation of
law or change in control of such party or otherwise, other than to an
affiliate thereof, without the prior written consent of the other party
hereto; provided, however, that the foregoing restrictions on pledging
as security and change in control shall not apply to Medirisk. Licensee
may not rent, sublease, sell, loan, or otherwise transfer all or any of
the System, except as expressly provided in this Agreement.
2.7 SURVIVABILITY OF CERTAIN OBLIGATIONS. The obligation of
Licensee under Sections 2.4, 2.5 and 2.6 hereof shall survive and
remain binding upon Licensee after the termination of this Agreement.
3.0 TERM.
3.1 INITIAL TERM OF AGREEMENT. This Agreement shall have an
initial term of three (3) years, commencing 1January 1998 and expiring
31 December 2000. The foregoing expiration date shall apply to all
Applicable Facilities, without extension (other than renewal as
hereinafter set forth), whether currently or subsequently enrolled and
regardless of the date Licensee submits a completed and fully signed
Facility Enrollment Confirmation for such facility.
3.2 RENEWAL TERMS. This Agreement shall automatically renew for
successive terms of one (1) year each upon the expiration of the
initial or any renewal term hereof unless written notice of nonrenewal
is given by either party to the other not less than ninety (90) days
prior to the initial expiration or applicable renewal date. Upon not
less than one hundred fifty (150) days' written notice given prior to
the initial expiration or any applicable renewal date of this
Agreement, Medirisk may increase any of the fees and/or charges payable
hereunder to those set forth in such notice, effective upon such
initial expiration or renewal date, and should Licensee not find such
increase(s) acceptable, Licensee may elect not to renew this Agreement
by following the procedure set forth in this Section 3.2.
3.3 RETURN OF LICENSED ITEMS. Upon the expiration of this
Agreement (or earlier termination hereof for any reason), Licensee
shall, within ten (10) days after the date of expiration or termination
and receipt of a written request from Medirisk, certify to Medirisk in
writing that all unused Data Collection Forms and Training Manuals such
items have been destroyed and that Licensee retains none of such
materials or copies therof.
4.0 LICENSE FEES AND OTHER PAYMENTS.
4.1 LICENSE FEES. Licensee agrees to pay the annual license fees
for the Selected System as set forth in Schedule 1 attached hereto.
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4.2 [Intentionally Omitted.]
4.3 [Intentionally Omitted.]
4.4 [Intentionally Omitted.]
4.5 TAXES. Any sales or excise tax due on the provision of the
Selected System and/or optional products and/or services hereunder to
Licensee shall be the sole responsibility of Licensee.
4.6 PAYMENT. Fees shall be due and payable hereunder as set forth
in Schedule 1 attached hereto. Except with respect to any initial
payments due hereunder, Medirisk shall invoice Licensee for fees due
hereunder not less than thirty (30) days prior to their respective due
dates. Fees not received by such due dates will be considered late and
subject to the late charge set forth in Section 4.7 hereof,
notwithstanding the 30-day grace period set forth therein. With respect
to any other payments due to Medirisk hereunder, payment terms are net
thirty (30) days from the date of the invoice unless otherwise agreed
upon in writing by Medirisk.
4.7 LATE CHARGES. If Licensee fails to pay any amount when due and
payable, and any such amount due remains outstanding for more than ten
(10) days after written notice of nonpayment by Medirisk to Licensee,
Licensee agrees that any amount not paid shall bear interest from the
original due date until paid at the lesser of one and one-half (1.5%)
percent per month or the highest rate allowed by applicable law. This
late payment charge will not apply to any unpaid amounts relating
directly to a good faith dispute between Medirisk and Licensee.
However, such disputes shall not permit Licensee to withhold or offset
any payments not directly related to the invoice or amount in dispute,
except with respect to any amounts which Licensee may have
inadvertently overpaid to Medirisk.
5.0 DISCLAIMER OF WARRANTIES. Licensee recognizes and acknowledges that the
data contained in the National Database of Outcomes Data is collected from
sources believed to be reliable, and that, although Medirisk believes the data
to be accurate, MEDIRISK MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY TYPE
CONCERNING THE SYSTEM, ITS CONSTITUENT PARTS OR ANY OTHER PRODUCTS OR SERVICES
OFFERED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Notwithstanding the foregoing, Medirisk warrants that, assuming submission of
materially complete and materially error-free data to Medirisk by Licensee, the
work product prepared by Medirisk hereunder will be materially error-free.
6.0 LIMITATION OF LIABILITIES. In no event shall Medirisk's liability for
any direct damages, regardless of the form of action, exceed two and one-half
(2.5) times the fee paid by Licensee hereunder for use of the System. Under no
circumstances shall Medirisk be liable for incidental, consequential, special or
exemplary damages of any kind, or for lost profits arising out of the use or
inability to use the System, even if such damages were foreseeable at the time
of execution of this Agreement. Notwithstanding the foregoing, there shall be no
limitation of liability for damages caused by or arising out of (i) Medirisk's
failure to maintain the confidentiality of Licensee's data as set forth in
Section 9.5 hereof, or (ii) the indemnification obligation of Medirisk set forth
in Section 2.2 hereof (concerning proprietary rights).
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7.0 PROPRIETARY INFORMATION.
7.1 THE SYSTEMS. The Systems are proprietary to Medirisk and is
provided under license and subscription to healthcare facilities
whereby each facility's staff are trained and certified in the use of
Clinical Rating Instruments for monitoring patient conditions. Medirisk
provides its licensees with Facility Outcomes Reports for use in
evaluating program effectiveness and efficiency and comparison of those
results to like programs and patient populations. The Systems include
the following Instruments (the Comorbid Disease Status Instrument
comprising a part of every Instrument; General Rehabilitation Outcomes
Instruments; and the functional independence measure instrument
comprising a part of the Medical and General Rehabilitation Outcomes
Instruments):
(A) Medical Outcomes: Consisting of Rehabilitation (functional
independence measure, IADL, and Rancho Los Amigos Level of Cognitive
Function Instrument Rating), Infection, Nutrition, Pain Treatment,
Respiratory Treatment and Wound Treatment Instruments; and
(B) General/Customized Rehabilitation Outcomes.
7.2 MEDIRISK UPDATE AND MODIFICATION. Medirisk expressly retains
the right, in its sole discretion, to update or modify any of its
proprietary Instruments or the Systems at any time and provide Licensee
with written notice of such update or modification. Should Medirisk
deem it appropriate, Medirisk will provide Licensee's facility(ies)
with appropriate documentation and support material and/or
re-certification workshops for all Certified Raters using said
Instruments or Systems at no cost to Licensee, if said update or
modification occurs during the first eighteen (18) months of the term
hereof. In the event that the System as so updated or modified (i) is
no longer materially suitable for use by Licensee or (ii) would result
in out-of-pocket training and/or re-certification expenses in excess of
$100,000.00, then, upon not less than sixty (60) days written notice to
Medirisk, Licensee may terminate this Agreement without penalty.
7.3 MODIFICATION BY LICENSEE. Licensee may not modify, reformat,
manipulate, translate, adapt or reverse engineer the Systems or any
component or constituent part thereof for any purpose, or rent,
sublease, sell, loan, or otherwise transfer all or any of the Systems,
except as expressly provided in this Agreement.
8.0 CERTIFICATION PROGRAM GUIDELINES. The Certification Program is designed
to ensure that staff employed by Licensee at its Applicable Facilities
adequately understand and uniformly apply to the Instruments and rating
guidelines so that Licensee's data is internally consistent and Licensee's
gathering of data is consistent with the gathering of data by other licensees of
Medirisk and thereby eligible for entry into the National Database of Outcomes
Data. The Certification Program is controlled and managed solely by Medirisk for
the purposes and anticipated results as Medirisk may in its sole discretion deem
appropriate. Licensee acknowledges that no authority other than Medirisk, either
public or private, mandates or supervises the Certification Program. Licensee
agrees to participate in the Certification Program and take all steps required
thereby. Licensee may use a different certification system only after it has
been submitted to Medirisk in writing, and Medirisk, in its sole discretion, has
approved the proposed alternative in writing. Until any alternative is approved
by Medirisk and authorized in writing, Licensee agrees to conform to the
Certification Program.
8.1 CANDIDATES FOR THE CERTIFICATION PROGRAM. No person other than
a Rater Candidate may become certified to rate patients without the
written consent of Medirisk. The term "Rater Candidate" shall refer to
any member of Licensee's staff at an Applicable Facility who holds one
of the positions designated below for the indicated Applicable
Instrument(s):
(A) Medical Outcomes Instruments: Registered Nurse
("RN"), Licensed Practical Nurse under direct
supervision of an RN ("LPN"), physician or
Respiratory Therapist.
(B) Functional independence measure, IADL, Rancho Los
Amigos Level of Cognitive Function Instrument Rating,
and General Rehabilitation Outcomes Instrument:
Licensed Physical Therapist ("PT"), Licensed
Occupational Therapist ("OTR"), Licensed Therapy
Assistant ("TA"), Licensed Speech Pathologist ("SP"),
RN, LPN, psychologist or social worker.
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8.2 MEDIRISK CLINICAL RATER. A Rater Candidate who has passed the
Certification Program agreed to by the parties with respect to a
particular Instrument, is a Certified Clinical Rater as to that
Instrument.
8.3 CERTIFICATION PROGRAM OPERATION. See Statement of Work.
8.4 MEDIRISK'S CERTIFICATION STANDARD. To become a Certified
Clinical Rater, a Rater Candidate must correctly answer a minimum of
eighty (80%) percent of all questions comprising Medirisk's
certification test. A Rater Candidate must be separately tested for
each Instrument selected by Licensee in Schedule 1.
9.0 DATA SUBMISSION.
9.1 DATA SUBMISSION SCHEDULE. Licensee shall submit data to
Medirisk within ten (10) days after the end of the monthly
data-gathering period. Licensee recognizes that failure to provide data
in a timely manner will interfere with Medirisk's ability to provide
Licensee with timely reports and will neither interrupt Medirisk's
invoicing cycle or Licensee's corresponding payment obligations, nor
extend the term of this Agreement. Further data submission requirements
are set forth in the Statement of Work.
9.2 DATA SUBMISSION VEHICLE. All data submission will in the HCIS
(or successor software system) format (see Statement of Work).
9.3 DATA SUBMISSION FORMAT. Licensee shall ensure that all data
fields are complete for each patient rating and submission. Licensee
acknowledges that incomplete or inaccurate data may skew reports. If
Medirisk's data error process indicates that data is incomplete or
inaccurate, Licensee may be requested to provide additional data;
failure of Licensee to timely submit such data may result in a delay in
the production of applicable reports, which delay shall not be
actionable by Licensee. In order to facilitate data submission,
Licensee agrees to assign a staff member at each facility to the role
of Data Collection Coordinator with respect to Medirisk. This staff
member shall have primary responsibility for, and primary contact with
Medirisk regarding, data submission. Licensee agrees to provide the
name, telephone, and fax numbers of each such person to Medirisk via
each completed Facility Enrollment Form. Licensee agrees to reassign
this responsibility to another staff member, when appropriate, and to
use good faith efforts to promptly inform Medirisk of each such change.
Medirisk shall likewise identify to each Data Collection Coordinator
his or her primary contact at Medirisk, along with such person's
telephone and fax numbers.
9.4 DATA INTEGRITY. Licensee shall ensure, and hereby warrants,
that:
(A) facility patients will be asked to complete
questionnaires and all data collected by Licensee
will be collected by Certified Raters in accordance
with the written protocol set forth in the Training
Manual;
(B) data will be collected on all patients who are in a
treatment program pertinent to each Applicable
Instrument for each Applicable Facility;
(C) no data will be intentionally falsified or distorted
for any reason; and
(D) Certified Raters will enter their own identification
number for each patient rating and data will be
accepted only if taken by Certified Raters.
9.5 DATA CONFIDENTIALITY; PERMITTED DISCLOSURES AND USE OF DATA.
Medirisk shall maintain a copy of all data collected from the
Applicable Facilities, unless otherwise requested in writing by
Licensee, and shall maintain the confidentiality of such data. Such
data shall include, without limitation, information obtained by
Medirisk as a result of the follow-up telephone surveys with patients
which may be conducted by Medirisk as discussed in the Statement of
Work, or similar inquiries performed by Medirisk. All data collected
from the Applicable Facilities, as well as the results set forth in any
report prepared by Medirisk for Licensee using such data, shall be and
remain the confidential property of Licensee. Notwithstanding the
foregoing, Licensee agrees that any data which it submits to Medirisk,
or which
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Medirisk otherwise obtains from or on behalf of Licensee, may be
entered into the National Database of Outcomes Data, at Medirisk's
discretion, and that Medirisk may use and/or otherwise provide data to
third parties from the National Database of Outcomes Data, at
Medirisk's discretion; provided, however, that Medirisk may only
disclose such data to third parties in a fashion that does not reveal
the identity of the individual patient or facility which provided such
data, except to research organizations or consultants pursuant to a
data utilization confidentiality or similar agreement to which Medirisk
and any such research organization or consultant are parties, and in
such case the name of the patient and facility will either be omitted
or encrypted. Pursuant to the terms of such data utilization
confidentiality agreement, such research organizations and consultants
will generally be prohibited from further disclosing the identities of
individual facilities and patients, subject to such exceptions
permitting limited disclosure as Medirisk in its reasonable discretion
may negotiate with such research organizations or consultants. Licensee
will request a release from each patient for such actions, including an
acknowledgment and consent by the patient that he or she may be the
subject of a follow-up telephone survey(s), and that he or she will
cooperate in providing the requested information; provided, however,
that nothing in this Agreement or otherwise shall require a patient to
so consent nor shall the failure of one or more patients to so consent
be deemed a default by Licensee hereunder. A form of suggested language
to incorporate into such a release is attached hereto as Schedule 3;
provided, however, that Medirisk's provision of this language to
Licensee is and shall be expressly subject to the disclaimer set forth
in said Schedule. Licensee shall indemnify, defend and hold Medirisk
harmless from and against any third party claim, demand, suit or
actions brought at any time with regard to Medirisk's use of such data
in accordance with the terms and provisions of this Agreement. Medirisk
shall indemnify, defend and hold Licensee harmless from and against any
third party claim, demand, suit or actions brought at any time with
regard to Medirisk's use of such data which is not in accordance with
the terms and provisions of this Agreement. Medirisk's and Licensee's
indemnification and defense obligation as herein set forth shall
survive and remain respectively binding upon them after the termination
of this Agreement for any reason.
10.0 OUTCOMES REPORTS. Medirisk shall provide reports as set forth in the
Statement of Work.
11.0 SUPPORT AND CONSULTATION. Medirisk shall provide Licensee with support
and consultation as set forth in the Statement of Work.
12.0 JCAHO.
12.1 SELECTED PERFORMANCE MEASURES. Licensee shall complete a
Performance Measure Designation for each Applicable Facility and submit
it to Medirisk and shall therein designate the two (2) Measures
indicated therein as the initial clinical performance measures for
JCAHO accreditation of such Applicable Facility (the "Selected
Measures"). Licensee acknowledges that the number of Selected Measures
and the percentage of patients that they represent will need to
increase each calendar year over the term of the Agreement for JCAHO
accreditation to be maintained. Accordingly, future additional
designations of Selected Measures will be made by Licensee as required
for JCAHO accreditation purposes and will be communicated to Medirisk
in a timely fashion in a written format reasonably acceptable to
Medirisk.
12.2. SUBMISSION OF DATA TO JCAHO. Licensee hereby designates
Medirisk as its agent to submit performance measurement data to JCAHO
on behalf of the Applicable Facilities with respect to the Selected
Measures. Medirisk will comply with all JCAHO "ORYX" criteria to
transmit performance measurement data to JCAHO on behalf of the
Applicable Facilities on a calendar-quarterly basis. Such timely
submission to JCAHO is dependent upon each Applicable Facility
submitting its data to Medirisk on a calendar-monthly basis not later
than the tenth (10th) day of the following month. The initial period
for which data will be transmitted to JCAHO by Medirisk shall be the
third quarter of 1998, and such transmission will occur during the
first quarter of 1999.
12.3 FEE. [Intentionally Omitted.]
12.4 CONFIDENTIALITY. Licensee agrees that any restrictions on
disclosure of patient information by Medirisk set forth in this
Agreement or otherwise shall not be applicable to submission of the
subject data to JCAHO by Medirisk.
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12.5 LICENSEE RESPONSIBILITIES AND LIMITATION OF LIABILITY.
Licensee acknowledges that Licensee's seeking and obtaining JCAHO
accreditation of the Applicable Facilities is a matter solely between
Licensee and JCAHO. In such regard Licensee is solely responsible for
obtaining and supplying clinical performance measurement data directly
to the JCAHO-approved vendor it selects, with such vendor to then
transmit such data to JCAHO in accordance with instructions received
from Licensee. Licensee is solely responsible for informing JCAHO in a
timely fashion of its selection of both its vendor of choice and the
clinical performance measures selected. Medirisk is acting only as an
agent of Licensee in receiving such data directly from Licensee and
then submitting such data to JCAHO on behalf of, and as selected and
directed by, Licensee. Absent appropriate instructions from Licensee
Medirisk will neither submit data to JCAHO nor have any obligation to
do so. Timely submission of subject data by Medirisk to JCAHO is
dependent upon each Applicable Facility submitting its complete
error-free data to Medirisk in a timely fashion and in an appropriate
format, and Medirisk shall have no liability to Licensee or any other
party for any delay or failure in submissions to JCAHO resulting from
an Applicable Facility not supplying its data to Medirisk as and when
required. Licensee shall indemnify, defend and hold Medirisk harmless
from any and all liability resulting from Medirisk's submission of data
to JCAHO as directed by Licensee in accordance with this Agreement,
including without limitation any and all liability resulting from or
arising out of any claim that such submission of data violated the
privacy rights of any patient of Licensee.
13.0 DEFAULT. Either party has the right to terminate this Agreement,
without penalty to the terminating party, if the other party is in default
hereunder as hereinafter set forth. Upon the happening of any default, as
described in provisions (i) through (iv) hereof, the nondefaulting party shall
have all rights and remedies available to it at law and in equity, in addition
to the right to terminate this Agreement under this Section 13.0. In the event
of any termination of this Agreement because of a default by a party hereto,
Licensee shall return the Training Manuals, unused optical scan sheets and all
copies thereof to Medirisk within ten (10) days after receipt of written request
from Medirisk. The respective parties shall be in default under this Agreement
if any of the following occurs:
(I) Licensee shall fail to pay when due all or any portion of any
amount due hereunder, and such amount shall be and remain unpaid for
ten (10) days following written notice of such nonpayment by Medirisk
to Licensee;
(II) A party shall materially breach or violate any of the other
terms or conditions of this Agreement and the same shall continue
thirty (30) days after the other party gives the defaulting party
written notice thereof; provided, however, that if the defaulting party
has been unable to cure such default or violation within such thirty
(30) day period after diligent attempts to do so, such period shall be
extended while such efforts continue and until such cure is effected.
(III) A party shall (i) apply for or consent to the appointment of
or the taking of possession by a receiver, custodian, trustee or
liquidator of itself or all of or a substantial part of its property,
(ii) fail, or admit in writing its failure or inability, or be
generally unable to pay its debts as such become due, (iii) make a
general assessment for the benefit of its creditors, (iv) commence a
voluntary case under the Federal Bankruptcy Code or any similar federal
or state law, or (v) take any corporate action for the purpose of
effecting any of the foregoing; or
(IV) a proceeding or case shall be commenced, without the
application or consent of the party hereto that is the respondent in
such proceeding or case, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, dissolution, winding-up,
or composition or readjustment of debts of such party, (ii) the
appointment of a trustee, receiver, custodian, liquidator, or the like
for such party, of all or any substantial part of its assets, (iii)
similar relief with respect to such party under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition and
adjustment of debts, and such proceeding or case shall continue
undismissed, or any order, judgment or decree approving or ordering any
of the foregoing shall be entered and continued unstayed and in effect,
for a period of thirty (30) days from the commencement of such
proceeding or case, or any order for relief against such party shall be
entered at any time in an involuntary case under the Federal Bankruptcy
Code.
14.0 GENERAL.
-9-
<PAGE> 11
14.1 REFERENCES. Titles and paragraph headings herein are for
reference purposes only. This Agreement contains the entire agreement
of both parties hereto, and supersedes any and all previous oral and
written communications and agreements with respect to the subject
matter hereof. This Agreement shall not be modified or amended without
the written consent of both parties hereto. In the event of any
conflict between the terms and conditions of this Agreement and any
purchase order or other writing of Licensee, the terms of this
Agreement shall control, unless the terms and conditions in such
purchase order or other writing are expressly and specifically agreed
to in writing by an officer of Medirisk. Notwithstanding the foregoing,
in the event of a conflict between the terms of the other portions of
this Agreement and the Statement of Work, the terms of the Statement of
Work shall control.
14.2 WAIVER. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any prior, concurrent or
subsequent breach of the same or any other provision hereof and no
waiver shall be effective unless made in writing. In the event that any
provisions of this Agreement shall be held invalid or otherwise
unenforceable, such provision shall be severed and the remaining
provisions of this Agreement shall continue in full force.
14.3 NOTICE. All notices, demands, requests, or other
communications which may be or are required to be given, served, or
sent by either party to the other party pursuant to this Agreement
shall be in writing and shall be hand delivered (including delivery by
courier so long as a receipt or confirmation of delivery is obtained),
sent by Federal Express or other recognized overnight delivery service,
mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by facsimile transmission
(followed by delivery of the original of such document), addressed as
set forth below. Either party hereto may designate by notice, in the
manner herein above provided, a new address to which any notice,
demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication which shall be
mailed, delivered, or transmitted in the manner described above shall
be deemed sufficiently given, served, sent and received for all
purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, the affidavit of messenger or the
answer back (or, with respect to a facsimile transmission, the report
generated by the transmitting facsimile machine confirming successful
transmission of the facsimile) being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
14.4 FORCE MAJEURE. If either party is unable to perform any of its
obligations hereunder, or is unable to enjoy a benefit hereunder
(including without limitation loss of or failure to provide the
product(s) and/or service(s)), due to any event beyond the reasonable
control of such party, including without limitation weather and all
other Acts of God, war, fire, heat, cold, explosion, flood, power or
telephone failures, acts or omissions of any government or agency
thereof, compliance with requirements, rules, regulations or orders of
any governmental authority or instrumentality thereof, labor
difficulty, supplier failure or delay, civil disorder, or breakdown or
malfunction of machinery, transportation facilities or other equipment
of any nature, then such party's performance shall be excused for the
pendency of such event, but such party shall in good faith use its best
efforts to limit the duration of any such delay.
14.5 GOVERNING LAW. This Agreement is entered into in, and shall be
governed by and construed under, the laws of the State of Georgia.
14.6 ATTORNEYS' FEES. If any sums due and owing under this
Agreement are collected by or with the assistance of legal counsel, or
if a party brings suit of any type against the other party and prevails
in such action, then the losing party shall be liable to the prevailing
party, and shall promptly remit to the prevailing party upon demand,
all of the prevailing party's costs and expenses incurred with respect
thereto, including without limitation court costs and reasonable
attorneys' fees.
14.7 INDEPENDENT CONTRACTOR. The relationship between the parties
established in this Agreement shall be solely that of independent
contractors and does not designate either party as the agent, legal
representative, partner or joint venturer of the other party for any
purpose whatsoever. Neither party is granted any right to create any
obligation or responsibility or make representations, express or
implied, on behalf of or in the name of the other party or to bind the
other party in any matter or thing whatsoever.
-10-
<PAGE> 12
14.8 BINDING AGREEMENT. This Agreement shall be binding upon
Medirisk and its assigns, and Licensee and its permitted successors and
assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands under
seal on the dates indicated.
MEDIRISK OF ILLINOIS, INC. HEALTHSOUTH CORPORATION
BY: /s/ Kenneth M. Goins, Jr. BY: /s/ Robert E. Thomson
----------------------------- -----------------------------
(Signature) (Signature)
NAME: Kenneth M. Goins, Jr. NAME: Robert E. Thomson
----------------------------- -----------------------------
TITLE: Executive Vice President TITLE:
----------------------------- -----------------------------
DATE: 1/20/98 DATE: 12/31/97
----------------------------- -----------------------------
Medirisk of Illinois, Inc. HEALTHSOUTH Corporation
c/o Medirisk, Inc. One HEALTHSOUTH Parkway
Two Piedmont Center, Suite 400 Birmingham, Alabama 35243
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Attention: Contracts Administration Attention: Ms. Susan Sheedy
Tel: (404) 364-6700 Tel: (205) 970-5549
Fax: (404) 364-6703 Fax: (205) 969-4603
With a copy to:
HEALTHSOUTH Corporation
One HEALTHSOUTH Parkway
Birmingham, Alabama 35243
Attention: Legal Services Department
Tel: (205) 969-4508
Fax: (205) 969-4732
-11-
<PAGE> 13
SCHEDULE 1
LICENSE FEES
ANNUAL FEE: $[*] PER PATIENT*
* For up to [*] patients per term-year; in addition, the minimum number of
patients per term-year during the term of this Agreement shall be not less than
[*], and Licensee shall be responsible for payment to Medirisk with respect to
such minimum amount of patients regardless of whether or when such patients are
actually submitted to Medirisk.
For patients in excess of [*] per term-year, the Annual Per-Patient Fee shall be
as set forth in an amendment to this Agreement to be entered into in the near
future.
Payments shall be due and payable quarterly in advance on the first day of each
calendar quarter during the term hereof, based upon an annual submission rate of
[*] patients. Charges for patients in excess of such amount will be invoiced
quarterly in arrears.
A one-time, nonrefundable additional fee of [*] shall be payable for services
rendered to date in anticipation of the work to be performed by Medirisk under
this Agreement and other agreements to be entered into between the parties in
the future. Such fee shall be payable in two (2) equal quarterly installments
due 31 March 1998 and 30 June 1998, respectively.
FOR JCAHO-RELATED MATTERS: The foregoing pricing includes reporting on up to [*]
Selected Measures per Applicable Facility per quarter for Inpatient
Rehabilitation only.
FOR LICENSE OF OTHER MEDIRISK DATA: The foregoing pricing includes a one-year
license in and to the MEDIRISKSM Physician Fee Database (six levels).
* Confidential treatment requested.
Page 1 of 1
<PAGE> 14
SCHEDULE 2
ADDITIONAL SUPPORT COSTS
Consulting services for special projects or reports not included in this
Agreement will be charged at the following hourly rates for the corresponding
level of service: provided, however, that such work may only be requested by
Susan Sheedy or her successor or designee at Licensee:
<TABLE>
<CAPTION>
Level of Service Hourly Rate
---------------- -----------
<S> <C>
Clerical $[*]
Programming $[*]
Professional $[*]
</TABLE>
Routine in-person consultation will be charged on a per diem (or part thereof)
rate of [*], however, in-person consultation by Pam Leiter or other top
executives of Medirisk will be charged on a per diem of [*].
*Confidential treatment requested
REPORTING SCHEDULE
See Statement of Work
-13-
<PAGE> 15
SCHEDULE 3
For purposes of the release to be obtained by Licensee from each of its
patients as required by Section 9.5 of the foregoing Agreement, Licensee may
choose to incorporate language similar to that set forth below under "Sample
Provision" into any release or other document to be signed by the patient as it
may determine appropriate and necessary.
DISCLAIMER: LICENSEE ACKNOWLEDGES THAT THE FOLLOWING SAMPLE RELEASE LANGUAGE IS
PROVIDED BY MEDIRISK MERELY AS A COURTESY TO LICENSEE AND THAT MEDIRISK
DISCLAIMS ANY REPRESENTATION OR WARRANTY AS TO THE EFFECTIVENESS OR SUFFICIENCY
OF THIS PARTICULAR LANGUAGE. LICENSEE IS ADVISED TO CONSULT ITS OWN LEGAL
COUNSEL TO DETERMINE HOW TO SATISFY ITS RELEASE OBLIGATIONS UNDER THE FOREGOING
AGREEMENT. LICENSEE ACKNOWLEDGES AND AGREES THAT THE DECISION TO USE AND INCLUDE
ANY RELEASE LANGUAGE IN ANY DOCUMENT PROVIDED BY LICENSEE TO ITS PATIENTS SHALL
BE SOLELY UNDER THE CONTROL OF LICENSEE AFTER IT HAS OBTAINED REVIEW AND
APPROVAL OF SUCH LANGUAGE AND THE FORM OF ANY RELEASE DOCUMENT FROM ITS LEGAL
COUNSEL. THE FORM OF RELEASE SELECTED BY LICENSEE SHALL NOT BE SUBJECT TO REVIEW
OR APPROVAL BY MEDIRISK. LICENSEE FURTHER ACKNOWLEDGES THAT THE SAMPLE LANGUAGE
SET FORTH BELOW IS INTENDED TO ADDRESS ONLY THE INFORMED CONSENT ISSUES
CONCERNING DISCLOSURE TO, AND THE OBTAINING OF FACILITY AND PATIENT INFORMATION
BY, MEDIRISK UNDER THIS AGREEMENT, AND IS NOT INTENDED AS AN EXCLUSIVE CONSENT
OR RELEASE BY THE PATIENT WITH RESPECT TO ALL ISSUES WHICH MAY BE OF CONCERN TO
LICENSEE AND ITS PROVISION OF CARE TO, OR DISCLOSURE OF INFORMATION WITH RESPECT
TO, ANY PARTICULAR PATIENT.
Sample Provision:
"RELEASE OF INFORMATION TO THIRD-PARTY CONTRACTORS OF [HOSPITAL]; POST-DISCHARGE
FOLLOW-UP CONTACTS. [Patient] hereby authorizes [Hospital] to disclose, orally
and/or in writing, any and all personal information concerning [Patient] which
[Hospital] has or may obtain (including without limitation [Patient]'s name,
address, sex, reason for admission, general nature of injuries, general
condition, diagnosis, symptoms, treatment plans, outpatient tests,
consultations, demographic and functional status) to any third-party contractor
(or agent thereof) of [Hospital] which [Hospital] has contracted to provide
statistical or similar analysis of any type with respect to [Patient] and/or
[Hospital] or any facility(ies) thereof. [Patient] further acknowledges that at
some point after [Patient]'s discharge from [Hospital], such contractor or an
agent thereof may contact [Patient] by telephone or otherwise for purposes of
one or more post-discharge surveys concerning [Patient]'s then-current physical
condition and recovery status, and [Patient] hereby authorizes and consents to
such contact(s) and agrees, on behalf of [Patient] and his or her
representatives, to use his or her best efforts to cooperate in providing any
requested information to such contractor's representative. [Patient] also hereby
acknowledges that any data which it submits to the contractor, or which the
contractor otherwise obtains from or on behalf of [Hospital] concerning
[Patient], may be entered into any general database of the contractor, at said
contractor's discretion, and that said contractor may use and/or otherwise
provide data to third parties from such database, at said contractor's
discretion, so long as said contractor only discloses such data to third parties
in a fashion that does not expressly reveal the identity of [Patient]; provided,
however, that said contractor may reveal the identity of [Patient] to research
organizations or consultants subject to pertinent confidentiality restrictions
to which the contractor and such other parties are bound. [Patient] acknowledges
that such research organizations will generally be prohibited from further
disclosing the identity of [Patient], subject to exceptions permitting further
limited disclosure as may be permitted by the contractor in the exercise of its
reasonable discretion."
Page 1 of 1
<PAGE> 16
EXHIBIT "A"
FACILITY ENROLLMENT FORM
A SEPARATE FORM MUST BE COMPLETED FOR EACH FACILITY TO BE ENROLLED
IN THE FORMATIONS(SM) CLINICAL OUTCOMES SYSTEMS
Licensee Name: HEALTHSOUTH Corporation
Facility Name:
------------------------------------------------
Facility Address:
------------------------------------------------
------------------------------------------------
------------------------------------------------
DATA BASE CATEGORY: LICENSEE MUST DETERMINE HOW EACH FACILITY'S DATA SHOULD BE
CATEGORIZED WITHIN THE MEDIRISK DATABASE. PLEASE SELECT ONE AND ONLY ONE (1) OF
THE FOLLOWING:
<TABLE>
<S> <C>
==========================================================================================================================
[ ] Inpatient: DRG exempt rehabilitation unit in hospital [ ] Inpatient: Free-standing rehabilitation hospital
(If checked, number of beds: __________) (If checked, number of beds: __________)
- --------------------------------------------------------------------------------------------------------------------------
[ ] Hospital-based subacute unit [ ] Hospital-based skilled nursing unit
(If checked, number of beds: __________) (If checked, number of beds: __________)
- --------------------------------------------------------------------------------------------------------------------------
[ ] Skilled nursing facility: Subacute unit [ ] Skilled nursing facility
(If checked, number of beds: __________) (If checked, number of beds: __________)
- --------------------------------------------------------------------------------------------------------------------------
[ ] Contract services company: Subacute care [ ] Contract services company: Skilled care
- --------------------------------------------------------------------------------------------------------------------------
[ ] Home care agency [ ] Outpatient center/hospital-based
- --------------------------------------------------------------------------------------------------------------------------
[ ] Occupational rehabilitation clinic [ ] Outpatient center/nonhospital
- --------------------------------------------------------------------------------------------------------------------------
[ ] Long-Term Acute Care
(If checked, number of beds: __________)
==========================================================================================================================
</TABLE>
Facility Medicare Provider Number (6-DIGIT NUMERIC ONLY): __ __ __ __ __ __
- --------------------------------------------------------------------------------
OUTCOMES REPORTING RECIPIENT FOR FACILITY
Name of Individual:
---------------------------------------------
Title:
---------------------------------------------
Mailing Address (if same as Facility's indicate "Same"):
---------------------------------------------
---------------------------------------------
Phone: ( ) Fax: ( )
--- ------------- --- -------------
- --------------------------------------------------------------------------------
Page 1 of 2
Facility Enrollment Form
<PAGE> 17
- --------------------------------------------------------------------------------
CERTIFICATION COORDINATOR
Name of Individual:
Phone: ( ) Fax: ( )
--- ------------ --- ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATA COORDINATOR
Name of Individual:
Phone: ( ) Fax: ( )
--- ------------ --- ------------
- --------------------------------------------------------------------------------
Anticipated number of discharges per month to be submitted: _________________
- --------------------------------------------------------------------------------
DATA ENTRY METHOD (SELECT ONE):
[ ] Optical Scan Forms [ ] HCIS(TM) Software [ ] Other (explain): _________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPLICABLE OUTCOMES INSTRUMENTS TO BE USED AT FACILITY
(SELECT ALL THAT APPLY):
Inpatient:
[ ] Medical (Hospital) [ ] Medical (Subacute)
[ ] Medical (Skilled Nursing Facility)
(For either of the above, please also indicate which of the following
components will be utilized):
[ ] Rehabilitation [ ] Nutrition [ ]Pain Treatment
[ ] Respiratory Treatment [ ]Wound Treatment
Outpatient:
[ ] Custom Rehabilitation
- --------------------------------------------------------------------------------
================================================================================
FOR MEDIRISK USE ONLY:
Date of Receipt of Form from Facility: _____________________, 199__
Facility ID # _____________________
Commencement date for data collection: _____________________, 199__
APPROVED:
Date:
- ------------------------------------- ------------------------------
Director of Client Services - Chicago
================================================================================
Page 2 of 2
Facility Enrollment Form
<PAGE> 18
EXHIBIT "B"
PERFORMANCE MEASURE DESIGNATION
A SEPARATE FORM MUST BE COMPLETED FOR EACH FACILITY FOR WHICH
DATA IS TO BE SUBMITTED TO JCAHO
Licensee Name: HEALTHSOUTH CORPORATION
Facility Name:
-----------------------------------------------
Facility Address:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
- --------------------------------------------------------------------------------
APPLICABLE PERFORMANCE MEASURES TO BE USED FOR JCAHO ACCREDITATION
(Please indicate selection by inserting the appropriate JCAHO ID Number from the
attached list of Medirisk Performance Measures)*
------------------------- ----------------------------
------------------------- ----------------------------
------------------------- ----------------------------
------------------------- ----------------------------
- --------------------------------------------------------------------------------
================================================================================
FOR MEDIRISK USE ONLY:
Date of Receipt of Form from Facility: _____________________, 199__
Facility ID # _____________________
Commencement date for data submission: _____________________, 199__
APPROVED:
- -------------------------------------
Director of Client Services - Chicago
Date:
-------------------------------
================================================================================
* Facility may not select a Performance Measure for which it is not currently
licensing the corresponding Instrument.
Performance Measure Designation
Page 1 of 1
<PAGE> 19
MEDIRISK PERFORMANCE MEASURES
MEDICAL OUTCOMES SYSTEM - REHABILITATION
<TABLE>
<CAPTION>
JCAHO ID Measure
-------- -------
<S> <C>
2004 Patients' improvement in communication ability
2011 Rehabilitation patients' overall change in mobility
2012 Rehabilitation patients' mobility at discharge
2019 Rehabilitation patients' overall change in communication
2020 Rehabilitation patients' communication at discharge
2029 Rehabilitation patients' overall change in social cognition
2052 Discharge to community relative to database
2059 Rehabilitation patients' social cognition at discharge
2064 Rehabilitation patients' overall change in IADL
2066 Rehabilitation patients' IADL at discharge
2087 Patients' change in sphincter control
2095 Patients' change in mobility independence
2154 Percent of rehabilitation patients who change in IADL
2164 Facility change in IADL
2170 Patients' change in social cognition
2190 Rehabilitation patients' overall change in self-care
2192 Rehabilitation patients' self-care at discharge
2196 Rehabilitation patients' overall change in sphincter control
2197 Rehabilitation patients' sphincter control at discharge
2199 Rehabilitation patients' change in social cognition
2204 Patients who change in self care independence
2215 Rehabilitation patients' change in sphincter control
2218 Percent of rehabilitation patients who change in mobility
2225 Percent of rehabilitation patients who show a change in self care
2233 Rehabilitation patients' change in communication
</TABLE>
Medirisk Performance Measures
Page 1 of 2
<PAGE> 20
MEDICAL OUTCOMES SYSTEM - WOUND
<TABLE>
<CAPTION>
JCAHO ID Measure
-------- -------
<S> <C>
2030 Surface area of wounds compared to database
2032 Change in wound stage compared to database
</TABLE>
MEDICAL OUTCOMES SYSTEM - RESPIRATORY
<TABLE>
<CAPTION>
JCAHO ID Measure
-------- -------
<S> <C>
2037 Percent of patients weaned from ventilator
2041 Percent of patients weaned from oxygen use
2151 Percent of patients decannulated
</TABLE>
MEDICAL OUTCOMES SYSTEM - PAIN
<TABLE>
<CAPTION>
JCAHO ID Measure
-------- -------
<S> <C>
2077 Percent of patients with a decrease in pain interference
2179 Narcotic use at initiation/discontinuation of treatment
</TABLE>
MEDICAL OUTCOMES SYSTEM - NUTRITION
<TABLE>
<CAPTION>
JCAHO ID Measure
-------- -------
<S> <C>
2832 Nutritional status measure
2837 Body mass index
</TABLE>
GENERAL REHABILITATION - OUTPATIENT
<TABLE>
<CAPTION>
JCAHO ID Measure
-------- -------
<S> <C>
2108 Change in self care independence for outpatients
2113 Change in sphincter control independence for outpatients
2117 Change in mobility independence for rehabilitation outpatients
2118 Change in communication independence for rehabilitation outpatients
2121 Change in social cognition independence for rehabilitation outpatients
2123 Change in IADL independence for rehabilitation outpatients
2135 Change in health status role physical functioning for outpatients
2141 Change in health status physical functioning for outpatients
2144 Change in health status pain for outpatients
</TABLE>
Medirisk Performance Measures
Page 2 of 2
<PAGE> 21
ATTACHMENT "A"
MEDIRISK-HEALTHSOUTH 1998-2000 STATEMENT OF WORK
Medirisk of Illinois, Inc. ("Medirisk") will perform the
Outcomes-related data analysis and reporting functions for HEALTHSOUTH
Corporation ("HEALTHSOUTH") as established below during the term of the new
agreement. All such work will be performed utilizing instruments that comprise a
part of the Medirisk FORMATIONS(SM) Clinical Outcomes System and will encompass
the following service areas: Inpatient Products, Hospital-Based Outpatient
Products and Joint Commission on Accreditation of Healthcare Organizations
("JCAHO") compliance. The work to be performed for each of such service areas
will be as follows:
1. INPATIENT PRODUCTS
A. Instruments
The FORMATIONS(SM) Medical Outcomes System Version 2.0 measurement
tools will be used, including a descriptor dataset, a comorbid disease dataset,
and a rehabilitation dataset (which includes functional independence measures,
Rancho Los Amigos Coma Scale and Instrumental Activities of Daily Living
("IADL")). Additional datasets will be used as needed by each facility and will
include pain, wound, respiratory, and nutrition instruments.
Medirisk will receive data from facilities on disk via HCIS. Data on
all patients will be submitted on a monthly basis. HEALTHSOUTH will provide such
data to Medirisk no later than the tenth (10th) day of the month following the
reporting month in question. HEALTHSOUTH will provide HCIS programming.
B. Number of Locations/ Volume:
HEALTHSOUTH currently owns and operates 104 rehabilitation hospitals,
12 of which maintain separate subacute/skilled care unit/facilities. Currently
70 of these hospitals participate in the Medirisk outcomes program. During 1998
thirty-four (34) additional rehabilitation hospitals will be added (including 30
recently acquired CMS facilities). This will occur on or around April 1, 1998.
Facilities that are managed by HealthSouth, but not owned by HEALTHSOUTH, will
be free to contract with Medirisk independently and will not be covered under
the new master agreement.
Data on all inpatient admissions will be reported by HEALTHSOUTH to
Medirisk. Medirisk will report back to HEALTHSOUTH on all patients who can be
classified into one or more of the following impairment groups: stroke,
orthopedic, head injury, spinal cord, debility, or "others not classified". This
number is expected to be approximately [*] discharges in 1998.
Aggregate reports will be prepared for all patients for which data and
a patient ID number is submitted along with a valid impairment code falling
within the impairment codes of stroke, orthopedic, head injury, spinal cord,
debility, and "others not classified". Medirisk will make substantial efforts to
insure that data received is complete and properly transmitted.
C. Facility Reports
Each of the facilities will receive a quarterly Facility Report. These
reports will be shipped to each respective facility by the fifteenth (15)
calendar day of the second month following the end of the reporting quarter. The
Facility Report for the fourth quarter of each calendar year will be modified to
replace the current year-end report provided to HEALTHSOUTH facilities. This
report will be a cumulative report for the entire year and will be shipped to
each respective facility by February 15th of each calendar year.
Facilities will receive one bound black and white copy and one unbound
copy containing color graphs for each of the quarterly reports and the year end
report.
* Confidential treatment requested
Statement of Work
Page 1 of 9
<PAGE> 22
Reports for facilities added to the Medirisk outcomes system during
1998 will be prepared and distributed by July 15, 1998, and will include
discharges for the first quarter of 1998. Thereafter these facilities will
follow the same distribution schedule as for other facilities.
D. Corporate Reports
HEALTHSOUTH corporate office will receive 4 copies of a quarterly
report which summarizes in aggregate form the data for all reported facilities
for such quarter. These reports will be shipped to the Quality Standards
department by the fifteenth (15) calendar day of the second month following the
end of the reporting quarter in question. The Corporate Report for the fourth
quarter of each calendar year will be modified to replace the current Corporate
year-end report provided to HEALTHSOUTH corporate. This report will be a
cumulative report for the entire year and will be shipped to each respective
facility by February 15th of each calendar year. These reports will also be
provided to HEALTHSOUTH corporate in electronic format in a format mutually
agreed to by both parties.
Medirisk will also continue to provide to HEALTHSOUTH corporate a
quarterly Corporate Trend Report that reflects only functional independence
measure data. This report will continue to represent all diagnostic and
impairment groups consistent with previously supplied reports in order to
provide consistent data over time. These reports will be shipped to the Quality
Standards department by the fifteenth (15) calendar day of the second month
following the end of the reporting quarter in question. This report will also be
provided to HEALTHSOUTH corporate in electronic format in a format mutually
agreed to by both parties.
Medirisk will continue to provide a quarterly Corporate Ranking Report
which will be redesigned by the end of the first quarter of 1998 to incorporate
a more equitable ranking methodology. The format of this report will be proposed
by Medirisk and mutually agreed upon by Medirisk and HEALTHSOUTH. This report
will also be provided to HEALTHSOUTH corporate in electronic format in a format
mutually agreed to by both parties.
All corporate reports, including the previously mentioned Corporate
Trend Reports, will include data on the following impairment groups: stroke,
orthopedic, head injury, spinal cord, debility, and "others not classified",
though data from other impairment groups will have been sent to Medirisk.
E. Follow-Up Phone Interviews
Medirisk will perform follow-up phone interviews within a window of 80
to 100 days from the date of patient discharge on a representative sample of
patients discharged from a HEALTHSOUTH facility in one of the following
impairment groups: stroke, orthopedic, head injury, spinal cord, and debility.
Medirisk will complete interviews with [*] per cent ([*]%) of patients from
the following impairment groups: stroke, orthopedic, head injury, spinal cord,
and debility, which is expected to result in the completion of approximately
[*] calls completed within each calendar year. Patients interviewed will come
from the subset of patients who have clean data submitted. In no case is the
number of patients to be interviewed to exceed [*] per calendar year without
the express written consent of HEALTHSOUTH Corporation.
F. Follow-Up Reports
With respect to the follow-up phone interviews Medirisk will provide
the following reports for each facility on a quarterly basis: an aggregate
follow-up report, a patient comments report, and a call completion report. A
monthly status report will also be provided to each facility by the 10th
calendar day of the end of each month. A "Red Flag" notification will be
immediately communicated to the affected facility in the event that former
facility patients indicate that they are experiencing an emergency situation.
Medirisk will provide to HEALTHSOUTH corporate a quarterly call completion
report that lists basic summary information concerning call completion such as
number of calls completed per facility, the number of calls per impairment
group, and any other additional useful information mutually agreed upon by
Medirisk and HEALTHSOUTH. Medirisk will develop and provide to HEALTHSOUTH
Corporate a trend report displaying the percentage of patients who have
maintained their functional gains.
* Confidential treatment requested
Statement of Work
Page 2 of 9
<PAGE> 23
G. Training
Two videos will be recorded for the purpose of training HEALTHSOUTH
staff on the use of the FORMATIONS Medical Outcomes System Version 2 measurement
tools. HEALTHSOUTH will assume responsibility for payment for the production of
the videos. Medirisk will provide the staff to write the script for the videos
and will provide a trainer to narrate these videos.
The current functional independence measure /IADL video will be updated
by the close of business, December 31, 1997, to reflect the changes in the IADL
instrument contained within Medical Outcomes System Version 2. HEALTHSOUTH will
mail copies of the video to its facilities for the purposes of verification and
training in the functional independence measure/IADL instruments for new
facilities simultaneously for all facilities by April 1, 1998. By April 1, 1998,
a new video, which will include training on the pain, wound, respiratory, and
nutrition instruments will also be developed by Medirisk and mailed by
HEALTHSOUTH to all facilities who choose to use these optional instruments.
HEALTHSOUTH will send videos trainings, on an as-needed basis, to assure that
new staff are properly certified. Medirisk will provide all existing HEALTHSOUTH
facilities with updated training manuals.
All HEALTHSOUTH clinicians currently certified in the FORMATIONS
Medical Outcomes System Version 1 rehabilitation instruments will be required to
update their certification by viewing the new video(s) and by signing a form to
indicate their understanding of the changes. This shall be completed by end of
business on March 31, 1998. This signed form will be returned to Medirisk who
will assign a new certification ID number to each clinician. This will serve to
update current certification status.
Training manuals will be made available by Medirisk to each clinician
prior to viewing the training videos and taking the certification test for the
FORMATIONS Medical Outcomes System Version 2 rehabilitation instrument.
Clinicians will only receive training and testing for those instruments
pertinent to the performance of their job duties, selection of which will be the
responsibility of HEALTHSOUTH. Upon successful completion of the test each
clinician will receive a certificate from Medirisk.
Each certified clinician shall be entered into the Medirisk Rater
Database. Upon receipt and processing of patient data the processing program
provided by Medirisk shall determine whether or not the data contains an ID
number representing a certified clinician. Data containing ratings from
non-certified clinicians will not be processed, however, data containing
multiple ratings from both certified clinicians and non-certified clinicians
will be included in the report. Medirisk will produce a list of non-certified
clinicians for HEALTHSOUTH by the end of the third quarter of 1998 and return
such information to each affected facility along with training manuals and
certification tests sufficient to certify any and all non-certified clinicians.
Medirisk representatives will work with clinicians to obtain proper
certification.
Medirisk will provide one "Guide for Interpreting Your Report" for each
HEALTHSOUTH facility no later than April 30, 1998, to accompany the first
FORMATIONS Medical Outcomes System Version 2 report.
The final agreed-upon pricing will include the provision of up to a
maximum of 15,000 "Training Manuals", 15,000 certificates, and 104 "Guides to
Interpreting Your Report" over the three year contract period, provided however
that such amount may be re-negotiated upward upon the mutual consent of both
parties to this agreement.
H. Process Analysis
Medirisk will not perform a process analysis prior to implementation of
FORMATIONS Medical Outcomes System Version 2.0.
I. Roll Out Activities
Medirisk will provide a detailed implementation package for each of the
thirty-four (34) new HEALTHSOUTH rehabilitation hospitals to be added during
1998. This package, in loose-leaf notebook form will include, at a minimum: an
overview of Medirisk and Medirisk products, copies of new sample reports,
schedules for data collection and data reporting, and sufficient training
information. A copy will also be provided to all existing facilities. Medirisk
will make at minimum two calls to each new HEALTHSOUTH rehabilitation hospital:
Statement of Work
Page 3 of 9
<PAGE> 24
once to verify receipt of the loose-leaf notebook materials; once to answer
questions that facility representatives may have after they have viewed the
training video.
J. Other Items
Medirisk will meet with HEALTHSOUTH (either at corporate headquarters
in Birmingham, Alabama and/or at one or more facilities to be designated by
HEALTHSOUTH) on an as-needed basis a maximum of 4 times per year at no
additional fee to HEALTHSOUTH. Visits not utilized on behalf of inpatient
rehabilitation hospitals will not expire; rather they will accrue to the benefit
of other HEALTHSOUTH divisions as needed to a maximum of the total number of
visits provided for with the contract.
Statement of Work
Page 4 of 9
<PAGE> 25
2. HOSPITAL-BASED OUTPATIENT PRODUCTS
A. Instruments
Medirisk will design a custom General Rehabilitation instrument to be
used exclusively by HEALTHSOUTH outpatient clinics that includes the Formations
Descriptor Dataset and a custom rehabilitation dataset incorporating all of the
items from the current functional independence measure and IADL instruments. For
functional independence measure items a new field of "not applicable" will be
added to each instrument. A custom patient survey focusing on high level
mobility skills will also be designed by Medirisk. The patient survey will be
completed by patients who are capable of completing it independently or
otherwise completed by clinicians at the beginning and end of each patient's
treatment.
This custom General Rehabilitation instrument will be available for
HEALTHSOUTH outpatient clinics on or before April 1, 1998.
Medirisk will custom design the patient questionnaire portion of these
instruments for the exclusive use of HEALTHSOUTH and will not make it available
in its entirety for use by any other Medirisk clients. Thus comprehensive
instrument benchmarking outside of HEALTHSOUTH will not be available except for
variables used in common with the Medirisk tool.
Medirisk reserves the right to make modification to the instrument
after the first quarter of data is received and analyzed.
All data collection will be done on HCIS, with all programming provided
by HEALTHSOUTH
Data collection will begin no later than April 1, 1998. Data on all
patients will be collected by HEALTHSOUTH and submitted to Medirisk not later
than the 10th calendar day of the month following the reporting month in
question.
B. Number of Locations/Volume
HEALTHSOUTH owns and operates ninety-nine (99) rehabilitation
hospital-based outpatient clinics with a total volume of approximately [*]
patients annually. Data collection for this group of clinics will begin on April
1, 1998.
Data on all patients will be reported to and collected by Medirisk.
Medirisk will prepare reports on those patients belonging to the following
impairment groups: stroke, spinal cord injury, orthopedic, head injury, debility
and "others not classified". This number is expected to be approximately [*]% of
the total volume, approximately [*] patients.
C. Clinic Reports
The patient questionnaire portion of the Clinic Report will be
customized for HEALTHSOUTH and no other Medirisk client will receive this
report. The custom report will include, at a minimum, the following items: an
executive summary, tables, and graphs.
Each of these 99 rehabilitation hospital-based outpatient clinics will
receive a quarterly Clinic Report. The deadlines for the production of these
reports will begin at the end of the second quarter of 1998. These reports will
be shipped to each respective facility by the fifteenth (15) calendar day of the
second month following the end of the reporting quarter in question. The
Facility Report for the fourth quarter of each calendar year will be a
cumulative report for the entire year and will be shipped to each respective
facility by February 15th of each calendar year. These reports will also be
provided to HEALTHSOUTH corporate in electronic format in a format mutually
agreed to by both parties.
Clinics will receive one bound black and white copy and one unbound
copy containing color graphs for each of the quarterly reports and the year end
report.
Aggregate reports will be prepared for all patients for which data and
a patient ID number is submitted along with a valid impairment code falling
within the impairment codes of stroke, orthopedic, spinal cord injury, head
injury, debility, and "others not classified". Patients will be counted for
billing purposes by Medirisk whether
* Confidential treatment requested
Statement of Work
Page 5 of 9
<PAGE> 26
or not the data that is sent is complete. Medirisk will make substantial efforts
to insure that data received is complete and properly transmitted.
D. Corporate Reports
Medirisk will publish a HEALTHSOUTH General Rehabilitation Corporate
Report which will be shipped to HEALTHSOUTH corporate by the fifteenth (15)
calendar day of the second month following the end of the reporting quarter in
question. The initial report will be for the second quarter of 1998. The
Corporate Report for the fourth quarter of each calendar year will be a
cumulative report for the entire year and will be shipped to HEALTHSOUTH
corporate by February 15th of each calendar year. The patient questionnaire
portion of the report will have not external benchmarks.
Medirisk will also publish a quarterly Corporate Ranking Report which
will be shipped to HEALTHSOUTH corporate by the fifteenth (15) calendar day of
the second month following the end of the reporting quarter in question. The
initial report will be for the second quarter of 1998.
These corporate reports will contain information for patients falling
within the impairment codes of stroke, orthopedic, spinal cord injury, head
injury, debility, and "others not classified".
E. Training
A satellite video telecast will be broadcast for the purpose of
training HEALTHSOUTH staff on the use of the HEALTHSOUTH General Rehabilitation
Instrument. HEALTHSOUTH will assume responsibility for payment for the
production of the telecast and the broadcasts of these satellite training.
Medirisk will provide the staff to write the script for the telecast and will
provide a trainer to narrate the telecast. For those HEALTHSOUTH facilities
without satellite receiving capabilities a video tape copy of the satellite
broadcast will be made available to them by HEALTHSOUTH corporate. HEALTHSOUTH
will continue to broadcast trainings, on an as-needed basis, to assure that new
staff are properly certified. The initial broadcast will take place in March
1998.
Training manuals and certification tests will be made available by
Medirisk to each clinician prior to viewing the training videos. Upon successful
completion of the test each clinician will receive a certificate from Medirisk.
Each certified clinician shall be entered into the Medirisk Rater
Database. Upon receipt and processing of patient data the processing program
provided by Medirisk shall determine whether or not the data contains an ID
number representing a certified clinician. Data containing ratings from
non-certified clinicians will not be processed, however, data containing
multiple ratings from both certified clinicians and non-certified clinicians
will be included in the report. Medirisk will produce a list of non-certified
clinicians for HEALTHSOUTH by the end of the third quarter of 1998 and return
such information to each affected clinic along with training manuals and
certification tests sufficient to certify any and all non-certified clinicians.
Medirisk representatives will work with clinicians to obtain proper
certification.
Medirisk will provide one "Guide for Interpreting Your Report" for each
HEALTHSOUTH clinic no later than July 31, 1998, to accompany the first report.
The final agreed-upon pricing will include the provision of up to a
maximum of 204 "Training Manuals", 510 tests, 510 certificates, and 99 "Guides
to Interpreting Your Report" over the three year contract period, provided
however that such amount may be re-negotiated upward upon the mutual consent of
both parties to this agreement.
F. Process Analysis
Medirisk will perform a Process Analysis for HEALTHSOUTH which will
include feedback from HEALTHSOUTH staff who are using the instruments, and
summarization of the findings. As part of the process analysis a Medirisk
representative will visit three (3) HEALTHSOUTH hospital-based outpatient
clinics, the location and time of which will be determined jointly upon
consultation with representative of HEALTHSOUTH. Visits not utilized on behalf
of inpatient rehabilitation hospitals outpatient clinics will not expire; rather
they will accrue to the benefit of other HEALTHSOUTH divisions as needed to a
maximum of the total number of visits provided for with the contract.
Statement of Work
Page 6 of 9
<PAGE> 27
G. Roll Out Activities
Medirisk will provide a detailed implementation package for each of the
ninety-nine (99) clinics. This package, in loose-leaf notebook form will
include, at a minimum: an overview of Medirisk and Medirisk products, copies of
new sample reports, schedules for data collection and data reporting, and
sufficient training information. Medirisk will make at minimum two calls to each
new HEALTHSOUTH rehabilitation hospital: once to verify receipt of the
loose-leaf notebook materials; once to answer questions that facility
representatives may have after they have viewed the training video.
H. Other Items
Medirisk will meet with HEALTHSOUTH (either at corporate headquarters
in Birmingham, Alabama and/or at one or more facilities to be designated by
HEALTHSOUTH) on an as-needed basis a maximum of 2 times per year at no
additional fee to HEALTHSOUTH. Visits not utilized on behalf of inpatient
rehabilitation hospitals outpatient clinics will not expire; rather they will
accrue to the benefit of other HEALTHSOUTH divisions as needed to a maximum of
the total number of visits provided for with the contract.
Statement of Work
Page 7 of 9
<PAGE> 28
3. JCAHO COMPLIANCE
Medirisk will send performance measure data to JCAHO on behalf of
HEALTHSOUTH's impatient rehabilitation facilities in order that HEALTHSOUTH may
comply with JCAHO's "ORYX" criteria. Medirisk will comply with any and all
deadlines established by JCAHO. Medirisk will also seek to apprise HEALTHSOUTH
of any information received from or pertaining to JCAHO which Medirisk
reasonably determines should be provided to HEALTHSOUTH.
Upon request, Medirisk will assist each facility in the selection of an
appropriate compliance measure for each year of the new agreement. These may
come from the list of approved measures supplied by Medirisk or the HEALTHSOUTH
patient satisfaction vendor, National Research Corporation. Both the number of
measures supplied and the percent of patients they represent may increase over
the term of this agreement.
Medirisk will compile monthly data points for each of HEALTHSOUTH's
accredited programs that choose to use Medirisk's outcomes measures and transmit
this data to JCAHO on a quarterly basis, subject to all requirements established
by JCAHO for compliance. Medirisk further agrees to hold HEALTHSOUTH harmless in
the event of non-compliance with JCAHO requirements that results from the
non-performance of Medirisk with the requirements of this agreement.
Data submissions are expected to begin in the first quarter of 1999 and
will represent the third quarter of 1998, subject to requirements established by
JCAHO.
It is anticipated that JCAHO will charge a set fee for each measure
that is transmitted by Medirisk to JCAHO on behalf of HEALTHSOUTH. For the
purposes of pricing Medirisk assumes that each of HEALTHSOUTH's inpatient
rehabilitation hospitals will select one measure and will charge accordingly up
to a limit of 137 measures.
Medirisk will send each participating HEALTHSOUTH -accredited program a
JCAHO report at a minimum five business days prior to transmittal of the report
to JCAHO.
Medirisk agrees to keep performance measures up to date. At the time of
submission of this proposal of Statement of Work, Medirisk has obtained approval
from JCAHO for a total of eighty-seven (87) measures. During the term of this
agreement Medirisk, on behalf of HEALTHSOUTH, agrees to submit to JCAHO for
approval a total of up to [*] new measures annually.
No corporate reporting of JCAHO reports is anticipated.
Medirisk will implement this process and procedure for HEALTHSOUTH
inpatient rehabilitation hospitals during 1998. A separate quote will be
provided for additional reports or other programs covered under new JCAHO
regulations on an as-needed basis.
*Confidential treatment requested
Statement of Work
Page 8 of 9
<PAGE> 29
5. GENERAL
All of the foregoing anticipated report shipping dates assume the
timely provision of data to Medirisk by HEALTHSOUTH and are not guaranteed in
the event of delay in timely receipt of complete and accurate data by Medirisk,
provided that such delay are found to be caused by HEALTHSOUTH and not by
Medirisk.
After January 1, 1998, any substantial modifications required to be
made to Medirisk products at the specific request of HEALTHSOUTH will be paid
for by HEALTHSOUTH subject to the approval of a cost estimate for such change by
HEALTHSOUTH and prior to the implementation of such changes. Medirisk will only
market such revised products to others with the expressed written consent of
HEALTHSOUTH. Medirisk will include preferential hourly labor rates in the
preparation of such cost estimates.
Freestanding orthopedic outpatient clinics are not included in this
Statement of Work and will be negotiated in a separate contract if so desired.
Statement of Work
Page 9 of 9
<PAGE> 1
EXHIBIT 11.1
Medirisk, Inc. and Subsidiaries
Statements of Computation of Net Loss per Share of Common Stock (unaudited)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Net loss attributable to common stock ............ $(2,607) $(7,432) $ (432)
======= ======= ======
Net loss per share of common stock --
basic and diluted:
Loss per share before extraordinary item ..... $ (0.46) $ (4.84) $(0.30)
Loss per share -- extraordinary item ......... (0.21) -- --
------- ------- ------
Net loss per share of common stock ............... $ (0.67) $ (4.84) $(0.30)
======= ======= ======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
------------------ ----------------------
<S> <C>
Medirisk of Illinois, Inc. (formerly known as Indiana
Formations in Health Care, Inc.)
Medirisk of Missouri, Inc. (formerly known as PracticeMatch, Inc.) Missouri
CIVS, Inc. Maryland
CareData Reports, Inc. New York
Medsource, Inc. Minnesota
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
ACCOUNTANTS' CONSENT
The Board of Directors
Medirisk, Inc.
We consent to incorporation by reference in the registration statement (No.
333-28541) on Form S-8 of Medirisk, Inc. of our reports dated February 6, 1998,
relating to the consolidated balance sheets of Medirisk, Inc. and subsidiaries
as of December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997, and the related
financial statement schedule, which reports appear in the 1997 annual report on
Form 10-K of Medirisk, Inc.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MEDIRISK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE MEDIRISK, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,516
<SECURITIES> 0
<RECEIVABLES> 3,950
<ALLOWANCES> 148
<INVENTORY> 0
<CURRENT-ASSETS> 8,490
<PP&E> 3,083
<DEPRECIATION> 1,444
<TOTAL-ASSETS> 20,658
<CURRENT-LIABILITIES> 4,309
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 16,180
<TOTAL-LIABILITY-AND-EQUITY> 20,658
<SALES> 16,749
<TOTAL-REVENUES> 16,749
<CGS> 0
<TOTAL-COSTS> 18,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 345
<INCOME-PRETAX> (1,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,776)
<DISCONTINUED> 0
<EXTRAORDINARY> (806)
<CHANGES> 0
<NET-INCOME> (2,582)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MEDIRISK, INC.
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 447,257 288,838
<SECURITIES> 0 0
<RECEIVABLES> 1,428,191 538,769
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,970,859 922,783
<PP&E> 1,736,408 842,311
<DEPRECIATION> 893,601 510,605
<TOTAL-ASSETS> 8,455,961 1,263,290
<CURRENT-LIABILITIES> 5,466,108 725,797
<BONDS> 7,194,897 151,302
0 2,302,471
1,573 0
<COMMON> 710 845
<OTHER-SE> (4,823,764) (2,333,527)
<TOTAL-LIABILITY-AND-EQUITY> 8,455,961 1,263,290
<SALES> 0 0
<TOTAL-REVENUES> 8,904,133 3,654,692
<CGS> 0 0
<TOTAL-COSTS> 15,431,368 3,726,912
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 703,542 65,433
<INCOME-PRETAX> (7,230,777) (137,653)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,230,777) (137,653)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,230,777) (137,653)
<EPS-PRIMARY> (4.84) (0.30)
<EPS-DILUTED> (4.84) (0.30)
</TABLE>
