-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qc/1VcUldBq36+JQ1sP9w61efj+4jASRneubNQmCVtzeqFjxA60pNzuaj5EnC4OZ uzr+/IDO+5E0n9pjoiLlWA== 0001017813-99-000006.txt : 19990414 0001017813-99-000006.hdr.sgml : 19990414 ACCESSION NUMBER: 0001017813-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATIENT INFOSYSTEMS INC CENTRAL INDEX KEY: 0001017813 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 161476509 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22319 FILM NUMBER: 99592721 BUSINESS ADDRESS: STREET 1: 46 PRINCE ST CITY: ROCHESTER STATE: NY ZIP: 14607 BUSINESS PHONE: 7162427200 MAIL ADDRESS: STREET 1: 46 PRINCE ST CITY: ROCHESTER STATE: NY ZIP: 14607 10-K 1 FORM 10K FORM 10-K ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) FOR 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 December 31, 1998 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 0-22319 PATIENT INFOSYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 16-1476509 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 46 Prince Street, Rochester, NY 14607 ------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (716) 242-7200 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class registered Name of each exchange on which registered None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Per Share -------------------------------------- (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 the 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. [X] As of February 28, 1999, 8,020,042 shares of common stock were outstanding, and the aggregate market value of the common shares of Patient Infosystems, Inc. held by non-affiliates was approximately $8 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting of Stockholders to be filed prior to April 30, 1999 are incorporated by reference in Part III. PART I Item 1. Description of Business. General Patient Infosystems, Inc. (the "Company" or "Patient Infosystems") was incorporated in the State of Delaware on February 22, 1995 under the name DSMI Corp., changed its name to Disease State Management, Inc. on October 13, 1995, and then changed its name to Patient Infosystems, Inc. on June 28, 1996. The Company's principal executive offices are located at 46 Prince Street, Rochester, New York 14607 and its telephone number is 716-242-7200. Patient Infosystems provides patient-centered health care information systems and services to manage, collect and analyze information to improve patient compliance with prescribed treatment protocols, to improve the process of off-site patient management and to enhance patient and provider information. The Company's technology platform integrates an advanced voice recognition telephone system, high speed data processing and analysis capability, and demand publishing and information distribution capabilities, utilizing the Internet and Internet technologies. The system utilizes trained telephone operators and computerized interactive voice response technology and behavior modification based treatment to communicate via telephone directly with the patient at home in order to gather relevant patient data. This data is subsequently evaluated and automatically transmitted via computer generated reports to health care payors, providers and patients, with these reports being tailored to the specific needs of each recipient. The Company markets its services to pharmaceutical manufacturers, pharmacy benefit managers ("PBMs") and health care payors, such as managed care organizations ("MCOs"), integrated delivery networks ("IDNs") and insurance companies and health care providers, to collect data outside of the physician office and institutional setting to enhance compliance by patients with prescribed treatment protocols. The Company`s systems may also be used to address the full spectrum of health care information needs with respect to care quality, patient satisfaction and patient and provider education. During its first two years of operations, the Company emphasized the development of disease management programs, which accounted for a substantial portion of its revenue during 1997. However, during 1997 and 1998, the Company devoted increased resources to the development of other applications of its technology platform, including demand management, patient surveys and outcomes analysis. Information Capture, Delivery and Analysis Technologies Utilizing the Internet The Company's technology platform integrates an advanced voice recognition telephone system, high speed data processing and analysis capability, demand publishing and information distribution capabilities and behavior modification based compliance algorithms with a real time Internet on-line communication system . The system utilizes trained telephone operators and computerized interactive voice response technology to communicate via telephone directly with the patient at home as well as with payors and providers in order to gather and deliver relevant patient data. In order to minimize costly live operator interaction, a computer initiates each call to the patient, which call is automatically transferred to an operator and finally routed to an automated speech application. Patients respond to the recorded speech application by speaking normally. This approach is designed to enable a wider variety of possible responses than is achievable via telephone key pad. Depending on the patient's response, situation-specific algorithms are applied to modify future questions and thus help customize the collection of data. The Company's system analyzes and prepares the captured data for automatic delivery to the payor, provider and patient using the Internet and demand publishing capabilities. The Company's new Internet capabilities acquired with the HealthDesk purchase enables the Company's systems to interface on a real time basis with patients, payors and providers. Demand publishing technology enables the creation of highly individualized reports by inserting stored graphic images and text which can be customized for race, gender and age. These reports are also customized to the patient's specific situation, and the system utilizes the information received during contacts with the patient to further customize the content of the report. The data relevant to the separate report for health care providers is formatted in a customized report to be automatically transmitted via mail, fax or on-line. Each contact with a patient contributes to the establishment of a longitudinal data base which can be analyzed to provide information about treatment modalities for patients, providers and payors. The Company's system is designed to analyze patient compliance to prescribed treatment regimens and gather additional clinical information so that improvements in such regimens can be developed. Internet Capabilities On February 26, 1999, the Company, through its newly formed, wholly-owned subsidiary, Patient Infosytems Acquisition Corp., acquired substantially all the assets of HealthDesk Corporation ("HealthDesk"), a consumer healthcare software company that focuses on general health and chronic disease management through ongoing targeted support for patients, families and caregivers. The acquired assets include HealthDesk OnLine and HealthDesk OnLine for Diabetes, which are both accessible through the Internet and on CD-ROM. The Company also acquired HealthDesk's Care Team Connect product, which is accessible over the Internet and provides a communication mechanism between patients and their caregivers. The Company uses the core technologies associated with these products to support the Company's other programs which include disease management, case management, demand management, patient surveys and clinical studies. (See Note 10 to financial statements) Integrated Disease State Management System The Company's first application of its integrated information capture and delivery technology is its integrated disease state management system. This system is designed to provide caregivers with the ability to monitor, on a cost-effective basis, patient condition and behavior while the patient is between physician consultations. The Company believes that this will permit caregivers to improve patient compliance and, as a consequence, improve patient outcomes. The Company's disease state management system has three primary components. First, using a panel of recognized medical and clinical experts, the Company develops a disease-specific patient intervention and compliance program that includes a template for the integration of each patient's history, current medical status and treatment protocol. If the program is being developed on a custom basis for a particular customer, the program is developed in consultation with the customer's clinical staff and consultants. Second, the Company establishes periodic telephone contacts with each patient to monitor the patient's compliance with prescribed therapies as well as the patient's treatment progress. Third, using the information obtained from patient contacts and other available information regarding the patient and his or her treatment, such as physician records and pharmacy information, personalized reports are prepared, typically following each patient contact, for evaluation by the patient, the patient's health care provider and, on a routine basis, payors. Development of Disease-Specific Protocols The Company's disease-specific compliance programs are developed for targeted diseases either on a customized or standardized basis. The Company retains an internal clinical staff and panels of independent medical and clinical experts to identify guidelines of generally accepted treatment protocols and diagnostic interventions for particular diseases. These guidelines serve as a template for information to be gathered from each patient. If the program is being developed on a custom basis for a particular customer, the program is developed in consultation with the customer's clinical staff and consultants. In addition, the Company's internal clinical staff conducts research of available databases and gathers information provided by medical experts, insurance providers, governmental agencies, Medicare and Medicaid and other sources to develop with the medical experts the disease-specific program structure. The resulting compliance protocols are designed to enable the Company to gather the necessary patient information to determine the extent of a patient's compliance with his or her prescribed treatment, the effectiveness of treatment and the progress of the patient's disease. As the Company's database of disease-specific treatments expands, the Company intends to use that data to modify, update and enhance its own disease state management compliance programs and assist health care providers in improving treatment protocols. Patient Enrollment When a patient is enrolled in one of the Company's disease state management programs a patient history is obtained, including the histories of the chronic illness, medications, and surgical procedures as well as other information deemed relevant by the disease-specific compliance program. This information is included in the Company's database for each patient and is used to create customized reports for distribution to each of the patient's health care provider and payor as well as the patient. The patient report can include information on the prescribed treatment of the patient's disease as well as the use of the program and social support services to improve compliance with the patient's treatment regimen. In addition, the Company's demand publishing technology provides personalized behavior modification and educational materials for the patient. The health care provider report contains the relevant clinical and behavioral information gathered from the patient. The Company has found patient enrollment to be one of the particularly challenging components to establishing effective programs. Although the Company has completed the development of several disease management programs, the Company's customers have been able to provide only limited patients to enroll in the programs. To the extent that the Company's revenue is dependent upon the number of contacts it is able to achieve, it will be required to work closely with its customers to develop methods to increase patient enrollment. Patient Contacts In accordance with a designated patient contact schedule, a patient will periodically receive telephone calls from a live operator who, after confirming the identity of the patient, will transfer the patient to an automated system that will ask specific questions determined in accordance with the disease-specific compliance program and provide information and motivational feedback. Patient contact schedules are established for each disease state management program, with the frequency of patient contact varying with the disease under management and the goal of the applicable treatment and occurring as often as daily or as infrequently as on a quarterly basis. The data gathered from the patient during each contact is processed and stored in the Company's database. The compliance program takes into account patient responses to treatment follow-up questions and initiates specific courses of action which can include positive reinforcement messages, confirmation of prescription instructions and scheduled callbacks to remind the patient of the need to take prescribed medication. In addition, questions to be asked in future calls are modified based upon the patient's responses during previous calls. The Company's disease state management system captures and processes the information obtained from the patient during the contact and integrates this information with the other data maintained by the Company, including prior patient responses, patient medical history, treatments administered to date and the mandated treatment protocols for the disease. This system automatically prepares distinct reports using the Company's demand publishing technologies for the patient and for the physician or other caregiver. Each report is tailored for the particular requirements of each recipient. The patient's report, for example, may include pictures, diagrams and informative discussions relating to the treatment course intended to modify or reinforce certain behaviors. The physician's report would likely be more factual and direct and summarize the clinical and behavioral information that has been gathered. On a routine basis the Company will provide data to the patient's health care payor with respect to that patient's progress. The Company will be able to include information from various data sources in these reports for the purpose of providing additional information with respect to a patient. For example, the Company may be able to interact with the pharmacy services division of a payor to determine the renewal frequency of prescriptions, which provides an indication of whether a patient is taking his or her medication. In addition, the system provides the flexibility to allow other information from physicians' reports and hospital tests to be included in the periodic reports. Compliance Assistance The Company assists payors and health care providers in monitoring patient compliance and works with health care providers to develop compliance and education programs that can be implemented through the Company's system. The Company's publishing technology enables production of patient-specific compliance and education literature that is customized for an individual patient. Once this literature is prepared it may be delivered to a patient by mail, facsimile or on-line. In addition, the Company can implement a variety of procedures including medication reminders via wireless two-way communication and more frequent telephone communications for non-compliant patients or patients with more difficult treatment regimens. The Company can provide additional support services, such as an 800 number that will provide recorded information with respect to a variety of patient education topics or other support messages. Patient Infosystems Programs The Company is developing customized disease state management and risk assessment programs in conjunction with a number of customers, as well as standardized disease state management programs in the areas of asthma, diabetes and hypertension. Each of the Company's customer agreements for its customized programs provide for development fees to be paid to the Company upon the achievement of certain milestones. In addition, the agreements for customized disease state management programs may provide for some form of exclusivity period, during which the Company is prohibited from engaging or participating in other projects involving the specific disease target that is the subject of that program. The exclusivity periods extend until, in general, a certain date or certain period (ranging from eight to 24 months) following the achievement of a specified milestone in the development or implementation of the program. The Company enrolled its first patients in a disease state management program in October 1996, and has less than 20,000 patients currently enrolled in those programs. All of the Company's customer agreements, which are typically terminable without cause by either party, require payment to the Company of operational fees per enrolled patient. The amount of the per patient program operational fee varies with the length, complexity and frequency of patient contacts as dictated by the respective program protocols. Patient enrollment in each of the Company's programs will depend upon the identification and referral by the Company's customers of patients to the Company's system which will vary from program to program. The Company has developed or is developing programs in the following areas: Asthma The Company has developed a disease state management program for asthmatic patients that has been marketed to payors and other participants in the health care industry, and such program has been provided to patients since January 1997. Through February 1999, the Company has had approximately 4,100 interventions with patients participating in these programs. American HomePatient, Inc. ("American HomePatient"), Centra Healthcare Administrative Services, Inc. ("Centra"), Harris Methodist Health Plan ("Harris Methodist") and Health Alliance, a Division of Astra Pharma Inc. ("Health Alliance") have retained the Company to provide disease state management programs for patients who are suffering from asthma and are enrolled in health care programs for which these companies provide services. Congestive Heart Failure The Company has a services agreement with Bristol-Myers to develop, implement and operate a disease state management program to aid in the treatment of patients suffering from congestive heart failure. The Company has completed the development of the program in congestive heart failure in the English language, and is currently developing the program in the Spanish language. This program has been provided to patients since April 1997, and through February 1999, the Company has had approximately 9,900 interventions with patients participating in this program. Diabetes The Company has developed a disease state management program for diabetic patients that has been marketed to payors and other participants in the health care industry. Bristol-Myers, Centra and Health Resources have retained the Company to provide this disease state management program for patients who are suffering from diabetes and are enrolled in health care programs for which these companies provide services. These programs have been provided to patients since August of 1997, and through February 1999, the Company has had approximately 2,600 interventions with patients participating in these programs. Secondary Cardiovascular Disease The Company has entered into a services agreement with Bristol-Myers to develop, implement and operate a disease state management program relating to the prevention of cardiovascular sequelae in patients who have recently experienced certain cardiovascular illnesses or treatments such as angina, cardiac bypass surgery or myocardial infarction. The Company has completed the development of this program in the English language and is continuing to develop the program in the Spanish language. This program has been provided to patients since January 1997, and through February 1999, the Company has had 115 interventions with patients participating in this program. Hypertension The Company has completed the development of a compliance program for patients with hypertension that has been marketed to payors and other participants in the health care industry. Bristol-Myers has retained the Company to provide this compliance program for patients who are suffering from hypertension and are enrolled in health care programs for which these companies provide services. Patients are currently being enrolled into this program. Additional Disease Targets The Company has identified additional opportunities in large chronic disease markets, including in the treatment of, chronic obstructive pulmonary disease, depression, cancer, osteoporosis, arthritis, HIV infection and high risk pregnancy. Each of these targets has been identified as having characteristics which make them attractive candidates for the Company's programs. The Company is currently involved in discussions with customers for the development of programs in a variety of these areas. Significant Customer Concentration The Company's current contracts are concentrated in a small number of customers, with several of the Company's most significant contracts being with Bristol-Myers and Aetna U.S. HealthCare. The Company expects that its sales of services will be concentrated in a small number of customers for the foreseeable future. Consequently, the loss of any one of its customers could have a material adverse effect on the Company and its operations. There can be no assurance that customers will maintain their agreements with the Company, enroll a sufficient number of patients in the programs developed by the Company for the Company to achieve or maintain profitability, or that customers will renew their contracts upon expiration or on terms favorable to the Company. Other Applications of the Integrated Information Capture and Delivery Technology Demand Management Demand management involves assisting providers in evaluating patient treatment needs to identify those patients who may not require immediate or intensive services. The goal of demand management is to reduce the need for and use of costly, often clinically unnecessary, medical services and arbitrary managed-care interventions while improving the overall quality of life of patients. The Company believes that its system can be used to provide automated or semi-automated demand management services. The Company is currently providing demand management to approximately 150,000 patients for Kentucky Medicaid, CHA HMO, Inc. and Managed Care Assistance Corporation. Outcomes Analysis The Company intends to utilize information gathered from patients enrolled in its programs to serve two purposes. First, information regarding treatment results, success of the compliance program and patient reaction to differing treatments or compliance protocols may be used by the Company to further improve each disease-specific compliance program. Second, this information may be used by payors, pharmaceutical companies and health care providers to assist in the development of improved treatment modalities. The Company has developed analytical methodologies using database management and information technologies. The Company intends to use these data analysis technologies to predict the best treatment methodologies for patients. Clinical Studies Many pharmaceutical companies and contract research organizations are seeking more economical, efficient and reliable methods for compiling and analyzing clinical data in conducting clinical trials. Furthermore, many drug development protocols have begun to emphasize subjective criteria and outcomes information. The Company believes that its system will allow it to develop programs tailored to the measurement of outcomes data relating to the conduct of later stage clinical trials. The Company believes that its system can also assist pharmaceutical companies in studying and documenting the efficacy of approved products in order to provide ongoing information to FDA or for marketing purposes. Patient Surveys Organizations in many different areas of the health care industry survey users regarding their products and services for a variety of reasons including regulatory, marketing and research purposes. The Company's information systems, with their ability to proactively contact patients in a cost-efficient manner, may be used for this type of application. The Company has developed a series of 10 automated surveys ranging from general health to disease specific instruments. The product line includes surveys for SF-12; child health questionnaire; patient satisfaction; asthma; diabetes; back pain; depression; prostatis; maternity; and the Pra Plus for elderly populations. The Company has completed approximately 125,000 surveys during 1998 through February 1999. Case Management Patients who are prescribed complex or high cost treatment regimens may require a higher level of monitoring, interaction, care planning and reassessment than patients with less complicated treatment regimens. The Company believes that its system is capable of providing these enhanced services to such patients to eliminate or minimize the unnecessary costs and medical attention that result from a patient's lack of compliance with a prescribed treatment regimen. Sales and Marketing Through 1997, the Company's efforts focused primarily on the development of disease management programs. During 1998, the Company began aggressively marketing the other services that its technology platform can provide including demand management, patient surveys and outcomes analysis. The Company markets its integrated disease state management system to organizations within the health care industry that are involved in the treatment of disease or payment of medical services for patients who require complex or long-term medical therapies. These industry organizations include five distinct groups: pharmaceutical companies, medical service companies, PBMs, health care payors and employer groups. The Company employs a sales and marketing staff of twelve persons to market the Company's systems. In addition, the senior members of the Company's management are actively engaged in marketing the Company's programs. The Company has expanded its marketing efforts by conducting patient surveys, clinical studies and implementing other measures designed to document the clinical and cost benefits it believes will result from the application of its integrated information capture and delivery system. In collaboration with the members of its expert panels who are retained to develop program protocols and other research and clinical technicians, the Company intends to promote the benefits of its system through publication in clinical journals and presentations at scientific conferences of the results of these studies. The Company is conducting such studies designed to produce significant short-term data with respect to its asthma, diabetes and cardiac programs. The Company entered into a joint venture agreement with MacLean Hunter Publishing Limited, an Ontario, Canada corporation, in November 1998 to market and sell, on an exclusive basis in Canada, products and services developed by the Company and to manage jointly, finance and operate the business entity Patient Infosystems Canada, Inc., which is dedicated to the development of a commercially viable business built around the sale, marketing and service of the Company's products and services. Research and Development Research and development expenses consist primarily of salaries and related benefits and administrative costs allocated to the Company's research and development personnel for development of certain components of its integrated information capture and delivery system, as well as development of the Company's standardized disease state management programs. Research and development costs have decreased as the Company has completed the development of its primary disease management programs. The Company anticipates that research and development expenses will continue to decrease in future periods, as the Company continues to expand its operations. The development and maintenance of the telecommunications and computer publishing systems through which the Company operates its integrated information capture and delivery system is a major component of its business. The communications and information technology industries are subject to rapid and significant technological change, and the ability of the Company to operate and compete is dependent in significant part on its ability to update and enhance its system continuously. In order to do so, the Company must be able to utilize effectively its research and development capabilities and implement new technology in order to enhance its systems. At the same time, the Company must not jeopardize its ability to contact patients and to process and publish patient information or adapt to customer preferences or needs. The Company will maintain a significant investment in its technology, and therefore is subject to the risk of technological obsolescence. Competition The market for health care information products and services is intensely competitive. Competitors vary in size and in scope and breadth of products and services offered, and the Company competes with various companies in each of its disease target markets. Many of the Company's competitors have significantly greater financial, technical, product development and marketing resources than the Company. Furthermore, other major information, pharmaceutical and health care companies not presently offering disease state management or other health care information services may enter the markets in which the Company intends to compete. In addition, with sufficient financial and other resources, many of these competitors may provide services similar to those of the Company without substantial barriers. The Company does not possess any patents with respect to its integrated information capture and delivery system, and although it has filed a patent application with respect to certain aspects of its integrated information capture and delivery system and its integrated disease state management system, there can be no assurance that this application will result in the issuance of a patent, or if issued, that a patent would provide the Company with any competitive advantage. The Company's potential competitors include specialty health care companies, health care information system and software vendors, health care management organizations, pharmaceutical companies and other service companies within the health care industry. Many of these competitors have substantial installed customer bases in the health care industry and the ability to fund significant product development and acquisition efforts. The Company will also compete against other companies that provide statistical and data management services, including clinical trial services to pharmaceutical companies. The Company is aware of several large pharmaceutical and medical service companies that have publicly stated that they intend to be involved in providing comprehensive disease state management services. The Company believes that the principal competitive factors in its market are the ability to link patients, health care providers and payors, and provide the relevant health care information at an acceptable cost. In addition, the Company believes that the ability to anticipate changes in the health care industry and identify current needs are important competitive factors. Quality Control The Company has developed quality control measures designed to insure that information obtained from patients is accurately transcribed, that reports covering each patient contact are delivered to health care providers and patients and that the Company's personnel and technologies are interacting appropriately with patients and health care providers. Quality control systems include random monitoring of telephone calls, patient surveys to confirm patient participation and effectiveness of the particular program, and supervisory reviews of telephone agents. Government Regulation The health care industry, including the current and proposed business of the Company, is subject to extensive regulation by both the Federal and state governments. A number of states have extensive licensing and other regulatory requirements applicable to companies that provide health care services. Additionally, services provided to health benefit plans in certain cases are subject to the provisions of the Employee Retirement Income Security Act ("ERISA") and may be affected by other state and Federal statutes. Generally, state laws prohibit the practice of medicine and nursing without a license. Many states interpret the practice of nursing to include health teaching, health counseling, the provision of care supportive to or restorative of life and well being and the execution of medical regimens prescribed by a physician. Accordingly, to the extent that the Company assists providers in improving patient compliance by publishing educational materials or providing behavior modification training to patients, such activities could be deemed by a state to be the practice of medicine or nursing. Although the Company has not conducted a survey of the applicable law in all 50 states, it believes that it is not engaged in the practice of medicine or nursing. There can be no assurance, however, that the Company's operations will not be challenged as constituting the unlicensed practice of medicine or nursing. If such a challenge were made successfully in any state, the Company could be subject to civil and criminal penalties under such state's law and could be required to restructure its contractual arrangements in that state. Such results or the inability to successfully restructure its contractual arrangements could have a material adverse effect on the Company. The confidentiality of patient information is subject to regulation by state law. A variety of statutes and regulations exist safeguarding privacy and regulating the disclosure and use of medical information. State constitutions may provide privacy rights and states may provide private causes of action for violations of an individual's "expectation of privacy." Tort liability may result from unauthorized access and breaches of patient confidence. The Company intends to comply with state law and regulations governing medical information privacy. In addition, on August 21, 1996 Congress passed the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), P.L. 104-191. This legislation requires the Secretary of the Department of Health and Human Services to adopt national standards for electronic health transactions and the data elements used in such transactions. The Secretary is required to adopt safeguards to ensure the integrity and confidentiality of such health information. Violation of the standards is punishable by fines and, in the case of wrongful disclosure of individually identifiable health information, imprisonment. The Secretary has promulgated and published proposed rules addressing the standards, however, no final rules have been adopted to date. Final rules may be adopted during 1999. The Company and its customers may be subject to Federal and state laws and regulations which govern financial and other arrangements between health care providers. These laws prohibit certain fee splitting arrangements between health care providers, as well as direct and indirect payments, referrals or other financial arrangements that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products and services. Possible sanctions for violation of these restrictions include civil and criminal penalties. Specifically, HIPAA increased the amount of civil monetary penalties from $2,000 to $10,000. Criminal penalties range from misdemeanors, which carry fines of not more than $10,000 or imprisonment for not more than one year, or both, to felonies, which carry fines of not more than $25,000 or imprisonment for not more than five years, or both. Further, criminal violations may result in permanent mandatory exclusions and additional permissive exclusions from participation in Medicare and Medicaid programs. Furthermore, the Company and its customers may be subject to federal and state laws and regulations governing the submission of false healthcare claims to the government and private payers. Possible sanctions for violations of these laws and regulations include minimum civil penalties between $5,000-$10,000 for each false claim and treble damages. Regulation in the health care field is constantly evolving. The Company is unable to predict what government regulations, if any, affecting its business may be promulgated in the future. The Company's business could be adversely affected by the failure to obtain required licenses and governmental approvals, comply with applicable regulations or comply with existing or future laws, rules or regulations or their interpretations. Intellectual Property The Company considers its methodologies, processes and know-how to be proprietary. The Company seeks to protect its proprietary information through confidentiality agreements with its employees. The Company's policy is to have employees enter into confidentiality agreements containing provisions prohibiting the disclosure of confidential information to anyone outside the Company, requiring employees to acknowledge, and, if requested, assist in confirming the Company's ownership 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. Employees As of February 28, 1999, the Company had 121 full and part-time employees. Financial Information For financial information concerning the Company, see the financial statements and the notes thereto included elsewhere herein. Item 2. Description of Properties. The Company's executive and corporate offices are located in Rochester, New York in approximately 13,000 square feet of leased office space under an operating lease that expires on November 30, 1999. The Company leases office space for its Demand Management call center in Wayne, Pennsylvania in approximately 2,047 square feet of leased office space under a lease agreement that expires in May 2001. The Company leases office space for its Berkeley, California office in approximately 2,800 square fee of lease office space under a lease agreement that expires in October 1999. The Company believes its plants and facilities are suitable and adequate, and have sufficient productive capacity, to meet its current needs. Item 3. Legal Proceedings. The Company is not a party to any material legal proceedings. Item 4. Submission of Matters To A Vote Of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 1998. PART II Item 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters. (a) Market Information The Company's common stock is traded on the NASDAQ National Market System under the symbol "PATI". The following table sets forth, for the periods indicated, the range of the high and low closing sale price for the Company's Common Stock as reported on the NASDAQ National Market. High Low 1997 First Quarter $9.25 $6.38 Second Quarter $6.25 $4.50 Third Quarter $5.00 $2.88 Fourth Quarter $4.38 $2.63 1998 First Quarter $4.50 $2.63 Second Quarter $5.00 $2.50 Third Quarter $3.44 $1.81 Fourth Quarter $1.88 $1.00 (b) Holders The approximate record number of holders of the Company's common stock as of February 28, 1999 is 87. However, the Company believes that there are in excess of 400 beneficial holders of Common Stock of the Company. (c) Dividends The Company has never paid cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain all future earnings, if any, to fund the development and growth of its business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors. (d) Use of Proceeds The Company has used and continues to use the proceeds from its initial public offering of common stock in December 1996 for capital improvements and expansion of its telephone and computer capabilities for sales and marketing and for general corporate purposes as more fully discussed in financial statements and notes thereto appearing elsewhere herein. Recently, the Company used $761,000 in connection with the acquisition of the assets of HealthDesk. Item 6. Selected Financial Data.
Period from February 22, 1995 (Inception) to Year Ended December 31, December 31, ----------------------- ------------ 1998 1997 1996 1995 ---- ---- ---- ---- Statement of Operations Data: Revenues ........................... $ 2,344,072 $ 2,062,373 $ 845,412 $ 113,000 Costs and Expenses: Cost of Sales ..................... 2,529,619 1,629,128 748,322 111,870 Sales and Marketing ............... 1,795,921 1,609,837 913,547 375,384 General and Administrative ........ 3,062,204 2,442,269 1,759,044 678,498 Research and Development .......... 298,686 489,115 310,552 89,909 ------- ------- ------- ------ Total Costs and Expenses ........ 7,686,430 6,170,349 3,731,465 1,255,661 --------- --------- --------- --------- Operating Loss ...................... (5,342,358) (4,107,976) (2,886,053) (1,142,661) Other Income and Expenses ........... 556,592 835,116 81,333 26,009 Provision for taxes ................. 43,701 (9,509) 1,716 -- ------ ------ ----- ----- Net Loss .......................... $(4,829,467) $ (3,263,351) $ (2,806,436) $ (1,116,652) ============ ============ ============ ============ Net Loss Per Share - Basic and Diluted ........................$ (0.60) $ (0.41) $ (0.44) $ (0.18) ============ ============ ============ ============ Weighted Average Common and Potential Common Shares ...... 8,018,398 7,980,094 6,347,716 5,954,299 ========= ========= ========= =========
Year Ended December 31, ----------------------- 1998 1997 1996 1995 ---- ---- ---- ---- Balance Sheet Data: Cash and Cash Equivalents ....... $ 6,316,955 $ 779,317 $ 15,666,609 $ 1,182,080 Working Capital ................. 7,992,894 13,242,387 14,591,700 611,655 Total Assets .................... 10,519,727 15,036,473 17,085,387 1,763,629 Total Liabilities ............... 894,339 587,728 1,631,650 598,464 Total Stockholders' Equity ...... 9,625,388 14,448,745 15,453,737 1,165,165
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's discussion and analysis provides a review of the Company's operating results for the years ended December 31, 1998, 1997 and 1996, and its financial condition at December 31, 1998. The focus of this review is on the underlying business reasons for significant changes and trends affecting the revenues, net earnings, and financial condition of the Company. This review should be read in conjunction with the accompanying financial statements. In an effort to give investors a well-rounded view of the Company's current condition and future opportunities, this Annual Report on Form 10-K includes forecasts by the Company's management about future performance and results. Because they are forward-looking, these forecasts involve uncertainties. They include risks of market acceptance of or preference for the Company's systems and services, competitive forces, the impact of, and changes in, government regulations, general economic factors in the healthcare industry, and other factors discussed in the Company's filings with the Securities and Exchange Commission. Overview The Company was formed on February 22, 1995 and has a limited operating history from which to evaluate its performance. Although the Company has completed the development of its integrated information capture and delivery system and has developed several disease state management programs for specific diseases, the Company is continuing to refine its products for additional applications. In October 1996 the Company began enrolling patients in its first disease state management program and only began substantial patient contacts during 1998. The Company currently has patients enrolled in five of its disease-specific programs. Through February 1999, an aggregate of approximately 350,000 persons have enrolled and participated in Company programs. The enrollment of patients in the Company's programs has been limited by several factors, including the limited ability of clients to provide the Company with accurate information with respect to the specific patient populations, including coding errors that necessitated extensive labor intensive data processing prior to program implementation. In addition, the Company has encountered resistance from patients and other sources of information to the Company's systems. In response to these market dynamics, the Company has taken several tactical and strategic steps including, formal designation of internal personnel at customer sites to assist clients with implementation; closer integration of Company systems personnel with clients to facilitate accurate data transfers; and most importantly, promotion of a broader product line to enable clients to enter the Company's disease management programs through a variety of channels. The Company now markets two additional services, demand management services and automated surveys (general health and disease-specific), both of which can provide mechanisms for enrollment to the Company's disease management programs. Nevertheless, no assurance can be given that the Company's efforts will succeed in increasing patient enrollment in Company programs. The Company has entered into services agreements to develop, implement and operate programs for: (i) patients who have recently experienced certain cardiovascular events; (ii) patients who have been diagnosed with primary congestive heart failure; (iii) patients suffering from anorexia or cachexia secondary to diagnosis of cancer or AIDS; (iv) patients suffering from chronic pain, and (v) patients who are at increased risk of suffering from epilepsy. In addition, the Company has entered into services agreements to operate its disease management programs for patients suffering from asthma, diabetes and hypertension. These contracts provide for, and the Company anticipates future contracts will provide for, fees paid by its customers based upon the number of patients participating in each of its programs, as well as initial program development fees from customers for the development of a disease-specific program. To the extent that the Company has had limited enrollment of patients in its programs, the Company's operations revenue has been, and may continue to be limited. Moreover, as the Company has completed the development of its primary disease management programs, it anticipates that development revenue will also decline over the next twelve months unless and until the Company enters into new development agreements. The Company's program development contracts typically require payment from the customer at the time that the contract is executed, with additional payments made as certain development milestones are met. Development contract revenue is recognized on a percentage of completion basis, in accordance with the ratio of total development cost incurred to the estimated total development costs for the entire project. Losses, if any, related to program development will be recognized in full as identified. The Company's contracts call for a fixed program operational fee to be paid by the customer for each patient enrolled for a series of program services as defined in the contract. The timing of customer payments for the delivery of program services varies by contract. Revenues from program operations are recognized ratably as the program services are delivered. The amount of the per patient fee varies from program to program depending upon the number of patient contacts required, the complexity of the interventions and the detail of the reports generated. The Company has not capitalized any costs related to the development of software for use in its disease state management programs since all of such software has been developed for internal use. Revenues from Operations, which includes fees received by the Company for operating its programs has increased substantially and has become the most significant source of the Company's revenues. Furthermore, as enrollment in Company operated disease management programs continues to increase, the Company anticipates that these revenue sources will become the primary source of the Company's revenues. Currently, the Company's demand management programs generate more revenue than the Company's disease management programs. However, the Company is continuing to devote significant marketing efforts to increasing the number of disease management programs that are in operation. Nevertheless, the Company is still supporting a substantial infrastructure in maintaining the capacity necessary to deliver its services and to offer its services to new customers. Therefore, the Company will be required to increase substantially the number of patient contacts and management programs to cover the costs necessary to maintain the capability to service its customers. In that the Company has only begun substantial patient contacts during 1998, the Company is continually examining its costing structures to determine the levels that will be necessary to achieve profitability. The sales cycle for the Company's programs may be extensive from initial contact to contract execution. During these periods, the Company may expend substantial time, effort and funds to prepare a contract proposal and negotiate the contract. The Company may be unable to consummate a commercial relationship after the expenditure of such time, effort and financial resources. The Company began to provide other services to customers in the healthcare industry during 1997 which included new applications of its information capture and delivery system. These consisted of patient surveys, health risk assessments, nursing support lines and marketing support functions. In February, 1999, the Company, through its newly formed, wholly-owned subsidiary, Patient Infosystems Acquisition Corp., acquired substantially all of the assets of HealthDesk Corporation, a consumer healthcare software company, primarily engaged in the business of designing and developing Internet based products in the healthcare, wellness and disease management industries for $761,463. The Company obtained funds for the HealthDesk acquisition from its available cash. The assets that were acquired by the Company included inventory, intellectual property, hardware and software. Results of Operations Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues Revenues are comprised of revenues from operations fees, development fees and licensing fees. Revenues increased 14% from $2,062,373 for the year ended December 31, 1997 to $2,344,072 for the year ended December 31, 1998. A summary of these revenues by category is as follows: December 31, ------------ 1998 1997 ---- ---- Revenues - -------- Operations Fees ...................................... $1,385,720 $ 735,841 Development Fees ..................................... 689,157 826,532 Licensing Fees ....................................... 269,195 500,000 ------- ------- Total Revenues ....................................... $2,344,072 $2,062,373 ========== ========== Revenues from operations increased 88% from $735,841 for the year ended December 31, 1997 to $1,385,720 for the year ended December 31, 1998. Operations revenues are generated as the Company provides services to its customers for their disease-specific programs. Operations revenues increased significantly in 1998, as the Company continues to increase the membership levels in the Company's disease state management programs and primarily from the Company's demand management programs. The demand management programs operate from the Company's medical call center which was established in May 1998, in Wayne, Pennsylvania The medical call center is staffed by registered nurses on a 24 hour, 7 day a week schedule. Revenues from development fees decreased 17% from $826,532 for the year ended December 31, 1997 to $689,157 for the year ended December 31, 1998. The Company received $689,157 in development revenues for the year ended December 31, 1998, related almost entirely to fees from Bristol-Myers for the development of disease state management agreements. The Company also received development revenues from a small number of other customers related to other disease-specific programs. The Company has completed substantially all services under these agreements and is currently receiving revenues in connection with only the development of three programs. Development revenues include clinical, technical and operational design or modification of the Company's primary disease management programs. Development revenue declined from the year ended December 31, 1997 to December 31, 1998 as the Company reduced its development fees charged to certain customers. The Company anticipates that revenue from development fees will continue to decline unless the Company enters into new development agreements. Revenues from licensing fees decreased 46% from $500,000 for the year ended December 31, 1997 to $269,195 for the year ended December 31, 1998. Licensing revenue represents amounts that the Company charges its customers, on a one-time fee basis, for the right to enroll patients in or the right to license other entities certain of its programs, primarily but not limited to, the Company's standardized asthma and diabetes programs. The Company had licensing fees of $99,750 from the sale of consumer healthcare software which are Internet based products. The Company also provides other services to customers in the healthcare industry which involve new applications of its information capture and delivery system. These services include patient surveys, health risk assessments, patient satisfaction surveys, physician education programs and marketing support functions. Costs and Expenses Cost of sales include salaries and related benefits, services provided by third parties, and other expenses associated with the development of the Company's customized disease state management programs, as well as the operation of each of its disease state management programs. Cost of sales increased 55% from $1,629,128 for the year ended December 31, 1997 to $2,529,619 for the year ended December 31, 1998. The increase in these costs primarily reflects an increased level of program development and operational activities, as well as the Company's creation of the capacity necessary to handle anticipated increases in the number of individuals to whom the Company provides services. Sales and marketing expenses increased 12% from $1,609,837 for the year ended December 31, 1997 to $1,795,921 for the year ended December 31, 1998. These costs consist primarily of salaries, related benefits and travel costs, sales materials and other marketing related expenses. Spending in this area has remained consistent as the Company's sales and marketing staff has not expanded during the twelve month period ended December 31, 1998. However, it is anticipated that the Company will continue to invest in the sales and marketing process, and that such expenses will increase in future periods. General and administrative expenses include the costs of corporate operations, finance and accounting, human resources and other general operating expenses of the Company. General and administrative expenses increased 25% from $2,442,269 for the year ended December 31, 1997 to $3,062,204 for the year ended December 31, 1998. These expenditures were incurred to develop the corporate infrastructure necessary to support anticipated program development and operations. The increase in these costs was caused by an increase in the Company's level of business activity, and the addition of required administrative personnel. The Company expects that general and administrative expenses will continue to increase in future periods. Research and development expenses consist primarily of salaries and related benefits and administrative costs allocated to the Company's research and development personnel for development of certain components of its integrated information capture and delivery system, as well as development of the Company's standardized disease state management programs. Research and development expenses decreased 39% from $489,115 for the year ended December 31, 1997 to $298,686 for the year ended December 31, 1998. The decrease in research and development expenses reflects the Company's completion of the development of its primary disease management programs. The Company generates net investment income primarily from cash balances and investments. Investment income decreased to $556,592 for the year ended December 31, 1998 from $835,116 for the year ended December 31, 1997. The decrease in interest income reflects the use by the Company of its available cash and the reduction of proceeds that can earn interest. The Company had a net loss of $4,829,467 for the year ended December 31, 1998 compared to $3,263,351 for the year ended December 31, 1997. This represents a loss of $.60 per share for 1998 and $.41 for 1997. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Revenues Revenues are comprised of revenues from development fees, operations fees and licensing fees. Revenues increased 144% from $845,412 for the year ended December 31, 1996 to $2,062,373 for the year ended December 31, 1997. A summary of these revenues by category is as follows: December 31, ------------ Revenues 1997 1996 - -------- ---- ---- Development Fees ..................................... $ 826,532 $ 798,138 Operations Fees ...................................... 735,841 11,718 Licensing Fees ....................................... 500,000 35,556 ------- ------ Total Revenues ....................................... $2,062,373 $ 845,412 ========== ========== Revenues from development fees increased 3.6% from $798,138 for the year ended December 31, 1996 to $826,532 for the year ended December 31, 1997. The Company received $826,532 in development revenues for the year ended December 31, 1997, primarily related to fees from Bristol-Myers for the development of six disease state management contracts. The Company also received development revenues from a small number of other customers related to other disease-specific programs. The Company has completed substantially all services under these agreements and is currently receiving revenues in connection with only the development of three programs. The Company's development contracts generally require that payments be made by the customer at the time of contract execution and at the achievement of certain milestones in the development process. These payments are normally received in advance of the Company's recognition of the associated revenue. The timing of customer payments for program operation services varies by contract, but typically occurs prior to the associated services being provided. The Company recognizes deferred revenue for amounts billed for these services in advance of the rendering of the services. The advance payments have been a source of liquidity for the Company. Revenues from operations increased 6180% from $11,718 for the year ended December 31, 1996 to $735,841 for the year ended December 31, 1997. Operations revenues are generated as the Company provides services to its customers for their disease-specific programs. Operations revenues increased significantly in 1997, as the Company began enrolling patients and implementing its disease state management programs during 1997. Operations revenue consisted primarily of $440,000 in fees received from Abbott Laboratories in connection with a teleconference program completed during the year ended December 31, 1997. Revenues from licensing fees increased 1306% from $35,556 for the year ended December 31, 1996 to $500,000 for the year ended December 31, 1997. Licensing revenue represents amounts that the Company charges its customers for the right to enroll patients in or the right to market to other entities certain of its programs, primarily the Company's standardized asthma and diabetes programs, and the right to have access to data collected from patients enrolled in such programs. The Company did not initiate any licensing activity until the second quarter of 1996, therefore licensing revenues for the year ended December 31, 1997 were significantly higher that those generated during the year ended December 31, 1996. In 1997, the Company received licensing revenues of $150,000 from the PulseGroup, Inc. for a licensing contract related to the Company's asthma and diabetes programs. The Company began to provide other services to customers in the healthcare industry during 1997 which involve new applications of its information capture and delivery system. These services include patient surveys, health risk assessments, nursing support lines and marketing support functions. Costs and Expenses Cost of sales include salaries and related benefits, services provided by third parties, and other expenses associated with the development of the Company's customized disease state management programs, as well as the operation of each of its disease state management programs. In addition, cost of sales for 1997 and 1996 includes accrued losses on program development in accordance with the Company's policy of recognizing such losses, if any, in full as identified. The accrued loss for 1997 and 1996 is a result of a particular contract for which the amount of the program development fee is based upon the success of the program, and the fact that the guaranteed development revenue for this program is less than the estimated cost of its development. To the extent that the Company enters into any contracts of this type in the future, and that those contracts provide for guaranteed development revenue which is less than the estimated cost of program development, such losses will continue to be accrued. Cost of sales increased 118% from $748,322 for the year ended December 31, 1996 to $1,629,128 for the year ended December 31, 1997. The increase in these costs primarily reflects an increased level of program development and operational activities. Sales and marketing expenses increased 76% from $913,547 for the year ended December 31, 1996 to $1,609,837 for the year ended December 31, 1997. These costs consist primarily of salaries, related benefits and travel costs. These expenditures allowed the Company to undertake initial marketing efforts to pharmaceutical companies, payors and other health care services organizations. The increase in these costs reflects an increase in the size of the Company's sales and marketing staff. General and administrative expenses include the costs of corporate operations, finance and accounting, human resources and other general operating expenses of the Company. General and administrative expenses increased 39% from $1,759,044 for the year ended December 31, 1996 to $2,442,269 for the year ended December 31, 1997. These expenditures were incurred to develop the corporate infrastructure necessary to support anticipated program development and operations. The increase in these costs was caused by an increase in the Company's level of business activity, and the addition of required administrative personnel. Research and development expenses consist primarily of salaries and related benefits and administrative costs allocated to the Company's research and development personnel for development of certain components of its integrated information capture and delivery system, as well as development of the Company's standardized disease state management programs. Research and development expenses increased 57% from $310,552 for the year ended December 31, 1996 to $489,115 for the year ended December 31, 1997. The increase in these costs reflects initiation of development of the Company's standardized disease state management programs for patients suffering from asthma and diabetes. The Company generates net interest income primarily from cash balances and investments. Interest income increased to $835,116 for the year ended December 31, 1997 from $81,333 for the year ended December 31, 1996. The increase in interest income reflects the additional funds available to the Company for investment as a result of its initial public offering on December 19, 1996. The Company had a net loss of $3,263,351 for the year ended December 31, 1997 compared to $2,806,436 for the year ended December 31, 1996. This represents a loss of $.41 per share for 1997 and $.44 for 1996. Liquidity and Capital Resources At December 31, 1998 the Company had working capital of $7,992,894, as compared to $13,242,387 at December 31, 1997. Since its inception the Company has primarily funded its operations, working capital needs and capital expenditures from the sale of equity securities. On December 19, 1996 the Company completed an initial public offering of its common stock which generated net proceeds to the Company of $14,082,048. On January 8, 1997, an additional 300,000 shares of common stock were sold pursuant to an underwriters over-allotment provision, which generated net proceeds to the Company of $2,232,000. The Company has continued to expend increasing amounts to expand its operational capabilities including increasing its administrative and technical costs. To the extent that revenues do not increase, the Company's losses will increase, creating an increased burden on the Company's available capital. If the Company is not able to operate profitably or to reduce its losses significantly, it will be required to seek additional capital or reduce its operations. Capital expenditures during 1998 were $594,663, as compared to expenditures of $394,161 during 1997 and $494,577 during 1996. The expenditures during these periods represented the purchase of the significant technology platform components of the integrated information capture and delivery system as well as purchases required to support the Company's growing employee base. The Company has been substantially dependent upon the public and private sale of securities to fund its research and development activities and working capital requirements. In order to implement programs using the Company's integrated information capture and delivery system, the Company will be required to devote substantial additional assets to the development of technology, the construction of physical facilities and the acquisition of telephone and computer equipment. The Company will also be required to retain the services of employees in advance of obtaining contracts to provide services. Inflation Inflation did not have a significant impact on the Company's costs during 1998, 1997 or 1997. The Company continues to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity, which is required to be adopted by the Company in 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges of underlying transactions must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Management has not yet determined the effect SFAS No. 133 will have, if any, on the Company's consolidated financial position, results of operations or cash flows. Year 2000 Issues The Year 2000 issue refers to the inability of computerized systems and technologies to recognize and process dates beyond December 31, 1999. The Company has reviewed the Company's information technology systems, cable network equipment and other embedded technologies. A significant portion of the Company's computerized systems and technologies have been developed, installed or upgraded in recent years and are generally more likely to be Year 2000 ready. The Company is also evaluating the potential impact as a result of its reliance on third-party systems that may have year 2000 issues. Computerized business applications that could be adversely affected by the year 2000 issue include: * information processing and financial reporting systems, * customer billing systems, * customer service systems, * telecommunication transmission and reception systems, and * facility systems. System failure or miscalculation could result in an inability to process transactions, send invoices, accept customer orders or provide customers with products and services. Customers could also experience a temporary inability to receive or use the Company's products and services. The Company has developed a program to assess and address the year 2000 issue. This program consists of the following phases: * inventorying and assessing the impact on affected technology and systems, * developing solutions for affected technology and systems, * modifying or replacing affected technology and systems * testing and verifying solutions * implementing solutions, and * developing contingency plans. The Company has substantially completed inventorying and assessing the affected computerized systems and technologies. The Company is in various stages of its year 2000 compliance program with respect to the remaining phases as it relates to the affected systems and technologies. The Company has completed adaptation of all internally created systems and has begun surveying its customers and suppliers regarding their readiness for the year 2000. Final testing to independently validate readiness will begin when the Company has received all third party hardware and software promised to date. Costs incurred to date directly related to addressing the year 2000 are approximately $50,000. The Company currently estimates the total cost of its year 2000 remediation program to be approximately $60,000. Although the Company will continue to incur substantial capital expenditures in the ordinary course of meeting its telecommunications system upgrade through the year 2000, it will not specifically accelerate its expenditures to facilitate year 2000 readiness, and accordingly such expenditures are not included in the above estimate. The Company has begun communicating with others with whom it does significant business to determine their year 2000 readiness and to determine the extent to which the Company is vulnerable to year 2000 issues related to those third parties. The Company purchases much of its technology from third parties. There can be no assurance that the systems of other companies on which the Company's systems rely will be year 2000 ready or timely converted into systems compatible with the Company's systems. The Company's failure or a third party's failure to become year 2000 ready or the Company's inability to become compatible with third parties with which the Company has a material relationship, may have a material adverse effect on the Company, including significant service interruption or outages, however, the Company cannot currently estimate the extent of any such adverse effects. The Company is in the process of identifying secondary sources to supply its systems or services in the event it becomes probable that any of its systems will not be year 2000 ready prior to the end of 1999. The Company is also in the process of identifying secondary vendors and service providers to replace those vendors and service providers whose failure to be year 2000 ready could lead to a significant delay in the Company's ability to provide its service to its customers. Forward Looking Statements When used in this and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made with the approval of an authorized executive officer of the Company, the words or phrases "will likely result," "expects," "plans," "will continue," "is anticipated," "estimated," "project," or "outlook" or similar expressions (including confirmations by an authorized executive officer of the Company of any such expressions made by a third party with respect to the Company) are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to changes in interest rates primarily in its cash transactions. The Company does not believe it is exposed to changes in foreign currently exchange rates because it does not currently invest in foreign currency instruments. A discussion of the Company's accounting policies for financial instruments is included in the Summary of Significant Accounting Policies in the Notes to the Financial Statements. The Company currently does not have any international operations nor does invest its cash in foreign currency instruments. The balances the Company has in cash or cash equivalents are generally available without legal restrictions to fund ordinary business operations. The Company regularly invests excess operating cash in certificates of deposit and U.S. government bonds and other bonds that are subject to changes in short-term interest rates. Accordingly, the Company believes that the market risk arising from its holding of these financial instruments is minimal. The Company made purchases of available-for-sale securities in the amounts of $7,826,910 in 1998 and $18,121,444 in 1997. Item 8. Financial Statements And Supplemental Data Index to Financial Statements Page Independent Auditors' Report 26 Balance Sheets 27 Statements of Operations 28 Statements of Stockholders' Equity 29 Statements of Cash Flows 30 Notes to Financial Statements 31-40 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Patient Infosystems, Inc.: We have audited the accompanying balance sheets of Patient Infosystems, Inc. as of December 31, 1998 and 1997 and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. 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, such financial statements present fairly, in all material respects, the financial position of Patient Infosystems, Inc. at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Rochester, New York February 5, 1999 (February 26, 1999 as to Note 10)
PATIENT INFOSYSTEMS, INC BALANCE SHEETS DECEMBER 31, 1998 AND 1997 1998 1997 ---- ---- ASSETS .................................................. CURRENT ASSETS: Cash and cash equivalents ............................. $ 6,316,955 $ 779,317 Available-for-sale securities ......................... 1,029,674 12,232,335 Accounts receivable, net .............................. 1,320,626 412,956 Prepaid expenses and other current assets ............. 219,978 405,507 ------- ------- Total current assets ............................ 8,887,233 13,830,115 PROPERTY AND EQUIPMENT, net ............................. 1,182,494 958,965 OTHER ASSETS ............................................ 450,000 247,393 ------- ------- TOTAL ASSETS ............................................ $ 10,519,727 $ 15,036,473 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ...................................... $ 304,436 $ 89,674 Accrued salaries and wages ............................ 277,931 320,272 Accrued expenses ...................................... 58,904 79,236 Deferred revenue ...................................... 253,068 67,549 Accrued loss on development contracts ................. -- 30,997 ------- ------ Total current liabilities ....................... 894,339 587,728 COMMITMENTS (Note 7) STOCKHOLDERS' EQUITY: Common stock - $.01 par value: shares - authorized: 20,000,000; issued and outstanding: 1998 - 8,020,042 1997 - 8,011,522 .................................... 80,200 80,115 Additional paid-in capital ............................ 21,561,094 21,550,009 Other comprehensive income ............................ -- 5,060 Accumultated deficit .................................. (12,015,906) (7,186,439) ----------- ---------- Total stockholders' equity ...................... 9,625,388 14,448,745 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............. $ 10,519,727 $ 15,036,473 ============ ============
See notes to financial statements.
PATIENT INFOSYSTEMS, INC STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 1997 1996 ---- ---- ---- REVENUES ................................... $ 2,344,072 $ 2,062,373 $ 845,412 ----------- ----------- ----------- COSTS AND EXPENSES: Cost of revenue .......................... 2,529,619 1,629,128 748,322 Sales and marketing ...................... 1,795,921 1,609,837 913,547 General and administrative ............... 3,062,204 2,442,269 1,759,044 Research and development ................. 298,686 489,115 310,552 ------- ------- ------- Total costs and expenses ........... 7,686,430 6,170,349 3,731,465 --------- --------- --------- OPERATING LOSS ............................. (5,342,358) (4,107,976) (2,886,053) Other income ............................... 556,592 835,116 81,333 ------- ------- ------ Loss before income taxes ................... (4,785,766) (3,272,860) (2,804,720) Income taxes ............................... 43,701 (9,509) 1,716 ------ ------ ----- NET LOSS ................................... $(4,829,467) $(3,263,351) $(2,806,436) =========== =========== =========== NET LOSS PER SHARE - BASIC AND DILUTED ............................. $ (.60) $ (.41) $ (.44) =========== =========== =========== WEIGHTED AVERAGE COMMON AND POTENTIAL COMMON SHARES ............. 8,018,398 7,980,094 6,347,716 ========= ========= =========
See notes to financial statements
PATIENT INFOSYSTEMS, INC STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 Additional Other Total Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Capital Income Defict Equity ------ ------ ------ ------ ------- ------ ------ ------ Balances, January 1, 1996 1,800,000 $18,000 3,602,880 $36,029 $ 2,227,788 $ -- $(1,116,652) $ 1,165,165 Sale of Series B convertible preferred stock at $5.00 per share in May and June 1996 (net of issuance costs of $3,250) 600,000 6,000 -- -- 2,990,750 -- -- 2,996,750 Compensation expense related to issuance of stock warrants -- -- -- -- 13,208 -- -- 13,208 Exercise of stock warrants -- -- 4,322 43 2,959 -- -- 3,002 Sale of common stock at $8.00 per share in December 1996 (net of issuance costs of $1,917,952) -- -- 2,000,000 20,000 14,062,048 -- -- 14,082,048 Conversion of Series A and B convertible preferred stock to common stock (2,400,000)(24,000) 2,046,000 20,460 3,540 -- -- -- Comprehensive Income (loss) Net loss for the year end December 31, 1996 -- -- -- -- -- -- (2,806,436) (2,806,436) ----------------------------------------------------------------------------------------------- Total Comprehensive loss -- -- -- -- -- -- -- (2,806,436) ----------------------------------------------------------------------------------------------- Balances, December 31, 1996 -- -- 7,653,202 76,532 19,300,293 -- (1,116,652) 15,453,737 Sale of common stock at $8.00 per share in January 1997 (net of issuance costs of $168,000) -- -- 300,000 3,000 2,229,000 -- -- 2,232,000 Compensation expense related to issuance of stock warrants -- -- -- -- 8,283 -- -- 8,283 Exercise of stock options -- -- 58,320 583 12,433 -- -- 13,016 Comprehensive Income (loss) Unrealized gain on investments available-for-sale -- -- -- -- -- 5,060 -- 5,060 Net loss for the year end December 31, 1997 -- -- -- -- -- -- (3,263,351) (3,263,351) ----------------------------------------------------------------------------------------------- Total Comprehensive loss -- -- -- -- -- -- -- (3,258,291) ----------------------------------------------------------------------------------------------- Balances, December 31, 1997 -- -- 8,011,522 80,115 21,550,009 5,060 (1,116,652) 14,448,745 Compensation expense related to issuance of stock warrants -- -- -- -- 7,388 -- -- 7,388 Exercise of stock options -- -- 8,520 85 3,697 -- -- 3,782 Comprehensive Income (loss) Unrealized loss on investments available-for-sale -- -- -- -- -- -- -- (5,060) Net loss for the year end December 31, 1998 -- -- -- -- -- -- (4,829,467) (4,829,467) ----------------------------------------------------------------------------------------------- Total Comprehnsive loss -- -- -- -- -- (5,060) -- (4,834,527) ----------------------------------------------------------------------------------------------- Balances, December 31, 1998 -- $ -- 8,020,042 $80,200 $21,561,094 $ -- $(1,116,652) $ 9,625,388 ===============================================================================================
See notes to financial statements.
PATIENT INFOSYSTEMS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 1997 1996 ---- ---- ---- OPERATING : Net loss .................................................................. $ (4,829,467) $ (3,263,351) $ (2,806,436) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ......................................... 366,474 293,763 186,050 Loss on sale of property .............................................. 1,350 2,171 -- Amortization of premiums and discounts on available-for-sale securities (142,054) (209,832) -- Compensation expense related to issuance of stock warrants ............ 7,388 8,283 13,208 Increase in accounts receivable ....................................... (907,670) (26,741) (382,160) Decrease (increase) in prepaid expenses and other current assets ...... 185,529 (234,980) (146,542) Increase (decrease) in accounts payable ............................... 214,762 (107,000) (166,095) (Decrease) increase in accrued salaries and wages ..................... (42,341) 193,243 78,770 (Decrease) increase in accrued expenses ............................... (20,332) (132,221) 192,076 Increase (decrease) in deferre+d revenue ............................... 185,519 (515,234) 414,728 (Decrease) increase in accrued loss on development contracts .......... (30,997) (36,142) 67,139 ------- ------- ------ Net cash used in operating activities ........................... (5,011,839) (4,028,041) (2,549,262) ---------- ---------- ---------- INVESTING: Property and equipment additions .......................................... (594,663) (394,161) (494,577) Proceeds from sale of property ............................................ 3,310 1,299 -- Purchases of available-for-sale securities ............................... (7,826,910) (18,121,444) -- Maturities of available-for-sale securities ............................... 19,166,565 6,104,000 -- Increase in other assets .................................................. (202,607) (247,393) -- -------- -------- -------- Net cash provided by (used in) investing activities ............... 10,545,695 (12,657,699) (494,577) ---------- ----------- -------- FINANCING: Proceeds from issuance of common and preferred stock, net ................. 3,782 2,245,016 17,081,800 (Decrease) increase in accrued initial public offering costs .............. -- (446,568) 446,568 ----- -------- ------- Net cash provided by financing activities ....................... 3,782 1,798,448 17,528,368 ----- --------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 5,537,638 (14,887,292) 14,484,529 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......................................................... 779,317 15,666,609 1,182,080 ------- ---------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ............................................................... $ 6,316,955 $ 779,317 $ 15,666,609 ============ ============ ============ Supplemental disclosures of cash flow information Cash paid (received) for income taxes, net ............................... $ 43,701 $ (9,509) $ 1,716 ============ ============ ============
See notes to financial statements. PATIENT INFOSYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Organization - Patient Infosystems, Inc. ("the Company") designs and develops health care information systems and services to manage, collect and analyze patient-related information to improve patient compliance with prescribed treatment protocols. Through its various patient compliance programs for disease state management, the Company provides important benefits for the patient, the health care provider and the payor. The Company was incorporated in Delaware on February 22, 1995 under the name DSMI Corp., changed its name to Disease State Management, Inc. on October 13, 1995, and on June 28, 1996 changed its name to Patient Infosystems, Inc. Prior to January 1, 1997, the Company was a development stage enterprise. Use of Estimates in the Preparation of 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 amounts could differ from those estimates. Fair Value of Financial Instruments - The Company's financial instruments consist of cash and cash equivalents and available-for-sale securities. The carrying values of cash and cash equivalents and available-for-sale securities approximate fair value. Revenue Recognition and Deferred Revenue - The Company's principal source of revenue to date has been from contracts with various pharmaceutical companies and managed care organizations for the development and operation of disease management programs for chronic diseases, disease management programs and other health care information system applications. Deferred revenue represents amounts billed in advance under these contracts. Development Contracts - The Company's program development contracts typically require payment from the customer at the time that the contract is executed, with additional payments made as certain development milestones are met. Development contract revenue is recognized on a percentage of completion basis, in accordance with the ratio of total development cost incurred to the estimated total development costs for the entire project. Losses, if any, are recognized in full as identified. Program Operations - The Company's program operation contracts call for a per enrolled patient fee to be paid by the customer for a series of program services as defined in the contract. The timing of customer payments varies by contract, but typically occurs in advance of the associated services being provided. Revenues from program operations are recognized ratably as the program services are delivered. Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. Concentrations of Credit Risk - Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high credit quality institutions. The Company's current contracts are concentrated in a small number of customers, consequently, the loss of any one of its customers could have a material adverse effect on the Company and its operations. During the years ended December 31, 1998 and 1997, approximately $755,000 (33%) and $925,800 (45%), respectively, of the Company's revenues arose from contracts with one customer. At December 31, 1998 and 1997, accounts receivable included balances of $736,650 and $231,484, respectively, from contracts with that customer. Property and Equipment - Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. The Company regularly assesses all of its long lived assets for impairment and recognizes a loss when the carrying value of an asset exceeds its fair value. The Company determined that no impairment loss need be recognized for applicable assets in 1998 or 1997. Research and Development - Research and development costs consist principally of compensation and benefits paid to Company employees. All research and development costs are expensed as incurred. Income Taxes - The Company uses the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Net Loss Per Share - Net loss per share is based on the weighted average number of common shares outstanding subsequent to the Company's initial public offering in 1996. Pursuant to rules of the Securities and Exchange Commission Staff, all common and potential common shares issued by the Company at a price less than the initial public offering price during at least the 12 months preceding the offering date (using the treasury stock method until shares are issued) have been included in the calculation of common and potential common shares outstanding for all periods presented prior to the December 1996 initial public offering. (See Note 8) Retirement Plan - The Company has a retirement plan which qualifies under Section 401(k) of the Internal Revenue Code This retirement plan allows eligible employees to contribute 1% to 15% of their income on a pretax basis to the plan. The Company's annual contribution to the plan is at the discretion of the Board of Directors. The Company made no contributions to this plan in 1998 or 1997. Stock Split - On November 22, 1996, the Company effected a .72-for-1 reverse stock split of all outstanding shares of common stock. Statement of Financial Accounting Standards No. 130 - In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" and restated the prior years' financial statements to conform to the new reporting standard. This Statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income for the Company includes net loss and the unrealized gain or loss on available-for-sale securities. Statement of Financial Accounting Standards No. 131 - In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Statement requires that a public company report financial and descriptive information about its reportable operating segments using the management approach. SFAS also requires that segment information of earlier years be restated to conform to the new standard. The adoption of SFAS No. 131 had no effect on the consolidated financial position, results of operations, or cash flows of the Company. Statement of Position 97-2 - In 1998, the Company adopted Statement of Position (SOP) 97-2, "Software Revenue Recognition," which provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The implementation of SOP 97-2 did not have a material effect on the Company's revenues or earnings. Statement of Financial Accounting Standards No. 133 - In June 1998, the Financial Accounting Standards Bard issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity, which is required to be adopted by the Company in 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges of underlying transactions must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Management has not yet determined the effect SFAS No. 133 will have, if any, on the Company's consolidated financial position, results of operations or cash flows. Reclassifications - Certain 1997 and 1996 amounts have been reclassified to conform with 1998 presentations. 2. AVAILABLE -FOR-SALE SECURITIES The following is a summary of available-for-sale securities at December 31: 1998 1997 ---- ---- Certificates of Deposit $1,029,674 $ - U.S. Government Securities - 12,232,335 ---------- ---------- Total Available-for-Sale Securities $1,029,674 $12,232,335 ========== =========== Realized and unrealized gains and losses on available-for-sale securities were immaterial as of and for the years ended December 31, 1998, 1997 and 1996. The cost and estimated fair value of available-for-sale securities by contractual maturity at December 31, 1998 and 1997 are as follows:
Amortized Fair Amortized Fair Cost Value Cost Value ---- ----- ---- ----- Due in one year or less ................ $ 1,029,674 $ 1,029,674 $ 2,824,280 $ 2,823,704 Due after one year through two years ... -- -- 9,400,389 9,408,631 --------- --------- --------- --------- $ 1,029,674 $ 1,029,674 $12,224,669 $12,232,335 =========== =========== =========== ===========
3. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows at December 31:
1998 1997 ---- ---- Computer software ............................ $ 545,467 $ 380,831 Computer equipment ........................... 795,996 600,279 Telephone equipment .......................... 301,172 189,479 Leasehold improvements ....................... 43,979 41,504 Office furniture and equipment ............... 363,387 249,291 ------- ------- 2,050,001 1,461,384 Less accumulated depreciation and amortization 867,507 502,419 ------- ------- Property and equipment, net .................. $1,182,494 $ 958,965 ========== ==========
4. INCOME TAXES Income tax expense for the years ended December 31, 1998, 1997 and 1996 consists of:
1998 1997 1996 ---- ---- ---- Current: U.S. federal ............ $ -- $ -- $ -- State and local ......... 43,701 (9,509) 1,716 Deferred: U.S. federal ............ -- -- -- State and local ......... -- -- -- ------- ------- ------ Income Tax Expense (Credit) $43,701 $(9,509) $ 1,716 ======= ======= =======
Income tax expense for the years ended December 31, 1998, 1997 and 1996 differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent as a result of the following:
1998 1997 1996 ---- ---- ---- Computed "expected" tax expense ................. $(1,627,160) $(1,109,539) $ (953,605) Increase in income taxes resulting from: Change in the valuation allowance for deferred tax assets .................. 1,628,997 1,094,833 949,726 State and local income taxes, net of federal income tax benefit ....................... 28,843 (6,276) 1,133 Other, net ................................. 13,021 11,473 4,462 ------ ------ ----- $ 43,701 $ (9,509) $ 1,716 =========== =========== ===========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below.
1998 1997 ---- ---- Deferred tax assets: ................................................. Accounts receivable, principally due to allowance for doubtful accounts ................................. $ 20,000 $ 20,000 Deferred revenue ..................................................... 101,000 27,000 Compensation ......................................................... 89,000 67,000 Net operating loss carryforwards ..................................... 4,569,000 2,711,000 Tax credit carryforwards ............................................. 59,000 59,000 Other ................................................................ 20,000 12,000 ------ ------ Total gross deferred tax assets ................................. 4,858,000 2,896,000 Less valuation allowance ........................................ (4,711,000) (2,737,000) ---------- ---------- Net deferred tax assets ......................................... 147,000 159,000 ------- ------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation and amortization ................................................... (69,000) (66,000) Other ................................................................ (78,000) (93,000) Total gross deferred tax liability .............................. (147,000) (159,000) -------- -------- Net deferred tax assets ......................................... $ -- $ -- =========== ===========
At December 31, 1998, the Company has net operating loss carryforwards for federal income tax purposes of approximately $11,437,000 which are available to offset future federal taxable income, if any, through 2018. The Company also has investment tax credit carryforwards for federal income tax purposes of approximately $59,000 which are available to reduce future federal income taxes, if any, through 2018. 5. PUBLIC OFFERING OF COMMON STOCK In December 1996, the Company sold 2,000,000 shares of common stock through an initial public offering which generated net proceeds of $14,082,048 after deducting applicable issuance costs and expenses. On January 8, 1997, an additional 300,000 shares of common stock were sold pursuant to an underwriters over-allotment provision, which generated net proceeds to the Company of $2,232,000 after deducting underwriting discounts and commissions. In connection with this initial public offering, the Company's outstanding shares of Series A and B convertible preferred stock were converted into 2,046,000 shares of common stock. 6. STOCK OPTIONS AND WARRANTS The Company has an Employee Stock Option Plan (the "Stock Option Plan") for the benefit of certain employees, non-employee directors, and key advisors. The Company has adopted the disclosures-only provision of SFAS No. 123, "Accounting for Stock-Based Compensation". No compensation cost has been recognized for the Stock Option Plan as it relates to employees since the exercise price of the options on the date of grant approximated fair market value. Had compensation cost for the Company's stock option plan been determined based on the fair value at the date of grant for awards consistent with the provisions of SFAS No. 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below:
1998 1997 1996 ---- ---- ---- Net loss - as reported .... $ (4,829,467) $ (3,263,351) $ (2,806,436) Net loss - pro forma ...... $ (4,849,320) $ (3,406,973) $ (2,879,457) Net loss per share - basic and diluted - as reported $ (0.60) $ (0.41) $ (.44) Net loss per share - basic and diluted - pro forma . $ (0.60) $ (0.43 $ (.46)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model using an assumed risk-free interest rates of 5.32% for year ended December 31, 1998, 5.98% for the year ended December 31, 1997 and 7% for the year ended December 31, 1996 and an expected life of 7 years. As the Company was still considered a private company for the purposes of applying SFAS No. 123 for the period from Inception to June 30, 1996, the Company did not include a volatility factor assumption in its fair value model. For the options granted after July 1, 1996, the Company has used a volatility factor of .94 for year ended December 31, 1998, .53 for year ended December 31, 1997 and .60 for year ended December 31, 1996. For purposes of pro forma disclosure, the estimated fair value of each option is amortized to expense over that option's vesting period. The Stock Option Plan authorizes 1,080,000 shares of common stock to be issued. Stock options granted under the Stock Option Plan may be of two types: (1) incentive stock options and (2) nonqualified stock options. The option price of such grants shall be determined by a Committee of the Board of Directors (the "Committee"), but shall not be less than the estimated fair market value of the common stock at the date the option is granted. The terms of the grants shall be fixed by the Committee, with no term lasting longer than ten years. The ability to exercise such options shall be determined by the Committee when the options are granted. All of the outstanding options vest at the rate of 20% per year with the exception of 36,000 options which were vested as of the date of grant. A summary of stock option activity follows:
Outstanding Weighted-Average Options Exercise Price ------- -------------- Options outstanding at January 1, 1996 .................. 590,400 $ 0.33 Options granted during the year ended December 31, 1996 (weighted average fair value of $3.24) ................ 365,400 $ 5.32 Options forfeited by holders during the year ended December 31, 1996 ............................... (63,840) $ 0.87 ------- Options outstanding at December 31, 1996 ................ 891,960 $ 2.34 Options granted during the year ended December 31, 1997 (weighted average fair value of $5.16) ................ 307,000 $ 4.39 Options forfeited by holders during the year ended December 31, 1997 ............................... (342,580) $ 4.83 Options exercised during the year ended December 31, 1997 (58,320) $ 0.22 ------- Options outstanding at December 31, 1997 ................ 798,060 $ 2.21 Options granted during the year ended December 31, 1998 (weighted average fair value of $1.38) ................ 399,200 $ 1.38 Options forfeited by holders during the year ended December 31, 1998 ............................... (320,820) $ 3.15 Options exercised during the year ended December 31, 1998 (8,520) $ 0.44 ------ Options outstanding at December 31, 1998 ................. 867,920 $ 0.91 ------- Options exercisable at December 31, 1998 ................. 290,816 $ 0.49 ------- Options available for grant at December 31, 1998 ........ 212,080 -------
The following table summarizes information concerning outstanding and exercisable options at December 31, 1998:
Options Outstanding Options Exercisable ------------------- ------------------- Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Price Outstanding Life Price Exercisable Price - -------------- ----------- ---- ----- ----------- ----- $.14 - $.99 376,200 1.29 $ .30 240,120 $ 0.29 $1.00 - $1.99 488,740 4.07 $ 1.37 47,716 $ 1.36 $2.00 - $4.99 2,980 -- $ 3.15 2,980 $ 3.15 ----- ----- 867,920 290,816 ======= =======
The Company also has outstanding stock purchase warrants entitling the holders to purchase a total of 23,400 shares of common stock at a price of $1.38 per share (weighted average exercise price of $1.38). At December 31, 1998, 9,360 of these warrants are currently vested, with the remaining 14,040 warrants vesting at 20% per year. The Company has recorded compensation costs in connection with the issuance of these warrants for the years ended December 31, 1998, 1997 and 1996 in the amount of $7,388, $8,283 and $13,208 respectively. 7. COMMITMENTS The Company leases office space for its main operating facility in Rochester, New York, under an operating lease agreement expiring in November 1999. Additionally, the Company subleases office space for its Wayne, Pennsylvania facility under an operating lease agreement expiring in May 2001 and leases office space for its Berkeley, California facility under an operating lease agreement expiring in October 1999. Rent expense from these leases for the years ended December 31, 1998, 1997 and 1996 was $210,375, $154,907 and $70,479 respectively. At December 31, 1998, future minimum lease payments under these leases are summarized as follows: 1999 $ 253,301 2000 40,200 2001 16,750 ------ $ 310,251 ========= 8. NET LOSS PER SHARE Net loss per share is based on weighted average number of common shares outstanding subsequent to the Company's initial public offering in 1996. Pursuant to rules of the Securities and Exchange Commission Staff, all common and potential common shares issued by the Company at a price less than the initial public offering price during at least the 12 months preceding the offering date (using the treasury stock method until shares are issued) have been included in the calculation of common and potential common shares outstanding for all periods presented prior to the December 1996 initial public offering. Because the Company incurred a loss in 1998 and 1997, outstanding options to purchase 867,920 and 798,060 shares of common stock at $.14 to $4.99 per share, were not included in the computation of diluted loss per share as they would be antidilutive.
Net Loss Shares Per-Share Numerator Denominator Amount --------- ----------- ------ For the year ended December 31, 1998 Basic and diluted ................................................ $(4,829,467) 8,018,398 $ (0.60) =========== ========= ======== For the year ended December 31, 1997 Basic and diluted ................................................ $(3,263,351) 7,980,094 $ (0.41) =========== ========= ======== For the year ended December 31, 1996 Loss available to Common Shareholders ............................ $(2,806,436) Weighted average common stock outstanding ........................ 3,678,435 Series A Convertible Preferred Stock ............................. 1,296,000 Series B Convertible Preferred Stock ............................. 437,500 Potential common shares calculated using the treasury stock method: Series B Convertible Preferred Stock issued May and June 1996 ............................ 177,365 Common stock options ........................................ 758,416 ------------------------------------- Basic and diluted ................................................ $(2,806,436) 6,347,716 $ (0.44) =========== ========= ========
9. JOINT VENTURE On November 12, 1998, the Company entered into a joint venture agreement with MacLean Hunter Publishing Limited to market and sell, on an exclusive basis in Canada, products and services developed by the Company and to jointly manage, finance and operate the business entity Patient Infosystems Canada, Inc., which is dedicated to the development of a commercially viable business built around the sale, marketing and service of the Company's products and services. 10. SUBSEQUENT EVENT On February 26, 1999, the Company, through its newly formed, wholly-owned subsidiary, Patient Infosystems Acquisition Corp., acquired substantially all of the assets of HealthDesk Corporation, a consumer healthcare software company primarily engaged in the business of designing and developing Internet based products in the healthcare, wellness and disease management industries. The acquired assets include inventory, intellectual property, hardware and software. The principal consideration paid for the transaction was $761,463. The Company paid for the acquisition using its available cash. 11. QUARTERLY RESULTS (UNAUDITED) The following is a summary of the unaudited interim results of operations by quarter:
First Second Third Fourth ----- ------ ----- ------ Year ended December 31, 1998: Revenues ..................................................... $ 290,354 $ 874,119 $ 465,181 $ 714,418 Gross margin ................................................. (94,933) 324,848 (243,116) (172,346) Net loss ..................................................... (1,055,038) (680,017) (1,348,843) (1,745,569) Net loss per common share .................................... (0.13) (0.08) (0.17) (0.22) Year ended December 31, 1997: Revenues ..................................................... $ 523,477 $ 570,330 $ 433,059 $ 535,507 Gross margin ................................................. 172,407 35,839 34,363 190,636 Net loss ..................................................... (588,524) (892,906) (1,097,562) (684,359) Net loss per common share .................................... (0.07) (0.11) (0.14) (0.09)
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures. None PART III Item 10. Directors and Executive Officers of the Registrant. Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 1998. Item 11. Executive Compensation. Director Compensation Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 1998. Executive Compensation Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 1998. Item 13. Certain Relationships and Related Transactions Incorporated by reference to the Company's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 1998. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements: The financial statements of the Company are included in Part II, Item 8. (b) Reports on Form 8 - K: No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1998. (c) Exhibits: Exhibit # Description of Exhibits (3) Articles of Incorporation and By-Laws: Certificate of Incorporation Incorporated herein by reference from Exhibit 3.1 on Form S-1 Registration Statement of the Company, filed with the Commission on December 17, 1996. By-Laws Incorporated herein by reference from Exhibit 3.3 on Form S-1 Registration Statement of the Company, filed with the Commission on December 17, 1996. (10) Material contracts: 10.15 Asset Purchase Agreement dated as of September 29, 1998 among Patient Infosystems Acquisition Corp., the Company and HealthDesk Corporation. 10.16 Amendment to Asset Purchase Agreement dated as of December 1, 1998 among Patient Infosystems Acquisition Corp., the Company and HealthDesk Corporation. 10.17 Second Amendment to Asset Purchase Agreement dated as of February 1, 1999 among Patient Infosystems Acquisition Corp., the Company and HealthDesk Corporation. 10.18 Sublease dated as of September 29, 1998 between HealthDesk Corporation and Patient Infosystems Acquisition Corporation. 10.19 Consulting Agreement dated as of March 8, 1999 between the Company and John V. Crisan. 10.20 Lease Agreement dated as of February 22, 1995 between the Company and Conifer Prince Street Associates. 10.21 First Addendum to Lease Agreement dated as of August 22, 1995 between the Company and Conifer Prince Street Associates. 10.22 Second Addendum to Lease Agreement dated as of November 17, 1995 between the Company and Conifer Prince Street Associates. 10.23 Third Addendum to Lease Agreement dated as of March 28, 1996 between the Company and Conifer Prince Street Associates. 10.24 Fourth Addendum to Lease Agreement dated as of October 29, 1996 between the Company and Conifer Prince Street Associates. 10.25 Fifth Addendum to Lease Agreement dated as of November 30, 1996 between the Company and Conifer Prince Street Associates. 10.26 Sixth Addendum to Lease Agreement dated as of November 24, 1997 between the Company and Conifer Prince Street Associates. 10.27 Sublease Agreement dated as of March 30, 1998 between the Company and Medecision, Incorporated. 10.28 Joint Venture and Stockholders Agreement dated as of November 12, 1998 between the Company and Maclean Hunter Publishing Limited. 10.29 Lease Agreement dated as of October 12, 1998 between the Company and Parker Associates. (11) Statement of Computation of Per Share Earnings (21) Subsidiaries (27) Financial Data Schedule Filed electronically All other exhibits are omitted because they are not applicable or the required information is shown elsewhere in this Annual Report on Form 10-K. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PATIENT INFOSYSTEMS, INC. By: /s/ Donald A. Carlberg April 13, 1999 ---------------------- -------------- Donald A. Carlberg Date Director, President, and Chief Executive Officer Pursuant to the requirements the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Donald A. Carlberg April 13, 1999 - -------------------------- -------------- Donald A. Carlberg Date Director, President and Chief Executive Officer (Principal Executive Officer) By: /s/ John V. Crisan April 13, 1999 - ---------------------- -------------- John V. Crisan Date Chief Financial Officer (Principal Financial and Accounting Officer) By: /s/ Derace L. Schaffer, M.D. April 13, 1999 - -------------------------------- -------------- Derace L. Schaffer, M.D. Date Chairman of the Board By: /s/ John Pappajohn April 13, 1999 - ---------------------- -------------- John Pappajohn Date Director By: /s/ Barbara J. McNeil, M.D., Ph.D. April 13, 1999 - -------------------------------------- -------------- Barbara J. McNeil, M.D., Ph.D. Date Director By: /s/ Carl F. Kohrt, Ph.D. April 13, 1999 - ---------------------------- -------------- Carl F. Kohrt, Ph.D. Date Director By: /s/ David B. Nash, M.D. April 13, 1999 - --------------------------- -------------- David B. Nash, M.D. Date Director EX-10 2 EXHIBIT 10.15 EXHIBIT 10.15 ASSET PURCHASE AGREEMENT DATED AS OF SEPTEMBER 29, 1998 AMONG PATIENT INFOSYSTEMS ACQUISITION CORP., PATIENT INFOSYSTEMS, INC. AND HEALTHDESK CORPORATION TABLE OF CONTENTS ARTICLE 1. TRANSFER OF ASSETS..................................................1 1.1 Intellectual Property........................................1 1.2 Inventories..................................................1 1.3 Equipment and Packaged Software..............................1 1.4 Books and Records............................................2 1.5 Prepaid Expenses.............. ..............................2 1.6 Permits, etc.................................................2 1.7 All Property Not Elsewhere Described.........................2 1.8 Excluded Assets..............................................2 ARTICLE 2. PURCHASE PRICE......................................................2 2.1 Payment of Purchase Price....................................2 2.2 Allocation of Purchase Price.................................3 ARTICLE 3. THE CLOSING............................................ ............3 ARTICLE 4. ASSUMPTION OF LIABILITIES...........................................3 ARTICLE 5. EXCISE AND PROPERTY TAXES...........................................3 ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF SELLER............................3 6.1 Organization, Good Standing and Qualification................4 6.2 Financial Statements............................. ...........4 6.3 Absence of Specified Changes.................................4 6.4 Taxes...................................... ................5 6.5 Real Property................................................6 6.6 Inventories..................................................6 6.7 Intellectual Property.......................... .............6 6.8 Trade Secrets................................................6 6.9 Title to Assets................................. ............6 6.10 Customers and Sales..........................................7 6.11 Existing Employment Contracts................................7 6.12 Insurance Policies...........................................7 6.13 Other Contracts..............................................7 6.14 Compliance with Laws............................. ...........7 6.15 Litigation...................................................7 6.16 Assets Sufficient for Conduct of Business....................8 6.17 Agreement Will Not Cause Breach or Violation.................8 6.18 Authority and Consents.......................................8 6.19 Interest in Customers, Suppliers and Competitors.............8 6.20 Employee Identification and Compensation.....................8 6.21 No Subsidiaries..............................................8 6.22 Environmental Matters........................................8 6.23 Employee Benefit Plans......................................10 6.24 Product Warranties..........................................10 6.25 Software....................................................10 6.26 Documents Delivered.........................................10 6.27 Full Disclosure.............................................11 ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT.................11 7.1 Organization................................................11 7.2 Authority and Consents......... ...........................11 7.3 Agreement Will Not Cause Breach Or Violation................11 ARTICLE 8. OBLIGATIONS OF THE PARTIES BEFORE CLOSING..........................12 8.1 Buyer's Access to Premises and Information........ .........12 8.2 Conduct of Business in Normal Course.................... ..12 8.3 Preservation of Business and Relationships..................12 8.4 Maintenance of Insurance....................................12 8.5 Employees and Compensation..................................12 8.6 New Transactions............................................12 8.7 Payment of Liabilities and Waiver of Claims.................13 8.8 Existing Agreements............................... .........13 8.9 Consent of Others...........................................13 8.10 Representations and Warranties True at Closing..............13 8.11 Sales and Use Tax on Prior Sales.............. .............13 8.12 Statutory Filings........................ ..................13 8.13 Negotiations with Certain Customers.........................13 8.14 License Agreement...........................................13 8.15 Sublease....................................................14 ARTICLE 9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE........................14 9.1 Accuracies of Seller's Representations and Warranties.... .14 9.2 Absence of Liens............................................14 9.3 Seller's Performance........................................14 9.4 Certification by Seller......................... ...........14 9.5 Assignment and Assumption Agreements........................14 9.6 Bill of Sale................................................14 9.7 Opinion of Seller's Counsel.................................14 9.8 Absence of Litigation.......................................14 9.9 Corporate Approval..........................................15 9.10 Good Standing Certificate................... ...............15 9.11 Consents....................................................15 9.12 Approval of Documentation...................................15 9.13 Employment Arrangements.....................................15 9.14 Bulk Transfer Notice........................................15 9.15 Change of Corporate Name....................................15 9.16 Condition of Assets.........................................15 9.17 MIIX Agreement..............................................15 9.18 HBOC Agreement.................................... .........15 ARTICLE 10. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE......................15 10.1 Accuracy of Buyer's Representations and Warranties..........15 10.2 Buyer's and Parent's Performance......... .................16 10.3 Payment of Purchase Price...................................16 ARTICLE 11. OBLIGATIONS OF THE PARTIES AFTER THE CLOSING......................16 11.1 Preservation of Goodwill....................................16 11.2 Change of Name..............................................16 11.3 Access to Records...........................................16 11.4 Nonsolicitation of Employees................................17 11.5 Further Assurances..........................................17 11.6 Termination of IAC Contract.................................17 ARTICLE 12. INDEMNIFICATION...............................................17 12.1. Indemnification by Seller...................................17 12.2. Indemnification by Buyer....................................17 12.3. Notice and Defense of Third Party Claims....................17 ARTICLE 13. COSTS............................................................18 13.1 Finder's or Broker's Fees................. .................18 13.2 Expenses....................................................18 ARTICLE 14. FORM OF AGREEMENT...............................................18 14.1 Headings....................................................18 14.2 Entire Agreement; Modification; Waiver......................18 14.3 Counterparts................................................18 ARTICLE 15. PARTIES.........................................................19 15.1 Parties in Interest.........................................19 15.2 Assignment..................................................19 ARTICLE 16. TERMINATION.....................................................19 16.1. Termination by Mutual Consent...............................19 16.2. Termination by Buyer or Seller..............................19 16.3. Effect of Termination..................... .................19 ARTICLE 17. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............19 ARTICLE 18. NOTICES.........................................................20 ARTICLE 19. GOVERNING LAW...................................................20 ARTICLE 20. MISCELLANEOUS...................................................20 20.1 Recovery of Litigation Costs..................... ........20 20.2 Announcements...............................................20 20.3 References..................................................21 This Asset Purchase Agreement (the "Agreement"), dated as of September 29, 1998 among PATIENT INFOSYSTEMS ACQUISITION CORP., a Delaware corporation ("Buyer"), PATIENT INFOSYSTEMS, INC., a Delaware corporation ("Parent"), and HEALTHDESK CORPORATION, a California corporation ("Seller"). WITNESSETH: WHEREAS, Seller owns certain assets which it uses in the operation of its business being generally the design, development and marketing of the HealthDesk Online software, the CareTeam Connect software and software related products for use in the healthcare, wellness and disease management industries (such business currently operated by Seller being referred to herein as the "Business"). WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell to Buyer, on the terms and subject to the conditions of this Agreement, substantially all of the assets and properties used in the Business, other than certain excluded assets described below. THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, the parties agree as follows: ARTICLE 1.........TRANSFER OF ASSETS Subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees to purchase from Seller at the Closing described in Article 3 hereof, all the assets, properties and business of Seller of every kind, character and description, whether tangible, intangible, real, personal or mixed, and wherever located (but excluding any assets specifically excluded in the following Sections of this Article 1), all of which are sometimes collectively referred to in this Agreement as the "Assets," including, but not limited to, the following: 1.1......Intellectual Property. All trade names (including, but not limited to, the name "HealthDesk"), trademarks, service marks, copyrights, patents, patent rights, inventions, licenses, computer programs (regardless of state of completion and including all work product), brand names, trade secrets, technical know-how, goodwill and other intangibles (including without limitation (i) tort or insurance proceeds arising out of any damage or destruction of any of the Assets between the date of this Agreement and the Closing Date (as hereinafter defined), (ii) all right, title and interest of Seller in the license and service agreements identified on Schedule 1.1(the "License Agreements"), (iii) the intellectual property identified on Schedule 6.7, and (iv) the software identified on Schedule 6.25 and all programs, designs and documentation for such software used by Seller in (or owned by Seller and useful in) the operation of the Business) (the assets described in this Section 1.1, collectively, the "Intellectual Property"); 1.2......Inventories. All of Seller's finished goods and raw materials (whether expensed or not), including work in process, shrink wraps, CD roms, spare parts and repair materials that are actually on hand with Seller as of the Closing Date, an approximate summary of which items currently on hand is attached hereto as Schedule 1.2 (hereinafter referred to collectively as the "Inventories"); 1.3......Equipment and Packaged Software. Seller's office equipment and computer hardware specifically set forth on Schedule 1.3 (the "Equipment") and the Packaged Software listed on Schedule 1.3a (the "Packaged Software"); 1.4......Books and Records. All papers, computerized databases, files and records in Seller's care, custody or control relating to any or all of the above described Assets and the operation thereof, including, but not limited to, all blueprints and specifications, product designs, marketing materials, demonstration packages and product materials, environmental control records, sales records, marketing materials, maintenance and production records, and plans and designs of buildings, structures, fixtures and equipment, but excluding personnel and labor relations records and accounting and financial records; 1.5......Prepaid Expenses. All prepaid expenses and other prepaid items relating to any of the Assets and the operation of the Business; 1.6......Permits, etc. All permits, licenses, franchises, consents or authorizations issued by, and all registrations and filings with, any governmental agency in connection with the Business, whenever issued or filed, excepting only those which by law or by their terms are non-transferable and those which have expired; and 1.7......All Property Not Elsewhere Described. All other properties of Seller of every kind, character or description owned, used or held for use (whether or not exclusively) in connection with the Business, wherever located and whether or not similar to the things set forth elsewhere in this Article 1, but excluding any assets specifically excluded in this Article 1. 1.8......Excluded Assets. The following assets are specifically excluded from the assets being purchased by Buyer pursuant to this Agreement (collectively, the "Excluded Assets"): (a)......all furniture, PCs, laptops and office equipment not specifically set forth on Schedule 1.3; (b)......all cash, bank balances, money in possession of banks and other depositories, including security deposits with landlords and equipment lessors, and similar cash items held by or for the account of Seller; (c)......all of Seller's accounts receivable; (d)......Seller's franchise as a corporation, its articles of incorporation, corporate seal, minute books and stock books, stock transfer records and similar records relating to Seller's organization, existence or capitalization, and the capital stock of Seller and all other records which Seller is required by law to keep in its possession; (e)......Seller's federal, state and local tax returns and rights to refunds, if any; and (f)......Seller's rights relating to its proposed acquisition of MCInformatics ("MCI") and any assets acquired in connection with such acquisition. The term "Business" as used herein expressly excludes any matter relating to MCI. ARTICLE 2.........PURCHASE PRICE 2.1......Payment of Purchase Price. In consideration for the transfer and assignment by Seller of the Assets and in consideration of the representations, warranties and covenants of Seller set forth herein, Buyer shall, subject to the conditions set forth herein, (a) deliver to Seller at the Closing (as hereinafter defined) the sum of (i) $500,000, representing payment for the Assets other than the Equipment; (ii) $115,040, representing payment for the Equipment (such sums collectively referred to as the "Purchase Price"); and (iii) $11,238, representing payment for the Packaged Software, payable in cash as more fully described in Section 10.3 hereof; and (b) assume and discharge, and shall indemnify Seller against, liabilities and obligations of Seller under the leases, contracts or other agreements, if any, specified on Schedule 1.1. and Schedule 4 but only to the extent that such liabilities or obligations accrue on or after the Closing Date. 2.2......Allocation of Purchase Price. The parties shall determine and agree upon the allocation of the Purchase Price at, or prior to, the Closing and such allocation will be used by the parties in reporting the transaction contemplated by this Agreement for federal and state tax purposes. ARTICLE 3.........THE CLOSING. The closing of the purchase and sale of the Assets by Seller to Buyer (the "Closing") shall take place at the offices of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, One Riverfront Plaza, Newark, New Jersey 07102-5497, at 10:00 a.m. local time, within five days of satisfying the conditions to closing set forth herein, or at such other place and/or time as the parties may agree in writing (the "Closing Date"). If on the original or any postponed Closing Date Seller shall have been unable to obtain all waivers and consents of private parties and governmental agencies required by this Agreement, then Buyer, on written notice, may postpone the Closing to a time not later than November 30, 1998. ARTICLE 4.........ASSUMPTION OF LIABILITIES Buyer is not assuming any debt, liability or obligation of Seller, whether known or unknown, fixed or contingent (including without limitation the litigation set forth on Schedule 6.15), except as herein specifically otherwise provided. Seller agrees to indemnify and hold Buyer harmless against all debts, claims, liabilities and obligations of Seller not expressly assumed by Buyer hereunder, and to pay any and all attorneys' fees and legal costs reasonably incurred by Buyer, its successors and assigns in connection therewith. Buyer shall have the benefit of and shall perform and assume the License Agreements and all leases, contracts and agreements, if any, specifically listed on Schedule 4, in accordance with the terms and conditions thereof, except to the extent modifications are specifically set forth on such Schedule 4 and except to the extent set forth in the assignments or assignment and assumption agreements for such leases, contracts and agreements. ARTICLE 5.........EXCISE AND PROPERTY TAXES Buyer shall pay all sales, use and transfer taxes arising out of the transfer of the Assets and shall pay its portion, prorated as of the Closing Date, of state and local real and personal property taxes of the Business. Buyer shall not be responsible for any business, occupation, withholding or similar tax, or for any taxes of any kind related to any period before the Closing Date. ARTICLE 6.........REPRESENTATIONS AND WARRANTIES OF SELLER. Except as set forth in the Schedules delivered by Seller concurrently with the execution of this Agreement and incorporated herein, Seller hereby represents and warrants to Buyer and Parent that the following facts and circumstances are and, except as contemplated hereby, at all times up to the Closing Date, will be true and correct, and hereby acknowledge that such facts and circumstances constitute the basis upon which Buyer and Parent are induced to enter into and perform this Agreement. Each warranty set forth in this Article 6 shall survive the Closing and any investigation made by or on behalf of Buyer and Parent. 6.1......Organization, Good Standing and Qualification. Seller is a corporation duly organized, validly existing, and in good standing under the laws of California, has all necessary corporate powers to own its properties and to carry on its business as now owned and operated by it, and is duly qualified to transact intrastate business and is in good standing in all jurisdictions in which the nature of its business or of its properties makes such qualification necessary. 6.2......Financial Statements. (a) Seller has timely filed with the Securities and Exchange Commission (i) the balance sheet of Seller as of December 31, 1997, and the related statement of income and retained earnings for the year then ending, certified by Coopers & Lybrand L.L.P. (now known as PricewaterhouseCoopers LLP), Seller's independent certified public accountants, and (ii) the unaudited balance sheet of Seller as of June 30, 1998, together with related unaudited statement of income and retained earnings for the three month period then ending, [certified by the chief financial officer of Seller.] Such financial statements are referred to as the "Financial Statements." (b) The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently followed by Seller throughout the periods indicated, and fairly present the financial position of Seller as of the respective dates of the balance sheets included in the Financial Statements, and the results of its operations for the respective periods indicated. Seller has no liabilities or obligations of any nature (known or unknown, absolute, accrued, contingent or otherwise) of the type required to be reflected or disclosed in a balance sheet (or the notes thereto) prepared in accordance with GAAP that were not fully reflected or reserved against in the Financial Statements. 6.3......Absence of Specified Changes. Since June 30, 1998, except as set forth on Schedule 6.3, there has not been any: (a) Transaction by Seller except in the ordinary course of business as conducted on that date; (b) Capital expenditure by Seller exceeding $25,000; (c) Adverse change in the financial condition, liabilities, assets, business or prospects of Seller; (d) Destruction, damage to, or loss of any assets of Seller (whether or not covered by insurance) that adversely affects the financial condition, business or prospects of Seller; (e) Labor trouble or other event or condition of any character adversely affecting the financial condition, business, assets or prospects of Seller; (f) Change in accounting methods or practices (including, without limitation, any change in depreciation or amortization policies or rates) by Seller; (g) Revaluation by Seller of any of its assets; (h) Increase in the salary or other compensation payable or to become payable by Seller to any of its officers, directors or employees, or the declaration, payment or commitment or obligation of any kind for the payment by Seller of a bonus or other additional salary or compensation to any such person; (i) Sale or transfer of any asset of Seller, except in the ordinary course of business; (j) Execution, creation, amendment or termination of any contract, agreement or license to which Seller is a party and which is proposed to be assigned hereunder, except in the ordinary course of business; (k) Loan by Seller to any person or entity, or guaranty by Seller of any loan; (l) Waiver or release of any right or claim of Seller, except in the ordinary course of business; (m) Mortgage, pledge or other encumbrance of any asset of Seller; (n) Other event or condition of any character that has or might reasonably have an adverse effect on the financial condition, business, assets or prospects of Seller; or (o) Agreement by Seller to do any of the things described in the preceding clauses (a) through (n). 6.4......Taxes. Seller has filed or caused to be filed all federal, state and local tax returns and reports that are or were required to be filed by or with respect to Seller, pursuant to applicable law. All such returns were correct and complete in all respects. Seller has paid, or has provided for the payment of, all taxes that have or may have become due pursuant to those tax returns or otherwise, or pursuant to any assessment received by Seller, except such taxes, if any, as are listed in Schedule 6.4 and are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided in the Financial Statements. Except as set forth in Schedule 6.4, no audit of any tax return of Seller is in progress or, to Seller's knowledge, threatened; no director, officer or employee of Seller responsible for tax matters expects any governmental authority to assess any additional taxes for any period for which tax returns have been filed; and no waiver or agreement by Seller is in force for the extension of time for the assessment or payment of any tax. To Seller's knowledge, no claim has ever been made by any governmental authority in a jurisdiction where Seller does not file tax returns that it is or may be subject to taxation by that jurisdiction. .........Seller has withheld and paid or collected and remitted all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, supplier, vendor, creditor, stockholder or other third party. There is no dispute or claim concerning any tax liability of Seller, (i) claimed or raised by any governmental authority in writing or (ii) as to which Seller or the directors and officers of Seller has knowledge. As of the date hereof, there have been no, and Seller has no knowledge of any, threatened or intended reappraisals by any governmental authority with respect to the value of the Assets. 6.5......Real Property. Seller does not own any real property. 6.6......Inventories. The Inventories consist of items of a quality and quantity useable, salable or rentable in the ordinary course of business by Seller, except for obsolete and slow-moving items and items below standard quality, all of which have been written down on the books of Seller to net realizable market value or have been provided for by adequate reserves. All items included in the Inventories are the property of Seller, except for sales made in the ordinary course of business; for each of these sales either the purchaser has made full payment or the purchaser's liability to make payment is reflected in the books of Seller. No items included in the Inventories have been pledged as collateral or are held by Seller on consignment from the others. All the Inventories are free of defects and, to the extent that they consist of finished or semi-finished goods, also comply with the specifications submitted by the purchasers thereof. 6.7......Intellectual Property. Schedule 6.7 lists all of the Intellectual Property owned or used by Seller in connection with the Business (other than shrink wrap software generally available to the public). No person (other than Seller) owns any Intellectual Property, the use of which is necessary or contemplated in connection with the performance of any contract to which Seller is a party, except manufacturer's trademarks and trade names on goods sold in Seller's Business. Except as set forth in Schedule 6.7 or 6.15, there have not been any administrative, judicial arbitration, or other adversary proceedings concerning the Intellectual Property. Seller does not violate or infringe on any intellectual property or personal right of any person, firm or corporation, and Seller has not infringed and is not now infringing on any intellectual property or other right belonging to any person, firm or corporation. Except as set forth in Schedule 6.7 or Schedule 1.1, Seller is not a party to any license, agreement or arrangement, whether as licensee, licensor or otherwise, with respect to any Intellectual Property. 6.8......Trade Secrets. Seller has taken all reasonable security measures to protect the secrecy, confidentiality and value of all trade secrets used by Seller (or owned by Seller and useful in) the operation of the Business. Any of its employees and any other persons who, either alone or in concert with others, developed, invented, discovered, derived, programmed or designed these secrets, or who have knowledge of or access to information relating to them, have been put on notice and have entered into appropriate agreements that these secrets are proprietary to Seller and are not to be divulged or misused. All these trade secrets are presently valid and protectible, and are not part of the public knowledge or literature, nor to Seller's knowledge have they been used, divulged or appropriated for the benefit of any past or present employees or other persons, or to the detriment of Seller. 6.9......Title to Assets. Seller has good and marketable title to all the Assets and its interests in the Assets, whether real, personal, mixed, tangible or intangible, which constitute all the Assets and interests in Assets that are used in the Business. All the Assets are free and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims, easements, rights of way, covenants, conditions or restrictions, except for (i) those disclosed in Schedule 6.9; (ii) the lien of current taxes not yet due and payable; and (iii) possible minor matters that, in the aggregate, are not substantial in amount and do not materially detract from or interfere with the present or intended use of any of these assets, nor materially impair business operations. All the Assets are in good operating condition and repair, ordinary wear and tear excepted. Seller is in possession of all premises leased to it from others. Neither any officer, director or employee of Seller, nor any spouse, child or other relative of any of these persons, owns, or has any interest, directly or indirectly, in any of the real or personal property owned by or leased to Seller or any Intellectual Property or trade secrets licensed by Seller. 6.10.....Customers and Sales. Schedule 6.10 to this Agreement is a correct and current list of all customers of Seller. Except as indicated in Schedule 6.10, Seller has no information and is not aware of any facts indicating that any of these customers intend to cease doing business with Seller or materially alter the amount of the business that they are presently doing with Seller. 6.11.....Existing Employment Contracts. Schedule 6.11 to this Agreement is a list of all employment contracts and collective bargaining agreements, and all pension, bonus, profit-sharing, stock option or other agreements or arrangements providing for employee remuneration or benefits to which Seller is a party or by which Seller is bound. All of these contracts and arrangements are in full force and effect, and neither Seller nor any other party is in default under them. There have been no claims of defaults and, to Seller's knowledge, there are no facts or conditions which if continued, or on notice, will result in a default under these contracts or arrangements. There is no pending or, to Seller's knowledge, threatened labor dispute, strike or work stoppage affecting the Business. 6.12.....Insurance Policies. Seller has maintained and now maintains (i) insurance on all the Assets of a type customarily insured, covering property damage and loss of income by fire or other casualty, and (ii) adequate insurance protection against all liabilities, claims and risks against which it is customary to insure, including without limitation earthquakes as to properties located in California. 6.13.....Other Contracts. Except as set forth in Schedule 1.1 or Schedule 4, Seller is not a party to, nor are the Assets bound by, any license or service agreement, any output or requirements agreement, any agreement not entered into in the ordinary course of business, any indenture, mortgage, deed of trust, lease or any other agreement that is unusual in nature, duration or amount (including without limitation any agreement requiring the performance by Seller of any obligation for a period of time extending beyond one year from the Closing Date or calling for consideration of more than $25,000 or requiring purchases at prices in excess of, or sales at prices lower than, prevailing market prices). All contracts which will be assigned to or assumed by Buyer under this Agreement are valid and binding upon the parties thereto. There is no default or event that, with notice or lapse of time or both, would constitute a default by any party to any of the agreements listed in Schedule 1.1 or Schedule 4. Seller has not received notice that any party to any of the agreements listed in Schedule 1.1 or Schedule 4 intends to cancel or terminate any of these agreements or to exercise or not exercise any options under any of these agreements. 6.14.....Compliance with Laws. Seller has complied with, and is not in violation of, applicable federal, state or local statutes, laws and regulations (including without limitation any applicable environmental, health, building, zoning or other law, ordinance or regulation) affecting its properties or the operation of the Business. Seller is in possession of all permits, licenses, franchises, consents or authorizations issued by and in compliance with all registrations and filings required by any governmental authority in connection with the Business or the Assets. All of such permits, licenses, franchises and authorizations are valid and in full force and effect. 6.15.....Litigation. Except as set forth in Schedule 6.15, there is no suit, action, arbitration or legal, administrative or other proceeding, or governmental investigation, pending or, to Seller's knowledge, threatened against or affecting Seller, or any of its business, assets or financial condition. The matters set forth in Schedule 6.15, if decided adversely to Seller, will not result in a material adverse change in the business, assets or financial condition of Seller. Seller has furnished or made available to Buyer copies of all relevant court papers and other documents relating to the matters set forth in Schedule 6.15. Seller is not in default with respect to any order, writ, injunction or decree of any federal, state, local or foreign court, department, agency or instrumentality. Except as set forth in Schedule 6.15, Seller is not presently engaged in any legal action to recover moneys due to it or damages sustained by it. 6.16.....Assets Sufficient for Conduct of Business. The Assets, together with the Excluded Assets, constitute all of the assets required for Buyer to conduct the Business as it is presently conducted. 6.17.....Agreement Will Not Cause Breach or Violation. Neither the entry into this Agreement nor the consummation of the transactions contemplated hereby will result in or constitute any of the following: (i) a breach of any term or provision of this Agreement; (ii) a default or an event that, with notice or lapse of time or both, would be a default, breach or violation of the certificate of incorporation or bylaws of Seller or of any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust or other agreement, instrument or arrangement to which Seller is a party or by which Seller or the Assets are bound; (iii) an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other obligation; (iv) the creation or imposition of any lien, charge or encumbrance on any of the Assets; or (v) the violation of any law, regulation, ordinance, judgment, order or decree applicable to or affecting Seller or the Assets. 6.18.....Authority and Consents. Seller has the right, power, legal capacity and authority to enter into, and perform its obligations under, this Agreement, and, except as set forth on Schedule 6.18, no approvals or consents of any persons other than the stockholders of Seller are necessary in connection with it. The execution and delivery of this Agreement and the consummation of this transaction by Seller have been, or prior to the Closing will have been, duly authorized by all necessary corporate action of Seller (including any necessary action by Seller's stockholders). This Agreement constitutes a legal, valid and binding obligation of Seller enforceable in accordance with its terms except as limited by bankruptcy and insolvency laws and by other laws affecting the rights of creditors generally. 6.19.....Interest in Customers, Suppliers and Competitors. Except as set forth in Schedule 6.19, neither Seller nor any officer or director of Seller, nor, to Seller's knowledge, any spouse or child of any of them, has any direct or indirect interest in any competitor, supplier or customer of Seller or in any person with whom Seller is doing business (excluding ownership of less than 10% of any corporation or other entity traded publicly). 6.20.....Employee Identification and Compensation. Schedule 6.20 contains a list of the names of all current officers, directors, employees and manufacturer's representatives of Seller, stating the rates of compensation payable to each and setting forth all vacation time, sick leave and other paid time off accrued for each of them through the Closing Date. No other person, except accountants, auditors and attorneys, regularly performs compensable services for Seller. 6.21.....No Subsidiaries. Seller has no subsidiaries. 6.22.....Environmental Matters. .........(a) Except as set forth in Schedule 6.22, to Seller's knowledge, there have not been any activities on or at the real property leased by the Seller at 2560 9th Street, Suite 220, Berkeley, California or any other real property by Seller (the "Real Property") or at any time during which such property was owned or leased by Seller or at any time prior thereto involving the use, generation, treatment, storage, or Disposal of any Hazardous Substances or Petroleum Products in violation of applicable Environmental Laws (as defined below). .........(b) Except as set forth in Schedule 6.22, to Seller's knowledge, there have not been any Releases or threatened Releases of any Hazardous Substances or Petroleum Products at or from the Real Property at any time during which such property was occupied by Seller or at any time prior thereto that (i) would be in violation of applicable Environmental Laws; or (ii) could give rise to an action to compel an investigation and/or cleanup or to pay material civil administrative fines, penalties or other damages. .........(c) Except as set forth in Schedule 6.22, to Seller's knowledge, there have not been any Hazardous Substances or Petroleum Products located in or on the Real Property at any time during which such property was leased by Seller or at any time prior thereto that (i) would be in violation of applicable Environmental Laws; or (ii) could reasonably be expected to give rise to an action to compel a investigation and/or cleanup or to pay civil administrative fines, penalties or other damages; .........(d) Except as set forth in Schedule 6.22, (i) Seller is now and has been at all times in compliance with all Environmental Laws; (ii) there are no pending environmental litigation, enforcement actions, administrative orders or notices of violation brought under any Environmental Law and Seller does not know of any threats of such litigation, enforcement actions, administrative orders or notices of violation; (iii) Seller has not received any request for information, notice of claim, demand or other notification that it may be potentially responsible for any threatened or actual Release of Hazardous Substance or Petroleum Products; and (iv) Seller has all material permits, licenses, orders, approvals, authorizations, concessions or franchises or every governmental authority having jurisdiction under an Environmental Law required to conduct the Business substantially as it is currently being conducted. All such permits, licenses, orders, approvals, authorizations, concessions and franchises are listed on Schedule 6.22 and are in full force and effect, and, to Seller's knowledge, there is no state of facts or event which could reasonably be expected to form the basis for any revocation, non-renewal or any such permit or authorization. .........(e) Capitalized terms used in this Section 6.22 shall have the following meanings: "Environmental Laws" means any federal, state or local law, regulation, ordinance or order pertaining to the protection of natural resources, the environment and the health and safety of the public, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.ss.9601 et seq., the Resource Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. ss.ss.6901 et seq., the Hazardous Material Transportation Act, as amended, 49 U.S.C. ss.ss.1801 et seq., the Occupational Safety and Health Act, as amended, 29 U.S.C. ss.ss. 651 et seq., California Health & Safety Code ss.ss.19015 and ss.ss.25300 et seq., California Civil Code ss.ss.1102 et seq., and ss.2079, California Civil Procedure Code ss.726 and California Business and Professional Code ss.7180 et seq. "Hazardous Substances" means any oil, flammable substances, explosives, hazardous wastes or substances (including polychlorinated biphenyls), toxic wastes or substances or any other wastes. "Hazardous Wastes" means hazardous wastes as defined by RCRA and the regulations thereunder. "Disposal" means disposal as defined by RCRA and the regulations thereunder. "Petroleum Products" means petroleum, gasoline, oil, fuel oil, diesel fuel and petroleum solvents. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, placing, discharging, injecting, escaping, dumping or disposing into the environment, whether intentional or unintentional. 6.23.....Employee Benefit Plans .........(a) Schedule 6.23 sets forth a true and complete list of all written and oral Employee Benefit Plans (as defined below) and other programs, commitments or funding arrangements maintained by Seller or to which Seller is a party, in respect of, or which otherwise cover or benefit, any Subject Employees (as defined below) or their beneficiaries. .........(b) Except for the Employee Benefit Plans identified in Schedule 6.23, there is no "employee pension benefit plan", "employee welfare benefit plan" or "employee benefit plan" within the meaning of Sections 3(1), 3(2) and 3(3) of the ERISA. No Employee Benefit Plan to which Seller or any ERISA Affiliate (as hereinafter defined) has maintained or contributed to is subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). ..................(c) Capitalized terms used in this Section 6.23 shall have the following meanings: .................. "Employee Plan" includes all pension, retirement, disability, medical, dental or other health insurance plans, life insurance or other death benefit plans, profit sharing, deferred compensation, stock option, bonus or other incentive plans, vacation benefit plans, severance plans or other employee benefit plans or arrangements, including, without limitation, any pension plan as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and any welfare plan as defined in Section 3(1) of ERISA, whether or not funded, covering any Subject Employee or to which Seller is a party or bound or makes or has made any contribution or by which Seller may have any liability to any Subject Employee (including any such plan formerly maintained by or in connection with which Seller may have any liability to any Subject Employee, and any such plan which is a multiemployer plan as defined in Section 3(37) (A) of ERISA). .................."ERISA Affiliate" means a trade or business (whether or not incorporated) which is under common control with Seller within the meaning of Sections 414(b) and 414(c) of the Code or the regulations promulgated thereunder. .................."Subject Employee" includes all current or former officers, directors, employees or consultants who are or were employed or otherwise compensated in connection with activities involving the Assets being purchased. 6.24.....Product Warranties. To Seller's knowledge, no person has asserted any claim or has any reasonable basis for any claim relating to warranties or guaranties with respect to any product, service or contract for Software (as defined in Section 6.25) sold or provided by Seller. 6.25.....Software. Seller owns or is licensed to use all computer software (including databases and related documentation ("Software")) which is material to the conduct of the Business, a list of which is included on Schedule 6.25. Except for non-customized software readily available from multiple sources, Seller is not subject to any commitment to pay royalties or other fees for the use of the Software. To Seller's knowledge, no person or entity is materially interfering with or infringing upon, and no person or entity has misappropriated any of, the Software or source-code owned by Seller ("Owned Software"). To Seller's knowledge, none of such Owned Software infringes upon, is a misappropriation of, or otherwise conflicts with, any patent, copyright, trade secret or other proprietary right of any person. 6.26.....Documents Delivered. Each copy or original of any agreement, contract or other instrument which is identified in any exhibit delivered by Seller or its counsel to Buyer (or its counsel or representatives), whether before or after the execution of this Agreement, is in fact what it is purported to be by Seller and has not been amended, canceled or otherwise modified. 6.27.....Full Disclosure. None of the representations and warranties made by Seller or made in any letter, certificate or memorandum furnished or to be furnished by Seller, or on its behalf, contains or will contain any untrue statement of a material fact, or omits any material fact the omission of which would make the statements made misleading. There is no fact known to Seller which materially adversely affects, or in the future may (so far as Seller can now reasonably foresee) materially adversely affect, the condition, Assets, liabilities, business, operations or prospects of Seller that has not been set forth herein or heretofore communicated to Buyer in writing pursuant hereto. ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT Buyer and Parent hereby represent and warrant to Seller that the following facts and circumstances are true and correct, and hereby acknowledge that such facts and circumstances constitute the basis upon which Seller is induced to enter into and perform this Agreement. Each warranty set forth in this Article 7 shall survive the Closing, as set forth in Article 17. 7.1......Organization. Each of Buyer and Parent is a corporation duly organized, existing and in good standing under the laws of Delaware. 7.2......Authority and Consents. Each of Buyer and Parent has the right, power, legal capacity and authority to enter into, and perform its obligations under, this Agreement, and no approvals or consents of any persons other than Buyer and Parent, as applicable, are necessary in connection with it. The execution and delivery of this Agreement and the consummation of this transaction by Buyer or Parent, as the case may be, has been duly authorized by all necessary corporate action of Buyer or Parent, as the case may be. The execution and delivery of this Agreement and the consummation of this transaction by Buyer and Parent have been duly authorized by all necessary corporate action of Buyer or Parent, as the case may be. This Agreement constitutes a legal, valid and binding obligation of each of Buyer and Parent enforceable in accordance with its terms, except as limited by bankruptcy and insolvency laws and by other laws affecting the rights of creditors generally. 7.3......Agreement Will Not Cause Breach Or Violation. Neither the execution of this Agreement, nor the consummation of the transactions contemplated hereby, will result in or constitute any of the following: (i) a default or an event that, with notice or lapse of time or both, would be a default, breach or violation of the articles of incorporation or bylaws of Buyer or Parent or of any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust or other agreement, instrument or arrangement to which Buyer or Parent is a party or by which Buyer or Parent is bound; (ii) an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other obligation; or (iii) the violation of any law, regulation, ordinance, judgment, order or decree applicable to or affecting Buyer or Parent, other than violations, conflicts, breaches, terminations, accelerations and defaults which could not reasonably be expected to have a material adverse effect on Buyer's or Parent's ability to perform their respective obligations under this Agreement. ARTICLE 8.........OBLIGATIONS OF THE PARTIES BEFORE CLOSING. The parties covenant and agree that, except as otherwise agreed in writing by the parties, from the date of this Agreement until the Closing: 8.1......Buyer's Access to Premises and Information. Buyer, Parent and their counsel, accountants and other representatives shall be entitled to have full access during normal business hours to all of Seller's properties, books, accounts, records, contracts and documents of or relating to the Assets. Seller shall furnish or cause to be furnished to Buyer, Parent and their representatives all data and information concerning the Business, and the finances and properties of Seller that may reasonably be requested. 8.2......Conduct of Business in Normal Course. Seller shall carry on its business and activities diligently and in substantially the same manner as they previously have been carried on, and shall not make or institute any unusual or novel methods of manufacture, purchase, sale, lease, management, accounting or operation that will vary materially from the methods used by Seller as of the date of this Agreement. 8.3......Preservation of Business and Relationships. Seller shall use its best efforts, without making any commitments on behalf of Buyer, to preserve its business organization intact, to keep available to Seller its present officers and employees, and to preserve its present relationships with suppliers, customers and others having business relationships with it. 8.4......Maintenance of Insurance. Seller shall continue to carry its existing insurance, subject to variations in amounts required by the ordinary operations of the Business. At the request of Buyer and at Buyer's sole expense, the amount of insurance against fire and other casualties which, at the date of this Agreement, Seller carries on any of the Assets or in respect of its operations shall be increased by such amount or amounts as Buyer shall specify. 8.5......Employees and Compensation. The parties acknowledge and agree that certain employees of Seller listed in Section 9.11 shall be terminated by Seller and offered employment by Buyer prior to the Closing. Seller shall permit Buyer to contact Seller's employees at all reasonable times for the purpose of discussing with such employees prospective employment by Buyer on or after the Closing Date, and Seller shall use its best efforts to encourage all employees of Seller to accept any employment offered by Buyer. 8.6......New Transactions. Except for transactions contemplated by Seller's proposed acquisition of MCI, Seller shall not do or agree to do any of the following acts: (a) Enter into any contract, commitment or transaction not in the usual and ordinary course of the Business; or (b) Enter into any contract, commitment or transaction in the usual and ordinary course of business involving an amount exceeding $25,000, individually, or $50,000 in the aggregate; or (c) Make any capital expenditures in excess of $25,000 for any single item or $50,000 in the aggregate, or enter into any leases of capital equipment or property under which the annual lease charge is in excess of $25,000; or (d) Sell or dispose of any capital assets with a net book value in excess of $25,000 individually, or $50,000 in the aggregate. 8.7......Payment of Liabilities and Waiver of Claims. Seller shall not do, or agree to do, any of the following acts: (i) pay any obligation or liability, fixed or contingent, other than current liabilities; (ii) waive or compromise any right or claim; or (iii) cancel, without full payment, any note, loan or other obligation owing to Seller. 8.8...... Existing Agreements. Seller shall not modify, amend, cancel or terminate any of the contracts or agreements to be assigned to Buyer pursuant to this Agreement, or agree to do any of those acts. 8.9......Consent of Others. As soon as reasonably practical after the execution and delivery of this Agreement, and in any event on or before the Closing Date, Seller shall obtain the written consent of the persons described in Schedule 6.18 to this Agreement in form and substance satisfactory to Buyer and shall furnish to Buyer executed copies of those consents. 8.10.....Representations and Warranties True at Closing. Seller shall use its best efforts to assure that all representations and warranties of Seller set forth in this Agreement and in any written statements delivered to Buyer by Seller under this Agreement will also be true and correct as of the Closing Date as if made on that date and that all conditions precedent to Closing shall have been met. Seller shall promptly disclose to Buyer any information contained in the Schedules to this Agreement which, because of an event occurring after the date hereof, is incomplete or is no longer correct as of all times after the date hereof until the Closing Date; provided, however, that none of such disclosures shall be deemed to modify, amend or supplement the representations and warranties of Seller or the Schedules hereto for the purposes of Article 12 hereof, unless Buyer shall have consented thereto in writing. 8.11.....Sales and Use Tax on Prior Sales. Seller agrees to use its best efforts to furnish to Buyer a clearance certificate from the appropriate governmental agency and any related certificates that Buyer may reasonably request as evidence that all sales and use and other tax liabilities of Seller (other than income tax liabilities) accruing before the Closing Date have been fully satisfied or provided for. 8.12.....Statutory Filings. Seller shall file, and shall cooperate fully with Buyer in preparing and filing, all information and documents necessary or desirable under any statutes or governmental rules or regulations pertaining to the transactions contemplated by this Agreement. 8.13.....Negotiations with Certain Customers. Seller agrees to negotiate with HBO & Company of Georgia ("HBOC") and Intel to evaluate the current state of their respective agreements, contracts and relationships. 8.14.....License Agreement. Seller and Buyer shall enter into a license agreement in substantially the form of Exhibit A attached hereto (the "Interim License Agreement"), pursuant to which Seller grants to Buyer an exclusive license to use the Software from the date of this Agreement until the Closing Date. 8.15.....Sublease. Seller and Buyer shall enter into a Sublease in substantially the form of Exhibit B attached hereto (the "Sublease"), pursuant to which Buyer shall sublease from Seller the premises located at 2560 Ninth Street, Suite 220, Berkeley, California from the date of this Agreement until the Closing Date. ARTICLE 9.........CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE The obligations of Buyer to purchase the Assets under this Agreement are subject to the satisfaction, at or before the Closing, of all the conditions set forth in this Article 9. Buyer may waive any or all of these conditions in accordance with Section 15.2 hereof; provided, however, that no such waiver of a condition shall constitute a waiver by Buyer of any of its other rights or remedies, at law or in equity, if Seller shall be in default of any of its representations, warranties or covenants under this Agreement. 9.1......Accuracies of Seller's Representations and Warranties. All representations and warranties by Seller in this Agreement or in any written statement that shall be delivered to Buyer by Seller under this Agreement shall be true in all material respects on and as of the Closing Date as though made at that time. 9.2......Absence of Liens. At or prior to the Closing, Buyer shall have received a UCC search report dated as soon as practicable prior to the Closing Date issued by the appropriate governmental authorities indicating that there are no filings under the Uniform Commercial Code on file with such governmental authority which name Seller as debtor or otherwise indicating any lien on the Assets, except for the liens otherwise disclosed in the Schedules hereto. 9.3......Seller's Performance. Seller shall have performed, satisfied and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by Seller on or before the Closing Date. 9.4......Certification by Seller. Buyer shall have received a certificate, dated the Closing Date, signed by Seller's president or vice president or its chief financial officer, certifying, in such detail as Buyer and its counsel may reasonably request, that all representations and warranties of Seller made in Article 6 are true and correct as of the Closing Date and that the conditions specified in Sections 9.1 and 9.3 have been fulfilled. 9.5......Assignment and Assumption Agreements. Seller and Buyer shall have entered into assignment and assumption agreements for the License Agreements and any other agreements of Seller to be assumed pursuant to Article 4, in form and substance reasonably satisfactory to Buyer's counsel. 9.6......Bill of Sale. Seller shall have executed a bill of sale in substantially the form of Exhibit C attached hereto, with respect to the Assets. 9.7......Opinion of Seller's Counsel. Buyer shall have received from Gray Cary Ware & Freidenrich, LLP, counsel for Seller, an opinion dated the Closing Date, in form reasonably satisfactory to Buyer's counsel . 9.8......Absence of Litigation. No action, suit or proceeding before any court or any governmental body or authority, pertaining to the transaction contemplated by this Agreement or to its consummation, shall have been instituted or threatened on or before the Closing Date. 9.9......Corporate Approval. The execution and delivery of this Agreement by Seller, and the performance of its covenants and obligations under it, shall have been duly authorized by all necessary corporate action, and Buyer shall have received copies of all resolutions of directors and stockholders pertaining to that authorization, certified by the secretary of Seller. 9.10.....Good Standing Certificate. Buyer shall have received a good standing certificate for Seller dated as soon as practicable prior to the Closing Date, issued by the appropriate governmental authorities. 9.11.....Consents. All agreements and consents of any parties to the consummation of the transaction set forth on Schedule 6.18 shall have been obtained by Seller and delivered to Buyer. 9.12.....Approval of Documentation. The form and substance of all certificates, instruments, opinions and other documents delivered to Buyer under this Agreement shall be satisfactory in all reasonable respects to Buyer and its counsel. 9.13.....Employment Arrangements.. Buyer shall have entered into employment arrangements with each of Gerald Zieg, James Martin, Brian Cronin, Mark Fossen, Vicky Hilton, Jessica Radocy, Jan Maisler and Tim Wheeler. 9.14.....Bulk Transfer Notice. Division 6 of the California Uniform Commercial Code shall have been complied with or waived. 9.15.....Change of Corporate Name. Seller shall have changed its corporate name to a name not using "HealthDesk" or any similar name. 9.16.....Condition of Assets. The Assets shall not have been materially or adversely affected in any way as a result of any fire, accident, storm or other casualty or labor or civil disturbance or act of God or the public enemy. 9.17.....MIIX Agreement.. Buyer shall have entered into a royalty agreement with MIIX Healthcare Group, Inc. 9.18.....HBOC Agreement. HBOC shall amend its existing agreement with Seller, which shall be assigned to Buyer pursuant thereto, or Buyer shall have entered into a revised marketing agreement with HBOC. ARTICLE 10........CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE The obligations of Seller to sell and transfer the Assets under this Agreement are subject to the satisfaction, at or before the Closing, of all the following conditions: 10.1.....Accuracy of Buyer's and Parent's Representations and Warranties. All representations and warranties by Buyer and Parent contained in this Agreement or in any written statement delivered by Buyer or Parent under this Agreement shall be true on and as of the Closing Date as though such representations and warranties were made on and as of that date. 10.2.....Buyer's and Parent's Performance. Before or at the Closing, Buyer and Parent shall have performed and complied with all covenants and agreements, and satisfied all conditions required by this Agreement to be performed, complied with, or satisfied. 10.3.....Payment of Purchase Price. Buyer shall deliver to Seller against delivery of the items specified in Article 9 hereof a certified or bank cashier's check, or a wire transfer of immediately available funds, in the amount of $626,278, payable to Seller. ARTICLE 11........OBLIGATIONS OF THE PARTIES AFTER THE CLOSING 11.1.....Preservation of Goodwill. Following the Closing, Seller will restrict its activities so that Buyer's reasonable expectations with respect to the goodwill, business reputation, employee relations and prospects connected with the Assets will not be materially impaired. In furtherance but not in limitation of this general obligation, Seller agrees that, for a period of three years following the Closing Date, or as long as Buyer or its heirs, assigns or successors in interest carry on a like business in the counties or areas specified, whichever is shorter: (a) Seller will not engage in any business or activity which is substantially the same as, or represents an outgrowth of, any business or activity presently conducted by Seller if such business or activity extends to any of the geographic areas set forth in Schedule 11.1 in which Seller has heretofore engaged in business or otherwise established its goodwill, business reputation, or any customer relations. The parties intend that the covenant contained in the preceding portion of this Section 11.1(a) shall be construed as a series of separate covenants, one for each geographic area specified in Schedule 11.1. Except for geographic coverage, each separate covenant shall be deemed identical in terms to the covenant contained in the preceding paragraph. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in this Section, then this unenforceable covenant shall be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. (b) Seller will not disclose to any person, or use for its own benefit, any price lists, pricing data, customer lists or similar matters possessed by them relating to the Assets or the Business transferred to Buyer unless it first clearly demonstrates to Buyer that such matters are, at the time of the proposed disclosure or use, of common knowledge within the trade. 11.2.....Change of Name. Seller agrees that after the Closing Date it shall not use or employ in any manner, directly or indirectly, the name "HealthDesk", or any variation thereof, and that it will take and cause to be taken all necessary action by Seller's board of directors, stockholders and any other persons in order to make this change in Seller's name effective on or before the Closing Date. 11.3.....Access to Records. From and after the Closing, Seller shall allow Buyer, and its counsel, accountants and other representatives, such access to records which after the Closing are in the custody or control of Seller as Buyer reasonably requires in order to comply with its obligations under the law or under contracts assumed by Buyer pursuant to this Agreement. 11.4.....Nonsolicitation of Employees. Seller shall not, prior to the third anniversary of the Closing, solicit any employee of Buyer or Parent or of any direct or indirect subsidiary of Buyer or Parent to leave such employment if such employee was at any time between the date hereof and the Closing an employee of Seller. 11.5.....Further Assurances. At any time after the Closing Date, each of Seller, Buyer and Parent shall execute, acknowledge and deliver any further deeds, assignments, conveyances and other assurances, documents and instruments of transfer, reasonably requested by any other party, and shall take any other action consistent with the terms of this Agreement that may reasonably be requested by such other party in furtherance of the transactions contemplated by this Agreement. 11.6.....Termination of IAC Contract. Buyer agrees to pay to Information Access Company ("IAC"), on or about November 15, 1998 or the Closing Date, whichever is later, the sum of $65,000 in connection with the termination of that certain Online Vendor License Agreement, dated August 12, 1996, between IAC and Seller, as amended (the "IAC Agreement"); provided, however, that IAC agrees to continue its obligations under the IAC Agreement, and Buyer shall be entitled to all of Seller's rights under the IAC Agreement, until February 28, 1999. ARTICLE 12. INDEMNIFICATION 12.1.....Indemnification by Seller. Seller shall defend, indemnify and hold harmless each of Buyer, Parent and their respective employees, successors and assigns (Buyer, Parent and such persons, collectively, "Buyer's Indemnified Persons"), and shall reimburse Buyer's Indemnified Persons, for, from and against each and every demand, claim, loss (which shall include any diminution in value), liability, judgment, damage, cost and expense (including, without limitation, interest, penalties, costs of preparation and investigation, and the reasonable fees, disbursements and expenses of attorneys, accountants and other professional advisors) (collectively, "Losses") imposed on or incurred by Buyer's Indemnified Persons, directly or indirectly, relating to, resulting from or arising out of: (a) any inaccuracy in any representation or warranty, or any breach or nonfulfillment of any covenant, agreement or other obligation of the Seller under this Agreement, the schedules hereto or any certificate or other document delivered or to be delivered pursuant hereto; and (b) any obligation of Seller relating to the Assets and any other matter arising out of or related to the operation of the Business arising prior to or on the Closing Date. The maximum liability of Seller under this Section 12.1 shall be limited to the Purchase Price. 12.2.....Indemnification by Buyer and Parent. Buyer and Parent shall defend, indemnify and hold harmless the Seller, its successors and assigns (Seller and such persons, collectively, "Seller's Indemnified Persons"), and shall reimburse Seller's Indemnified Persons, for, from and against all Losses imposed on or incurred by Seller's Indemnified Persons, directly or indirectly, relating to, resulting from or arising out of: (a) any inaccuracy in any representation or warranty, or any breach or non-fulfillment of any covenant, agreement or other obligation of Buyer or Parent under this Agreement or any certificate or other document delivered or to be delivered pursuant hereto; and (b) any obligation of Buyer relating to the License Agreements or any other matter arising out of or related to the operation of the Business arising after the Closing Date. 12.3.....Notice and Defense of Third Party Claims. If any action, claim or proceeding shall be brought or asserted under this Article 12 against an indemnified party or any successor thereto (the "Indemnified Person") in respect of which indemnity may be sought under this Article 12 from an indemnifying person or any successor thereto (the "Indemnifying Person"), the Indemnified Person shall give prompt written notice of such action or claim to the Indemnifying Person who shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of all expenses; except that any delay or failure to so notify the Indemnifying Person shall relieve the Indemnifying Person of its obligations hereunder only to the extent, if at all, that it is prejudiced by reason of such delay or failure. The Indemnified Person shall have the right to employ separate counsel in any of the foregoing actions, claims or proceedings and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person unless both the Indemnified Person and the Indemnifying Person are named as parties and the Indemnified Person shall in good faith determine that representation by the same counsel is inappropriate due to material conflicts of interest. In the event that the Indemnifying Person, within ten days after notice of any such action or claim, fails to assume the defense thereof, the Indemnified Person shall have the right to undertake the defense, compromise or settlement of such action, claim or proceeding for the account of the Indemnifying Person, subject to the right of the Indemnifying Person to assume to the defense of such action, claim or proceeding with counsel reasonably satisfactory to the Indemnified Person at any time prior to the settlement, compromise or final determination thereof. Anything in this Article 12 to the contrary notwithstanding, the Indemnifying Person shall not, without the Indemnified Person's prior written consent, settle or compromise any action or claim or proceeding or consent to entry of any judgment with respect to any such action or claim that requires solely the payment of money damages by the Indemnifying Person and that includes as an unconditional term thereof the release by the claimant or the plaintiff of the Indemnified Person from all liability in respect of such action, claim or proceeding. ARTICLE 13. COSTS. 13.1.....Finder's or Broker's Fees. Each of the parties represents and warrants that it has not dealt with any broker or finder in connection with any of the transactions contemplated by this Agreement, and, insofar as it knows, no broker or other person is entitled to any commission or finder's fee in connection with any of these transactions. 13.2.....Expenses. Each of the parties shall pay all costs and expenses, including but not limited to attorneys' fees, incurred or to be incurred by it in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement. ARTICLE 14. FORM OF AGREEMENT. 14.1.....Headings. The subject headings of the Articles and Sections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. 14.2.....Entire Agreement; Modification; Waiver. This Agreement, together with the License Agreement and the Voting Agreement, constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all the parties. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 14.3.....Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ARTICLE 15. PARTIES 15.1.....Parties in Interest. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties hereto and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over against any party hereto. 15.2.....Assignment. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. ARTICLE 16. TERMINATION 16.1.....Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Closing Date by the mutual written consent of Buyer and Seller. 16.2.....Termination by Buyer or Seller. This Agreement may be terminated at any time prior to the Closing Date by Buyer or Seller (i) if the Closing has not occurred on or before November 30, 1998, unless the party seeking to invoke this subclause (i) is then in material breach of any of its obligations hereunder; (ii) if a court of competent jurisdiction or any governmental authority shall have issued an order, decree or ruling or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable, or (iii) if the other party shall have breached or failed to comply in all material respects with its representations, warranties, covenants and agreements contained in this Agreement; provided, however, that if such breach or failure is reasonably capable of being cured on or before November 30, 1998 and such party commences such cure as soon as practicable and diligently prosecutes (subject to any other limitations of this Agreement) such cure, such party shall be entitled to postpone the Closing Date for a period reasonably sufficient to effect such cure to the reasonable satisfaction of the party asserting such breach or failure, but in no event beyond November 30, 1998. 16.3.....Effect of Termination. In the event of termination of this Agreement pursuant to this Article 16, no party hereto (or, in the case of Buyer, any of its directors or officers) shall have any liability or further obligation to any other party to this Agreement, provided that, if this Agreement is so terminated by a party because one or more of the conditions to such party's obligations hereunder is not satisfied as a result of the other party's willful failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies for breach of contract or otherwise, including, without limitation, damages relating thereto, shall also survive such termination unimpaired. ARTICLE 17. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties, covenants and agreements of the parties contained in this Agreement, or in any instrument, certificate, opinion or other writing provided for hereunder, shall survive the Closing for a period of one year. ARTICLE 18. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail registered or certified, postage prepaid, and properly addressed as follows: Buyer and Parent: Patient InfoSystems, Inc. Patient InfoSystems Acquisition Corp. 46 Prince Street Rochester, New York 14607 Attn: Donald A. Carlberg with copy to: Gibbons, Del Deo, Dolan, Griffinger & Vecchione A Professional Corporation One Riverfront Plaza Newark, New Jersey 07102-5497 Attn: Jeffrey A. Baumel, Esq. Seller: HealthDesk Corporation c/o Equity Dynamics 2116 Financial Center Des Moines, Iowa 50309 Attn: Joseph Dunham with copy to: Gray Cary Ware & Freidenrich, LLP 400 Hamilton Avenue Palo Alto, California 94301-1825 Attn: Peter M. Astiz, Esq. Any party may change its address for purposes of this Article by giving the other parties written notice of the new address in the manner set forth above. ARTICLE 19. GOVERNING LAW This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York, without giving effect to conflicts of laws principles. ARTICLE 20. MISCELLANEOUS 20.1.....Recovery of Litigation Costs. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 20.2.....Announcements. Seller shall not make any announcements to the public or to employees of Seller concerning this Agreement or the transactions contemplated hereby without the prior approval of Buyer, which will not be unreasonably withheld. Notwithstanding any failure of Buyer to approve it, Seller may make an announcement of substantially the same information as theretofore announced to the public by Buyer, or any announcement required by applicable law, but Seller shall in either case notify Buyer of the contents thereof reasonably promptly in advance of its issuance. 20.3.....References. Unless otherwise specified, references to Sections or Articles are to Sections or Articles in this Agreement. IN WITNESS WHEREOF, the parties to this Agreement have duly executed it as of the day and year first above-written. BUYER: PATIENT INFOSYSTEMS ACQUISITION CORP. By: /s/ Donald A. Carlberg Name: Donald A. Carlberg Title: President PARENT: PATIENT INFOSYSTEMS, INC. By: /s/ Donald A. Carlberg Name: Donald A. Carlberg Title: President SELLER: HEALTHDESK CORPORATION By: /s/ Terry Brandt Name: Terry Brandt Title: Chief Technical Officer EX-10 3 EXHIBIT 10.16 EXHIBIT 10.16 AMENDMENT TO ASSET PURCHASE AGREEMENT THIS AMENDMENT TO ASSET PURCHASE AGREEMENT, effective as of December 1, 1998, by and among PATIENT INFOSYSTEMS ACQUISITION CORP., a Delaware corporation ("Buyer"); PATIENT INFOSYSTEMS, INC., a Delaware corporation ("Parent"); and HEALTHDESK CORPORATION, a California corporation ("Seller"). RECITALS: WHEREAS, the parties are parties to an Asset Purchase Agreement, dated as of September 29, 1998 (the "Agreement"; capitalized terms used herein and not otherwise defined have the meanings set forth in the Agreement), pursuant to which Seller has agreed to sell to Buyer, and Buyer has agreed to purchase from Seller, substantially all of the assets and properties used in the Business; WHEREAS, the parties desire to amend the Agreement to extend the closing date and termination dates, all as more fully set forth herein. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: 1........Article 3 of the Agreement is amended to change the reference to "November 30, 1998" in the last sentence to "January 31, 1999." 2........Section 16.2 of the Agreement is amended to change each reference to "November 30, 1998" therein to "January 31, 1999." 3........Except as specifically amended by and/or inconsistent with this Amendment, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect and are hereby ratified, adopted and confirmed in all respects. All references to the Agreement in any document or instrument shall hereafter be deemed to refer to the Agreement as amended by this Amendment. 4........This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement and shall become effective when one or more counterparts have been executed by each of the parties and delivered to the others. 5........This Amendment shall be governed by the laws of the State o New York. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year set forth above. ......... PATIENT INFOSYSTEMS ......... ACQUISITION CORP. ......... By: /s/ Donald A. Carlberg ----------------------- ......... Name: Donald A. Carlberg ......... Title: President & CEO ......... PATIENT INFOSYSTEMS, INC. ....... By: /s/ Donald A. Carlberg ---------------------- ......... Name: Donald A. Carlberg ......... Title: President & CEO ......... HEALTHDESK CORPORATION ......... By: /s/ Joseph R. Dunham II ------------------------ ......... Name: Joseph R. Dunham II ......... Title: Director EX-10 4 EXHIBIT 10.17 EXHIBIT 10.17 SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT THIS SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT, effective as of February 1, 1999, by and among PATIENT INFOSYSTEMS ACQUISITION CORP., a Delaware corporation ("Buyer"); PATIENT INFOSYSTEMS, INC., a Delaware corporation ("Parent"); and HEALTHDESK CORPORATION, a California corporation ("Seller"). RECITALS: WHEREAS, the parties are parties to an Asset Purchase Agreement, dated as of September 29, 1998, as amended by First Amendment to Asset Purchase Agreement, effective as of December 1, 1998 (the Asset Purchase Agreement, as so amended, the "Agreement"; capitalized terms used herein and not otherwise defined have the meanings set forth in the Agreement), pursuant to which Seller has agreed to sell to Buyer, and Buyer has agreed to purchase from Seller, substantially all of the assets and properties used in the Business; WHEREAS, the parties desire to further amend the Agreement to extend the closing date and termination dates, all as more fully set forth herein. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: 1........Article 3 of the Agreement is amended to change the reference to "January 31, 1999" in the last sentence to "March 15, 1999." 2........Section 16.2 of the Agreement is amended to change each reference to "January 31, 1999" therein to "March 15, 1999." 3........Except as specifically amended by and/or inconsistent with this Second Amendment, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect and are hereby ratified, adopted and confirmed in all respects. All references to the Agreement in any document or instrument shall hereafter be deemed to refer to the Agreement as amended by this Second Amendment. 4........This Second Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement and shall become effective when one or more counterparts have been executed by each of the parties and delivered to the others. 5........This Second Amendment shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date and year set forth above. ......... PATIENT INFOSYSTEMS ......... ACQUISITION CORP. ......... By: /s/ Donald A. Carlberg ----------------------- ......... Name: Donald A. Carlberg ......... Title: President & CEO ......... PATIENT INFOSYSTEMS, INC. ......... By: /s/ Donald A. Carlberg ----------------------- ......... Name: Donald A. Carlberg ......... Title: President & CEO ......... HEALTHDESK CORPORATION ......... By: /s/ Terry M. Brandt -------------------- ......... Name: Terry M. Brandt ......... Title: Vice President EX-10 5 EXHIBIT 10.18 EXHIBIT 10.18 SUBLEASE THIS SUBLEASE (the "Sublease") is made as of the 29th day of September, 1998, between HEALTHDESK CORPORATION, a California corporation, having its principal place of business at 2560 Ninth Street, Suite 220, Berkeley, California 94710 ("Sublandlord") and PATIENT INFOSYSTEMS ACQUISITION CORP., a Delaware corporation, having its principal place of business at 46 Prince Street, Rochester, New York 14607 ("Subtenant"). RECITALS: A. Sublandlord is tenant under an Office Lease (the "Prime Lease," a complete copy of which is annexed hereto as Schedule A) dated September 11, 1995 with Parker Associates, a California limited partnership (the "Prime Lessor"), relating to property identified as Suite 220 in Parker Plaza, 2560 Ninth Street, Berkeley, California, more particularly described in the Prime Lease, and referred to herein as the "Premises." B. Sublandlord desires to sublet to Subtenant, and Subtenant desires to sublet from Sublandlord, all of the Premises. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree: 1........Sublease. Sublandlord hereby subleases the Premises to Subtenant, and Subtenant hereby subleases the Premises from Sublandlord, on the terms and conditions hereinafter set forth. 2........Term of Sublease. The Sublease shall commence on the date hereof (the "Commencement Date") and shall be a month-to-month tenancy terminable upon 10 business days advance written notice by either party. 3........Rent. Subtenant shall pay Sublandlord the Rent at the office of Sublandlord first above appearing, or at such other place as Sublandlord may designate in writing. Rent shall be payable in equal monthly installments in advance on the first day of each calendar month during the Term. 4........Occupancy. Subject to the terms and provisions hereinafter set forth, Subtenant shall be permitted to enter into occupancy of the Premises on the Commencement Date. 5........Prime Lease; Inapplicable Provisions. This Sublease is subject to and subordinate to the Prime Lease, and all defined terms used herein, unless otherwise indicated, shall have the meanings given to them in the Prime Lease. The term "Landlord" as used in the Prime Lease shall refer to Sublandlord hereunder, "Tenant" as used in the Prime Lease shall refer to Subtenant hereunder, "Commencement Date" shall refer to the Commencement Date of this Sublease and "Term" shall refer to the Term of this Sublease, except as otherwise expressly provided in this Sublease. The obligations of Sublandlord in the Prime Lease shall be the obligations of Subtenant hereunder, and Subtenant assumes and shall perform all of the terms of the Prime Lease to be performed by Sublandlord as tenant thereunder with respect to the Premises for the term of this Sublease, except to the extent the provisions of the Prime Lease are inconsistent with or are superseded or supplemented by specific terms and provisions of this Sublease. The following provisions of the Prime Lease shall not apply to this Sublease: .........(a) The Term (paragraph 3(a)); .........(b) Security Deposit (paragraph 15); .........(c) Rental Adjustment (paragraph 29); .........(d) Taxes Payable by Tenant (paragraph 30); and .........(e) Basic Operating Costs (Paragraph 38). 6. Prime Lease Indemnity. Subtenant shall neither do nor permit anything to be done which would cause the Prime Lease to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in the Prime Lessor under the Prime Lease, and Subtenant shall indemnify and hold Sublandlord harmless from and against all claims of any kind whatsoever by reason of any breach or default on the part of Subtenant by reason of which the Prime Lease may be terminated or forfeited. 7. "As Is" Condition. Subtenant has inspected the Premises and accepts the same from Sublandlord in its present condition "as is." Subtenant acknowledges and agrees with Sublandlord that neither Sublandlord, nor any employee of Sublandlord, nor other party claiming to act on Sublandlord's behalf has made any representation, warranty, estimation, or promise of any kind or nature whatsoever relating to the physical condition of the Premises. 8. Prime Lessor Consent. The Sublease shall be of no force and effect, and the parties shall have no rights or liabilities hereunder, until the terms hereof are approved in writing by Prime Lessor. Either party can terminate this Sublease if the contingency in the prior sentence has not been satisfied or waived by September 30, 1998. 9........Miscellaneous. .........(a) Each party warrants that it is authorized to enter into the Sublease, that the person signing on its behalf is duly authorized to execute the Sublease, and that no other signatures are necessary. .........(b) All prior understandings and agreements between the parties with respect to the subject matter hereof are merged within this Sublease, which alone fully and completely sets forth the understanding of the parties. This Sublease shall not be modified, altered or amended in any way except by agreement in writing, signed by the parties hereto. .........(c) The terms, covenants and conditions contained in this Sublease shall be binding on and inure to the benefit of the parties hereto and their respective permitted successors and permitted assigns. .........(d) If any provision of the Sublease is invalid or unenforceable to any extent, then that provision and the remainder of this Sublease shall continue in effect and be enforceable to the fullest extent permitted by law. .........(e) The parties chose this Sublease document because it is fair to both parties. Therefore, the parties agree that it shall be construed as if both parties were equally responsible for drafting the Sublease and the rule of construction of construing against the drafter shall not apply. .........(f) This Sublease shall be governed by the laws of the State of California. .........(g) This Sublease shall not be binding unless signed by both parties and an originally signed counterpart is delivered to Subtenant. .........(h) Subtenant warrants and represents to Sublandlord that this Sublease and the transaction contemplated hereby is legally binding on, and enforceable against Subtenant in accordance with its terms. .........(i) Notices shall be sent and deemed to have been given as provided in Paragraph 28 of the Prime Lease, to Sublandlord and Subtenant at their addresses in the first paragraph of this Sublease. INTENDING TO BE LEGALLY BOUND, this instrument has been executed as of the day and year first appearing. ......... SUBLANDLORD: ......... EALTHDESK CORPORATION ......... By: /s/ Terry M. Brandt -------------------- ......... Name: Terry M. Brandt ......... Title: Chief Technical Officer ......... SUBTENANT: ......... PATIENT INFOSYSTEMS ......... ACQUISITION CORP. ......... By: /s/ Donald A. Carlberg ---------------------- ......... Name: Donald A. Carlberg ......... Title: President EX-10 6 EXHIBIT 10.19 EXHIBIT 10.19 CONSULTING AGREEMENT THIS AGREEMENT dated as of March 8, 1999 between PATIENT INFOSYSTEMS, INC., a Delaware corporation (the "Company"), and JOHN V. CRISAN, having an address at 591 Fallen Leaf Way, Incline Village, NV 89451 (the "Consultant"). R E C I T A L S: WHEREAS, the Company desires to retain the Consultant as a consultant to the Company and a member of the Board of Directors on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: 1.1 "Basic Consulting Fee" shall have the meaning assigned to that term in Section 5 of this Agreement. 1.2 "Board" shall mean the Board of Directors of the Company as duly constituted from time to time. 1.3 "Business" shall mean the business of the provision of patient-centered health care information systems and services to manage, collect and analyze information to improve patient compliance with prescribed treatment protocols, to improve the process of off-site patient management and to enhance patient and provider information. 1.4 "Cause" shall mean any of the following: (a) The conviction of Consultant for a felony, or the willful commission by Consultant of a criminal act that in the reasonable judgment of the Company, causes or will likely cause substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) The commission by Consultant of an act of fraud, misappropriation, embezzlement, theft, dishonesty or breach of duty of loyalty in the performance of Consultant's duties on behalf of the Company; or (c) The willful failure of Consultant to perform or Consultant's gross negligence in the performance of the material duties of Consultant to the Company (other than any such failure resulting from Consultant's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Consultant by the Company. For purposes of this subparagraph, no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. 1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations issued thereunder. 1.6 "Confidential Information" shall include, without limitation by reason of specification, any information, including, without limitation, trade secrets, vendor and customer lists, pricing policies, operational methods, methods of doing business, technical processes, formulae, designs and design projects, inventions, research projects, strategic plans, product information, manufacturing and advertising know-how, possible acquisition information and other business affairs of the Company, which (i) is or are designed to be used in, or are or may be useful in connection with the Business, or which results from any of the research or development activities of the Business, or (ii) is private or confidential in that it is not generally known or available to the public, except as the result of unauthorized disclosure by or information supplied by the Consultant, or (iii) gives the Company an opportunity or the possibility of obtaining an advantage over competitors who may not know or use such information or who are not lawfully permitted to use the same. 1.7 "Disability" shall mean the inability of the Consultant to perform the Consultant's Duties for the Company pursuant to the terms of this Agreement, because of physical or mental disability, where such disability shall have existed for a period of more than 180 days in any 365 day period. The existence of a Disability means that the Consultant's mental and/or physical condition substantially interferes with the Consultant's performance of his Duties for the Company as specified in this Agreement. The fact of whether or not a Disability exists hereunder shall be determined by appropriate medical experts selected by the Board. 1.8 "Duties" shall have the meaning assigned to that term in Section 2 of this Agreement. 1.9 "Consulting Year" shall mean each twelve-month period, or part thereof, during which the Consultant is retained hereunder, commencing on the Commencement Date and ending on the same day of the subsequent calendar year. 1.10 "Term Date" shall be the date on which the Term expires if during the period of the initial Term or the date that the Renewal Term expires if during the period of the Renewal Term. 1.11 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 1.12 "Term" shall have the meaning assigned to that term in Section 3 of this Agreement and any renewals thereof as provided for in Section 7 of this Agreement. 1.13 "Renewal Term" shall have the meaning assigned to that term in Section 7 of this Agreement. 1.14 "Voting Stock" shall mean the Common Stock of the Company, par value $.01 per share. Wherever from the context it appears appropriate, each word or phrase stated in either the singular or the plural shall include the singular and the plural, and each pronoun stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 2. RETENTION AND DUTIES OF THE CONSULTANT The Company agrees to retain the Consultant, and the Consultant agrees to be retained by the Company upon the terms and conditions hereinafter provided. During the Term, the Consultant agrees to serve as a consultant to the Company and a member of the Board and will have such powers and duties as set forth on Exhibit A, as are commensurate with such position and as may be conferred upon him by the Board (the "Duties"). The Consultant shall devote such amount of time, attention, skill and efforts to his duties as a Board member and to such other Consultant duties as are reasonably assigned to him from time to time by the Board; provided, however, that Consultant shall not provide less than 24 nor be obligated to devote more than 30 weeks per year toward the performance of his duties hereunder. During the Term, Consultant: (i) shall comply with all laws, statutes, ordinances, rules and regulations relating to the Business, and (ii) shall not engage in or become employed, directly or indirectly, in a business which competes with the Business of the Company, without the prior written consent of the Chief Executive Officer of the Company, nor shall he act as a consultant to or provide any services to, whether on a remunerative basis or otherwise, the commercial or professional business of any other Person which competes with the Business of the Company, without such written consent, which, in both instances, may be given or withheld by the Chief Executive Officer in his absolute discretion. 3. TERM OF RETENTION The retention of the Consultant pursuant to this Agreement shall be for the period of two (2) years (the "Term") commencing on the date hereof (the "Commencement Date"), unless renewed pursuant to Section 7 or sooner terminated pursuant to Section 8. 4. COMPENSATION AND BENEFITS The Company shall pay the Consultant, as compensation for all of the services to be rendered by him hereunder during the Term, and in consideration of the various restrictions imposed upon the Consultant during the Term, the Basic Consulting Fee and other benefits as provided for and determined pursuant to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no compensation shall be paid to the Consultant under this Agreement for any period subsequent to the termination of the Consultant for any reason whatsoever, except as provided in Section 8. 5. BASIC CONSULTING FEE The Company shall pay the Consultant, as compensation for all of the services to be rendered by him hereunder during each Year, a fee of $5,000 per week during which services are provided by the Consultant to the Company (the "Basic Consulting Fee"), payable monthly, less such deductions or amounts as are required to be deducted or withheld by applicable laws or regulations, deductions for the Consultant contributions to welfare benefits provided by the Company to the Consultant and such other deductions or amounts, if any, as are authorized by the Consultant. The Basic Consulting Fee shall be prorated for portions of weeks for which services are rendered. The Basic Consulting Fee shall also be prorated for the month in which retention by the Company commences or terminates. 6. ADDITIONAL BENEFITS, REIMBURSEMENT FOR EXPENSES AND STOCK OPTIONS 6.1 Additional Benefits. Except as provided in Sections 6.2 and 6.3 herein, the Company shall not provide any additional benefits to the Consultant. It is expressly understood that Consultant is not an employee of the Company and is therefore not entitled to participate or share in the Company's insurance, health or other benefit plans. 6.2 Reimbursement for Expenses. The Company shall pay or reimburse the Consultant for all reasonable business expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, including business-related travel expenses to and from his home inNevada and Rochester, New York and temporary housing expenses in Rochester, New York, upon presentation of such bills, expense statements, vouchers or such other supporting information as the Board may reasonably require. 6.3 Stock Options. (a) On the date hereof, the Company shall grant the Consultant options to purchase during a ten (10) year term up to an aggregate of 150,000 shares of Common Stock of the Company, par value $.01 per share (the "Shares"), at a price of $1.50 per share, which options, to the extent possible, shall qualify as Incentive Stock Options under the Company's Stock Option Plan and which options shall vest as follows: (i) Options to purchase first 75,000 Shares shall vest on the first anniversary of this Agreement; (ii) Options to purchase the next 37,500 Shares shall vest on the second anniversary of this Agreement; (iii) Options to purchase the final 37,500 Shares shall vest on the third anniversary of this Agreement; provided, however, that no options shall vest if the Consultant is not retained by the Company on the date of vesting. (b) In the event of a Change of Control of the Company, all options granted hereunder shall immediately vest. For purposes of this Agreement, a "Change of Control" of the Company shall be deemed to have occurred upon the earliest of the following events: (i) any "person," as such term is defined under Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") who is not an Affiliate of Company on the date hereof, becomes a "beneficial owner," as such term is used in Rule 13d-3 under the Exchange Act, of a majority of the Company's Voting Stock; (ii) the Company adopts any plan of liquidation providing for the distribution of all or substantially all of its assets; or (iii) the Company is party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, unless the business of Company is continued following any such transaction by a resulting entity (which may be, but need not be, Company) and the shareholders of Company immediately prior to such transaction hold, directly or indirectly, a majority of the voting power of the resulting entity. 7. RENEWAL OF TERM If the Consultant's retention hereunder has not previously been terminated in accordance with Section 8 hereof, then the Term shall be extended only upon the mutual written agreement of the parties. 8. TERMINATION OF RETENTION 8.1 Death. If the Consultant dies during the Term, his retention under this Agreement shall automatically terminate on the date of his death and no further compensation shall be due hereunder to the Consultant or the Consultant's estate. 8.2 Disability. If, during the Term, the Consultant has a Disability, the Company may, at any time after the Consultant has a Disability, terminate the Consultant's retention by written notice to him. In the event that the Consultant's retention is terminated as a result of a Disability, the Consultant shall cease to receive any further compensation hereunder. 8.3 Voluntary Termination. If the Consultant terminates his retention with the Company at any time during the term of this Agreement and except as expressly permitted under Section 8.5, he shall be deemed to have been terminated by the Company for Cause and shall be subject to the provisions of Section 8.4 hereof. 8.4 Termination for Cause. The Company may terminate the Consultant's retention hereunder for Cause at any time by written notice given to the Consultant by the Board. If the Consultant's retention is terminated for Cause, he shall be entitled to receive only the portion of his Basic Consulting Fee accrued and not theretofore paid to him and reimbursement for any expenses properly incurred by the Consultant and supported by appropriate vouchers, which expenses have been incurred prior to the date of such termination and not theretofore reimbursed. Except as set forth in the immediately preceding sentence, all of the Consultant's rights to compensation hereunder shall be terminated. 8.5 Termination without Cause. Either party may terminate this Agreement for any reason and without liability for a period of ninety (90) days from the date of this Agreement. The Company may terminate the Consultant's retention hereunder without Cause upon written notice to the Consultant at any time during the Term of this Agreement, provided that if the Company terminates the Consultant for any reason after 90 days from the date of this Agreement, other than (i) the failure by Consultant to perform his Duties in the reasonable judgment of the Board or (ii) for Cause, the Company shall pay to the Consultant severance payments equal to the amount of the Basic Consulting Fee previously paid to the Consultant under this Agreement up to the date of termination but not to exceed $100,000, to be payable in equal monthly installments of not more than $20,000 installments as set forth in Section 5. In addition, in the event the Company terminates the Consultant for any reason, the Company shall reimburse the Consultant for any expenses properly incurred by the Consultant and supported by proper vouchers, which expenses have been incurred prior to the date of such termination and not theretofore reimbursed. 9. REPRESENTATION AND WARRANTY BY THE CONSULTANT The Consultant hereby represents and warrants to the Company, the same being part of the essence of this Agreement, that, as of the Commencement Date, he is not a party to any agreement, contract or understanding, and that no facts or circumstances exist, which would in any way restrict or prohibit him in any material way from undertaking or performing any of his obligations under this Agreement. The foregoing representation and warranty shall remain in effect throughout the Term. 10. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS 10.1 Acknowledgment of Confidentiality. The Consultant understands and acknowledges that he may obtain Confidential Information during the course of his retention by the Company. The Consultant further acknowledges that the services to be rendered by him are of a special, unique and extraordinary character and that, in connection with such services, he will have access to Confidential Information vital to the Company. Accordingly, the Consultant agrees that he shall not, during the Term or thereafter, (i) use or disclose any such Confidential Information, (ii) furnish to any third party or allow any third party to use any such Confidential Information, (iii) publish any works, speeches or articles with respect thereto, or (iv) except as required in the proper performance of his services hereunder, remove or aid in the removal of any Confidential Information or any property or material relating thereto from the premises of the Company. The foregoing confidentiality provisions shall cease to be applicable to any Confidential Information which becomes generally available to the public (except by reason of or as a consequence of a breach by the Consultant of his obligations under this Section 10). In the event the Consultant is required by law or a court order to disclose any such Confidential Information, he shall promptly notify the Company of such requirement and provide the Company with a copy of any court order or of any law which in his opinion requires such disclosure and, if the Company so elects, to the extent that he is legally able, permit the Company an adequate opportunity, at its own expense, to contest such law or court order. 10.2 Delivery of Material. The Consultant shall promptly, and without charge, deliver to the Company on the termination of his retention hereunder, or at any other time the Company may so request, all memoranda, notes, records, reports, manuals, computer disks, videotapes, drawings, blueprints and other documents (and all copies thereof) relating to the Business, and all property associated therewith, which he may then possess or have under his control. 10.3 Customer and Vendor Lists. The Consultant acknowledges that (i) all lists of customers and vendors of the Company developed prior to or during the course of the Consultant's retention and/or by the Company are and shall be the sole and exclusive property of the Company and the Consultant further acknowledges and agrees that he neither has nor shall have any personal right, title or interest therein; (ii) such lists are and must continue to be Confidential Information; and (iii) such lists are not readily accessible to competitors of the Company or any other third parties. 10.4 Ideas, Programs, Etc. If, during the Term, the Consultant invents or develops any ideas, vendor lists or the like, relating to or useful in connection with the Business, the same are and shall remain the property of the Company, and the Consultant shall promptly deliver all copies of the same to the Company, assign his interest therein to the Company and execute such documents as the Company's counsel may request to convey title thereof to the Company. The Consultant shall not be entitled to any compensation, other than as provided in this Agreement, for carrying out his obligations to the Company under this Section 10.4 or any other subsection of this Section 10. 10.5 Extension of Section 10. All of the provisions of Section 10 shall be deemed to be applicable to all Confidential Information and to all ideas, programs, etc., as referred to in Section 10.4, to which the Consultant may have obtained access or which he may have invented or developed during his retention by the Company. 11. COMPETITIVE ACTIVITY The Consultant shall not engage, directly or indirectly in any Competitive Activity for a period of one (1) year after the termination of Consultant's retention with the Company, provided however, that if the Consultant is terminated without Cause as defined in Section 1.4 hereof, he will not be subject to the provisions of this Section 11. For purposes of this Agreement, Consultant shall be considered to have engaged in a "Competitive Activity" if Consultant: (i) directly or indirectly, takes any action or engages, or participates in or within or becomes interested in or associated with enters into the employment of, renders any service, engages, owns, manages, operates, joins, or otherwise offers other assistance to or participates in or becomes connected with, as an officer, director, employee, principal, agent, creditor, proprietor, representative, stockholder, partner, associate, consultant or otherwise, any Person that is engaged or becomes engaged in a business which is in competition with the Business; provided, however, Consultant shall not be prohibited from making an investment in less than 1% of the equity of a public company; (ii) whether for his own account or for the account of any Person, attempts to solicit, endeavor to entice away from the Company, or otherwise interferes with any relationship of the Company with any person who is (i) employed by, or otherwise engaged to perform services for, the Company or was so employed or engaged by the Company (or any of its predecessors) at any time during the one year period prior to the date of the termination of Employee's employment, including, but not limited to, any independent contractors, or (ii) any Person who is or was, within the then most recent eighteen (18) month period, a customer or client of the Company. (iii) otherwise interferes with the relationships between the Company and its employees, customers or suppliers. 12. DISPUTES AND REMEDIES 12.1 Injunctive Relief. If the Consultant commits a breach, or threatens to commit a breach, of any of the provisions of Sections 8.4, 10 or 11, the Company shall have the following rights and remedies (each of which shall be independent of the other, and shall be severally enforceable, and all of which shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity): (i) the right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged by the Consultant that any such breach or threatened breach will or may cause irreparable injury to the Company and that money damages will or may not provide an adequate remedy to the Company; and (ii) the right and remedy to require the Consultant to account for and pay over to the Company all compensation, profits, monies, increments, things of value or other benefits, derived or received by the Consultant as the result of any acts or transactions constituting a breach of any of the provisions of Sections 8.4, 10 or 11, of this Agreement, and the Consultant hereby agrees to account for and pay over all such compensation, profits, monies, increments, things of value or other benefits to the Company. 12.2 Partial Enforceability. If any provision contained in Sections 8.4, 10 or 11, or any part thereof, is construed to be invalid or unenforceable, the same shall not affect the remainder of the Consultant's agreements, covenants and undertakings, or the other restrictions which he has accepted, in Sections 8.4, 10 or 11, and the remaining such agreements, covenants, undertakings and restrictions shall be given the fullest possible effect, without regard to the invalid parts. 12.3 Intention of Parties. It is distinctly understood and agreed that the confidentiality, proprietary right and restrictive covenant provisions of this Agreement have been accepted and agreed to by the Consultant in contemplation of this Agreement. It is therefore the specific intention of the parties, any general considerations of public policy to the contrary notwithstanding, that the provisions of Sections 8.4, 10 or 11, of this Agreement shall be enforced as written and to the fullest extent possible. 12.4 Adjustment of Restrictions. Despite the prior provisions of this Section 12, if any covenant or agreement contained in Sections 8.4, 10 or 11, or any part thereof, is held by any court of competent jurisdiction to be unenforceable because of the duration of such provision or the geographic area covered thereby, the court making such determination shall have the power to reduce the duration or geographic area of such provision and, in its reduced form, such provision shall be enforceable. 13. SURVIVAL The provisions of Sections 8, 9, 10, 11, 12 and this Section 13 shall survive termination of this Agreement and remain enforceable according to their terms. 14. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provisions hereof. 15. NOTICES All notices, demands and requests required or permitted to be given under the provisions of this Agreement shall be deemed duly given if made in writing and delivered personally or mailed by postage prepaid certified or registered mail, return receipt requested, accompanied by a second copy sent by ordinary mail, which notices shall be addressed as follows: If to the Company: Patient Infosystems, Inc. 46 Prince Street Rochester, New York 14607 If to the Consultant: John V. Crisan 591 Fallen Leaf Way Incline Village, NV 89451 By notifying the other parties in writing, given as aforesaid, any party may from time to time change his or its address or the name of any person to whose attention notice is to be given, or may add another person to whose attention notice is to be given, in connection with notice to any party. 16. ASSIGNMENT AND SUCCESSORS Neither this Agreement nor any of his rights or Duties hereunder may be assigned or delegated by the Consultant. This Agreement may not be assigned by the Company without the consent of the Consultant except to any successor in interest which takes over all or substantially all of the business of the Company as it is conducted at the time of such assignment. Any corporation into or with which the Company is merged or consolidated or which takes over all or substantially all of the business of the Company shall be deemed to be a successor of the Company for purposes hereof. This Agreement shall be binding upon and, except as aforesaid, shall inure to the benefit of the parties and their respective successors and permitted assigns. 17. ENTIRE AGREEMENT, WAIVER AND OTHER 17.1. Integration. This Agreement contains the entire agreement of the parties hereto on its subject matter and supersedes all previous agreements between the parties hereto, written or oral, express or implied, covering the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, not embodied herein, shall be of any force or effect. 17.2. No Waiver. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by or on behalf of the party granting such waiver or modification. No waiver by any party of any breach or default hereunder shall be deemed a waiver of any repetition of such breach or default or shall be deemed a waiver of any other breach or default, nor shall it in any way affect any of the other terms or conditions of this Agreement or the enforceability thereof. No failure of the Company to exercise any power given it hereunder or to insist upon strict compliance by the Consultant with any obligation hereunder, and no custom or practice at variance with the terms hereof, shall constitute a waiver of the right of the Company to demand strict compliance with the terms hereof. The Consultant shall not have the right to sign any waiver or modification of any provisions of this Agreement on behalf of the Company, nor shall any action taken by the Consultant reduce his obligations under this Agreement. This Agreement may not be supplemented or rescinded except by instrument in writing signed by the parties hereto after the date hereof. Neither this Agreement nor any of the rights of any of the parties hereunder may be terminated except as provided herein. No waiver of any provision of this Agreement or any amendment of this Agreement shall be binding upon the Company unless approved by the Board. 18. GOVERNING LAW This Agreement shall be governed by and construed, and the rights and obligations of the parties hereto enforced, in accordance with the laws of the State of New York, without regard to conflicts of laws principles. 19. HEADINGS The Section and subsection headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above, to be effective as of the Commencement Date. PATIENT INFOSYSTEMS, INC. By: /s/ Donald A. Carlberg Name: Donald A. Carlberg Title: President /s/ John V. Crisan John V. Crisan EXHIBIT A Duties - Oversee financial affairs and internal operations of the Company - Assist senior and mid-level managers in establishing and achieving both corporate and individual goals and objectives - Plan for and manage through anticipated growth - Achieve and expand Company profitability - Establish organizational discipline and focus so as to deliver steadily improving and predictable operating results - Assist CEO with investor relations responsibilities EX-10 7 EXHIBIT 10.20 Exhibit 10.20 LEASE AGREEMENT CONIFER PRINCE STREET ASSOCIATES 46 PRINCE STREET AGREEMENT, made on the 22nd day of February , l995, by and between CONIFER PRINCE STREET ASSOCIATES, a Limited Partnership organized and existing under the laws of the State of New York, 46 Prince Street, Rochester, New York ("LANDLORD") and DSMI CORPORATION ("TENANT"). WITNESSETH: That the Landlord does hereby let and demise to Tenant and Tenant does take from the Landlord, the premises outlined on the floor plan designated Exhibit "A" attached hereto, being 3,573 square feet of the 1st floor of the three story building known as , 46 Prince Street, Rochester, New York (hereinafter called the "Building") together with 10 parking spaces. l. TERM a.) The lease term shall be for a period of two years commencing on March 1, l995 and terminating on February 28, 1997 the "Lease Term"). b.) Tenant shall have a one-time right to extend the Term of this Lease Agreement for a period of three additional and consecutive years. To be effective, Tenant must not be in default of any of its lease obligations. Furthermore, Tenant must provide Landlord with at least 180 days prior written notice stating its intention to exercise this extension option. With the exception of Rental all other provisions of this Lease Agreement shall remain unchanged. Should Tenant exercise its extension option the Base Rent during such period shall be as follows: TERM $ per sq. ft. Annual Base Rent -------------- ------------- ---------------- 3/1/97-2/28/98 $13.50 $48,235.50 3/1/98-2/28/99 $14.00 $50,022.00 3/1/99-2/28/00 $14.50 $51,808.50 2. RENTAL The Base Rent during the initial year of the Lease Term shall be $12.50 per square foot per annum. The Base Rent shall be increased by $.50 per annum per square foot effective March 1, l996 and again upon Tenants exercise of its extension period, as stated above. Refer to Schedule A for details of Annual and Monthly rent amounts due during the initial term. a) The Base Rent will be payable in twelve equal monthly installments due without demand at its office at 46 Prince Street, on the first day of each month. Rent for partial months shall be pro-rated based on the number of days occupied by Tenant, due and payable on the first day of tenancy. A penalty of $50.00 will be imposed for rent received after the 10th day of each month. b) Tenant shall pay, as additional rent, all electric costs for the leased premises, calculated as follows: Heating and Air Conditioning - The air conditioning units serving the leased premises shall be individually gauged. The actual heating and cooling costs of the air conditioning units will be calculated by multiplying the actual electric bill to Landlord by a fraction, the numerator of which is calculated kilowatt hours used by the air conditioning unit serving the leased premises for the billing period and the denominator of which is the total kilowatt hours billed to Landlord for the same period. In the event the leased premises is less than the total area served by an air conditioning unit, then tenant shall pay a pro rata share of the cost of heat and air cooling based upon the percentage of the area served by the air conditioning unit which is occupied by Tenant. That percentage shall be agreed upon at execution of the lease and set forth on Schedule A hereto. Other Electric - The remaining electric cost for the building will be calculated by deducting the total heating cost from the total electric bill. Tenants share of the bill will be the electric cost multiplied by a fraction, the numerator of which is the square footage covered by the Lease and the denominator of which is the total rental square footage of the building occupied during the applicable billing period as set forth in Schedule A hereto. c) The additional rent payment for electricity will be calculated and billed by Landlord to Tenant, due and payable on the first day of the month following receipt of the bill by Tenant. d) Tenant shall pay as additional rent its proportionate share of increases in property liability insurance premiums over a base year of 1995 and real property taxes, assessments or government levies in lieu of taxes over a base year of 1995 for City School and 1995 for County as set out on Schedule A. 3. SECURITY DEPOSIT Tenant has this day deposited with Landlord the sum of $3,638.54 (the "Security Deposit") as security for the full and faithful performance of Tenant of all the terms, covenants and conditions of this Lease upon Tenant's part to be performed. The Security Deposit may be commingled with other funds and assets of Landlord and it shall be returned to Tenant after the time fixed as the expiration of the Term, provided Tenant has duly and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale of the Premises subject to this Lease, Landlord shall have the right to transfer the Security Deposit to the vendee for the benefit of Tenant and Landlord shall be considered released by Tenant from all liability for the return of the Security Deposit, and Tenant agrees to look to the new Landlord solely for the return of the Security Deposit and it is agreed that this shall apply to every transfer or assignment made of the Security Deposit to a new Landlord. Provided Tenant has not defaulted on its lease obligations during the initial twelve months of the Term of the Lease, Landlord shall refund Tenants' Security Deposit prior to the completion of the 13th month of said Term. 4. DELAYS If Landlord is unable to give possession of the premises on the date of commencement of the term of this Lease by reason of the holding over of any Tenant or occupant, or because construction, repairs, or improvements which are Landlord's responsibility are not completed, rent shall abate for the period that possession by Tenant is delayed. If such delay shall continue for more than sixty (60) days, then Tenant may, within thirty (30) days after the expiration of said sixty (60) day period, give Landlord a notice of election to terminate this lease. Unless possession of the premises shall sooner be made available to Tenant, this Lease shall terminate on the 30th day after the giving of such notice and Landlord shall return to Tenant the consideration paid and Landlord shall have no obligation to Tenant for failure to give possession except as provided above. In the event Tenant delays in providing Landlord with all necessary information required for Landlord to construct tenant improvements, then Landlord shall be entitled to an extension of time to complete such improvements and rent shall not abate during such extension of time. 5. SERVICES Landlord agrees to furnish electricity for usual office requirements. Landlord agrees to furnish heat in the leased premises adequate and reasonable for the business use of premises and through the heating system and air cooling to the leased premises. Landlord agrees to provide the additional services set forth on Schedule B attached hereto, subject to the rules, regulations and limitations set forth herein. Prior to Tenant's occupancy of the demised premises, anticipated to take place March 1, 1995, Landlord shall shampoo the entire carpet within said space as well as repaint the suite in a color to be selected by Tenant. With the exception of those modifications to the existing floor plan of the demised premises, the space is leased to Tenant in an "as-is" basis. 6. USE AND OCCUPANCY Tenant shall use and occupy the premises for the business and professional office purposes set forth on Schedule C attached hereto, and for no other use or purpose. 7. CARE AND REPAIR OF PREMISES Tenant shall commit no act of waste and shall take good care of the premises and the fixtures and appurtenances therein and shall, in the use and occupancy of the premises, conform to all laws, orders, and regulations of the Federal, State, and municipal governments or any of their departments. Landlord shall make all necessary repairs to the premises, except where the repair has been made necessary by misuse or neglect by Tenant or Tenant's agents, servants, visitors, or licensee. All improvements made by Tenant to the premises which are so attached to the premises that they cannot be removed without material injury to the premises, shall become the property of Landlord upon installation. Not later than the last day of the Lease Term, Tenant shall, at Tenant's expense, remove all of Tenant's personal property and those improvements made by Tenant which have not become the property of Landlord, including trade fixtures, cabinetwork, movable paneling, partitions, and the like, repair all injury done by or in connection with the installation or removal of said property or improvements, and surrender the premises broom clean in as good condition as they were at the beginning of the term, reasonable wear, and damage by fire, the elements, casualty, or other causes not due to the misuse of neglect of Tenant or Tenant's agents, servants, visitors, or licensees, excepted. All property of Tenant remaining on the premises after the last day of the term of this Lease shall be deemed abandoned and may be removed by Landlord, and Tenant shall reimburse Landlord for the cost of such removal. Landlord may have any such property stored at Tenant's risk and expense. Any alternative, additions, or improvements to the premises shall be only with Landlord's prior written consent. Tenant shall not, without first obtaining the written consent of Landlord, abandon the premises, or allow the premises to become vacant or deserted. 8. ASSIGNMENT OR SUBLEASE Tenant shall not, without first obtaining the written consent of Landlord, assign, mortgage, pledge, or encumber this Lease, in whole or in part, or sublet the premises or any part thereof and Landlord will not unreasonably withhold assignment of this lease. Any subletting of the premises shall be further subject to the written consent of the University of Rochester, pursuant to certain restrictive covenants in the deed of transfer of the premises to Landlord. This covenant shall be binding upon the legal representatives of Tenant, and upon every person to whom Tenant's interest under this Lease passes by operation by law. 9. COMPLIANCE WITH RULES AND REGULATIONS Tenant shall observe and comply with the rules and regulations hereinafter set forth, which are made a part hereof, and with such further reasonable rules and regulations as Landlord may prescribe, on written notice to the Tenant, for the safety, care and cleanliness of the building and the comfort, quiet, and convenience of other occupants of the building. Tenant shall comply will all present and future laws, ordinances, rules, regulations, or governmental or quasi-governmental directives (including without limitation those requirements of the Occupational Safety and Health Administration that relate to the Premises) regarding the indoor air quality of the Premises and the maintenance of any heating, ventilating, and air-conditioning equipment or system for which the Tenant is responsible pursuant to this Lease. 10. COMPLIANCE WITH ENVIRONMENTAL RULES AND REGULATIONS "Environmental Laws" mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the Environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto. "Hazardous Substance" means, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials, as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 2601, et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Sections 2601, et seq.), Articles 15 and 27 of the New York State Environmental Conservation Law or any other applicable Environmental Law and the regulations promulgated thereunder. "Environmental Permits" mean all permits, licenses, approvals, authorizations, consents or registrations required by any applicable Environmental Law in connection with the ownership, use and/or operation of the Premises for the storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances or the sale, transfer or conveyance of the Premises. 1. Lessee shall keep, and shall cause all operators, licensees and occupants of the Premises to keep the Premises free of all Hazardous Substances and shall not cause or permit the Premises or any part thereof to be used for the storage, treatment, generations, transportation, processing, handling, production or disposal of any Hazardous Substances. 2. Lessee shall comply with, and shall cause all operators, licensees and occupants of the Premises to comply with all applicable Environmental Laws and shall obtain and comply with, and shall cause all operators, tenants, subtenants, licensees and occupants of the Premises to obtain and comply with all Environmental Permits. 3. Lessee shall not cause or permit any change to be made in the present or intended use of the Premises which would (i) involve the storage, treatment, generation, transportation, processing, handling, production or disposal of any Hazardous Substance or the use of the Premises as a landfill or other waste disposal site or for military, manufacturing or industrial purposes or for the storage of petroleum or petroleum based products, (ii) violate any applicable Environmental Law, (iii) constitute non-compliance with any Environmental Permit of (iv) increase the risk of a release of any Hazardous Substance. 11. DAMAGE TO BUILDING If the building is damaged by fire or any other cause to such extent that the cost of restoration, as reasonably estimated by Landlord, will equal or exceed fifty percent (50%) of the replacement value of the building just prior to the occurrence of the damage, then Landlord may, no later than the 30th day following the damage, give Tenant a notice of election to terminate this Lease. In such event, this Lease shall be deemed to terminate on the 30th day after the giving of said notice, and Tenant shall surrender possession of the premises within a reasonable time thereafter, and the rent, and any additional rent, shall be apportioned as of the date of said surrender and any rent paid for any period beyond said date shall be refunded to Tenant. If the cost of restoration, as estimated by Landlord, shall amount to less than fifty percent (50%) of said replacement value of the building, or if, despite the cost, Landlord does not elect to terminate this Lease, Landlord shall restore the building and the premises with reasonable promptness, subject to delays beyond Landlord's control and delays in the making of insurance adjustments between Landlord and his insurance carrier, and Tenant shall have no right to terminate this lease except as herein provided. Landlord need not restore fixtures and improvements owned by Tenant. In any case in which use of the premises is affected by any damage to the building, there shall be either an abatement or an equitable reduction in rent depending on the period for which and the extent to which the premises are not reasonably usable for the purpose for which they are leased hereunder. The words "restoration" and "restore" as used in this Paragraph 9 shall include repairs. If damage results from the fault of the Tenant, or Tenant's agents, servants, visitors, or licensees, Tenant shall not be entitled to any abatement or reduction of rent, except to the extent, if any, that Landlord receives the proceeds of rent insurance in lieu of such rent. If more than 25 per cent of the premises leased by Tenant are rendered untenantable and Landlord fails to restore said premises to a tenantable condition within ten (10) days, then and in such event Tenant may cancel this lease on notice to Landlord. 12. WAIVERS OF SUBROGATION Notwithstanding the provisions of Paragraph 9 of this Lease, in the event of loss or damage to the building, the premises and/or any contents, each party shall look first to any insurance in its favor before making any claim against the other party; and, to the extent possible without additional cost, each party shall obtain, for each policy of such insurance, provisions permitting waiver of any claim against the other party for loss or damage within the scope of such insurance, and each party, to the extent permitted, for itself and its insurers waives all such insured claims against the other party. The provisions of this paragraph shall apply only upon the delivery by each party to the other of an effective endorsement to this policy of insurance waiving subrogation and to the extent therein permitted. 13. CONDEMNATION - TOTAL TAKING If the leased premises or any part thereof are taken by eminent domain, this Lease shall terminate on the date when title vests pursuant to such taking. The rent, or any additional rent, shall be apportioned as of such terminate date and any rent paid for any period beyond said date shall be repaid to Tenant. Tenant shall not be entitled to any part of the award for such taking or any payment in lieu thereof, except that Tenant reserves the right to assert claim against the condemning authority for the cost of removal and relocation. 14. LESSOR'S REMEDIES IN DEFAULT If Tenant defaults in the payment of rent, or any additional rent, or defaults in the performance of any of the other covenants or conditions hereof, Landlord may give Tenant notice of such default and if Tenant does not cure any rent, or additional rent default within five (5) days, or other default, within twenty (20) days, after the giving of such notice, or if such other default is of such nature that it cannot be completely cured within such period, if Tenant does not commence such curing within such twenty (20) days and thereafter proceed with reasonable diligence and in good faith to cure such default, then Landlord may terminate this Lease on not less than five (5) days' notice to Tenant, and on the date specified in said notice the term of this Lease shall terminate, and Tenant shall then quit and surrender the premises to Landlord, but Tenant shall remain liable as hereinafter provided. If this Lease shall have been so terminated by Landlord, Landlord may at any time thereafter resume possession of the premises by any lawful means and remove tenant or other occupants and their effects. In the event that the relation of Landlord and Tenant may cease or terminate by reason of the re-entry of Landlord under the terms and covenants contained in this Lease or by the ejectment of Tenant by summary proceedings or otherwise, or after the abandonment of the Premises by Tenant, it is hereby agreed that, at Landlord's option, either (a) the remaining rent to be paid by Tenant for the term subsequent to the re-entry of Landlord shall accelerate and become immediately due and payable, or (b) Tenant shall remain liable and shall pay in monthly payments the rent which accrues subsequent to the re-entry by Landlord, and Tenant expressly agrees to pay as damages for the breach of the covenants herein contained, the difference between the rent reserved and the rent collected and received, if any, by Landlord during the remainder of the unexpired Term, such difference or deficiency between the rent herein reserved and the rent collected, if any, shall become due and payable in monthly payments during the remainder of the unexpired Term, as the amounts of such difference or deficiency shall from time to time be ascertained; and it is mutually agreed between Landlord and Tenant that the respective parties hereto shall and hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other on any matters whatsoever arising out of or in any wan connected with this Lease, Tenant's use or occupancy of Premises, and/or any claim of injury or damage. The Tenant's obligation to pay the rent accruing or to accrue after Landlord's re-entry shall survive the termination of this Lease and Landlord's reletting of the Premises, subject to the credits for collected rent, if any, as herein set forth. 15. DEFICIENCY In any case where Landlord has recovered possession of the premises by reason of Tenant's default, Landlord may, at Landlord's option, occupy the premises or cause the premises to be redecorated, altered, divided, consolidated with other adjoining premises, or otherwise changed or prepared for reletting, and may relet the premises or any part thereof as agent of Tenant, and receive the rent therefor. Rent so received shall be applied first to the payment of such expenses as Landlord may have incurred in connection with the recovery of possession, redecorating, altering, dividing, consolidating with other adjoining premises, or otherwise changing or preparing for reletting, and the reletting, including brokerage and reasonable attorney's fees, and then to the payment of damages in amounts equal to the rent hereunder and to the cost and expenses of performance of the covenants of Tenant as herein provided. Tenant agrees in any such case, whether or not Landlord has relet, to pay to Landlord damages equal to the rent and other sums herein agreed to be paid by Tenant, less the net proceeds of reletting, if any, as ascertained from time to time, and the same shall be payable by Tenant on the several rent days above specified. In reletting the premises as aforesaid, Landlord may grant rent concessions, and Tenant shall not be credited therewith. No such reletting shall constitute a surrender and acceptance or be deemed evidence thereof. If Landlord elects, pursuant hereto, actually to occupy and use the premises or any part thereof during any part of the balance of the term as originally fixed or since extended, there shall be allowed against Tenant's obligation for rent or damages as herein defined, during the period of Tenant's occupancy, the reasonable value for such occupancy, not to exceed in any event the rent herein reserved and such occupancy shall not be construed as a relief of Tenant's liability hereunder. Tenant hereby waives all right of redemption to which Tenant or any person claiming under Tenant might be entitled by any law now or hereafter in force. Landlord's remedies hereunder are in addition to any remedy allowed by law. 16. SECURITY INTEREST Landlord, subordinate to financial or lending institutions, shall have a security interest and first lien paramount to all other on every right and interest of Tenant in and of this Lease, on any building or improvement on or hereafter placed on the leased property, and on all furnishings, equipment, fixtures, or other personal property of any kind belonging to Tenant, or the Tenant's equity therein, on the leased property. The security interest and lien are granted for the purposes of securing payment of rents, taxes, assessments, charges, liens, penalties, and damages, and of securing the performance of all of Tenant's obligations under this Lease. The security interest and lien shall be in addition to all other rights granted to Landlord under present or future laws of this state. 17. NO WAIVER OF COVENANTS OR CONDITIONS The failure of either party to insist on strict performance of any covenant or condition hereof, or to exercise any option herein contained, shall not be construed as a waiver of such covenant, condition, or option in any other instance. This Lease cannot be changed or terminated orally. 18. COLLECTION OF RENT FROM ANY OCCUPANT If the premises are sublet or occupied by anyone other than Tenant and Tenant is in default hereunder, or if this lease is assigned by Tenant, Landlord may collect rent from the assignee, subtenant, or occupant, and apply the net amount collected to the rent therein reserved. No such collection shall be deemed a waiver of the covenant herein against assignment and subletting, or the acceptance of such assignee, subtenant, or occupant as Tenant, or a release of Tenant from further performance of the covenants herein contained. 19. SUBORDINATION OF LEASE This lease shall be subject and subordinate to all underlying leases and mortgages and trust deeds which may now or hereafter affect such leases or the real property of which the premises form a part, and also to all renewals, modifications, consolidations, and replacements of said underlying leases, mortgages, and trust deeds. Although no instrument or act on the part of Tenant shall be necessary to effectuate such subordination, Tenant will, nevertheless, execute and deliver such further instruments confirming such subordination of this lease as may be desired by the holders of said mortgages and trust deeds or by any of the Landlords under any such underlying leases. Tenant hereby appoints Landlord attorney in fact, irrevocably, to execute and deliver any such instrument for Tenant. 20. RIGHT TO-CURE TENANT'S BREACH If Tenant breaches any covenant or condition of this Lease, Landlord may, after giving Tenant twenty days notice of the covenant or condition claimed to have been breached, and upon Tenant's failure to cure the same, (except that no notice need be given in case of emergency) cure such breach at the expense of Tenant and the reasonable amount of all expenses, including attorney's fees, incurred by Landlord in so doing (whether paid by Landlord or not) shall be deemed additional rent payable on demand. 21. MECHANIC'S LIENS Tenant shall within ten (10) days after notice from Landlord discharge any mechanics' liens for material or labor claimed to have been furnished to the premises on Tenant's behalf. 22. NOTICES Any notice by either party to the other shall be in writing and shall be deemed to have been duly given only if delivered personally or sent by registered or certified mail in a postpaid envelope addressed; if to Tenant, at the above described building; if to Landlord, at Landlord's address as set forth above; or, to either, at such other address as Tenant or Landlord, respectively, may designate in writing. 23. RIGHT TO INSPECT AND REPAIR Landlord may, but shall not, except as required by provisions of Paragraph 6, be obligated to, enter the premises at any reasonable times, on reasonable notice to Tenant (except that no notice need be given in case of emergency) for the purpose of inspection or the making of such repairs, replacements, or addition in, to, on or about the premises or the building, as Landlord deems necessary or desirable. Tenant shall have no claim or cause of action against Landlord by reason thereof except as provided in Paragraph 25 hereof. 24. INTERRUPTION OF SERVICES OR USE Interruption or curtailment of any service maintained in the building, if caused by strikes, mechanical difficulties, or any causes beyond Landlord's control whether similar or dissimilar to those enumerated, shall not entitle Tenant to any claim against Landlord or to any abatement in rent, and shall not constitute constructive or partial eviction, unless Landlord fails to take such measures as may be reasonable in the circumstances to restore the service without undue delay. 25. CONDITIONS OF LESSOR'S LIABILITY Tenant shall not be entitled to claim a constructive eviction from the premises unless Tenant shall have first notified Landlord in writing of the condition or conditions giving rise hereto, and, if the complaints be justified, unless Landlord shall have failed within a reasonable time after receipt of such notice to remedy such conditions. 26. RIGHT TO SHOW PREMISES Landlord may show the premises to prospective purchasers and mortgagees and, during the six (6) months prior to termination of this lease, to prospective tenants, during business hours on reasonable notice to Tenant. 27. NO OTHER REPRESENTATIONS No representations or promises shall be binding on the parties hereto except those representations and promises contained herein or in some further writing signed by the party making such representations or promises. 28. QUIET ENJOYMENT Landlord covenants that if, and so long as, Tenant pays the rent, and any additional rent as herein provided, and performs the covenants hereof, Tenant shall peaceably and quietly have, hold, and enjoy the premises for the term herein mentioned, subject to the provisions of this Lease. 29. TENANT'S ESTOPPEL Tenant shall, from time to time, on not less than ten (10) days' prior written request by Landlord, execute, acknowledge, and deliver to Landlord a written statement certifying that the Lease is unmodified and in full force and effect, and that the Lease is in full force and effect as modified and listing the instruments or modification; the dates to which the rents and other charges have been paid; and whether or not to the best of Tenant's knowledge Landlord is in default hereunder and, if so, specifying the nature of the default. It is intended that any such statement delivered pursuant to this Paragraph may be relied upon by a prospective purchaser of Landlord's interest or mortgagee of Landlord's interest or assignee of any mortgage upon Landlord's interest in the building. 30. WAIVER OF JURY TRIAL To the extent such waiver is permitted by law, the parties waive trial by jury in any action or proceeding brought in connection with this lease or the premises. 31. PARAGRAPH HEADINGS The paragraph headings in this Lease are intended for convenience only and shall not be taken into consideration in any construction or interpretation of this Lease or any of its provisions. 32. APPLICABILITY TO HEIRS AND ASSIGNS The provision of this lease shall apply to, bind, and inure to the benefit of Landlord and Tenant, and their respective heirs, successors, legal representatives, and assigns. It is understood that the term "Landlord" as used in this Lease means only the owner, a mortgagee in possession, or a term Tenant of the building, so that in the event of any sale of the building or of any lease thereof, or if a mortgagee shall take possession of the premises, the Landlord named herein shall be and hereby is entirely freed of relief and all covenants and obligation of Landlord hereunder occurring thereafter, and it shall be deemed without further agreement that the purchaser, the term Tenant of the building, or the mortgagee in possession has assumed and agreed to carry out any and all covenants and obligations of the Landlord hereunder. 33. FIRST RIGHT TO LEASE Provided Tenant is not in default of any of its lease obligations, Tenant shall have the Right to Lease the remaining balance of space on the first floor of 46 Prince Street, Rochester, New York 14607. At the time the Landlord enters into serious conversation with regards to leasing said approximately 3,741 square feet or any portion thereof, on the first floor, it must provide Tenant with written notice that said space is being considered for lease by a third party. Tenant has five (5) business days to inform Landlord, in writing, of its intention to either expand into said space or reject leasing the additional space at that time. Should Tenant elect to lease the additional space it must agree to extend the remaining Term of its lease so that at least three (3) years remain at the time of Tenants occupancy of the additional space with the exception of the initial two years of the lease term. The three year minimum extension period shall apply to the entire amount of space Tenant leases at the time of the expansion. Landlord agrees to repaint and shampoo carpet within the expansion space. The Base Rent for the expansion space shall be equal to the Tenant's then-current Base Rent Per Square Foot Rate. 34. Landlord shall recarpet the main stairwell within the building prior to June 1, 1995 notwithstanding any delays caused by actions or lack of actions beyond Landlord's control. IN WITNESS WHEREOF, the parties hereto have duly executed in this Lease the 22nd day of February, l995. LANDLORD: TENANT: CONIFER PRINCE ST. ASSOCIATES DSMI CORPORATION BY:/s/ Richard C. Crossed BY: /s/ Donalrd A. Carlberg Richard C. Crossed Donald A. Carlberg, CEO TITLE President TITLE Agent for Corporation in formation and without individual liability - ------------------------------------------------------------------- RULES AND REGULATIONS - ------------------------------------------------------------------- 1. OBSTRUCTION OF PASSAGEWAYS The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors and public parts of the building shall not be obstructed or encumbered by Tenant or used by Tenant for any purpose other than ingress and egress. 2. PROJECTIONS FROM BUILDING No awning, air conditioning units, or other fixtures shall be attached to the outside walls or the windowsills of the building, or otherwise affixed so as to project from the building, without the prior written consent of Landlord. 3. SIGNS No sign or lettering shall be affixed by Tenant to any part of the inside of the premises so as to be clearly visible from the outside of the premises without the prior written consent of Landlord. However, Tenant shall have the right to place its name on any door leading into the premises; the size, color, and style thereof is to be subject to Landlord's approval, which approval shall not be unreasonably withheld. Landlord shall place Tenant's name on the directory in the lobby of the building. Tenant shall not have the right to have additional names placed on the directory without Landlord's prior written consent; however, such consent shall not be unreasonably withheld. 4. WINDOWS Windows in the premises shall not be obstructed by Tenant. No bottles, parcels,or other articles shall be placed on the windowsills, in the halls, or in any other part of the building other than the leased premises. No article shall be thrown out of the doors or windows of the premises. All window treatments must be white or beige to the exterior and shall be subject to Landlord's approval. 5. FLOOR COVERING Tenant shall not lay linoleum or other similar floor covering so that the same shall come in direct contract with the floor of the premises. If linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt first shall be fixed to the floor by a paste or other material that may easily be removed with water, the use of cement or other similar adhesive material being expressly prohibited. 6. INTERFERENCE WITH OCCUPANTS OR BUILDING Tenant shall not make, or permit to be made, any unseemly or disturbing noises and shall not interfere with other tenants or those having business with them. 7. LOCKS: KEYS No additional locks or bolts of any kind shall be placed on any of the doors or windows by Tenant. Tenant shall, on termination of its tenancy, deliver to Landlord all keys to any space within the building; either furnished to or otherwise procured by Tenant, and in the event of the loss of any keys furnished, Tenant shall pay to Landlord the cost thereof. 8. MOVEMENT OF FURNITURE, FREIGHT, OR BULKY MATTER The carrying in or out of freight, furniture, or bulky matter of any description must take place during such hours as Landlord may from time to time reasonably determine and only after advance notice to the superintendent of the building. The person employed by Tenant for such work must be reasonably acceptable to Landlord. Tenant may, subject to such provisions, move freight, furniture, bulky matter, and other material into or out of the premises on Saturdays between the hours of eight (8) a.m. and six (6) p.m., provided Tenant pays additional costs, if any, incurred by Landlord for elevator operators or security guards, and for other expenses occasioned by such activity by Tenant. 9. SAFES AND OTHER HEAVY EQUIPMENT Landlord reserves the right to prescribe the weight and position of all safe and other heavy equipment so as to distribute properly the weight thereof and to present any unsafe condition from arising. Business machines and other equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's reasonable judgment to absorb and prevent unreasonable vibrations, noise and annoyance. 10. ADVERTISING No advertising, publication, sign or other form of communication by the Tenant shall utilize the name of the University of Rochester or the Memorial Art Gallery, or make reference to any art exhibit, shows, exhibitions or other activities conducted by the University of Rochester or the Memorial Art Gallery, for the purpose of identifying the location of the premises or for the purpose of promoting or selling goods, products or services offered by the Tenant. SCHEDULE A BASE RENT TERM ANNUAL MONTHLY 3/1/95-2/28/96 $44,662.50 $3,721.88 3/1/96-2/28/97 $46,449.00 $3,870.75 COMMON AREA MAINTENANCE ADDITIONAL RENT UTILITIES Total Square Footage of building 30,375 Square Footage Covered by Lease 3,573 Tenant's Share Electric 11.76% ADDITIONAL RENT Heating and Air Conditioning The heat pump units serving the leased premises shall be individually gauged and the monthly charges shall be calculated as set forth on the attached and further explained as follows: l. The heat pump units serving the leased premises shall be identified by model number. 2. The actual heat pump operating hours will be recorded for each month (column 3) and multiplied by the energy use factor (column 4) applicable to the heat pump model to establish the total energy units (column 5) 3. The total energy units for all heat pumps is then added to the total auxiliary usage to establish the grand total usage and energy cost (total KWH) for the building. 4. The grand total usage and energy cost is multiplied by the utility company's rate per KWH to establish the total cost for kilowatt hours. 5. The total KWH are divided by the total heat pump usage and charges to establish the heat pump hourly rate (column 6). 6. The monthly tenant charge is the heat pump hourly rate multiplied by the total energy units (column 5). 7. Tenant will also pay 11.76% of general usage/common area electric. ADDITIONAL RENT Real Estate and Insurance Escalation In addition to the rents set forth in the Lease, and heretofore in this Schedule, with 1995 as the base year, Tenant shall pay 11.76% of the increase in real estate taxes and other government levies in lieu of taxes (payable in October of the following year), and 11.76% of the increase in property and liability insurance premiums (payable in February of the following year). SCHEDULE B SERVICES PROVIDED BY LANDLORD 1. Housekeeping of the common area. 2. Building, landscape and elevator maintenance. 3. Snow removal and the removal of trash from a common receptacle. 4. Automatic operatorless passenger elevator. 5. Common lavatory facilities, including supplies. 6. Parking for 10 cars. SCHEDULE C USE AND OCCUPANCY OF LEASED-SPACE Professional Office Space EX-10 8 EXHIBIT 10.21 EXHIBIT 10.21 FIRST ADDENDUM TO LEASE This First Addendum to Lease is made and entered into the 22nd day of August, 1995, between Conifer Prince Street Associates (Landlord) and DSMI Corporation (Tenant). WITNESSETH: that Tenant currently leases and occupies approximately 3,573 square feet of office space at 46 Prince Street, Rochester, New York 14607 pursuant to a Lease Agreement dated February 22, 1995 (Lease). WHEREAS, Tenant and Landlord desire to expand Tenant's Leased Premises as illustrated on Exhibit A-1 attached hereto, and made a part of the First Addendum to Lease. NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify certain provisions of the Lease as follows: 1. Effective upon full execution of this First Addendum to Lease, Tenant's leased premises shall be approximately 5,504 rentable square feet. 2. Effective upon full execution of this First Addendum to Lease, Section 1, "TERM", Paragraph A, of the Lease Agreement shall be modified, in part, to read "... and terminating on September 30, 1999..." Additionally, Tenant has hereby exercised a modification of the extension period as stated within Section 1, Paragraph B, of the Lease Agreement. Therefore, the provisions of Section 1. "TERM", Paragraph B, of the Lease Agreement shall now be null and void. 3. Effective upon full execution of this First Addendum to Lease, Section 2, "RENTAL", of the Lease Agreement shall be modified, in part, as follows "... the Base Rent shall be increased as follows: Period $/Sq.ft. Monthly Annual Base Rent Base Rent 10/1/95-2/28/96 $12.50 $ 5,136.46* N/A 3/1/96-2/28/97 $13.00 $ 5,962.67 $ 71,552.00 3/1/97-2/28/98 $13.50 $ 6,192.00 $ 74,304.00 3/1/98-2/28/99 $14.00 $ 6,421.33 $ 77,055.96 3/1/99-9/30/99 $14.50 $ 6,650.67 N/A * Landlord agrees to abate the Base Rent for 573 square feet of the newly created demised premises during the period of October 1, 1995 through February 28, 1996. Therefore, Base Rent is based on 4,931 square feet during such period. 4. Effective upon full execution of this First Addendum to Lease, Section 5, "Services", of the Lease Agreement shall be modified to include Exhibit AA "Landlord/Tenant Work Letter" attached to and made part of this First Addendum to Lease. 5. Effective upon full execution of this First Addendum to Lease, Section 33, "First Right To Lease", of the Lease Agreement shall be modified, in part, to read"...space within the building..." and the words "said approximately 3,741 square feet or any portion thereof on the first floor" shall be replaced by the following, "space within the Building" 6. Effective upon full execution of this First Addendum to Lease, Schedule A, of the Lease Agreement shall be replaced by Schedule A-2, attached and made a part of this First Addendum to Lease. 7. Effective upon full execution of this First Addendum to Lease, Schedule B "Services Provided by Landlord" of the Lease Agreement, shall be modified, in part, to read "...Item 6, Parking for 17 effective October 1, 1995 and increased to 25 effective February 1, 1996". 8. Tenant shall have a one-time opportunity to terminate the Lease Agreement effective September 30, 1998. Tenant must provide Landlord with a minimum of 120 days written notice of its intention to exercise its termination option. Furthermore, in order for Tenant's option to be effective, it's written notice must be delivered to Landlord together with an early termination penalty equal to $10,500.00. 9. Prior to Tenant's occupancy of the expansion space, Landlord shall relocate the ground wire connection servicing Tenant's electrical panel from its current position, so that it connects directly into a ground pole within the panel. Except as modified above, all other terms and conditions of the Lease Agreement dated February 22, 1995 shall remain unchanged and in full force and effect. Agreed to by: Agreed to by: DSMI CORPORATION CONIFER PRINCE STREET ASSOCIATES By: /s/ Gregory D. Brown By: /s/ C. Terrance Butwid Date: August 18, 1995 Date: August 22, 1995 -------------------------------- ------------------------------ EX-10 9 EXHIBIT 10.22 EXHIBIT 10.22 SECOND ADDENDUM TO LEASE This Second Addendum To Lease is made and entered into the 17th day of November, 1995, between Conifer Prince Street Associates (Landlord) and DSMI Corporation (Tenant). WITNESSETH: that Tenant currently leases and occupies approximately 5,504 square feet of office space at 46 Prince Street, Rochester, New York 14607 pursuant to a Lease Agreement and First Addendum To Lease, dated February 22, 1995 and August 18, 1995, respectively. WHEREAS, Tenant and Landlord desire to expand Tenant's Lease Premises to include approximately 1,720 square feet of office space located on the lower level of the Building as illustrated by Exhibit A-2 attached hereto and made part of this Second Addendum To Lease. NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify certain provisions of the Lease as follows: 1. Effective upon full execution of this Second Addendum To Lease, Tenant's lease premises shall be approximately 7,224 rentable square feet. 2. Effective December 1, 1995, Tenant agrees to pay, in addition to its Base Rent as stated in the First Addendum To Lease, the following monthly Base Rent: Period $/Sq.ft. Monthly --------------- -------- -------- Month-to-Month Base Rent -------------- --------- 12/1/95-2/28/96 $12.50 $1,096.88 3/1/96-2/28/97 $13.00 $1,140.75 3/1/97-2/28/98 $13.50 $1,184.63 3/1/98-2/28/99 $14.00 $1,228.50 3/1/99-9/30/99 $14.50 $1,272.38 4. Landlord or Tenant may terminate this Second Addendum To Lease by providing the other with thirty (30) days prior written notice of its desire to terminate the provisions of this Second Addendum To Lease. 5. Effective upon full execution of this Second Addendum To Lease, Schedule A-2 of the Lease Agreement shall be replaced by Schedule A-3, attached and made a part of this Second Addendum To Lease. Except as modified above, all other terms and conditions of the Lease Agreement and First Addendum To Lease, dated February 22, 1995 and August 18, 1995, respectively, shall remain unchanged and in full force and effect. Agreed to by: Agreed to by: DSMI CORPORATION CONIFER PRINCE STREET ASSOCIATES By: /s/ Donald A. Carlberg By: /s/ Thomas L. Fountain Agent for Owner Date: November 17, 1995 Date: November 17, 1995 SCHEDULE A-3 COMMON AREA MAINTENANCE ADDITIONAL RENT UTILITIES Total Square Footage of Building 30,375 Square Footage Covered by Lease 7,224 Tenant's Share Electric 23.78% ADDITIONAL RENT Heating and Air Conditioning The heat pump units serving the leased premises shall be individually gauged and the monthly charges shall be calculated as set forth on the attached and further explained as follows: 1. The heat pump units serving the lease premises shall be identified by model number. 2. The actual heat pump operating hours will be recorded for each month (column 3) and multiplied by the energy use factor (column 4) applicable to the heat pump model to establish the total energy units (column 5). 3. The total energy units for all heat pumps is then added to the total auxiliary usage to establish the grand total usage and energy cost (total KWH) for the building. 4. The grand total usage and energy cost is multiplied by the utility company's rate per KWH to establish the total cost for kilowatt hours. 5. The total KWH are divided by the total heat pump usage and charges to establish the heat pump hourly rate (column 6). 6. The monthly tenant charge is the heat pump hourly rate multiplied by the total energy units (column 5). 7. Tenant will also pay 23.78% of general usage/common area electric. ADDITIONAL RENT Real Estate and Insurance Escalation In addition to the rents set forth in the Lease, and heretofore in this Schedule, with 1995 as the base year, Tenant shall pay 23.78% of the increase in real estate taxes and other government levies in lieu of taxes (payable in October of the following year), and 23.78% of the increase in property and liability insurance premiums (payable in February of the following year). EX-10 10 EXHIBIT 10.23 EXHIBIT 10.23 THIRD ADDENDUM TO LEASE This Third Addendum To Lease is made and entered into the 28th day of March, 1996, between Conifer Prince Street Associates (Landlord) and DSMI Corporation (Tenant). WITNESSETH: that Tenant currently leases and occupies approximately 7,224 square feet of office space at 46 Prince Street, Rochester, New York 14607 pursuant to a Lease Agreement; First and Second Addendums To Lease, dated February 22, 1995, August 18, 1995 and November 17, 1995, respectively. WHEREAS, Tenant and Landlord desire to increase the Base Rent associated with the 1,720 square feet leased and occupied by Tenant, located on the lower level of the Building as illustrated by Exhibit A-2 of the Second Addendum To Lease. NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify certain provisions of the Lease as follows: 1. Effective April 1, 1996, Tenant agrees to pay, in addition to its Base Rent as stated in the First Addendum To Lease, the following monthly Base Rent: Period $/Sq.ft. Monthly Month-to-Month Base Rent 4/1/96-2/28/97 $12.00 $1,720.00 3/1/97-2/28/98 $12.50 $1,791.67 3/1/98-2/28/99 $13.00 $1,863.33 3/1/99-9/30/99 $13.50 $1,935.00 2. Landlord or Tenant may terminate this Second Addendum To Lease by providing the other with prior written notice of its desire to terminate the provisions of this Second Addendum To Lease. The effective date of termination will be the last day of the first full month following the receipt of said written notice. Except as modified above, all other terms and conditions of the Lease Agreement, First and Second Addendums To Lease, dated February 22, 1995 , August 18, 1995 and March 23, 1996, respectively, shall remain unchanged and in full force and effect. Agreed to by: greed to by: DSMI CORPORATION CONIFER PRINCE STREET ASSOCIATES Home Properties of New York By: /s/ Gregory D. Brown By: /s/ Thomas L. Fountain Date: March 28, 1996 Date: April 1, 1996 EX-10 11 EXHIBIT 10.24 EXHIBIT 10.24 FOURTH ADDENDUM TO LEASE This Fourth Addendum To Lease is made and entered into the 29th day of October, 1996, between Conifer Prince Street Associates (Landlord) and Patient Infosystems, Inc. formerly DSMI Corporation (Tenant). WITNESSETH: that Tenant currently leases and occupies approximately 7,224 square feet of office space at 46 Prince Street, Rochester, New York 14607 pursuant to a Lease Agreement and First, Second and Third Addendums To Lease, dated February 22, 1995, August 18, 1995, November 17, 1995 and March 28, 1996, respectively. WHEREAS, Tenant and Landlord desire to expand Tenant's Lease Premises to include approximately 5,893 square feet of office space located on the third and fourth levels of the Building as illustrated by Exhibit A-4 attached hereto and made part of this Fourth Addendum To Lease and certain provisions of the Lease Agreement and First, Second and Third Addendums To Lease stated above. NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify certain provisions of the Lease as follows: 1. Effective December 1, 1996, Tenant's lease premises shall be approximately 13,117 rentable square feet. 2. Effective December 1, 1996, Tenant agrees to pay, Base Rent for space leased on the lower level of the Building, consisting of approximately 1,720 square feet as follows: Period $/Sq.ft. Monthly Month-to-Month Base Rent Base Rent 12/1/96-2/28/97 $12.00 $1,720.00 3/1/97-2/28/98 $12.50 $1,791.67 3/1/98-2/28/99 $13.00 $1,863.33 3/1/99-11/30/99 $13.50 $1,935.00 3. Landlord or Tenant may terminate the obligations of the Lease Agreement, First, Second and Third Addendums To Lease stated above. related to Tenant's lower level space of the Building, as stated in Paragraph 2 above, without penalty, by providing the other with a minimum of thirty (30) days prior written notice of its desire to terminate said obligations. 4. Effective December 1, 1996, Tenant agrees to pay, Base Rent for space leased on the first, third and fourth levels of the Building, consisting of approximately 11,397 square feet as following: Period $/Sq.ft. Monthly Month-to-Month Base Rent Base Rent 12/1/96-2/28/97 $13.00 $12,346.75 3/1/97-2/28/98 $13.50 $12,821.63 3/1/98-2/28/99 $14.00 $13,296.50 3/1/99-11/30/99 $14.50 $13,771.38 5. Effective upon the full execution of this Fourth Addendum To Lease, Tenant hereby exercises it extension option, as stated in Paragraph 1,"TERM", of the Lease Agreement, with the exception that the term of said extension option period is modified, in part, to provide for a lease termination date of November 30, 1999. 6. Effective upon the full execution of this Fourth Addendum To Lease, Paragraph 8 of the First Addendum To Lease will become null and void and the Lease, with the exception of the provisions stated as in Paragraph 3 of this Fourth Addendum To Lease, shall no longer provide Tenant with a right to early termination of the Lease. 7. Landlord will patch and paint the walls, doors and trim within Tenant's space located on the third and fourth levels of the Building. Tenant and Landlord must agree upon paint color(s) prior to October 17, 1996. Additionally, Landlord will install, within the third level area of Tenant's demised premises only, new carpet in the common hallways, receptionist desk area, internal stairway and private offices. Landlord shall also replace existing VCT flooring in the receptionist/storage area. Provided Landlord has enough carpet, Tenant agrees to allow Landlord to install carpet, in the common hallways and internal stairway of Tenant's third level space, that matches the existing carpet in the suite adjacent to Tenant's third level space. Carpet to be installed in the private offices and receptionist area, stated above, shall be a "Patcraft Einstein" 28 ounce grade carpet or equal. If determined by Landlord's contractor, there is an insufficient amount of the matching carpet stated above, "Patcraft Einstein" 28 ounce carpet or equal will be used as a substitute in the common hallways and internal stairway mentioned above. Landlord and Tenant must agree upon carpet selection by October 17, 1996. Landlord shall have the carpet in the large open section of Tenant's fourth level space professionally stretched. Landlord will also professionally shampoo the carpet on the entire fourth level and in the third level conference room. Provided the above dates are adhered to, Landlord will completed said work prior to December 1, 1996. 8. Effective December 1, 1996, Tenant's parking allowance will be increased from 25 on-site spaces to 41. 9. Effective December 1, 1996, Schedule A-3 of the Second Addendum To Lease will be replaced by Schedule A-4, attached and made a part of this Fourth Addendum To Lease . Except as modified above, all other terms and conditions of the Lease Agreement and First, Second and Third Addendus To Lease, dated February 22, 1995, August 18, 1995, November 17, 1995 and March 28, 1996, respectively, shall remain unchanged and in full force and effect. Agreed to by: Agreed to by: PATIENT INFOSYSTEMS CONIFER PRINCE STREET ASSOCIATES FORMERLY DMSI CORPORATION By: /s/ Donald A. Carlberg By: /s/ Dick Crossed Date: October 25, 1996 Date: October 29, 1996 SCHEDULE A-4 COMMON AREA MAINTENANCE ADDITIONAL RENT UTILITIES Total Square Footage of Building 30,375 Square Footage Covered by Lease 13,117 Tenant's Share Electric 43.2% ADDITIONAL RENT Heating and Air Conditioning The heat pump units serving the leased premises shall be individually gauged and the monthly charges shall be calculated as set forth on the attached and further explained as follows: 1. The heat pump units serving the lease premises shall be identified by model number. 2. The actual heat pump operating hours will be recorded for each month (column 3) and multiplied by the energy use factor (column 4) applicable to the heat pump model to establish the total energy units (column 5). 3. The total energy units for all heat pumps is then added to the total auxiliary usage to establish the grand total usage and energy cost (total KWH) for the building. 4. The grand total usage and energy cost is multiplied by the utility company's rate per KWH to establish the total cost for kilowatt hours. 5. The total KWH are divided by the total heat pump usage and charges to establish the heat pump hourly rate (column 6). 6. The monthly tenant charge is the heat pump hourly rate multiplied by the total energy units (column 5). 7. Tenant will also pay 43.2% of general usage/common area electric. ADDITIONAL RENT Real Estate and Insurance Escalation In addition to the rents set forth in the Lease, and heretofore in this Schedule, with 1995 as the base year, Tenant shall pay 43.2% of the increase in real estate taxes and other government levies in lieu of taxes (payable in October of the following year), and 43.2% of the increase in property and liability insurance premiums (payable in February of the following year). EX-10 12 EXHIBIT 10.25 EXHIBIT 10.25 FIFTH ADDENDUM TO LEASE This Fifth Addendum To Lease is made and entered into the 30th day of November, 1996, between Conifer Prince Street Associates (Landlord) and Patient Infosystems, Inc. formerly DSMI Corporation (Tenant). WITNESSETH: that Tenant currently leases and occupies approximately 13,117 square feet of office space at 46 Prince Street, Rochester, New York 14607 pursuant to a Lease Agreement and First, Second, Third and Fourth Addendums To Lease, dated February 22, 1995; August 18, 1995; November 17, 1995; March 28, 1996 and October 29, 1996 respectively. WHEREAS, Tenant and Landlord desire to terminate it lease obligation regarding the space leased on the lower level of the Building thereby reducing the amount of square footage and corresponding its rental obligation effective December 1, 1996. NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify certain provisions of the Lease as follows: 1. Effective December 1, 1996, Tenant's lease premises shall be approximately 11,397 rentable square feet. 2. Effective December 1, 1996, Tenant shall no longer be obligated for costs associated with space previously leased by Tenant on the lower level of the Building, consisting of approximately 1,720 square feet. However, Tenant shall remain responsible for all appropriate charges incurred prior to December 1, 1996. 3. Effective December 1, 1996, Tenant agrees to pay, Base Rent for space leased on the first, third and fourth levels of the Building, consisting of approximately 11,397 square feet as following: Period $/Sq.ft. Monthly Month-to-Month Base Rent Base Rent 12/1/96-2/28/97 $13.00 $12,346.75 3/1/97-2/28/98 $13.50 $12,821.63 3/1/98-2/28/99 $14.00 $13,296.50 3/1/99-11/30/99 $14.50 $13,771.38 4. Effective December 1, 1996, Schedule A-5 shall replace Schedule A-4 and Tenant's pro rata share of taxes, utilities and insurance will be 37.5%. Except as modified above, all other terms and conditions of the Lease Agreement and First, Second, Third and Fourth Addendums To Lease, dated February 22, 1995; August 18, 1995; November 17, 1995; March 28, 1996 and October 29, 1996 respectively, shall remain unchanged and in full force and effect. Agreed to by: Agreed to by: PATIENT INFOSYSTEMS, INC. CONIFER PRINCE STREET ASSOCIATES formerly DSMI CORPORATION By: /s/ Gregory D. Brown By: /s/ Thomas L. Fountain Date: November 30, 1996 Date: November 26, 1996 SCHEDULE A-4 COMMON AREA MAINTENANCE ADDITIONAL RENT UTILITIES Total Square Footage of Building 30,375 Square Footage Covered by Lease 11,397 Tenant's Share Electric 37.5% ADDITIONAL RENT Heating and Air Conditioning The heat pump units serving the leased premises shall be individually gauged and the monthly charges shall be calculated as set forth on the attached and further explained as follows: 1. The heat pump units serving the lease premises shall be identified by model number. 2. The actual heat pump operating hours will be recorded for each month (column 3) and multiplied by the energy use factor (column 4) applicable to the heat pump model to establish the total energy units (column 5). 3. The total energy units for all heat pumps is then added to the total auxiliary usage to establish the grand total usage and energy cost (total KWH) for the building. 4. The grand total usage and energy cost is multiplied by the utility company's rate per KWH to establish the total cost for kilowatt hours. 5. The total KWH are divided by the total heat pump usage and charges to establish the heat pump hourly rate (column 6). 6. The monthly tenant charge is the heat pump hourly rate multiplied by the total energy units (column 5). 7. Tenant will also pay 37.5% of general usage/common area electric. ADDITIONAL RENT Real Estate and Insurance Escalation In addition to the rents set forth in the Lease, and heretofore in this Schedule, with 1995 as the base year, Tenant shall pay 37.5% of the increase in real estate taxes and other government levies in lieu of taxes (payable in October of the following year), and 37.5% of the increase in property and liability insurance premiums (payable in February of the following year). EX-10 13 EXHIBIT 10.26 EXHIBIT 10.26 SIXTH ADDENDUM TO LEASE This Sixth Addendum To Lease is made and entered into the 24th day of November, 1997, between Conifer Prince Street Associates (Landlord) and Patient Infosystems, Inc. formerly DSMI Corporation (Tenant). WITNESSETH: that Tenant currently leases and occupies approximately 11,397 square feet of office space at 46 Prince Street, Rochester, New York 14607 pursuant to a Lease Agreement and First, Second, Third, Fourth and Fifth Addendus To Lease, dated February 22, 1995; August 18, 1995; November 17, 1995; March 28, 1996; October 29, 1996 and November 30, 1997, respectively. WHEREAS, Tenant and Landlord desire to expand Tenant's leased premises by Tenant leasing additional office space, consisting of approximately 1,557 square feet, on the Building's lower level (Expansion Space). NOW, THEREFORE, it is mutually agreed upon by Landlord and Tenant to modify certain provisions of the Lease as follows: 1. Effective February 1, 1998, Tenant's lease premises shall be increased to include approximately 1,557 rentable square feet of office space located on the lower level of the Building. Therefore, effective February 1, 1998 Tenant's leased premises will consist of approximately 12,954 rentable square feet. 2. Tenant agrees to pay, Base Rent for its' leased premises, consisting of approximately 12,954 square feet as following: Period Per Sq.ft. Monthly Month-to-Month Base Rent Base Rent 2/28/98 $13.50 $14,573.26 3/1/98-02/28/99 $14.00 $15,113.00 3/1/99-11/30/99 $14.50 $15,652.76 3. Effective February 1, 1998, Schedule A-6 shall replace Schedule A-4 and Tenant's pro rata share of taxes, utilities and insurance will be 42.65%. 4. Prior to Tenant's occupancy of the Expansion Space, Landlord shall, at its' sole cost and expense, complete the Scope of Work, as stated on Exhibit A-6. Except as modified above, all other terms and conditions of the Lease Agreement and First, Second, Third, Fourth and Fifth Addendus To Lease, dated February 22, 1995; August 18, 1995; November 17, 1995; March 28, 1996; October 29, 1996 and November 30, 1997, respectively, shall remain unchanged and in full force and effect. Agreed to by: Agreed to by: PATIENT INFOSYSTEMS, INC. CONIFER PRINCE STREET ASSOCIATES formerly DSMI CORPORATION By: /s/ Donald A. Carlberg By: /s/ Thomas L. Fountain Date: November 24, 1997 Date: November 25, 1997 -------------------------- --------------------------- SCHEDULE A-6 COMMON AREA MAINTENANCE ADDITIONAL RENT UTILITIES Total Square Footage of Building 30,375 Square Footage Covered by Lease 12,954 Tenant's Share Electric 42.65% ADDITIONAL RENT Heating and Air Conditioning The heat pump units serving the leased premises shall be individually gauged and the monthly charges shall be calculated as set forth on the attached and further explained as follows: 1. The heat pump units serving the lease premises shall be identified by model number. 2. The actual heat pump operating hours will be recorded for each month (column 3) and multiplied by the energy use factor (column 4) applicable to the heat pump model to establish the total energy units (column 5). 3. The total energy units for all heat pumps is then added to the total auxiliary usage to establish the grand total usage and energy cost (total KWH) for the building. 4. The grand total usage and energy cost is multiplied by the utility company's rate per KWH to establish the total cost for kilowatt hours. 5. The total KWH are divided by the total heat pump usage and charges to establish the heat pump hourly rate (column 6). 6. The monthly tenant charge is the heat pump hourly rate multiplied by the total energy units (column 5). 7. Tenant will also pay 42.65% of general usage/common area electric. ADDITIONAL RENT Real Estate and Insurance Escalation In addition to the rents set forth in the Lease, and heretofore in this Schedule, with 1995 as the base year, Tenant shall pay 42.65% of the increase in real estate taxes and other government levies in lieu of taxes (payable in October of the following year), and 42.65% of the increase in property and liability insurance premiums (payable in February of the following year). EX-10 14 EXHIBIT 10.27 EXHIBIT 10.27 SUBLEASE AGREEMENT BETWEEN MEDECISION, INC. AND PATIENT INFOSYSTEMS, INC. DATED: March 30, 1998 MEDecision, Inc. ("MED") is the tenant under that certain office lease (as amended from time to time) dated as of August 4, 1995 (the "Lease" attached hereto as Exhibit A) with EOP - One Devon Square, L.P. as landlord ("Landlord") respecting a portion of the second floor (the "Leased Space") of the building commonly known as One Devon Square (the "Building"), situate at 724 West Lancaster Avenue, Wayne, PA 19087. MED hereby agrees to sublease a portion of the Leased Space to Patient InfoSystems, Inc. ("Subtenant") and Subtenant hereby agrees to sublease such space from MED, on the following terms and conditions: 1) The Space: The subleased space (the "Premises") will consist of a portion of the second floor consisting of approximately 2,047 rentable square feet as shown on the attached floor plan entitled Exhibit B. 2) The Term: The term of the sublease agreement (the "Sublease") shall commence on the later of June 1, 1998, or upon MED's occupancy of the premises, and shall terminate at midnight at the close of May 31, 2001 without the requirement of any further notice thereof by either party to the other, except as may be provided elsewhere in this Sublease. 3) Sublease Rent: Sublease rent payable by the Subtenant to MED shall be $3,350.00 per month. Rent shall be paid monthly in advance of the first of each month, without demand or set-off. 4) Additional Rent: Notwithstanding anything contained in the Lease between MED and the Landlord to the contrary or in the Sublease herein, the Subtenant shall be directly responsible for the cost of electricity which will be billed to Subtenant according to paragraph 5.03 of the Lease between MED and Landlord, and for their proportionate share (according to the formula in paragraph 5.04(a) of the Lease between MED and Landlord) of increases in the cost of operating and maintaining the Building during all or part of any calendar year in which this Sublease is in effect. 5) Improvements: Subtenant acknowledges that it has inspected the Premises and agrees to accept the Premises in their present "as-is" condition and any improvements will be at the sole cost of the Subtenant, 6) Insurance: Subtenant shall maintain, with MED and Landlord named as additional insured's, such liability and other insurance as is required to be maintained by MED under the Lease, with such limits and otherwise in accordance such requirements as are set forth in the Lease. Subtenant shall provide a Certificate of Insurance to MED indicating such coverage. 7) Further Subletting: Subtenant shall not have the right to further sublease of the Premises. 8) MED Lease: This Sublease is subject to all of the terms and conditions of the Lease, each of which is hereby incorporated herein by reference and made a part thereof, and the parties agree that: (a) Subtenant shall fully and faithfully perform, with regard to the Premises, all of the duties and obligations contained in the terms, covenants and conditions of the Lease to be performed by MED as tenant. Each event of default set forth in the Lease respecting MED and the Leased Space shall be equally applicable to Subtenant and the Premises. (b) MED, in its relations with Subtenant hereunder, shall have all of the rights and remedies afforded to Landlord in it relations with MED as tenant as set forth in the Lease. Without limiting the generality of the foregoing, the consent of MED shall be required for any action of Subtenant which, pursuant to the Lease, would require consent of Landlord as to the tenant. (c) MED is hereby released and relieved of (i) all of the obligations of Landlord as set forth in the Lease other than any obligation to give notice prior to exercising its rights and remedies, and (ii) any liability to Subtenant for any default by Landlord under the Lease or any failure by landlord to perform any of its obligations thereunder, but MED agrees to reasonably cooperate with Subtenant, upon the written request of Subtenant and at Subtenant's sole expense, in enforcing any of such obligations and causing landlord to perform same; provided, however, that MED shall not be liable to Subtenant in damages if, after reasonable diligence on the part of MED, landlord shall fail to perform such obligations. (d) Subtenant acknowledges that the rights granted to it under this Sublease agreement are not in any sense greater or broader than the rights granted to MED as tenant under the Lease. 9) Indemnification: Subtenant agrees to indemnify and save harmless MED against and from any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from Subtenant's use of the Premises (or the Leased Space) or the conduct of its business or from any activity, work or thing done, permitted or suffered by Subtenant, in or about the Premises (or the Leased Space), and from any and all claims arising from any breach or default on Subtenant's part in the performance of any covenant or agreement on Subtenant's part to be performed pursuant to the terms of this Sublease agreement, or any of its agents, contractors, servants, employees or licensees. 10) Damage to Property: Neither MED nor its agents or employees shall be liable for (a) any damages to property of Subtenant or of others entrusted to employees of Landlord, nor (b) any injury or damage to persons or property resulting from any cause of whatsoever nature unless caused by or due to the negligence of MED, its agents, servants, or employees, nor (c) any damage caused by other tenants or persons in the building, nor (d) any latent defects in the Premises or in the Building. 11) Effective Date: This Sublease agreement shall not be effective until it is executed by MED and Subtenant and approved by Landlord. 12) Time: Time is of the essence of this Sublease Agreement and of the performance by Subtenant of each and every term and condition hereof and of each and every term and condition of the Lease which Subtenant has herein agreed to keep and perform. 13) Expiration and Termination: This Sublease Agreement will become null and void unless executed by all parties on or before April 3, 1998. After the first twenty-four months of the sublease term has expired, or after May 31, 2000, Subtenant shall have the right to submit written notice to MED requesting early termination of the Sublease agreement conditioned upon MED's need for the Leased Space. MED, in its sole discretion, will determine its need for the Leased Space at that time. If MED elects to occupy the Leased Space, Subtenant will be granted early termination and be released from the Sublease Agreement. If MED decides it does not need additional Leased Space at that time, MED will so notify Subtenant and Subtenant will continue to be bound by the terms and conditions of this Sublease agreement for the remainder of the Sublease term. MED shall have the right, at any time after the first eighteen months of the sublease term has expired, or after November 30, 1999, to give six months notice of termination of this Sublease agreement to Subtenant. 14) Complete Agreement: This Sublease agreement contains all of the agreements between MED and Subtenant respecting the subject matter hereof and may not be modified except by written instrument duly executed by the parties. The terms and conditions of this Sublease agreement shall extend to and be binding upon the successors and permitted assigns of MED and Subtenant. By signing in the spaces provided below, MED and Subtenant agree to the terms and conditions herein set forth, intending to be legally bound thereby. TENANT MEDECISION, INC. BY: /s/ David St. Claire ITS:-CEO SUBTENANT PATIENT INFOSYSTEMS, INC. BY: /s/ Donald A Carlberg ITS: President & CEO EX-10 15 EXHIBIT 10.28 EXHIBIT 10.28 JOINT VENTURE AND STOCKHOLDERS AGREEMENT AGREEMENT made as of the 12th day of November, 1998, by and among Maclean Hunter Publishing Limited, an Ontario corporation ("MHPL"), having an address at 777 Bay Street, Toronto, Ontario and Patient InfoSystems, Inc., a Delaware corporation ("PATI"), having an address at 46 Prince Street, Rochester, New York (both of the foregoing are hereinafter sometimes collectively called "Stockholders", and individually called "Stockholder"); and Patient InfoSYSTEMS Canada Inc., an Ontario corporation with offices at 777 Bay Street, Toronto, Ontario (hereinafter sometimes called the "Corporation"). WITNESSETH WHEREAS, the Stockholders own all of the issued and outstanding common shares (the "Common Shares") of the Corporation; and WHEREAS, the Stockholders wish to enter into a joint venture to market and sell, on an exclusive basis in Canada, products and services developed by PATI and to jointly manage, finance and operate the Corporation as set forth in this Agreement; and WHEREAS, the Stockholders desire to make certain provisions with reference to their respective stock holdings in the Corporation; NOW THEREFORE, in consideration of the mutual promises hereinafter contained, and other good and valuable consideration, the parties hereto agree as follows: I Definitions When used in this Agreement, the following words and phrases shall be deemed to have the following meanings: (a) "transfer", "dispose" and any other term or terms of similar purpose shall, without limitation, be deemed to include the making or granting of any sale, exchange, assignment, gift, pledge, hypothecation, mortgage, security interest, encumbrance or other transfer or disposition whatsoever, voluntary, involuntary or by operation of law, affecting title to or the right to the possession of, any shares of stock of the Corporation or any interest therein. (b) "Stock", "Shares" and "Shares of Stock" (unless expressly otherwise stated) shall be deemed to mean all the Common Shares of the Corporation, now owned or hereafter acquired by the parties hereto or by persons, who may hereafter become a party or agree to be bound by the terms hereof, irrespective of the time and manner of such acquisition, including, without limitation, any shares resulting from a split-up, stock dividend or exchange of any stock. 2 . The Corporation (a) Election of Directors. The board of directors of the Corporation (the "Board of Directors") shall consist of four directors and each Stockholder shall have the right to designate two representatives to the Board of Directors to serve as a director of the Corporation. In the event any directorship occupied becomes vacant for any reason, such vacancy shall be filled by the party having the right to designate such director. (b) Directors' Proceedings. Unless waived in writing by all the directors of the Corporation, not less than four Business Days (being a day which is not a Saturday, Sunday or public holiday in Toronto, Ontario and Rochester, New York) notice shall be given of all meetings. of the Board of Directors. A quorum for meetings of the Board of Directors shall be two directors, including at least one nominee of each Stockholder, in each case present in person or present by means of such telephone, electronic or other communications facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously (and, for greater certainty, a meeting of the Board of Directors may be constituted at which some directors are present in person and other directors are present by means of such communication facilities), All questions proposed for consideration of the directors at a meeting of the Board of Directors shall be determined and all resolutions shall be passed, in order to be effective, by the votes of not less than a majority of the directors present at such meeting, provided that if one but not both of the designees of either Stockholder is present at any meeting of the Board of Directors, the designee of such Stockholder who is present at such meeting may cast, in addition to his own vote, an additional vote. (c) Matters reserved to Shareholders. Notwithstanding any statute or other law to the contrary, none of the following matters shall be carried out or effected by the Corporation without the prior written approval of both Stockholders: (i) any amendments to the articles of incorporation or by-laws of the Corporation or any amalgamation, arrangement, continuance, winding up, dissolution, liquidation or reorganization of the Corporation; (ii) any issue of Shares or the granting of any option or right (including convertible securities, warrants, or convertible obligations of any nature) for the purchase or issuance of any Shares or other securities of the Corporation, except as expressly permitted by any other provisions of this Agreement; (iii) any transfer of Shares of the Corporation by a Stockholder, except as expressly permitted by any other provisions of this Agreement; (iv) any purchase by the Corporation of any of its Shares or any other return of capital of the Corporation; (v) any material change in the business of the Corporation from the Business defined in section 3(b); (vi) the change in number of directors on the Board of Directors; (vii) any appointment or removal of the accountants or auditors of the Corporation; (viii) the approval of any Budget, or the approval of any material alteration in any Budget previously approved in accordance with section 2(g); (ix) any purchase of any shares or any material assets by the Corporation, including without limitation any investments in or purchase of any business by the Corporation, whether directly or by acquiring the entity through or by which the business is operated or in any other manner; (x) any borrowing or financing by the Corporation or the application for, or obtaining of, any line of credit by the Corporation from any financial institution or any material alteration in any such financing arrangements; (xi) any capital or other expenditures in excess of $10,000 for any single such expenditure or any leasing of capital equipment by the Corporation, in each case unless provided for in a Budget previously approved in accordance with section 2(g); (xii) any proposed sale, lease, exchange or other disposition of property or assets of the Corporation; (xiii) any assignment, mortgage, charge, pledge, encumbrance of or grant of any security interest in, property or assets of the Corporation; (xiv) any provision of any guarantee, indemnity or other financial support by or to the Corporation; and (xv) any transactions between the Corporation and any person not dealing at arm's length with the Corporation or any of the Stockholders, except as specifically referred to in any paragraph of this Agreement or as provided for in a Budget approved in accordance with section 2(g). (d) Stockholders' Proceedings. Unless waived in writing by all of the Stockholders, not less than ten Business Days notice shall be given of any meeting of the Stockholders. A quorum for meetings of the Stockholders shall require the attendance of each Stockholder present in person or by proxy. (e) No Casting Vote. Neither the President of the Corporation or the chairman of any meeting of the Board of Directors of the Corporation or of the Shareholders shall by virtue of his office, position or for any other reason be entitled to any second or casting vote in respect of any matters coming before such meeting. (f) Accountants. Until changed in accordance with section 2(c)(vii), the accountants of the Corporation shall be KPMG. (g) Annual Budget. Not less than 45 days prior to the commencement of each fiscal year of the Corporation, the officers of the Corporation shall prepare and deliver to the Board of Directors and to the Stockholders a proposed business plan and budget for such fiscal year, which business plan and budget shall set out in reasonable- detail the projected revenue and proposed expenditures of the Corporation for such fiscal year. The Board of Directors and the Stockholders shall meet prior to the commencement of such fiscal year to consider and approve such business plan and budget, with such amendments or modifications thereto as the Board of Directors and the Stockholders deem appropriate (which business plan and budget, as approved, is herein referred to as a "Budget"). (h) Election of 0fficers Until changed by the Board of Directors, the following persons shall be elected as officers of the Corporation: President Allan Cook Vice President, Finance Timothy L. Root Secretary/Controller Barbara Angier (i) Compensation and Duties of President. Allan Cook,- the President of the Corporation, will continue to be employed on a full-time basis by PATI. Mr. Cook's compensation will be the sole responsibility of PATI; provided that the Corporation will reimburse PATI for a pro rata portion of Mr. Cook's base salary for a year based on the percentage of Mr. Cook's time spent on the affairs of the Corporation in such year, but in no event shall MHPL be required to reimburse PATI for an amount in respect of Mr. Cook's salary in excess of the amount specified in the Budget approved in accordance with Section 2(g) for such year. In providing his services as President of the Corporation, Mr. Cook will perform such duties for the Corporation and its subsidiaries as may from time to time be assigned to him by the Board of Directors and he will devote the time necessary and exercise the power and authority to fulfil the responsibilities conferred upon him, honestly, diligently, in good faith and in the best interest of the Corporation and its subsidiaries. For so long as this Agreement is in effect, Mr. Cook agrees that any business opportunity or proposal originated or offered to Mr. Cook that could reasonably be considered related to the Business of the Corporation shall constitute and be considered property of the Corporation and shall be referred to and brought to the attention of the Board of Directors of the Corporation at the earliest possible opportunity. Mr. Cook covenants and agrees that in addition to any and all terms of this Agreement, he shall fulfil all fiduciary obligations that he owes to the Corporation by virtue of his position with the Corporation and that the duty to fulfil all such obligations shall survive the termination of his tenure as President and such termination of his tenure shall not operate as a waiver or release of any such duty. 3 . Covenants (a) Disclosure of Trade Secrets. During the term of this Agreement and thereafter, each Stockholder will not, except as properly required in conducting the Business of the Corporation, disclose or utilize, or authorize or cause anyone else to disclose or utilize for the profit of anyone other than the Corporation, any trade secret or confidential information, knowledge or data of the Corporation of which it has knowledge, including, without limitation, any customer lists not made public by the Corporation. (b) Covenant Not to Compete Each Stockholder covenants and agrees with the Corporation and the other Stockholder that it will not during the term of this Agreement and for so long as it owns Stock (the "Term') directly or indirectly own, manage, operate, control, finance or otherwise be interested or participate in the ownership, management, operation or control of any person, corporation or other entity or, sell or produce products in Canada which are directly competitive with the Business of the Corporation. Each of the Stockholders hereby acknowledges that the provisions of this subparagraph 3(b) shall serve as a prohibition against directly or indirectly hiring, offering to hire, enticing away or in any way persuading or attempting to persuade any officers, employees, agents or, customers or prospective customers of the Corporation to discontinue or alter his or its relationship with the Corporation during the Term. For the purposes hereof, the "Business" of the Corporation shall mean the business carried on by the Corporation consisting of the provision to patients and health care providers in Canada of patient-directed health care information systems and services to manage, collect and analyze information to improve patient compliance with prescribed treatment protocols, to improve the process of off-site management and to enhance patient and provider information. Notwithstanding the foregoing, neither Stockholder shall be precluded from: (i) carrying on any business currently carried on by such Stockholder or any successor to such business or from continuing to publish any publication currently published by such Stockholder, or successor to any such publication; (ii) acquiring securities of a class which are traded on a stock exchange or over the counter as long as such securities represent not more than_20% of the issued. and outstanding securities of such class; or (iii) acquiring an interest in a business, either through the acquisition of shares, assets or otherwise, where the acquired business (the "Acquired Business") contains, as a part hereof, a business (the "Competing Segment"), the operation of which would cause the Stockholder to be in breach of the provisions of this section 3, providedthat this exception shall only apply so long as the following conditions are applicable: (A) the Competing Segment did not, in the financial year preceding the acquisition by Stockholder or in any subsequent financial year, account for 40% or more of the revenue of the Acquired Business; and (B) if the Competing Segment did, in the financial year preceding the acquisition by the Stockholder or in any subsequent financial year, account for 10% or more of the revenues of the Acquired Business, the Stockholder uses its reasonable efforts to dispose of the Competing Segment to a third party on normal commercial terms within a reasonable period of time following such acquisition or following such subsequent financial year, as the case may (c) Further Assurances. The parties hereto covenant and agree to do or cause to be done all acts and things, whether by the Board of Directors or otherwise, to execute and deliver or cause to be executed and delivered all such instruments and to exercise or cause to be exercised any and all voting rights attaching to the Common Shares of the Corporation held by each of them in order that all provisions of this Agreement shall be fully and effectively carried out, implemented and given effect to in accordance with the term hereof. 4 . Stock of the Corporation (a) Ownership of Stock. The parties acknowledge and agree that as of the date hereof there are 100 Common Shares issued and outstanding (and no more), which are owned as follows: Stockholder No. of Common Shares Owned Maclean Hunter Publishing Limited 50 Patient InfoSystems, Inc. 50 The Stockholders represent and warrant that they are the legal and beneficial owners of such Stock and hold such Stock free and clear of all liens, security interests, claims or encumbrances whatsoever. (b) Restrictions on Transfer of Stock. Except as provided in this Agreement, no Stockholder shall transfer or dispose of any of the Stock of the Corporation now or hereafter owned or held by it without the prior written consent of the other Stockholder. Any attempted or purported transfer of Stock by any Stockholder in violation of the terms of this Agreement shall be void and the Corporation shall reject and refuse to transfer on the books any Stock which may have been transferred in violation of the provisions of this Agreement, and the Corporation shall not recognize any person receiving any Stock as a Stockholder nor shall any such person have any rights as a Stockholder of the Corporation. Notwithstanding the foregoing, either Stockholder shall be entitled to, without the consent of the other Stockholder, transfer all (but not less than all) of the Stock owned by such Stockholder to an affiliate (as defined in the Business Corporations Act (Ontario)) of such Stockholder; provided that such affiliate agrees in writing to be bound by the terms of this Agreement and further provided that notwithstanding such transfer, the transferring Stockholder shall continue to be bound by the terms of this Agreement. (c) Negotiated Sale. If, at any time following the second anniversary of the date of this Agreement, either Stockholder shall desire to transfer all (but not part) of its Stock to the other Stockholder, the Stockholder desiring to transfer ("Selling Stockholder") shall give written notice ("Selling Stockholder's Notice") to the Corporation and the remaining Stockholder of the Corporation ("Purchasing Stockholder"), stating that the Selling Stockholder desires to transfer all of the Stock owned by it to the Purchasing Stockholder. Following the delivery of a Selling Stockholder's Notice, the Selling Stockholder and the Purchasing Stockholder shall, in good faith,conduct negotiations with a view to agreeing upon the terms of the sale of the Stock of the Selling Stockholder to the Purchasing Stockholder including the price, which the parties agree shall be based on the fair market value of such Stock at the time of delivery of the Selling Stockholder's Notice and the terms of any ongoing services to be provided by the Selling Stockholder to the Corporation following such sale. The Selling-Stockholder and the Purchasing Stockholder shall also, in good faith, consider alternative methods by which the Selling Stockholder may dispose of its interest in the Corporation, including by way of the wind up and dissolution of the Corporation as contemplated by paragraph 7 and by way of the sale of all of the Stock of the Selling Stockholder only or of both the Selling Stockholder and the Purchasing Stockholder or of the property and assets of the Corporation to a third party. If the Selling Stockholder and the Purchasing Stockholder are unable, following such good faith negotiations, to reach an agreement for the sale of the Selling Stockholder's Stock to the Purchasing Stockholder or an agreement as to an alternative manner in which the Selling Stockholder may dispose of its interest in the Corporation within 60 days following the delivery of the Selling Stockholder's Notice, the Selling Stockholder and the Purchasing Stockholder shall continue as Stockholders, shall not be required to continue to negotiate and the terms of this Agreement shall continue in full force and effect. MHPL and PATI agree that neither one of them shall be permitted to deliver a Selling Stockholder's Notice until after 180 days following the delivery of a previous Selling Stockholder's Notice. 5 . Legend on Certificate There shall be endorsed upon the Certificate of Stock of the Corporation heretofore or hereafter issued to the Stockholders or to any other person acquiring Stock pursuant to this Agreement, an endorsement reading as follows: "The sale, transfer, pledge, assignment granting of a security interest in, or other disposition or encumbrance of all shares represented by this Certificate are subject to the terms and conditions of a certain Agreement entered into between this Corporation and all of its Stockholders as of the 12th day of November, 1998, for the purposes therein provided, and any owner hereof is subject to the obligations therein set forth and contained." 6 . Contributions of the Stockholders (a) Each of the Stockholders agrees to make the following contribution to the Corporation of materials, services and facilities: (A) Contributions by PATI. (i) PATI agrees to provide to the Corporation on an exclusive basis within Canada all products and services offered by PATI throughout the world for use by the Corporation in the conduct of its Business. The fees and costs to be charged by PATI for such products and services shall be at a discount from the lowest costs and fees charged by PATI for such products and services to any of its third party customers, with the amount of such discount in each particular case to be as agreed to between MHPL and PATI, acting reasonably. (ii) PATI will provide all product, services, hardware, software, and support (the "Products") necessary to operate programs sold to the Corporation by PATI. PATI will be responsible for all such Products, including the content thereof and will indemnifyand hold harmless MHPL and the Corporation from any claim or loss suffered by MHPL or the Corporation relating to such Products or the content thereof. (iii) PATI will provide on an ongoing basis, at no charge to the Corporation, training and marketing expertise as needed by the Corporation. (iv) PATI agrees to offer to the Corporation, on an exclusive basis within Canada, all products and services developed by PATI for which it has the right under development agreements, to the extent appropriate, to offer such rights to the Corporation. If any such products or services are not accepted by the Corporation, PATI shall be free to offer and sell any such products and services to any third parties. The fees and costs to be charged by PATI for such products and services shall be at a discount from the lowest costs and fees charged by PATI for such products and services to any of its third party customers, with the amount of such discount in each particular case to be as agreed to between MHPL and PATI, acting reasonably. (v) PATI, at its own cost and expense, agrees to support the development of new products and services unique to the Canadian market. (vi) PATI agrees to provide such capital contributions as are agreed to by the Board of Directors and contemplated by a Budget approved in accordance with section 2(g) hereof with such capital contributions to be equal to the capital contributions of MHPL. (B) Contributions to the Corporation by MHPL. (i) MHPL will provide sales, sales support and marketing services to the Corporation through its Customer Communications Division. All commission payment rates and other payments to be charged by MHPL for such services shall be at a discount from the lowest rates charged by MHPL for such services to any of its third party customers, with the amount of such discount in each particular case to be as agreed to between MHPL and PATI, acting reasonably. (ii) MHPL will provide to the Corporation all required infrastructure support for the Corporation, including, but not limited to, occupancy, telephone, secretarial, accounting, billing, collection, reporting, cash management, tax and regulatory requirements. The costs payable by the Corporation for such support shall be $20,000 for the initial year of this Agreement, and for subsequent years, shall be such amount as is provided in a Budget for such year approved in accordance with section 2(g) hereof. (iii) MHPL will generate content for use by the Corporation. The fees to be charged by MHPL for such content hall be at a discount from the lowest fees charged by MHPL for such content to any of its third party customers, with the amount of such discount in each particular case to be as agreed to between MHPL and PATI, acting reasonably. MHPL will be responsible for all such content, and will indemnify and hold harmless PATI and the Corporation from any claim or loss suffered by PATI or the Corporation relating to such content. (iv) MHPL agrees to use its reasonable best efforts to identify opportunities for the Corporation to develop new products and services using technology of PATI that could be unique to the Canadian market. Where such products and services are sold outside Canada by PATI or its affiliates, PATI agrees to pay to the Corporation a royalty to be agreed upon at the time of such offer and sale by the Corporation and PATI, acting reasonably. (v) MHPL agrees to provide such capital contributions as are agreed to by the Board of Directors and contemplated by a Budget approved in accordance with section 2(g) hereof with such capital contributions to be equal to the capital contributions of PATI. (b) Equity Option PATI hereby grants to MHPL an irrevocable option (the "Option") to acquire 200,000 shares of Common Stock of PATI (the "Option Shares") at an exercise price of $3.50 per share exercisable over a period of five years. The parties acknowledge that the Option Shares represent 2.5% of the issued and outstanding shares of PATI on the date hereof. PATI agrees that if after the date hereof, it completes a reconstruction or reorganization or recapitalization of PATI or if PATI amalgamates into or with another corporation or if it completes a redivision, consolidation, reclassification, subdivision or other change of the common stock of PATI (the "Reorganization"), the Option shall, without further act or formality, be deemed to be amended in order to provide to MHPL upon exercise with the same number and class of securities as would have been received by MHPL if the Option had been exercised immediately prior to such Reorganization. Upon the termination of this Agreement, MHPL may exercise the Option at any time during the period of 30 days following the termination of this Agreement provided that at the end of such 30 day period, the unexercised portion of the Option shall expire. PATI shall forthwith after the date hereof deliver to MHPL an option agreement reflecting the foregoing terms of the Option and shall obtain all necessary regulatory approvals to the granting of the Option, and shall arrange for the listing of the Option Shares on the applicable exchange. 7 . Duration of Agreement This Agreement shall remain in full force and effect for as long as both of the Stockholders own Stock of the Corporation and the Corporation is actively engaged in the Business; provided that: (a) if both Stockholders agree in writing, the Corporation may at any time be dissolved and its business and assets liquidated in an orderly wind-up of the affairs of the Corporation, with all benefits or costs to be shared equally, and this Agreement shall terminate effective upon such dissolution; and (b) at any time after the second anniversary of the date of this Agreement, either Stockholder (the "Electing Stockholder") may, by delivery of written notice to the Corporation and to the other Stockholder, elect to surrender its Stock to the Corporation for cancellation, and upon receipt of such notice and the certificate of the Electing Stockholder representing the Stock, the Corporation shall forthwith distribute to the Stockholders by way of dividend the balance of the retained earnings of the Corporation and both parties shall be released from their obligations under this Agreement. 8 . Miscellaneous Provisions (a) All prior agreements with regard to the shares of Stock are hereby cancelled. (b) The captions of the various paragraphs herein are inserted only for reference and for the convenience of the parties, and in no way define, limit or describe the scope of this Agreement, nor the intent of any of the provisions thereof. (c) This Agreement is made under, and shall be governed by the laws of the Province of Ontario in all respects, including matters of construction, validity and performance. (d) This Agreement cannot be changed or terminated orally. A waiver in one instance shall not be effective unless it is in writing and shall not be deemed a continuing waiver. (e) This Agreement and the confidentiality agreement between the parties hereto constitute the entire Agreement between the parties. (f) All pronouns and words shall be read in appropriate number and gender, the masculine, feminine and neuter shall be interpreted interchangeably and the singular shall include the plural and vice versa, as the circumstances may require. 9 . Notice Any notice permitted to be given pursuant to this Agreement shall be in writing addressed as follows, and given by prepaid private courier or otherwise hand delivered or sent by telecopier or other similar means of electronic communication: If to MHPL or the Corporation: Maclean Hunter Publishing Limited Maclean Hunter Building 777 Bay Street Toronto, Ontario M5W IA7 Attention: Mr. James 0. Hall, Vice-President Telecopier: (416) 596-5901 and Attention: Mr. Timothy L. Root, Vice President, Finance Telecopier-. (416) 593-3175 with a copy to: Rogers Communications Inc. 333 Bloor Street 10th Floor Toronto, Ontario M4W I G9 Attention: Mr. David P. Miller Vice-President, General Counsel Telecopier: (416) 935-3546 If to PATI or Allan Cook: 46 Prince Street Rochester, New York 14607 Attention: Mr. Allan Cook and Mr. Don Carlberg Telecopier: (716) 244-1367 with a copy to: Gibbons, DelDeo, Dolan, Giffinger and Vecchione One Riverfront Plaza Newark, New Jersey 07102 Attention: Mr. Jeffrey A. Baumel Telecopier: (973) 639-6260 Any notice given in accordance with the provisions of this section 9 shall be deemed to have been given and received when so delivered or if sent by telecopier or other electronic means of communication, on the day of transmission thereof if given on a Business Day and during the normal business hours of the recipient and if not so given, on the next Business Day. Any party hereto may change its address for notice by notice to the other parties in the manner as aforesaid. 10. Extent Obligations This Agreement shall be binding, not only upon the parties hereto, but also upon their successors and permitted assigns, and they severally agree to execute any instrument in writing which shall be necessary or proper in carrying out the purposes and intent of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. Maclean Hunter Publishing Limited Per: /s/ Timothy Root Per: /s/ Jim Hall Patient InfoSystems, Inc. Per: /s/ Don A Carlberg Per: /s/ Kent A Tapper Patient InfoSYSTEMS Canada Inc. Per: /s/ Jim Hall Per: /s/ Allan Cook The provisions of section 2(i) are hereby accepted and agreed to as of the 12th day of November, 1998. /s/ Allan Cook /s/ Marc Thibideau -------------- -------------------- Allan Cook Witness EX-10 16 EXHIBIT 10.29 EXHIBIT 10.29 BASIC LEASE INFORMATION OFFICE LEASE Lease Date: October 7, 1998 Landlord: Parker Associates Address of Landlord: 2560 Ninth Street, Suite 117 Berkeley, California 94710 Tenant: Patient Infosystems Address of Tenant: Suite 220 @ Parker Plaza Contact: James Martin Telephone: 883-2160 x134 Premises: Suite 110 in Parker Plaza 2560 Ninth Street Berkeley, California Scheduled Term Commencement Date: October 26, 1998 Scheduled Length of Term: 1 year Scheduled Term Expiration Date: October 25, 1999 Rent: Base Rent $4,200.00 /month Estimated $ /month Basic Operating Costs. $ /month Total Rent $_____________/month Security Deposit and Last Month's Rent: $6300.00 Tenant's Proportionate Share: Permitted Use: General Office Occupancy Density: N/A The foregoing Basic Lease Information it Incorporated Into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above set forth and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease the latter shall control. LANDLORD: Parker Associates TENANT Patient Infosystems By: /s/ Michael Haimovitz By: /s/ Donald A Carlberg Its General Partner Its C.E.O. Date: 10/19/98 Date: 10/12/98 forth in any statement provided by landlord under paragraph 29(C) above. Tenant shall have the right not later than (20) days following the receipt of such statement, and upon condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to such calendar year to be audited by certified public accountants selected by Tenant subject to Landlord's reasonable right of approval. The Basic Operating Cost Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund or credit by Landlord to Tenant in excess of (10%) of Tenant's Proportionate Share of the Basic Operating Cost Adjustment previously reported, the cost of such audit shall be borne by Landlord. Otherwise the cost of such audit shall be paid by Tenant, if Tenant shall not request an audit In accordance with the provisions of this paragraph 29(e) within twenty (20) days of receipt of Landlord's statement provided pursuant to paragraph 29(d), such statement shall be final and binding for all purposes hereof, (a) Tenant shall pay before delinquency any and all taxes levied or assessed and which become payable by Landlord (or Tenant) during the Term of this Lease. whether or not now customary or within the contemplation of the parties hereto, which are based upon, measured by or otherwise calculated with respect to: (a) the value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises: (b) the value of any leasehold improvements, alterations, or additions made in or to the Premises, regardless of whether title to such improvements, alterations or additions shall be in Tenant or Landlord: or (c) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. (b) In the event that it shall not be lawful for Tenant so to reimburse Landlord, the Rent shall be revised to net Landlord the same net rent after imposition of any such tax upon Landlord as would-have been payable to Landlord prior to the imposition of any such tax. All taxes payable by Tenant under this Paragraph 30 shall be additional rental. 31.Subject to the provisions of paragraph 10 hereof, the terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the heirs, successors, executors. administrators and assigns of the parties hereto. 32.In the event that any action or proceeding is brought to enforce any term, covenant or condition of this Lease on the part of Landlord or Tenant, the prevailing party in such litigation shall be entitled to reasonable attorneys' fees to be fixed by the court in such action or proceeding. 33. No diminution of light, air or view by any structure which mayhereafter be erected @whether or not by Landlord) shall entitle Tenant to any reduction of Rent, result in any liability of Landlord to Tenant. or in any other way affect this Lease or Tenant's obligations hereunder. 34.Tenant shall establish and maintain during the Term hereof a program to encourage maximum use of public transportation by personnel of Tenant employed on the Promises, Including without limitation the distribution to such employees of written materials explaining the convenience and availability of public transportation facilities adjacent or proximate to the Building, staggering working hours of employees, and encouraging use of such facilities, all at Tenant's sole reasonable cost and expense. 35.(a) The term "Premises" shall be deemed to include (except where such meaning would be clearly repugnant to the context) the off ice space demised and improvements now or at any time hereinafter comprising or built in the space hereby demised. (b) The paragraph headings herein are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease, (C) The term "Landlord" in these presents shall include the Landlord, its successors and assigns. In any case where this Lease is signed by more than one person, the obligations hereunder shall be joint and several. (d) The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations. and their and each of their respective successors, executors, administrators and permitted assigns, according to the context thereof. (e) Time is of the essence of this Lease and all of its provisions, (f) This Lease shall in all respects be governed by the laws of the State of California. (g) This Lease, together with its exhibits, contains all the agreements of the parties hereto and supersedes any previous negotiations. (h) There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits (1) This Lease may not be modified except by a written instrument by the parties hereto. (j) If for any reason whatsoever any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. (k) 36. Submission of this instrument for examination or signature by Tenant does not constitute a reservation or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year first above written. "LANDLORD" Parker Associates Date 10/19/98 By: /s/ Michael Haimovitz Its: General Partner "TENANT" Patient Infosystems Date 10/12/98 By: /s/ Donald A Carlberg Its: C.E.O. EX-11 17 STATEMENT OF COMPUTATION PER SHARE EARNINGS EXHIBIT 11 Statement of Computation of Per Share Earnings.
PATIENT INFOSYSTEMS, INC. COMPUTATION OF EARNINGS PER SHARE Year Ended Year Ended Year Ended December 31, December 31, December 31, 1998 1997 1996 ---- ---- ---- Net Loss .......................................................................... $(4,829,467) $(3,263,351) $(2,806,436) Weighted average Common Stock outstanding ......................................... 8,018,398 7,980,094 3,678,435 Weighted average Series A Convertible Preferred Stock outstanding .............................................................. -- -- 1,296,000 Weighted average Series B Convertible Preferred Stock outstanding .............................................................. -- -- 437,500 Series B Convertible Preferred Stock issued May and June 1996, calculated using the treasury stock method .......................... -- -- 177,365 Dilutive effect of stock options granted in the preceding preceding twelve months, calculated using the treasury stock method ....................................................... -- -- 758,416 --------- --------- --------- Weighted average common and potential common shares ............................... 8,018,398 7,980,094 6,347,716 ========= ========= ========= Net Loss per share - Basic and Diluted ............................................ $ (0.60) $ (0.41) $ (0.44) =========== =========== ===========
EX-21 18 SUBSIDIARIES EXHIBIT 21 Subsidiaries Name Jurisdicition of Organization Trade Name - ---- ----------------------------- ---------- Patient Infosystems Acquisition Corp. Delaware HealthDesk Patient Infosystems Patient Infosystems Canada, Inc. Ontario, Canada Canada, Inc. EX-27 19 FINANCIAL DATA SCHEDULE
5 0001017813 PATIENT INFOSYSTEMS, INC. 1 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 6,316,955 1,029,674 1,370,626 (50,000) 0 8,887,233 2,050,001 867,507 10,519,727 894,339 0 0 0 80,200 21,561,094 9,625,388 2,344,072 2,344,072 2,529,619 7,686,430 0 0 0 (4,785,766) 43,701 (4,829,467) 0 0 0 (4,829,467) (0.60) (0.60)
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