SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to________________________
Commission file number: 0-26348
HPR INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2985551
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
245 First Street
Cambridge, MA 02142
(Address of principal executive offices)
(617) 679-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to 12(b) of the Act:
Title of each class Name of each exchange on which registered
None _____________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(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. [ ]
The aggregate market value of the voting stock held by stockholders who are not
affiliates of the registrant was approximately $268 million based on the last
reported sale price of the registrant's Common Stock on the Nasdaq National
Market on August 11, 1997.
As of August 11, 1997, there were outstanding 15,334,919 shares of the
registrant's Common Stock, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information called for by Parts I through IV of this report on
Form 10-K is incorporated by reference from certain portions of the Proxy
Statement of the registrant to be filed pursuant to Regulation 14A and to be
sent to stockholders in connection with the Annual Meeting of Stockholders to be
held on October 31, 1997. Such Proxy Statement, except for the parts therein
that have been specifically incorporated herein by reference, shall not be
deemed "filed" as part of this report on Form 10-K.
PART I
Item 1. Business
The Company
The Company was incorporated on September 28, 1987 in Massachusetts under
the name HPR, Inc. The Company re-incorporated in Delaware on December 20, 1991,
under the name Health Payment Review, Inc. On July 24, 1995, the name of the
Company was changed to HPR Inc. Unless the context otherwise requires,
references herein to the "Company" and "HPR" refer to HPR Inc., a Delaware
corporation, its wholly-owned subsidiaries and HPR, Inc., its Massachusetts
predecessor. On June 3, 1992, Concurrent Review Technology, Inc., a California
corporation, was merged into the Company's wholly- owned subsidiary, Concurrent
Review Technology, Inc., a Delaware corporation. On August 16, 1995 the Company
established a wholly-owned subsidiary, HPR Securities Corp., a Massachusetts
corporation. On April 30, 1996, the Company acquired The Integrity Group, Inc.,
an Alabama corporation, which became a wholly-owned subsidiary of HPR. On April
18, 1997 the Company established a wholly-owned subsidiary, HPR International,
Inc., a Barbados corporation. The Company's executive offices are located at 245
First Street, Cambridge, Massachusetts 02142. Its telephone number is (617)
679-8000.
General
HPR develops and markets software and proprietary database products
incorporating clinical knowledge that enable payors and providers of healthcare
services to better manage the financial risk associated with the delivery of
healthcare and the quality of care. HPR products are used to manage healthcare
costs and quality of care by clinically evaluating providers' claims for
payment; measuring efficiency, quality, and medical outcomes; determining
appropriate utilization of medical services; influencing physician referral
patterns and profiling practice patterns; assisting in HEDIS(R) reporting; and
managing and supporting the physician credentialing and accreditation processes.
The Company's clinical knowledge bases are developed and maintained by a full
time medical staff in consultation with board-certified physicians serving on
Company-organized panels.
The Company's products are designed to meet the needs of parties assuming
financial risk for the delivery of healthcare. HPR believes that providing
clinical knowledge in usable form is essential to its customers. The Company
believes it can be distinguished from its competitors through the depth and
integrity of its "clinical knowledge bases," as further described below. HPR is
currently marketing its CodeReview(R), Medicare CodeReview(TM), ProMatch(TM),
Patterns Review(R), CRMS Fundamentals(TM), Episode Profiler(TM), Quality
Profiler(TM), Referral Profiler(TM), Patterns Profiler(TM), HealthPlan
Reporter(TM), Credentialer(TM), and CCMS Core(TM) products. HPR markets its
products through a combination of a national direct sales force and third-party
marketing agreements.
The Company was incorporated in 1987. In 1988, the Company introduced its
first product, CodeReview. In 1992, the Company acquired the clinical knowledge
base for Patterns Review by means of a merger with Concurrent Review Technology,
Inc., and shortly thereafter released Patterns Review. In 1993 Medicare
CodeReview was released, and in May 1995, the Company released its fourth
product, Episode Profiler. In October 1995, the Company released its fifth
product, Quality Profiler. With the acquisition of The Integrity Group, Inc. in
April 1996, the Company acquired and began marketing its sixth product,
Credentialer. During fiscal 1997 the Company introduced four more products to
market: Referral Profiler in July 1996, Patterns Profiler in September 1996,
HealthPlan Reporter in March 1997, and ProMatch in June 1997. The introduction
of these four products brings HPR's total marketable product count as of June
30, 1997 to ten. The Company released its eleventh product, CRMS Fundamentals in
July 1997 and is currently developing its twelfth product, CCMS Core that will
represent the first product the Clinical Care Management System product line.
Industry Background
The United States healthcare industry is undergoing rapid change. In recent
years, healthcare expenditures have increased at approximately twice the rate of
inflation. In 1997, healthcare expenses have increased to over $1 trillion. The
increase in healthcare expenditures has forced payors and providers to change
the way they operate. As pressure to manage healthcare costs has increased,
demand has intensified for healthcare information systems for use by the parties
assuming financial risk. These parties include "payors," such as self-insured
employers; managed care organizations ("HMOs and PPOs"); traditional indemnity
insurers and third party administrators ("TPAs"); and increasingly, "providers,"
such as physicians, hospitals, and integrated healthcare delivery systems. This
environment has caused physicians to form groups or networks and to affiliate
with hospitals, and has provided an impetus for consolidation among hospitals
and the emergence of integrated healthcare delivery systems.
Increasingly, these parties are under growing pressure to provide greater levels
of value - more services at a lower price. Market factors - competition,
regulation - are trimming profit margins ever thinner and forcing organizations
to seek out the highest levels of efficiency in order to achieve every cost
savings possible while improving the delivery of healthcare to their members.
Historically, cost containment efforts have been hampered by a lack of
integrated clinical and financial information. Payors continue to require
methods for cost control to review and correct healthcare claims. As managed
care techniques are becoming more sophisticated and responsibility for cost
containment is shared by payors and providers, however, these parties need to
manage risk by linking information from analysis and reporting software to
real-time care management tools. Each of these goals requires the collection,
analysis, and interpretation of clinical and financial information related to
the delivery of healthcare, intensifying the need for integrated medical
management solutions.
Today, employers, government purchasers, and consumers are demanding more
services for less dollars, they are increasingly requiring verification that the
quality of care they are buying is not being compromised, and access to services
is not diminished. Reporting requirements like HEDIS 3.0 and accreditation
standards that demand demonstrable quality management initiatives are direct
outgrowths of these concerns.
These factors have combined to create a new emphasis in the market. Today's
healthcare environment has evolved from pure cost management to an integrated
medical management focus. This philosophy is more member-focused with an
objective of improving the effectiveness of the provider, and improving the
quality of care received by the member - maximizing the value that can be
derived from the available healthcare premium dollars as measured by the health
of the members.
Strategy
HPR develops and markets software and proprietary database products
incorporating clinical knowledge that enable payors and providers to better
manage the financial risk in the delivery of healthcare. Key elements of the
Company's strategy are to:
- Maintain clinical focus. The Company has established its reputation by
focusing on the application of clinical knowledge. HPR plans to continue
to develop and expand its clinical knowledge bases to deliver information
solutions to its customers. The Company believes that its ability to
incorporate clinical expertise into its products is a key strategic asset.
- Target parties assuming financial risk. Historically, the Company's
products have been used primarily by payors who traditionally have assumed
most of the financial risk associated with the delivery of healthcare. In
response to the shifting of risk from payors to providers, the Company has
developed products that specifically address the needs of providers as
well as payors.
- Expand product offering. The Company plans to expand its product offering
through research and development and the acquisitions of new products,
technologies and businesses. The Company is currently marketing
CodeReview, Medicare CodeReview, ProMatch, Patterns Review, CRMS
Fundamentals, Episode Profiler, Quality Profiler, Referral Profiler,
Patterns Profiler, HealthPlan Reporter, Credentialer, and CCMS Core.
- Leverage existing customer base. Through the introduction of new products,
the Company can leverage its existing customer base by cross-selling. The
modular design of the Company's products is intended to accommodate new
products as they are introduced.
- Generate recurring revenue. The Company generates recurring revenues
through a combination of multi-year licenses and historically high renewal
rates. The Company seeks to maintain and increase recurring revenues
through a combination of regular product updates and comprehensive
customer service.
Clinical Knowledge Bases
HPR believes that providing clinical knowledge in usable form is essential
to meeting the needs of its customers. The Company believes it can be
distinguished from its competitors through the depth and integrity of its
"clinical knowledge bases." Clinical knowledge bases represent the codification
of specific medical treatments, protocols, and "best treatment practices" from
within the medical community. These practices are represented as a series of
software algorithms or rules. The rules contained in the clinical knowledge
bases form the foundation for the application software in the Company's
products. The clinical knowledge bases are updated continually and refined
through the combined efforts of the Company's in-house clinical affairs staff of
ten physicians and nurses and of the board-certified physicians serving on
Company-organized panels, many of whom have been associated with the Company
since its inception.
The Company's application software and databases incorporate diagnoses and
clinical procedures represented by numeric codes selected from industry-standard
coding systems. These classification systems include the World Health
Organization's International Classification of Diseases, 9th Edition ("ICD-9")
(diagnostic codes); the American Medical Association's Current Procedural
Terminology, 4th Edition ("CPT-4") (medical procedure codes); and U.S.
Healthcare Financing Administration ("HCFA") Level I, II, and III HCFA Common
Procedure Coding System ("HCPCS") (codes for procedures or services that are not
incorporated into CPT-4). These coding systems are updated each year by the
World Health Organization, the American Medical Association, and HCFA,
respectively.
The Company develops clinical knowledge bases for new products and regularly
updates the clinical knowledge bases for existing products. In addition to
annual updates that incorporate the annual revisions to ICD-9, HCPCS, and CPT-4
codes, the Company reviews its clinical knowledge bases approximately once every
two years to reflect changes in medical practice. Focusing on one medical
specialty at a time, the clinical staff revises the rules incorporated into the
clinical knowledge bases on the basis of clinical experience, changes in medical
practice, and reviews of current medical literature.
Revisions are subjected to multiple levels of review by the physicians
serving on Company-organized panels. Participation on these panels is based upon
experience with utilization review, geography, academic and practical
experience, and medical specialty. As a result of the level of physician
involvement in the development of its clinical knowledge bases, HPR believes
that its products have credibility among physicians who are subject to
reimbursement and payment constraints imposed by cost containment efforts. This
"clinical credibility" allows customers using the Company's products to be
better able to influence physician practice patterns.
- Consensus Panels. The Company has organized sixteen "consensus panels" of
between eight and 15 physicians. The consensus panels identify changes in
medical practice relevant to revising and enhancing the Company's clinical
knowledge bases. Panelists are chosen for their clinical knowledge and
practical experience within a medical specialty. There are over 200
board-certified physicians who are available to the Company for service on
a consensus panel. Panel membership is rotated regularly to maintain
balanced and diverse clinical perspectives. Each panelist is financially
compensated. Consensus panels convene approximately eight to 10 times per
year.
- Senior Advisory Panel. The "senior advisory panel" is comprised of
approximately 10 physicians who each have at least 10 years of experience
in utilization management or managed care and have participated in a
consensus panel. The senior advisory panel reviews the work of consensus
panels and the clinical knowledge base updates that reflect annual
revisions to diagnostic and procedural codes. Members of the senior
advisory panel are financially compensated. The senior advisory panel
meets once or twice per year.
- Specialty Consultants. Currently more than 30 physicians with clinical
expertise and utilization management experience serve as "specialty
consultants." The specialty consultants are retained by the Company for
advice on specific clinical issues on an as-needed basis.
Software Development
In addition to the clinical knowledge bases that form the foundations for
its products, HPR has developed application software that enables customers to
access the clinical knowledge bases. HPR's clinical and software development
staff collaborate to develop products designed to be responsive to customer
needs. In particular, the products generally are portable, scaleable and
customizable, and support an open architecture. The Company's software has been
developed using commercially available technology.
Products
HPR is currently marketing CodeReview, Medicare CodeReview, ProMatch,
Patterns Review, CRMS Fundamentals, Episode Profiler, Quality Profiler, Referral
Profiler, Patterns Profiler, HealthPlan Reporter, Credentialer, and CCMS Core.
Each of these products is designed to be used individually or as part of an
integrated system (with the exception of ProMatch, which can only be used with
CodeReview).
Current Products
Clinical Payment Management System (CPMSTM)
CPMS includes clinically sophisticated software products that can be
integrated into a user's claims processing system to detect and correct
billing errors as well as identify potentially inappropriate or unnecessary
care before the customers pay for it. HPR's CPMS products are available on
many industry standard hardware and operating systems. The Clinical Payment
Management System is made up of the following products: CodeReview,
ProMatch, and Patterns Review. A description of each of these products
follows:
- CodeReview
CodeReview reduces healthcare claims costs by detecting, correcting, and
documenting improper or erroneous numerical coding of physician claims under
both the CPT-4 and HCPCS coding systems. CodeReview makes no judgment about
the necessity, clinical appropriateness, or price of services rendered, but
instead reviews medical treatment and procedure codes submitted by
physicians for clinical inconsistencies and logical errors. CodeReview
allows payors to subject physician claims to a consistent and objective
claims review prior to making payment. CodeReview is also used by payors and
providers to standardize billing data to permit fair comparisons of practice
patterns.
Generally, physicians are paid by payors for healthcare services
performed according to a fee schedule associated with CPT-4 or HCPCS
treatment codes. The coding systems used by physicians may allow a medical
claim to be billed in various ways through the submission of different
combinations of treatment codes. This may result in significantly different
reimbursement for the claim. For example, the surgical removal of a gall
bladder typically involves a series of distinct procedures to prepare the
patient, remove the gall bladder, complete the surgery, and monitor
recovery. The surgery may also include exploration of the abdomen and
imaging services. However, while exploration of the abdomen and the
provision of imaging services each has a unique treatment code, proper
billing practice requires coding the entire series as one procedure -- the
removal of a gall bladder -- which generally reduces the payment due for the
procedure.
CodeReview screens each claim against its clinical knowledge base, which
incorporates all of the approximately 7,500 CPT-4 and 2,800 HCPCS Level II
codes, and applies over 80,000 logical rules for detecting improper or
erroneous coding to the claims submitted by providers. If, for example, a
physician files a claim with codes for both the removal of a gall bladder
and the exploration of the abdomen, CodeReview "re-bundles" the claim,
recoding it to include only removal of a gall bladder. CodeReview also
detects other coding errors, such as "upcoding," or billing for a more
extensive procedure than actually was performed.
CodeReview can be customized to include procedures for which selected
coverage policies may vary, or to account for regional variations in payment
practices. CodeReview was introduced in 1988 and developed pursuant to a
product development agreement with Caterpillar, Inc. There currently are
more than 240 licensees of CodeReview, each of which has entered into a
written non-cancelable license agreement for a term of years with the
Company pursuant to which the licensee generally agrees to pay an annual
license fee for use of the product, maintain the product's confidentiality,
and use the product only for certain purposes.
- ProMatch
ProMatch is an add-on module to the CodeReview claims editing software
application. ProMatch is used to identify inappropriate and miscoded
procedure/diagnosis combinations. The product is designed to share a single
interface with CodeReview, making it easy to implement and use. The savings
realized using ProMatch are in addition to those savings achieved by
CodeReview alone. There are currently 10 licenses of ProMatch.
- Patterns Review
Patterns Review evaluates physician practice patterns for both inpatient
and outpatient services by comparing those patterns (determined on the basis
of codes filed by the physician) with accepted medical standards for
appropriateness, frequency, and intensity. A "pattern" is a group of
diagnoses for which similar clinical management is appropriate. For example,
there are separate diagnostic codes for a wrist sprain and an ankle sprain,
but the appropriate course of treatment for each is similar, so both
diagnoses fall within the same pattern.
The clinical knowledge base for Patterns Review assigns each of the
approximately 15,000 ICD-9 diagnostic codes to one of approximately 340
treatment patterns. The clinical knowledge base for Patterns Review includes
guidelines for clinical appropriateness, frequency, and intensity for each
pattern. Patterns Review matches the diagnostic code of a claim to the
appropriate treatment pattern and then compares the pattern to the actual
treatment rendered.
Patterns Review can be used by customers both as a tool for consistent
and objective claims review prior to making payment under a claim and as a
management tool for post-payment utilization analysis. When used prior to
making payment, Patterns Review provides the clinical rationale for reducing
payment. When used as a post-payment utilization management tool, Patterns
Review profiles physician practice patterns by comparing them to the
clinical guidelines incorporated in the clinical knowledge base. This
enables customers to identify inefficient or inappropriate practice patterns
by specific provider.
There currently are more than 116 licensees of Patterns Review, each of
which has entered into a written non-cancelable license agreement for a term
of years with the Company pursuant to which the licensee generally agrees to
pay an annual license fee for use of the product, maintain the product's
confidentiality and use the product only for certain purposes. In 1992, the
Company merged with Concurrent Review Technology, Inc. whose principal
product, Patterns of Treatment, was a collection of clinical protocols. HPR
incorporated those protocols into the application software and clinical
knowledge base for Patterns Review.
CodeReview and Patterns Review are designed to function in conjunction
with a customer's claims processing system to evaluate claims each time a
claim is processed. The Company has developed interfaces that enable
CodeReview and Patterns Review to function with most commercially available
healthcare claims processing systems.
Clinical Resource Management System (CRMS(TM))
CRMS is a fully integrated line of clinical analysis products, each
supported by a common data warehouse and a flexible Windows(R)-based
analytic workstation. CRMS products enable users to assemble information,
access it quickly and easily, analyze it, and apply the results to provide
users with the clinical knowledge to manage cost, quality, and outcomes of
patient care. Each CRMS product incorporates a common look and feel,
minimizing the user learning curve and making it easy to move from one
application to another. Information is presented in both a numeric and
graphic format for easy interpretation.
The Clinical Resource Management Systems is made up of the following
products: Episode Profiler, Quality Profiler, Referral Profiler, Patterns
Profiler, HealthPlan Reporter, and CRMS Fundamentals. The following is a
description of the each of these products.
- Episode Profiler
Episode Profiler provides comprehensive clinical and provider profiling
using "episode of care" analysis. An "episode" includes all aspects of
treatment, starting with an initial diagnosis and incorporates inpatient,
outpatient, hospital, and physician services. The clinical knowledge base
for Episode Profiler assigns each of the approximately 15,000 ICD-9
diagnostic codes to one of approximately 560 episode treatment groups
("ETGs"). Each ETG describes an appropriate episode of care for the natural
progression and treatment of a specific medical condition.
Episode Profiler can compare a provider's costs on a per episode basis
with those of a specified comparison group. Customers can use Episode
Profiler to create profiles for an entire health plan, a specific group of
providers, or an individual provider, adjusting a provider's patient
population for illness severity and accounting for complications and other
medical conditions.
The Company introduced Episode Profiler in May 1995. There currently are
more than 60 licensees of Episode Profiler, each of which has entered into a
written non-cancelable license agreement for a term of years with the
Company pursuant to which the licensee generally agrees to pay an annual
license fee for use of the product, maintain the product's confidentiality
and use the product only for certain purposes. The software for the ETGs is
licensed by the Company from Symmetry Health Data Systems, Inc.
- - Quality Profiler
Quality Profiler evaluates the quality of healthcare delivered and
identifies instances of healthcare providers delivering inadequate levels of
medical care. Quality Profiler is designed to screen for failure to provide
preventive care services and minimum levels of care for specific acute and
chronic illnesses, as well as to identify complications that may be
indicative of poor patient outcome.
In screening for failures to provide preventive care services, the
clinical knowledge base for Quality Profiler incorporates the clinical
components of the U.S. Preventive Task Force Guidelines and the Health
Employer Data Information Set (HEDIS) guidelines established by the National
Committee for Quality Assurance (NCQA). Quality Profiler is designed to
compare patient data (such as age and gender) to claims filed for the
patient over a specific period of time to look for the absence of
appropriate codes for preventive treatments that should have been performed
under the guidelines. For example, for a 55-year old woman, Quality Profiler
is designed to search over the prior 12 months for the CPT-4 code indicating
the performance of a mammogram.
Quality Profiler's clinical knowledge base also incorporates protocols
for medical services associated with favorable outcomes for certain specific
acute and chronic illnesses as identified by members of the consensus and
senior advisory panels. Quality Profiler is designed to compare the claims
filed for a patient diagnosed with one of these illnesses to the protocols
developed by HPR's physician consulting network to identify instances of
under-utilization. Quality Profiler tracks complications that indicate poor
outcomes for specified illnesses. Quality Profiler is designed to generate
both provider-specific and member-specific information.
The Company introduced Quality Profiler in October 1995 and there are
currently more than 48 licensees, each of which has entered into a written
non-cancelable license agreement with the Company pursuant to which the
licensee generally agrees to pay an annual license fee for use of the
product, maintain the product's confidentiality and use the product only for
certain purposes. The product was developed with assistance from
Healthsource, Inc., which has received a license to use the product.
- - Referral Profiler
Referral Profiler is expert software designed to analyze primary care
work-ups and referral patterns to specialists in relation to clinical
guidelines. Referral Profiler enables users to manage medical care more
cost-effectively by identifying redundant testing and unnecessary or
inappropriate services associated with the referral management process.
Referral Profiler guidelines specify when certain tests and specialty
consultations are most effective in the diagnostic work-up. Users can share
the diagnosis-specific guideline and cost information with providers as part
of ongoing educational or payment-related programs to improve performance,
or use the guidelines as a reference tool to provide information at the
point of care for improved medical management. With Referral Profiler, end
users generate clinically-detailed reports on the utilization of specialists
for use in network management, quality and outcomes management, utilization
control, and physician selection.
The product was developed with assistance from United Healthcare
Corporation, which has received a license to use the product. Referral
Profiler was released in July 1996 and currently has 17 licensees.
- - Patterns Profiler
Using clinical and financial results from Patterns Review, Patterns
Profiler is designed to create summary and detailed reports for use in
network management and provider profiling. Patterns Profiler provides peer
comparisons of provider performance by specialty, plan type, or employer,
helping users to quickly identify opportunities to reduce inappropriate or
unnecessary patient care.
Patterns Profiler was released in September 1996 and currently has 46
licensees.
- - HealthPlan Reporter
HealthPlan Reporter produces annual HEDIS reports. By design, HealthPlan
Reporter incorporates claims, encounter, provider and membership data into one
warehouse to produce all of the eight HEDIS domains. It supports random sampling
(hybrid method) for those applicable measures and offers a utility to capture
and incorporate the results of the medical record review. Narrative and
statistical (provider & plan) information provided by the plan is
imported/entered directly into the application, thus maintaining a central
approach to HEDIS processing.
HealthPlan Reporter was released in March 1997 and currently has more
than 22 licensees.
CRMS Product Under Development
- - CRMS Fundamentals
CRMS Fundamentals is a Windows-based, client server software that generates
per-member-per month (PMPM) and rates-per-1000 reports. CRMS Fundamentals is
being designed to work with all sizes and types of healthcare organizations
managing financial risk and it will include an efficient user interface. CRMS
Fundamentals will facilitate reporting and analysis of critical cost and
utilization trend information. Customers will be able to "slice and dice"
traditional managed care statistics by more than a dozen variables including:
product lines, employers, providers, procedure groups, diagnoses, age, and
gender. With CRMS Fundamentals, users will be able to:
o compare actual financial performance to budget
o identify variations that impact the financial performance
o point to clinical practices where targeted intervention and/or
education will improve the efficiency of the user's health care
delivery system
CRMS Fundamentals was released in July 1997 and currently has 2 licensees.
HPR's Credentialing Management System
The Credentialing Management System supports the authorization of
independently licensed health practitioners to deliver patient care services.
- - Credentialer
Credentialer is a comprehensive provider network management tool. Providing
automated workflow support to healthcare organizations, Credentialer enables
users to effectively manage credentialing and recredentialing processes in
compliance with the NCQA guidelines for accreditation. Credentialer provides an
infrastructure to collect, store, and report on a practitioner's credentials, as
well as their status within the network and basic information regarding their
practice. Additionally, Credentialer can be used to generate provider
directories, and to collect and analyze provider-specific patient satisfaction
and complaints/grievances data.
Credentialer was acquired as part of The Integrity Group, Inc.
acquisition on April 30, 1996 and currently has over 75 licensees.
HPR's Clinical Care Management System (CCMS(TM))
CCMS, currently under development and not yet available for general
release, is designed to be an integrated product line of clinically based
workflow software applications that provides a comprehensive solution for
member-centered medical management. CCMS provides access to all of the
information necessary to effectively manage an individual member's care.
CCMS supports the next generation of medical management, enabling case
managers to perform consistent, "real time" evaluation and tracking of
individual patients as care is being delivered, and also allows them to follow
patients with chronic diseases to help prevent acute episodes. CCMS incorporates
case management guidelines based on a comprehensive foundation of clinical
knowledge. These guidelines allow for more effective, medically sound, and
clinically appropriate case and medical management.
CCMS Core, the first in the suite of CCMS products, is being developed in
conjunction with three co-development partners: Tufts Associated Health Plans of
Massachusetts, Healthsource, Inc. of New Hampshire, and ChoiceCare Health Plans
of Ohio.
Three customers, in addition to Tufts Associated Health Plans and
Healthsource, have signed license agreements to receive the software upon
general release, which the Company anticipates in the first half of fiscal 1998.
Product and Customer Support
The Company's products are valuable to customers only if the clinical
knowledge bases embodied therein are current and each customer can effectively
apply the clinical knowledge bases to its own analytical requirements. In
addition to updates to incorporate annual revisions to ICD-9, HCPCS, and CPT-4
codes, the Company updates its clinical knowledge bases approximately once every
two years on the basis of clinical experience, changes in medical practice, and
review of current medical literature.
The Company provides all its customers with toll free telephone hotline
support, available weekdays during business hours, to supply both clinical and
technical assistance. The Company also works with customers on a consulting
basis to facilitate product installation and utilization.
HPR invites its customers to participate in an annual conference. The users
conference is a source of ideas and suggestions for current and future products,
as well as a forum on market and industry issues. This conference lasts three to
four days and over 200 people participate in sessions for analytical, technical,
and clinical personnel. The users conference is a valuable resource for the
Company as well as its customers, providing feedback on products and marketing
opportunities to provide training and new product demonstrations.
In addition to the annual users conference, for the past several years the
Company has convened a "medical directors forum." This group includes the
medical directors from a number of HPR's clients, and provides valuable insight
for the Company into its customers' ongoing and future product needs, from which
the Company can make plans for enhancement of existing products and development
of new products.
Medical Advisory Board
The Company's Medical Advisory Board, chaired by Dr. Richard H. Egdahl, was
formally established in 1995 to serve as an important resource to HPR's
management. The Medical Advisory Board is composed of prominent physicians who
first met in December 1995. The Medical Advisory Board meets approximately twice
annually and is otherwise available to provide advice at the Company's request
on clinical issues and matters of overall policy and direction of the Company.
Members of the Medical Advisory Board receive an honorarium for each meeting
attended.
Customers
The Company has approximately 360 customers. Based upon discussions with
its customers, the Company believes that, in the aggregate, its customers cover
approximately 70 million lives. Approximately 55% are managed care organizations
such as HMOs and PPOs, 20% are indemnity plans, 10% are TPAs and employers, and
15% are providers.
The Company estimates based on industry data and surveys by industry
analysts, that in the United States there are currently approximately 900
payors, 180 groups of greater than 50 physicians and 6,000 hospitals with
greater than 50 beds, which are either customers or potential customers. The
Company believes these provider groups represent a relatively unpenetrated
market for its products. Additionally, the emergence of integrated healthcare
delivery systems may represent a significant potential market opportunity. The
Company expects the mix of its customers to shift toward providers who will
assume more of the financial risk in the delivery of healthcare. There is no
assurance, however, that the Company will be able to penetrate these relatively
new market opportunities with the same level of success that has been realized
in the payor market.
Currently, 42% of the Company's customers use more than one of the Company's
products. The Company's customers include:
Managed Care Indemnity
Foundation Health Corporation Blue Cross/Blue Shield of Arkansas,Inc.
Healthsource, Inc. Blue Cross/Blue Shield of New Jersey, Inc.
Kaiser Permanente Blue Cross/Blue Shield of Tennessee,Inc.
Oxford Health Plans, Inc. Fortis Benefits Insurance Company
United HealthCare Corporation
Providers TPAs/Employers
Monarch Health Systems ACMG, Inc.
Lovelace Health Systems First Health Services Corporation
Allina Health Plans Holy Cross Shared Services
Sales and Marketing
HPR markets its products through a combination of a national direct sales
force and third-party marketing agreements. Currently, the Company's sales force
consists of approximately 30 people, operating out of four sales offices.
Because the Company's products represent a large capital investment for its
customers, and due to the length of the sales cycle, senior management and
clinical support staff take an active role in marketing and sales activities.
Corporate marketing activities conducted by the Company's marketing staff
include press releases, customer testimonials, the development of corporate
product literature, presentations at industry events and trade shows and
advertising, as well as communications with targeted decision makers and
consultants in the healthcare community.
Research and Development
Nearly half of the Company's employees are involved with product
development. In addition, the Company's over 200 physician consultants,
organized into panels, contribute to product development.
The Company's research and development activities include new product
development, product updates and enhancement of existing products. Some of the
Company's product development has been accomplished with support from third
party users of the products, allowing the Company more efficiently to develop
products that are responsive to customer needs. A substantial majority of the
Company's research and development expenses are incurred in connection with new
product development.
The Company's research and development expenses for fiscal 1995, 1996 and
1997 were $3,257,000, $3,891,000, and $7,011,000, respectively.
Competition
The Company's competitors include healthcare information companies and large
data processing and information companies. Many of these competitors have
substantial installed customer bases in the healthcare industry and the ability
to fund significant product development and acquisition efforts. The Company
believes that the principal competitive factors in its market are clinical
credibility and integrity and product innovation. These factors address both
customer needs for cost containment tools and increasing industry concerns about
quality control. Other important competitive factors include product reputation
and reliability, system features, client service, price, and the effectiveness
of marketing and sales efforts. Based on historical performance, the Company
believes it competes favorably with respect to each of these factors. However,
there can be no assurance that the Company will remain competitive with respect
to any individual factor or combination thereof.
Governmental Regulations and Healthcare Reform
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. The Company's products are designed to function within
the structure of the healthcare financing and reimbursement system currently
being used in the United States. During the past several years, the healthcare
industry has been subject to an increase in governmental regulation of, among
other things, reimbursement rates. Certain proposals to reform the U.S.
healthcare system are currently under consideration by the U.S. Congress. These
programs may contain proposals to increase governmental involvement in
healthcare and otherwise change the operating environment for the Company's
customers. Healthcare organizations may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including those for the Company's products. On the other hand, changes in the
regulatory environment have in the past increased and may continue to increase
the needs of healthcare organizations for cost-effective information management
and thereby enhance the marketability of the Company's products and services.
The Company cannot predict with any certainty what impact, if any, such
proposals or healthcare reforms might have on the Company's results of
operations, financial condition and business.
Intellectual Property
HPR considers its methodologies, computer software and knowledge-bases to be
proprietary. The Company seeks to protect its proprietary information through
nondisclosure agreements with its employees. The Company's policy is to have
employees enter into nondisclosure agreements containing provisions prohibiting
the disclosure of confidential information to anyone outside the Company,
requiring disclosure to the Company of any new ideas, developments, discoveries
or inventions conceived during employment, and requiring assignment to the
Company of proprietary rights to such matters that are related to the Company's
business.
The Company also relies on a combination of trade secrets, copyright and
trademark laws, contractual provisions and technical measures to protect its
rights in various methodologies, systems and products and knowledge-bases.
Except as described below, the Company has not filed any patent applications or
copyrights covering its software technology. Any infringement or
misappropriation of the Company's proprietary software and clinical
knowledge-bases would disadvantage the Company in its efforts to retain and
attract new customers in a highly competitive market and could cause the Company
to lose revenues or incur substantial litigation expense.
HPR was awarded a U.S. patent (No. 5,253,164) in October 1993 for the system
and methodology embodied in CodeReview(R). On January 23, 1995, the Company and
GMIS, Inc. ("GMIS") entered into an agreement settling certain litigation
initiated by GMIS to declare the Company's patent invalid and responded to by
the Company with a countersuit for patent infringement. Under the settlement
agreement, the Company granted GMIS a non-exclusive license under the patent,
and GMIS acknowledged the validity of the patent and made a one-time payment of
$7,200,000 to the Company.
Due to the nature of its application software, the Company believes that
patent, trade secret and copyright protection are less significant than the
Company's ability to further develop, enhance and modify its current products.
Although the Company believes that its products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against the Company in the future. If asserted, such
a claim could cause the Company to lose revenues or incur substantial litigation
expense.
Employees
As of June 30, 1997, the Company employed 179 individuals. None of the
Company's employees are represented by a union or other collective bargaining
group. The Company believes its relationship with its employees to be
satisfactory.
Executive Officers of the Registrant
The executive officers of the Company, and their ages as of July 31, 1997,
are as follows:
Name Age Position
Marcia J. Radosevich,Ph.D 44 Chairman of the Board, Chief Executive
Officer, President
Brian D. Cahill 39 Chief Operating Officer and Chief Financial
Officer
George A. Abatjoglou 27 Treasurer and Controller
Paul W. Brient 29 Vice President, Product Marketing
Andrew C. Garling, M.D. 52 Vice President, Clinical Affairs
Joseph K. Jaeger 38 Vice President, Sales
Matthew Ricketson 39 Vice President, Professional Services
Steven J. Rosenberg 41 Senior Vice President,Software Development
and Services
Thomas L. Saltonstall 49 Vice President, Human Resources and
Corporate Administration
James B. Stowe 48 Vice President, Marketing
- --------------------------------------------------------------------------------
Dr. Radosevich has served as Chief Executive Officer and a director of the
Company since 1988 and was elected Chairman of the Board of Directors in June
1995. From 1988 until 1992, and since May 31, 1996 she also has held the
position of President of the Company. She served as Vice Chairman of the Board
from 1992 to June 1995. Dr. Radosevich is a director of Oxford Health Plans, a
health maintenance organization.
Mr. Cahill joined the Company as Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary in 1993 and was promoted to Chief Operating
Officer in 1997. From 1982 to 1992, Mr. Cahill held various accounting and
finance positions at Epsilon Data Management, Inc., a database marketing company
which in 1990 became a subsidiary of American Express Travel Related Services
Company, Inc. He became Controller, Treasurer and Secretary of Epsilon Data in
1987 and Vice President, Finance and Chief Financial Officer in 1990.
Mr. Abatjoglou, CPA, joined HPR in 1995 and was promoted to Treasurer and
Controller in 1997. He is responsible for managing the daily operations of the
finance department. Prior to joining HPR, Mr. Abatjoglou served three years as a
senior accountant at the public accounting firm of Coopers & Lybrand L.L.P., the
Company's independent accountants.
Mr. Brient, who joined HPR in 1995 as the manager of new product
development, was promoted to Vice President, Product Management in 1997.
Previously, he served as a senior consultant at the Boston Consulting Group and
founded a successful practice management software business in Florida.
Dr. Garling joined the Company as Vice President, Clinical Affairs in 1997.
Previously he served as Vice President and Corporate Medical Director at
Advanced Health Corporation, a publicly held company which provides physician
practice management services. Prior to Advanced Health, he served as Vice
President of Prudential Health Care. In addition he served eleven years as an
emergency room physician with Kaiser Permanente.
Mr. Jaeger joined the Company in 1993 and spent four years as the National
Director of Sales prior to his promotion to Vice President, Sales in 1997. Prior
to working for HPR, Mr. Jaeger held Regional Sales Manager positions for Mozart
Systems and On-Line Software in Chicago. He also spent four years as a Sales
Representative for Pansophic Systems, Inc. Mr. Ricketson joined HPR in 1996 as
Vice President, Professional Services. He most recently worked at Marcam
Corporation, a producer of enterprise-wide software for manufacturers, where he
oversaw the Customer Service function during a period when that company grew
from $20 million to $200 million in annual revenues.
Mr. Rosenberg joined the Company as Vice President, Software Development and
Services in 1994. From 1992 to 1994, he served as Vice President of Sales
Technologies Inc., a sales force automation company, and from 1990 to 1992 was
Vice President of AICORP, Inc., a software company.
Mr. Saltonstall joined the Company in 1996 as Vice President, Human
Resources and Corporate Administration. He comes to HPR from National Medical
Care, Inc., an international healthcare company, where he was Vice President for
Human Resources.
Mr. Stowe joined the Company as Vice President, Marketing and Business
Development in 1995. From 1989 until joining the Company, he was a partner and
practice leader at Charles J. Singer & Co., a managed care research and
consulting firm.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of the
Company.
Item 2. Properties
The Company's executive and corporate offices comprise 48,000 square feet of
a facility at 245 First Street, Cambridge, Massachusetts under lease agreements
that expire on August 31, 2003. The Company also maintains three sales offices
in Illinois, Arizona and Nevada. The Company believes that its facilities are
adequate for its current operations.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Annual Report on Form 10-K, the Company is not a party to any legal
proceedings which, if decided adversely to the Company, in management's opinion
would have a material adverse effect on the Company's results of operations or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market for Common Stock
The Company effected its initial public offering on August 10, 1995 at a price
of $8.00 per share (adjusted to reflect a 2 for 1 stock split for shareholders
of record as of April 26, 1996 effected in the form of a stock dividend). Since
that date, the Company's Common Stock has traded on the Nasdaq National Market
under the symbol HPRI. The following table represents the high and low sales
prices for the Company's common stock for each quarter of fiscal 1997 and 1996
as reported by Nasdaq National Market. All stock prices have been restated to
reflect a 2 for 1 stock split to shareholders of record as of April 26, 1996
effected in the form of a stock dividend.
High Low
Fiscal 1997
4th quarter ended June 30, 1997 $18.75 $ 10.75
3rd quarter ended March 31, 1997 $18.38 $ 10.13
2nd quarter ended December 31, 1996 $16.25 $ 11.50
1st quarter ended September 30, 1996 $22.00 $ 13.50
Fiscal 1996
4th quarter ended June 30, 1996 $25.63 $ 18.25
3rd quarter ended March 31, 1996 $21.75 $ 15.50
2nd quarter ended December 31, 1995 $18.13 $ 11.25
1st quarter ended September 30, 1995 $13.25 $ 9.00
Holders of Record
As of August 11, 1997 there were 84 holders of record of the Company's
Common Stock.
Dividends
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain future earnings, if any, to fund
the development and growth of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future.
<PAGE>
Item 6. Selected Financial Data
The following table contains selected consolidated financial data of the
Company and is qualified by the more detailed Consolidated Financial Statements
and Notes thereto included in Item 8 hereof. The statement of operations data
for the fiscal years ended June 30, 1995, 1996 and 1997 and the balance sheet
data as of June 30, 1996 and 1997 have been derived from Consolidated Financial
Statements, which statements have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included in Item 8 of this Form 10-K. The
statement of operations data for the fiscal years ended June 30, 1993 and 1994
and the balance sheet data as of June 30, 1993, 1994, and 1995 have been derived
from the Company's Consolidated Financial Statements, which statements have been
audited by Coopers & Lybrand L.L.P. and are not included in this Form 10-K. This
data should be read in conjunction with Consolidated Financial Statements and
Notes thereto and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
Fiscal Year Ended June 30,
(in thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996(6) 1997
Statement of Operations Data:
Revenues......................... $10,770 $14,065 $18,264 $28,310 $39,101
------- ------- ------- ------- -------
Expenses:
Cost of revenues............... 2,277 3,452 4,235 7,348 7,900
Marketing and sales............ 3,529 4,016 4,664 6,328 8,672
Research and development....... 598 1,499 3,257 3,892 7,011
General and administrative..... 1,701 2,324 2,037 3,594 4,774
Cost of acquisition (1) ....... -- -- -- 336 --
-- -- -- --- --
Total expenses............... 8,105 11,291 14,193 21,498 28,357
----- ------ ------ ------ ------
Operating income................. 2,665 2,774 4,071 6,812 10,744
Interest income (expense), net... (105) 17 302 878 1,240
Gain on settlement of litigation(2) -- -- 5,800 -- --
-- -- ----- -- --
Income before taxes.............. 2,560 2,791 10,173 7,690 11,984
----- ----- ------ ----- ------
Provision for income taxes....... 1,059 1,160 4,106 3,168 4,973
----- ----- ----- ----- -----
Net income(2).................... $1,501 $1,631 $6,067 $4,522 $7,011
====== ====== ====== ====== ======
Net income per share............. $0.11 $0.12 $0.43 $0.29 $0.44
1995 Pro forma net income(3)..... $2,608
1995 Pro forma net income per $0.18
share(3).........................
1996 Pro forma net income(4)..... $4,719
1996 Pro forma net income per $0.30
share(4).........................
Weighted average common shares and
equivalents (5)................ 13,522 13,966 14,175 15,840 16,103
</TABLE>
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996(6) 1997
------- ------- ------- -------- -------
Balance Sheet Data:
Working capital............... $2,192 $3,555 $11,130 $20,465 $31,881
Total assets.................. 7,915 10,805 17,988 34,603 47,531
Long-term liabilities......... 367 601 1,931 882 559
Stockholders' equity.......... 3,377 5,055 11,282 27,915 38,269
Dividends per share............. 0 0 0 0 0
<FN>
(1) In April 1996, the Company incurred costs related to the acquisition of The
Integrity Group, Inc. which resulted in an expense of $336,000.
(2) In January 1995, GMIS, Inc. made a one-time payment to the Company in
settlement of certain litigation, which payment was recorded as a gain, net
of certain legal and other costs.
(3) Reflects the fiscal 1995 net income on a pro forma basis by excluding the
gain on settlement of litigation and its related tax effect. Gain on
settlement of litigation, net of expenses, was $5,800,000, less an
effective tax rate of 40.4% ($2,341,000), which results in an after tax
gain of $3,459,000 on settlement of litigation. Accordingly, net income of
$6,067,000 less the $3,459,000 after tax gain results in pro forma net
income of $2,608,000.
(4) Reflects the fiscal 1996 net income on a pro forma basis by excluding the
costs related to the acquisition of The Integrity Group, Inc. and the
related tax effect. Costs of the acquisition were $336,000, less an
effective tax rate of 41.2% ($138,000), resulting in an after tax loss of
$198,000 due to acquisition costs. Accordingly, net income of $4,521,000
plus the $198,000 after tax expenditures results in pro forma net income of
$4,719,000.
(5) All share and earnings per share amounts have been restated to reflect the
impact of a stock split effected in the form of a 100% stock dividend
granted on May 6, 1996 to all shareholders of record on April 26, 1996.
(6) The acquisition of The Integrity Group was accounted for as a pooling of
interests. However, due to the relative immateriality of TIG's financial
position with respect to HPR as of the date of combination, the merger of
the equity interests was given retroactive effect to the beginning of
fiscal 1996. Accordingly, TIG's assets, liabilities, and shareholder's
equity were brought onto the Company's consolidated books as of the
beginning of the period as an adjustment to beginning equity.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company licenses its products primarily pursuant to multi-year
non-cancellable agreements that, in general, provide for payment of equal annual
license fees over their terms. This type of arrangement provides the Company
with a significant recurring component to its revenues each year. Revenue from
software license agreements is recognized upon execution of a contract and
shipment of the software provided that no significant vendor obligations remain
outstanding and the related receivable is due within one year of the contract
date and collection is deemed probable by management. For recurring license
fees, revenues are recognized on the contract anniversary date. The Company
accrues incidental support costs associated with these licenses when revenues
are recognized. Revenues from services are recognized when the services are
delivered. There can be no assurance that the Company will be able to enter into
new license agreements at the current rate or to maintain the current pricing
for its products.
Prior to fiscal 1993, the Company's revenues were derived from a single
product, CodeReview, and between July 1993 and May 1995 from three products,
CodeReview, Medicare CodeReview and Patterns Review. In May 1995, the Company
introduced its fourth product, Episode Profiler, and in October 1995 introduced
its fifth product, Quality Profiler. The acquisition of The Integrity Group,
Inc. in April 1996 provided the Company with its sixth product, Credentialer.
During fiscal 1997 the Company introduced four more products to market: Referral
Profiler in July 1996, Patterns Profiler in September 1996, HealthPlan Reporter
in March 1997, and ProMatch in June 1997. The introduction of these four
products brings HPR's total product count to ten as of June 30, 1997. In July
1997, the Company released its eleventh product to market, CRMS Fundamentals. In
addition, the Company has expended significant development resources during
fiscal 1997 towards the production of its twelfth product, CCMS Core, the first
product in the CCMS line. The Company believes that as the markets for
CodeReview and Patterns Review mature, the continued growth of the Company will
require the successful introduction of new products and further enhancements to
its existing products. There can be no assurance that the Company will continue
to design, develop, and release successful new product offerings in the future.
The Company has experienced a seasonal pattern in its operating results,
with the fourth and second fiscal quarters typically having the highest revenues
and net income and the first and third fiscal quarters typically having lower
revenues and net income. The timing of revenues is influenced by a number of
factors, including the timing of individual orders and shipments, seasonal
customer buying patterns and changes in product development and sales and
marketing expenditures. The Company believes the seasonality of its revenues and
net income for the fourth fiscal quarter can be attributed to due dates for
payment obligations under multi-year license agreements, renewals of existing
agreements and the Company's sales compensation program, which is based
significantly on fiscal year sales levels. Furthermore, the Company typically
experiences long sales cycles for new customers, which may extend over several
quarters before a sale is consummated. As a result, the Company believes that
quarterly results of operations will continue to be subject to significant
fluctuations and that its results of operations for any particular quarter or
fiscal year may not be indicative of results of operations for future periods.
The Company believes that continued investment in research and development
and expansion of its national direct sales force are critical to its success.
The Company believes that the aggregate amount of research and development
expense will continue to increase, if revenues increase as expected, while the
level of research and development expense as a percentage of revenues will
remain relatively constant.
For each of the last three fiscal years, the Company has made significant
investments in the direct sales force in anticipation of new product releases.
As the Company has grown from two products in fiscal 1994 to the current
offering of three distinct product suites encompassing 12 individual products,
the Company has continued to invest in quality personnel within the sales
organization. The Company believes that the national sales force is well
positioned to address the shift of financial risk associated with the delivery
of healthcare from payors to providers and consequently, will be prepared to
sell into this new market for the Company. However, there is no assurance that
the Company will be able to penetrate these relatively new market opportunities
with the same level of success that has been realized in the payor market.
The Company capitalizes software costs for internally developed software in
accordance with FASB 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed." These costs relate primarily to the
development of new products and the extension of existing applications to new
markets or platforms using existing technologies and programming methods. The
capitalized costs are amortized on a straight-line basis over the estimated
useful life of the product (typically three years), commencing when each product
is available to the market.
Results of Operations
The following table sets forth, for the fiscal periods indicated, certain
items from the statement of operations expressed as a percentage of revenues:
Fiscal Year Ended June 30,
1995 1996 1997
-------- -------- ------
Revenues...................... 100 % 100% 100%
Expenses:
Cost of revenues............ 23 26 20
Marketing and sales......... 26 22 22
Research and development.... 18 14 18
General and administrative.. 11 13 12
Cost of acquisition -- 1 0
-- - -
Total expenses........... 78 76 72
-- -- --
Operating income.............. 22 24 28
Interest income (expense), 2 3 3
net...........................
Gain on settlement of 32 -- --
litigation.................... -- -- --
Income before taxes........... 56 27 31
Provision for income taxes.... 23 11 13
-- -- --
Net income.................... 33 % 16% 18%
==== === ===
Fiscal Years Ended June 30, 1995, 1996 and 1997
Revenues. Revenues increased 55% from $18,264,000 in 1995 to $28,310,000 in
1996 and 38% to $39,101,000 in 1997. A major contributor to this steady revenue
growth has been the successful release of new products to market. Over the three
year period from fiscal 1995 to fiscal 1997 the Company's product offering has
grown from three products in fiscal 1995 to ten products as of June 30, 1997.
The Company's first two products, CodeReview and Patterns Review, continue to
show strong year over year performance both through new licenses and renewals of
existing licenses.
Fiscal year 1996 revenues reflect revenues from the acquisition of The
Integrity Group, Inc. ("TIG") in April 1996, which was accounted for as a
pooling of interests incorporating TIG's results of operations for the entire
fiscal year. In addition, the fiscal 1996 results reflect a full year of
revenues related to the Company's Episode Profiler product, initially released
in the fourth quarter of fiscal 1995, as well as revenues from the release of
Quality Profiler in October 1995.
Fiscal 1997 revenues include contributions from 4 new products: Referral
Profiler, Patterns Profiler, HealthPlan Reporter, and ProMatch. In addition, the
Company has recognized development revenues in fiscal 1997 from CCMS Core
co-development contracts with Tufts Associated Health Plans and Healthsource,
Inc.
Cost of Revenues. Cost of revenues increased 74% from $4,235,000 in 1995 to
$7,348,000 in 1996 and 8% to $7,900,000 in 1997. As a percentage of revenues,
the cost of revenues increased from 23% in 1995 to 26% in 1996 and decreased to
20% in 1997. The increase from 1995 to 1996 was primarily due to certain royalty
payments to third parties for software licensed by the Company for incorporation
into the Company's products and by increased investment in the technical and
clinical customer support functions. During fiscal 1997 significant resources
were dedicated to the development of three new products released during the
year, as well as HPR's newest products, CCMS Core (currently under development)
and CRMS Fundamentals. As a result, there was a shift in personnel resources and
the related expenses from application maintenance and other typical cost of
revenue projects, to application development. Accordingly, there was a
redistribution of fiscal 1997 expense classification from cost of revenue to
research and development. As the Company finishes development of CCMS Core in
fiscal 1998 it is expected that the cost of revenues will remain relatively
constant or increase slightly as a percentage of revenues as resources focus on
the maintenance of the Company's twelve existing products.
Marketing and Sales. Marketing and sales increased 36% from $4,664,000 in
1995 to $6,328,000 in 1996 and 37% to $8,672,000 in 1997. As a percentage of
revenues, marketing and sales decreased from 26% in 1995 to 22% in 1996 and
remained flat in 1997. The Company invests in certain promotional activities
each fiscal year which include trade shows and seminars as well as the
development of collateral materials designed to increase awareness of the
Company and its products. In addition, the Company spends significant time and
resources in recruiting quality individuals to be a part of the direct sales
force. As the Company has continued to invest in marketing and sales programs,
the investment has contributed to higher revenues in each of the last three
fiscal years causing sales and marketing expense to decrease as a percentage of
revenues over that same period. The Company expects sales and marketing to
remain relatively constant as a percentage of revenues.
Research and Development. Research and development efforts by the Company
are focused on developing new products and enhancing existing products. Research
and development costs increased 19% from $3,257,000 in 1995 to $3,892,000 in
1996 as a result of continued research efforts on Quality Profiler and Referral
Profiler. Research and development increased 80% from $3,892,000 in 1996 to
$7,011,000 in 1997 as a result of development in connection with the release of
four new products to market in fiscal 1997. In addition, in fiscal 1997 the
Company underwent one of its largest development efforts to date in the design
and production of CCMS Core, the first in a suite of Clinical Care Management
System products. As a percentage of revenues, research and development decreased
from 18% in 1995 to 14% in 1996 and then increased in 1997 to 18%. The decrease
in 1996 is a result of two factors: the significant increase in revenue dollars
in 1996 over 1995 and the release of Episode Profiler in late 1995 and Quality
Profiler in October 1996, both of which were in development during fiscal 1995.
The increase in fiscal 1997 is a by-product of the development efforts discussed
above. With the increase in development activities on the Company's new product
lines, management expects that research and development expenditures will
increase but remain substantially the same or decrease slightly as a percentage
of revenue for the foreseeable future.
General and Administrative. General and administrative expenses increased
76% from $2,037,000 in 1995 to $3,594,000 in 1996 and 33% to $4,774,000 in 1997.
As a percentage of revenues, general and administrative expenses increased from
11% in 1995 to 13% in 1996 and decreased slightly to 12% in fiscal 1997. The
increased expenditures from 1995 to 1996 are due primarily to increased expenses
related to being a publicly-traded company, certain costs incurred in moving the
Company's headquarters in August 1995, and an increase in the provision for bad
debt expenses in proportion to the increase in revenues. During fiscal 1997 the
Company made significant investments in infrastructure, management information
systems, and human resources to prepare itself for the future. Although the
increase in expenditures in fiscal 1997 is in line with the Company's growth
during the year, the Company believes that if revenues increase, general and
administrative expenses should decrease as a percentage of revenues in the
future. However, there can be no assurance that general and administrative
expenses will not increase at a rate faster than revenues in the future.
Costs of Acquisition. In April 1996, the Company acquired The Integrity
Group, Inc. ("TIG"), an Alabama corporation, in a transaction accounted for as a
pooling of interests. The Company incurred one time costs related to the
acquisition of $336,000 primarily related to legal, accounting, and finders
fees.
Interest Income (Expense), Net. The Company realized interest income of
$302,000 in 1995, $877,000 in 1996, and $1,240,000 in 1997. Interest income
represents interest earned on the Company's excess cash balances, which are
generally placed in short term investments, money market funds and government
securities. The increase is due to the interest earned on cash balances of the
Company generated from operations and the proceeds from the Company's initial
public offering of its common stock completed in August 1995 and from the
follow-on offering completed in February 1996.
Gain on Settlement of Litigation. In January 1995, the Company settled all
of the outstanding claims between the Company and GMIS, Inc. related to the
Company's patent for CodeReview. Under the settlement agreement, the Company
granted GMIS a nonexclusive license under the patent, and GMIS acknowledged the
validity of the patent and made a one-time payment, net of legal and certain
other costs, of $5,800,000 to the Company.
Income Taxes. The Company's effective tax rate was 40.4% in 1995 compared
with 41.2% in 1996 and 41.5% in 1997. The Integrity Group, Inc. was a Subchapter
S corporation until its acquisition on April 30, 1996. As a result, the former
shareholders of TIG are responsible for all taxes on profits made through that
date. The Company has recorded taxes for the final two months of the 1996 fiscal
year related to TIG's activity. The Company has no federal income tax loss carry
forwards.
Liquidity and Capital Resources
During the period from inception through June 30, 1997, the Company raised
approximately $15.9 million, net of expenses, through the issuance of equity
securities, of which amount approximately $7.2 million was raised in the first
quarter of fiscal 1996 in the Company's initial public offering and $4.2 million
was raised in the third quarter of fiscal 1996 in the Company's second public
offering. The Company generated cash of $5.3 million from operations in fiscal
1995, approximately $4.5 million in fiscal 1996 and approximately $3.8 million
during fiscal 1997. At June 30, 1997, the Company had cash and cash equivalents
of $13.9 million. The Company regularly invests excess funds in short-term money
market funds, government securities and commercial paper.
On February 7, 1997, the Company received an extension and modification of
its revolving bank credit facility from $5,000,000 to $7,500,000 with an
expiration date of December 30, 1997. No borrowings have been made to date under
the facility.
The Company believes that available funds and cash generated from operations
will be sufficient to meet the Company's operating requirements, assuming no
change in the operations of the Company's business, for the foreseeable future.
To date inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.
Impact of Recently Issued Accounting Pronouncements
The FASB issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which
modifies the way in which earnings per share ("EPS") is calculated and
disclosed. Currently, the Company discloses primary EPS. Upon adoption of this
standard for the fiscal period ending June 30, 1998, the Company will be
required to disclose either basic EPS or both basic and dilutive EPS. The
principal difference being that common stock equivalents would not be considered
in the computation of basic EPS. The impact of adoption of SFAS 128 has not yet
been determined.
The FASB recently issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income". This statement requires changes in comprehensive income
to be shown in a financial statement that is displayed with the same prominence
as other financial statements. While not mandating a specific financial
statement format, the Statement requires that an amount representing total
comprehensive income be reported. Comprehensive income components include:
unrealized gains and losses on available-for-sale investments in debt and equity
securities, foreign currency translation adjustments, and minimum pension
liability adjustments. The Statement will become effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods is required for comparative purposes. The Company does not
believe that this statement will have a material impact on the results of
operations.
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 specifies new guidelines for
determining a company's operating segments and related requirements for
disclosure. The Company does not believe that this statement will have an impact
on the presentation of the financial statements and the disclosures therein.
Risk Factors Relating to Forward-Looking Statements
Statements in this report concerning the future results of operations,
financial condition and business of the Company are "forward-looking" statements
as defined in the Securities Act of 1933 and the Securities Exchange Act of
1934. Investors are cautioned that information contained in these
forward-looking statements is inherently uncertain, and that actual performance
and results may differ materially due to numerous risk factors, including but
not limited to the following:
Seasonality and Variable Operating Results.
The Company has experienced a seasonal pattern in its operating results,
with the fourth and second fiscal quarters typically having the highest revenues
and net income and the first and third fiscal quarters typically having lower
revenues and net income. The timing of revenues is influenced by a number of
factors, including the timing of individual orders and shipments, seasonal
customer buying patterns and changes in product development and sales and
marketing expenditures. The Company believes the seasonality of its revenues and
net income for the fourth fiscal quarter can be attributed to due dates for
payment obligations under multi-year license agreements, renewals of existing
agreements and the Company's sales compensation program, which is based
significantly on fiscal year sales levels. The Company believes the seasonality
of its revenues and net income in the second fiscal quarter can be attributed to
the seasonal purchasing patterns of its customers. The Company most recently
reported a net loss in the first and third quarters of fiscal 1994 and there can
be no assurance that the Company will be profitable during future quarters. In
addition, although the Company has no present agreements or commitments to enter
into any major contracts, the signing of a major contract could generate a large
increase in revenues and net income for any given quarter or fiscal year, which
increase may prove anomalous when compared to changes in revenues and net income
in other periods. Furthermore, the Company typically experiences long sales
cycles for new customers, which may extend over several quarters before a sale
is consummated. As a result, the Company believes that quarterly results of
operations will continue to be subject to significant fluctuations and that its
results of operations for any particular quarter or fiscal year may not be
indicative of results of operations for future periods.
Dependence Upon New Product Development, Acceptance and Enhancement.
The market for the Company's products is characterized by rapid
technological progress and changing customer needs. The Company believes that as
the markets for CodeReview and Pattern Review mature, the continued growth of
the Company will require the successful introduction of new products.
Accordingly, the Company's future success will depend on its ability to
successfully develop and introduce new products, including HealthPlan Reporter,
CCMS Core, and the other modules of the Clinical Care Management System
("CCMS"), and to enhance its existing products. There can be no assurance that
the Company will be successful in developing, introducing on a timely basis, and
marketing such products or enhancements or that they will be accepted by the
market. Significant research and development expenditures will be required in
the future. There can be no assurance that the Company's expected new product
releases and product enhancements will adequately address customer requirements
for performance and functionality or that its software will not contain "bugs"
that would delay product introduction or shipment.
Dependence on Third Party for Component of Episode Profiler.
A principal component of Episode Profiler, the "Episode Treatment Groups"
product, is licensed from a third-party vendor, Symmetry Health Data Systems,
Inc. ("Symmetry"), under the terms of a 63-month license which commenced
November 17, 1994 and has a 24-month renewal term which is contingent on the
Company meeting minimum royalty requirements. Symmetry has agreed, subject to
certain conditions, that it will not license Episode Treatment Groups to certain
other companies which might be considered competitors of the Company. While the
Company believes that the terms of such license are adequate to protect the
Company's investment in Episode Profiler, any factor adversely affecting the
Company's ability to retain the benefits of such license or to obtain the
updated Episode Treatment Groups would have a material adverse effect on the
Company's results of operations, financial condition and business.
Risk of Inability to Grow Through Acquisitions.
The Company has grown, and intends to continue to grow, in part through
acquisitions of products, technologies and businesses. The Company's ability to
expand successfully through acquisitions depends on many factors, including the
successful identification and acquisition of products, technologies and
businesses and management's ability to effectively integrate and operate the new
products, technologies or businesses. There is significant competition for
acquisition opportunities in the industry, which may intensify due to
consolidation in the industry, increasing the costs of capitalizing on such
opportunities. The Company competes for acquisition opportunities with other
companies that have significantly greater financial and management resources.
Management of Growth.
The Company is currently experiencing a period of rapid growth and expansion
which could place a significant strain on the Company's personnel and resources.
The Company's growth has resulted in an increase in the level of responsibility
for both existing and new management personnel. The Company has sought to manage
its current and anticipated growth through the recruitment of additional
management and technical personnel and the implementation of internal systems
and controls. However, the failure to manage growth effectively could adversely
affect the Company's results of operations, financial condition or business.
Inability to Retain or Attract Customers Due to Competition and
Consolidation.
The market in which HPR's products are licensed is highly competitive. Most
of the Company's competitors have significantly greater financial, technical,
product development and marketing resources than the Company. The Company's
potential competitors for customers include healthcare information companies and
large data processing and information companies that may have more diverse
product offerings covering a broader spectrum of the healthcare industry. Many
of these competitors have substantial installed customer bases in the healthcare
industry and the ability to fund significant product development and acquisition
efforts. In addition, the Company has noted a trend towards consolidation of
customers within its market. While this consolidation results in substantially
larger potential customers, the Company also is faced with a risk of existing
customers being acquired by entities that use a competitor's product. The
Company continues to believe that the principal competitive factors in its
market are clinical credibility and integrity and product innovation. These
factors address both customer needs for cost containment tools and increasing
industry concerns about quality control. Other important competitive factors
include product reputation and reliability, system features, client service,
price, and the effectiveness of marketing and sales efforts. There can be no
assurance that future competition will not have a material adverse effect on the
Company's results of operations, financial condition or business.
Dependence on Proprietary Software and Clinical Knowledge-Bases.
The Company's success is dependent to a significant extent on its ability to
maintain the proprietary and confidential software and clinical knowledge-bases
incorporated in CodeReview, ProMatch, Patterns Review, Episode Profiler, Quality
Profiler, Referral Profiler, HealthPlan Reporter, Patterns Profiler, CRMS
Fundamentals, CCMS Core and other products as they are released. The Company
relies on a combination of patent, trade secret, copyright and contractual
protections to establish and protect its proprietary rights. There can, however,
be no assurance that the legal protections and the precautions taken by the
Company will be adequate to prevent misappropriation of the Company's
technology. Any infringement or misappropriation of the Company's proprietary
software and clinical knowledge-bases would disadvantage the Company in its
efforts to retain and attract new customers in a highly competitive market, and
could cause the Company to lose revenues or incur substantial litigation
expense. In addition, these protections and precautions do not prevent
independent third-party development of competitive technology or products.
Further, the Company depends on third-party suppliers to license to HPR
necessary technology that is incorporated into certain of the Company's
products, including Episode Profiler. The inability of the Company for any
reason to continue using or otherwise acquire such technology could prevent
distribution of such products, which would have a material adverse effect on the
Company's results of operations, financial condition or business.
Dependence on Certain Key Personnel.
The Company depends to a significant extent on key management, technical and
marketing personnel. The Company's growth and future success will depend in
large part on its ability to attract, motivate and retain highly qualified
personnel. The Company does not have employment agreements with any of its
officers or key employees providing for their employment for any specific term.
The Company does not have "key person" life insurance on any of its personnel
other than Marcia J. Radosevich, the Company's Chairman of the Board, Chief
Executive Officer, and President. The loss of key personnel or the inability to
hire or retain qualified personnel could have a material adverse effect on the
Company's results of operations, financial condition or business.
Uncertainty in the Healthcare Industry.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. The Company's products are designed to function within
the structure of the current national healthcare financing and reimbursement
system currently being used in the United States. The Company believes that the
commercial value and appeal of its products may be adversely affected if that
system were to be materially changed. During the past several years, the United
States healthcare industry has been subject to an increase in governmental
regulation of, among other things, reimbursement rates. Proposals to reform the
United States healthcare system are from time to time under consideration by the
U.S. Congress. These programs may contain proposals to increase government
involvement in healthcare and otherwise change the operating environment for the
Company's customers. Healthcare organizations may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments in cost containment tools and related technology such as the
Company's products. The Company cannot predict what impact, if any, such factors
might have on its results of operations, financial condition or business. In
addition, many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater regional market power. As a result,
these emerging systems could have greater bargaining power, which may lead to
price erosion of the Company's products. The failure of the Company to maintain
adequate price levels would have a material adverse effect on the Company's
results of operations, financial condition or business. Other legislative or
market-driven reforms could have unpredictable effects on the Company's results
of operations, financial condition or business.
Risk of Product Liability Claims.
The Company's products provide information that relates to payment of
healthcare claims and to the appropriateness of medical treatment in particular
cases and in general. Any failure by the Company's products to process such
claims or to review such treatments accurately could result in claims against
the Company by its customers. Further, successful use of the Company's products
could influence the treatments rendered by providers and give rise to claims
against the Company by patients or providers. The Company maintains insurance to
protect against certain claims associated with the use of its products, but
there can be no assurance that its insurance coverage would adequately cover any
claim asserted against the Company. A successful claim brought against the
Company in excess of, or excluded from, its insurance coverage could have a
material adverse effect on the Company's results of operations, financial
condition or business. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and management time and resources. While to
date the Company has not experienced any product liability claims against it,
the Company is aware of claims made against payors by patients for coverage
decisions which adversely influenced medical treatment. There can be no
assurance that the Company will not be subject to product liability claims, that
such claims will not result in liability in excess of its insurance coverage,
that the Company's insurance will cover such claims or that appropriate
insurance will continue to be available to the Company in the future at
commercially reasonable rates. In addition, if liability of the Company were to
be established, substantial revisions to its products could be required that may
cause the Company to incur additional unanticipated research and development
expenses.
Possible Volatility of Stock Price.
Prior to August 10, 1995, there was no public market for the Common Stock,
and there can be no assurance that an active trading market will be sustained or
that the market price of the Common Stock will not decline below its current
price. The stock market historically has experienced volatility which has
affected the market price of securities of many companies and which has
sometimes been unrelated to the operating performance of such companies. The
trading price of the Common Stock could also be subject to significant
fluctuations in response to variations in quarterly results of operations,
announcements of new products or acquisitions by the Company or its competitors,
governmental regulatory action, other developments or disputes with respect to
proprietary rights, general trends in the industry and overall market
conditions, and other factors. The market price of the Common Stock may be
significantly affected by factors such as announcements of new products by the
Company's competitors, as well as variations in the market conditions in the
medical cost containment or software industries in general. The market price may
also be affected by movements in prices of equity securities in general.
<PAGE>
Item 8. Financial Statements and Supplementary Data
HPR Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants............................................29
Consolidated Balance Sheets as of June 30, 1996 and 1997 ....................30
Consolidated Statements of Operations for the fiscal years ended June 30,
1995, 1996 and 1997..........................................................31
Consolidated Statements of Stockholders' Equity for the fiscal years ended
June 30, 1995, 1996 and 1997.................................................32
Consolidated Statements of Cash Flows for the fiscal years ended June 30,
1995, 1996 and 1997..........................................................33
Notes to Consolidated Financial Statements...................................34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HPR Inc:
We have audited the accompanying consolidated balance sheets of HPR Inc. as
of June 30, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HPR Inc. as of
June 30, 1996 and 1997 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 1, 1997
<PAGE>
HPR Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30,
---------------------------
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents (Note 2) ................ $ 8,479,122 $ 13,943,693
Investments in marketable securities ............. 9,016,146 10,842,696
Accounts receivable, net of allowances for doubtful
accounts of $603,000 and $651,500 for 1996 and .. 4,491,065 6,952,573
1997
Contract receivables .............................. 3,142,680 6,890,342
Deferred income taxes (Note 6) .................... 415,149 698,022
Prepaid expenses and other current assets ......... 727,044 1,257,276
------------ ------------
Total current assets ....................... 26,271,206 40,584,602
Investments in marketable securities ................ 5,394,340 2,984,465
Property and equipment, net (Note 4) ................ 1,964,164 2,509,775
Software development costs, net (Note 2) ............ 873,427 1,347,654
Other assets ........................................ 100,332 104,570
------------ ------------
Total assets ............................... $ 34,603,469 $ 47,531,066
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable .................................. $ 607,259 $ 749,138
Accrued royalties ................................. 456,521 1,025,979
Accrued expenses .................................. 581,524 1,181,450
Accrued support costs ............................. 1,425,191 1,792,584
Accrued employee compensation and benefits ........ 1,323,973 2,247,295
Deferred revenue .................................. 698,029 1,498,147
Income taxes payable .............................. 438,758 --
Sales taxes payable ............................... 275,022 209,067
------------ ------------
Total current liabilities .................. 5,806,277 8,703,660
Deferred income taxes (Note 6) ...................... 882,173 558,791
------------ ------------
Total liabilities .......................... 6,688,450 9,262,451
------------ ------------
Commitments and contingencies (Note 5)
Stockholders' Equity:
Convertible preferred stock, par value $0.10,
3,000,000 shares authorized; zero shares
outstanding at June 30, 1996 and 1997............. -- --
Common stock, par value $0.01, 35,000,000 shares
authorized; 17,918,625 and 15,325,303 shares
issued and 15,012,375 and 15,325,303 shares
outstanding at June 30, 1996 and 1997, respectively 179,185 153,253
Additional paid-in capital ........................ 15,972,680 18,335,055
Less treasury stock, at cost: 2,906,250 and zero
shares at June 30,1996 and 1997, respectively .. (2,843,900) --
Retained earnings ................................. 14,607,054 19,780,307
------------ ------------
Total stockholders' equity ................. 27,915,019 38,268,615
------------ ------------
Total liabilities and stockholders' equity . $ 34,603,469 $ 47,531,066
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
HPR Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended June 30,
1995 1996 1997
------------- ------------- ---------
Revenues......................... $18,263,831 $28,310,272 $39,101,380
Expenses:
Cost of revenues............... 4,234,427 7,348,354 7,900,286
Marketing and sales............ 4,664,362 6,328,282 8,672,199
Research and development....... 3,257,268 3,891,381 7,010,839
General and administrative..... 2,036,644 3,594,331 4,774,084
Cost of acquisition (Note 10) . -- 335,544 --
-- ------- --
Total expenses................... 14,192,701 21,497,892 28,357,408
---------- ---------- ----------
Operating income................. 4,071,130 6,812,380 10,743,972
Interest income (expense), net... 301,412 877,377 1,240,066
Gain on settlement of litigation
(Note 9)...................... 5,800,223 -- --
--------- -- --
Income before provision for income
taxes.......................... 10,172,765 7,689,757 11,984,038
Provision for income taxes....... 4,105,277 3,167,894 4,973,385
--------- --------- ---------
Net income....................... $6,067,488 $4,521,863 $7,010,653
========== ========== ==========
Net income per share............. $0.43 $0.29 $0.44
Weighted average common shares and
equivalents (1)................ 14,175,000 15,840,000 16,103,000
(1) All share and earnings per share amounts have been restated to reflect the
stock split effected in the form of a 100% stock dividend granted on May 6,
1996 to all shareholders of record on April 26, 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HPR Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Year Ended June 30, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Preferred
Stock Common Common Additional Treasury Treasury Total
Shares Stock Stock Paid-in Retained Stock Stock Stockholders'
Issued Amount Issued Amount Capital Earnings Shares Amount Equity
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 2,762,500 $ 276,250 8,835,900 $ 88,359 $ 3,606,576 $ 3,928,199 (2,906,250) $(2,843,900) $ 5,055,484
1994 Issuance of
common stock 25,000 250 16,000 16,250
Options exercised 1,465,000 14,650 127,880 142,530
Net income ....... 6,067,488 6,067,488
----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- -----------
Balance at June 30,
1995 .............. 2,762,500 276,250 10,325,900 103,259 3,750,456 9,995,687 (2,906,250) (2,843,900) 11,281,752
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Pooling of interests
with The Integrity
Group, Inc. .. 260,001 2,600 119,900 89,504 212,004
Balance as restated 2,762,500 276,250 10,585,901 105,859 3,870,356 10,085,191 (2,906,250) (2,843,900) 11,493,756
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Conversion of
preferred stock... (2,762,500) (276,250) 5,525,000 55,250 221,000 --
Issuance of common
stock in initial
public offering 1,077,052 10,770 8,002,578 8,013,348
Expenses related
to initial public
offering ...... (858,896) (858,896)
Issuance of common
stock in second 288,596 2,886 4,645,545 4,648,431
public offering
Expenses related to
second public .... (424,420) (424,420)
offering
Options exercised .. 442,076 4,420 164,632 169,052
Tax benefits on stock
options
exercised...... 351,885 351,885
Net income ...... 4,521,863 4,521,863
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Conversion of
Balance at June 30,
1996 .............. -- -- 17,918,625 179,185 15,972,680 14,607,054 (2,906,250) (2,843,900) 27,915,019
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Options exercised 325,180 3,252 399,349 402,601
Purchase of
Treasury Stock (12,252) (7,922) (7,922)
Tax benefits on
stock options 2,948,264 2,948,264
exercised
Retirement of (2,918,502) (29,184) (985,238 (1,837,400) 2,918,502 2,851,822 --
Treasury Stock
Net income 7,010,653 7,010,653
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June
30, 1997 ........ -- $ 0 15,325,303 $ 153,253 $18,335,055 $19,780,307 -- $ 0 $38,268,615
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
HPR Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended June 30,
1995 1996 1997
------------ ------------ --------
Cash flows from operating activities:
Net income........................ $6,067,488 $4,521,863 $7,010,653
Adjustments to reconcile net
income to
cash provided by operating
activities:
Depreciation and amortization.. 1,074,491 1,254,119 1,467,972
Provision for doubtful accounts 210,000 321,302 425,000
Loss on disposal of equipment.. 124,488 -- --
Amortization of discount on
investments.................. -- (114,242) (203,353)
Change in operating assets and
liabilities:
Accounts receivable............ (1,867,568) (1,785,004) (6,634,170)
Prepaid expenses............... (970,859) 490,502 (530,232)
Other assets................... 76,191 -- (4,238)
Accounts payable and other
accrued liabilities........... 1,130,196 322,411 2,601,978
Sales taxes payable............ (123,944) 128,403 (65,955)
Deferred revenue............... (62,258) (90,895) 800,118
Deferred income taxes.......... 373,364 (1,026,570) (606,255)
Income taxes payable........... (705,401) 438,758 (438,758)
--------- ------- ---------
Net cash provided by operating
activities................ 5,326,188 4,460,647 3,822,760
--------- --------- ---------
Cash flows for investing activities:
Capitalized software development
costs.......................... (591,261) (366,332) (1,025,009)
Capital expenditures.............. (664,330) (1,732,624) (1,462,801)
Sale of marketable securities..... -- 15,276,906 18,763,596
Purchase of marketable securities. -- (29,573,130) (17,976,918)
-- ------------ ------------
Net cash used in investing
activities................ (1,255,591) (16,395,180) (1,701,132)
----------- ------------ -----------
Cash flows from financing
activities:
Proceeds from initial public
offering....................... -- 8,013,348 --
Expenses related to initial public
offering....................... -- (858,896) --
Proceeds from second public
offering....................... -- 4,648,431 --
Expenses related to second public
offering....................... -- (424,420) --
Proceeds from sale of common stock 16,250 -- --
Proceeds from exercise of stock
options........................ 142,530 169,052 402,601
Payments to acquire treasury stock -- -- (7,922)
Payments on long-term debt........ (91,860) -- --
Tax benefits from exercise of stock
options...................... -- 351,885 2,948,264
-- ------- ---------
Net cash provided by
financing activities...... 66,920 11,899,400 3,342,943
------ ---------- ---------
Net increase (decrease) in cash and
cash equivalents.................... 4,137,517 (35,133) 5,464,571
--------- -------- ---------
Cash and cash equivalents, beginning
of period............................ 4,348,545 8,486,062 8,479,122
Cash and cash equivalents provided
by the acquisition of The Integrity
Group, Inc. ........................ -- 28,193 --
Adjusted cash and cash equivalents,
beginning of period............... 4,348,545 8,514,255 8,479,122
--------- --------- ---------
Cash and cash equivalents, end of
period............................ $8,486,062 $8,479,122 $13,943,693
========== ========== ===========
The accompanying notes are an integral part of the consolidated financial
statements
HPR Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
HPR develops and markets software and proprietary database products
incorporating clinical knowledge that enable payors and providers of healthcare
services to better manage the financial risk associated with the delivery of
healthcare and the quality of care. HPR products are used to manage healthcare
costs and quality of care by clinically evaluating providers' claims for
payment; measuring efficiency, quality, and medical outcomes; determining
appropriate utilization of medical services; influencing physician referral
patterns and profiling practice patterns; assisting in HEDIS(R) reporting; and
managing and supporting the physician credentialing and accreditation processes.
The Company's clinical knowledge bases are developed and maintained by a full
time medical staff in consultation with board-certified physicians serving on
Company-organized panels.
The Company's products are designed to meet the needs of parties assuming
financial risk for the delivery of healthcare. HPR believes that providing
clinical knowledge in usable form is essential to its customers. The Company
believes it can be distinguished from its competitors through the depth and
integrity of its "clinical knowledge bases. HPR is currently marketing its
CodeReview(R), Medicare CodeReview(TM), ProMatch(TM), Patterns Review(R), CRMS
Fundamentals(TM), Episode Profiler(TM), Quality Profiler(TM), Referral
Profiler(TM), Patterns Profiler(TM), HealthPlan Reporter(TM), Credentialer(TM),
and CCMS Core(TM) products. HPR markets its products through a combination of a
national direct sales force and third-party marketing agreements.
The Company was incorporated on September 28, 1987 in Massachusetts under
the name HPR, Inc. The Company re-incorporated in Delaware on December 20, 1991,
under the name Health Payment Review, Inc. On July 24, 1995, the name of the
Company was changed to HPR Inc. Unless the context otherwise requires,
references herein to the "Company" and "HPR" refer to HPR Inc., a Delaware
corporation, its wholly-owned subsidiaries and HPR, Inc., its Massachusetts
predecessor. On June 3, 1992, Concurrent Review Technology, Inc., a California
corporation, was merged into the Company's wholly-owned subsidiary, Concurrent
Review Technology, Inc., a Delaware corporation. On August 16, 1995 the Company
established a wholly-owned subsidiary, HPR Securities Corp., a Massachusetts
corporation. On April 30, 1996, the Company acquired The Integrity Group, Inc.,
an Alabama corporation, which became a wholly-owned subsidiary of HPR. On April
18, 1997 the Company established a wholly-owned subsidiary, HPR International,
Inc., a Barbados corporation.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Concurrent Review Technology, Inc., HPR
Securities Corp., The Integrity Group, Inc., and HPR International, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Financial Statement Presentation
On July 20, 1995, the stockholders of the Company approved a 2.5-for-1 stock
split of the Company's common stock and preferred stock and approved an increase
of the authorized number of common shares to 35,000,000 and of preferred shares
to 3,000,000. On April 16, 1996, the Company announced a stock split effected in
the form of a 100% stock dividend to all shareholders of record on April 26,
1996. The stock dividend was granted on May 6, 1996. Accordingly, all share and
per share amounts have been adjusted to reflect the stock splits as though they
had occurred at the beginning of the initial period presented.
Reclassification
Certain reclassifications have been made to prior year's financial
statements to conform to the fiscal 1997 presentation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with original
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash and cash equivalents include U.S. government obligations and
U.S. government money market mutual funds used for temporary cash management
purposes.
Investments in Marketable Securities
In accordance with FAS 115, the Company determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determination at each balance sheet date. Debt
securities which the Company has the intent or ability to hold to maturity are
classified as held to maturity. The Company held no investments in equity
securities at June 30, 1996 and 1997. Securities held to maturity are carried at
amortized cost which approximates fair market value. At June 30, 1997 the
Company had no investments that qualified as trading or available for sale. The
Company classifies investments that mature greater than 12 months from the
balance sheet date as long term investments.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash, investments, and accounts and contract
receivables. The Company places its temporary cash investments in three
financial institutions. The Company has not experienced any losses on these
investments to date. The Company has not experienced significant losses related
to receivables from individual customers or groups of customers in the
healthcare industry or by geographic area.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over a two-to five year estimated useful life for all
property and equipment with the exception of leasehold improvements, which are
amortized over the shorter of the life of the improvement or the remaining life
of the lease. Repairs and maintenance costs are charged to expense as incurred.
Upon retirement or sale, the cost of the assets disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of net income.
Software Development Costs
The Company capitalizes software costs for internally developed software in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
These costs relate primarily to the development of new products and extending
existing applications to new markets or platforms using existing technologies
and programming methods. All costs incurred to establish technological
feasibility are charged to expenses as incurred. Internally developed software
costs capitalized were $591,261, $366,332 and $1,025,009 for fiscal years 1995,
1996, and 1997, respectively. The capitalized costs are amortized on a
straight-line basis over their estimated useful lives (typically three years),
commencing when each product is available to the market. Amortization of these
software development costs is included in costs of revenues. Amortization
expense for computer software was $608,285, $578,125 and $550,782 during 1995,
1996, and 1997, respectively. Accumulated amortization of software development
costs was $1,438,254, $2,016,379 and $2,567,161 at June 30, 1995, 1996, and
1997, respectively.
The Company evaluates, on a quarterly basis, the recoverability of
capitalized software costs on the basis of whether such costs are fully
recoverable from projected undiscounted cash flows of individual products. In
performing its evaluation, the Company must make estimates of anticipated future
gross revenues as well as the remaining economic life of the product. It is
reasonably possible that those estimates could be reduced in the near term as a
result of items such as competitive pressures. As a result, the carrying amount
of the capitalized software costs for a particular product line may be reduced
materially in the near term.
Revenue Recognition
The Company licenses its products primarily pursuant to multi-year
non-cancellable agreements that provide for payment of equal annual license fees
over their terms. The Company recognizes revenue in accordance with Statement of
Position No. 91-1, "Software Revenue Recognition," issued by the American
Institute of Certified Public Accountants. Revenue from software license
agreements is recognized upon execution of a contract and shipment of the
software provided that no significant vendor obligations remain outstanding and
the related receivable is due within one year of the contract date and
collection is deemed probable by management. For recurring license fees,
revenues are recognized on the contract anniversary date. The Company also
accrues incidental support costs associated with these licenses when revenues
are recognized. Revenues from services are recognized when the services are
delivered.
In fiscal 1995, the Company retroactively changed its method of recognizing
renewal or recurring revenue from the recognition of the annual contract amount
ratably over the renewal period to the recognition of the entire recurring
amount on the contract anniversary date. The change was made in accordance with
the Accounting Principles Board Opinion No. 20 in contemplation of an initial
public distribution of the financial statements. The financial statements for
all periods presented have been restated to reflect the change in accounting.
The effect of the restatement was an increase to revenue of $1,703,000 for the
year ended June 30, 1995. The effect of the restatement was an increase to net
income and net income per share of $987,000 or $0.07.
Customer payment terms vary. Amounts billed in advance of satisfying revenue
recognition criteria are classified in current and long term liabilities as
deferred revenue in the accompanying balance sheets. Costs and earnings
recognized in advance of billing are classified in current assets as contract
receivables.
Research and Development
Research and development costs are charged to expense as incurred.
Income Taxes
Under the liability method specified by SFAS No. 109, a deferred tax asset
or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities, as measured by the enacted
tax rates expected to apply when these differences reverse. SFAS No. 109 also
requires a valuation allowance against net deferred tax assets if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Net Income Per Share
Net income per share of common stock is computed for each year based upon
the weighted average number of common shares outstanding and dilutive common
stock equivalents. For purposes of this calculation, outstanding options are
considered common stock equivalents (using the treasury stock method). Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
and common equivalent shares issued during the 12 month period prior to the date
of the initial filing of the Company's Registration Statement have been included
in the calculation, using the treasury stock method, as if they were outstanding
for all periods presented. Fair market value for the purpose of this calculation
was assumed to be $6.75, which is the midpoint of the initial public offering
price range. The number of shares used in this calculation has been adjusted to
reflect a 2.5-for-1 stock split in July 1995 and a 2 for 1 stock split effected
in the form of a 100% stock dividend in May 1996.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) Line of Credit
On February 1, 1997, the Company received an extension and modification of
its revolving bank credit facility from $5,000,000 to $7,500,000 with an
expiration date of December 30, 1997. The $7,500,000 bank line is an
uncollateralized borrowing line. The current and prior agreements require the
Company to achieve certain levels of tangible net worth and to maintain certain
financial ratios. Borrowings under the new agreement bear interest at prime
rate, 8.50% at June 30, 1997. During 1996 and 1997 the line of credit was
unused; therefore, no interest was paid.
(4) Property and Equipment
Property and equipment, at cost, consist of the following:
June 30,
-------------------------
1996 1997
Computer equipment......... $1,272,852 $2,112,785
Computer software.......... 367,643 455,918
Furniture and fixtures..... 612,366 646,034
Office equipment........... 323,081 436,047
Leasehold improvements..... 433,576 811,354
------- -------
3,009,518 4,462,138
Less accumulated (1,045,354) (1,952,363)
depreciation............... ----------- -----------
$1,964,164 $2,509,775
Depreciation expense was $332,624, $675,967 and $917,190 in 1995, 1996, and
1997 respectively.
(5) Commitments and Contingencies
The Company has entered into operating leases of office facilities, which expire
at various dates through 2003. Certain leases include renewal options and
escalation clauses for increases in real estate taxes and operating expenses.
Future minimum rental payments under the operating leases as of June 30, 1997
are as follows:
Minimum Lease
Payments Due
Year
1998 $1,118,004
1999 1,146,399
2000 1,104,375
2001 1,119,829
2002 1,258,375
Thereafter 1,500,297
Total rent expense under noncancelable operating leases was
approximately $437,000, $667,000, and $868,900 during 1995, 1996, and 1997,
respectively.
The Company's Executive Separation Benefits Plan provides for severance
payments to be made to members of its senior management in the event of
termination of the eligible employee's employment. The Plan provides for payment
for up to 24 months of annual base salary upon termination by the Company for
reasons other than disability or "good cause" as defined therein. The Company's
Non-Executive Separation Benefits Plan for key contributors and other employees
as defined therein provides for payment of up to six months annual base salary
upon termination by the Company for reasons other than disability or "good
cause" as defined.
The Company has also entered into non-competition agreements with certain of
its executive officers. These agreements provide that upon termination of such
officer's employment by the Company, he or she will refrain for a period of up
to 24 months, to be determined by the Company, from certain competitive
activities with respect to the Company. If the Company exercises its option to
restrain any such officer from competitive activity, it will pay such officer
33% of his or her monthly salary as of termination for each month for which the
executive officer agrees to refrain from competing with the Company.
The Company has third party royalty and marketing agreements for certain of
its products. The agreements call for the payment of predetermined royalty
amounts over the life of the Company's software license agreements with
customers. All amounts due under such agreements have been accrued as of June
30, 1997.
(6) Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes". Under SFAS
109, deferred tax assets and deferred tax liabilities are recognized based on
temporary differences between the basis of assets and liabilities using
statutory rates.
June 30, June 30,
1996 1997
Gross deferred tax assets:
Reserves and certain accrued $995,566 $1,197,630
expenses.................... -------- ----------
Subtotal...... 995,566 1,197,630
Gross deferred tax liabilities:
Property and equipment
depreciation.............. (13,762) (20,537)
Deferred revenue............ (1,086,813) (499,609)
Capitalized software
amortization.............. (351,729) (538,253)
Other................ (10,286) -
-------- ---------
Subtotal..... (1,462,590) (1,058,399)
--------- ---------
Net deferred tax
(liability)/asset. $(467,024) $139,231
========== ========
The provision for income taxes consists of the following:
Fiscal Year Ended June 30,
1995 1996 1997
---------- ------------ --------
Current:
Federal............... $2,845,133 $3,276,743 $4,540,134
State................. 886,780 917,722 1,039,506
------- ------- ---------
3,731,913 4,194,465 5,579,640
Deferred
Federal............... 285,285 (784,396) (644,925)
State................. 88,079 (242,175) 38,670
------ --------- ------
373,364 (1,026,571) (606,255)
------- ----------- ---------
Provision for income
taxes.................. $4,105,277 $3,167,894 $4,973,385
========= ========== ==========
.
A reconciliation between the Company's effective rate and the U.S. statutory
rate is as follows:
Fiscal Year Ended
June 30,
1995 1996 1997
-------- --------------
U.S. statutory rate........... 34.0% 34.0% 35%
State taxes, net of federal 6.3 5.9 5.0
benefit.......................
Goodwill...................... 0.5 -- --
Other......................... 0.5 2.1 2.3
Research and development credits (0.9) -- --
Federal rate differential..... -- -- (0.8)
Acquisition of The Integrity -- (0.8) --
Group, Inc. ----- ----- -----
40.4% 41.2% 41.5%
===== ===== =====
Total tax payments made in the fiscal years ended June 30, 1995, 1996 and
1997 were $4,708,000, $3,187,000, and $3,390,000 respectively. In fiscal years
ended June 30, 1996 and 1997, the Company recognized $351,900 and $2,948,300 of
tax benefits associated with the exercise of employee stock options.
(7) Stockholders' Equity
Preferred Stock
Holders of the Company's outstanding convertible preferred stock are
entitled to convert each share into one share of common stock, subject to
certain antidilutive adjustments. In the event of liquidation of the Company the
holders of preferred stock are entitled to receive, before distribution to
common stockholders, $1.02 per share. There were no outstanding shares of
preferred stock as of June 30, 1997.
Treasury Stock
During 1997, the Company retired 2,918,502 common stock shares held in
treasury. The excess of cost over par value was charged proportionally to
Additional Paid in Capital and Retained Earnings.
Stock Option Plans
1991 Stock Plan. The Company's 1991 Stock Plan (the "1991 Stock Plan")
provides for the grant of nonqualified and incentive stock options to employees
and others to purchase up to 1,160,000 shares of the Company's common stock.
Options granted under the plan are exercisable at the fair market value of the
stock at the date of grant, are exercisable in full at any time, vest over three
to four years and expire ten years from the date of grant.
1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Stock Plan") was
approved by the Board of Directors on June 26, 1995, and by the Company's
stockholders on July 20, 1995, and amended by the Board of Directors on July 22,
1996 and approved (as amended) by the Company's stockholders on November 1,
1996. The 1995 Stock Plan provides for the grant or award of stock options,
restricted stock, stock appreciation rights and other performance awards which
may or may not be denominated in shares of Common Stock or other securities
(collectively, the "Awards"). Stock options granted under the 1995 Stock Plan
may be either incentive stock options or non-qualified options. The purpose of
the 1995 Stock Plan is to attract and retain outstanding employees through the
incentives of stock ownership and monetary payments. Every regular full-time
employee of the Company, including officers but excluding directors who are not
officers, is eligible to receive awards.
The 1995 Stock Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1995 Stock Plan and
approval by the Board of Directors, the Compensation Committee has the authority
to designate participants, determine the types of Awards to be granted, the
number of shares to be covered by each Award, the time at which each Award is
exercisable or may be settled, the method of payment and any other terms and
conditions of the Awards. All Awards are evidenced by an Award Agreement between
the Company and the participant.
While the Compensation Committee determines the prices at which options and
other Awards may be exercised under the 1995 Stock Plan, the exercise price per
share of an incentive stock option shall be at least 100% of the fair market
value (as determined under the terms of the 1995 Stock Plan) of a share of
Common Stock on the date of grant. The aggregate number of shares of Common
Stock available for awards under the Plan is 2,035,000. The maximum term for
Awards under the 1995 Stock Plan is ten years, and no Awards may be made under
the 1995 Stock Plan after June 25, 2005.
During 1996 employees of The Integrity Group, Inc. were granted options to
purchase 8,254 shares of common stock at a price per share of $0.49 which was
below the fair market value at the date of the grant. This discount from fair
market value has been recorded as deferred compensation and charged to expense
ratably over the four year vesting period of the options.
1995 Eligible Directors Stock Plan. The Company's 1995 Eligible Directors
Stock Plan (the "Directors Stock Plan") was approved by the Board of Directors
on June 26, 1995, and by the Company's stockholders on July 20, 1995, and
amended by the Board of Directors July 22, 1996 and approved (as amended) by the
Company's stockholders on November 1, 1996. Under the Directors Stock Plan and
subject to the approval by the Board of Directors, each director who is not an
officer or employee of the Company or any subsidiary of the Company (an "outside
director") will be granted, upon first being elected to the Board of Directors,
an option to purchase 10,000 shares of Common Stock at an exercise price equal
to the fair market value on the date of the grant. In addition, upon
re-election, each outside director will be granted an option on the thirtieth
day following the date of each annual meeting of stockholders to purchase 4,000
shares of Common Stock at an exercise price equal to the fair market value on
the date of grant. A total of 150,000 shares of Common Stock are available for
awards under the Directors Stock Plan, as amended July 22, 1996 and approved by
shareholders on November 1, 1996. The options granted under the Directors Stock
Plan will vest in five equal annual installments commencing one year after the
date of grant. The maximum term for Awards under the 1995 Eligible Directors
Stock Plan is ten years, and no Awards may be made under the 1995 Stock Plan
after June 25, 2005.
As of June 30, 1997, the Company has reserved 3,345,000 shares of common
stock for issuance under all of its stock option plans.
<PAGE>
A summary of the Company's stock option activity as of June 30, 1995, 1996
and 1997 is presented below.
<TABLE>
1995 1996 1997
--------------------------- ------------------------- ---------------------------
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... 2,363,166 $0.13 1,878,366 $2.51 1,502,553 $3.64
Granted 1,105,700 3.80 68,256 14.17 1,034,400 14.33
Exercised (1,465,000) 0.10 (441,941) 0.38 (325,180) 1.24
Expired (125,500) 0.18 (2,128) 1.07 (234,398) 9.21
--------- ---- ------- ---- --------- ----
Outstanding at end
of year................ 1,878,366 $2.51 1,502,553 $3.64 1,977,375 $8.95
========= ===== ========= ===== ========= =====
Options exercisable
at year-end........... 408,630 $0.18 543,469 $1.75 512,328 $3.25
Weighted-average
fair value of
options
granted during the
year................... 1,105,700 $3.80 68,256 $14.17 1,034,400 $14.33
</TABLE>
The following table summarizes information about the Company's stock
options plans at June 30, 1997:
<TABLE>
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------------
<CAPTION>
Range of Shares Weighted-Average Shares
Exercise Outstanding at Remaining Weighted-Average Exercisable Weighted-Average
Prices June 30, 1997 Contractual Life Exercise Price at June 30 , 1997 Exercise Price
- ------ ------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$0.11 - $4.99 414,975 5.6 $0.72 269,178 $0.57
$5.00 - $9.99 569,500 8.0 $5.60 228,750 $5.60
$10.00 - $16.38 992,900 9.4 $16.10 14,400 $14.30
</TABLE>
In October of 1995, the FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation," which is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options and other equity instruments based on fair value,
or provide pro forma disclosure of net income and earnings per share in the
notes of the financial statements. The Company adopted the disclosure provisions
of SFAS 123 effective July 1, 1996 and has applied APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for stock options issued to employees at fair market value.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS 123, the Company's net income and earnings per share for
the years ended June 30, 1996 and 1997 would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
1996 1997
--------------------------------------- ---------------------------------------
<CAPTION>
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Net income $4,521,863 $4,494,140 $7,010,653 $6,542,563
Net income per share $0.29 $0.28 $0.44 $0.41
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended June 30, 1996 and 1997:
1996 1997
---- ----
Risk-free interest rate 5.47% 6.36%
Expected life 5 years 5 years
Expected volatility 50% 50%
Dividend yield 0% 0%
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years. Additional awards in future years are anticipated. SFAS 123 does not
apply to awards prior to 1995.
(8) Employee Benefits
The Health Payment Review, Inc. 401(k) Plan is a defined contribution plan
available to substantially all of HPR's employees. The 401(k) Plan was
established effective June 1, 1993 under section 401(k) of the Internal Revenue
Code. Under the Plan, employees may make voluntary contributions based on a
percentage of their pretax earnings. HPR contributions to the Plan are
established each year at the discretion of the Board of Directors. No Company
contributions were made to the Plan in fiscal 1995, 1996, and 1997. The Company
paid administrative costs on behalf of the Plan of $6,500, $12,500, and $15,000
in fiscal 1995, 1996 and 1997, respectively.
(9) Legal Proceedings
On January 31, 1994, a suit was filed in the U.S. District Court for the
Eastern District of Pennsylvania by GMIS, Inc. ("GMIS") against the Company,
alleging that the Company's patent relating to its CodeReview product was
invalid, not infringed, and unenforceable. GMIS also alleged that the Company
interfered with the business relationships of GMIS and sued for damages of an
unspecified amount.
The Company filed a patent infringement counterclaim on March 25, 1994
alleging, among other things, that GMIS' product, ClaimCheck, infringed upon the
patent.
On January 23, 1995 the Company settled all of its outstanding claims with
GMIS. Pursuant to the settlement, the terms of which were undisclosed, the
Company granted GMIS a nonexclusive license under the patent, and GMIS
acknowledged the validity of the patent and made a one-time payment to the
Company. The payment was recorded by the Company net of legal and other costs.
(10) Acquisitions
On April 30, 1996 the Company acquired The Integrity Group, Inc. ("TIG"),
an Alabama corporation, in a transaction accounted for as a pooling of interests
under which all of the capital stock of TIG was exchanged for 260,001 shares of
HPR Inc. common stock. TIG is a vendor of provider credentialing, accreditation
support, Healthcare Employer Data Information Set (HEDIS) reporting and data
warehousing tools and support for effective provider network management. The
accompanying financial statements for periods prior to 1996 do not include the
amounts for this acquisition as they were deemed to be immaterial. Only 1996
financial information has been restated as if the transaction had occurred as of
July 1, 1995.
TIG was a Subchapter S corporation for income tax purposes and, therefore,
did not pay U.S. federal income taxes. TIG has been included in the Company's
U.S. federal income tax return effective April 30, 1996.
(11) Recent Accounting Pronouncements
The FASB issued Statement No. 128 ("SFAS 128"), "Earnings per Share,"
which modifies the way in which earnings per share ("EPS") is calculated
and disclosed. Currently, the Company discloses primary EPS. Upon adoption
of this standard for the fiscal period ending June 30, 1998, the Company
will be required to disclose either basic EPS or both basic and dilutive
EPS. The principal difference being that common stock equivalents would not
be considered in the computation of basic EPS. The impact of adoption of
SFAS 128 has not yet been determined.
The FASB recently issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income". This statement requires changes in comprehensive
income to be shown in a financial statement that is displayed with the same
prominence as other financial statements. While not mandating a specific
financial statement format, the Statement requires that an amount
representing total comprehensive income be reported. Comprehensive income
components include: unrealized gains and losses on available-for-sale
investments in debt and equity securities, foreign currency translation
adjustments, and minimum pension liability adjustments. The Statement will
become effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods is required
for comparative purposes. The Company does not believe that this will have
a material impact on the results of operations.
In June 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 specifies
new guidelines for determining a company's operating segments and related
requirements for disclosure. The Company does not believe that this
statement will have an impact on the presentation of the financial
statements and the disclosures therein.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART II
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by reference
to the section entitled "Election of Directors" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 31, 1997,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates. Certain information concerning the registrant's executive officers
is included under the caption "Executive Officers of the Registrant" at pages
14-15 following Part I, Item 1 of this report.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference
to the section entitled "Executive Compensation" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 31, 1997,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference
to the section entitled "Voting Securities" included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on October 31, 1997,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year to which this Annual Report on Form
10-K relates.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to
the section "Compensation Committee Interlocks, Insider Participation and
Certain Transactions" included in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on October 31, 1997, which will be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year to which this Annual Report on Form 10-K relates.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. (1) Financial Statements
All financial statements are included in Item 8 hereof.
a. (2) Financial Statement Schedules
None
a. (3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
<S> <C>
3.1* -- Amended and Restated Certificate of Incorporation of the Company
approved by the directors of the Company on June 26, 1995, as adopted by the
stockholders on July 20, 1995.
3.2* -- By-laws of the Company, as amended effective on August 16, 1995.
4.1* -- Article Fourth of the Certificate of Incorporation of the Company
(included in Exhibit 3.1).
10.1* -- Lease dated June 2, 1995, between Riverview Building Combined Limited
Partnership and the Company, for premises located at the Riverview
Complex, 245 First Street, Cambridge, Massachusetts.
10.2 -- The Company's 1991 Stock Plan, as amended effective
November 1, 1996, and related forms of stock option agreements.
10.3 -- The Company's 1995 Stock Plan, as amended effective November 1, 1996, and related forms of stock
option agreements.
10.4 -- The Company's 1995 Eligible Directors Stock Plan, as amended effective November 1, 1996, and related
form of stock option agreement.
10.5* -- Software Development and License Agreement between the Company and
Caterpillar, Inc. dated August 15, 1988.
10.6*+ -- Product License Agreement between the Company and Symmetry Health Data
Systems, Inc. dated as of November 17, 1994, as amended.
10.7* -- Stock Purchase Agreement for shares of Series A Convertible Preferred
Stock purchased by Greylock Limited Partnership dated December 20, 1991, as
amended on June 26, 1995.
10.8* -- Stock Purchase Agreements for shares of Series A Convertible Preferred
Stock purchased by Marcia J. Radosevich dated October 7, 1992 and November 2, 1992.
10.9* -- Registration Rights Agreement dated as of June 3, 1992.
10.10* -- Noncompetition Agreement between the Company and Dr. Robert D.Hertenstein, dated April 13, 1992,
as amended on June 2, 1995.
10.11* -- Letter Agreement between the Company and Marcia J. Radosevich dated
December 6, 1989, as amended on June 26, 1995.
10.12* -- Letter Agreement between the Company and Douglas R. Percy dated April 22, 1992.
10.13* -- Letter Agreement between the Company and Thomas M. McNamara dated November 2,1992.
10.14* -- Agreement Pertaining to Certain Activities between the Company and Marcia J.Radosevich dated December 20,
1991.
10.15* -- Noncompetition agreements with Douglas R. Percy, Brian D. Cahill,Thomas M.
McNamara, Lawrence G. Miller, Steven J. Rosenberg and James B. Stowe.
10.16* -- Consulting Agreement between the Company and Richard H. Egdahl dated
January 1, 1992, as amended on June 26, 1995.
10.17* -- Form of Indemnification Agreement between the Company and its directors and executive officers
10.18 -- Sublease dated April 17, 1997 between Open Market and the Company, for premises located at the
Riverview Complex, 245 First Street, Cambridge,Massachusettes.
10.19 -- Lease dated April 17, 1997 between Beacon Management and the Company, for premises located at the
Riverview Complex, 245 First Street, Cambridge, Massachusettes.
10.20 -- Executive Separation Benefits Plan dated January 1, 1997
10.21 -- Non-Executive Separation Benefits Plan effective as of January 1, 1997
10.22 -- Director Termination Benefits Plan effective as of January 1, 1997
10.23 -- Second Amendment to Product License Agreement with Symmetry Health Data
Systems, Inc. dated December 12, 1996.
11.1 -- Statement re computation of earnings per share.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Coopers & Lybrand L.L.P., independent accountants
27.1 -- Financial Data Schedule
<FN>
+ Confidential treatment has been requested and granted with respect to certain
portions of this exhibit. Omitted portions have been filed separately with
the Securities and Exchange Commission.
* Incorporated by reference from the Company's registration statement on Form
S-1 No. 33-94132 filed with the Securities and Exchange Commission on June
30, 1995, as amended on July 25, August 1 and August 7, 1995.
</FN>
</TABLE>
Management Contracts and Compensatory Plans
<TABLE>
<CAPTION>
Exhibit Description of Document
Number
<S> <C>
10.2 -- The Company's 1991 Stock Plan
10.3 -- The Company's 1995 Stock Plan
10.4 -- The Company's 1995 Eligible Directors Stock Plan
10.11* -- Letter Agreement between the Company and Marcia J. Radosevich
10.12* -- Letter Agreement between the Company and Douglas R. Percy
10.13* -- Letter Agreement between the Company and Thomas R. McNamara
10.14* -- Agreement pertaining to Certain Activities between the Company and Marcia J. Radosevich
10.15* -- Noncompetition agreements with Douglas R. Percy, Brian D. Cahill, Thomas M. McNamara,
Lawrence G. Miller, Steven J. Rosenberg and James B. Stowe
10.16* -- Consulting Agreement between the Company and Richard H. Egdahl dated January 1, 1992, as
amended on June 26, 1995
10.17* -- Form of Indemnification Agreement between the Company and its directors and executive officers
10.20 -- Executive Separation Benefits Plan dated January 1, 1997
10.21 -- Non-Executive Separation Benefits Plan effective as of January 1, 1997
10.22 -- Director Termination Benefits Plan effective as of January 1, 1997
<FN>
* Incorporated by reference from the Company's registration statement on Form
S-1 No. 33-94132 filed with the Securities and Exchange Commission on June
30, 1995, as amended on July 25, August 1 and August 7, 1995.
</FN>
</TABLE>
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Section 13 or 15(d), the registrant has duly caused this Amendment No. 1 to the
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
HPR INC.
Dated: September 4, 1997 By: /s/ Brian D. Cahill
------------------------
Brian D. Cahill
Chief Operating Officer and Chief
Financial Officer
HPR INC.
AMENDED AND RESTATED HPR 1991 STOCK PLAN
1. Purpose. The purpose of this HPR 1991 Stock Plan (the "Plan") is to
advance the interests of HPR Inc., a Delaware corporation (the "Company"), by
strengthening the ability of the Company to attract, retain and motivate key
employees, consultants and other individual contributors of or to the Company or
any present or future parent or subsidiary of the Company (the "Company Group")
by providing them with an opportunity to purchase or receive as bonuses stock of
the Company and thereby permitting them to share in the Company's success. It is
intended that this purpose will be effected by granting (i) incentive stock
options ("Incentive Options") which are intended to qualify under the provisions
of Section 422 of the Internal Revenue Code of 1986, as heretofore and hereafter
amended (the "Code"), and non-statutory stock options ("Nonqualified Options")
which are not intended to meet the requirements of Section 422 of the Code and
which are intended to be taxed under Section 83 of the Code (both Incentive
Options and Nonqualified Options shall be collectively referred to as
"Options"), (ii) stock purchase authorizations ("Purchase Authorizations") and
(iii) stock bonus awards ("Bonuses"). (Items (i) through (iii) above shall
collectively be referred to herein as "Awards".)
2. Effective Date. This Plan was adopted by the Board of Directors of
the Company (the "Board") on December 17, 1991 (the "effective date" of the
Plan). This Plan retitles and replaces in its entirety the 1991 Stock Option
Plan of the Company, which was amended and restated, effective March 31, 1992,
the date of adoption of such amendment and restatement by the Board. The Plan
was further amended on April 7, 1995 and June 26, 1995. This Plan restates in
its entirety the HPR 1991 Stock Plan, which was amended and restated by the
Board on July 22, 1996, such amendment and restatement to be effective on
November 1, 1996, subject to approval by the stockholders on or before July 22,
1997.
3. Stock Covered by the Plan. Subject to adjustment as provided in
Sections 10 and 11 below, the shares that may be made subject to Awards under
this Plan ("Shares") shall not exceed in the aggregate 1,160,000 shares of the
common stock, $0.01 par value, of the Company ("Common Stock"). Any Shares
subject to an Option or Purchase Authorization which for any reason expires or
is terminated unexercised as to such Shares and any Shares reacquired by the
Company pursuant to forfeiture or a repurchase right hereunder may again be the
subject of an Award under the Plan. The Shares purchased pursuant to Purchase
Authorizations or the exercise of Options under this Plan or issued as Bonuses
may, in whole or in part, be either authorized but unissued Shares or issued
Shares reacquired by the Company.
4. Administration. This Plan shall be administered by the Board of
Directors, whose construction and interpretation of the Plan's terms and
provisions shall be final and conclusive. The Board shall have the authority to
delegate to the Compensation Committee of he Board (the "Committee") the
authority to administer this Plan as set forth in this Section 4 and to
recommend that the Board grant Awards hereunder. Each member of the Committee
shall be, and shall have been at all times within the one-year period ending on
the date of his or her appointment to the Committee, a person who in opinion of
counsel to the Company is an "outside director" as such term is used in proposed
regulation 1.162-27(e)(3) under Section 162(m) of the Code. The Board shall have
authority, subject to the express provisions of the Plan, to construe the Plan
and the respective Awards and related agreements, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective Awards and related agreements, and to make all
other determinations in the judgment of the Board necessary or desirable for the
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award or related
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect, and it shall be the sole and final judge of such expediency.
No member of the Board and no delegate of the Board shall be liable for any
action or determination under the Plan made in good faith. Notwithstanding the
foregoing, the Board, or the Committee as its delegate, shall have authority to
establish guidelines for the grant of Awards to key employees of the Company
Group who are not executive officers of the Company and to delegate to the
Company's Chief Executive Officer the authority to recommend to the Board the
grant of Awards, within such guidelines, to such eligible non-executive key
employees.
5. Approval by Board of Directors. Notwithstanding anything in this
Plan to the contrary, including without limitation the delegation of authority
to the Committee, all grants of Awards shall be approved by the Board of
Directors.
6. Eligible Recipients. Awards may be granted to such key employees,
consultants or other individual contributors of or to the Company Group,
including without limitation members of the Board who are employees (but,
effective July 1, 1995, excluding members of the Board who are not employees)
and members of any medical, scientific or technical advisory boards, as are
selected by the Board or (except as to employees who are Company executive
officers) by the Board's delegate pursuant to section 4 above (a "Participant");
provided, that only employees of the Company Group shall be eligible for grant
of an Incentive Option.
7. Duration of the Plan. This Plan shall terminate ten (10) years from
the effective date hereof, unless terminated earlier pursuant to Section 14
hereafter, and no Awards may be granted or made thereafter.
8. Terms and Conditions of Options, Purchase Authorizations and
Bonuses. Awards granted or made under this Plan shall be evidenced by agreements
in such form and containing such terms and conditions as the Board shall
determine; provided, however, that such agreements shall evidence among their
terms and conditions the following:
(a) Price. The purchase price per Share payable upon the
exercise of each Option or the purchase pursuant to each Purchase Authorization
granted or made hereunder shall be determined by the Board at the time the
Option or Purchase Authorization is granted or made. Subject to the condition of
paragraph 8(j)(i), if applicable, the purchase price per Share payable upon the
exercise of each Incentive Option granted hereunder shall not be less than one
hundred percent (100%) of the Market Price (as such term is defined below) per
Share of the Common Stock on the day the Incentive Option or Purchase
Authorization is granted or made. The purchase price per Share payable on
exercise of each Nonqualified Option or upon the purchase of Shares pursuant to
each Purchase Authorization granted hereunder shall be not less than eighty-five
percent (85%) of the Market Price per Share of the Common Stock on the date of
the grant. Fair market value shall be determined by the Board in accordance with
applicable provisions of the Code then in effect. Bonus Shares shall be issued
in consideration of services previously rendered, which shall be valued for such
purposes by the Board. No Share shall be issued for less than its par value,
paid in cash, property or services. As used herein, "Market Price" shall mean
the closing price of the Common Stock as reported on the Nasdaq National Market
System for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market System on the relevant date, then the Market Price as of such
date shall be determined by the Board equal to the fair market value of the
Common Stock in accordance with applicable provisions of the Code then in
effect.
(b) Number of Shares. Each agreement shall specify the number
of Shares to which it pertains.
(c) Exercise of Options. Each Option shall be exercisable for
the full amount or for any part thereof and at such intervals or in such
installments as the Board may determine or as the Committee may determine at the
time it recommends that the Board grant such Option; provided, however, that no
Option shall be exercisable with respect to any Shares later than ten (10) years
after the date of the grant of such Option (or five (5) years in the case of
Incentive Options to which paragraph 8(j)(ii) applies). An Option shall be
exercisable only by delivery of a written notice to the Company's Treasurer, or
any other officer of the Company designated by the Board to accept such notices
on its behalf, specifying the number of Shares for which the Option is exercised
and accompanied by either (i) payment or (ii) if permitted by the Board,
irrevocable instructions to a broker to promptly deliver to the Company full
payment in accordance with paragraph 8(d)(ii) below of the amount necessary to
pay the aggregate exercise price. With respect to an Incentive Option, the
permission of the Board referred to in clause (ii) of the preceding sentence
must be granted at the time the Incentive Option is granted.
(d) Payment. Payment shall be made in full (i) at the time the
Option is exercised, (ii) promptly after the Participant forwards the
irrevocable instructions referred to in paragraph 8(c)(ii) above to the
appropriate broker, if exercise of an Option is made pursuant to paragraph
8(c)(ii) above, or (iii) at the time the purchase pursuant to a Purchase
Authorization is made. Payment shall be made either (a) in cash, (b) by check,
(c) if permitted by the Board (with respect to an Incentive Option, such
permission to have been granted at the time of the Incentive Option grant), by
delivery and assignment to the Company of shares of Company stock having a
Market Price (as determined by the Board) equal to the exercise or purchase
price, (d) if permitted by the Board, stated in the agreement evidencing the
Option or Purchase Authorization, and to the extent permitted by any applicable
law, by the Participant's recourse promissory note, which note must be due and
payable not more than five (5) years after the date the Option or Purchase
Authorization is exercised, or (e) by a combination of (a), (b), (c) and/or (d).
If shares of Company stock are to be used to pay the exercise price of an
Incentive Option, the Company prior to such payment must be furnished with
evidence satisfactory to it that the acquisition of such shares and their
transfer in payment of the exercise price satisfy the requirements of Section
422 of the Code and other applicable laws. Notwithstanding the foregoing, the
purchase or exercise price of an Option or Purchase Authorization may not be
paid by delivery and assignment to the Company of shares of Company stock or
through irrevocable instructions to a broker as referred to in Paragraph
8(c)(ii) above to the extent that such delivery and assignment or the execution
of such irrevocable instructions would constitute a violation of the provisions
of any law (including without limitation Section 16 of the Exchange Act) or
related regulation or rule, or any agreement or policy of the Company,
restricting the transfer or redemption of the Company's stock.
(e) Withholding Taxes; Delivery of Shares. The Company's
obligation to deliver Shares upon exercise of an Option or upon purchase
pursuant to a Purchase Authorization or issuance pursuant to a Bonus shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and employment tax withholding obligations. Without limiting the
generality of the foregoing, the Company shall have the right to deduct from
payments of any kind otherwise due to the Participant any federal, state or
local taxes of any kind required by law to be withheld with respect to any
Shares issued upon exercise of Options or purchased or issued pursuant to
Purchase Authorizations or Bonuses. The Participant may elect to satisfy such
obligation(s), in whole or in part, by (i) delivering to the Company a check for
the amount required to be withheld or (ii) if the Board in its sole discretion
approves in any specific or general case, having the Company withhold Shares or
delivering to the Company already-owned shares of Common Stock, having a value
equal to the amount required to be withheld, as determined by the Board.
(f) Non-Transferability. No Option or Purchase Authorization
shall be transferable by the Participant otherwise than by will or the laws of
descent or distribution, and each Option or Purchase Authorization shall be
exercisable during the Participant's lifetime only by the Participant, provided,
however, that the Board may permit a Participant to transfer a Award if such
transfer is made pursuant to uniformly applied criteria, established by the
Board prior to such transfer.
(g) Termination of Options and Purchase Authorizations.
Nothing in this Plan or in any agreement representing any Award shall restrict
the right of any member of the Company Group to terminate the employment of any
Participant at any time and for any reason, with or without notice. Each
Purchase Authorization shall terminate and may no longer be exercised if the
Participant ceases for any reason to provide services to a member of the Company
Group. Except to the extent the Board provides specifically in an agreement
evidencing an Option for a lesser period (or a greater period, provided that in
the case of Incentive Options such period shall not exceed three months), each
Option shall terminate and may no longer be exercised if the Participant ceases
for any reason to provide services to a member of the Company Group in
accordance with the following provisions:
(i) if the Participant ceases to perform services for any reason other than
death or disability (as defined in Section 22(e)(3) of the Code), the
Participant may, at any time within a period of one month after the date of such
cessation of the performance of services, exercise the Option to the extent that
the Option was exercisable on the date of such cessation;
(ii) if the Participant ceases to perform services because of disability
(as defined in Section 22(e)(3) of the Code), the Participant may, at any time
within a period of six months after the date of such cessation of the
performance of services, exercise the Option to the extent that the Option was
exercisable on the date of such cessation; and
(iii) if the Participant ceases to perform services because of death, the
Option, to the extent that the Participant was entitled to exercise it on the
date of death, may be exercised within a period of six months after the
Participant's death by the person or persons to whom the Participant's rights
under the Option pass by will or by the laws of descent or distribution;
provided, however, that no Option, or Purchase Authorization may be exercised to
any extent by anyone after the date of its expiration; and provided, further,
that Options and Purchase Authorizations may be exercised only as to Vested
Shares (as defined in the applicable agreement with the Participant) after the
Participant has ceased to perform services for any member of the Company Group.
(h) Rights as Stockholder.
A Participant shall have no rights as a stockholder with respect to any Shares
covered by an Award until the date of issuance of a stock certificate, if any,
in the Participant's name for such Shares.
(i) Repurchase of Shares by the Company.
Any Shares purchased or acquired upon exercise of an Option or pursuant to
a Purchase Authorization or Bonus may in the discretion of the Board be subject
to repurchase by or forfeiture to the Company if and to the extent and at the
repurchase price, if any, specifically set forth in the option, purchase, or
bonus agreement pursuant to which the Shares were purchased or acquired.
Certificates representing Shares subject to such repurchase or forfeiture may be
subject to such escrow and stock legending provisions as may be set forth in the
option, purchase, or bonus agreement pursuant to which the Shares were purchased
or acquired.
(j) 10% Stockholder.
If any Participant to whom an Incentive Option is granted pursuant to the
provisions of the Plan is on the date of grant the owner of stock (as determined
under Section 424(d) of the Code) possessing more than 10% of the total combined
voting power or value of all classes of stock of the Company, its parent, if
any, or subsidiaries, then the following special provisions shall be applicable:
(i) The exercise price per Share subject to such
Option shall not be less than 110% of the
fair market value of each Share on the date
of grant; and
(ii) The Option shall not have a term in excess
of five years from the date of grant.
(k) Confidentiality Agreements. Each Participant shall
execute, prior to or contemporaneously with the grant of any Award hereunder,
the Company's then standard form of agreement relating to nondisclosure of
confidential information, assignment of inventions and related matters.
(l) Aggregate Limitation. The maximum number of Shares with
respect to which any Awards may be granted under the Plan to any individual
during each successive twelve-month period commencing on the effective date of
the Plan shall not exceed 500,000 shares.
9. Restrictions on Incentive Options. Incentive Options granted under
this Plan shall be specifically designated as such and shall be subject to the
additional restriction that the aggregate Market Price, determined as of the
date the Incentive Option is granted, of the Shares with respect to which
Incentive Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000. If an Incentive Option which exceeds
the $100,000 limitation of this paragraph 9 is granted, the portion of such
Option which is exercisable for shares in excess of the $100,000 limitation
shall be treated as a Nonqualified Option pursuant to Section 422(d) of the
Code. In the event that such Participant is eligible to participate in any other
stock incentive plans of the Company, its parent, if any, or a subsidiary which
are also intended to comply with the provisions of Section 422 of the Code, such
annual limitation shall apply to the aggregate number of shares for which
options may be granted under all such plans.
10. Stock Dividends; Stock Splits; Stock Combinations;
Recapitalizations. Appropriate adjustment shall be made by the Board in the
maximum number of Shares subject to the Plan and in the number, kind, and
exercise or purchase price of Shares covered by outstanding Options and Purchase
Authorizations granted hereunder to give effect to any stock dividends, stock
splits, stock combinations, recapitalizations and other similar changes in the
capital structure of the Company after the effective date of the Plan.
11. Merger; Sale of Assets. In the event of a change of the Common
Stock resulting from a merger or similar reorganization as to which the Company
is the surviving corporation, the number and kind of Shares which thereafter may
be purchased pursuant to an Option or Purchase Authorization under the Plan and
the number and kind of Shares then subject to Options or Purchase Authorizations
granted hereunder and the price per Share thereof shall be appropriately
adjusted in such manner as the Board may deem equitable to prevent dilution or
enlargement of the rights available or granted hereunder. Except as otherwise
determined by the Board, a merger or a similar reorganization which the Company
does not survive, or a sale of all or substantially all of the assets of the
Company, shall cause every Option and Purchase Authorization hereunder to
terminate, to the extent not then exercised, unless any surviving entity agrees
to assume the obligations hereunder; provided, however, that, in the case of
such a merger or similar reorganization, or such a sale of all or substantially
all of the assets of the Company, if there is no such assumption, the Board may
provide that some or all of the unexercised portion of any one or more of the
outstanding Options or Purchase Authorizations and some or all of the unvested
Shares acquired upon exercise of any one or more of such Options or Purchase
Authorizations or acceptance of any one or more of the outstanding Bonuses shall
be immediately exercisable and vested or no longer subject to repurchase rights
as of such date prior to such merger, similar reorganization or sale of assets
as the Board determines.
12. Investment Representations; Transfer Restrictions. The Company may
require Participants, as a condition of purchasing Shares pursuant to the
exercise of an Option or to a Purchase Authorization or receipt of shares as a
Bonus, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Shares for the
Participant's own account for investment and not with any present intention of
selling or otherwise distributing the same, unless there shall be an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), with respect thereto, and to such other effects as the Company deems
necessary or appropriate (including without limitation confirmation that the
Participant is aware of any applicable restrictions on transfer of the Shares,
as specified in the by-laws of the Company or otherwise) in order to comply with
federal and applicable state securities laws.
13. Definitions.
(a) The term "employee" shall have, for purposes of this Plan,
the meaning ascribed to "employee" under Section 3401(c) of the Code and the
regulations promulgated thereunder.
(b) The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as heretofore and hereafter amended.
(c) The term "parent" shall have, for purposes of this Plan,
the meaning ascribed to it under Section 424(e) of the Code and the regulations
promulgated thereunder.
(d) The term "subsidiary" shall have, for all purposes under
this Plan, the meaning ascribed to it under Section 424(f) of the Code and the
regulations promulgated thereunder.
14. Termination or Amendment of Plan. The Board may at any time
terminate the Plan or make such changes in or additions to the Plan as it deems
advisable without further action on the part of the stockholders of the Company,
provided:
(a) that no such termination or amendment shall adversely
affect or impair any then outstanding Award or related agreement without the
consent of the Participant holding such Award or related agreement; and
(b) that no such amendment which, pursuant to the Code or
regulations thereunder, requires action by the stockholders may be made without
obtaining, or being conditioned upon, stockholder approval.
With the consent of the Participant affected, the Board may amend
outstanding Awards or related agreements in a manner not inconsistent with the
Plan. The Board shall have the right to amend or modify the terms and provisions
of the Plan and of any outstanding Incentive Options granted under the Plan to
the extent necessary to qualify any or all such Options for such favorable
federal income tax treatment (including deferral of taxation upon exercise) as
may be afforded incentive stock options under Section 422 of the Code.
Name of Optionee
HPR INC.
INCENTIVE STOCK OPTION AGREEMENT
(HPR 1991 Stock Plan)
THIS AGREEMENT is entered into by and between HPR Inc., a Delaware
corporation with its principal office at 245 First Street, Cambridge,
Massachusetts 02142 (hereinafter the "Company"), and the undersigned employee of
the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company, and
the Company desires to grant an incentive stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant, Exercisability and Term of Option.
(a) The Company hereby grants to the Optionee pursuant to the HPR 1991
Stock Plan (the "Plan") the option to purchase from the Company upon the terms
and conditions hereinafter set forth the number of shares ("Shares") of the $.01
par value common stock ("Common Stock") of the Company set forth on the
signature page below at the purchase price per Share so set forth (the "Option
Price"). The date of grant of this option is the date set forth at the execution
page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires on
the tenth anniversary of the Option Date, unless the option is sooner terminated
as hereinafter specified. Only whole Shares may be purchased pursuant to this
option.
2. Conditions and Limitations.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering of
Shares subject to the option is registered under the Securities Act of 1933, as
amended, or if in the opinion of counsel for the Company such Shares may be
resold without registration. At the time of the exercise of the option or any
installment thereof, the Optionee will execute such further agreements as the
Company may require to implement the foregoing condition and to acknowledge the
Optionee's familiarity with restrictions on the resale of the Shares under
applicable securities laws, and the Company may stamp such legend on the
certificate representing the Shares as may be necessary or appropriate in light
of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
certificate of incorporation of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other information
concerning the Company and its business and prospects as may be reasonably
requested by the Optionee in connection with exercise of this option.
(c) The option shall not be transferable otherwise than by will or by
the laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the Optionee
only. Notwithstanding the foregoing, however, if the Optionee is determined to
be mentally incompetent and a guardian or conservator (or other similar person)
is appointed by a court of competent jurisdiction to manage the Optionee's
affairs, the guardian or conservator (or other similar person) may exercise the
option on behalf of the Optionee, provided that such exercise is made within the
time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto. To
the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern. The
Optionee hereby accepts this option subject to all such provisions of the Plan
and agrees that all decisions under, and interpretations of, such provisions of
the Plan by the Board of Directors of the Company (the "Board") or the
Committee, as defined in the Plan, shall be final, binding and conclusive upon
the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under the
Securities Act of 1933 or other applicable federal or state statute any shares
to be issued pursuant to the Plan, or to qualify any such shares for exemption
from the registration requirements of the Securities Act of 1933 under the rules
and regulations of the Securities and Exchange Commission or for similar
exemption under state law, then the Company shall notify the Optionee to that
effect and no Shares shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing, or exemption to become
and remain effective.
3. Exercise of Option; Withholding Taxes.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for which
the option is exercised and accompanied by payment in full of the Option Price.
Payment shall be made (a) in cash, (b) by check, (c) by Immediate Sales
Proceeds, as defined below, (d) by delivery and assignment to the Company of
shares of Company stock owned by the Optionee (which shares have a Market Price
not less than the Option Price), or (e) by any combination of the foregoing. As
used herein, "Market Price" shall mean the closing price of the Common Stock as
reported on the Nasdaq National Market for the relevant date (or, if such date
is not a trading date or if no trades took place on such date, then such closing
price for the last previous trading date or the last previous date on which a
trade occurred, as the case may be); provided that if the Common Stock is no
longer traded on the Nasdaq National Market on the relevant date, then the
Market Price as of such date shall be determined by the Committee.
Notwithstanding the foregoing, this option may not be exercised by delivery and
assignment to the Company of shares of Company stock to the extent that such
delivery and assignment would constitute a violation of the provisions of any
law, or related regulation or rule, or any agreement or Company policy,
restricting the transfer or redemption of the Company's stock. As used herein,
the term "Immediate Sales Proceeds" shall mean the assignment in form acceptable
to the Company of the proceeds of a sale of the Shares acquired on the exercise
of this option pursuant to a procedure approved by the Company. The Company
reserves the right to decline to approve any such procedure in the Company's
sole and absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise of an
option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
Without limiting the generality of the foregoing, the Company shall have the
right to deduct from payments of any kind otherwise due to the Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Shares issued upon exercise of the option.
4. Termination of Option. In the event that the Optionee ceases to be
employed by the Company or any parent or subsidiary of the Company
(collectively, the "Company Group") at any time prior to the exercise of this
option in full, this option shall terminate according to the following
provisions:
(a) If the Optionee ceases to be employed for any reason other than
death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")), the Optionee may at any time within a period
of one (1) month after the date of such cessation of employment exercise the
option to the extent that the option was exercisable on the date of such
cessation;
(b) If the Optionee ceases to be employed because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within a
period of six months after the date of such cessation of employment exercise the
option to the extent that the option was exercisable on the date of such
cessation; and
(c) If the Optionee ceases to be employed because of death, the option,
to the extent that the Optionee was entitled to exercise it on the date of
death, may be exercised within a period of six months after the Optionee's death
by the person or persons to whom the Optionee's rights under the option shall
pass by will or by the laws of descent and distribution;
provided, however, that this option may not be exercised to any extent by anyone
after the date of its expiration.
5. Exercisability of Option. So long as Optionee remains an employee of
the Company, this Option may be exercised only as follows:
(i) commencing on the first anniversary hereof, only to the extent of
one fifth of the Shares; and
(ii) thereafter, at the end of each subsequent quarter, to the extent
of an additional five per cent of the Shares; less the number of Shares as to
which this Option has been exercised.
6.
A. "Market Stand Off" Agreement.
The Optionee, if requested by the Company or any managing underwriter of
the Company's securities, shall agree not to sell or otherwise transfer or
dispose of any Shares of the Company held by the Optionee during the period up
to 180 days, as requested by the Company or such underwriter, following the
effective date of a registration statement of the Company filed under the
Securities Act of 1933 (except for any Company securities held by the Optionee
sold pursuant to such registration statement). Such agreement shall be in
writing in form satisfactory to the Company or such underwriter. The Company may
impose stop-transfer instructions with respect to the Shares subject to the
foregoing restriction until the end of such period.
B. Exceptions for Transfers to Family.
The provisions contained in this Section 6 shall not apply to any transfer
of Shares to or in trust for the sole benefit of the Optionee, or any member of
the immediate family of the Optionee, including for this purpose the
undersigned's spouse, parents, parents-in-law, issue, nephews, nieces, brothers,
brothers-in-law, sisters, sisters-in-law, children-in-law and
grandchildren-in-law, provided that such transferee agrees in writing to be
subject to the terms of Section 6.
7. Notice of Disposition of Shares.
The Optionee hereby agrees to notify the Company promptly if the Optionee
disposes of any Shares within one (1) year after the date the Optionee exercises
all or part of this option or within two (2) years after the Option Date. At any
time during the one or two year periods set forth above, the Company may place a
legend on any certificate representing Shares requesting the transfer agent for
the Company's stock to notify the Company of any such transfer. The obligation
of the Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence. Optionees are urged to review the description of the Plan
provided by the Company for a more detailed discussion of the Federal tax
consequences of such a disposition under current law. Additionally, if the
Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated thereunder, any disposition by
the Optionee of the Optioned Shares purchased under the Option within six months
of the date of grant may deprive the Optionee of the protection from 16(b)
liability which the provisions of the Plan seek to provide.
8. $100,000 Limitation.
Under Section 422 of the Code, the aggregate Market Price of the shares
with respect to which incentive stock options granted by any member of the
Company Group first become exercisable by an employee during any calendar year
cannot exceed $100,000 (the "$100,000 limitation"). To the extent, if any, that
the $100,000 limitation is exceeded by reason of the grant of this option, this
option shall be deemed, to the maximum extent possible, if any, to be an
incentive stock option, and the portion of this option that is exercisable for
shares in excess of the $100,000 limitation shall be treated as a non-qualified
option pursuant to Section 422(d) of the Code.
9. Notices.
All notices or demands given pursuant to this Agreement shall be in writing
and shall be deemed to have been sufficiently given if delivered by hand or sent
by certified or registered mail, postage prepaid, addressed to the Company at
its principal office or to the Optionee (or the Optionee's legal
representatives) at the address stated in the Optionee's (or their) notice or at
the Optionee's address appearing on the books of the Company.
10. No Employment Commitment; Tax Treatment.
Nothing herein contained shall be deemed to be or constitute an agreement
or commitment by the Company or any other member of the Company Group to
continue the Optionee in its employ. Although the option granted hereunder is
intended to qualify as an incentive stock option under Section 422 of the Code,
the Company makes no representation about the tax treatment to the Optionee with
respect to receipt or exercise of the option or acquiring, holding or disposing
of the Shares, and the Optionee represents that the Optionee has had the
opportunity to discuss such treatment (including the possible application of
Section 83 of the Code) with the Optionee's tax adviser. The Optionee shall have
no rights as a stockholder with respect to the shares subject to the option
until the exercise of the option and the issuance of a stock certificate for the
Shares with respect to which the option shall have been exercised.
11. Adjustment in Shares, etc.
(a) Appropriate adjustment shall be made by the Committee in number,
kind, and exercise price of Shares covered by the option granted hereunder to
give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Option Date.
(b) In the event of a change of the Common Stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, the number and kind of Shares which thereafter may be purchased
pursuant to the option granted hereunder, and the number and kind of Shares then
subject to the option granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Committee may deem equitable to
prevent dilution or enlargement of the rights available or granted hereunder.
Except as otherwise determined by the Committee, a merger or a similar
reorganization which the Company does not survive, or a sale of all or
substantially all of the assets of the Company, shall cause this option to
terminate, to the extent not then exercised, unless any surviving entity agrees
to assume the obligations hereunder.
12. Miscellaneous.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of The Commonwealth of Massachusetts. This Agreement
shall be binding upon and inure to the benefit of the heirs and legal
representatives of the Optionee and the successors and assigns of the Company,
but shall not be assigned by the Optionee at any time without the prior written
permission of the Company, and any such attempted assignment shall be void.
IN WITNESS WHEREOF the parties have executed this Stock Option
Agreement as of the Option Date.
----------------------------------
Optionee [Sign name]
[Print name]
Address: _________________________
----------------------------------
Option Date:
No. of Shares:
Option Price:
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
HPR INC.
By:______________________________
Chairman of the Board
Name of Optionee
HPR INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
(HPR 1991 Stock Plan)
THIS AGREEMENT is entered into by and between HPR Inc., a Delaware
corporation with its principal office at 245 First Street, Cambridge,
Massachusetts 02142 (hereinafter the "Company"), and the undersigned consultant
of the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company (such
services to be collectively herein referred to as "Service"), and the Company
desires to grant a non-qualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant, Exercisability and Term of Option.
(a) The Company hereby grants to the Optionee pursuant to the HPR 1991
Stock Plan (the "Plan") the option to purchase from the Company upon the terms
and conditions hereinafter set forth the number of shares ("Shares") of the $.01
par value common stock ("Common Stock") of the Company set forth on the
signature page below at the purchase price per Share so set forth (the "Option
Price"). The date of grant of this option is the date set forth at the execution
page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires on
the tenth anniversary of the Option Date, unless the option is sooner terminated
as hereinafter specified. Only whole Shares may be purchased pursuant to this
option.
2. Conditions and Limitations.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering of
Shares subject to the option is registered under the Securities Act of 1933, as
amended, or if in the opinion of counsel for the Company such Shares may be
resold without registration. At the time of the exercise of the option or any
installment thereof, the Optionee will execute such further agreements as the
Company may require to implement the foregoing condition and to acknowledge the
Optionee's familiarity with restrictions on the resale of the Shares under
applicable securities laws, and the Company may stamp such legend on the
certificate representing the Shares as may be necessary or appropriate in light
of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
certificate of incorporation of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other information
concerning the Company and its business and prospects as may be reasonably
requested by the Optionee in connection with exercise of this option.
(c) The option shall not be transferable otherwise than by will or by
the laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the Optionee
only. Notwithstanding the foregoing, however, if the Optionee is determined to
be mentally incompetent and a guardian or conservator (or other similar person)
is appointed by a court of competent jurisdiction to manage the Optionee's
affairs, the guardian or conservator (or other similar person) may exercise the
option on behalf of the Optionee, provided that such exercise is made within the
time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto. To
the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern. The
Optionee hereby accepts this option subject to all such provisions of the Plan
and agrees that all decisions under, and interpretations of, such provisions of
the Plan by the Board of Directors of the Company (the "Board") or the
Committee, as defined in the Plan, shall be final, binding and conclusive upon
the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under the
Securities Act of 1933 or other applicable federal or state statute any shares
to be issued pursuant to the Plan, or to qualify any such shares for exemption
from the registration requirements of the Securities Act of 1933 under the rules
and regulations of the Securities and Exchange Commission or for similar
exemption under state law, then the Company shall notify the Optionee to that
effect and no Shares shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing, or exemption to become
and remain effective.
3. Exercise of Option; Withholding Taxes.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for which
the option is exercised and accompanied by payment in full of the Option Price.
Payment shall be made (a) in cash, (b) by check, (c) by Immediate Sales
Proceeds, as defined below, (d) by delivery and assignment to the Company of
shares of Company stock owned by the Optionee (which shares have a Market Price
not less than the Option Price), or (e) by any combination of the foregoing. As
used herein, "Market Price" shall mean the closing price of the Common Stock as
reported on the Nasdaq National Market for the relevant date (or, if such date
is not a trading date or if no trades took place on such date, then such closing
price for the last previous trading date or the last previous date on which a
trade occurred, as the case may be); provided that if the Common Stock is no
longer traded on the Nasdaq National Market on the relevant date, then the
Market Price as of such date shall be determined by the Committee.
Notwithstanding the foregoing, this option may not be exercised by delivery and
assignment to the Company of shares of Company stock to the extent that such
delivery and assignment would constitute a violation of the provisions of any
law, or related regulation or rule, or any agreement or Company policy,
restricting the transfer or redemption of the Company's stock. As used herein,
the term "Immediate Sales Proceeds" shall mean the assignment in form acceptable
to the Company of the proceeds of a sale of the Shares acquired on the exercise
of this option pursuant to a procedure approved by the Company. The Company
reserves the right to decline to approve any such procedure in the Company's
sole and absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise of an
option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
Without limiting the generality of the foregoing, the Company shall have the
right to deduct from payments of any kind otherwise due to the Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Shares issued upon exercise of the option.
4. Termination of Option. In the event that the Optionee ceases to
perform Service at any time prior to the exercise of this option in full, this
option shall terminate according to the following provisions:
(a) If the Optionee ceases to perform Service for any reason other than
death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")), the Optionee may at any time within a period
of one (1) month after the date of such cessation of Service exercise the option
to the extent that the option was exercisable on the date of such cessation;
(b) If the Optionee ceases to perform Service because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within a
period of six months after the date of such cessation of Service exercise the
option to the extent that the option was exercisable on the date of such
cessation; and
(c) If the Optionee ceases to perform Service because of death, the
option, to the extent that the Optionee was entitled to exercise it on the date
of death, may be exercised within a period of six months after the Optionee's
death by the person or persons to whom the Optionee's rights under the option
shall pass by will or by the laws of descent and distribution;
provided, however, that this option may not be exercised to any extent by anyone
after the date of its expiration.
5. Exercisability of Option. So long as Optionee performs Service, this
Option may be exercised only as follows:
(i) commencing on the first anniversary hereof, only to the extent
of one fifth of the Shares; and
(ii) thereafter, at the end of each subsequent quarter, to the extent
of an additional five per cent of the Shares; less the number of Shares as
to which this Option has been exercised.
6.
A. "Market Stand Off" Agreement. The Optionee, if requested by the
Company or any managing underwriter of the Company's securities, shall agree not
to sell or otherwise transfer or dispose of any Shares of the Company held by
the Optionee during the period up to 180 days, as requested by the Company or
such underwriter, following the effective date of a registration statement of
the Company filed under the Securities Act of 1933 (except for any Company
securities held by the Optionee sold pursuant to such registration statement).
Such agreement shall be in writing in form satisfactory to the Company or such
underwriter. The Company may impose stop-transfer instructions with respect to
the Shares subject to the foregoing restriction until the end of such period.
B. Exceptions for Transfers to Family. The provisions contained in this
Section 6 shall not apply to any transfer of Shares to or in trust for the sole
benefit of the Optionee, or any member of the immediate family of the Optionee,
including for this purpose the undersigned's spouse, parents, parents-in-law,
issue, nephews, nieces, brothers, brothers-in-law, sisters, sisters-in-law,
children-in-law and grandchildren-in-law, provided that such transferee agrees
in writing to be subject to the terms of this Section 6.
7. Notices. All notices or demands given pursuant to this Agreement
shall be in writing and shall be deemed to have been sufficiently given if
delivered by hand or sent by certified or registered mail, postage prepaid,
addressed to the Company at its principal office or to the Optionee (or the
Optionee's legal representatives) at the address stated in the Optionee's (or
their) notice or at the Optionee's address appearing on the books of the
Company.
8. No Service Commitment; Tax Treatment. Nothing herein contained shall
be deemed to be or constitute an agreement or commitment by the Company or any
other member of the Company Group to continue the Optionee in Service. The
option granted hereunder is not intended to qualify as an incentive stock option
under Section 422 of the Code, and the Company makes no representation about the
tax treatment to the Optionee with respect to receipt or exercise of the option
or acquiring, holding or disposing of the Shares. The Optionee represents that
the Optionee has had the opportunity to discuss such treatment with the
Optionee's tax adviser. The Optionee shall have no rights as a stockholder with
respect to the shares subject to the option until the exercise of the option and
the issuance of a stock certificate for the Shares with respect to which the
option shall have been exercised.
9. Adjustment in Shares, etc.
(a) Appropriate adjustment shall be made by the Committee in number,
kind, and exercise price of Shares covered by the option granted hereunder to
give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Option Date.
(b) In the event of a change of the Common Stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, the number and kind of Shares which thereafter may be purchased
pursuant to the option granted hereunder, and the number and kind of Shares then
subject to the option granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Committee may deem equitable to
prevent dilution or enlargement of the rights available or granted hereunder.
Except as otherwise determined by the Committee, a merger or a similar
reorganization which the Company does not survive, or a sale of all or
substantially all of the assets of the Company, shall cause this option to
terminate, to the extent not then exercised, unless any surviving entity agrees
to assume the obligations hereunder.
10. Miscellaneous. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of The Commonwealth of Massachusetts.
This Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the prior
written permission of the Company, and any such attempted assignment shall be
void.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Stock Option
Agreement as of the Option Date.
----------------------------------
Optionee [Sign name]
[Print name]
Address: _________________________
----------------------------------
Option Date:
No. of Shares:
Option Price:
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
HPR INC.
By:_______________________
Chairman of the Board
HPR INC.
AMENDED AND RESTATED HPR 1995 STOCK PLAN
1. Purpose. The purpose of this HPR 1995 Stock Plan (the "Plan") is to
advance the interests of HPR Inc., a Delaware corporation (the "Company"), by
strengthening the ability of the Company to attract, retain and motivate key
employees, consultants and other individual contributors of or to the Company or
any present or future parent or subsidiary of the Company (the "Company Group")
by providing them with an opportunity to purchase or receive as bonuses stock of
the Company and thereby permitting them to share in the Company's success. It is
intended that this purpose will be effected by granting (i) incentive stock
options ("Incentive Options") which are intended to qualify under the provisions
of Section 422 of the Internal Revenue Code of 1986, as heretofore and hereafter
amended (the "Code"), and non-statutory stock options ("Nonqualified Options")
which are not intended to meet the requirements of Section 422 of the Code and
which are intended to be taxed under Section 83 of the Code (both Incentive
Options and Nonqualified Options shall be collectively referred to as
"Options"), (ii) stock purchase authorizations ("Purchase Authorizations"),
(iii) stock bonus awards ("Bonuses") and (iv) Stock Appreciation Rights
("SARs"). (Items (i) through (iv) above shall collectively be referred to herein
as "Awards".)
2. Effective Date. This Plan was adopted by the Board of Directors of
the Company (the "Board") on June 26, 1995 (the "effective date" of the Plan)
and approved by the stockholders on July 20, 1995. This Plan was amended and
restated by the Board of Directors on July 22, 1996, such amendment and
restatement to be effective on November 1, 1996, subject to approval by the
stockholders on or before July 22, 1997.
3. Stock Covered by the Plan. Subject to adjustment as provided in
Sections 10 and 11 below, the shares that may be made subject to Awards under
this Plan ("Shares") shall not exceed in the aggregate 2,035,000 shares of the
common stock, $.01 par value, of the Company ("Common Stock"). Any Shares
subject to an Option, SAR or Purchase Authorization which for any reason expires
or is terminated unexercised as to such Shares, any Shares reacquired by the
Company pursuant to forfeiture or a repurchase right hereunder, and any Shares
subject to an SAR which are not issued upon exercise of the SAR may again be the
subject of an Award under the Plan. The Shares purchased pursuant to Purchase
Authorizations or the exercise of Options under this Plan or issued as Bonuses
or pursuant to SARs may, in whole or in part, be either authorized but unissued
Shares or issued Shares reacquired by the Company.
4. Administration. This Plan shall be administered by the Board of
Directors, whose construction and interpretation of the Plan's terms and
provisions shall be final and conclusive. The Board shall have the authority to
delegate to the Compensation Committee of the Board (the "Committee") the
authority to administer this Plan as set forth in this Section 4 and to
recommend that the Board grant Awards. Each member of the Committee shall be,
and shall have been at all times within the one-year period ending on the date
of his or her appointment to the Committee, a person who in the opinion of
counsel to the Company is an "outside director" as such term is used in proposed
regulation 1.162-27(e)(3) under Section 162(m) of the Code. The Board shall have
authority, subject to the express provisions of the Plan, to construe the Plan
and the respective Awards and related agreements, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective Awards and related agreements, and to make all
other determinations in the judgment of the Board necessary or desirable for the
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award or related
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect, and it shall be the sole and final judge of such expediency.
No member of the Board and no delegate of the Board shall be liable for any
action or determination under the Plan made in good faith. Notwithstanding the
foregoing, the Board, or the Committee as its delegate, shall have authority to
establish guidelines for the grant of Awards to key employees of the Company
Group who are not executive officers of the Company and to delegate to the
Company's Chief Executive Officer the authority to recommend to the Board the
grant of Awards, within such guidelines, to such eligible non-executive key
employees.
5. Approval by Board of Directors. Notwithstanding anything in this
Plan to the contrary, including without limitation the delegation of authority
to the Committee, all grants of Awards shall be approved by the Board of
Directors.
6. Eligible Recipients. Awards may be granted to such key employees,
consultants or other individual contributors of or to the Company Group,
including without limitation members of the Board who are employees and members
of any medical scientific or technical advisory boards, as are selected by the
Board or (except as to employees who are Company executive officers) by the
Board's delegate pursuant to section 4 above (a "Participant"); provided, that
only employees of the Company Group shall be eligible for grant of an Incentive
Option.
7. Duration of the Plan. This Plan shall terminate ten (10) years from
the effective date hereof, unless terminated earlier pursuant to Section 14
hereafter, and no Awards may be granted or made thereafter.
8. Terms and Conditions of Options, Purchase Authorizations, SARs and
Bonuses. Awards granted or made under this Plan shall be evidenced by agreements
in such form and containing such terms and conditions as the Board shall
determine; provided, however, that such agreements shall evidence among their
terms and conditions the following:
(a) Price. The purchase price per Share payable upon the
exercise of each Option or the purchase pursuant to each Purchase Authorization
granted or made hereunder shall be determined by the Board at the time the
Option or Purchase Authorization is granted or made. Subject to the condition of
paragraph 8(k)(i), if applicable, the purchase price per Share payable upon the
exercise of each Incentive Option granted hereunder shall not be less than one
hundred percent (100%) of the Market Price (as such term is defined below) per
Share of the Common Stock on the day the Incentive Option is granted. The
purchase price per Share payable on exercise of each Nonqualified Option or upon
the purchase of Shares pursuant to each Purchase Authorization granted hereunder
shall be not less than eighty-five percent (85%) of the Market Price per Share
of the Common Stock on the date of the grant. Bonus Shares shall be issued in
consideration of services previously rendered, which shall be valued for such
purposes by the Board. No Share shall be issued for less than its par value,
paid in cash, property or services. As used herein, "Market Price" shall mean
the closing price of the Common Stock as reported on the Nasdaq National Market
System for the relevant date (or, if such date is not a trading date or if no
trades took place on such date, then such closing price for the last previous
trading date or the last previous date on which a trade occurred, as the case
may be); provided that if the Common Stock is no longer traded on the Nasdaq
National Market System on the relevant date, then the Market Price as of such
date shall be determined by the Board equal to the fair market value of the
Common Stock in accordance with applicable provisions of the Code then in
effect.
(b) Stock Appreciation Rights. Stock Appreciation Rights shall
be grants entitling a Participant to receive an amount in cash or Shares or a
combination thereof having a value equal to or less than the excess of the
Market Price per share of the Company's Common Stock on the date of exercise
over the Market Price per share of the Company's Common Stock on the date of
grant, multiplied by the number of Shares with respect to which the SAR shall
have been exercised.
(c) Number of Shares. Each agreement shall specify the number
of Shares to which it pertains.
(d) Exercise of Options. Each Option shall be exercisable for
the full amount or for any part thereof and at such intervals or in such
installments as the Board may determine or as the Committee may determine at the
time it recommends that the Board grant such Option; provided, however, that no
Option shall be exercisable with respect to any Shares later than ten (10) years
after the date of the grant of such Option (or five (5) years in the case of
Incentive Options to which paragraph 8(k)(ii) applies). An Option shall be
exercisable only by delivery of a written notice to the Company's Treasurer, or
any other officer of the Company designated by the Board to accept such notices
on its behalf, specifying the number of Shares for which the Option is exercised
and accompanied by either (i) payment or (ii) if permitted by the Board,
irrevocable instructions to a broker to promptly deliver to the Company full
payment in accordance with paragraph 8(e)(ii) below of the amount necessary to
pay the aggregate exercise price. With respect to an Incentive Option, the
permission of the Board referred to in clause (ii) of the preceding sentence
must be granted at the time the Incentive Option is granted.
(e) Payment. Payment shall be made in full (i) at the time the
Option is exercised, (ii) promptly after the Participant forwards the
irrevocable instructions referred to in paragraph 8(d)(ii) above to the
appropriate broker, if exercise of an Option is made pursuant to paragraph
8(d)(ii) above, or (iii) at the time the purchase pursuant to a Purchase
Authorization is made. Payment shall be made either (a) in cash, (b) by check,
(c) if permitted by the Board (with respect to an Incentive Option, such
permission to have been granted at the time of the Incentive Option grant), by
delivery and assignment to the Company of shares of Company stock having a
Market Price (as determined by the Board) equal to the exercise or purchase
price, (d) if permitted by the Board, stated in the agreement evidencing the
Option or Purchase Authorization, and to the extent permitted by any applicable
law, by the Participant's recourse promissory note, which note must be due and
payable not more than five (5) years after the date the Option or Purchase
Authorization is exercised, or (e) by a combination of (a), (b), (c) and/or (d).
If shares of Company stock are to be used to pay the exercise price of an
Incentive Option, the Company prior to such payment must be furnished with
evidence satisfactory to it that the acquisition of such shares and their
transfer in payment of the exercise price satisfy the requirements of Section
422 of the Code and other applicable laws. Notwithstanding the foregoing, the
purchase or exercise price of an Option or Purchase Authorization may not be
paid by delivery and assignment to the Company of shares of Company stock or
through irrevocable instructions to a broker as referred to in Paragraph
8(d)(ii) above to the extent that such delivery and assignment or the execution
of such irrevocable instructions would constitute a violation of the provisions
of any law (including without limitation Section 16 of the Exchange Act) or
related regulation or rule, or any agreement or policy of the Company,
restricting the transfer or redemption of the Company's stock.
(f) Withholding Taxes; Delivery of Shares. The Company's
obligation to deliver Shares upon exercise of an Option or SAR or upon purchase
pursuant to a Purchase Authorization or issuance pursuant to a Bonus shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and employment tax withholding obligations. Without limiting the
generality of the foregoing, the Company shall have the right to deduct from
payments of any kind otherwise due to the Participant any federal, state or
local taxes of any kind required by law to be withheld with respect to any
Shares issued upon exercise of Options or SARs or purchased or issued pursuant
to Purchase Authorizations or Bonuses. The Participant may elect to satisfy such
obligation(s), in whole or in part, by (i) delivering to the Company a check for
the amount required to be withheld or (ii) if the Board in its sole discretion
approves in any specific or general case, having the Company withhold Shares or
delivering to the Company already-owned shares of Common Stock, having a value
equal to the amount required to be withheld, as determined by the Board.
(g) Non-Transferability. No Option, SAR or Purchase
Authorization shall be transferable by the Participant otherwise than by will or
the laws of descent or distribution, and each Option, SAR or Purchase
Authorization shall be exercisable during the Participant's lifetime only by the
Participant, provided, however, that the Board may permit a Participant to
transfer an Award if such transfer is made pursuant to uniformly applied
criteria established by the Board prior to such transfer.
(h) Termination of Options, SARs and Purchase Authorizations.
Nothing in this Plan or in any agreement representing any Award shall restrict
the right of any member of the Company Group to terminate the employment of any
Participant at any time and for any reason, with or without notice. Each
Purchase Authorization and SAR shall terminate and may no longer be exercised if
the Participant ceases for any reason to provide services to a member of the
Company Group. Except to the extent the Board provides specifically in an
agreement evidencing an Option for a lesser period (or a greater period,
provided that in the case of Incentive Options such period shall not exceed
three months), each Option shall terminate and may no longer be exercised if the
Participant ceases for any reason to provide services to a member of the Company
Group in accordance with the following provisions:
(i) if the Participant ceases to perform services for any reason other than
death or disability (as defined in Section 22(e)(3) of the Code), the
Participant may, at any time within a period of one month after the date of such
cessation of the performance of services, exercise the Option to the extent that
the Option was exercisable on the date of such cessation;
(ii) if the Participant ceases to perform services because of disability
(as defined in Section 22(e)(3) of the Code), the Participant may, at any time
within a period of six months after the date of such cessation of the
performance of services, exercise the Option to the extent that the Option was
exercisable on the date of such cessation; and (iii) if the Participant ceases
to perform services because of death, the Option, to the extent that the
Participant was entitled to exercise it on the date of death, may be exercised
within a period of six months after the Participant's death by the person or
persons to whom the Participant's rights under the Option pass by will or by the
laws of descent or distribution; provided, however, that no Option, SAR or
Purchase Authorization may be exercised to any extent by anyone after the date
of its expiration; and provided, further, that Options, SARs and Purchase
Authorizations may be exercised only as to Vested Shares (as defined in the
applicable agreement with the Participant) after the Participant has ceased to
perform services for any member of the Company Group.
(i) Rights as Stockholder. A Participant shall have no rights
as a stockholder with respect to any Shares covered by an Award until the date
of issuance of a stock certificate, if any, in the Participant's name for such
Shares.
(j) Repurchase of Shares by the Company. Any Shares purchased
or acquired upon exercise of an Option or SAR or pursuant to a Purchase
Authorization or Bonus may in the discretion of the Board be subject to
repurchase by or forfeiture to the Company if and to the extent and at the
repurchase price, if any, specifically set forth in the option, purchase, SAR or
bonus agreement pursuant to which the Shares were purchased or acquired.
Certificates representing Shares subject to such repurchase or forfeiture may be
subject to such escrow and stock legending provisions as may be set forth in the
option, purchase, SAR or bonus agreement pursuant to which the Shares were
purchased or acquired.
(k) 10% Stockholder. If any Participant to whom an Incentive
Option is granted pursuant to the provisions of the Plan is on the date of grant
the owner of stock (as determined under Section 424(d) of the Code) possessing
more than 10% of the total combined voting power or value of all classes of
stock of the Company, its parent, if any, or subsidiaries, then the following
special provisions shall be applicable:
(i) The exercise price per Share subject to such
Option shall not be less than 110% of the
fair market value of each Share on the date
of grant; and
(ii) The Option shall not have a term in excess
of five years from the date of grant.
(l) Confidentiality Agreements. Each Participant shall
execute, prior to or contemporaneously with the grant of any Award hereunder,
the Company's then standard form of agreement relating to nondisclosure of
confidential information, assignment of inventions and related matters.
(m) Aggregate Limitation. The maximum number of Shares with
respect to which any Awards may be granted under the Plan to any individual
during each successive twelve-month period commencing on the effective date of
the Plan shall not exceed 400,000 shares.
9. Restrictions on Incentive Options. Incentive Options granted under
this Plan shall be specifically designated as such and shall be subject to the
additional restriction that the aggregate Market Price, determined as of the
date the Incentive Option is granted, of the Shares with respect to which
Incentive Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000. If an Incentive Option which exceeds
the $100,000 limitation of this paragraph 9 is granted, the portion of such
Option which is exercisable for shares in excess of the $100,000 limitation
shall be treated as a Nonqualified Option pursuant to Section 422(d) of the
Code. In the event that such Participant is eligible to participate in any other
stock incentive plans of the Company, its parent, if any, or a subsidiary which
are also intended to comply with the provisions of Section 422 of the Code, such
annual limitation shall apply to the aggregate number of shares for which
options may be granted under all such plans.
10. Stock Dividends; Stock Splits; Stock Combinations;
Recapitalizations. Appropriate adjustment shall be made by the Board in the
maximum number of Shares subject to the Plan and in the number, kind, and
exercise or purchase price of Shares covered by outstanding Options, SARs and
Purchase Authorizations granted hereunder to give effect to any stock dividends,
stock splits, stock combinations, recapitalizations and other similar changes in
the capital structure of the Company after the effective date of the Plan.
11. Merger; Sale of Assets. In the event of a change of the Common
Stock resulting from a merger or similar reorganization as to which the Company
is the surviving corporation, the number and kind of Shares which thereafter may
be purchased pursuant to an Option, SAR or Purchase Authorization under the Plan
and the number and kind of Shares then subject to Options, SARs or Purchase
Authorizations granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Board may deem equitable to prevent
dilution or enlargement of the rights available or granted hereunder. Except as
otherwise determined by the Board, a merger or a similar reorganization which
the Company does not survive, or a sale of all or substantially all of the
assets of the Company, shall cause every Option, SAR and Purchase Authorization
hereunder to terminate, to the extent not then exercised, unless any surviving
entity agrees to assume the obligations hereunder; provided, however, that, in
the case of such a merger or similar reorganization, or such a sale of all or
substantially all of the assets of the Company, if there is no such assumption,
the Board may provide that some or all of the unexercised portion of any one or
more of the outstanding Options, SARs or Purchase Authorizations and some or all
of the unvested Shares acquired upon exercise of any one or more of such
Options, SARs or Purchase Authorizations or acceptance of any one or more of the
outstanding Bonuses shall be immediately exercisable and vested or no longer
subject to repurchase rights as of such date prior to such merger, similar
reorganization or sale of assets as the Board determines.
12. Investment Representations; Transfer Restrictions. The Company may
require Participants, as a condition of purchasing Shares pursuant to the
exercise of an Option or SAR or to a Purchase Authorization or receipt of shares
as a Bonus, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Shares for the
Participant's own account for investment and not with any present intention of
selling or otherwise distributing the same, unless there shall be an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), with respect thereto, and to such other effects as the Company deems
necessary or appropriate (including without limitation confirmation that the
Participant is aware of any applicable restrictions on transfer of the Shares,
as specified in the by-laws of the Company or otherwise) in order to comply with
federal and applicable state securities laws.
13. Definitions.
(a) The term "employee" shall have, for purposes of this Plan,
the meaning ascribed to "employee" under Section 3401(c) of the Code and the
regulations promulgated thereunder.
(b) The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as heretofore and hereafter amended.
(c) The term "parent" shall have, for purposes of this Plan,
the meaning ascribed to it under Section 424(e) of the Code and the regulations
promulgated thereunder.
(d) The term "subsidiary" shall have, for all purposes under
this Plan, the meaning ascribed to it under Section 424(f) of the Code and the
regulations promulgated thereunder.
14. Termination or Amendment of Plan. The Board may at any time
terminate the Plan or make such changes in or additions to the Plan as it deems
advisable without further action on the part of the stockholders of the Company,
provided:
(a) that no such termination or amendment shall adversely
affect or impair any then outstanding Award or related agreement without the
consent of the Participant holding such Award or related agreement; and
(b) that no such amendment which, pursuant to the Code or
regulations thereunder, requires action by the stockholders may be made without
obtaining, or being conditioned upon, stockholder approval.
With the consent of the Participant affected, the Board may amend
outstanding Awards or related agreements in a manner not inconsistent with the
Plan. The Board shall have the right to amend or modify the terms and provisions
of the Plan and of any outstanding Incentive Options granted under the Plan to
the extent necessary to qualify any or all such Options for such favorable
federal income tax treatment (including deferral of taxation upon exercise) as
may be afforded incentive stock options under Section 422 of the Code.
Name of Optionee
HPR INC.
INCENTIVE STOCK OPTION AGREEMENT
(Amended and Restated HPR 1995 Stock Plan)
THIS AGREEMENT is entered into by and between HPR Inc., a Delaware
corporation with its principal office at 245 First Street, Cambridge,
Massachusetts 02142 (hereinafter the "Company"), and the undersigned employee of
the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company, and
the Company desires to grant an incentive stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant, Exercisability and Term of Option.
(a) The Company hereby grants to the Optionee pursuant to the Amended
and Restated HPR 1995 Stock Plan (the "Plan") the option to purchase from the
Company upon the terms and conditions hereinafter set forth the number of shares
("Shares") of the $.01 par value common stock ("Common Stock") of the Company
set forth on the signature page below at the purchase price per Share so set
forth (the "Option Price"). The date of grant of this option is the date set
forth at the execution page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires on
the tenth anniversary of the Option Date, unless the option is sooner terminated
as hereinafter specified. Only whole Shares may be purchased pursuant to this
option.
2. Conditions and Limitations.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering of
Shares subject to the option is registered under the Securities Act of 1933, as
amended, or if in the opinion of counsel for the Company such Shares may be
resold without registration. At the time of the exercise of the option or any
installment thereof, the Optionee will execute such further agreements as the
Company may require to implement the foregoing condition and to acknowledge the
Optionee's familiarity with restrictions on the resale of the Shares under
applicable securities laws, and the Company may stamp such legend on the
certificate representing the Shares as may be necessary or appropriate in light
of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
certificate of incorporation of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other information
concerning the Company and its business and prospects as may be reasonably
requested by the Optionee in connection with exercise of this option.
(c) The option shall not be transferable otherwise than by will or by
the laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the Optionee
only. Notwithstanding the foregoing, however, if the Optionee is determined to
be mentally incompetent and a guardian or conservator (or other similar person)
is appointed by a court of competent jurisdiction to manage the Optionee's
affairs, the guardian or conservator (or other similar person) may exercise the
option on behalf of the Optionee, provided that such exercise is made within the
time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto. To
the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern. The
Optionee hereby accepts this option subject to all such provisions of the Plan
and agrees that all decisions under, and interpretations of, such provisions of
the Plan by the Board of Directors of the Company (the "Board") or the
Committee, as defined in the Plan, shall be final, binding and conclusive upon
the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under the
Securities Act of 1933 or other applicable federal or state statute any shares
to be issued pursuant to the Plan, or to qualify any such shares for exemption
from the registration requirements of the Securities Act of 1933 under the rules
and regulations of the Securities and Exchange Commission or for similar
exemption under state law, then the Company shall notify the Optionee to that
effect and no Shares shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing, or exemption to become
and remain effective.
3. Exercise of Option; Withholding Taxes.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for which
the option is exercised and accompanied by payment in full of the Option Price.
Payment shall be made (a) in cash, (b) by check, (c) by Immediate Sales
Proceeds, as defined below, (d) by delivery and assignment to the Company of
shares of Company stock owned by the Optionee (which shares have a Market Price
not less than the Option Price), or (e) by any combination of the foregoing. As
used herein, "Market Price" shall mean the closing price of the Common Stock as
reported on the Nasdaq National Market for the relevant date (or, if such date
is not a trading date or if no trades took place on such date, then such closing
price for the last previous trading date or the last previous date on which a
trade occurred, as the case may be); provided that if the Common Stock is no
longer traded on the Nasdaq National Market on the relevant date, then the
Market Price as of such date shall be determined by the Committee.
Notwithstanding the foregoing, this option may not be exercised by delivery and
assignment to the Company of shares of Company stock to the extent that such
delivery and assignment would constitute a violation of the provisions of any
law, or related regulation or rule, or any agreement or Company policy,
restricting the transfer or redemption of the Company's stock. As used herein,
the term "Immediate Sales Proceeds" shall mean the assignment in form acceptable
to the Company of the proceeds of a sale of the Shares acquired on the exercise
of this option pursuant to a procedure approved by the Company. The Company
reserves the right to decline to approve any such procedure in the Company's
sole and absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise of an
option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
Without limiting the generality of the foregoing, the Company shall have the
right to deduct from payments of any kind otherwise due to the Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Shares issued upon exercise of the option.
4. Termination of Option. In the event that the Optionee ceases to be
employed by the Company or any parent or subsidiary of the Company
(collectively, the "Company Group") at any time prior to the exercise of this
option in full, this option shall terminate according to the following
provisions:
(a) If the Optionee ceases to be employed for any reason other than
death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")), the Optionee may at any time within a period
of one (1) month after the date of such cessation of employment exercise the
option to the extent that the option was exercisable on the date of such
cessation;
(b) If the Optionee ceases to be employed because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within a
period of six months after the date of such cessation of employment exercise the
option to the extent that the option was exercisable on the date of such
cessation; and
(c) If the Optionee ceases to be employed because of death, the option,
to the extent that the Optionee was entitled to exercise it on the date of
death, may be exercised within a period of six months after the Optionee's death
by the person or persons to whom the Optionee's rights under the option shall
pass by will or by the laws of descent and distribution;
provided, however, that this option may not be exercised to any extent by anyone
after the date of its expiration.
5. Exercisability of Option. So long as Optionee remains an employee of
the Company, this Option may be exercised only as follows:
(i) commencing on the first anniversary hereof, only to the extent
of one fifth of the Shares; and
(ii) thereafter, at the end of each subsequent quarter, to the extent
of an additional five per cent of the Shares;
less the number of Shares as to which this Option has been exercised.
6. A. "Market Stand Off" Agreement. The Optionee, if requested by the
Company or any managing underwriter of the Company's securities, shall agree not
to sell or otherwise transfer or dispose of any Shares of the Company held by
the Optionee during the period up to 180 days, as requested by the Company or
such underwriter, following the effective date of a registration statement of
the Company filed under the Securities Act of 1933 (except for any Company
securities held by the Optionee sold pursuant to such registration statement).
Such agreement shall be in writing in form satisfactory to the Company or such
underwriter. The Company may impose stop-transfer instructions with respect to
the Shares subject to the foregoing restriction until the end of such period.
B. Exceptions for Transfers to Family. The provisions
contained in this Section 6 shall not apply to any transfer of Shares to or in
trust for the sole benefit of the Optionee, or any member of the immediate
family of the Optionee, including for this purpose the undersigned's spouse,
parents, parents-in-law, issue, nephews, nieces, brothers, brothers-in-law,
sisters, sisters-in-law, children-in-law and grandchildren-in-law, provided that
such transferee agrees in writing to be subject to the terms of Section 6.
7. Notice of Disposition of Shares. The Optionee hereby agrees to
notify the Company promptly if the Optionee disposes of any Shares within one
(1) year after the date the Optionee exercises all or part of this option or
within two (2) years after the Option Date. At any time during the one or two
year periods set forth above, the Company may place a legend on any certificate
representing Shares requesting the transfer agent for the Company's stock to
notify the Company of any such transfer. The obligation of the Optionee to
notify the Company of any such transfer shall continue notwithstanding that a
legend has been placed on the certificate pursuant to the preceding sentence.
Optionees are urged to review the description of the Plan provided by the
Company for a more detailed discussion of the Federal tax consequences of such a
disposition under current law.
8. $100,000 Limitation. Under Section 422 of the Code, the aggregate
Market Price of the shares with respect to which incentive stock options granted
by any member of the Company Group first become exercisable by an employee
during any calendar year cannot exceed $100,000 (the "$100,000 limitation"). To
the extent, if any, that the $100,000 limitation is exceeded by reason of the
grant of this option, this option shall be deemed, to the maximum extent
possible, if any, to be an incentive stock option, and the portion of this
option that is exercisable for shares in excess of the $100,000 limitation shall
be treated as a non-qualified option pursuant to Section 422(d) of the Code.
9. Notices. All notices or demands given pursuant to this Agreement
shall be in writing and shall be deemed to have been sufficiently given if
delivered by hand or sent by certified or registered mail, postage prepaid,
addressed to the Company at its principal office or to the Optionee (or the
Optionee's legal representatives) at the address stated in the Optionee's (or
their) notice or at the Optionee's address appearing on the books of the
Company.
10. No Employment Commitment; Tax Treatment. Nothing herein contained
shall be deemed to be or constitute an agreement or commitment by the Company or
any other member of the Company Group to continue the Optionee in its employ.
Although the option granted hereunder is intended to qualify as an incentive
stock option under Section 422 of the Code, the Company makes no representation
about the tax treatment to the Optionee with respect to receipt or exercise of
the option or acquiring, holding or disposing of the Shares, and the Optionee
represents that the Optionee has had the opportunity to discuss such treatment
(including the possible application of Section 83 of the Code) with the
Optionee's tax adviser. The Optionee shall have no rights as a stockholder with
respect to the shares subject to the option until the exercise of the option and
the issuance of a stock certificate for the Shares with respect to which the
option shall have been exercised.
11. Adjustment in Shares, etc.
(a) Appropriate adjustment shall be made by the Committee in number,
kind, and exercise price of Shares covered by the option granted hereunder to
give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Option Date.
(b) In the event of a change of the Common Stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, the number and kind of Shares which thereafter may be purchased
pursuant to the option granted hereunder, and the number and kind of Shares then
subject to the option granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Committee may deem equitable to
prevent dilution or enlargement of the rights available or granted hereunder.
Except as otherwise determined by the Committee, a merger or a similar
reorganization which the Company does not survive, or a sale of all or
substantially all of the assets of the Company, shall cause this option to
terminate, to the extent not then exercised, unless any surviving entity agrees
to assume the obligations hereunder.
12. Miscellaneous. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of The Commonwealth of Massachusetts.
This Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the prior
written permission of the Company, and any such attempted assignment shall be
void.
IN WITNESS WHEREOF the parties have executed this Stock Option Agreement as of
the Option Date.
----------------------------------
Optionee [Sign name]
[Print name]
Address: _________________________
----------------------------------
Option Date:
No. of Shares:
Option Price:
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
HPR INC.
By:_______________________
Chairman of the Board
Name of Optionee
HPR INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
(Amended and Restated HPR 1995 Stock Plan)
THIS AGREEMENT is entered into by and between HPR Inc., a Delaware
corporation with its principal office at 245 First Street, Cambridge,
Massachusetts 02142 (hereinafter the "Company"), and the undersigned consultant
of the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company (such
services to be collectively herein referred to as "Service"), and the Company
desires to grant a non-qualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant, Exercisability and Term of Option.
(a) The Company hereby grants to the Optionee pursuant to the Amended
and Restated HPR 1995 Stock Plan (the "Plan") the option to purchase from the
Company upon the terms and conditions hereinafter set forth the number of shares
("Shares") of the $.01 par value common stock ("Common Stock") of the Company
set forth on the signature page below at the purchase price per Share so set
forth (the "Option Price"). The date of grant of this option is the date set
forth at the execution page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires on
the tenth anniversary of the Option Date, unless the option is sooner terminated
as hereinafter specified. Only whole Shares may be purchased pursuant to this
option.
2. Conditions and Limitations.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering of
Shares subject to the option is registered under the Securities Act of 1933, as
amended, or if in the opinion of counsel for the Company such Shares may be
resold without registration. At the time of the exercise of the option or any
installment thereof, the Optionee will execute such further agreements as the
Company may require to implement the foregoing condition and to acknowledge the
Optionee's familiarity with restrictions on the resale of the Shares under
applicable securities laws, and the Company may stamp such legend on the
certificate representing the Shares as may be necessary or appropriate in light
of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
certificate of incorporation of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other information
concerning the Company and its business and prospects as may be reasonably
requested by the Optionee in connection with exercise of this option.
(c) The option shall not be transferable otherwise than by will or by
the laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the Optionee
only. Notwithstanding the foregoing, however, if the Optionee is determined to
be mentally incompetent and a guardian or conservator (or other similar person)
is appointed by a court of competent jurisdiction to manage the Optionee's
affairs, the guardian or conservator (or other similar person) may exercise the
option on behalf of the Optionee, provided that such exercise is made within the
time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto. To
the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern. The
Optionee hereby accepts this option subject to all such provisions of the Plan
and agrees that all decisions under, and interpretations of, such provisions of
the Plan by the Board of Directors of the Company (the "Board") or the
Committee, as defined in the Plan, shall be final, binding and conclusive upon
the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under the
Securities Act of 1933 or other applicable federal or state statute any shares
to be issued pursuant to the Plan, or to qualify any such shares for exemption
from the registration requirements of the Securities Act of 1933 under the rules
and regulations of the Securities and Exchange Commission or for similar
exemption under state law, then the Company shall notify the Optionee to that
effect and no Shares shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing, or exemption to become
and remain effective.
3. Exercise of Option; Withholding Taxes.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for which
the option is exercised and accompanied by payment in full of the Option Price.
Payment shall be made (a) in cash, (b) by check, (c) by Immediate Sales
Proceeds, as defined below, (d) by delivery and assignment to the Company of
shares of Company stock owned by the Optionee (which shares have a Market Price
not less than the Option Price), or (e) by any combination of the foregoing. As
used herein, "Market Price" shall mean the closing price of the Common Stock as
reported on the Nasdaq National Market for the relevant date (or, if such date
is not a trading date or if no trades took place on such date, then such closing
price for the last previous trading date or the last previous date on which a
trade occurred, as the case may be); provided that if the Common Stock is no
longer traded on the Nasdaq National Market on the relevant date, then the
Market Price as of such date shall be determined by the Committee.
Notwithstanding the foregoing, this option may not be exercised by delivery and
assignment to the Company of shares of Company stock to the extent that such
delivery and assignment would constitute a violation of the provisions of any
law, or related regulation or rule, or any agreement or Company policy,
restricting the transfer or redemption of the Company's stock. As used herein,
the term "Immediate Sales Proceeds" shall mean the assignment in form acceptable
to the Company of the proceeds of a sale of the Shares acquired on the exercise
of this option pursuant to a procedure approved by the Company. The Company
reserves the right to decline to approve any such procedure in the Company's
sole and absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise of an
option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
Without limiting the generality of the foregoing, the Company shall have the
right to deduct from payments of any kind otherwise due to the Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Shares issued upon exercise of the option.
4. Termination of Option. In the event that the Optionee ceases to
perform Service at any time prior to the exercise of this option in full, this
option shall terminate according to the following provisions:
(a) If the Optionee ceases to perform Service for any reason other than
death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")), the Optionee may at any time within a period
of one (1) month after the date of such cessation of Service exercise the option
to the extent that the option was exercisable on the date of such cessation;
(b) If the Optionee ceases to perform Service because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within a
period of six months after the date of such cessation of Service exercise the
option to the extent that the option was exercisable on the date of such
cessation; and
(c) If the Optionee ceases to perform Service because of death, the
option, to the extent that the Optionee was entitled to exercise it on the date
of death, may be exercised within a period of six months after the Optionee's
death by the person or persons to whom the Optionee's rights under the option
shall pass by will or by the laws of descent and distribution;
provided, however, that this option may not be exercised to any extent by anyone
after the date of its expiration.
5. Exercisability of Option. So long as Optionee performs Service, this
Option may be exercised only as follows:
(i) commencing on the first anniversary hereof, only to the extent
of one fifth of the Shares; and
(ii) thereafter, at the end of each subsequent quarter, to the extent
of an additional five per cent of the Shares;less the number of Shares as to
which this Option has been exercised.
6. A. "Market Stand Off" Agreement. The Optionee, if requested by the
Company or any managing underwriter of the Company's securities, shall agree not
to sell or otherwise transfer or dispose of any Shares of the Company held by
the Optionee during the period up to 180 days, as requested by the Company or
such underwriter, following the effective date of a registration statement of
the Company filed under the Securities Act of 1933 (except for any Company
securities held by the Optionee sold pursuant to such registration statement).
Such agreement shall be in writing in form satisfactory to the Company or such
underwriter. The Company may impose stop-transfer instructions with respect to
the Shares subject to the foregoing restriction until the end of such period.
B. Exceptions for Transfers to Family. The provisions
contained in this Section 6 shall not apply to any transfer of Shares to or in
trust for the sole benefit of the Optionee, or any member of the immediate
family of the Optionee, including for this purpose the undersigned's spouse,
parents, parents-in-law, issue, nephews, nieces, brothers, brothers-in-law,
sisters, sisters-in-law, children-in-law and grandchildren-in-law, provided that
such transferee agrees in writing to be subject to the terms of this Section 6.
7. Notices. All notices or demands given pursuant to this Agreement
shall be in writing and shall be deemed to have been sufficiently given if
delivered by hand or sent by certified or registered mail, postage prepaid,
addressed to the Company at its principal office or to the Optionee (or the
Optionee's legal representatives) at the address stated in the Optionee's (or
their) notice or at the Optionee's address appearing on the books of the
Company.
8. No Service Commitment; Tax Treatment. Nothing herein contained shall
be deemed to be or constitute an agreement or commitment by the Company or any
other member of the Company Group to continue the Optionee in Service. The
option granted hereunder is not intended to qualify as an incentive stock option
under Section 422 of the Code, and the Company makes no representation about the
tax treatment to the Optionee with respect to receipt or exercise of the option
or acquiring, holding or disposing of the Shares. The Optionee represents that
the Optionee has had the opportunity to discuss such treatment with the
Optionee's tax adviser. The Optionee shall have no rights as a stockholder with
respect to the shares subject to the option until the exercise of the option and
the issuance of a stock certificate for the Shares with respect to which the
option shall have been exercised.
9. Adjustment in Shares, etc.
(a) Appropriate adjustment shall be made by the Committee in number,
kind, and exercise price of Shares covered by the option granted hereunder to
give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Option Date.
(b) In the event of a change of the Common Stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, the number and kind of Shares which thereafter may be purchased
pursuant to the option granted hereunder, and the number and kind of Shares then
subject to the option granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Committee may deem equitable to
prevent dilution or enlargement of the rights available or granted hereunder.
Except as otherwise determined by the Committee, a merger or a similar
reorganization which the Company does not survive, or a sale of all or
substantially all of the assets of the Company, shall cause this option to
terminate, to the extent not then exercised, unless any surviving entity agrees
to assume the obligations hereunder.
10. Miscellaneous. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of The Commonwealth of Massachusetts.
This Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the prior
written permission of the Company, and any such attempted assignment shall be
void.
IN WITNESS WHEREOF the parties have executed this Stock Option
Agreement as of the Option Date.
----------------------------------
Optionee [Sign name]
[Print name]
Address: _________________
--------------------------
Option Date:
No. of Shares:
Option Price:
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
HPR, INC.
By:_______________________
Chairman of the Board
HPR INC.
HPR 1995 ELIGIBLE DIRECTORS STOCK PLAN
1. Purpose. The purpose of this plan (the "Plan") is to grant options
to purchase shares of the common stock, $.01 par value (the "Common Stock"), of
HPR Inc. (the "Company") to Eligible Directors (as defined in Section 5 of the
Plan) of the Company at market value on the date of grant. The Company believes
that the granting of such options (the "Options") will serve to enhance the
Company's ability to attract and retain the services of such persons, to provide
additional incentives to them and to encourage the highest level of performance
by them by offering them a proprietary interest in the Company's success. The
Company also believes that the Plan will encourage directors to make greater
equity investment in the Company, more closely aligning the interests of the
directors and the stockholders.
2. Effective Date. This Plan was adopted by the Board of Directors of
the Company (the "Board") on June 26, 1995 (the "effective date" of the Plan)
and approved by the stockholders on July 20, 1996 and amended July 22, 1996 to
be effective November 1, 1996, subject to approval of such amendment by the
stockholders of the Company on or before July 22, 1997.
3. Stock Covered by the Plan. Subject to the adjustment provided in
Section 8, the aggregate number of shares of Common Stock which may be issued
and sold pursuant to Options granted under the Plan shall not exceed 150,000
shares, which may be either authorized but unissued shares or treasury shares.
If any Option granted under the Plan shall terminate or expire without being
fully exercised, the shares which have not been purchased thereunder will again
become available for purposes of the Plan.
4. Administration. The Plan shall be administered by the Board of
Directors, whose construction and interpretation of the Plan's terms and
provisions shall be final and conclusive. The Board shall have the authority to
delegate to the Compensation Committee of the Board (the "Committee") the
authority to administer this Plan as set forth in this Section 4 and to
recommend that the Board grant Options. No members of the Board or the Committee
shall be held liable for any action or determination under the Plan made in good
faith with respect to the Plan or any Option granted thereunder.
5. Approval by Board of Directors. Notwithstanding anything in this
Plan to the contrary, including without limitation the delegation of authority
to the Committee, all grants of Options under the Plan shall be approved by the
Board of Directors.
6. Option Grants. "Eligible Directors" shall mean directors of the
Company who are directors on the date of grant, and who are not employees of the
Company. All Options granted under the Plan shall be non-statutory stock options
which are not intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986 as amended (the "Code") and which are intended to be taxed
under Section 83 of the Code.
After June 30, 1996, each Eligible Director on the 30th day
following the date on which the first Annual Meeting of the Stockholders of the
Company (the "Annual Meeting") in which he is elected as a director is held
shall, upon approval by the Board of Directors, be granted an Option to purchase
10,000 shares of Common Stock. After June 30, 1996, each Eligible Director who
is such on the 30th day following the date on which each subsequent Annual
Meeting is held during the term of the Plan shall on such 30th day, upon
approval by the Board of Directors, be granted an Option to purchase 4,000
shares of Common Stock. Each such Option is referred to herein as a "Regular
Option."
The date of grant of an Option to an Eligible Director under
the Plan shall be the applicable day referred to immediately above.
7. Option Price. The price per share at which each Regular Option
granted under the Plan to an Eligible Director may be exercised ("Regular Option
Price") shall be the Market Price of the Common Stock as determined by the
closing price of such Common Stock as reported on the Nasdaq National Market for
the relevant date (or, if such date is not a trading date or if no trades took
place on such date, then such closing price for the last previous trading date
or the last previous date on which a trade occurred, as the case may be);
provided that if the Common Stock is no longer traded on the Nasdaq National
Market on the relevant date, then the Market Price as of such date shall be
determined by the Committee.
In no event shall the Option Price per share for any Option
under the Plan be less than the par value per share.
8. Terms and Conditions of Options. Each Option granted under the Plan
shall be evidenced by and subject to the terms and conditions of an Option Grant
attached hereto as Exhibit A. Each Option Grant executed and delivered to an
Eligible Director shall contain the following terms and conditions:
(a) Exercise of Options. Each Option shall expire 10
years from the date of grant of such Option.
(b) Payment. Each Eligible Director to whom an Option is
granted may exercise such Option from time to time, in whole or in part, during
the period that it is exercisable, by payment of the Option Price of each share
purchased, in cash, or by delivery to the Company of a number of shares of
Common Stock having an aggregate Market Price of not less than the product of
the Option Price multiplied by the number of shares the participant intends to
purchase upon exercise of the Option on the date of delivery. Notwithstanding
the foregoing, the exercise price of an Option may not be paid by delivery to
the Company of shares of Common Stock to the extent that such delivery would
constitute a violation of the provisions of any law (including without
limitation Section 16 of the Act) or related regulation or rule.
(c) Transfer Restrictions. The shares of Common Stock issued
upon exercise of an Option granted under this Plan will be acquired for
investment and not with a view to distribution thereof unless there shall be an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), with respect thereto. In the event that the Company, upon the
advice of counsel, deems it necessary to list upon official notice of issuance
shares to be issued pursuant to the Plan on a national securities exchange or to
register under the 1933 Act or other applicable federal or state statute any
shares to be issued pursuant to the Plan, or to qualify any such shares for
exemption from the registration requirements of the 1933 Act under the Rules and
Regulations of the Securities and Exchange Commission or for similar exemption
under state law, then the Company shall notify each Eligible Director to that
effect and no shares of Common Stock subject to an Option shall be issued until
such registration, listing or exemption has been obtained. The Company shall
make prompt application for any such registration, listing or exemption pursuant
to federal or state law or rules of such securities exchange which it deems
necessary and shall make reasonable efforts to cause such registration, listing
or exemption to become and remain effective. The shares of Common Stock issued
on exercise of the Option shall be subject to any restrictions on transfer then
in effect pursuant to the Certificate of Incorporation or By-laws of the
Company.
(d) Non-Transferability. No Option may be transferred by the
Optionee, other than by will or the laws of descent and distribution. An Option
can be exercised during such individual's lifetime only by him or her, provided,
however, that the Board may permit an Eligible Director to transfer an Option if
such transfer is made pursuant to uniformly applied criteria established by the
Board prior to such transfer.
(e) Termination of Directorship. Nothing in this Plan or in
any Option Grant shall confer upon any Eligible Director the right to continue
as a director of the Company. An Eligible Director's right to participate in the
Plan shall automatically terminate if and when such Director becomes an employee
of the Company. Each Option shall terminate and may no longer be exercised if
the Eligible Director ceases to provide services to the Company in accordance
with the following provisions:
(i) Options granted to an Eligible Director
shall cease to be exercisable 12 months
after the date such Director ceases to be a
director for any reason other than death,
but in no event after the expiration of the
Option.
(ii) If an Eligible Director ceases to be a
director on account of his death, any Option
previously granted to him, whether or not
exercisable at the date of death, may be
exercised by his executor, administrator or
the person or persons to whom his rights
under the Option shall pass by will or the
applicable laws of descent and distribution,
at any time within 12 months after the date
of death, but in no event after the
expiration of the Option.
9. Stock Dividends; Stock Splits; Stock Combinations;
Recapitalizations. The aggregate number and kind of shares reserved under the
Plan, the maximum number of shares as to which Options may be granted to any
individual and the Option Price per share shall be appropriately adjusted by the
Committee in the event of any recapitalization, stock split, stock dividend,
combination of shares, or other similar change in the capitalization of the
Company which occurs after the expiration date of the Plan, but no adjustment in
the Option Price shall be made which would reduce the Option Price per share to
less than the par value per share.
10. Merger; Sale of Assets. Prior to a dissolution, liquidation,
merger, consolidation, or reorganization of the Company (the "Event"), the
Committee may decide to terminate each outstanding Option. If the Committee so
decides, such Option shall terminate as of the effective date of the Event, but
the Committee shall suspend the exercise of all outstanding Options a reasonable
time prior to the Event, giving each Optionee not less than fourteen days
written notice of the date of suspension, prior to which an Optionee may
purchase in whole or in part the shares available to him as of the date of
receipt of the notice. If the Event is not consummated, the suspension shall be
removed and all Options shall continue in full force and effect subject to the
terms of their respective Option Grants.
11. Termination or Amendment of Plan. The Committee may amend, suspend,
or terminate the Plan, including the form of Option Grant incorporated herein by
reference. No such action, however, may be taken without approval or
ratification by the stockholders if such approval or ratification is required
under Section 162(m) of the Code. No such action may, without the consent of the
holder of the Option, alter or impair any Option previously granted.
In any event, the Plan shall terminate 10 years from the date
of adoption by the Board of Directors, or if earlier, from the date of approval
by the stockholders. Any shares remaining under the Plan at the time of
termination which are not subject to outstanding Options and any shares which
thereafter become available because of the expiration or termination of an
Option shall cease to be reserved for purposes of the Plan.
Name of Optionee
HPR INC.
ELIGIBLE DIRECTORS OPTION GRANT
THIS AGREEMENT is entered into by and between HPR Inc., a Delaware
corporation with its principal office at 245 First Street, Cambridge,
Massachusetts 02142 (hereinafter the "Company"), and the undersigned
non-employee director of the Company (hereinafter the "Optionee").
WHEREAS, the Optionee renders important services to the Company (such
services to be collectively herein referred to as "Service"), and the Company
desires to grant a non-qualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
1. Grant, Exercisability and Term of Option.
(a) The Company hereby grants to the Optionee pursuant to the HPR 1995
Eligible Directors Stock Plan (the "Plan") the option to purchase from the
Company upon the terms and conditions hereinafter set forth the number of shares
("Shares") of the $.01 par value common stock ("Common Stock") of the Company
set forth on the signature page below at the purchase price per Share so set
forth (the "Option Price"). The date of grant of this option is the date set
forth at the execution page of this Agreement as the "Option Date."
(b) Subject to the provisions of Section 5 hereof, this option is
exercisable in full or in part and shall remain exercisable until it expires on
the tenth anniversary of the Option Date, unless the option is sooner terminated
as hereinafter specified. Only whole Shares may be purchased pursuant to this
option.
2. Conditions and Limitations.
(a) The option is granted on the condition that the purchase of shares
hereunder shall be for investment purposes and not with a view to resale or
distribution, except that such condition shall be inoperative if the offering of
Shares subject to the option is registered under the Securities Act of 1933, as
amended, or if in the opinion of counsel for the Company such Shares may be
resold without registration. At the time of the exercise of the option or any
installment thereof, the Optionee will execute such further agreements as the
Company may require to implement the foregoing condition and to acknowledge the
Optionee's familiarity with restrictions on the resale of the Shares under
applicable securities laws, and the Company may stamp such legend on the
certificate representing the Shares as may be necessary or appropriate in light
of the foregoing condition.
(b) The Company will furnish upon request of the Optionee copies of the
certificate of incorporation of the Company, as amended, and by-laws of the
Company, as amended, and such publicly available financial and other information
concerning the Company and its business and prospects as may be reasonably
requested by the Optionee in connection with exercise of this option.
(c) The option shall not be transferable otherwise than by will or by
the laws of descent and distribution, and except as provided in Section 4 the
option shall be exercisable during the lifetime of the Optionee by the Optionee
only. Notwithstanding the foregoing, however, if the Optionee is determined to
be mentally incompetent and a guardian or conservator (or other similar person)
is appointed by a court of competent jurisdiction to manage the Optionee's
affairs, the guardian or conservator (or other similar person) may exercise the
option on behalf of the Optionee, provided that such exercise is made within the
time limits prescribed herein.
(d) The option granted in this Agreement is subject to the terms,
conditions and definitions of the Plan, a copy of which is attached hereto. To
the extent that the terms, conditions and definitions of this Agreement are
inconsistent with those of the Plan, those of this Agreement shall govern. The
Optionee hereby accepts this option subject to all such provisions of the Plan
and agrees that all decisions under, and interpretations of, such provisions of
the Plan by the Board of Directors of the Company (the "Board") or the
Committee, as defined in the Plan, shall be final, binding and conclusive upon
the Optionee and his or her heirs.
(e) In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any shares to be issued
pursuant to the Plan on a national securities exchange or to register under the
Securities Act of 1933 or other applicable federal or state statute any shares
to be issued pursuant to the Plan, or to qualify any such shares for exemption
from the registration requirements of the Securities Act of 1933 under the rules
and regulations of the Securities and Exchange Commission or for similar
exemption under state law, then the Company shall notify the Optionee to that
effect and no Shares shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing, or exemption to become
and remain effective.
3. Exercise of Option; Withholding Taxes.
(a) Written notice of the exercise of the option or any installment
thereof shall be given to the Company specifying the number of shares for which
the option is exercised and accompanied by payment in full of the Option Price.
Payment shall be made (a) in cash, (b) check, (c) by Immediate Sales Proceeds,
as defined below, (d) by delivery and assignment to the Company of shares of
Company stock owned by the Optionee (which shares have a Market Price not less
than the Option Price); or (e) by any combination of the foregoing. As used
herein, "Market Price" shall mean the closing price of the Common Stock as
reported on the Nasdaq National Market for the relevant date (or, if such date
is not a trading date or if no trades took place on such date, then such closing
price for the last previous trading date or the last previous date on which a
trade occurred, as the case may be); provided that if the Common Stock is no
longer traded on the Nasdaq National Market on the relevant date, then the
Market Price as of such date shall be determined by the Committee.
Notwithstanding the foregoing, this option may not be exercised by delivery and
assignment to the Company of shares of Company stock to the extent that such
delivery and assignment would constitute a violation of the provisions of any
law, or related regulation or rule, or any agreement or Company policy,
restricting the transfer or redemption of the Company's stock. As used herein,
the term "Immediate Sales Proceeds" shall mean the assignment in form acceptable
to the Company of the proceeds of a sale of the Shares acquired on the exercise
of this option pursuant to a procedure approved by the Company. The Company
reserves the right to decline to approve any such procedure in the Company's
sole and absolute discretion.
(b) The Company's obligation to deliver Shares upon exercise of an
option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
Without limiting the generality of the foregoing, the Company shall have the
right to deduct from payments of any kind otherwise due to the Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to any Shares issued upon exercise of the option.
4. Termination of Option. In the event that the Optionee ceases to be a
director at any time prior to the exercise of this option in full, this option
shall terminate according to the following provisions:
(a) If the Optionee ceases be a director for any reason other than
death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code")), the Optionee may at any time within a period
of twelve months after the date of such cessation of service as a director
exercise the option to the extent that the option was exercisable on the date of
such cessation;
(b) If the Optionee ceases to be a director because of disability (as
defined in Section 22(e)(3) of the Code), the Optionee may at any time within a
period of twelve months after the date of such cessation of service as a
director exercise the option to the extent that the option was exercisable on
the date of such cessation; and
(c) If the Optionee ceases to be a director because of death, the
option, to the extent that the Optionee was entitled to exercise it on the date
of death, may be exercised within a period of twelve months after the Optionee's
death by the person or persons to whom the Optionee's rights under the option
shall pass by will or by the laws of descent and distribution;
provided, however, that this option may not be exercised to any extent by anyone
after the date of its expiration.
5. Exercisability of Option. So long as Optionee is an Eligible
Director, this Option may be exercised only as follows:
(i) commencing on the first anniversary hereof, only to the
extent of one-fifth of the Shares; and
(ii) thereafter, at the end of each subsequent year, to the extent
of an additional twenty per cent of the Shares; less the number of Shares as
to which this Option has been exercised.
6.
A. "Market Stand Off" Agreement. The Optionee, if requested by the
Company or any managing underwriter of the Company's securities, shall agree not
to sell or otherwise transfer or dispose of any Shares of the Company held by
the Optionee during the period up to 180 days, as requested by the Company or
such underwriter, following the effective date of a registration statement of
the Company filed under the Securities Act of 1933 (except for any Company
securities held by the Optionee sold pursuant to such registration statement).
Such agreement shall be in writing in form satisfactory to the Company or such
underwriter. The Company may impose stop-transfer instructions with respect to
the Shares subject to the foregoing restriction until the end of such period.
B. Exceptions for Transfers to Family. The provisions contained in this
Section 6 shall not apply to any transfer of Shares to or in trust for the sole
benefit of the Optionee, or any member of the immediate family of the Optionee,
including for this purpose the undersigned's spouse, parents, parents-in-law,
issue, nephews, nieces, brothers, brothers-in-law, sisters, sisters-in-law,
children-in-law and grandchildren-in-law, provided that such transferee agrees
in writing to be subject to the terms of this Section 6.
7. Notices. All notices or demands given pursuant to this Agreement
shall be in writing and shall be deemed to have been sufficiently given if
delivered by hand or sent by certified or registered mail, postage prepaid,
addressed to the Company at its principal office or to the Optionee (or the
Optionee's legal representatives) at the address stated in the Optionee's (or
their) notice or at the Optionee's address appearing on the books of the
Company.
8. No Service Commitment; Tax Treatment. Nothing herein contained shall
entitle the Optionee to remain a director of HPR or an Eligible Director under
the plan. The option granted hereunder is not intended to qualify as an
incentive stock option under Section 422 of the Code, and the Company makes no
representation about the tax treatment to the Optionee with respect to receipt
or exercise of the option or acquiring, holding or disposing of the Shares. The
Optionee represents that the Optionee has had the opportunity to discuss such
treatment with the Optionee's tax adviser. The Optionee shall have no rights as
a stockholder with respect to the shares subject to the option until the
exercise of the option and the issuance of a stock certificate for the Shares
with respect to which the option shall have been exercised.
9. Adjustment in Shares, etc.
(a) Appropriate adjustment shall be made by the Committee in number,
kind, and exercise price of Shares covered by the option granted hereunder to
give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Option Date.
(b) In the event of a change in the Common Stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, the number and kind of Shares which thereafter may be purchased
pursuant to the option granted hereunder, and the number and kind of Shares then
subject to the option granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Committee may deem equitable to
prevent dilution or enlargement of the rights available or granted hereunder.
Except as otherwise determined by the Committee, a merger or similar
reorganization which the Company does not survive, or a sale of all or
substantially all of the assets of the Company, shall cause this option to
terminate, to the extent not then exercised, unless any surviving entity agrees
not to assume the obligations hereunder.
10. Miscellaneous. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of The Commonwealth of Massachusetts.
This Agreement shall be binding upon and inure to the benefit of the heirs and
legal representatives of the Optionee and the successors and assigns of the
Company, but shall not be assigned by the Optionee at any time without the prior
written permission of the Company, and any such attempted assignment shall be
void.
IN WITNESS WHEREOF the parties have executed this Stock Option
Agreement as of the Option Date.
----------------------
Optionee [Sign name]
[Print name]
Address: _____________
-------------------------
Option Date:
No. of Shares:
Option Price:
Accepted, as the issuer of the Shares, in accordance with the terms of the
foregoing Option Agreement as of the foregoing Option Date.
HPR INC.
By:_______________________
Chairman of the Board
SUBLEASE
This Sublease (this "Sublease") is entered into as of the 11th day of April,
1997, by and between OPEN MARKET, INC., a Delaware corporation (the "Landlord"),
having a business address of 245 First Street, Cambridge, Massachusetts 02142
and HPR INC., a Delaware corporation (the "Tenant"), having a business address
of 245 First Street, Cambridge, Massachusetts 02142.
1. Premises: Landlord hereby leases the Premises (as hereinafter
defined) to Tenant, and Tenant hereby rents from Landlord said Premises, upon
the terms and conditions hereinafter set forth. The Premises consist of
approximately 20,069 square feet located on the third (3rd) floor of the
building commonly known as The Riverview Complex, 245 First Street, Cambridge,
Massachusetts (the "Building"), which Premises are shown outlined on the floor
plan annexed hereto and made a part hereof by reference.
Subject to and in accordance with the terms and provisions of Section
14.2 of the Prime Lease (as hereinafter defined), as an appurtenance to the
Premises, beginning on the Commencement Date and ending as of the Parking
Termination Date (as defined in the Prime Lease), as and to the extent received
by the Landlord from the Prime Landlord, Landlord shall provide to Tenant, and
Tenant agrees to pay for, Garage Parking Permits (as defined in the Master
Lease) for twenty-eight (28) automobiles in the parking garage of the Building.
The obligation of the Landlord to provide such Garage Parking Permits is
expressly subject to the receipt of said Garage Parking Permits from the Prime
Landlord in accordance with the terms and provisions of the Prime Lease. Without
limitation, Tenant shall pay the Parking Charges (as defined in the Prime Lease)
assessed with respect to each of the Garage Parking Permits received by Tenant,
on a monthly basis, as additional rent, in accordance with the requirements set
forth in Section 14.2(b) of the Prime Lease. The use of the garage by the
Tenant, and the use of the Garage Parking Permits, shall be subject to and in
accordance with all of the terms, conditions, and restrictions set forth in the
Prime Lease, including, without limitation, the provisions of Article 14
thereof.
2. Sublease: Reference is hereby made to that certain Lease, between
Riverview Building Combined Limited Partnership, as landlord (the "Prime
Landlord"), and Open Market, Inc., as tenant, originally dated March 9, 1995, as
modified by that certain Letter Agreement, dated March 14, 1995, that certain
Letter Agreement, dated April 18, 1995, that certain Amendment No. 1 to Lease,
dated April 15, 1995 and that certain Amendment No. 2 to Lease, dated October
__, 1995 (collectively, the "Prime Lease"). The Premises subleased hereunder
comprise a portion of the space leased to Landlord, as tenant, under the Prime
Lease. Except as otherwise expressly provided herein, this Sublease is subject
to all of the terms, conditions and provisions of the Prime Lease, and Tenant
shall (a) be bound with respect to the Premises by all of the terms, covenants
and conditions of the Prime Lease and (b) assume as to the Premises all
obligations and liabilities of Landlord, as tenant, under the Prime Lease,
including, without limitation, all obligations of maintenance, repair and
indemnity. Tenant shall not do or permit to be done anything, or omit to do
anything, or permit to be omitted to be done anything, which is, or with the
giving of notice or the passage of time or both would be, a default under the
Prime Lease or could cause such a default. Tenant agrees to abide by and perform
all of the covenants and conditions of the Prime Lease as if the same were fully
set forth herein to the extent that said covenants and conditions pertain to the
Premises and/or the occupancy and use thereof by Tenant. Tenant agrees, with
respect to the Premises, to be bound by and to perform and to comply with the
Prime Lease as if it were the "tenant" thereunder and as if the "premises" as
demised under the Prime Lease were the Premises demised under this Sublease. If
the Prime Lease shall terminate for any reason prior to the termination or
expiration of this Sublease, this Sublease shall terminate as if such date were
the termination date of this Sublease.
3. Term: The term of this Sublease shall commence on April 15, 1997,
and, unless earlier terminated as herein provided, shall end on January 31,
2001.
4. Rent: During the term of this Sublease, commencing on July 15, 1997,
and thereafter throughout the term hereof, Tenant shall pay to Landlord, without
offset, setoff or deduction, of any kind, base rent at the per annum rate of
Four Hundred Twenty-One Thousand, Four Hundred Forty-Nine and 00/100 Dollars
($421,449.00), payable on the first day of each month in monthly installments of
Thirty-Five Thousand, One Hundred Twenty and 75/100 Dollars ($35,120.75) and
proportionately at the applicable rate for any partial month during the term.
Commencing on the Commencement Date and thereafter throughout the term of this
Sublease, Tenant shall also pay Landlord, on the first day of each month an
amount equal to Tenant's Share (as hereinafter defined) of amounts payable by
Landlord to Prime Landlord pursuant to the Master Lease on account of additional
rent, including, without limitation, all amounts payable under Articles 5, 6 and
7 of the Prime Lease on account of Operating Costs and Taxes.
As used in this Sublease, the "Tenant's Share" is 24.77%, which is the
ratio that the approximate rentable area of the Premises bears to 81,020, the
area leased by the Landlord, as tenant, pursuant to the Prime Lease.
5. AS-IS CONDITION; Construction: Tenant accepts the Premises in their
condition AS IS at the commencement of the term of this Sublease and Landlord
shall have no obligation to prepare the Premises, or to make any improvements
therein. If Tenant desires to make any additions, alterations, improvements,
installations, demolition, remodeling, repainting, decoration or other similar
activities in or to the Premises, in each instance it shall first obtain the
written consent of Landlord thereto, such consent not to be unreasonably
withheld. All such alterations, additions and improvements shall conform to and
be governed by the provisions of the Prime Lease, including, without limitation,
the provisions of Article 11 of the Prime Lease. In connection with any work
performed by Tenant in the Premises, Tenant shall maintain the insurance
coverages required under Section 12.1 of the Prime Lease, naming as an
additional insured party Landlord as well as Prime Landlord. Tenant shall pay,
as additional rent, one hundred percent (l00%) of any increases in real estate
taxes on the Building which may result from alterations, additions or
improvements to the Premises made by Tenant.
Tenant agrees to pay promptly when due the entire cost of any work done
on the Premises by Tenant, its agents, employees or independent contractors and
not to cause or permit any liens for labor or materials performed or furnished
in connection therewith to attach to the Premises or the Building or the Project
(as said term is defined in the Prime Lease) and immediately to discharge any
such liens which may so attach.
6. Use: The Premises may be used only as permitted pursuant to
Subsection 1(j) and Article 9 of the Prime Lease and for no other purpose or
purposes.
7. Utilities: Tenant shall pay for all utilities consumed by it in the
Premises, such payments to be made directly to the utility company if the
utility is metered separately to the Premises. If not separately metered, then
Tenant shall pay to Landlord on account of utilities, Tenant's Share of payments
made by Landlord to the suppliers of the same, or such greater or lesser
percentage as Landlord reasonably determines to be appropriate if Tenant uses a
greater or lesser pro-rata quantity of utilities than Landlord and other
occupants of Landlord's premises.
Landlord shall not in any way be liable or responsible to Tenant for
any loss, damage or expense which Tenant may sustain or incur if, during the
term of this Sublease, either the quantity or the character of the utilities
servicing the Premises is changed or is no longer available or suitable for
Tenant's requirements due to a fact or cause beyond Landlord's control. Tenant
at its expense shall purchase and install all lamps, tubes, bulbs, starters and
ballasts on the Premises.
8. HVAC Charges: Tenant agrees to pay all after-hours HVAC charges
payable with respect to the Premises pursuant to Section 10.1(b) of the Prime
Lease.
9. Assignment and Subletting: Tenant shall not assign, sublease,
mortgage, pledge, encumber, sell, convey, subject to a security interest,
license or otherwise transfer, whether voluntarily, involuntarily, by operation
of law or otherwise, the Premises, this Sublease or the term and estate hereby
granted or any interest herein or therein, in whole or in part, and neither the
Premises nor any part thereof will be used or occupied or permitted to be used
or occupied by anyone other than Tenant or for any use or purpose other than a
use which is permitted hereunder or be offered or advertised for assignment or
subletting without, in each instance, having first received the express written
consent of Landlord and Prime Landlord, such consent by Landlord not to be
unreasonably withheld. The provisions of the foregoing sentence shall apply to a
transfer (by one or more transfers) of forty-nine percent (49%) of the common
stock of Tenant as if such transfer of the Tenant's stock were an assignment of
this Sublease. Whether or not Prime Landlord or Landlord consents, no
assignment, sublease, etc. will release or alter the liability of Tenant to pay
rent and perform all of Tenant's other obligations under this Sublease. The
acceptance of rent by Landlord from any person other than Tenant is not a waiver
by Landlord. Consent to one assignment, sublease, etc. will not be deemed to be
consent to any subsequent assignment, sublease, etc. If Tenant or any assignee
or sublessee, defaults under this Sublease, Landlord may proceed directly
against the Tenant or said assignee or sublessee, without proceeding or
exhausting its remedies against the other. After any assignment, Landlord may
consent to a subsequent assignment, sublease, etc. of or amendments to this
Sublease, without notifying Tenant or any other person, without obtaining
consent thereto, and without relieving Tenant of its liabilities under this
Sublease. As additional rent, Tenant shall reimburse Landlord promptly for
reasonable legal and other expenses incurred by Landlord in connection with any
requests by Tenant for consent to assignment or subletting. The provisions of
Article 17 of the Prime Lease are hereby made expressly applicable to the
Tenant, so that any assignment, sublease or other transfer shall be subject to
the conditions, provisions and requirements of Article 17 and Landlord shall
have against Tenant all the rights and remedies with respect to any assignment
or subletting which are afforded to the Prime Landlord pursuant to said Article
17.
10. Maintenance and Repairs: It is understood that Prime Landlord has
certain obligations to repair and maintain the Premises and the Building as set
forth in Section 10.1 and Articles 15 and 16 of the Prime Lease. Landlord shall
have no obligation or liability to Tenant in the event that Prime Landlord fails
to perform any such obligations. Tenant agrees that it will keep the Premises
neat and clean and maintain the Premises in good order, condition and repair,
excepting only for ordinary wear and tear, and damage by fire and other casualty
and as a consequence of the exercise of the power of eminent domain. Tenant
shall surrender the Premises and all alterations, improvements, and additions
thereto at the end of the term of this Sublease in good order, condition and
repair, first removing all goods and effects of Tenant and repairing any damage
caused by such removal and restoring the Premises and leaving them clean and
neat. Tenant shall not permit or commit any waste, and Tenant shall be
responsible for the cost of repairs which may be necessary by reason of damages
to common areas in the Building or to the Project by Tenant, Tenant's
contractors or Tenant's invitees.
11. Landlord's Self-Help: If Tenant shall at any time default in the
performance of any obligation under this Sublease, Landlord shall have the
right, but shall not be obligated, to enter upon the Premises and to perform
such obligation on behalf of the Tenant. In performing such obligation, Landlord
may make any payment of money or perform any other act. All sums so paid by
Landlord (together with interest at the per annum interest rate of the prime
rate as set from time to time by The First National Bank of Boston plus three
hundred (300) basis points) and all necessary incidental costs and expenses in
connection with the performance of any such act by Landlord, shall be deemed to
be additional rent under this Sublease and shall be payable to Landlord
immediately on demand. Landlord may exercise the foregoing rights without
waiving any other of its rights or releasing Tenant from any of its obligations
under this Sublease.
12. No Damage: Landlord shall not be liable to Tenant for any
compensation or reduction of rent by reason of inconvenience or annoyance or for
loss of business arising from the necessity of Landlord or Prime Landlord or
their respective agents entering the Premises for any purpose in the Prime Lease
authorized, or for repairing the Premises or any portion of said Building
however the necessity may occur. In case Landlord (or Prime Landlord) is
prevented or delayed from making any repairs, alterations or improvements, or
furnishing any services or performing any other covenant or duty to be performed
on its part, by reason of any cause reasonably beyond Landlord's control,
including, without limitation, strike, lockout, breakdown, accident, order or
regulation of or by any Governmental authority, or failure of supply, or
inability by the exercise of reasonable diligence to obtain supplies, parts or
employees necessary to furnish such services, or because of war or other
emergency, or for any cause due to any act or neglect of Tenant or Tenant's
servants, agents, employees, licensees or any person claiming by, through or
under Tenant, neither Landlord nor Prime Landlord shall be liable to Tenant
therefor, nor, except as expressly otherwise provided in this Sublease, shall
Tenant be entitled to any abatement or reduction of rent by reason thereof, nor
shall the same give rise to a claim in Tenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the
Premises.
13. Indemnity and Insurance:
13.1 To the maximum extent this agreement may be made effective
according to law, Tenant agrees to indemnify and save harmless Landlord from and
against all claims of whatever nature arising from any act, omission or
negligence of Tenant, or Tenant's contractors, licensees, invitees, agents,
servants or employees, or arising from any accident, injury or damage whatsoever
caused to any person, or to the property of any person, occurring after the date
that possession of the Premises is first delivered to Tenant and until the end
of the Term of this Sublease and thereafter so long as Tenant is in occupancy of
any part of the Premises, in or about the Premises or arising from any accident,
injury or damage occurring outside the Premises but within the Building or on
the Project, where such accident, injury or damage results, or is claimed to
have resulted, from an act or omission on the part of Tenant or Tenant's agents
or employees, licensees, invitees or contractors.
Without limiting the foregoing, Tenant will indemnify both Landlord and
Prime Landlord, and hold Landlord and Prime Landlord harmless from all
Liabilities (as defined in the Prime Lease) arising from or in connection with:
acts or omissions of Tenant or its Affiliates (as defined in the Prime Lease) or
the conduct of Tenant's business; injuries, death or damage occurring in or on
the Premises (except if and to the extent caused directly by Landlord's or Prime
Landlord's negligence or willful misconduct in breach of this Sublease);
Tenant's breach of or default under this Sublease; claims made by Tenant's
Affiliates against the Landlord or Prime Landlord if Tenant has waived those
claims in this Sublease or Landlord or Prime Landlord would not be responsible
to Tenant for such claims if such claims were made by Tenant hereunder; and
claims made by or Liabilities to Tenant's Affiliates or other persons if
Landlord or Prime Landlord, as applicable, declines to consent to any act, event
or document requiring Landlord's or Prime Landlord's consent under this
Sublease.
The foregoing indemnity and hold harmless agreements shall include
indemnity against all costs, expenses and liabilities incurred in or in
connection with any such claim or proceeding brought thereon, and the defense
thereof with counsel acceptable to Landlord.
l3.2 Tenant agrees to maintain in full force from the date upon which
Tenant first enters the Premises for any reason, throughout the term of this
Sublease, and thereafter, so long as Tenant is in occupancy of any part of the
Premises, the policies of general liability and property damage insurance of the
type and in the amounts and subject to the conditions which are required of
under Section 12.1 of the Prime Lease which policies shall name Landlord and
Prime Landlord as insured parties. Tenant agrees that, as a condition to first
entering upon the Premises, Landlord shall be furnished with a duplicate
original or certificate of the insurance required to be maintained by Tenant
under this Section 13.2.
13.3 To the maximum extent that this agreement may be made effective
according to law, Tenant agrees to use and occupy the Premises and to use such
other portions of the Building and the common areas of the Project as Tenant is
here given the right to use at Tenant's own risk; and Landlord shall have no
responsibility or liability for any loss of or damage to fixtures or other
personal property of Tenant. The provisions of this Section shall be applicable
from and after the execution of this Sublease and until the end of the term of
this Sublease, and during such further period as Tenant may use or be in
occupancy of any part of the Premises or of said Building.
13.4 To the maximum extent that this agreement may be made effective
according to law, Tenant agrees that Landlord shall not be responsible or liable
to Tenant, or to those claiming by, through or under Tenant, for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or any part of premises adjacent to or connecting
with the Premises or any part of said Building, or otherwise, or for any loss or
damage resulting to Tenant or those claiming by, through or under Tenant, or its
or their property, from the breaking, bursting, stopping or leaking of electric
cables and wires, and water, gas, sewer or steam pipes. Without limiting the
foregoing, the Tenant hereby agrees that all of the waivers, limitations, and
exculpations set forth in Section 13.2 of the Prime Lease are hereby
incorporated herein, and are made by and on behalf of the Tenant as if fully and
completely set forth herein.
14. Fire Damage and Taking: If during the term hereof the Premises or
the Building shall, in whole or in part, be damaged or destroyed by fire or
other casualty or taken by eminent domain, then Tenant may elect to terminate
this Sublease by notice to such effect given to Tenant and thereupon this
Sublease shall terminate as if the date of termination were the date of
expiration hereof. In the event that either Prime Landlord or Landlord
terminates the Prime Lease pursuant to Section 15.2 thereof, this Sublease shall
terminate as of the date of such termination of the Prime Lease. If, as a result
of any damage by fire or other casualty or taking by eminent domain, the
Premises are rendered untenantable in whole or in part, and this Sublease is not
terminated as aforesaid, the base rent payable hereunder shall be equitably and
proportionately abated to the extent the Premises are not useable by Tenant, it
being understood that Landlord has no obligation to make any effort to so
restore. All proceeds, income, rent, awards and interest in connection with any
Condemnation will belong to Prime Landlord and/or Landlord, whether awarded as
compensation for diminution of value to the leasehold improvements, or the
unexpired portion of this Lease, or otherwise. Tenant waives all claims against
Prime Landlord and/or Landlord and the condemning authority with respect
thereto, but nothing in this Section prevents Tenant from bringing a separate
action against the condemning authority for moving costs or for lost goodwill
(as long as this separate action does not diminish Prime Landlord's and/or
Landlord's recovery).
15. Default: If (a) Tenant shall fail to pay the fixed rent, additional
rent or other charges for which provision is made herein on or before the date
on which the same become due and payable, and the same continues for five (5)
days after notice from Landlord thereof, or
(b) Landlord having rightfully given the notice specified in
subdivision (a) above more than twice in a period of 365 days, Tenant shall
thereafter in the same 365-day period fail to pay the fixed rent, additional
rent or other charges on or before the date on which the same becomes due and
payable, or
(c) Tenant shall cause a default under the Prime Lease, or
(d) Tenant shall fail to perform or observe any other terms or
condition contained in this Sublease and Tenant shall not commence to cure such
failure within twelve (12) business days after notice from Landlord to Tenant
thereof and promptly and diligently complete the curing of the same, or
(e) The estate hereby created shall be taken on execution or by other
process of law and such taking shall not be discharged within ten (10) days, or
if Tenant shall be insolvent, or if any assignment or arrangement shall be made
of the property of Tenant for the benefit of creditors, or if a receiver,
guardian, conservator, trustee in bankruptcy or other similar officer shall be
appointed to take charge of all or any substantial part of Tenant's property by
a court of competent jurisdiction and such proceeding is not dismissed within
sixty (60) days after such appointment, or if a petition shall be filed for the
reorganization of Tenant under any provisions of the Bankruptcy Code now or
hereafter enacted and such proceeding is not dismissed within sixty (60) days
after it is begun, or if Tenant shall file a petition for such reorganization,
or for arrangements under any provisions of the Bankruptcy Code now or hereafter
enacted and providing a plan for a debtor to settle, satisfy or extend the time
for payment of debts,
- -- then, and in any of said cases (notwithstanding any license of a former
breach of covenant or waiver of the benefit hereof or consent in a former
instance), Landlord lawfully may, immediately or at any time thereafter, and
without demand or notice, enter into and upon the Premises or any part thereof
in the name of the whole and repossess the same as of Landlord's former estate,
and expel Tenant and those claiming through or under Tenant and remove its or
their effects without being guilty of any manner of trespass, and without
prejudice to any remedies which might otherwise be used for arrears of rent or
preceding breach of covenant, and, upon entry as aforesaid, Landlord shall have
the right, by suitable notice to Tenant, forthwith to terminate this Sublease;
and Tenant covenants and agrees, notwithstanding any entry or re-entry by
Landlord, whether by summary proceedings, termination, or otherwise, to pay and
be liable for, on the days originally fixed herein for the payment thereof,
amounts equal to the several installments of rent and other charges reserved as
would, under the terms of this Sublease, become due if this Sublease had not
been terminated or if Landlord had not entered or re-entered, as aforesaid, and
whether the Premises be relet or remain vacant, in whole or in part, or for a
period less than the remainder of the Term of this Sublease, and for the whole
thereof, but, in the event the Premises be relet by Landlord, Tenant shall be
entitled to a credit in the net amount of rent and other charges received by
Landlord in reletting, after deduction of all expenses incurred in reletting the
Premises (including, without limitation, remodeling costs, brokerage fees and
the like), and in collecting the rent in connection therewith, in the following
manner:
Amounts received by Landlord after reletting shall first be applied
against such Landlord's expenses, until the same are recovered, and until such
recovery, Tenant shall pay, as of the day when a payment would fall due under
this Sublease, the amount which Tenant is obligated to pay under the terms of
this Sublease (Tenant's liability prior to any such reletting and such recovery
not in any way to be diminished as a result of the fact that such reletting
might be for a rent higher than the rent provided for in this Sublease); when
and if such expenses have been completely recovered, the amounts received from
reletting by Landlord as have not previously been applied shall be credited
against Tenant's obligations as of each day when a payment would fall due under
this Sublease, and only the net amount thereof shall be payable by Tenant. No
credit of any kind shall be due for any period after the date when the term of
this Sublease is scheduled to expire according to its terms.
As an alternative, at the election of Landlord, Tenant will, upon such
termination, pay to Landlord, as liquidated damages, such a sum as at the time
of such termination represents the amount of the excess, if any, of the fixed
rent and additional rent which would have accrued to Landlord under this
Sublease for the remainder of the Term of this Sublease if the Lease terms had
been fully complied with by Tenant, discounted at eight percent (8%) per annum
to the date of termination, over and above the then cash rental value (in
advance) of the Premises for the balance of the term of this Sublease.
Nothing contained in this Sublease shall limit or prejudice the right
of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency
by reason of the termination of this Sublease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, the damages are to be proved, whether or not the
amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
16. Miscellaneous.
16.1 Failure on the part of Landlord to complain of any action or
non-action on the part of Tenant no matter how long the same may continue, shall
never be a waiver by Landlord of any of the Landlord's rights hereunder.
Further, no waiver at any time of any of the provisions hereof by Landlord shall
be construed as a waiver of any of the other provisions hereof and a waiver at
any time of any of the provisions hereof shall not be construed as a waiver at
any subsequent time of the same provisions. The consent or approval of Landlord
to or of any action by Tenant requiring such consent or approval shall not be
construed to waive or render unnecessary Landlord's consent or approval to or of
any subsequent similar act by Tenant. No payment by Tenant or acceptance by
Landlord of a lesser amount than shall be due from Tenant to Landlord shall be
treated otherwise than as a payment on account. Acceptance by Landlord of a
check for a lesser amount with endorsement or statement thereon, or upon any
letter accompanying such check, that such lesser amount is payment in full,
shall be given no effect, and Landlord may accept such check without prejudice
of any other rights or remedies which Landlord may have against Tenant.
16.2 No act or thing done by Landlord during the term of this Sublease
shall be deemed an acceptance of a surrender of the premises and no agreement to
accept such surrender shall be valid, unless in writing signed by Landlord. No
employee of Landlord or of Landlord's agent shall have any power to accept the
keys to the Premises prior to termination of the Lease and delivery of keys to
any employee or agent shall not operate as termination of the Lease or a
surrender of the Premises.
16.3 Tenant warrants and represents that Tenant has not dealt with any
Broker other than the Columbia Group in connection with this Sublease and hereby
agrees to indemnify and hold harmless Landlord with respect to all claims for
brokerage commissions or fees arising out of or resulting from this Sublease,
excepting only claims made by the Columbia Group.
16.4 If any term or provision of this Sublease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Sublease or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby and each term and
provision of this Sublease shall be valid and be in force to the fullest extent
permitted by law.
16.5 Tenant, subject to the terms and provisions of this Sublease and
to Tenant's timely paying rent and observing and keeping or performing all of
the terms and provisions of this Sublease on Tenant's part to be observed, kept
and performed, shall lawfully, peaceably and quietly have, hold, occupy and
enjoy the Premises during the term of this Sublease without hindrance or
objection by any persons claiming under the Landlord to have title to the
Premises superior to Tenant. It is understood and agreed that this covenant and
any and all other covenants of Landlord contained in this Sublease shall be
binding upon Landlord and Landlord's successors only with respect to breaches
occurring during Landlord's and Landlord's successor's respective ownership of
Landlord's interest hereunder. In no event shall Landlord ever be liable to
Tenant for any loss of business or any other direct, indirect, special or
consequential damages suffered by Tenant for whatever cause.
16.6 The obligations of this Sublease shall enure to the benefit of and
be binding upon the successors and assigns, respectively, of Landlord and
Tenant. Each term and each provision of this Sublease to be performed by Tenant
shall be construed to both a covenant and a condition.
16.7 Notices shall be deemed given when sent by recognized overnight
delivery service such as Federal Express, or registered or certified mail,
postage prepaid: if to the Landlord at:
245 First Street
Cambridge, Massachusetts 02142
and if to the Tenant at:
245 First Street
Cambridge, Massachusetts 02142
All such notices shall be effective when deposited with said delivery
services or in the United States mails within the continental United States.
Either party may change the address to which notices are to be sent to
it by notice to the other party given under this Section 16.7.
16.8 Tenant will promptly furnish to Landlord, or to anyone whom
Landlord designates a statement, in writing of the status of any matter
pertaining to this Sublease, including without limitation, acknowledgment (to
the extent to which) each party is in compliance with its obligations under the
terms of this Sublease.
16.9 Any insurance carried by either party with respect to the Premises
or property therein or thereon shall if it can be so written without additional
premium or with additional premium which the other party agrees to pay, include
a clause or endorsement denying to the insurer rights of subrogation against the
other party to the extent rights have been waived by the insured prior to
occurrence of injury or loss. Each party, notwithstanding any provisions of this
Sublease to the contrary, hereby waives any rights of recovery against the other
for injury or loss due to assets covered by such insurance.
16.10 This Lease shall be governed exclusively by the provisions hereof
and by the law of the Commonwealth of Massachusetts, as the same may from time
to time exist.
16.11 Any holding over by Tenant at the expiration of the term of this
Sublease shall be treated as a tenancy at sufferance at one hundred and fifty
percent (150%) of the rents and other charges herein (pro rated on a daily
basis) and shall otherwise be on the terms and conditions set forth in this
Sublease as far as applicable. In the event that Tenant enters into a direct
agreement with Prime Landlord relating to the Premises for a term which
commences on the next day following the expiration of the term of this Sublease,
then Tenant's remaining in the Premises shall not be considered a holding over
for purposes of this Section 16.11.
16.12 Employees or agents of Landlord have no authority to make or
agree to make a lease or any other agreement or undertaking in connection
herewith. The submission of this document for examination and negotiation does
not constitute an offer to lease, reservation of, or option for the Premises.
This document shall become effective and binding only upon the execution and
delivery hereof by both Landlord and Tenant, and if the approval of Prime
Landlord is necessary thereto, upon the approval of Prime Landlord.
WITNESS the execution under seal as of this 11th day of April, 1997.
OPEN MARKET, INC.
By: /s/ Regina O. Sommer
Name: Regina O. Sommer
Its: Senior Vice President and Chief Financial Officer
Hereunto duly authorized
HPR INC.
By: /s/ Brian D. Cahill
Brian D. Cahill
Its: Chief Operating Officer
Hereunto duly authorized
The Riverview Complex
Riverview I
245 First Street
Cambridge, Massachusetts
("the Building")
SECOND AMENDMENT
April 10, 1997
LANDLORD: Beacon Properties, L.P., successor-in-interest to Riverview Building
Combined Limited Partnership
TENANT: HPR Inc., formerly known as Health Payment Review, Inc.
EXISTING
PREMISES: Space on the fifth (5th) floor of the Building, agreed to contain
18,578 square feet of rentable area, and space on the sixth (6th) floor of
the Building, agreed to contain 9,422 square feet of rentable area (both as
shown in "Exhibit A" to the Lease), for a total of 28,000 square feet of
rentable area, plus the mezzanine storage level between the fifth (5th) and
sixth (6th) floors of the Building
LEASE
EXECUTION
DATE: June 2, 1995
TERMINATION DATE: August 31, 2003
PREVIOUS LEASE AMENDMENTS: Amendment #1 to Lease dated as of May 16, 1996
SECOND AMENDMENT ADDITIONAL PREMISES:
The entire third (3rd) floor of the Building, agreed to contain 20,069 square
feet of rentable area, substantially as shown on Exhibit A, Second Amendment, a
copy of which is attached hereto and incorporated by reference herein
<PAGE>
WHEREAS, the Second Amendment Additional Premises, as well as other premises in
the Building, are presently leased by Open Market, Inc. ("Open Market") pursuant
to a lease dated March 9, 1995, as amended, with Landlord's predecessor in
interest;
WHEREAS, Tenant is presently negotiating with Open Market to sublease
the Second Amendment Additional Premises for a term expiring on January 31,
2001;
WHEREAS, Tenant desires to continue to occupy the Second Amendment
Additional Premises after the expiration of the term of its sublease with Open
Market; and
WHEREAS, Landlord is willing to lease the Second Amendment Additional
Premises to Tenant on the terms and conditions hereinafter set forth;
NOW THEREFORE, the above-described lease, as previously amended ("the
Lease"), is hereby further amended as follows:
I . DEMISE OF THE SECOND AMENDMENT ADDITIONAL PREMISES
Landlord hereby demises and leases to Tenant, and Tenant hereby hires
and takes from Landlord, the Second Amendment Additional Premises for a term
commencing as of the Rent Commencement Date in respect of the Second Amendment
Additional Premises, as hereinafter defined, and expiring as of August 31, 2003.
Said demise of the Second Amendment Additional Premises shall be upon all of the
same terms and conditions of the Lease applicable to the Existing Premises
(including, without limitation, Tenant's obligation to pay utilities pursuant to
Article 8 of the Lease and Tenant's extension options as set forth in Addendum
#2 of the Lease) except as follows:
A. Rent Commencement Date.
The Rent Commencement Date in respect of the Second Amendment Additional
Premises shall be February 1, 2001, provided however, that if, for any reason
the term of the Open Market Lease terminates prior to January 3 1, 2001, then
the Rent Commencement Date in respect of the Second Amendment Additional
Premises shall be the day immediately following the date as of which the Open
Market Lease terminates.
B. Annual Base Rent
The Annual Base Rent in respect of the Second Amendment Additional
Premises shall be as follows:
<PAGE>
(1) With respect to the period of time (if any) between the
Rent Commencement Date in respect of the Second Amendment
Additional Premises and January 31, 2001 ("Early Term"), the
Annual Base Rent in respect of the Second Amendment Additional
Premises shall be Four Hundred Twenty-One Thousand Four
Hundred Forty-Nine and OO/100 ($421,449.00) Dollars (i.e.
monthly payments of $35,120.75).
(2) With respect to the period of time between February 1,
2001 and August 31, 2003, the Annual Base Rent in respect of
the Second Amendment Additional Premises shall be Five Hundred
Eighty-Seven Thousand Eighteen and 25/100 ($587,018.25)
Dollars (i.e. monthly payments of $48,918.19).
C. Tenant's Percentage
Tenant's Percentage in respect of the Second Amendment Additional
Premises shall be 7.63%. For the purposes of Section 6.2(b) of the Lease,
Tenant's Percentage in respect of the Second Amendment Additional Premises will
be deemed to be 18.41 %.
D. Annual Operating Cost Stop
With respect to the Early Term (if any), the Annual Operating Cost Stop
with respect to the Second Amendment Additional Premises shall be equal to
Tenant's share of Operating Costs for the 1996 calendar year. With respect to
the period of time between February 1, 2001 and August 31, 2003, the Annual
Operating Cost Stop in respect of the Second Amendment Additional Premises shall
be equal to Tenant's share of Operating Costs for the 1996 calendar year, as
reconciled in accordance with the provisions of the Lease.
E. Annual Tax Stop
With respect to the Early Term (if any), the Annual Tax Stop with
respect to the Second Amendment Additional Premises shall be equal to Tenant's
share of Taxes for the 1996 calendar year. With respect to the period of time
between February 1, 2001 and August 31, 2003, the Annual Tax Stop in respect of
the Second Amendment Additional Premises shall be equal to Tenant's share of
Taxes for the 1996 calendar year, as reconciled in accordance with the
provisions of the Lease.
F. Base Building BVA C Service in Raised Floor Computer Area
Landlord shall have no obligation to provide base building HVAC
services to the raised floor computer area in the Second Amendment Additional
Premises.
G. Parking
<PAGE>
Commencing as of the Rent Commencement Date in respect of the Second
Amendment Additional Premises and ending on the Parking Termination Date, as
defined in Article 14.2 of the Lease, Landlord shall make available to Tenant,
and Tenant agrees to pay for twenty-right (28) additional Garage Parking
Permits. The monthly fee payable by Tenant with respect to each additional
Garage Parking Permits shall be the same as the monthly fee for the Garage
Parking Permits initially granted to Tenant. The provisions of Article 14.2 of
the Lease shall apply to Tenant's use of the Garage and said additional Garage
Parking Permits.
H. Extension Options
For the purposes of Paragraph 5(c) of Addendum #2 of the Lease, the
term "fair rental value" with respect to the Second Amendment Additional
Premises shall be computed as of the date in question at the then current annual
rental charge (i.e., the sum of Annual Base Rent plus escalation and other
charges), including provisions for subsequent increases and other adjustments
for leases or agreements to lease then currently being negotiated, as evidenced
by signed letters of intent, or executed in comparable space located in the
Building, or if no leases or agreements to lease are then currently being
negotiated, as evidenced by signed letters of intent, or executed in the
Building, the fair rental value shall be determined by reference to leases or
agreements to lease then currently being negotiated or executed for comparable
space located elsewhere in first:-class office buildings located in Cambridge.
In determining Fair Market Rental Value the following factors, among others,
shall be taken into account and given effect: size, location of premises, lease
term, condition of building, and services provided by the Landlord.
1. In the event that any of the provisions of the Lease are
inconsistent with this Amendment or the state of facts contemplated hereby, the
provisions of this Amendment shall control.
2. CONDITION OF SECOND AMENDMENT ADDITIONAL PREMISES
Notwithstanding anything to the contrary herein or in the
Lease contained, Tenant shall lease the Second Amendment Additional Premises
"as-is", in the condition in which the Second Amendment Additional Premises
are in as of February 1, 2001, without any obligation on the part of Landlord
to prepare or construct the Second Amendment Additional Premises for Tenant's
occupancy and without any warranty or representation on the part of Landlord
as to the condition of the Second Amendment Additional Premises. Without
limiting the foregoing, Paragraph 2 and Exhibit "B" of the Lease shall have no
applicability to the Second Amendment Additional Premises.
<PAGE>
3. INAPPLICABLE LEASE PROVISIONS
Exhibit "C" of the Lease shall have no applicability to nor any force
or effect in respect of the Second Amendment Additional Premises.
4. BROKER
Tenant represents and warrants that it has no dealings with any agent,
broker, finder or other person who is or might be entitled to a
commission or other fee from Landlord in connection with this Second
Amendment, except for The Columbia Group, and will indemnify Landlord
and hold it harmless from any Liabilities for breach of this
representation or warranty. Tenant shall be solely responsible for any
commissions or other fees due to The Columbia Group.
5. NOTICES
For all purposes of the Lease, the notice address for Landlord is as
follows:
Beacon Properties, L.P.
c/o Beacon Properties Corporation 50 Rowes Wharf
Boston, MA 02110
Attn: General Partner
6. LANDLORD'S RIGHT TO RELOCATE SECOND AMENDMENT ADDITIONAL
PREMISES
During the term of the Lease in respect of the Second Amendment
Additional Premises, Landlord shall have the right, which right shall be
exercisable upon written notice to Tenant, to relocate the Second Amendment
Additional Premises to the entirety of the fourth (4th) floor of the Building
("Relocation Premises"). If Landlord exercises such relocation right, the
following provisions shall apply.
A. Landlord's Relocation Premises Work.
Landlord shall perform such work ("Landlord's Relocation Premises
Work") in the Relocation Premises as is necessary to make the Relocation
Premises substantially equivalent, in construction and finish, to the Second
Amendment Additional Premises. The date as of which Landlord's Relocation
Premises Work is substantially completed shall be defined as the Substantial
Completion Date. Landlord shall give Tenant written notice setting forth
Landlord's good faith estimate of when the Substantial Completion Date will
occur at least thirty (30) days prior to the Substantial Completion Date. Tenant
shall relocate on the date ("Relocation Date") as to which Landlord has given
Tenant thirty (30) days' advance notice, provided that the
<PAGE>
Substantial Completion Date has occurred prior to the Relocation Date. On the
Relocation Date, Tenant shall vacate the Second Amendment Additional Premises
and deliver them to Landlord and Tenant shall demise the Relocation Premises in
lieu of the Second Amendment Additional Premises.
B. Landlord's Obligation to Reimburse Tenant for the Unamortized
Portion of Tenant's Construction Costs.
(1) Landlord shall reimburse Tenant for the Unamortized Portion, as
hereinafter defined, of Tenant's Construction Costs, as hereinafter
defined.- The Unamortized Portion of Tenant's Construction Costs shall
be applied to the cost of Landlord's Relocation Premises Work. Such
application shall be effected by check from Landlord made payable to
Tenant and to Landlord jointly. Tenant shall, within three (3) days of
presentation by Landlord endorse such check to Landlord. If Tenant
fails timely to endorse such check, Landlord shall have the right to
cancel the submitted check and apply the Unamortized Portion of
Tenant's Construction Costs without endorsing a joint check to Tenant
as aforesaid.
(2) If the Unamortized Portion of Tenant's Construction Costs exceeds the
cost of Landlord's Relocation Premises Work, then such excess may be
applied to the costs incurred by Tenant for Tenant's Moving Costs, as
hereinafter defined.
(3) If the Unamortized Portion of Tenant's Construction Costs exceeds the
sum of both the cost of Landlord's Relocation Premises Work and Tenant's
Moving Costs, then Landlord shall pay such excess to Tenant.
(4) Any payment to Tenant under clause (3) of this Subparagraph B shall
be made after Tenant has first taken occupancy of the Relocation Premises
and the cost of Landlord's Relocation Premises Work has been determined.
C. Landlord's Obligation to Pay for Landlord's Relocation
Premises Work and to Reimburse Tenant for Tenant's Moving Costs
To the extent that the Unamortized Portion of Tenant's Construction
Costs is insufficient to pay for the entire cost of Landlord's Relocation
Premises Work and/or Tenant's Moving Costs, Landlord shall pay such costs.
D. Definitions.
(1) "Tenant's Construction Costs" shall be equal to the lesser of. (x)
Five Hundred Fifty-One Thousand Eight Hundred Ninety-Seven and 50/100 Dollars
($551,897.50), or (y) the cost of the leasehold improvements installed by Tenant
in the Second Amendment Additional Premises. Tenant shall, on or before December
31, 1997, deliver to Landlord paid invoices reasonably satisfactory to Landlord
evidencing the amount of Tenant's Construction Costs. If Tenant fails timely to
submit evidence of any such cost to Landlord, such cost shall not be included as
a Tenant Construction Cost.
(2) "Unamortized Portion" shall be defined as the amount of
principal which would remain unpaid as of the Relocation Date with respect to a
loan with a ten-n running from July 1, 1997 through August 31, 2003 in an
original principal amount equal to Tenant's Construction Costs and which is
repaid in equal monthly payments of principal and interest at the rate of ten
(IO%) percent per annum.
(3) "Tenant's Moving Costs" shall be defined as the reasonable cost of
physically relocating Tenant's personal property and equipment from the Second
Amendment Additional Premises to the Relocation Premises. Landlord shall
reimburse Tenant for Tenant's Moving Costs within thirty (30) days after
Landlord receives paid invoices from Tenant reasonably satisfactory to Landlord
evidencing such costs.
7. CONDITION OF LANDLORDS EXECUTION
The parties acknowledge that Landlord and Tenant are only willing to
enter into this Second Amendment in the event that Tenant enters into the
Sublease with Open Market. Therefore, both parties shall have the right,
exercisable upon written notice to the other party, to render the foregoing
Second Amendment void and without force or effect, unless all of the following
events occur:
a. Tenant executes and delivers this Second Amendment to Landlord;
b. Open Market enters into the Sublease with Tenant; and
c. Landlord grants its written consent to the Sublease.
8. As herein amended, the Lease is ratified, confirmed and approved in
all respects.
<PAGE>
WHEREFORE, the parties have hereunto set their hands and seals as of the date
first written above.
LANDLORD: TENANT:
BEACON PROPERTIES, L.P. HPR INC.
By: Beacon Properties Corporation,
General Partner
By: /s/ Douglas S Mitchell By: /s/ Brian D. Cahill
Douglas S Mitchell Brian D. Cahill
Senior Vice President Chief Operating Officer
Date Signed: 4/11/97 Date Signed: 4/11/97
HPR INC.
EXECUTIVE SEPARATION BENEFITS PLAN
Effective January 1, 1997
<PAGE>
HPR INC.
EXECUTIVE SEPARATION BENEFITS PLAN
TABLE OF CONTENTS
SECTION 1 - GENERAL INFORMATION
1.1 Adoption and Purpose of Plan
1.2 Status of Plan
1.3 Summary Plan Description
1.4 Effective Date
1.5 Plan Year
SECTION 2 - DEFINITIONS
2.1 "Base Pay"
2.2 "Board"
2.3 "Change in Control"
2.4 "Covered Termination"
2.5 "Effective Date"
2.6 "Eligible Employee"
2.7 "Eligibility Conditions"
2.8 "Company"
2.9 "ERISA"
2.10 "Good Cause"
2.11 "Good Reason"
2.12 "Participant"
2.13 "Plan"
2.14 "Plan Administrator"
2.15 "Plan Year"
2.16 "Separation Benefits Period"
2.17 "Separation Pay"
2.18 "Special CIC Benefits"
SECTION 3 - BENEFITS UNDER THE PLAN
3.1 Types of Benefits
3.2 Eligibility Conditions; No Mitigation
3.3 Amount of Separation Pay
3.4 Payment of Benefit
3.5 Outplacement Assistance Benefits
3.6 Continued Eligibility For Benefit Programs
3.7 Effect of Certain Covered Terminations on Certain Stock Options
3.8 Individual Arrangements
SECTION 4 - PLAN AMENDMENT AND TERMINATION
4.1 Employer's Right to Amend or Terminate Plan
4.2 Method of Amendment or Termination
SECTION 5 - PLAN ADMINISTRATION
5.1 Plan Administrator
5.2 Records
5.3 Reliance
5.4 Indemnification
SECTION 6 - MISCELLANEOUS MATTERS
6.1 Information Required
6.2 No Guaranty of Employment
6.3 Exclusive Plan
6.4 Sole Source for Payment of Benefits
6.5 Non-Alienation 6.6 No Vesting
6.7 Obligations to Withhold and Pay Taxes
6.8 Governing Law
SECTION 7 - CLAIMS PROCEDURE
7.1 Claim for Benefits
7.2 Appeals
SECTION 8 - ERISA RIGHTS
8.1 Participants' Rights
8.2 Fiduciary Duties
8.3 Enforcement of Rights
<PAGE>
SECTION 1 - GENERAL INFORMATION
1.1......Adoption and Purpose of Plan. The Employer hereby adopts this
Executive Separation Benefits Plan to provide certain separation benefits to
Eligible Employees in accordance with the terms and conditions of the Plan.
1.2......Status of Plan. The Plan and this document are intended to
comply with all applicable state and federal laws regarding severance pay plans,
specifically Title I of ERISA. The Plan is intended to be a "welfare benefit
plan," as defined in ERISA, and not a "pension benefit plan." The Plan does not
provide any pension or retirement benefits of any nature to any person.
1.3......Summary Plan Description. The Plan Administrator is hereby
authorized to use this document embodying the Plan, as from time to time
amended, to satisfy all of the Plan's "summary plan description" requirements
pursuant to ERISA.
1.4......Effective Date. The Plan is effective as of January 1, 1997.
--------------
1.5......Plan Year. For recordkeeping and reporting purposes, the Plan
Year shall be the twelve-month period ending each December 31.
SECTION 2 - DEFINITIONS
2.1......"Base Pay" means an Eligible Employee's highest annual base
salary rate paid during the twenty-four months (or total employment, if less)
immediately preceding termination of the employee's employment due to a Covered
Termination. The term Base Pay shall exclude all other types of compensation or
remuneration to an employee, and shall exclude without limitation bonuses of any
kind, overtime pay and shift differentials, contributions (other than employee
salary-reduction contributions) to any retirement or other employee benefit
plans, commissions, profit sharing payments, incentive payments of any kind,
special payments of any kind (including without limitation business expense
reimbursements, tuition reimbursements and flexible spending account
reimbursements) and contingent compensation of any kind.
2.2......"Board" means the Employer's Board of Directors.
2.3......"Change in Control" A Change In Control of the Employer will
occur upon:
.........(a) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50 percent or more
of either (i) the then outstanding shares of the Employer's common stock (the
"Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Employer entitled to vote generally in the election of the
directors (the "Outstanding Employer Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (A)
any acquisition directly from the Employer (excluding an acquisition by virtue
of the exercise of a conversion privilege); (B) any acquisition by the Employer
or by any corporation controlled by the Employer; (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Employer
or any corporation controlled by the Employer; or (D) any acquisition by any
corporation pursuant to a consolidation or merger, if, following such
consolidation or merger, the conditions described in clauses (i) and (ii) of
paragraph (c) of this definition are satisfied; or
.........(b) Individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") ceasing for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination for
election by the Employer's shareholders, was approved by a vote or resolution of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board.
.........(c) Adoption by the Board of a resolution approving an
agreement of consolidation of the Employer with or merger of the Employer into
another corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 50 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Employer Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Employer Voting
Securities, as the case may be and (ii) at least a majority of the members of
the board of directors (or other group of persons having the general power to
direct the affairs of the corporation or other business entity) resulting from
such consolidation or merger were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such consolidation or
merger; provided that any right which shall vest by reason of the action of the
Board pursuant to this paragraph (c) shall be divested, with respect to any such
right not already exercised, upon (A) the rejection of such agreement of
consolidation or merger by the stockholders of the Employer or (B) its
abandonment by either party thereto in accordance with its terms; or
.........(d) Adoption by the requisite majority of the whole Board, or
by the holders of such majority of stock of the Employer as is required by law
or by the Certificate of Incorporation or By-Laws of the Employer as then in
effect, of a resolution or consent authorizing (i) the liquidation or
dissolution of the Employer or (ii) the sale or other disposition of all or
substantially all of the assets of the Employer, other than to a corporation or
other business entity with respect to which, following such sale or other
disposition, (A) more than 50 percent of, respectively, the then outstanding
shares of common stock of such corporation and/or the combined voting power of
the outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Common Stock
and Outstanding Employer Voting Securities immediately prior to such sale or
other disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the Common Stock and/or
Outstanding Employer Voting securities, as the case may be, and (B) at least a
majority of the members of the board of directors (or other group of persons
having the general power to direct the affairs of such corporation or other
entity) were members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or other
disposition of assets of the Employer; provided that any right which shall vest
by reason of the action of the Board or the stockholders pursuant to this
paragraph (d) shall be divested, with respect to any such right not already
exercised, upon the abandonment by the Employer of such dissolution, or such
sale or other disposition of assets, as the case may be.
A Change in Control shall not occur upon the mere reincorporation of
the Employer in another state.
2.4......"Covered Termination" means the termination of an Eligible
Employee's employment (a) either (i) by the Eligible Employee for Good Reason or
(ii) involuntarily by the Employer (or its successor following a Change in
Control) for a reason other than Good Cause or disability and (b) in the case of
eligibility for Special CIC Benefits only, on or after the date on which a
Change in Control occurs and on or before the second anniversary of such date.
The term Covered Termination shall not include the transfer of the Eligible
Employee's employment to the Employer's successor following a Change in Control,
provided that such transfer does not constitute or result in the employee having
Good Reason to resign.
2.5......"Effective Date" means the date set forth in Subsection 1.4
above.
2.6......"Eligible Employee" means an individual who either (a) is
designated on Appendix A to this Plan as of the date of a Covered Termination or
(b) was an officer of the Employer on the date of a Change in Control occurring
within two years before the Covered Termination.
2.7......"Eligibility Conditions" means the conditions on eligibility
for Separation Pay set forth in Subsection 3.2 below.
2.8......"Employer" means HPR Inc., a corporation organized under the
laws of Delaware, and its subsidiaries. To the extent required to carry out the
intent of this Plan, the term Employer shall also refer to the Employer's
successor following a Change in Control.
2.9......"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.10....."Good Cause" means an Eligible Employee's (a) willful and
continuing failure substantially to perform duties assigned in good faith from
time to time by the Employer (provided that such failure is not solely the
result of (i) a disability established to the satisfaction of either the
Employer's Chairman or a majority of its Board or (ii) a leave of absence either
granted in writing by the Employer or guaranteed by applicable law or (iii) some
other reason agreed to in advance by either the Employer's Chairman or a
majority of its Board); or (b) willful conduct which is demonstrably and
materially injurious to the Employer; or (c) conviction of a felony or a
misdemeanor involving the theft, misappropriation or embezzlement of property of
the Employer.
No termination of an Eligible Employee's employment shall be for Good
Cause unless: (a) notice of such Good Cause is provided to the employee by or on
behalf of the Board; and (b) no valid prior or simultaneous notice of Good
Reason has been given by the employee; and (c) the employee is afforded an
opportunity to be heard before the Board, represented by counsel; and (d) a
majority of the Board then determines that Good Cause exists for the employee's
termination; and (e) only if and to the extent a cure-period is permitted under
any separate agreement between the Employer and the employee, the employee has
failed to timely cure such asserted Good Cause. The required hearing need not be
held before the Eligible Employee's termination occurs, but it must be within 30
days after the required notice of asserted Good Cause is given to the Employee,
unless the employee agrees to a postponement.
For purposes of this subsection, the term Board shall include the board
of directors (or body with a similar function) of the Employer's successor
following a Change in Control.
.........2.11 "Good Reason" means an Eligible Employee's resignation from
his or her employment due to: (a) a substantial reduction imposed by the
Employer in the responsibilities of the employee's position with the Employer;
or (b) a reduction in the employee's Base Pay; or (c) the elimination or
impairment of the employee's eligibility for compensation or benefits programs
generally available to other Eligible Employees; or (d) a requirement imposed by
the Employer that the employee relocate to a new post at least 50 miles from his
or her then-existing post; or (e) only if so provided under any separate
agreement between the Employer and the Eligible Employee, the employee has not
been offered continued employment with the Employer or its successor following a
Change in Control on substantially the same terms and conditions of employment
as were in effect for the employee immediately prior to the Change in Control.
No resignation by an Eligible Employee shall be for Good Reason unless:
(a) notice of such Good Reason is provided to the Board by or on behalf of the
Eligible Employee and (b) the Employer fails to cure such asserted Good Reason
within thirty days after receipt of such notice; provided that the Employer
shall have the sole discretion to determine whether or not (i) to attempt or
complete such a cure or (ii) to dispute in good faith or accept the existence of
such Good Reason.
For purposes of this subsection, the term Board shall include the board
of directors (or body with a similar function) of the Employer's successor
following a Change in Control.
2.12....."Participant" means an Eligible Employee who is entitled to
receive separation benefits under the terms and conditions of the Plan.
2.13....."Plan" means the Employer's Executive Separation Benefits Plan
as set forth in this document and in any and all amendments and supplements to
this document.
2.14....."Plan Administrator" means the Employer or such other person,
entity or committee as may be appointed from time to time by the Employer to
administer the Plan.
2.15....."Plan Year" means the annual twelve-month period set forth in
Subsection 1.5 above.
2.16....."Separation Benefits Period" means, for any Participant, the
period equal to the number of months of Base Pay to be received by the
Participant as Separation Pay; provided that a Participant's Separation Benefits
Period shall end earlier upon the Participant's failure to continue satisfying
all Eligibility Conditions.
2.17....."Separation Pay" means the continuation of a Participant's
Base Pay (salary) during the Separation BenefitsPeriod or the payment of an
equal amount in a lump sum in accordance with the terms and conditions of the
Plan.
2.18....."Special CIC Benefits" means the benefits referred to as such
in Section 3 and payable in the event of an Eligible Employee's Covered
Termination pursuant to a Change in Control.
SECTION 3 - BENEFITS UNDER THE PLAN
3.1......Types of Benefits. An Eligible Employee whose employment with
the Employer (or its successor following a Change in Control)is terminated
solely due to a Covered Termination and with respect to whom all applicable
Eligibility Conditions set forth in Subsection 3.2 below are met shall be
entitled under this Plan to the following types of separation benefits:
.01......Separation Pay as determined under Subsection 3.3 below;
.02......Outplacement assistance as determined under Subsection 3.5
below;
.03......Continued eligibility for certain employee benefit programs,
as described in Subsection 3.6 below;
.04......Certain stock option benefits for Covered Terminations
pursuant to a Change in Control, as described in Subsection 3.7 below.
3.2......Eligibility Conditions; No Mitigation. Notwithstanding
anything else in this Plan, separation benefits shall be provided under this
Plan only to an employee whose employment with the Employer (or its successor
following a Change in Control) actually terminates. Furthermore, no employee
shall be entitled to commence or continue receiving separation benefits under
the Plan unless all of the following conditions are met and (to the extent
applicable) continue to be met at all times:
.01......The Eligible Employee must agree to and must sign and comply with
a separation letter satisfactory to the Employer (or its successor following a
Change in Control). The separation letter may include, without limitation: (a) a
comprehensive release of all claims of any sort against the Employer (and its
present and former parents and subsidiaries and its successor following a Change
in Control (collectively, the "Employer Group")) and all agents, employees,
advisors and other representatives of the Employer Group in a form reasonably
satisfactory to the Employer and (b) an acknowledgment that any then-existing
agreements concerning confidentiality and/or non-competition binding on the
Eligible Employee will remain in effect in accordance with their terms, but
separation benefits under this Plan shall not otherwise be conditioned upon the
employee's agreement not to compete with the Employer Group or to solicit any of
the Employer Group's customers or employees during the Separation Benefits
Period.
.02......If not already fully paid or terminated for any other reason,
a Participant's Separation Pay and other benefits under this Plan shall cease as
of the first date of any breach or other failure if the Participant breaches the
terms of any separation letter or non-competition agreement entered into with
the Employer pursuant to the requirements of clauses .01 or .02 above or
otherwise materially fails to satisfy any obligations of the Participant to the
Employer under this Plan.
.03......If not already fully paid or terminated for any other reason,
a Participant's Separation Pay and other benefits under this Plan shall cease as
of the first date of any misconduct if the Employer becomes aware of any
instance of the Participant's misconduct that would have constituted Good Cause
for termination of the Participant's employment, whether such misconduct occurs
prior to or following the Participant's termination of employment with the
Employer; but provided that the notice, hearing and Board majority decision
requirements of Subsection 2.10 are met promptly after discovery of the
misconduct.
A Participant shall not be required to seek replacement employment as a
condition of receiving separation benefits and separation benefits otherwise
payable under this Plan shall not be reduced or terminated on account of any
employment undertaken by a Participant during or after his or her Separation
Benefits Period.
3.3......Amount of Separation Pay. Effective for Covered Terminations
made on or after the Effective Date while this Plan remains in effect and
subject to Subsection 3.2, each Participant's Separation Pay shall equal the
amount determined under the applicable one of the following clauses:
.01......Basic Benefit: Except as otherwise provided in clause .02 of this
Subsection 3.3, following his or her Covered Termination, a Participant shall
receive Separation Pay equal to twelve months of Base Pay.
.02......Special CIC Benefits: In lieu of the benefit provided in clause
.01 of this Subsection 3.3, the Separation Pay of a Participant whose Covered
Termination was on or after the date on which a Change in Control occurred and
on or before the second anniversary of such date shall be a lump sum amount
equal to twelve months of Base Pay or such greater amount, if any, as is (as of
the date of the Change in Control) either provided for under any separate
agreement between the Employer and the Participant or specified for the
Participant in Appendix B to this Plan.
3.4......Payment of Benefits. Except in the case of Special CIC
Benefits, Separation Pay shall be due and payable until paid in full at the rate
of the Participant's Base Pay on each of the Participant's regular pay days
during the Separation Benefits Period. If a Participant has on file with the
Employer a direct deposit authorization, such authorization will apply to all or
a portion of the Participant's Separation Pay, as specified in the direct
deposit authorization. To the extent not directly deposited, checks for
Separation Pay will be mailed to a Participant's most recent address of which
the Plan Administrator has received notice in writing from the Participant.
Special CIC Benefits Separation Pay shall be paid to the Participant in one lump
sum at the time of (or as soon as possible after) the Participant's Covered
Termination. Notwithstanding the foregoing, if the Plan Administrator receives
written notice that the Participant is mentally incompetent, the Employer shall
pay the balance of the Participant's Separation Pay only to the Participant's
duly appointed legal representative.
3.5......Outplacement Assistance Benefits. Individual executive-level
outplacement assistance provided by a contractor selected by the Employer shall
be provided to each Participant during his or her Separation Benefits Period.
3.6......Continued Eligibility For Benefit Programs. Subject to
Subsection 3.2, during a Participant's Separation Benefits Period (or if sooner,
for such medical and dental plans as the Participant has continuation rights
under ERISA, until the Participant and his or her covered dependents cease to
have such coverage continuation rights), the Participant shall be eligible for
continued coverage by and participation in the same employee benefit programs
(including without limitation, the medical and dental plans) and with the same
amount of employer contributions as the Participant was eligible for on the date
of the Covered Termination, but only to the extent that such programs allow for
continuation of coverage. To the extent continuation coverage is not allowed,
the Employer (or its successor following a Change in Control) will pay an amount
of additional Separation Pay during the applicable benefits continuation period
equal to the amount paid for the discontinued benefits immediately prior to the
Participant's Covered Termination. Payroll deductions for the Participant's
share of the cost of any contributory benefits (at the rate in effect from time
to time for active executive employees of the Employer or its successor
following a Change in Control) shall continue to be deducted from the
Participant's Separation Pay, provided that if the Separation Pay has been paid
in one lump sum, the Participant shall timely pay his or her share by personal
check to the Employer.
Nothing in this Plan shall affect the Participant's right (if any)
under ERISA to elect continuation coverage at the Participant's own expense in
the Employer's medical and dental plans after the end of the Separation Benefits
Period.
3.7......Effect of Certain Covered Terminations on Certain Stock
Options. The following special provisions shall apply to all options to acquire
shares of the Employer's capital stock held by a Participant whose Covered
Termination was on or after the date on which a Change in Control occurred and
on or before the second anniversary of such date, notwithstanding anything to
the contrary in the grant of such options or any agreement with respect to such
options:
.01......Accelerated Vesting. Fifty percent (or such greater percentage, if
any, as is--as of the date of the Change in Control--either provided for under
any separate agreement between the Employer and the Participant or specified for
the Participant in Appendix B to this Plan) of any such options which are not
exercisable as of the date of the Participant's Covered Termination shall become
immediately exercisable on such date or, if sooner, on the date that the
Employer (or its successor following a Change in Control) gives notice that any
such non-exercisable options will be terminated in accordance with their terms
pursuant to a Change in Control without replacement by substitute options of
reasonably equivalent value.
.02......Grace Period to Exercise. Subject to clause .03 below, all
exercisable options held by the Participant (including those which become
exercisable pursuant to clause .01 above) on the date of his or her Covered
Termination shall remain exercisable for a period of twelve months after such
date (and for any longer period that the options would have remained exercisable
in accordance with their terms or as is--as of the date of the Change in
Control--either provided for under any separate agreement between the Employer
and the Participant or specified for the Participant in Appendix B to this Plan.
.03......Termination of Grace Period. Notwithstanding the grace period
provided under clause .02 above, a Participant's options will terminate and
cease to be exercisable pursuant to this Plan upon the earliest to occur of:
.........(a) The date that such options would have expired if the
Participant had remained employed by the Employer throughout the grace period;
.........(b) The dissolution of the Employer, but any substitute options in
the securities of another company shall not be affected by the Employer's
dissolution; or
.........(c) The date set in any notice given that the options will be
terminated in accordance with their terms pursuant to a Change in Control, but
any substitute options in the securities of another company shall not be
affected by such termination and provided that such substitute options shall be
provided under a good-faith reasonable conversion formula if the Employer (or
its successor following a Change in Control) is reasonably able to do so.
3.8......Individual Arrangements. Nothing in the Plan shall preclude
the Employer from entering into individual arrangements with employees for the
payment of severance benefits in addition to the benefits provided under the
Plan. No such individual arrangement shall entitle any person not a party
thereto to any benefits of any nature.
SECTION 4 - PLAN AMENDMENT AND TERMINATION
4.1......Employer's Right to Amend or Terminate Plan. The Employer may
amend or terminate the Plan only as provided in the applicable one of the
following clauses:
.01......During the First Two Years. This Plan shall not be amended or
terminated on or before the second anniversary of the Effective Date except as
follows:
.........(a) To Permit Pooling: The Plan (including its Appendixes) may be
terminated or amended as necessary pursuant to a majority vote of the Board
taken consistently with an understanding that failure to so terminate or amend
the Plan would prevent the Employer from entering into a then-proposed
transaction to be accounted for as a pooling of interests with one or more other
entities; provided that such understanding is based reasonably and in good faith
upon information provided to the Board by any of the following: (i) the
independent accountants of the Employer; (ii) the independent accountants of any
other party to the proposed transaction; or (iii) the Securities and Exchange
Commission.
.........(b) To Comply with Law: The Plan (including its Appendixes) may be
amended as necessary pursuant to a majority vote of the Board taken consistently
with a good-faith opinion of counsel to either the Employer or the Board that
such amendment is required by applicable law; provided that the Employer shall
thereupon use its best efforts to provide the Eligible Employees and the
Participants with the value of the benefits intended under this Plan immediately
prior to the effective date of the amendment.
.........(c) To Add Eligible Employees and/or Special CIC Benefits in
Appendixes A and B: Appendixes A and/or B may be amended as necessary pursuant
to a majority vote of the Board to add Eligible Employees and/or Special CIC
Benefits.
.02......After the Second Year. Following the second anniversary of the
Effective Date, the Employer may amend or terminate this Plan as follows:
.........(a) Prior to a Change in Control: Prior to the occurrence of a
Change in Control and following the second anniversary of the then most recent
Change in Control, the Employer may amend the Plan (including its Appendixes) in
any manner at any time and from time to time and may terminate the Plan at any
time.
.........(b) After a Change in Control: After the occurrence of a Change in
Control and until the second anniversary of such Change in Control, this Plan
shall not be terminated and shall be amended only in accordance with the
provisions of clauses .01(b) or .01(c) of this Subsection 4.1.
4.2......Method of Amendment or Termination. Any amendment or
termination of the Plan shall be made by a written instrument signed by an
officer of the Employer upon due authorization by the Board.
SECTION 5 - PLAN ADMINISTRATION
5.1......Plan Administrator. The Plan Administrator shall be a "named
fiduciary" for purposes of Section 402(a)(1) of ERISA, with authority to control
and manage the operation and administration of the Plan, and shall be the agent
for service of process against the Plan. The Plan Administrator shall have full
power to administer the Plan in all matters, subject to applicable requirements
of law. For this purpose, the Plan Administrator's power shall include, but
shall not be limited to the following authority, in addition to all other powers
provided by the Plan:
.01......To make and enforce such rules and regulations as the Plan
Administrator deems necessary or proper for the efficient administration of the
Plan, including the establishment of any claims procedures that may be required
by applicable provisions of law;
.02......To appoint such agents, counsel, accountants, consultants and
other persons to participate in the administration of the Plan as the Plan
Administrator deems appropriate;
.03......To allocate and delegate the responsibilities of the Plan
Administrator and to designate other persons to carry out any of the Plan
Administrator's responsibilities; provided that any such allocation, delegation
or designation shall be in writing and in accordance with applicable
requirements of law;
.04......To sue or be sued on behalf of the Plan and to appoint additional
agents for service of process; and
.05......To the fullest extent permitted by law, the Plan Administrator
shall have the exclusive responsibility and discretion to decide all matters
relating to eligibility, coverage or benefits under the Plan and to interpret
all provisions of the Plan and to determine all matters relating to the
operation and administration of the Plan. Any determination by the Plan
Administrator shall be final and binding, in the absence of clear and convincing
evidence that the Plan Administrator acted arbitrarily and capriciously.
5.2......Records. The Plan Administrator shall maintain such records as
it deems necessary to determine benefits and eligibility under the Plan and
shall make available to each Participant such portions of the records under the
Plan as pertain to the Participant, for examination at reasonable times during
normal business hours.
5.3......Reliance. In administering the Plan, the Plan Administrator
shall be entitled to the extent permitted by law to rely conclusively on all
information (including without limitation all tables, valuations, certificates,
opinions and reports) which is furnished by or in accordance with the
instructions or recommendations of accountants, counsel, actuaries, consultants
or other experts employed or engaged by the Plan Administrator.
5.4......Indemnification. Except as prohibited by law, any individual
or individuals serving as Plan Administrator (or as a member of any board or
committee that serves as Plan Administrator) shall be indemnified in full by the
Employer against expenses, including attorneys' fees, and against the amount of
any judgment, money decree, fine or penalty, or against the amount of any
settlement deemed reasonable by the Board, necessarily paid or incurred by such
individual or individuals in connection with or arising out of any claim made,
or any civil or criminal action, suit or proceeding of whatever nature brought
against such individual, or in which such individual is made a party, or in
which such individual is otherwise involved, by reason of being or having been
such Plan Administrator (or any member of any such board or committee). Such
indemnification shall apply to any such individual even though at the time of
such claim, action, suit or proceeding such individual is no longer Plan
Administrator (or a member of any such board or committee).
SECTION 6 - MISCELLANEOUS MATTERS
6.1......Information Required. Participants and Eligible Employees
shall provide the Plan Administrator with such information and evidence, and
shall sign such documents, as may be requested from time to time for the purpose
of administering the Plan.
6.2......No Guaranty of Employment. This Plan shall not be a contract
of employment between the Employer and any employee. Nothing contained in the
Plan document nor any action taken in connection with the adoption, operation or
maintenance of the Plan shall be construed as a contract of employment between
the Employer and any employee or as consideration or inducement for the
employment of any employee. Nothing in the Plan or in the adoption, operation or
maintenance of the Plan shall give any employee the right to remain in the
Employer's employ, nor shall it give the Employer the right to require any
employee to remain in its employ, nor shall it interfere with the employee's
right to terminate his or her employment at any time. Without limiting the
generality of the foregoing, the Employer shall have the right to terminate or
change the terms of employment of any employee, Eligible Employee or Participant
at any time and for any reason whatsoever, with or without cause or notice.
6.3......Exclusive Plan. Except to the extent otherwise expressly
provided herein or in any separate agreement between the Employer (or its
successor following a Change in Control) and an Eligible Employee, this Plan
shall exclusively govern any claims for any type of severance benefits as a
result of any termination of employment due to a Covered Termination on or after
the Effective Date, while the Plan remains in effect. Any other generally
applicable severance plans of any nature maintained by the Employer shall be
terminated as of such Effective Date with respect to any claims for severance
benefits as a result of any Covered Termination occurring on or after such
Effective Date.
6.4......Sole Source for Payment of Benefits. All benefits provided
under the Plan shall be paid solely from the general assets of the Employer.
Nothing in the Plan shall be construed to require the Employer or the Plan
Administrator to maintain any fund or segregate any amount for the benefit of
any Participant, and no Participant or any other person shall have any claim
against, right to, or security or other interest in, any fund, account or asset
of the Employer from which any payment under the Plan may be made. Neither the
Employer nor any director, officer, employee or agent or other representative of
the Employer shall be liable, otherwise than as expressly provided in the Plan,
for payment of any benefits under the Plan or shall have any other liability to
a Participant or to any other person.
6.5......Non-Alienation. No benefit payable under the Plan shall be
subject in any manner whatsoever to alienation, sale, transfer, assignment,
pledge, attachment or encumbrance of any kind, and each and every attempt to
alienate, sell, transfer, assign, pledge, attach or encumber any such benefit
under the Plan shall be void and of no force and effect whatsoever.
6.6......No Vesting. No person shall have any vested or non-forfeitable
interest at any time in any payment or other benefit provided under the Plan.
6.7......Obligations to Withhold and Pay Taxes. Each Participant shall
be liable for all tax obligations, if any, with respect to any sum received or
other benefit provided pursuant to the Plan and for accurately reporting all
such income and paying in full all such taxes to the appropriate federal, state
and local authorities. The Employer shall have the right to deduct and withhold
from any payment due under the Plan or from other amounts owed to the
Participant all withholding taxes and other amounts required by law.
6.8......Governing Law. The Plan and the rights of all persons under
the Plan shall be construed in accordance with and under applicable provisions
of the laws of Massachusetts, except to the extent federal laws pre-empt such
laws.
SECTION 7 - CLAIMS PROCEDURE
7.1......Claim for Benefits. Eligible Employees do not need to file a
claim for benefits under the Plan. If an individual believes that he or she is
eligible for severance benefits even though no such benefits have been offered,
or if an Eligible Employee or Participant believes that his or her benefits have
been calculated incorrectly or terminated prematurely or that the Plan has been
otherwise violated, the aggrieved individual may file a claim with the Plan
Administrator. The Plan Administrator shall advise the claimant either that the
claim is allowed, or that the claim is denied, or that the claimant needs to
submit additional information. If the claim is denied, the Plan Administrator
shall furnish the claimant written notice of such denial within a reasonable
time after receipt of the claim, and such notice shall include:
.01......the reason for the denial;
.02......specific references to Plan provisions on which the denial is
based; and
.03......information as to how to submit the claim for review.
If no notice of denial is furnished within 90 days after receipt of the claim by
the Plan Administrator, the claim shall be deemed denied.
7.2......Appeals. If a claim filed under Subsection 7.1 is denied (or
deemed denied), the claimant may file a request for review with the Plan
Administrator. The claimant shall be entitled to examine pertinent documents, to
submit issues and comments in writing and to request a hearing before the Plan
Administrator. The appeal of any claim must be submitted in writing within 60
days after (a) the date that the claim was deemed denied or (b) the receipt of
notice of denial by the claimant, whichever is applicable. The Plan
Administrator shall send the claimant a written decision regarding the appeal.
Normally, the decision will be made within 60 days after the appeal is filed,
but if the Plan Administrator determines that additional time is reasonably
necessary, up to 60 additional days may be taken to resolve the appeal. The
decision of the Plan Administrator on such review shall be final.
SECTION 8 - ERISA RIGHTS
8.1......Participants' Rights. ERISA guarantees each individual who is
a Participant in the Plan certain rights and protections. In summary, ERISA
provides that all Participants are entitled to:
.01......Examine, without charge, at the Employer's benefits office and at
other specified work sites, the Plan document, including copies of all documents
filed in connection with the Plan with the U.S. Department of Labor, such as
detailed annual reports (if required by applicable law).
.02......Obtain copies of all Plan documents and other Plan information
upon written request to the Employer's benefits office. The benefits office may
make a reasonable charge for such copies.
.03......Receive a summary of the Plan's financial report (if required by
applicable law). The Employer's benefits office is required by law to furnish
each Participant with a copy of each required summary annual report.
8.2......Fiduciary Duties. In addition to creating rights for
Participants, ERISA imposes duties upon the people who are responsible for the
operation of employee benefit plans. The people who operate the Plan, called
"fiduciaries," have a duty to do so prudently and in the interest of
Participants and beneficiaries. No one, including the Employer or any other
person, may fire anyone or otherwise discriminate against anyone in any way to
prevent that individual from obtaining a benefit or exercising rights under
ERISA. If a claim for a benefit is denied in whole or in part, a written
explanation of the reason for the denial must be given. Individuals also have
the right to have the Plan Administrator review and reconsider a claim.
8.3......Enforcement of Rights. Under ERISA, there are steps that any
person with rights under the Plan may take to enforce those rights. For example,
if a Participant requests materials from the Employer's benefits office and does
not receive them within 30 days, he or she may file suit in a federal court. In
such case, the court may require the Employer to provide the materials and to
pay up to $100 per day until the materials are provided, unless the materials
were not provided because of reasons beyond the Employer's control.
If a claim for benefits is denied or ignored in whole or in part, the
aggrieved individual may file suit in a state or federal court.
If the Plan fiduciaries misuse the Plan's money, or if the Plan
discriminates against an individual for asserting rights under ERISA, the
individual may seek assistance from the U.S. Department of Labor or may file
suit in federal court. The court will decide who will pay court costs and legal
fees. If the individual is successful, the court may order the person sued to
pay those costs and fees. If the individual is unsuccessful, the court may order
him or her to pay those costs and fees if, for example, it finds the claim to be
frivolous.
Questions about the Plan should be directed to the Plan Administrator.
Questions about this statement or about an individual's rights under ERISA
should be directed to the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has
executed this document, under seal.
HPR INC.
By: /s/ Marcia J. Radosevich
Marcia J. Radosevich
Chairman, President and Chief Executive Officer
Plan Administrator: Employer Identification No.: 04-2985551
HPR INC. Plan No.: ____
c/o Thomas L. Saltonstall
245 First Street
Cambridge, MA 02142
Telephone: (617) 679-8000
<PAGE>
APPENDIX A TO THE HPR INC.
EXECUTIVE SEPARATION BENEFITS PLAN
Designation of Eligible Employees as of January 1, 1997, pursuant to Subsection
2.6:
1. Marcia J. Radosevich, Chairman, President and Chief Executive Officer
2. Brian D. Cahill, Chief Operating Officer and Chief Financial Officer
3. Andrew C. Garling, M.D., Vice President and Chief Medical Officer*
4. Thomas L. Saltonstall, Vice President, Human Resources and Corporate
Administration
5. Joseph K. Jaeger, Vice President, Sales**
6. James B. Stowe, Vice President, Marketing
7. Matt Ricketson, Vice President, Professional Services
8. Paul W. Brient, Vice President, Product Management***
9. Steven J. Rosenberg, Vice President, Software Development
*Effective 3/3/97, contingent on appointment to this position.
**Effective 1/1/97, contingent on appointment to this position.
***Effective 4/14/97, contingent on appointment to this position.
<PAGE>
APPENDIX B TO THE HPR INC.
EXECUTIVE SEPARATION BENEFITS PLAN
Special CIC Benefits as of January 1, 1997, pursuant to Clause .02 of Subsection
3.3 (Separation Pay) and Clauses .01 and .02 of Subsection 3.7 (Accelerated
Vesting of Stock Options and Grace Period for Exercising Options):
Eligible Employee Special CIC Benefits
1. Marcia J. Radosevich Twenty-four months of Base Pay and benefits
Acceleration of one-hundred percent of
unvested stock options
Options remain exercisable until the end of
their original terms
HPR INC.
NON-EXECUTIVE SEPARATION BENEFITS PLAN
Effective January 1, 1997
<PAGE>
HPR INC.
NON-EXECUTIVE SEPARATION BENEFITS PLAN
TABLE OF CONTENTS
SECTION 1 - GENERAL INFORMATION
1.1 Adoption and Purpose of Plan
1.2 Status of Plan
1.3 Summary Plan Description
1.4 Effective Date
1.5 Plan Year
SECTION 2 - DEFINITIONS
2.1 "Base Pay"
2.2 "Board"
2.3 "Change in Control"
2.4 "Covered Termination"
2.5 "Effective Date"
2.6 "Eligible Employee"
2.7 "Eligibility Conditions"
2.8 "Company"
2.9 "ERISA"
2.10 "Good Cause"
2.11 "Key Director or Contributor"
2.12 "Participant"
2.13 "Plan"
2.14 "Plan Administrator"
2.15 "Plan Year"
2.16 "Separation Pay"
2.17 "Separation Pay Period"
2.18 "Year of Service"
SECTION 3 - BENEFITS UNDER THE PLAN
3.1 Types of Benefits
3.2 Eligibility Conditions; No Mitigation
3.3 Amount of Separation Pay
3.4 Payment of Benefits
3.5 Outplacement Assistance Benefits
3.6 Continued Eligibility For Benefit Programs
3.7 Effect of Covered Terminations on Certain Stock Options
3.8 Individual Arrangements
SECTION 4 - PLAN AMENDMENT AND TERMINATION
4.1 Employer's Right to Amend or Terminate Plan
4.2 Method of Amendment or Termination
SECTION 5 - PLAN ADMINISTRATION
5.1 Plan Administrator
5.2 Records
5.3 Reliance
5.4 Indemnification
SECTION 6 - MISCELLANEOUS MATTERS
6.1 Information Required
6.2 No Guaranty of Employment
6.3 Exclusive Plan
6.4 Sole Source for Payment of Benefits
6.5 Non-Alienation
6.6 No Vesting
6.7 Obligations to Withhold and Pay Taxes
6.8 Governing Law
SECTION 7 - CLAIMS PROCEDURE
7.1 Claim for Benefits
7.2 Appeals
SECTION 8 - ERISA RIGHTS
8.1 Participants' Rights
8.2 Fiduciary Duties
8.3 Enforcement of Rights
<PAGE>
SECTION 1 - GENERAL INFORMATION
1.1......Adoption and Purpose of Plan. The Employer hereby adopts this
Non-Executive Separation Benefits Plan to provide certain separation benefits to
Eligible Employees in accordance with the terms and conditions of the Plan.
1.2......Status of Plan. The Plan and this document are intended to
comply with all applicable state and federal laws regarding severance pay plans,
specifically Title I of ERISA. The Plan is intended to be a "welfare benefit
plan," as defined in ERISA, and not a "pension benefit plan." The Plan does not
provide any pension or retirement benefits of any nature to any person.
1.3......Summary Plan Description. The Plan Administrator is hereby
authorized to use this document embodying the Plan, as from time to time
amended, to satisfy all of the Plan's "summary plan description" requirements
pursuant to ERISA.
1.4......Effective Date. The Plan is effective as of January 1, 1997.
--------------
1.5......Plan Year. For recordkeeping and reporting purposes, the Plan
Year shall be the twelve-month period ending each December 31.
SECTION 2 - DEFINITIONS
2.1......"Base Pay" means that portion which is considered to be base
pay pursuant to the Employer's payroll practices of an employee's highest
compensation rate paid during the twenty-four months (or total employment, if
less) immediately preceding termination of the employee's employment due to a
Covered Termination. The term Base Pay shall exclude all other types of
compensation or remuneration to an employee, and shall exclude without
limitation bonuses of any kind, overtime pay and shift differentials,
contributions (other than employee salary-reduction or base hourly
wage-reduction contributions) to any retirement or other employee benefit plans,
commissions, profit sharing payments, incentive payments of any kind, special
payments of any kind (including without limitation business expense
reimbursements, tuition reimbursements and flexible spending account
reimbursements) and contingent compensation of any kind.
The Base Pay determined on a weekly basis of a salaried Eligible
Employee shall be the weekly equivalent of the employee's highest annual salary
rate received during the relevant employment period under this subsection. For
part-time employees the relevant salary rate shall be the highest net rate
received after adjusting the equivalent full-time rate pro rata based on the
employee's highest percentage of full-time employment while the salary rate was
in effect.
The Base Pay determined on a weekly basis of an Eligible Employee who
is paid hourly wages shall equal the applicable hourly rate times the employee's
greatest number of regularly scheduled work-week hours during the relevant
employment period under this subsection.
2.2......"Board" means the Employer's Board of Directors.
2.3......"Change in Control" A Change In Control of the Employer will
occur upon:
.........(a) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50 percent or more
of either (i) the then outstanding shares of the Employer's common stock (the
"Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Employer entitled to vote generally in the election of the
directors (the "Outstanding Employer Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (A)
any acquisition directly from the Employer (excluding an acquisition by virtue
of the exercise of a conversion privilege); (B) any acquisition by the Employer
or by any corporation controlled by the Employer; (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Employer
or any corporation controlled by the Employer; or (D) any acquisition by any
corporation pursuant to a consolidation or merger, if, following such
consolidation or merger, the conditions described in clauses (i) and (ii) of
paragraph (c) of this definition are satisfied; or
.........(b) Individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") ceasing for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination for
election by the Employer's shareholders, was approved by a vote or resolution of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board.
.........(c) Adoption by the Board of a resolution approving an
agreement of consolidation of the Employer with or merger of the Employer into
another corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 50 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Employer Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Employer Voting
Securities, as the case may be and (ii) at least a majority of the members of
the board of directors (or other group of persons having the general power to
direct the affairs of the corporation or other business entity) resulting from
such consolidation or merger were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such consolidation or
merger; provided that any right which shall vest by reason of the action of the
Board pursuant to this paragraph (c) shall be divested, with respect to any such
right not already exercised, upon (A) the rejection of such agreement of
consolidation or merger by the stockholders of the Employer or (B) its
abandonment by either party thereto in accordance with its terms; or
.........(d) Adoption by the requisite majority of the whole Board, or
by the holders of such majority of stock of the Employer as is required by law
or by the Certificate of Incorporation or By-Laws of the Employer as then in
effect, of a resolution or consent authorizing (i) the liquidation or
dissolution of the Employer or (ii) the sale or other disposition of all or
substantially all of the assets of the Employer, other than to a corporation or
other business entity with respect to which, following such sale or other
disposition, (A) more than 50 percent of, respectively, the then outstanding
shares of common stock of such corporation and/or the combined voting power of
the outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Common Stock
and Outstanding Employer Voting Securities immediately prior to such sale or
other disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the Common Stock and/or
Outstanding Employer Voting securities, as the case may be, and (B) at least a
majority of the members of the board of directors (or other group of persons
having the general power to direct the affairs of such corporation or other
entity) were members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or other
disposition of assets of the Employer; provided that any right which shall vest
by reason of the action of the Board or the stockholders pursuant to this
paragraph (d) shall be divested, with respect to any such right not already
exercised, upon the abandonment by the Employer of such dissolution, or such
sale or other disposition of assets, as the case may be.
A Change in Control shall not occur upon the mere reincorporation of
the Employer in another state.
2.4......"Covered Termination" means the involuntary termination by the
Employer (or its successor following a Change in Control) of an Eligible
Employee's employment (a) for a reason other than Good Cause or disability and
(b) on or after the date on which a Change In Control occurs and on or before
the second anniversary of such date. The term Covered Termination shall not
include the transfer of the Eligible Employee's employment to the Employer's
successor following a Change in Control.
2.5......"Effective Date" means the date set forth in Subsection 1.4
above.
2.6......"Eligible Employee" means an individual (a) who is not
eligible for participation in the Executive Separation Benefits Plan and (b) who
is classified by the Employer as a regular employee with a regularly scheduled
work week of at least 30 hours as of the date of a Change in Control. No
individual classified by the Employer as a temporary employee, a consultant, or
an independent contractor shall be an Eligible Employee.
2.7......"Eligibility Conditions" means the conditions on eligibility
for Separation Pay set forth in Subsection 3.2 below.
2.8......"Employer" means HPR Inc., a corporation organized under the
laws of Delaware, and its subsidiaries. To the extent required to carry out the
intent of this Plan, the term Employer shall also refer to the Employer's
successor following a Change in Control.
2.9......"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.10....."Good Cause" means an Eligible Employee's (a) willful and
continuing failure substantially to perform duties assigned in good faith from
time to time by the Employer (provided that such failure is not solely the
result of (i) a disability established to the satisfaction of either the
Employer's Chairman or a majority of its Board or (ii) a leave of absence either
granted in writing by the Employer or guaranteed by applicable law or (iii) some
other reason agreed to in advance by either the Employer's Chairman or a
majority of its Board); or (b) willful conduct which is demonstrably and
materially injurious to the Employer; or (c) conviction of a felony or a
misdemeanor involving the theft, misappropriation or embezzlement of property of
the Employer.
No termination of an Eligible Employee's employment shall be for Good
Cause unless: (a) notice of such Good Cause is provided to the employee by or on
behalf of the Board; and (b) the employee is afforded an opportunity to be heard
before the Board, represented by counsel; and (c) a majority of the Board then
determines that Good Cause exists for the employee's termination. The required
hearing need not be held before the Eligible Employee's termination occurs, but
it must be within 30 days after the notice of asserted Good Cause is given to
the employee, unless the employee agrees to a postponement.
For purposes of this subsection, the term Board shall include the board
of directors (or body with a similar function) of the Employer's successor
following a Change in Control.
2.11....."Key Director or Contributor" means an Eligible Employee who
is at any time designated as such by the Board after nomination by the
Employer's Chairman (and provided that such designation has not been revoked by
a majority of the Board prior to the date on which a Change in Control occurs).
No Eligible Employee who has been designated as a Key Director or Contributor
shall have such designation revoked during the period between the date on which
a Change in Control occurs and the second anniversary of such date.
Key Directors and Contributors may be listed on Appendix A to this
Plan, which shall be amended as necessary to reflect decisions of the Board to
add or delete Eligible Employees as Key Directors or Contributors, but only such
Board action shall determine an employee's status as a Key Director or
Contributor. Inclusion or omission of an employee's name on Appendix A shall not
determine or affect the employee's status as a Key Director or Contributor.
2.12....."Participant" means an Eligible Employee who is entitled to
receive separation benefits under the terms and conditions of the Plan.
2.13....."Plan" means the Employer's Non-Executive Separation Benefits
Plan as set forth in this document and in any and all amendments and supplements
to this document.
2.14....."Plan Administrator" means the Employer or such other person,
entity or committee as may be appointed from time to time by the Employer to
administer the Plan.
2.15....."Plan Year" means the annual twelve-month period set forth in
Subsection 1.5 above.
2.16....."Separation Pay" means the continuation of a Participant's
Base Pay (wages or salary) during the Separation Pay Period in accordance with
the terms and conditions of the Plan.
2.17....."Separation Pay Period" means, for any Participant, the period
equal to the number of weeks of Base Pay to be received by the Participant as
Separation Pay; provided that a Participant's Separation Pay Period shall end
earlier upon the Participant's failure to continue satisfying all Eligibility
Conditions.
2.18....."Year of Service" means each twelve full months of an
employee's continuous employment with the Employer, measured from the employee's
first day of work for the Employer and each anniversary of such date during a
continuous-employment period which ends due to a Covered Termination. Except as
otherwise required by law, service during any leave of absence shall not be
included in an employee's continuous service time for purposes of determining
his or her Separation Pay or other separation benefits. However, an absence
which does not extend beyond the length of a leave of absence either granted in
writing by the Employer or required by law shall not break an employee's period
of continuous service for purposes of determining his or her number of Years of
Service.
SECTION 3 - BENEFITS UNDER THE PLAN
3.1......Types of Benefits. An Eligible Employee whose employment with
the Employer (or its successor following a Change in Control) is terminated
solely due to a Covered Termination and with respect to whom all applicable
Eligibility Conditions set forth in Subsection 3.2 below are met shall be
entitled under this Plan to the following types of separation benefits:
.01......Separation Pay as determined under Subsection 3.3 below;
.02......Outplacement assistance as determined under Subsection 3.5
below;
.03......Continued eligibility for certain employee benefit programs,
as described in Subsection 3.6 below;
.04......Certain stock option benefits for Participants who are Key
Directors or Contributors, as described in Subsection 3.7 below.
3.2......Eligibility Conditions; No Mitigation. Notwithstanding
anything else in this Plan, separation benefits shall be provided under this
Plan only to an employee whose employment with the Employer (or its successor
following a Change in Control) actually terminates. Furthermore, no employee
shall be entitled to commence or continue receiving separation benefits under
the Plan unless all of the following conditions are met and (to the extent
applicable) continue to be met at all times:
.01......The Eligible Employee must agree to and must sign and comply with
a separation letter satisfactory to the Employer (or its successor following a
Change in Control). The separation letter may include, without limitation: (a) a
comprehensive release of all claims of any sort against the Employer (and its
present and former parents and subsidiaries and its successor following a Change
in Control (collectively, the "Employer Group")) and all agents, employees,
advisors and other representatives of the Employer Group in a form reasonably
satisfactory to the Employer (or its successor following a Change in Control)
and (b) an acknowledgment that any then-existing agreements concerning
confidentiality and/or non-competition binding on the Eligible Employee will
remain in effect in accordance with their terms, but separation benefits under
this Plan shall not otherwise be conditioned upon the employee's agreement not
to compete with the Employer Group or to solicit any of the Employer Group's
customers or employees during the Separation Pay Period.
.02......If not already fully paid or terminated for any other reason,
a Participant's Separation Pay and other benefits under this Plan shall cease as
of the first date of any breach or other failure if the Participant breaches the
terms of any separation letter entered into with the Employer pursuant to the
requirements of clause .01 above or otherwise materially fails to satisfy any
obligations of the Participant to the Employer under this Plan.
.03......If not already fully paid or terminated for any other reason,
a Participant's Separation Pay and other benefits under this Plan shall cease as
of the first date of any misconduct if the Employer becomes aware of any
instance of the Participant's misconduct that would have constituted Good Cause
for termination of the Participant's employment, whether such misconduct occurs
prior to or following the Participant's termination of employment with the
Employer; but provided that the notice, hearing and Board majority decision
requirements of Subsection 2.10 are met promptly after discovery of the
misconduct.
A Participant shall not be required to seek replacement employment as a
condition of receiving separation benefits and separation benefits otherwise
payable under this Plan shall not be reduced or terminated on account of any
employment undertaken by a Participant during or after his or her Separation Pay
Period.
3.3......Amount of Separation Pay. Effective for Covered Terminations
made on or after the Effective Date while this Plan remains in effect and
subject to Subsection 3.2, each Participant's Separation Pay shall equal the
amount determined under the applicable one of the following clauses:
.01......Non-Key Directors or Contributors: The Separation Pay of a
Participant who was not designated as a Key Director or Contributor at the time
of his or her Covered Termination shall equal (a) thirteen weeks of Base Pay
plus (b) two weeks of Base Pay per Year of Service, up to a maximum benefit of
twenty-six weeks of Base Pay.
.02......Key Directors or Contributors: The Separation Pay of a Participant
who was designated as a Key Director or Contributor at the time of his or her
Covered Termination shall equal twenty-six weeks of Base Pay.
3.4......Payment of Benefits. Separation Pay shall be due and payable
until paid in full at the rate of the Participant's Base Pay on each of the
Participant's regular pay days during the Separation Pay Period. If a
Participant has on file with the Employer a direct deposit authorization, such
authorization will apply to all or a portion of the Participant's Separation
Pay, as specified in the direct deposit authorization. To the extent not
directly deposited, checks for Separation Pay will be mailed to a Participant's
most recent address of which the Plan Administrator has received notice in
writing from the Participant. Notwithstanding the foregoing, if the Plan
Administrator receives written notice that the Participant is mentally
incompetent, the Employer shall pay the balance of the Participant's Separation
Pay only to the Participant's duly appointed legal representative.
3.5......Outplacement Assistance Benefits. Outplacement assistance shall be
provided to each Participant as determined under the applicable one of the
following clauses:
.01......Non-Key Directors or Contributors: Participants who were not
designated as Key Directors or Contributors at the time of their Covered
Terminations shall receive group outplacement assistance .
.02......Key Directors or Contributors: Each Participant who was designated
as a Key Director or Contributor at the time of his or her Covered Termination
shall receive individual outplacement assistance provided by a contractor
selected by the Employer during his or her Separation Pay Period.
3.6......Continued Eligibility For Benefit Programs. Except as
specifically provided below or in a benefit program document or as specifically
required by law, no former employee of the Employer will be eligible after
termination of employment with the Employer for any of the Employer's employee
benefit programs. Subject to Subsection 3.2, a Participant will be eligible for
continued participation in the Employer's employee benefit programs only as
follows:
.01......Medical and Dental Plans: Medical and dental plan coverage (as
in effect and with the same employer contributions as were made immediately
prior to the Participant's termination of employment) will remain in effect
through the Separation Pay Period (or if sooner, until the Participant and his
or her covered dependents cease to have coverage continuation rights pursuant to
ERISA), but only to the extent that such plans allow for continuation of
coverage. To the extent continuation coverage is not available, the Employer (or
its successor following a Change in Control) will pay an amount of additional
Separation Pay during this benefits continuation period equal to the amount paid
for the discontinued benefits immediately prior to the Participant's Covered
Termination. Payroll deductions for the Participant's share of premiums (at the
rate in effect from time to time for active employees of the class of which the
Participant was a member) shall continue to be deducted from the Participant's
Separation Pay. Nothing in this Plan shall affect the Participant's right (if
any) under ERISA to elect continuation coverage at the Participant's own expense
in the Employer's medical and dental plans after the end of the benefits
continuation period under this Subsection.
.02......Vacation Pay: This Plan does not change the Employer's vacation
policy, which is a non-accrual policy. No amount for unused vacation time will
be added to any Participant's Separation Pay.
Except as required by law, no Participant shall be eligible for any of the
Employer's foregoing benefit programs at a time when any of the Eligibility
Conditions specified in Subsection 3.2 above is not met.
3.7......Effect of Covered Terminations on Certain Stock Options. The
following special provisions shall apply to all options to acquire shares of the
Employer's capital stock held by a Participant who was designated as a Key
Director or Contributor at the time of his or her Covered Termination,
notwithstanding anything to the contrary in the grant of such options or any
agreement with respect to such options:
.01......Accelerated Vesting. Fifty percent of any such options which are
not exercisable as of the date of the Participant's Covered Termination shall
become immediately exercisable on such date or, if sooner, on the date that the
Employer (or its successor following a Change in Control) gives notice that any
such non-exercisable options will be terminated in accordance with their terms
pursuant to a Change in Control without replacement by substitute options of
reasonably equivalent value.
.02......Grace Period to Exercise. Subject to clause .03 below, all
exercisable options held by the Participant (including those which become
exercisable pursuant to clause .01 above) on the date of his or her Covered
Termination shall remain exercisable for a period of three months after such
date.
.03......Termination of Grace Period. Notwithstanding the grace period
provided under clause .02 above, a Participant's options will terminate and
cease to be exercisable pursuant to this Plan upon the earliest to occur of:
.........(a) The date that such options would have expired if the
Participant had remained employed by the Employer throughout the grace period;
.........(b) The dissolution of the Employer, but any substitute options in
the securities of another company shall not be affected by the Employer's
dissolution; or
.........(c) The date set in any notice given that the options will be
terminated in accordance with their terms pursuant to a Change in Control, but
any substitute options in the securities of another company shall not be
affected by such termination and provided that such substitute options shall be
provided under a good-faith reasonable conversion formula if the Employer (or
its successor following a Change in Control) is reasonably able to do so.
3.8......Individual Arrangements. Nothing in the Plan shall preclude
the Employer from entering into individual arrangements with employees for the
payment of severance benefits in addition to the benefits provided under the
Plan. No such individual arrangement shall entitle any person not a party
thereto to any benefits of any nature.
SECTION 4 - PLAN AMENDMENT AND TERMINATION
4.1......Employer's Right to Amend or Terminate Plan. The Employer may
amend or terminate the Plan only as provided in the applicable one of the
following clauses:
.01......During the First Two Years. This Plan shall not be amended or
terminated on or before the second anniversary of the Effective Date except as
follows:
.........(a) To Permit Pooling: The Plan may be terminated or amended as
necessary pursuant to a majority vote of the Board taken consistently with an
understanding that failure to so terminate or amend the Plan would prevent the
Employer from entering into a then-proposed transaction to be accounted for as a
pooling of interests with one or more other entities; provided that such
understanding is based reasonably and in good faith upon information provided to
the Board by any of the following: (i) the independent accountants of the
Employer; (ii) the independent accountants of any other party to the proposed
transaction; or (iii) the Securities and Exchange Commission.
.........(b) To Comply with Law: The Plan may be amended as necessary
pursuant to a majority vote of the Board taken consistently with a good-faith
opinion of counsel to either the Employer or the Board that such amendment is
required by applicable law; provided that the Employer shall thereupon use its
best efforts to provide the Eligible Employees and the Participants with the
value of the benefits intended under this Plan immediately prior to the
effective date of the amendment.
.02......After the Second Year. Following the second anniversary of the
Effective Date, the Employer may amend or terminate this Plan as follows:
.........(a) Prior to a Change in Control: Prior to the occurrence of a
Change in Control and following the second anniversary of the then most recent
Change in Control, the Employer may amend the Plan in any manner at any time and
from time to time and may terminate the Plan at any time.
.........(b) After a Change in Control: After the occurrence of a Change in
Control and until the second anniversary of such Change in Control, this Plan
shall not be terminated and shall be amended only in accordance with the
provisions of clause .01(b) of this Subsection 4.1.
4.2......Method of Amendment or Termination. Any amendment or
termination of the Plan shall be made by a written instrument signed by an
officer of the Employer upon due authorization by the Board.
SECTION 5 - PLAN ADMINISTRATION
5.1......Plan Administrator. The Plan Administrator shall be a "named
fiduciary" for purposes of Section 402(a)(1) of ERISA, with authority to control
and manage the operation and administration of the Plan, and shall be the agent
for service of process against the Plan. The Plan Administrator shall have full
power to administer the Plan in all matters, subject to applicable requirements
of law. For this purpose, the Plan Administrator's power shall include, but
shall not be limited to the following authority, in addition to all other powers
provided by the Plan:
.01......To make and enforce such rules and regulations as the Plan
Administrator deems necessary or proper for the efficient administration of the
Plan, including the establishment of any claims procedures that may be required
by applicable provisions of law;
.02......To appoint such agents, counsel, accountants, consultants and
other persons to participate in the administration of the Plan as the Plan
Administrator deems appropriate;
.03......To allocate and delegate the responsibilities of the Plan
Administrator and to designate other persons to carry out any of the Plan
Administrator's responsibilities; provided that any such allocation, delegation
or designation shall be in writing and in accordance with applicable
requirements of law;
.04......To sue or be sued on behalf of the Plan and to appoint additional
agents for service of process; and
.05......To the fullest extent permitted by law, the Plan Administrator
shall have the exclusive responsibility and discretion to decide all matters
relating to eligibility, coverage or benefits under the Plan and to interpret
all provisions of the Plan and to determine all matters relating to the
operation and administration of the Plan. Any determination by the Plan
Administrator shall be final and binding, in the absence of clear and convincing
evidence that the Plan Administrator acted arbitrarily and capriciously.
5.2......Records. The Plan Administrator shall maintain such records as
it deems necessary to determine benefits and eligibility under the Plan and
shall make available to each Participant such portions of the records under the
Plan as pertain to the Participant, for examination at reasonable times during
normal business hours.
5.3......Reliance. In administering the Plan, the Plan Administrator
shall be entitled to the extent permitted by law to rely conclusively on all
information (including without limitation all tables, valuations, certificates,
opinions and reports) which is furnished by or in accordance with the
instructions or recommendations of accountants, counsel, actuaries, consultants
or other experts employed or engaged by the Plan Administrator.
5.4......Indemnification. Except as prohibited by law, any individual
or individuals serving as Plan Administrator (or as a member of any board or
committee that serves as Plan Administrator) shall be indemnified in full by the
Employer against expenses, including attorneys' fees, and against the amount of
any judgment, money decree, fine or penalty, or against the amount of any
settlement deemed reasonable by the Board, necessarily paid or incurred by such
individual or individuals in connection with or arising out of any claim made,
or any civil or criminal action, suit or proceeding of whatever nature brought
against such individual, or in which such individual is made a party, or in
which such individual is otherwise involved, by reason of being or having been
such Plan Administrator (or any member of any such board or committee). Such
indemnification shall apply to any such individual even though at the time of
such claim, action, suit or proceeding such individual is no longer Plan
Administrator (or a member of any such board or committee).
SECTION 6 - MISCELLANEOUS MATTERS
6.1......Information Required. Participants and Eligible Employees
shall provide the Plan Administrator with such information and evidence, and
shall sign such documents, as may be requested from time to time for the purpose
of administering the Plan.
6.2......No Guaranty of Employment. This Plan shall not be a contract
of employment between the Employer and any employee. Nothing contained in the
Plan document nor any action taken in connection with the adoption, operation or
maintenance of the Plan shall be construed as a contract of employment between
the Employer and any employee or as consideration or inducement for the
employment of any employee. Nothing in the Plan or in the adoption, operation or
maintenance of the Plan shall give any employee the right to remain in the
Employer's employ, nor shall it give the Employer the right to require any
employee to remain in its employ, nor shall it interfere with the employee's
right to terminate his or her employment at any time. Without limiting the
generality of the foregoing, the Employer shall have the right to terminate or
change the terms of employment of any employee, Eligible Employee or Participant
at any time and for any reason whatsoever, with or without cause or notice.
6.3......Exclusive Plan. The Plan shall exclusively govern any claims
for any type of severance benefits as a result of any termination of employment
due to a Covered Termination on or after the Effective Date, while the Plan
remains in effect. Any other severance plans of any nature maintained by the
Employer shall be terminated as of such Effective Date with respect to any
claims for severance benefits as a result of any Covered Termination occurring
on or after such Effective Date.
6.4......Sole Source for Payment of Benefits. All benefits provided
under the Plan shall be paid solely from the general assets of the Employer.
Nothing in the Plan shall be construed to require the Employer or the Plan
Administrator to maintain any fund or segregate any amount for the benefit of
any Participant, and no Participant or any other person shall have any claim
against, right to, or security or other interest in, any fund, account or asset
of the Employer from which any payment under the Plan may be made. Neither the
Employer nor any director, officer, employee or agent or other representative of
the Employer shall be liable, otherwise than as expressly provided in the Plan,
for payment of any benefits under the Plan or shall have any other liability to
a Participant or to any other person.
6.5......Non-Alienation. No benefit payable under the Plan shall be
subject in any manner whatsoever to alienation, sale, transfer, assignment,
pledge, attachment or encumbrance of any kind, and each and every attempt to
alienate, sell, transfer, assign, pledge, attach or encumber any such benefit
under the Plan shall be void and of no force and effect whatsoever.
6.6......No Vesting. No person shall have any vested or non-forfeitable
interest at any time in any payment or other benefit provided under the Plan.
6.7......Obligations to Withhold and Pay Taxes. Each Participant shall
be liable for all tax obligations, if any, with respect to any sum received or
other benefit provided pursuant to the Plan and for accurately reporting all
such income and paying in full all such taxes to the appropriate federal, state
and local authorities. The Employer shall have the right to deduct and withhold
from any payment due under the Plan or from other amounts owed to the
Participant all withholding taxes and other amounts required by law .
6.8......Governing Law. The Plan and the rights of all persons under
the Plan shall be construed in accordance with and under applicable provisions
of the laws of Massachusetts, except to the extent federal laws pre-empt such
laws.
SECTION 7 - CLAIMS PROCEDURE
7.1......Claim for Benefits. Eligible Employees do not need to file a
claim for benefits under the Plan. If an individual believes that he or she is
eligible for severance benefits even though no such benefits have been offered,
or if an Eligible Employee or Participant believes that his or her benefits have
been calculated incorrectly or terminated prematurely or that the Plan has been
otherwise violated, the aggrieved individual may file a claim with the Plan
Administrator. The Plan Administrator shall advise the claimant either that the
claim is allowed, or that the claim is denied, or that the claimant needs to
submit additional information. If the claim is denied, the Plan Administrator
shall furnish the claimant written notice of such denial within a reasonable
time after receipt of the claim, and such notice shall include:
.01......the reason for the denial;
.02......specific references to Plan provisions on which the denial is
based; and
.03......information as to how to submit the claim for review.
If no notice of denial is furnished within 90 days after receipt of the claim by
the Plan Administrator, the claim shall be deemed denied.
7.2......Appeals. If a claim filed under Subsection 7.1 is denied (or
deemed denied), the claimant may file a request for review with the Plan
Administrator. The claimant shall be entitled to examine pertinent documents, to
submit issues and comments in writing and to request a hearing before the Plan
Administrator. The appeal of any claim must be submitted in writing within 60
days after (a) the date that the claim was deemed denied or (b) the receipt of
notice of denial by the claimant, whichever is applicable. The Plan
Administrator shall send the claimant a written decision regarding the appeal.
Normally, the decision will be made within 60 days after the appeal is filed,
but if the Plan Administrator determines that additional time is reasonably
necessary, up to 60 additional days may be taken to resolve the appeal. The
decision of the Plan Administrator on such review shall be final.
SECTION 8 - ERISA RIGHTS
8.1......Participants' Rights. ERISA guarantees each individual who is
a Participant in the Plan certain rights and protections. In summary, ERISA
provides that all Participants are entitled to:
.01......Examine, without charge, at the Employer's benefits office and at
other specified work sites, the Plan document, including copies of all documents
filed in connection with the Plan with the U.S. Department of Labor, such as
detailed annual reports (if required by applicable law).
.02......Obtain copies of all Plan documents and other Plan information
upon written request to the Employer's benefits office. The benefits office may
make a reasonable charge for such copies.
.03......Receive a summary of the Plan's financial report (if required by
applicable law). The Employer's benefits office is required by law to furnish
each Participant with a copy of each required summary annual report.
8.2......Fiduciary Duties. In addition to creating rights for
Participants, ERISA imposes duties upon the people who are responsible for the
operation of employee benefit plans. The people who operate the Plan, called
"fiduciaries," have a duty to do so prudently and in the interest of
Participants and beneficiaries. No one, including the Employer or any other
person, may fire anyone or otherwise discriminate against anyone in any way to
prevent that individual from obtaining a benefit or exercising rights under
ERISA. If a claim for a benefit is denied in whole or in part, a written
explanation of the reason for the denial must be given. Individuals also have
the right to have the Plan Administrator review and reconsider a claim.
8.3......Enforcement of Rights. Under ERISA, there are steps that any
person with rights under the Plan may take to enforce those rights. For example,
if a Participant requests materials from the Employer's benefits office and does
not receive them within 30 days, he or she may file suit in a federal court. In
such case, the court may require the Employer to provide the materials and to
pay up to $100 per day until the materials are provided, unless the materials
were not provided because of reasons beyond the Employer's control.
If a claim for benefits is denied or ignored in whole or in part, the
aggrieved individual may file suit in a state or federal court.
If the Plan fiduciaries misuse the Plan's money, or if the Plan
discriminates against an individual for asserting rights under ERISA, the
individual may seek assistance from the U.S. Department of Labor or may file
suit in federal court. The court will decide who will pay court costs and legal
fees. If the individual is successful, the court may order the person sued to
pay those costs and fees. If the individual is unsuccessful, the court may order
him or her to pay those costs and fees if, for example, it finds the claim to be
frivolous.
Questions about the Plan should be directed to the Plan Administrator.
Questions about this statement or about an individual's rights under ERISA
should be directed to the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has
executed this document, under seal.
HPR INC.
By: /s/ Marcia J. Radosevich
Marcia J. Radosevich
Chairman, President and
Chief Executive Officer
Plan Administrator: Employer Identification No.: 04-2985551
HPR INC. Plan No.: ____
c/o Thomas L. Saltonstall
245 First Street
Cambridge, MA 02142
Telephone: (617) 679-8000
<PAGE>
APPENDIX A TO THE HPR INC.
NON-EXECUTIVE SEPARATION BENEFITS PLAN
DESIGNATION OF KEY DIRECTORS AND CONTRIBUTORS
as of January 1, 1997 (except as noted) pursuant to
Subsection 2.11
Employee Title
Ann C. Brady Director, Finance
Kristin Zaepfel Director, Staffing and Employee
Relations
George A. Abatjoglou Controller
Scott J. Seero Director, Sales Operations
Peter M. Henderson Director, Corporate Marketing
Kathryn S. Grosberg Director, Credentialing Products
James L. Merola Regional Support Manager
Sydney D. Smith Regional Support Manager
Skip Hart Director, Software Development
Richard I. Lustig Director, Product Delivery
Steven Akillian Manager, Software Development
Jose M. Alea Manager, Software Development
Todd A. Cestari Manager, Software Development
Alfredo D. Zagaroli Project Leader
Eugene S. Spector Manager, Documentation
Stephen A. Insero Systems Architect
Thomas J. Boyle Manager, Audit/Quick Starts
Kevin G. Rhodes Project Leader
Denise Goldberg Manager, Product Management
Paul W. Brient* Director, New Product Development
Cynthia T. Egdahl Strategic Planning Consultant
David J. Rullo Director, Clinical Product
Information
Christopher F. O'Reilly Regional Sales Manager
Joanne M. Konrath Regional Sales Manger
Mark E. Biddle Regional Sales Manger
Robert M. Cook** Regional Sales Manager
Sean Tierney CCMS Sales
Ian Z. Chuang, M.D.*** Director, Clinical Systems
Integration
* Through 4/13/97, contingent upon appointment as Vice President,
Product Management.
**Effective 4/1/97, contingent upon appointment to this position.
*** Effective 4/1/97, contingent upon appointment to this position.
HPR INC.
DIRECTOR TERMINATION BENEFITS PLAN
Effective January 1, 1997
<PAGE>
HPR INC.
DIRECTOR TERMINATION BENEFITS PLAN
TABLE OF CONTENTS
SECTION 1 - GENERAL INFORMATION
1.1 Adoption and Purpose of Plan
1.2 Status of Plan
1.3 Effective Date
1.4 Plan Year
SECTION 2 - DEFINITIONS
2.1 "Board"
2.2 "Change in Control"
2.3 "Company"
2.4 "Covered Termination"
2.5 "Effective Date"
2.6 "Eligible Director"
2.7 "ERISA"
2.8 "Participant"
2.9 "Plan"
2.10 "Plan Administrator"
2.11 "Plan Year"
SECTION 3 - BENEFITS UNDER THE PLAN
3.1 Types of Benefits
3.2 Effect of Covered Terminations on Stock Options
SECTION 4 - PLAN AMENDMENT AND TERMINATION
4.1 Company's Right to Amend or Terminate Plan
4.2 Method of Amendment or Termination
SECTION 5 - PLAN ADMINISTRATION
5.1 Plan Administrator
5.2 Records
5.3 Reliance
5.4 Indemnification
SECTION 6 - MISCELLANEOUS MATTERS
6.1 Information Required
6.2 No Guaranty of Board Membership
6.3 Exclusive Plan
6.4 Sole Source for Benefits
6.5 Non-Alienation
6.6 No Vesting
6.7 Obligations to Pay Taxes
6.8 Governing Law
SECTION 1 - GENERAL INFORMATION
1.1......Adoption and Purpose of Plan. The Company hereby adopts this
Director Termination Benefits Plan to provide certain separation benefits to
Eligible Directors in accordance with the terms and conditions of the Plan.
1.2......Status of Plan. The Plan and this document do not provide any
benefits that are subject to ERISA.
1.3......Effective Date. The Plan is effective as of January 1, 1997.
1.4......Plan Year. For recordkeeping and reporting purposes, the Plan
Year shall be the twelve-month period ending each December 31.
SECTION 2 - DEFINITIONS
2.1......"Board" means the Company's Board of Directors.
2.2......"Change in Control" A Change In Control of the Company will
occur upon:
.........(a) The acquisition by any individual, entity or group (within
the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50 percent or more
of either (i) the then outstanding shares of the Company's common stock (the
"Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of the
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege); (B) any acquisition by the Company or by
any corporation controlled by the Company; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or (D) any acquisition by any corporation
pursuant to a consolidation or merger, if, following such consolidation or
merger, the conditions described in clauses (i) and (ii) of paragraph (c) of
this definition are satisfied; or
.........(b) Individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") ceasing for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination for
election by the Company's shareholders, was approved by a vote or resolution of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board.
.........(c) Adoption by the Board of a resolution approving an
agreement of consolidation of the Company with or merger of the Company into
another corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 50 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Company Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Company Voting
Securities, as the case may be and (ii) at least a majority of the members of
the board of directors (or other group of persons having the general power to
direct the affairs of the corporation or other business entity) resulting from
such consolidation or merger were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such consolidation or
merger; provided that any right which shall vest by reason of the action of the
Board pursuant to this paragraph (c) shall be divested, with respect to any such
right not already exercised, upon (A) the rejection of such agreement of
consolidation or merger by the stockholders of the Company or (B) its
abandonment by either party thereto in accordance with its terms; or
.........(d) Adoption by the requisite majority of the whole Board, or
by the holders of such majority of stock of the Company as is required by law or
by the Certificate of Incorporation or By-Laws of the Company as then in effect,
of a resolution or consent authorizing (i) the liquidation or dissolution of the
Company or (ii) the sale or other disposition of all or substantially all of the
assets of the Company, other than to a corporation or other business entity with
respect to which, following such sale or other disposition, (A) more than 50
percent of, respectively, the then outstanding shares of common stock of such
corporation and/or the combined voting power of the outstanding voting
securities of such corporation or other business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportions as their ownership, immediately prior to such
sale or other disposition, of the Common Stock and/or Outstanding Company Voting
securities, as the case may be, and (B) at least a majority of the members of
the board of directors (or other group of persons having the general power to
direct the affairs of such corporation or other entity) were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition of assets of the
Company; provided that any right which shall vest by reason of the action of the
Board or the stockholders pursuant to this paragraph (d) shall be divested, with
respect to any such right not already exercised, upon the abandonment by the
Company of such dissolution, or such sale or other disposition of assets, as the
case may be.
A Change in Control shall not occur upon the mere reincorporation of
the Company in another state.
2.3......"Company" means HPR Inc., a corporation organized under the
laws of Delaware, and its subsidiaries. To the extent required to carry out the
intent of this Plan, the term Company shall also refer to the Company's
successor following a Change in Control.
2.4......"Covered Termination" means (a) the resignation of an Eligible
Director or (b) the involuntary termination by action of the Company's
shareholders of the Eligible Director's status as a director, in either case as
a result of a pending, simultaneous or completed Change in Control, but in the
case of resignation by the Eligible Director, only if such resignation either
(i) is requested or required by the acquiring or surviving entity as a condition
to the Change in Control or (ii) occurs with the substantially simultaneous
resignation of substantially all other Eligible Directors.
2.5......"Effective Date" means the date set forth in Subsection 1.3
above.
2.6......"Eligible Director" means an individual who is a non-employee
member of the Incumbent Board (as defined in Subsection 2.2) as of the date on
which a Change in Control occurs.
2.7......"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.8......"Participant" means an Eligible Director who is entitled to
receive termination benefits under the terms and conditions of the Plan.
2.9......"Plan" means the Company's Director Termination Plan as set
forth in this document and in any and all amendments and supplements to this
document.
2.10....."Plan Administrator" means the Company or such other person,
entity or committee as may be appointed from time to time by the Company to
administer the Plan.
2.11....."Plan Year" means the annual twelve-month period set forth in
Subsection 1.4 above.
SECTION 3 - BENEFITS UNDER THE PLAN
3.1......Type of Benefits. An Eligible Director whose status as a
director is terminated solely due to a Covered Termination shall be entitled
under this Plan to the termination benefits specified in Subsection 3.2 below.
3.2......Effect of Covered Terminations on Stock Options. The following
special provisions shall apply to all options to acquire shares of the Company's
capital stock held by a Participant at the time of his or her Covered
Termination, notwithstanding anything to the contrary in the grant of such
options or any agreement with respect to such options:
.01......Accelerated Vesting. One-hundred percent of any such options which
are not exercisable as of the date of the Participant's Covered Termination
shall become immediately exercisable on such date or, if sooner, on the date
that the Company (or its successor following a Change in Control) gives notice
that any non-exercisable options will be terminated in accordance with their
terms pursuant to a Change in Control without replacement by substitute options
of reasonably equivalent value.
.02......Grace Period to Exercise. Subject to clause .03 below, all
exercisable options held by the Participant (including those which become
exercisable pursuant to clause .01 above) on the date of his or her Covered
Termination shall remain exercisable for a period of twelve months after such
date (and for any longer period that the options would have remained exercisable
in accordance with their terms).
.03......Termination of Grace Period. Notwithstanding the grace period
provided under clause .02 above, a Participant's options will terminate and
cease to be exercisable pursuant to this Plan upon the earliest to
occur of:
.........(a) The date that such options would have expired if the
Participant had retained his or her status as a director throughout the grace
period;
.........(b) The dissolution of the Company, but any substitute options in
the securities of another company shall not be affected by the Company's
dissolution; or
.........(c) The date set in any notice given that the options will be
terminated in accordance with their terms pursuant to a Change in Control, but
any substitute options in the securities of another company shall not be
affected by such termination and provided that such substitute options shall be
provided under a good-faith reasonable conversion formula if the Company (or its
successor following a Change in Control) is reasonably able to do so.
SECTION 4 - PLAN AMENDMENT AND TERMINATION
4.1......Company's Right to Amend or Terminate Plan. The Company may amend
or terminate the Plan only as provided in the applicable one of the following
clauses:
.01......During the First Two Years. This Plan shall not be amended or
terminated on or before the second anniversary of the Effective Date except as
follows:
.........(a) To Permit Pooling: The Plan may be terminated or amended as
necessary pursuant to a majority vote of the Board taken consistently with an
understanding that failure to so terminate or amend the Plan would prevent the
Company from entering into a then-proposed transaction to be accounted for as a
pooling of interests with one or more other entities; provided that such
understanding is based reasonably and in good faith upon information provided to
the Board by any of the following: (i) the independent accountants of the
Company; (ii) the independent accountants of any other party to the proposed
transaction; or (iii) the Securities and Exchange Commission.
.........(b) To Comply with Law: The Plan may be amended as necessary
pursuant to a majority vote of the Board taken consistently with a good faith
opinion of counsel to either the Company or the Board that such amendment is
required by applicable law; provided that the Company shall thereupon use its
best efforts to provide the Eligible Directors and the Participants with the
value of the benefits intended under this Plan immediately prior to the
effective date of the amendment.
.02......After the Second Year. Following the second anniversary of the
Effective Date, the Company may amend or terminate this Plan as follows:
.........(a) Prior to a Change in Control: Prior to the occurrence of a
Change in Control and following the second anniversary of the then most recent
Change in Control, the Company may amend the Plan in any manner at any time and
from time to time and may terminate the Plan at any time.
.........(b) After a Change in Control: After the occurrence of a Change in
Control and until the second anniversary of such Change in Control, this Plan
shall not be terminated and shall be amended only in accordance with the
provisions of clause .01(b) of this Subsection 4.1.
4.2......Method of Amendment or Termination. Any amendment or
termination of the Plan shall be made by a written instrument signed by an
officer of the Company upon due authorization by the Board.
SECTION 5 - PLAN ADMINISTRATION
5.1......Plan Administrator. The Plan Administrator have the authority
to control and manage the operation and administration of the Plan, and shall be
the agent for service of process against the Plan. The Plan Administrator shall
have full power to administer the Plan in all matters, subject to applicable
requirements of law. For this purpose, the Plan Administrator's power shall
include, but shall not be limited to the following authority, in addition to all
other powers provided by the Plan:
.01......To make and enforce such rules and regulations as the Plan
Administrator deems necessary or proper for the efficient administration of the
Plan, including the establishment of any claims procedures that may be required
by applicable provisions of law;
.02......To appoint such agents, counsel, accountants, consultants and
other persons to participate in the administration of the Plan as the Plan
Administrator deems appropriate;
.03......To allocate and delegate the responsibilities of the Plan
Administrator and to designate other persons to carry out any of the Plan
Administrator's responsibilities; provided that any such allocation, delegation
or designation shall be in writing and in accordance with applicable
requirements of law;
.04......To sue or be sued on behalf of the Plan and to appoint additional
agents for service of process; and
.05......To the fullest extent permitted by law, the Plan Administrator
shall have the exclusive responsibility and discretion to decide all matters
relating to eligibility, coverage or benefits under the Plan and to interpret
all provisions of the Plan and to determine all matters relating to the
operation and administration of the Plan. Any determination by the Plan
Administrator shall be final and binding, in the absence of clear and convincing
evidence that the Plan Administrator acted arbitrarily and capriciously.
5.2......Records. The Plan Administrator shall maintain such records as
it deems necessary to determine benefits and eligibility under the Plan and
shall make available to each Participant such portions of the records under the
Plan as pertain to the Participant, for examination at reasonable times during
normal business hours.
5.3......Reliance. In administering the Plan, the Plan Administrator
shall be entitled to the extent permitted by law to rely conclusively on all
information (including without limitation all tables, valuations, certificates,
opinions and reports) which is furnished by or in accordance with the
instructions or recommendations of accountants, counsel, actuaries, consultants
or other experts employed or engaged by the Plan Administrator.
5.4......Indemnification. Except as prohibited by law, any individual
or individuals serving as Plan Administrator (or as a member of any board or
committee that serves as Plan Administrator) shall be indemnified in full by the
Company against expenses, including attorneys' fees, and against the amount of
any judgment, money decree, fine or penalty, or against the amount of any
settlement deemed reasonable by the Board, necessarily paid or incurred by such
individual or individuals in connection with or arising out of any claim made,
or any civil or criminal action, suit or proceeding of whatever nature brought
against such individual, or in which such individual is made a party, or in
which such individual is otherwise involved, by reason of being or having been
such Plan Administrator (or any member of any such board or committee). Such
indemnification shall apply to any such individual even though at the time of
such claim, action, suit or proceeding such individual is no longer Plan
Administrator (or a member of any such board or committee).
SECTION 6 - MISCELLANEOUS MATTERS
6.1......Information Required. Participants and Eligible Directors
shall provide the Plan Administrator with such information and evidence, and
shall sign such documents, as may be requested from time to time for the purpose
of administering the Plan.
6.2......No Guaranty of Board Membership. This Plan shall not be a contract
for Board membership between the Company and any director.
6.3......Exclusive Plan. The Plan shall exclusively govern any claims
for any type of termination benefits as a result of any termination of Board
membership due to a Covered Termination on or after the Effective Date, while
the Plan remains in effect.
6.4......Sole Source for Benefits. All benefits provided under the Plan
shall be provided solely from the general assets of the Company. Neither the
Company nor any director, officer, employee or agent or other representative of
the Company shall be liable, otherwise than as expressly provided in the Plan,
for the provision of any benefits under the Plan or shall have any other
liability to a Participant or to any other person.
6.5......Non-Alienation. No benefit under the Plan shall be subject in
any manner whatsoever to alienation, sale, transfer, assignment, pledge,
attachment or encumbrance of any kind, and each and every attempt to alienate,
sell, transfer, assign, pledge, attach or encumber any such benefit under the
Plan shall be void and of no force and effect whatsoever.
6.6......No Vesting. No person shall have any vested or non-forfeitable
interest at any time in any benefit provided under the Plan.
6.7......Obligations to Pay Taxes. Each Participant shall be liable for
all tax obligations, if any, with respect to any benefit provided pursuant to
the Plan and for accurately reporting all such income and paying in full all
such taxes to the appropriate federal, state and local authorities.
6.8......Governing Law. The Plan and the rights of all persons under
the Plan shall be construed in accordance with and under applicable provisions
of the laws of Massachusetts, except to the extent federal laws pre-empt such
laws.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this document, under seal.
HPR INC.
By: /s/ Marcia J. Radosevich
Marcia J. Radosevich
Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit 10.23
Agreement and Second Amendment to
PRODUCT LICENSE AGREEMENT
THIS AGREEMENT, dated as of the 12th day of December, 1996:
(i) further amends the certain Product License Agreement,
dated as of the 17th day of November 1994, as amended by the First
Amendment to Product License Agreement, dated as of the 28th day of
June, 1995, by and between HPR Inc. (formerly known as Health Payment
Review, Inc.), a Delaware corporation ("HPR"), having an address at 245
First Street, Cambridge, Massachusetts 02142, and Symmetry Health Data
Systems, Inc., an Arizona corporation ("Symmetry"), having an address
at 9605 South 48th Street, Suite 2015, Phoenix, Arizona 85044 (such
Product License Agreement, as amended by such First Amendment, to be
herein referred to as the "Product License Agreement"); and
(ii) provides for certain actions to be taken by HPR following
the date of this Agreement.
Any capitalized term not otherwise defined herein shall have the
meaning set forth in the Product License Agreement.
In consideration of the obligations herein set forth and for other good
and valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, Symmetry and HPR hereby agree as follows:
1. Effective on the date of this Agreement, Section 3.6 of the Product
License Agreement shall be amended to read in its entirety as follows:
3.6 Usage Data. (a) HPR will make its best efforts to cause all
Prospective Licensees (as hereinafter defined) to execute the HPR
License Agreement in the form attached as Exhibit B hereto; provided,
that such requirement of best efforts shall be deemed satisfied as to
any Prospective Licensee if HPR, directly or through a third party
reseller, presents for execution the HPR License Agreement containing
the language of Exhibit 1 to said Exhibit B, with any changes therein
approved in writing by HPR and Symmetry after the date of this
Agreement, whether or not such Prospective Licensee executes the same;
provided, further, that any purported sublicense of ETG as part of the
HPR Product shall be of no force or effect and the requirement of best
efforts shall not be deemed satisfied as to any such sublicense unless
the executed HPR License Agreement contains at least the following
provisions (with any changes therein as are necessary to conform cross
references or defined terminology or which Symmetry shall have approved
in writing with respect to any specific HPR License Agreement):
Licensee shall retain full right and title to its claims and
the data contained therein (exclusive of claims and encounter
data in a format containing ETG identifiers, which claims and
encounter data are subject to the obligations of Licensee as
set forth in the following two paragraphs).
Except as otherwise required by law or by regulatory agencies
or other entities with legal authority to examine the Usage
Data, Licensee further agrees not to disclose, permit to be
disclosed or otherwise resell or transfer, with or without
consideration, all or any portion of the Usage Data to any
third party, except that Licensee may disclose the Usage Data
to its consultants or agents for the purpose of assisting or
advising Licensee; provided, however, that Licensee's
consultant or agent shall execute a nondisclosure agreement,
in a form consistent with Section 7 of this Agreement, which
will prohibit such consultant or agent from using such Usage
Data (other than to assist or advise Licensee) and from
disclosing such information to any third party. Such
nondisclosure agreement must provide that HPR and Symmetry
shall be third party beneficiaries of the rights of Licensee
thereunder.
Licensee and HPR further agree that, in addition to the other
rights granted to Symmetry herein, Symmetry shall also be a
third party beneficiary of the rights of HPR with respect to
the provisions of this Agreement as they relate to the Third
Party Software, the Proprietary Information of HPR and the
Usage Data. With respect to any period during which Licensee
uses the Software, Symmetry shall be expressly entitled to
enforce its rights pursuant to the provisions of the Software
License Agreement as they relate to the Third Party Software
and the Usage Data, regardless of any alleged or actual breach
or default hereunder by HPR, claim of offset by Licensee or
any expiration or termination of this Agreement.
All provisions contained in this Section [7.2] shall survive
the termination of this Agreement.
As used herein, the term "Prospective Licensee" shall mean a person or
entity to which HPR has made, on or after September 16, 1996 and
directly or through a third party reseller, a proposal for licensing
from HPR the HPR Product.
(b) HPR will make its best efforts to cause licensees of the HPR
Product to comply with their obligations, if any, pursuant to the
applicable HPR License Agreement, to furnish HPR with Usage Data (as
defined in the HPR License Agreement) which may be delivered to
Symmetry for the purposes specified in Exhibit 1 to Exhibit B to this
Agreement. Without limiting the generality of the foregoing, HPR shall
request each licensee with an obligation to furnish Usage Data to
deliver the same to HPR no less often than annually, the first such
request to be made no later than 15 months after the execution of the
applicable HPR License Agreement (or February 28, 1997, if later). HPR
shall report to Symmetry no less often than semiannually the status of
such requests and deliveries, including any delays anticipated by HPR,
the reasons therefor, and, if appropriate, the steps being taken to
assist the licensee to make the delivery. The sole remedy of Symmetry
in the event of a breach or alleged breach by HPR of its obligations
contained in the preceding three sentences shall be to pursue its
remedies directly against the licensee or licensees in question, as
provided in the applicable HPR License Agreement. To the extent
provided in the applicable HPR License Agreement, within 60 days of
receipt of such Usage Data from such a licensee, HPR will deliver a
copy of the same to Symmetry.
(c) Symmetry shall have the right to utilize the Usage Data for the
purposes and in the form specified in the applicable HPR License
Agreement. HPR shall have the right to utilize the Usage Data for the
purpose of creating statistical norms only for use with or licensing to
HPR customers which licensed the HPR Product; provided, however, that
HPR agrees that it will not disclose, permit to be disclosed or
otherwise resell or transfer such Usage Data to any person or entity
other than HPR customers that have licensed the HPR Product and other
than to Symmetry as provided in the applicable HPR License Agreement.
2. Effective on the date of this Agreement, Exhibit B to the Product
License Agreement shall be amended to read in the form of Schedule A hereto
(including the new language of Section 7.2 and an Exhibit which contains the
same language as Exhibit 1 to Schedule A).
3. During the 45 day period commencing with the business day after the
date of this Agreement (the "45-day period"), HPR shall undertake to obtain from
the Episode Profiler licensees listed in Schedule B to this Agreement (the
"Schedule B Licensees") a written agreement (a "Usage Data Agreement")
substantially in the form of Schedule C to this Agreement, it being agreed that
any Usage Data Agreement will be deemed substantially in such form
notwithstanding a modification thereof to permit submission of zip codes,
contained in the Usage Data to be delivered thereunder, to be at the three-digit
level. HPR shall keep Symmetry informed in writing, no less often than weekly
during the 45-day period, of HPR's progress in obtaining such Usage Data
Agreements from the Schedule B Licensees.
If, prior to the expiration of the 45-day period, HPR fails to obtain
Usage Data Agreements from Schedule B Licensees with covered lives, as shown on
Schedule B, of at least 2,335,973 in the aggregate (the "50% test") or to
present copies thereof to Symmetry within 5 business days following the
expiration of the 45-day period (the "5-day period"), then HPR shall, within 15
business days thereafter, pay the sum of $40,000 to Symmetry. Whether or not HPR
obtains and furnishes Usage Data Agreements meeting the 50% test (but provided
that HPR makes the foregoing $40,000 payment if required by the immediately
preceding sentence), Symmetry shall be deemed to have waived any and all claims
for alleged breaches by HPR of the Product License Agreement based on acts or
omissions of HPR of the type described in letters from Symmetry's counsel to HPR
dated August 16, 1996, August 23, 1996 and August 30, 1996 and occurring or
allegedly occurring prior to the expiration of the 45-day period. HPR reasonably
believes (but has not independently verified) that the aggregate number of
covered lives shown on Schedule B is not overstated.
4. During the 45-day period, HPR shall also undertake to obtain a Usage
Data Agreement from Medical Service Association of Pennsylvania t/d/b/a
Pennsylvania Blue Shield ("Pennsylvania Blue Shield"). If within the applicable
45-day or 5-day periods HPR has failed to obtain and deliver to Symmetry a Usage
Data Agreement from Pennsylvania Blue Shield, then the royalties to Symmetry
with respect to the HPR License with Pennsylvania Blue Shield, and any renewals
thereof, shall be increased, with respect to HPR License fees received by HPR
from Pennsylvania Blue Shield after the date of this Agreement, to 175% of the
royalties otherwise determined in accordance with paragraphs 1, 2 and 3 of
Exhibit G to the Product License Agreement.
5. With respect to any licensee of the HPR Product (i) which first
becomes such a licensee after September 15, 1996 and (ii) which does not execute
an HPR License Agreement containing a requirement, substantially as provided in
Section 7.2 and Exhibit 1 to Schedule A to this Agreement (it being agreed that
any such Exhibit 1 will be deemed substantially as so provided notwithstanding a
modification thereof to permit the submission of zip codes, contained in the
Usage Data to be delivered thereunder, to be at the three-digit level), that the
licensee provide Usage Data to HPR, which in turn may provide it to Symmetry for
the purposes specified in Exhibit 1 to Schedule A, the royalties payable to
Symmetry with respect to such license shall be 150% of the royalties otherwise
computed in accordance with paragraphs 1, 2 and 3 of Exhibit G to the Product
License Agreement.
6. Effective on the date of this Agreement, subparagraph (a) of Section
4.1 of the Product License Agreement shall be amended to read as follows:
.........(a) Use, copy, manufacture, market and distribute ETG, the
Documentation and all Enhancements thereto, as incorporated in the HPR Product;
provided, however, that such license does not extend to the marketing or
distribution of ETG, the Documentation and all Enhancements thereto to
manufacturers of pharmaceutical products or pharmacy benefit managers (e.g.,
Merck/Medco, PCS, etc.); provided, further, that, as soon as practicable, HPR
and Symmetry will negotiate in good faith the terms and conditions of an
agreement whereby HPR may market to such manufacturers and managers the HPR
Product in conjunction with one or more of the products to be developed by
Symmetry containing either or both (i) Usage Data obtained by HPR from licensees
of the HPR Product, and delivered by HPR to Symmetry, pursuant to HPR License
Agreements or (ii) similar usage data obtained by Symmetry from other sources.
7. Effective on the date of this Agreement, the first sentence of
Section 4.2 of the Product License Agreement shall be amended to read as
follows:
Symmetry agrees, after the date of this Agreement, not to enter into
any agreement to license ETG or any Enhancements thereof, directly,
through a third party reseller, or knowingly through any other indirect
means, to any of the competitors of HPR listed on Exhibit F (the
"Competitors"). Notwithstanding the foregoing, if the proposed licensee
is a legal entity separate from the Competitor, Symmetry may license
ETG or any Enhancements thereof to such separate entity (the
"Affiliate"), provided that the license Agreement between Symmetry and
the Affiliate shall prohibit the Affiliate from marketing and/or
licensing ETG or any Enhancements thereof to or as the representative
of the Competitor and shall prohibit the disclosure of proprietary
information of Symmetry to the Competitor. Such license agreement shall
further require the Affiliate to certify annually that the Affiliate is
in compliance with the foregoing restrictions set forth in this Section
4.2 and that the failure of the Affiliate to provide such certification
shall be deemed grounds for termination of the license agreement by
Symmetry; and Symmetry will provide copies of such certifications to
HPR promptly upon HPR's written request therefor. Further
notwithstanding the foregoing, the restrictions set forth in this
Section 4.2 shall not be deemed to prohibit the Affiliate from
marketing and/or licensing ETG or any Enhancements thereof for such
Affiliate's own account or to or for any person or entity other than
the Competitors, nor shall it be deemed a violation of such
restrictions in the event of a merger or other combination including
such Affiliate and one or more of the Competitors; provided, however,
that the Affiliate or some entity other than one of the Competitors is
the entity surviving such merger or other combination. Symmetry hereby
represents that, to Symmetry's actual knowledge (but without
independent investigation), it has not, prior to the date of this
Agreement, licensed or entered into any agreement to license ETG or any
Enhancements thereof to any Competitor or any entity which has
acquired, or agreed to acquire, by merger or otherwise, all or
substantially all of the capital stock or assets of any Competitor.
8. Effective on the date of this Agreement, Section 6.1 of the Product
License Agreement shall be amended to read as follows:
6.1 Symmetry shall prepare and distribute to HPR an
Enhancement within six (6) months after each annual release of new ICD9
(i.e., International Classification of Diseases, 9th Edition) codes,
new CPT (i.e., Current Procedural Terminology) codes, or updates of any
other codes with respect to which ETG functions in the future. From
time to time, Symmetry will evaluate HPR's requests for functional
Enhancements to ETG which are in other competitive claims-based episode
grouping products in the marketplace and, as reasonably practicable
within legal, financial, time, technical and other functional
constraints, provide such Enhancements to HPR in a timely manner;
provided, that the only remedy which HPR shall have with respect to any
failure of Symmetry to provide such Enhancements to HPR in a timely
manner following HPR's request shall be that HPR may develop or acquire
such functionality (Section 4.3 notwithstanding). Such Enhancements by
Symmetry pursuant to this Section 6.1 shall be furnished for inclusion
in the HPR Product at no additional cost to HPR and shall become part
of ETG and the Documentation for purposes of this Agreement.
9. Effective on the date of this Agreement, the list of companies
contained in Exhibit F of the Product License Agreement shall be amended to read
as follows:
.........GMIS, Inc.
.........Electronic Data Systems
.........Codman Research
10. Effective on the date of this Agreement, the first sentence of
paragraph 1 of Exhibit G to the Product License Agreement shall be amended to
delete the words "other than PARS Licensees" at the end thereof.
11. Effective on the date of this Agreement, paragraph 4 of Exhibit G
to the Product License Agreement shall be amended to read as follows:
Should HPR, through one of its joint marketing agreements with a third
party software vendor, including any of those organizations listed on
Exhibit F to this Agreement, license an HPR Product to a third party,
then HPR will pay a royalty to Symmetry in accordance with the formula
in 1 through 3, above, applicable to direct customers of HPR.
12. Effective on the date of this Agreement, Section 5.4 of the Product
License Agreement shall be deleted and paragraph 5 of Exhibit G to the Product
License Agreement shall be amended to read as follows:
5. HPR will also pay to Symmetry $160,000 per year for the
three year period commencing November 17, 1996. Such payments will be
due on each November 17 during the applicable period, whether or not
this Agreement shall have terminated earlier, the first such payment to
be made on or before January 11, 1996. If HPR is able to license the
HPR Product to one or more PARS licensees listed on Exhibit E to this
Agreement, HPR shall pay to Symmetry annual royalties at the times and
in the amounts computed accordance with paragraphs 1, 2 and 3 of this
Exhibit G.
13. Except as amended hereby, the Product License Agreement shall
remain in full force and effect in accordance with its terms. The provisions of
Sections 14.9 and 14.12 of the Product License Agreement shall apply to this
Agreement, whether or not the portion or portions of this Agreement in question
purport to amend the Product License Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized representatives as set forth below.
SYMMETRY HEALTH DATA HPR INC.
SYSTEMS, INC.
By: /s/ Dennis K. Dang By: /s/ Brian D. Cahill
Dennis K. Dang Brian D. Cahill
President Vice President, Corporate Finance
and Planning
<PAGE>
SCHEDULE A
Standard HPR Software License Agreement
[to be inserted]
<PAGE>
SCHEDULE A (continued)
RIDER 7.2 TO HPR INC. SOFTWARE LICENSE AGREEMENT
7.2 Licensee understands and acknowledges that a portion (the "Third Party
Software") of the Software has been licensed to HPR from Symmetry Health Data
Systems, Inc. ("Symmetry"), a third party proprietor. Licensee agrees to deliver
to HPR, upon its request but not more often than semiannually, its claims and
encounter data with ETG identifiers resulting from the use by Licensee of the
Software, including the Third Party Software (the "Usage Data") for use by HPR
in evaluating and improving the Software and for any other uses specified in the
Exhibit. Notwithstanding the foregoing sentence or any other provision of this
Agreement:
Licensee shall retain full right and title to its claims and the data
contained therein (exclusive of claims and encounter data in a format
containing ETG identifiers, which claims and encounter data are subject
to the obligations of Licensee as set forth in the following two
paragraphs).
Except as otherwise required by law or by regulatory agencies or other
entities with legal authority to examine the Usage Data, Licensee
further agrees not to disclose, permit to be disclosed or otherwise
resell or transfer, with or without consideration, all or any portion
of the Usage Data to any third party, except that Licensee may disclose
the Usage Data to its consultants or agents for the purpose of
assisting or advising Licensee; provided, however, that Licensee's
consultant or agent shall execute a nondisclosure agreement, in a form
consistent with Section 7 of this Agreement, which will prohibit such
consultant or agent from using such Usage Data (other than to assist or
advise Licensee) and from disclosing such information to any third
party. Such nondisclosure agreement must provide that HPR and Symmetry
shall be third party beneficiaries of the rights of Licensee
thereunder.
Licensee and HPR further agree that, in addition to the other rights
granted to Symmetry herein, Symmetry shall also be a third party
beneficiary of the rights of HPR with respect to the provisions of this
Agreement as they relate to the Third Party Software, the Proprietary
Information of HPR and the Usage Data. With respect to any period
during which Licensee uses the Software, Symmetry shall be expressly
entitled to enforce its rights pursuant to the provisions of the
Software License Agreement as they relate to the Third Party Software
and the Usage Data, regardless of any alleged or actual breach or
default hereunder by HPR, claim of offset by Licensee or any expiration
or termination of this Agreement.
All provisions contained in this Section 7.2 shall survive the
termination of this Agreement.
EXHIBIT 1 TO HPR INC. SOFTWARE LICENSE AGREEMENT
Section 7 of the HPR software license agreement to which this Exhibit 1 is
attached (the "Software License Agreement") requires Licensee to deliver to HPR,
no less often than the intervals specified, its Usage Data. Licensee authorizes
HPR to deliver a copy of the Usage Data to Symmetry within 60 days following
HPR's receipt thereof. The deliveries of Usage Data to HPR and to Symmetry shall
be subject to the following terms and conditions:
(i) such Usage Data will be in the form of so-called "flat" or similar
files of Licensee, but may, at the option of Licensee, be subject to a
scrambling algorithm consistently applied within each data submission
and across all data submissions for Licensee to preserve the
confidentiality of identification of the patients and providers
contained therein; and, to the extent requested by Licensee, HPR will
provide reasonable amounts of assistance in effecting the scrambling;
(ii) notwithstanding the provisions of Section 7 of the Software
License Agreement, Symmetry shall have the right, in Symmetry's sole
and absolute discretion, to sell, assign, transfer or convey, with or
without consideration, the Usage Data received by Symmetry pursuant to
the Software License Agreement, or any data, service or products
incorporating or derived in whole or in part from such Usage Data, to
any one or more third parties; and
(iii) Licensee shall retain full right and title to its claims and the
data contained therein (exclusive of claims and encounter data in a
format containing ETG identifiers, which claims and encounter data are
subject to the obligations of Licensee to deliver Usage Data to HPR, to
HPR's rights to provide such Usage Data to Symmetry and to the
obligations of Licensee as set forth in Section 7.2 of the Software
License Agreement).
<PAGE>
<TABLE>
SCHEDULE B
USAGE DATA CLIENT LIST
<CAPTION>
<S> <C> <C>
Licensee City/State Covered Lives
Aurora Health Care Milwaukee, WI 18,000
BCBS Arkansas Little Rock, AR 500,000
BCBS North Dakota Fargo, ND 360,000
BCBS Tennessee Chattanooga, TN 1,000,000
Berkshire Health Plan Wyomissing, PA 60,000
Carolina Atlantic Charleston, SC 5,000
ChoiceCare Health Plans Cincinnati, OH 290,000
Consumer Health Network Piscataway, NJ 115,000
Cooperative Benefit Administrators Lincoln, NE 61,300
Empire BCBS Albany, NY 250,000
First Florida Macedonia, OH 10,000
Health Care Plan Buffalo, NY 130,000
Health Services Corp. of Central NY Baldwinsville, NY 97,755
Healthcare Oklahoma Oklahoma City, OK 7,000
Healthplan of the Redwoods Santa Rosa, CA 100,000
Holy Cross Notre Dame, IN 25,000
Huron Valley Ann Arbor, MI 85,000
In Health/Nationwide Worthington, OH 40,000
Independent Health Buffalo, NY 380,000
John Muir Medical Walnut Creek, CA 30,000
Key Benefit Administrators Indianapolis, IN 10,000
M-Care Ann Arbor, MI 100,000
MD Health Plan North Haven, CT 200,000
Memorial Sisters of Charity Houston, TX 25,000
Memphis Managed Care Memphis, TN 33,000
National Health Plans Modesto, CA 55,000
NCRIC PO Washington, DC 10,000
Oregon Dental Service Portland, OR 26,000
Pacific Source Health Care Eugene, OR 51,000
PHP Companies Knoxville, TN 100,000
Rockford Health Plans Rockford, IL 44,000
Sagamore Carmel, IN 50,000
SelectCare Troy, MI 218,890
Sierra Health Care Las Vegas, NV 150,000
Welbourn HMO Evansville, IN 35,000
TOTAL PLAN MEMBERSHIP 4,671,945
50% THRESHOLD 2,335,973
</TABLE>
SCHEDULE C
USAGE DATA AGREEMENT
Amendment to HPR Software License Agreement
HPR Inc. and the undersigned Licensee are parties to a Software License
Agreement covering one or more of the software products of HPR and agree to
amend Section 7.2 of the Software License Agreement to read per section I below
and to amend the Exhibit to the Software License Agreement to add the language
found in section II below (such amendments to be in substitution for any
inconsistent provisions of the Software License Agreement):
I. 7.2 Licensee understands and acknowledges that a portion (the "Third
Party Software") of the Software has been licensed to HPR from Symmetry
Health Data Systems, Inc. ("Symmetry"), a third party proprietor.
Licensee agrees to deliver to HPR, upon its request but not more often
than semiannually, its claims and encounter data with ETG identifiers
resulting from the use by Licensee of the Software, including the Third
Party Software (the "Usage Data") for use by HPR in evaluating and
improving the Software and for any other uses specified in the Exhibit.
Notwithstanding the foregoing sentence or any other provision of this
Agreement:
Licensee shall retain full right and title to its claims and the data
contained therein (exclusive of claims and encounter data in a format
containing ETG identifiers, which claims and encounter data are subject
to the obligations of Licensee as set forth in the following two
paragraphs).
Except as otherwise required by law or by regulatory agencies or other
entities with legal authority to examine the Usage Data, Licensee
further agrees not to disclose, permit to be disclosed or otherwise
resell or transfer, with or without consideration, all or any portion
of the Usage Data to any third party, except that Licensee may disclose
the Usage Data to its consultants or agents for the purpose of
assisting or advising Licensee; provided, however, that Licensee's
consultant or agent shall execute a nondisclosure agreement, in a form
consistent with Section 7 of this Agreement, which will prohibit such
consultant or agent from using such Usage Data (other than to assist or
advise Licensee) and from disclosing such information to any third
party. Such nondisclosure agreement must provide that HPR and Symmetry
shall be third party beneficiaries of the rights of Licensee
thereunder.
Licensee and HPR further agree that, in addition to the other rights
granted to Symmetry herein, Symmetry shall also be a third party
beneficiary of the rights of HPR with respect to the provisions of this
Agreement as they relate to the Third Party Software, the Proprietary
Information of HPR and the Usage Data. With respect to any period
during which Licensee uses the Software, Symmetry shall be expressly
entitled to enforce its rights pursuant to the provisions of the
Software License Agreement as they relate to the Third Party Software
and the Usage Data, regardless of any alleged or actual breach or
default hereunder by HPR, claim of offset by Licensee or any expiration
or termination of this Agreement.
All provisions contained in this Section 7.2 shall survive the
termination of this Agreement.
II.
EXHIBIT 1 TO HPR INC. SOFTWARE LICENSE AGREEMENT
Section 7 of the HPR software license agreement to which this Exhibit 1 is
attached (the "Software License Agreement") requires Licensee to deliver to
HPR, no less often than the intervals specified, its Usage Data. Licensee
authorizes HPR to deliver a copy of the Usage Data to Symmetry within 60
days following HPR's receipt thereof. The deliveries of Usage Data to HPR
and to Symmetry shall be subject to the following terms and conditions:
(i) such Usage Data will be in the form of so-called "flat" or similar
files of Licensee, but may, at the option of Licensee, be subject to a
scrambling algorithm consistently applied within each data submission and
across all data submissions for Licensee to preserve the confidentiality of
identification of the patients and providers contained therein; and, to the
extent requested by Licensee, HPR will provide reasonable amounts of
assistance in effecting the scrambling;
(ii) notwithstanding the provisions of Section 7 of the Software License
Agreement, Symmetry shall have the right, in Symmetry's sole and absolute
discretion, to sell, assign, transfer or convey, with or without
consideration, the Usage Data received by Symmetry pursuant to the Software
License Agreement, or any data, service or products incorporating or
derived in whole or in part from such Usage Data, to any one or more third
parties; and
(iii) Licensee shall retain full right and title to its claims and the data
contained therein (exclusive of claims and encounter data in a format
containing ETG identifiers, which claims and encounter data are subject to
the obligations of Licensee to deliver
<PAGE>
UsageData to HPR, to HPR's rights to provide such Usage Data to Symmetry and to
the obligations of Licensee as set forth in Section 7.2 of the Software
License Agreement).
Date of HPR Software License Agreement or applicable exhibit thereto to which
this Amendment relates:
- -------------------------------
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE (1)
HPR INC.
Type of security
<TABLE>
<S> <C>
For the year period June 30, 1997,
Common stock outstanding, beginning of period................................................ 15,012,000
Weighted average common stock issued during the period....................................... 180,000
Assumed exercise of common share options..................................................... 1,230,000
Purchase of common stock under the treasury stock method................................... (319,000)
Weighted average number of common shares and common equivalent shares outstanding............ 16,103,000
For the year period June 30, 1996,
Common stock outstanding, beginning of period................................................ 7,680,000
...........................................................................................
Weighted average common stock issued during the period....................................... 1,235,000
Conversion of Series A Convertible Preferred Stock to Common Stock upon the
Initial Public Offering (3).................................................................. 5,525,000
Assumed exercise of common share options..................................................... 1,548,000
Purchase of common stock under the treasury stock method..................................... (148,000)
Weighted average number of common shares and common equivalent shares outstanding............ 15,840,000
For the year period June 30, 1995,
Common stock outstanding, beginning of period................................................ 5,930,000
Weighted average cheap stock outstanding during the period (2)............................... 436,000
Weighted average common stock issued during the period ...................................... 542,000
Assumed conversion of Series A Convertible Preferred Stock as a Common
Stock Equivalent........................................................................... 5,525,000
Assumed exercise of common share options .................................................... 1,779,000
Purchase of common stock under the treasury stock method..................................... (37,000)
Weighted average number of common shares and common equivalent shares outstanding............ 14,175,000
<FN>
(1) All share and earnings per share amounts have been restated to reflect the
stock split effected in the form of a 100% stock dividend granted on May 6,
1996 to all shareholders of record on April 26, 1996, a 2.5-for-1 capital
stock split in 1995 and a 10-for-1 capital stock split in 1993.
(2) In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, issuances of common stock and equivalents within one year
prior to the initial filing date of the registration statement for the
initial public offering, at share prices less than the mid-point of the
estimated initial public offering price for which this registration
statement was prepared, are considered "cheap stock" as defined.
Accordingly, these are shown as equity issued and outstanding, using the
treasury stock method, for all periods presented prior to the initial
public offering.
(3) Series A Convertible Preferred Stock was considered a common stock
equivalent prior to the initial public offering.
</FN>
</TABLE>
Exhibit 21.1
Subsidiaries of the Company
The Company's subsidiaries are as follows: Concurrent Review Technology,
Inc., a Delaware corporation, HPR Securities Corp., a Massachusetts corporation,
The Integrity Group, Inc., an Alabama corporation, and HPR International, Inc.,
a Barbados corporation.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of HPR Inc. on Forms S-8 (File Nos. 033-80141, 033-80143, and 033-80145) and
Form S-3 (File No. 333-12749) of our report dated August 1, 1997, on our audits
of the consolidated financial statements of HPR Inc. as of June 30, 1997 and
1996 and for the years ended June 30, 1997, 1996, and 1995, which report is
included in the Annual Report on Form 10-K for the year ended June 30, 1997. We
also consent to the reference to our firm under Item 6, Selected Financial Data.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 13,943,693
<SECURITIES> 13,827,161
<RECEIVABLES> 14,494,415
<ALLOWANCES> 651,500
<INVENTORY> 0
<CURRENT-ASSETS> 40,584,602
<PP&E> 4,462,138
<DEPRECIATION> 1,952,363
<TOTAL-ASSETS> 47,531,066
<CURRENT-LIABILITIES> 8,703,660
<BONDS> 0
0
0
<COMMON> 153,253
<OTHER-SE> 38,115,362
<TOTAL-LIABILITY-AND-EQUITY> 47,531,066
<SALES> 39,101,380
<TOTAL-REVENUES> 39,101,380
<CGS> 7,900,286
<TOTAL-COSTS> 28,357,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 425,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,984,038
<INCOME-TAX> 4,973,385
<INCOME-CONTINUING> 7,010,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,010,653
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
