<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1997
REGISTRATION NO. 333-13101
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT
NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDICAL MANAGER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 59-3396629
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3001 NORTH ROCKY POINT DRIVE -- SUITE 100
TAMPA, FLORIDA 33607
(813) 287-2990
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
JOHN H. KANG
PRESIDENT
MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE -- SUITE 100
TAMPA, FLORIDA 33607
(813) 287-2990
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
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Copies to:
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Christopher T. Jensen, Esq. Peter J. Romeo, Esq.
Morgan, Lewis & Bockius LLP Michael C. Williams, Esq.
101 Park Avenue Hogan & Hartson L.L.P.
New York, New York 10178 555 Thirteenth Street, NW
(212) 309-6000 Washington, DC 20004
(202) 637-5600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE(3)
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Common Stock, $.01 par value........ 6,900,000 shares $15.00 $103,500,000 $31,363.63
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</TABLE>
(1) Includes 900,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a).
(3) An aggregate of $31,781.82 previously was paid in connection with this
Registration Statement.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 6, 1997
PROSPECTUS
, 1997
6,000,000 SHARES
MEDICAL MANAGER CORPORATION LOGO
COMMON STOCK
All of the 6,000,000 shares of Common Stock offered hereby are being sold
by Medical Manager Corporation. Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $13.00 and $15.00 per share. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price.
The Common Stock has been authorized for quotation on the Nasdaq National
Market under the symbol "MMGR," subject to notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
Total(3).......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $2,320,000.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days hereof, to purchase up to an aggregate of 900,000 additional shares of
Common Stock at the Price to the Public less Underwriting Discounts and
Commissions, for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions, including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE DEAN WITTER REYNOLDS INC.
SECURITIES CORPORATION
<PAGE> 3
PASTE-UP
[Chart listing features of The Medical Manager core application and other
modules]
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
---------------------
THE COMPANY OWNS OR OTHERWISE HAS RIGHTS TO TRADEMARKS AND TRADE NAMES THAT
IT USES IN CONJUNCTION WITH THE SALE AND LICENSING OF ITS PRODUCTS. THE MEDICAL
MANAGER(R) TRADEMARK MENTIONED IN THIS PROSPECTUS IS OWNED BY THE COMPANY. OTHER
TRADEMARKS OR TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR RESPECTIVE OWNERS.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the historical and pro
forma financial statements, including the notes thereto, appearing elsewhere in
this Prospectus. Simultaneously with the closing of this Offering, Medical
Manager Corporation ("MMC") will acquire, in separate transactions (the
"Mergers") in exchange for cash and shares of its Common Stock, five businesses
(each, a "Founding Company" and, collectively, the "Founding Companies")
involved in one or more aspects of the development, sale and support of The
Medical Manager practice management system. Unless otherwise indicated, all
references to the "Company" herein include MMC and the Founding Companies, and
references herein to "MMC" mean Medical Manager Corporation prior to the
consummation of the Mergers. Unless otherwise indicated, all share, per share
and financial data set forth herein (i) have been adjusted to give effect to all
of the Mergers; and (ii) assume no exercise of the Underwriters' over-allotment
option.
THE COMPANY
The Company is a leading provider of comprehensive physician practice
management systems to independent physicians, physician groups, management
service organizations ("MSOs"), independent practice associations ("IPAs"),
managed care organizations and other providers of health care services in the
United States. The Company develops, markets and supports The Medical Manager
practice management system, which addresses the financial, administrative,
clinical and practice management needs of physicians. The Company's system has
been implemented in a wide variety of practice settings from small physician
groups to multi-provider IPAs and MSOs and enables physicians and their
administrative staffs to efficiently manage their practices while delivering
quality patient care in a constantly changing health care environment. Since the
development of The Medical Manager in 1982, the Company's installed base has
grown to over 22,500 client sites, representing more than 80 practice
specialities, making it the most widely installed physician practice management
system in the United States.
Based on industry sources, there are over 650,000 physicians in more than
140,000 medical practices in the United States. Increasing economic and
regulatory pressures and the growth of managed care organizations have
significantly expanded the demand for all physicians to produce, maintain and
utilize better practice information while controlling costs. As a result, the
Company believes approximately 70% of physician practices now use some type of
computer system for all or a portion of their information processing
requirements.
The Company's strategy is to integrate its research and development, sales,
marketing and support resources and to build upon its leadership position as the
most widely utilized physician practice management system. Key elements of this
strategy include: (i) capitalizing on the Company's national market presence and
the synergies to be created by the Mergers; (ii) consolidating and rationalizing
the existing national network of independent dealers for The Medical Manager
system; (iii) increasing penetration of MSOs and other large physician groups;
(iv) cross-selling existing and new products and services to its installed
client base; and (v) expanding the Company's offering of health care information
products and services.
The Company has entered into agreements to acquire, simultaneously with the
consummation of this Offering, the five Founding Companies. These five entities
include: (i) Personalized Programming, Inc. ("PPI"), the developer of The
Medical Manager practice management system; (ii) Systems Plus, Inc. ("SPI"), the
"master" distributor for The Medical Manager, which coordinates the sales,
support and training activities of approximately 180 independent dealers and
implements national marketing strategies; (iii) National Medical Systems, Inc.
("NMS"), a national dealer for The Medical Manager; (iv) RTI Business Systems,
Inc. ("RTI"), a regional dealer serving the Northeastern region of the United
States; and (v) Systems Management, Inc. ("SMI"), a regional dealer serving the
Midwestern region of the United States. The vertical integration of these five
entities will bring together the research and development, sales, marketing and
support resources for The Medical Manager in one entity covering the entire
United States.
3
<PAGE> 5
Although the five Founding Companies have not previously operated as a
single entity, they have successfully worked together for many years. PPI has
been expanding and improving The Medical Manager system since developing it in
1982; SPI has been the master distributor of The Medical Manager since 1982; and
NMS, RTI and SMI have been selling and supporting The Medical Manager as
independent dealers since 1994, 1988 and 1987, respectively.
The Company expects to realize significant benefits as a result of the
Mergers. The Company anticipates achieving economies of scale and scope with
respect to customer service, research and development, sales and marketing,
administrative functions and purchasing. The Mergers also will allow the Company
both to establish a national accounts group capable of assisting regional
dealers in marketing to, and addressing the support needs of, large health care
provider organizations and to establish resource centers, supported by
centralized corporate and regional operations, including help desks, EDI
departments and advanced technical and programming personnel. This structure is
expected to result in greater overall consistency and a higher level of client
support and service.
THE OFFERING
Common Stock offered by the
Company............................. 6,000,000 shares
Common Stock to be outstanding after
this Offering....................... 17,470,331 shares(1)
Use of Proceeds..................... To pay the cash portion of the purchase
price for the Founding Companies and
for working capital and other general
corporate purposes, including future
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol....... MMGR
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(1) Includes 11,470,331 shares of Common Stock to be issued in connection with
the Mergers, but excludes 1,181,666 shares of Common Stock subject to
options to be granted in connection with this Offering at an exercise price
equal to the initial public offering price. See "The Company -- Summary of
the Terms of the Mergers," "Management -- 1996 Long-Term Incentive Plan"
and "-- 1996 Non-Employee Directors' Stock Plan."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
4
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SUMMARY PRO FORMA COMBINED FINANCIAL DATA
MMC will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, PPI has been identified as the accounting acquiror. The
following summary unaudited pro forma combined financial data present certain
data for the Company, as adjusted for (i) the effects of the Mergers on an
historical basis; (ii) the effects of certain pro forma adjustments to the
historical financial statements; and (iii) the consummation of this Offering.
See "Selected Financial Data" and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
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PRO FORMA
------------------------------------
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenue.................................................. $ 36,312 $25,844 $29,699
Cost of revenue.......................................... 14,928 10,590 12,567
------- ------- -------
Gross profit............................................. 21,384 15,254 17,132
Selling, general and administrative expenses(2).......... 9,005 6,221 7,114
Research and development expenses........................ 2,123 1,558 2,395
Depreciation and amortization............................ 812 585 871
------- ------- -------
Income from operations................................... 9,444 6,890 6,752
Other income (expense) net............................... (24) 0 0
------- ------- -------
Income before income taxes............................... 9,420 6,890 6,752
Income taxes............................................. 3,627 2,653 2,600
------- ------- -------
Net income............................................... $ 5,793 $ 4,237 $ 4,152
======= ======= =======
Net income per share..................................... $ 0.33 $ 0.24 $ 0.24
======= ======= =======
Pro forma weighted average shares outstanding............ 17,470 17,470 17,470
======= ======= =======
</TABLE>
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<CAPTION>
AT SEPTEMBER 30, 1996
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PRO FORMA(1) AS ADJUSTED(3)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 4,354 $ 19,904
Working capital.................................................. 3,127 18,677
Total assets..................................................... 17,836 33,386
Total debt....................................................... -- --
Stockholders' equity............................................. 11,135 26,685
</TABLE>
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(1) The pro forma combined statements of operations and the pro forma balance
sheet assume that the Mergers were closed on January 1 of each period
presented and as of September 30, 1996, respectively. These results are not
necessarily indicative of the results the Company would have obtained or of
the Company's future results. The pro forma combined financial information
contained in these statements (i) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate; and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined statements of operations include the effect of
certain reductions in salary and benefits to the owners and employees of
two of the Founding Companies to which they have agreed prospectively, as
follows: for fiscal 1995, $682,000; and for the nine months ended September
30, 1995, $292,000 and September 30, 1996, $743,000. Additionally, the pro
forma combined statements include the effect of certain assets distributed
to and certain expenses assumed by the owners of certain of the Founding
Companies.
(3) Gives effect to the receipt and application of an estimated $75.8 million of
the net proceeds of this Offering. See "Use of Proceeds."
5
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SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary data for each of the individual
Founding Companies for the three most recent years as well as the most recent
interim period and comparative period of the prior year, as applicable. See the
financial statements of each of the Founding Companies, the related notes
thereto and the other information relating to the Founding Companies contained
elsewhere in this Prospectus.
<TABLE>
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NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
(UNAUDITED)
(IN THOUSANDS)
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PPI:
Revenue................................. $ 6,890 $ 9,617 $11,020 $ 8,347 $ 8,487
Gross profit............................ 6,080 8,250 9,438 7,069 7,231
Selling, general and administrative
expenses............................. 982 1,184 1,350 908 1,041
Research and development expenses....... 1,040 1,502 2,024 1,484 1,935
SPI:
Revenue................................. $10,836 $13,501 $15,179 $10,954 $12,203
Gross profit............................ 3,723 5,182 6,078 4,258 4,776
Selling, general and administrative
expenses............................. 2,472 3,023 3,345 2,357 2,921
RTI:
Revenue................................. $ 3,047 $ 4,327 $ 4,954 $ 3,353 $ 4,379
Gross profit............................ 505 1,751 2,253 1,260 1,606
Selling, general and administrative
expenses............................. 925 1,711 2,269 1,313 1,741
NMS(1):
Revenue................................. -- $ 241 $ 2,131 $ 1,591 $ 4,100
Gross profit (loss)..................... -- (62) 406 334 1,157
Selling, general and administrative
expenses............................. -- 201 396 250 1,069
Research and development expenses....... -- -- -- -- 410
SMI:
Revenue................................. $ 1,744 $ 2,129 $ 2,717 $ 1,738 $ 2,947
Gross profit............................ 414 473 486 277 711
Selling, general and administrative
expenses............................. 314 371 426 323 377
</TABLE>
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(1) Information relating to 1994 is for the four months ended December 31, 1994.
6
<PAGE> 8
THE COMPANY
MMC was founded in July 1996 to bring together the research and
development, sales, marketing and support resources for The Medical Manager, a
leading physician practice management system for independent physicians,
physician groups, MSOs, IPAs, managed care organizations and other providers of
health care services in the United States. Simultaneously with the closing of
this Offering, MMC will acquire in the Mergers the five Founding Companies,
which will become separate, wholly-owned subsidiaries of MMC.
FOUNDING COMPANIES
PERSONALIZED PROGRAMMING, INC.
PPI was founded in 1981 and is the developer of The Medical Manager
practice management system. Its progressive and innovative approach to computer
programming has made it a leader in the health care information industry. PPI's
research and development staff works closely with its installed client base and
academic institutions to ensure that the product reflects the latest
technologies, changes in health care industry practices and modifications to
state and federal governmental regulations. PPI pioneered electronic claims
submission software as well as electronic data interfaces that allow a direct
interchange of data with hospitals, laboratories, pharmacies and other health
care providers. PPI representatives serve on the President's Workgroup for
Electronic Data Interchange and the American National Standards Institute ("ANSI
X12") committee. Its research and development facility is located in Alachua,
Florida. Michael A. Singer, the founder of PPI, has been employed by PPI since
its inception and will sign a five-year employment agreement with the Company
under which he will become Chairman of the Board and Chief Executive Officer of
the Company following the consummation of this Offering and continue in his
present position with PPI.
SYSTEMS PLUS, INC.
SPI was founded in 1980 and is principally responsible for sales and
marketing of The Medical Manager. SPI coordinates the sales, support and
training activities of approximately 180 independent dealers. It markets
products, conducts user and dealer training programs, provides technical support
and performs quality assurance testing of The Medical Manager software prior to
general release. SPI also conducts market research, develops arrangements with
providers of complementary products and services, and directs national
advertising, press and media relations. SPI represents The Medical Manager at
major regional and national trade shows and hosts user events such as Basic and
Advanced Training Seminars and its annual MSO Users Conference. SPI is based in
Mountain View, California. Richard W. Mehrlich, the President of SPI, has been
employed by SPI since its inception and will sign a five-year employment
agreement with the Company under which he will become Executive Vice President
of Sales and Marketing of the Company following the consummation of this
Offering and continue in his present position with SPI.
NATIONAL MEDICAL SYSTEMS, INC.
NMS was founded in 1994 and is a national dealer for The Medical Manager
system. Based in Tampa, Florida, NMS maintains six offices located in various
regions of the United States that market, install and support The Medical
Manager and related hardware and software. NMS has entered into a Management
Services Agreement and Option Agreement (the "Agreements"), effective as of
September 1, 1996, with the Medical Manager Division (the "Division") of Medix,
Inc. ("Medix"), a wholly-owned subsidiary of Blue Cross and Blue Shield of New
Jersey, Inc. The Agreements provided for NMS to acquire the Division for $3.2
million and to manage the Division, which is an independent dealer of a private
label physician practice management system licensed from PPI, until December 31,
1996 or the date of its purchase by NMS, if earlier. The closing occured on
December 31, 1996, at which time NMS issued to Medix a note for approximately
$2.1 million, representing the balance of the purchase price after giving effect
to a deposit made by NMS and management fees owed to NMS by Medix. NMS was given
a credit of approximately $80,000 on such $2.1 million note, representing the
cash in Medix's bank accounts relating to the Division at the time
7
<PAGE> 9
of such closing. In addition, all cash collections of Medix's accounts
receivable relating to the Division subsequent to December 31, 1996 will be
deposited in a Medix bank account and applied against the amount owed by NMS on
such note. John H. Kang, the President of NMS, has been employed by NMS for two
years and will sign a five-year employment agreement with the Company under
which he will become President of the Company following the consummation of this
Offering and continue in his present position with NMS.
RTI BUSINESS SYSTEMS, INC.
RTI was founded in 1988 and is a regional dealer for The Medical Manager
system in the Northeastern region of the United States. It is based in Albany,
New York. Henry W. Holbrook, President and Director of Sales and Marketing of
RTI, has been with RTI since its inception and will sign a five-year employment
agreement with the Company under which he will both become Vice
President -- Northeast Region of the Company following the consummation of this
Offering and continue in his present position with RTI.
SYSTEMS MANAGEMENT, INC.
SMI was founded in 1987 and is a regional dealer for The Medical Manager
system in the Midwestern region of the United States. Its headquarters are in
South Bend, Indiana. Thomas P. Liddell, a founder of SMI, has been employed by
SMI since its inception and will sign a five-year employment agreement with the
Company under which he will both become Vice President -- Midwest Region of the
Company following the consummation of this Offering and continue in his present
position with SMI.
SUMMARY OF THE TERMS OF THE MERGERS
Discussions regarding the Mergers and this Offering were begun in early
1996 by NMS with PPI and SPI. Terms for PPI and SPI were determined by
arm's-length negotiations between representatives of NMS and each of PPI and
SPI, with valuations based primarily on pro forma earnings as compared to
comparable companies. Consideration also was given to other assets, such as
intellectual property owned by PPI and SPI and dealer contracts. NMS's terms
were negotiated with PPI and SPI based on the number of NMS client sites, its
national client base, its commitment for capital funding described below, its
planned acquisitions and its role as promoter for the proposed transactions.
In order to obtain a revenue base that would be expected of a publicly-held
company, other dealers were considered for the proposed transactions.
Representatives of NMS negotiated with other major dealers in the spring and
summer of 1996. As of July 31, 1996, RTI and SMI had agreed to participate as
Founding Companies. Terms for RTI and SMI were negotiated between
representatives of each of them and NMS with valuations based on revenues,
number of client sites and pro forma EBITDA.
The cash amounts payable to stockholders of the Founding Companies
generally were structured to approximate 30% of the aggregate consideration
payable. Stockholders of NMS will be receiving all of their consideration in
shares of Common Stock of the Company as the valuation of NMS was based in part
on the contribution of cash through the commitment for capital funding described
below.
Upon consummation of the Mergers, each of the Founding Companies will
become a wholly-owned subsidiary of the Company.
The closing of each Merger is subject to a minimum price requirement for
the Common Stock sold in this Offering and to certain other conditions. These
conditions include, among others, the accuracy on the closing date of the
representations and warranties made by the Founding Companies, their principal
stockholders and the Company; the performance of each of their respective
covenants included in the merger agreements; and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
the Company.
In addition, the stockholders of NMS are obligated, on or prior to the
consummation of this Offering, (i) to cause a capital contribution estimated at
$30.1 million to be made to NMS (the "Estimated Capital Contribution"); (ii) to
pay down all indebtedness (approximately $2.4 million) of NMS (other than trade
payables); and (iii) to pay to NMS $3.2 million, representing the aggregate
purchase price for the Division of Medix to be acquired by NMS, for an estimated
total capital contribution as of September 30, 1996 of $35.7 million. The
Company estimates that, as of the closing of this Offering, such indebtedness of
NMS will be
8
<PAGE> 10
approximately $2.9 million and the remaining net purchase price to be paid for
the Division of Medix to be acquired by NMS will be approximately $1.8 million,
for an estimated total capital contribution as of such closing of $34.8 million
(the "Total Capital Contribution"). In the event that all or part of the Total
Capital Contribution is not made, the aggregate number of shares of Common Stock
of the Company to be received by the stockholders of NMS pursuant to the merger
agreement among them, NMS, the Company and its acquisition subsidiary
(3,890,175) will be reduced by a number of shares equal to the shortfall divided
by the initial offering price of the Company's Common Stock to the public. The
Estimated Capital Contribution is based upon an estimated initial public
offering price of $14.00 and will be reduced or increased proportionately to the
extent such initial public offering price is below or above $14.00,
respectively. In addition, for purposes of determining if the Estimated Capital
Contribution has been met, the stockholders of NMS may include in the
computation of the Estimated Capital Contribution a credit of up to 12% for any
fees, discounts and placement expenses actually incurred on any sale of equity
to meet such requirement. No assurance can be given that the conditions to the
closing of all the Mergers will be satisfied or waived or that each Merger will
close. See "Business," "Certain Transactions" and the Unaudited Pro Forma
Combined Financial Statements and the notes thereto.
The stockholders of NMS intend to meet a portion of the Total Capital
Contribution by causing NMS to sell shares of its common stock to Electronic
Data Systems Corporation, a Delaware corporation ("EDS"). Pursuant to a Stock
Purchase Agreement among NMS, EDS and the Company (the "Stock Purchase
Agreement"), EDS has agreed to purchase a number of shares of common stock of
NMS that, upon consummation of the Merger of NMS into a subsidiary of the
Company, will result in the acquisition by EDS of shares of Common Stock of the
Company for an aggregate price of $12,500,000 and a price per share equal to 93%
of the initial public offering price in this Offering. EDS will be entitled to
the same registration rights with respect to the shares of Common Stock of the
Company to be received in the Merger of NMS into a subsidiary of the Company as
are afforded to the other stockholders of NMS under the merger agreement entered
into among them, NMS, MMC and its acquisition subsidiary. EDS also will be
entitled to designate an observer to attend all meetings of the Board of
Directors of the Company and to get advance notice of all meetings for so long
as EDS owns at least 25% of the number of shares of Common Stock of the Company
to be owned by it after giving effect to (i) the transactions contemplated by
the Stock Purchase Agreement and (ii) such merger.
The stockholders of NMS intend to satisfy the balance of their obligation
to cause the Total Capital Commitment to be made to NMS through the cancellation
of shares of Common Stock of the Company to be received by them pursuant to such
merger agreement at a deemed value per share equal to the initial public
offering price.
The Company also has agreed in the Stock Purchase Agreement to afford EDS
preferential treatment in the creation of an electronic data interchange ("EDI")
relationship that leverages the physician base of the Company and EDS's
government sector and Blue Cross/Blue Shield relationships. Both parties have
agreed that the foregoing relationship will not be to the financial or
competitive detriment of the Company. The Company also has agreed that, prior to
the first anniversary of the Merger of NMS into a subsidiary of the Company, it
will not enter into any exclusive relationship for EDI services involving the
government sector and Blue Cross/Blue Shield unless EDS has publicly announced
that it will no longer provide EDI services or, in the good faith judgment of
the Company, EDS has materially and repeatedly failed to provide satisfactory
services to the Company. The Company and EDS have also agreed to cooperate in
good faith to establish a business relationship for the provision of EDI and
other services within 90 days of the date of such Merger.
The obligation of EDS to purchase shares of common stock of NMS pursuant to
the Stock Purchase Agreement is conditioned on various things. These include,
among other things: (i) there being no material adverse change in the condition,
business, operations, assets or prospects of the Company or NMS between the date
of execution of the Stock Purchase Agreement and the closing of the purchase by
EDS of the shares of common stock of NMS pursuant thereto; (ii) there being no
material adverse change to the Registration Statement since Amendment No. 2
thereof; (iii) the Company and the Founding Companies being prepared to effect
contemporaneously the closings of the Mergers and this Offering; and (iv) the
truth and correctness, as of the closing of the purchase by EDS of such shares,
of the representations and warranties of the Company and NMS.
9
<PAGE> 11
The following table sets forth the aggregate cash and shares of Common
Stock to be paid by MMC to the stockholders of each of the Founding Companies
and their respective percentage ownership of the Common Stock to be outstanding
immediately following the Mergers and this Offering, assuming (i) an initial
public offering price of $14.00; (ii) EDS invests $12,500,000 in NMS as
described above; and (iii) the commitment of the stockholders of NMS to cause
the balance of the Total Capital Contribution to be made is satisfied through
the cancellation of shares of Common Stock of the Company at a deemed value per
share equal to $14.00.
<TABLE>
<CAPTION>
COMMON SHARES OF PERCENTAGE
CASH STOCK TOTAL COMMON STOCK OWNERSHIP
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PPI....................................... $45,000 $ 89,180 $134,180 6,370 36.5%
SPI....................................... 12,000 30,940 42,940 2,210 12.7%
RTI....................................... 2,250 4,900 7,150 350 2.0%
NMS....................................... 0 33,040 33,040 2,360 13.5%
SMI....................................... 1,000 2,520 3,520 180 1.0%
------- -------- -------- -------- ----
Total........................... $60,250 $160,580 $220,830 11,470 65.7%
======= ======== ======== ======== ====
</TABLE>
The discussion of the Mergers and this Offering in the remainder of this
Prospectus assumes (i) that the Total Capital Contribution is satisfied through
the EDS investment and the cancellation of shares described above; and (ii) an
initial public offering price per share of $14.00.
For additional information regarding the Mergers, including payments to be
made to principals of the Founding Companies who will become officers,
directors, key employees or holders of more than 5% of the Company's Common
Stock, see "Certain Transactions." For further information concerning the
employment agreements to be entered into by certain officers of the Founding
Companies, see "Management -- Executive Compensation."
Medical Manager Corporation is a Delaware corporation. Its executive
offices are located at 3001 North Rocky Point Drive, Suite 100, Tampa, Florida,
and its telephone number at that address is (813) 287-2990.
10
<PAGE> 12
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY
MMC was founded in July 1996 but has conducted no operations and generated
no revenue to date. MMC has entered into agreements to acquire the Founding
Companies simultaneously with the closing of this Offering. The Founding
Companies have been operating as separate independent entities, and there can be
no assurance that the Company will be able to successfully integrate the
operations of these businesses or institute the necessary Company-wide systems
and procedures to successfully manage the combined enterprise on a profitable
basis. The Company's management group has been assembled only recently, and
there can be no assurance that the management group will be able to successfully
manage the combined entity or effectively implement the Company's internal
growth strategy and acquisition program or that such strategy will be
successful. The pro forma financial results of the Company cover periods when
the Founding Companies and MMC were not under common control or management and,
therefore, may not be indicative of the Company's future financial or operating
results. The inability of the Company to successfully integrate the Founding
Companies would have a material adverse effect on the Company's results of
operations, financial condition or business and would negatively impact the
Company's ability to acquire dealers or otherwise execute its acquisition
strategy. See "Business -- Business Strategy" and "Management."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to acquire additional
independent dealers of The Medical Manager physician practice management system
and complementary technologies. Increased competition for acquisition candidates
among the independent dealers may develop, in which event there may be fewer
acquisition opportunities available to the Company as well as higher acquisition
prices. There can be no assurance that the Company will be able to identify,
acquire or profitably integrate and manage additional dealers or complementary
technologies, if any, into the Company without substantial costs, delays or
other operational or financial problems. Further, acquisitions involve a number
of special risks, including possible adverse effects on the Company's operating
results, diversion of management's attention, failure to retain key acquired
personnel, amortization of acquired intangible assets and risks associated with
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's results of operations, financial condition or
business. Customer dissatisfaction or performance problems at a single acquired
company could have an adverse effect on the reputation of the Company and render
ineffective the Company's national sales and marketing initiative. In addition,
there can be no assurance that the Founding Companies or other dealers or
complementary technologies acquired in the future will achieve anticipated
revenue and earnings. There also can be no assurance that the existing dealer
network will be receptive to the Company's acquisition program or that dealers
who are not acquired by the Company will adhere to the Company's marketing,
training, support and pricing directives, thereby impairing the Company's plans
to rationalize its distribution network. See "Business -- Business Strategy."
POSSIBLE NEED FOR ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using
shares of its Common Stock for all or a substantial portion of the consideration
to be paid. In the event that its Common Stock does not maintain a sufficient
market value, or potential acquisition candidates are otherwise unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, in order to initiate and maintain its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. The Company has negotiated a line of credit of approximately $30.0
million with Barnett Bank of Tampa and intends to have the line of credit
executed and effective upon the consummation of this Offering. There can be no
assurance that the Company will be able to obtain any or all the financing it
will need on terms it deems acceptable. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
11
<PAGE> 13
DEPENDENCE ON PRINCIPAL PRODUCTS
The Company currently derives a significant percentage of its revenue from
sales of The Medical Manager core system. As a result, any event adversely
affecting sales of its core product could have a material adverse effect on the
Company's results of operations, financial condition or business. Although the
Company, on a pro forma basis, has experienced increasing annual sales, revenue
associated with existing products could decline as a result of several factors,
including price competition and sales practices. There can be no assurance that
the Company will continue to be successful in marketing its current products or
any new or enhanced products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Research and
Development."
DEPENDENCE ON PROPRIETARY SOFTWARE
The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company's software technology is not patented and existing copyright laws
offer only limited practical protection. The Company relies on a combination of
trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and technical measures to establish and protect
its proprietary rights in its products. There can be no assurance that the legal
protections afforded to the Company or the steps taken by the Company will be
adequate to prevent misappropriation of the Company's technology. In addition,
these protections do not prevent independent third-party development of
competitive products or services. The Company believes that its products,
trademarks and other proprietary rights do not infringe upon the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will not require the Company to enter into a license
agreement or royalty arrangement with the party asserting the claim. As
competing health care information systems increase in complexity and overall
capabilities and the functionality of these systems further overlap, providers
of such systems may become increasingly subject to infringement claims.
Responding to and defending any such claims may distract the attention of the
Company's management and otherwise have a material adverse effect on the
Company's results of operations, financial condition or business. See
"Business -- Proprietary Rights and Licenses."
RISKS RELATED TO TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The market for the Company's products is characterized by rapid change and
technological advances requiring ongoing expenditures for research and
development and the timely introduction of new products and enhancements of
existing products. The Company's future success will depend in part upon its
ability to enhance its current products, to respond effectively to technological
changes, to sell additional products to its existing client base and to
introduce new products and technologies that address the increasingly
sophisticated needs of its clients. The Company will devote significant
resources to the development of enhancements to its existing products and the
migration of existing products to new software platforms. There can be no
assurance that the Company will successfully complete the development of new
products or the migration of products to new platforms or that the Company's
current or future products will satisfy the needs of the market for practice
management systems. Further, there can be no assurance that products or
technologies developed by others will not adversely affect the Company's
competitive position or render its products or technologies noncompetitive or
obsolete. See "Business -- Research and Development."
QUALITY ASSURANCE AND PRODUCT ACCEPTANCE CONCERNS
Health care providers demand the highest level of reliability and quality
from their information systems. Although the Company devotes substantial
resources to meeting these demands, its products may, from time to time, contain
errors. Such errors may result in loss of, or delay in, market acceptance of its
products. Delays or difficulties associated with new product introductions or
product enhancements could have a material adverse effect on the Company's
results of operations, financial condition or business. See "Business --
Research and Development" and " -- Competition."
12
<PAGE> 14
COMPETITION
The market for practice management systems such as The Medical Manager is
highly competitive. The Company's competitors vary in size and in the scope and
breadth of the products and services that they offer. The Company competes with
different companies in each of its target markets. Many of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, other entities not currently offering
products and services similar to those offered by the Company, including claims
processing organizations, hospitals, third-party administrators, insurers,
health care organizations and others, may enter certain markets in which the
Company competes. There can be no assurance that future competition will not
have a material adverse effect on the Company's results of operations, financial
condition or business. See "Business -- Competition."
RISK OF PRODUCT-RELATED CLAIMS
Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information
could result in product liability or breach of contract claims against the
Company by its clients, their patients or others. The Company's products manage
and report on financial data, and any errors in such financial data could result
in liability to the Company. In addition, because the Company's products
facilitate electronic claims submissions, any resulting loss of financial data
could result in liability to the Company. The Company intends, following this
Offering, to maintain insurance to protect against claims associated with the
use of its products, but there can be no assurance that such insurance coverage
will be available or, if available, will adequately cover any claim asserted
against the Company. A successful claim brought against the Company in excess of
its insurance coverage could have a material adverse effect on the Company's
results of operations, financial condition or business. Even unsuccessful claims
could result in the expenditure of funds in litigation, as well as diversion of
management time and resources. There can be no assurance that the Company will
not be subject to product liability or breach of contract claims, that such
claims will not result in liability in excess of its insurance coverage, that
the Company's insurance will cover such claims or that appropriate insurance
will continue to be available to the Company in the future at commercially
reasonable rates.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of the
executive officers and the senior management of the Founding Companies.
Furthermore, the Company will likely be dependent on the senior management of
any businesses acquired in the future. If any of these persons becomes unable or
unwilling to continue in his or her role with the Company, or if the Company is
unable to attract and retain other qualified employees, the Company's business
or prospects could be adversely affected. Although the Company will enter into
an employment agreement, which will include confidentiality and non-compete
provisions, with each of the Company's executive officers, there can be no
assurance that any individual will continue in his present capacity with the
Company for any particular period of time. The success of the Company is also
dependent to a significant degree on its ability to attract, motivate and retain
highly skilled sales, marketing and technical personnel, including software
programmers and systems architects skilled in the computer language with which
the Company's products operate. Competition for such personnel in the software
and information services industries is intense. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Company's results of operations, financial condition or business.
Although the Company has been successful to date in attracting and retaining
skilled personnel, there can be no assurance that the Company will continue to
be successful in attracting and retaining the personnel it requires to
successfully develop new and enhanced products and to continue to grow and
operate profitably. See "Business -- Employees" and "Management."
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT HEALTH CARE REFORM PROPOSALS
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. The
13
<PAGE> 15
Company's products are designed to function within the structure of the health
care financing and reimbursement system currently being used in the United
States. During the past several years, the health care industry has been subject
to increasing levels of government regulation of, among other things,
reimbursement rates and certain capital expenditures. From time to time, certain
proposals to reform the health care system have been considered by Congress.
These proposals, if enacted, may increase government involvement in health care,
lower reimbursement rates and otherwise change the operating environment for the
Company's clients. Health care organizations may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments, including those for the Company's products and services. The
Company cannot predict with any certainty what impact, if any, such proposals or
health care reforms might have on its results of operations, financial condition
or business.
RISKS ASSOCIATED WITH GOVERNMENT REGULATION
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. The FDA has issued a draft policy statement
under which manufacturers of medical image storage devices and related software
are required to submit to the FDA premarket notification applications and
otherwise comply with the requirements of the FDC Act applicable to medical
devices. Recently, the FDA initiated agency rulemaking to exempt certain medical
image management devices from premarket notification procedures. There can be no
assurance that such rulemaking will be adopted, and if so, that the rulemaking
will apply to the Company's products.
The Company marketed The Medical Manager with a medical image management
capability until recently, when it decided to cease offering this feature after
considering the draft policy statement and other regulatory factors. The Company
believes that The Medical Manager, when marketed without a medical image
management capability, would not be subject to FDA regulation requiring
registration, listing, premarket notification or approval and adherence with
device good manufacturing practices or medical device reporting requirements.
The FDA is currently reviewing its policy for the regulation of computer
software and there is a risk that The Medical Manager could in the future become
subject to some or all of the above requirements, which could have a material
adverse effect on the Company's results of operations, financial condition or
business.
In addition, prior to the decision to remove its medical image management
capability, a small number of The Medical Manager systems possessing a graphical
image capability were sold. Although the Company believes that enforcement
action by the FDA relating to the prior sales is unlikely due to the nature of
the product and the small number of sales, there can be no assurance that the
FDA will not take such action. Enforcement action can consist of warning
letters, refusal to approve or clear products, revocation of approvals or
clearances previously granted, civil penalties, product seizures, injunctions,
recalls, operating restrictions and criminal prosecutions. Any enforcement
action by the FDA could have a material adverse effect on the Company's results
of operations, financial condition or business. See "Business -- Government
Regulation."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Mergers and this Offering, the Company's
directors, executive officers and holders of more than 5% of the Common Stock,
will beneficially own approximately 59.0% of the outstanding shares of Common
Stock (56.1% if the Underwriters' over-allotment option is exercised in full).
Although these persons do not presently have any agreements or understandings to
act in concert, any such agreement or understanding would allow them to continue
to exercise control over the Company's affairs, to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
14
<PAGE> 16
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Approximately $60.3 million, representing approximately 79.6%, of the net
proceeds of this Offering (or approximately 68.9% of the net proceeds of this
Offering, if the Underwriters' over-allotment option is exercised in full) will
be paid as the cash portion of the purchase price for the Founding Companies.
The cash portion of the purchase price will be paid directly or indirectly to
stockholders of the Founding Companies who will become directors, officers or
holders of more than 5% of the Common Stock. Proceeds available for working
capital and other uses by the Company will be approximately $15.5 million,
representing 20.4% of the net proceeds of this Offering (or $27.2 million,
representing 31.1% of the net proceeds of this Offering, if the Underwriters'
over-allotment option is exercised in full). See "Use of Proceeds" and "Certain
Transactions."
BENEFITS OF THE OFFERING TO STOCKHOLDERS OF THE FOUNDING COMPANIES
As a result of this Offering and the public market for the Common Stock
that will be created thereby, there will be a significant increase in the value
of the investment of the stockholders of the Founding Companies in the Company.
Based on the combined pro forma stockholders' equity of the Founding Companies,
as adjusted to reflect the aggregate payment of $60.3 million in cash to the
stockholders of the Founding Companies in connection with the Mergers, the
stockholders of the Founding Companies will have paid an average price of
$(4.77) per share of Common Stock to be received by them in connection with the
Mergers. Accordingly, based on an assumed initial public offering price of
$14.00 per share, the stockholders of the Founding Companies will realize an
immediate gain in the value of their investment of $18.77 per share of Common
Stock. See "The Company -- Summary of the Terms of the Mergers," "Dilution" and
"Certain Transactions."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following this Offering. The 6,000,000 shares being sold in this
Offering will be freely tradable unless acquired by affiliates of the Company.
Simultaneously with the closing of this Offering, the stockholders of the
Founding Companies will receive, in the aggregate, 11,470,331 shares of Common
Stock as a portion of the consideration for the sale of their businesses to the
Company. These shares have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, all of
the stockholders who will receive these shares other than EDS have agreed with
MMC not to sell, transfer or otherwise dispose of any of these shares for two
years following consummation of this Offering, subject to reduction in the event
the two-year "holding" period for restricted securities under Rule 144 is
reduced by the Securities and Exchange Commission (the "Commission"). However,
the stockholders who will receive these shares also have certain demand and
piggyback registration rights with respect to these shares. The Company plans to
register an additional 5,000,000 shares of its Common Stock under the Securities
Act within 90 days after completion of this Offering for use by the Company as
consideration for future acquisitions. Upon such registration, these shares will
generally be freely tradable after issuance, unless acquired by parties to the
acquisition or affiliates thereof, other than the issuer, in which case they may
be sold pursuant to Rule 145 under the Securities Act. In addition, resale of
these shares may be contractually restricted. The registration rights described
above will not apply to the registration statement to be filed with respect to
these 5,000,000 additional shares. See "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
and continue subsequent to this Offering or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price for the Common Stock will be determined by negotiation
among the Company and the Representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after this
Offering. See "Underwriting" for the factors to be considered in determining the
initial
15
<PAGE> 17
public offering price. The Common Stock has been authorized for quotation on the
Nasdaq National Market, subject to notice of issuance. After this Offering, the
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including variations in the annual or quarterly
financial results of the Company or its competitors, changes by financial
research analysts in their estimates of the earnings of the Company, conditions
in the economy in general or in the health care or technology sectors in
particular, announcements of technological innovations or new products or
services by the Company or its competitors, proprietary rights development,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the health
care or technology sectors. Moreover, from time to time, the stock market
experiences significant price and volume volatility that may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $12.79 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock in this Offering may experience further
dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
in one or more series without stockholder action. The existence of this
"blank-check" preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, the Company's Certificate of
Incorporation (the "Certificate of Incorporation") provides for a classified
Board of Directors, which may also have the effect of inhibiting or delaying a
change in control of the Company. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. The Company's By-laws contain other
provisions that may have an anti-takeover effect. See "Management -- Directors
and Executive Officers," "Principal Stockholders" and "Description of Capital
Stock."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 6,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
estimated offering expenses, are estimated to be approximately $75.8 million
($87.5 million if the Underwriters' over-allotment option is exercised in full).
Of the net proceeds, $60.3 million will be used to pay the cash portion of
the purchase price for the Founding Companies, which will be paid directly or
indirectly to former stockholders of the Founding Companies who will become
officers, directors, key employees or holders of more than 5% of the Common
Stock of the Company.
The approximately $15.5 million of remaining net proceeds will be used for
working capital, to repay $100,000 of interest-free indebtedness owed to two
directors and officers of the Company and for general corporate purposes, which
are expected to include future acquisitions. See "Certain
Transactions -- Certain Indebtedness." The Company currently has no binding
agreements to effect any acquisitions. Pending such uses, the net proceeds will
be invested in short-term, interest-bearing, investment grade securities.
The Company has negotiated a line of credit of approximately $30.0 million
with Barnett Bank of Tampa to be used for working capital and other general
corporate purposes, including future acquisitions. The Company intends to have
the line of credit executed and effective upon the consummation of this
Offering. There can be no assurance that any line of credit will be obtained or
that, if obtained, it will be on terms that are favorable to the Company. See
"Risk Factors -- Risks Related to Acquisition Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's proposed line of
credit with Barnett Bank of Tampa includes restrictions on the ability of the
Company to pay dividends without the consent of the lender.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the long-term obligations and capitalization
at September 30, 1996 of (i) the Company on a pro forma basis to give effect to
the Mergers; and (ii) the Company on a pro forma as adjusted basis to give
effect to the Mergers, this Offering and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Selected Financial Data." This
table should be read in conjunction with the Unaudited Pro Forma Combined
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
------------------------------
PRO FORMA AS ADJUSTED(2)
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, including current maturities...... $ -- $ --
Stockholders' equity:
Preferred Stock: $0.01 par value, 500,000 shares
authorized; none issued or outstanding.............. -- --
Common Stock: $0.01 par value, 50,000,000 shares
authorized; 11,470,331 shares issued and
outstanding, pro forma; and 17,470,331 shares issued
and outstanding, pro forma as adjusted(1)........... 115 175
Additional paid-in capital............................. 11,020 26,510
--------- --------------
Total stockholders' equity.......................... 11,135 26,685
--------- --------------
Total capitalization........................... $11,135 $ 26,685
======== ===========
</TABLE>
- ---------------
(1) Excludes 1,181,666 shares of Common Stock subject to options to be granted
in connection with this Offering at an exercise price equal to the initial
public offering price. See "Management -- 1996 Long-Term Incentive Plan"
and "-- 1996 Non-Employee Directors' Stock Plan."
(2) Gives effect to the receipt and application of an estimated $75.8 million of
the net proceeds of this Offering. See "Use of Proceeds."
18
<PAGE> 20
DILUTION
The pro forma deficit in net tangible book value of the Company as of
September 30, 1996 was approximately $(54.7) million, or approximately $(4.77)
per share of Common Stock, after giving effect to the Mergers. The deficit in
pro forma net tangible book value per share represents the amount by which the
Company's pro forma total liabilities, as adjusted for the payment of $60.3
million in cash to the stockholders of the Founding Companies, exceeds the
Company's pro forma net tangible assets, divided by the number of shares of
Common Stock to be outstanding after giving effect to the Mergers. After giving
effect to the sale of the 6,000,000 shares of Common Stock offered hereby, and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, the Company's pro forma net tangible book value
at September 30, 1996 would have been approximately $21.1 million, or
approximately $1.21 per share, based on an assumed initial public offering price
of $14.00 per share. This represents an immediate increase in pro forma net
tangible book value of approximately $5.98 per share to existing stockholders
and an immediate dilution of approximately $12.79 per share to new investors
purchasing the shares in this Offering. The following table illustrates this pro
forma dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1)...................... $ 14.00
Pro forma (deficit) in net tangible book value before this
Offering................................................. $ (4.77)
Increase attributable to new investors...................... 5.98
----------
Pro forma net tangible book value after this Offering......... 1.21
----------
Dilution in net tangible book value to new investors.......... $ 12.79
==========
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of September 30, 1996, the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by existing stockholders and the new investors purchasing shares of Common
Stock from the Company in this Offering (before deducting underwriting discounts
and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
-------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)......... 11,470,331 65.7% $(54,717,000) (186.9)% $ (4.77)
New investors.................... 6,000,000 34.3 84,000,000 286.9 14.00
---------- ------- ------------ -------
Total.................. 17,470,331 100.0% $ 29,283,000 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Before deducting underwriting discounts and commissions and offering
expenses to be paid by the Company.
(2) Total consideration for existing stockholders represents the combined pro
forma stockholders' equity, including the stockholders of the Founding
Companies, before this Offering, adjusted to reflect the payment of $60.3
million in cash to the stockholders of the Founding Companies as part of
the consideration for the Mergers and excluding intangibles. See "Use of
Proceeds," "Capitalization" and "Certain Transactions."
19
<PAGE> 21
SELECTED FINANCIAL DATA
MMC will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, PPI has been identified as the accounting acquiror. The
following selected historical financial data of PPI at December 31, 1994 and
1995 and for the years ended December 31, 1993, 1994 and 1995 have been derived
from the audited financial statements of PPI included elsewhere in this
Prospectus. The following selected historical financial data for PPI at December
31, 1991, 1992 and 1993 and for the years ended December 31, 1991 and 1992 have
been derived from unaudited financial statements of PPI, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of PPI, reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The following
summary unaudited pro forma financial data present certain data for the Company,
as adjusted for (i) the effects of the Mergers on an historical basis; (ii) the
effects of certain pro forma adjustments to the historical financial statements;
and (iii) the consummation of this Offering. See the Unaudited Pro Forma
Financial Combined Statements and the notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PPI STATEMENT OF OPERATIONS DATA:
Revenue............................. $7,042 $8,377 $6,890 $9,617 $11,020 $8,347 $8,487
Cost of revenue..................... 1,009 1,187 810 1,367 1,582 1,278 1,256
------ ------ ------ ------ ------- ------ ------
Gross profit........................ 6,033 7,190 6,080 8,250 9,438 7,069 7,231
Selling, general and administrative
expenses......................... 657 745 982 1,184 1,350 908 1,041
Research and development expenses... 716 878 1,040 1,502 2,024 1,484 1,935
Depreciation and amortization....... 29 21 105 197 226 140 189
------ ------ ------ ------ ------- ------ ------
Income from operations.............. 4,631 5,546 3,953 5,367 5,838 4,537 4,066
Other income........................ 160 110 173 55 108 143 83
------ ------ ------ ------ ------- ------ ------
Income before income taxes.......... 4,791 5,656 4,126 5,422 5,946 4,680 4,149
Income taxes........................ 0 0 0 0 0 0 0
------ ------ ------ ------ ------- ------ ------
Net income.......................... $4,791 $5,656 $4,126 $5,422 $5,946 $4,680 $4,149
====== ====== ====== ====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PPI BALANCE SHEET DATA:
Working capital......................... $1,455 $1,527 $778 $2,009 $1,921 $ 3,057
Total assets............................ 1,865 3,097 3,253 4,716 5,819 5,189
Total debt.............................. -- -- -- -- -- --
Stockholder's equity.................... 1,509 2,479 2,582 3,827 4,763 3,501
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenue.................................................. $ 36,312 $25,844 $29,699
Cost of revenue.......................................... 14,928 10,590 12,567
------- ------- -------
Gross profit............................................. 21,384 15,254 17,132
Selling, general and administrative expenses(2).......... 9,005 6,221 7,114
Research and development expenses........................ 2,123 1,558 2,395
Depreciation and amortization............................ 812 585 871
------- ------- -------
Income from operations................................... 9,444 6,890 6,752
Other income (expense) net............................... (24) 0 0
------- ------- -------
Income before income taxes............................... 9,420 6,890 6,752
Income taxes............................................. 3,627 2,653 2,600
------- ------- -------
Net income............................................... $ 5,793 $ 4,237 $ 4,152
======= ======= =======
Net income per share..................................... $ 0.33 $ 0.24 $ 0.24
======= ======= =======
Pro forma weighted average shares outstanding............ 17,470 17,470 17,470
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
-----------------------------
PRO FORMA(1) AS ADJUSTED(3)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 4,354 $ 19,904
Working capital.................................................. 3,127 18,677
Total assets..................................................... 17,836 33,386
Total debt....................................................... -- --
Stockholders' equity............................................. 11,135 26,685
</TABLE>
- ---------------
(1) The pro forma combined statements of operations and the pro forma balance
sheet assume that the Mergers were closed on January 1 of each period
presented and as of September 30, 1996, respectively. These results are not
necessarily indicative of the results the Company would have obtained or of
the Company's future results. The pro forma combined financial information
contained in these statements (i) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate; and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined statements of operations include the effect of
certain reductions in salary and benefits to the owners and employees of
two of the Founding Companies to which they have agreed prospectively, as
follows: for fiscal 1995, $682,000; and for the nine months ended September
30, 1995, $292,000 and September 30, 1996, $743,000. Additionally, the pro
forma combined statements include the effect of certain assets distributed
to and certain expenses assumed by the owners of certain of the Founding
Companies.
(3) Gives effect to the receipt and application of an estimated $75.8 million of
the net proceeds of this Offering. See "Use of Proceeds."
21
<PAGE> 23
SELECTED INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents selected financial data for each of the
individual Founding Companies for the three most recent years as well as the
most recent interim period and comparative period of the prior year, as
applicable. See the financial statements of each of the Founding Companies, the
related notes thereto and the other information relating to the Founding
Companies contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
PPI:
Revenue......................................... $ 6,890 $ 9,617 $11,020 $ 8,347 $ 8,487
Gross profit.................................... 6,080 8,250 9,438 7,069 7,231
Selling, general and administrative expenses.... 982 1,184 1,350 908 1,041
Research and development expenses............... 1,040 1,502 2,024 1,484 1,935
SPI:
Revenue......................................... $10,836 $13,501 $15,179 $10,954 $12,203
Gross profit.................................... 3,723 5,182 6,078 4,258 4,776
Selling, general and administrative expenses.... 2,472 3,023 3,345 2,357 2,921
RTI:
Revenue......................................... $ 3,047 $ 4,327 $ 4,954 $ 3,353 $ 4,379
Gross profit.................................... 505 1,751 2,253 1,260 1,606
Selling, general and administrative expenses.... 925 1,711 2,269 1,313 1,741
NMS(1):
Revenue......................................... -- $ 241 $ 2,131 $ 1,591 $ 4,100
Gross profit (loss)............................. -- (62) 406 334 1,157
Selling, general and administrative expenses.... -- 201 396 250 1,069
Research and development expenses............... -- -- -- -- 410
SMI:
Revenue......................................... $ 1,744 $ 2,129 $ 2,717 $ 1,738 $ 2,947
Gross profit.................................... 414 473 486 277 711
Selling, general and administrative expenses.... 314 371 426 323 377
</TABLE>
- ---------------
(1) Information relating to 1994 is for the four months ended December 31, 1994.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of each of the Founding Companies and the related notes thereto and
"Selected Financial Data" appearing elsewhere in this Prospectus.
OVERVIEW
The Company is a leading provider of comprehensive physician management
systems to independent physicians, physician groups, MSOs, IPAs, managed care
organizations and other providers of health care services in the United States.
The Company's revenue is derived primarily from the licensing of various
software products, including its core product, The Medical Manager, the
provision of services and the sale of hardware. The Company's primary focus is
on the sale of value-added products and services, while hardware is sold
primarily in response to customer demand. Since the development of The Medical
Manager in 1982, the Company's installed base has grown to over 22,500 client
sites, representing more than 80 practice specialities, making it the most
widely installed physician practice management software in the United States.
The Company derives revenue from systems sales, software licensing and
maintenance and other services. Systems sales include sales of physician
practice management systems to new customers and sales of system upgrades and
add-ons to existing customers. Systems sales to new customers include software
licensing, hardware, installation, training, 90 days of software maintenance and
varying periods of hardware maintenance, depending on the warranty of the
manufacturer. System upgrades include software licensing, hardware, installation
and training. System add-ons include additional software licensing, peripheral
hardware and installation. Cost of system sales reflects primarily the cost of
The Medical Manager software, associated hardware, operating systems and
salaries, related benefits, travel and allocations of other overhead costs.
Software license revenue principally represents the licensing of software
to independent dealers for resale. Cost of software license revenue principally
includes the costs of media, duplication, technical documentation and delivery
and allocations of other overhead costs.
Maintenance and other services revenue includes software and hardware
maintenance contracts, training, programming and sales of additional peripheral
hardware. Software maintenance represents revenue derived from maintenance
agreements, providing customers with updates and enhancements developed by the
Company and access to the Company's toll-free telephone support centers.
Hardware maintenance represents revenue derived from maintenance agreements for
repairs and preventative maintenance to the hardware. Both hardware and software
maintenance are optional to the customer for smaller installations and required
for MSO and larger installations. Cost of maintenance contracts revenue reflects
primarily salaries and related benefits, travel and allocations of other
overhead costs.
The Company recognizes systems revenue in accordance with the provisions of
AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
performed ratably over the contract period, which typically does not exceed one
year. Revenue from other services is recognized as the services are provided.
Certain expenses are allocated between the cost of sales for systems, software
license and maintenance and other based upon management's estimates.
Selling, general and administrative expenses consist primarily of marketing
and advertising, salaries and related benefits, professional fees,
administrative costs and allocations of other overhead costs.
Research and development expenses represent salaries and related benefits
expenses and allocations of other overhead costs associated with research and
development activities. Software development costs are included in research and
development and are expensed as incurred. Statement of Financial Accounting
Standards No. 86 requires the capitalization of certain software development
costs once technological feasibility is established. The capitalized cost is
then amortized over the estimated product life. The period between achieving
technological feasibility and the general availability of such software has been
short and software development costs qualifying for capitalization have been
insignificant.
23
<PAGE> 25
The Company has entered into agreements to acquire, simultaneously with the
consummation of this Offering, the five Founding Companies: PPI, SPI, NMS, RTI
and SMI. The Founding Companies have been managed throughout the periods
presented as independent private companies, and, as such, their results of
operations reflect different tax structures (S corporations and C corporations),
which have influenced, among other things, their historical levels of owners'
compensation. Certain owners and certain key employees have agreed to reductions
in their compensation and benefits pursuant to employment agreements entered
into in connection with the Mergers.
MMC, which has conducted no operations to date, intends to integrate these
businesses, their operations and administrative functions over a period of time.
This integration process may present opportunities to reduce costs through the
elimination of duplicative functions and through economies of scale, but may
necessitate additional costs and expenditures for corporate management and
administration, corporate expenses related to being a public company, systems
integration and facilities expansion. These various costs and potential cost
savings may make historical operating results not comparable to, or indicative
of, future performance. Accordingly, neither the anticipated savings nor the
anticipated costs have been included in the unaudited pro forma financial data
presented herein.
Accounting for the acquisition will be subject to the procedures specified
in Staff Accounting Bulletin No. 97. As such, PPI has been identified as the
acquiring entity for financial statement presentation purposes. See "-- Results
of Operations -- The Combined Founding Companies."
RESULTS OF OPERATIONS -- PERSONALIZED PROGRAMMING, INC.
Founded in 1981, PPI is the developer of The Medical Manager practice
management system. Its progressive and innovative approach to
computer-programming has made it a leader in the health care information
industry. The following table sets forth certain selected financial information
for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Systems.............................. $ 694 10.0% $1,014 10.5% $ 1,018 9.2% $ 751 9.0% $ 566 6.7%
Software license..................... 4,840 70.3 6,328 65.8 7,529 68.3 5,771 69.1 6,055 71.3
Maintenance and other................ 1,356 19.7 2,275 23.7 2,473 22.5 1,825 21.9 1,866 22.0
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Total revenue...................... 6,890 100.0 9,617 100.0 11,020 100.0 8,347 100.0 8,487 100.0
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
COST OF REVENUE:
Systems.............................. 572 8.3 752 7.8 704 6.4 487 5.8 553 6.5
Software license..................... 63 0.9 381 4.0 651 5.9 600 7.2 381 4.5
Maintenance and other................ 175 2.6 235 2.4 227 2.1 191 2.3 322 3.8
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Total cost of revenue.............. 810 11.8 1,368 14.2 1,582 14.4 1,278 15.3 1,256 14.8
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Gross margin................... 6,080 88.2 8,249 85.8 9,438 85.6 7,069 84.7 7,231 85.2
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
OPERATING EXPENSES:
Selling, general and
administrative..................... 982 14.2 1,184 12.3 1,351 12.3 908 10.9 1,041 12.3
Research and development............. 1,040 15.1 1,502 15.6 2,024 18.4 1,484 17.8 1,935 22.8
Depreciation and amortization........ 105 1.5 196 2.0 226 2.0 140 1.6 189 2.2
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Total operating expenses........... 2,127 30.8 2,882 29.9 3,601 32.7 2,532 30.3 3,165 37.3
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Income from operations......... 3,953 57.4 5,367 55.9 5,837 52.9 4,537 54.4 4,066 47.9
OTHER INCOME (EXPENSE):
Interest income...................... 92 1.3 70 0.6 136 1.2 143 1.7 83 1.0
Other................................ 81 1.2 (15) (0.1) (27) (0.2) 0 0
------ ----- ------ ----- ------- ----- ------ ----- ------ -----
Net income..................... $4,126 59.9% $5,422 56.4% $ 5,946 53.9% $4,680 56.1% $4,149 48.9%
====== ===== ====== ===== ======= ===== ====== ===== ====== =====
</TABLE>
24
<PAGE> 26
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue. PPI's total revenue for the nine months ended September 30, 1996
increased to $8.5 million from $8.3 million for the corresponding period in
1995, an increase of $0.2 million or 1.7%. Revenue from systems for the nine
months ended September 30, 1996 decreased to $0.6 million (6.7% of total
revenue) from $0.8 million (9.0% of total revenue) for the corresponding period
in 1995, a decrease of $0.2 million or 24.6%. The decrease was primarily due to
turnover in sales personnel. Revenue from software license for the nine months
ended September 30, 1996 increased to $6.1 million (71.3% of total revenue) from
$5.8 million (69.1% of total revenue) for the corresponding period in 1995, an
increase of $0.3 million or 4.9%. The increase was primarily due to increased
sales of systems to MSOs, which typically generate greater revenue per system
sold than do systems sold to individual practices. Revenue from maintenance and
other sources for the nine months ended September 30, 1996 was essentially
unchanged from the prior year's period at approximately $1.9 million (22.0% of
total revenue in 1996 compared to 21.9% in 1995).
Cost of revenue. The total cost of revenue for the nine months ended
September 30, 1996 was essentially unchanged at $1.3 million. The slight growth
in revenue resulted in a modest increase in gross margin to 85.2% for the nine
months ended September 30, 1996 from 84.7% for the corresponding period in 1995.
Cost of revenue for systems for the nine months ended September 30, 1996
increased to $0.6 million from $0.5 million for the corresponding period in
1995, an increase of $0.1 million or 13.6%. The increase was primarily
attributable to an increase in equipment costs. Cost of revenue for software
license for the nine months ended September 30, 1996 decreased to $0.4 million
from $0.6 million for the corresponding period in 1995, a decrease of $0.2
million or 36.5%. The decrease was primarily due to reduced software royalties
to SPI. Cost of revenue for maintenance and other sources for the nine months
ended September 30, 1996 increased to $0.3 million from $0.2 million for the
corresponding period in 1995, an increase of $0.1 million or 68.6%. The increase
was primarily due to increased cost associated with an annual training and
information seminar held by PPI for its dealers, resulting from the relocation
to a costlier site for the seminar.
Selling, general and administrative expenses. Selling general and
administrative expenses for the nine months ended September 30, 1996 increased
to $1.0 million (12.3% of total revenue) from $0.9 million (10.9% of total
revenue) for the corresponding period in 1995, an increase of $0.1 million or
14.6%. The increase was primarily attributable to an increase in occupancy costs
for the office facilities distributed in March 1996 to PPI's stockholder and
leased back to PPI and increased professional fees indirectly related to the
Mergers.
Research and development expenses. Research and development expenses
("R&D") for the nine months ended September 30, 1996 increased to $1.9 million
(22.8% of total revenue) from $1.5 million (17.8% of total revenue) for the
corresponding period in 1995, an increase of $0.4 million or 30.4%. The increase
was due to an approximate 40% increase in R&D personnel hired to support
development activities relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii) the
development of graphical user interface and relational database technologies for
use in future versions of The Medical Manager; (iii) the development of an
electronic medical records module; and (iv) the development of a module for use
in the management of multiple physician practices. Certain of these initiatives
were begun in previous periods, but required additional resources as they
reached more advanced stages of development. Although the Company believes that
the increase in staffing levels and the development of these initiatives are
essential to the continued success of The Medical Manager, they are not expected
to yield any immediate revenue to PPI.
Other income. Other income for the nine months ended September 30, 1996
decreased to $83,593 from $142,843 for the corresponding period in 1995. This
decrease was primarily the result of a decrease in investment income.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. PPI's total revenue for 1995 increased to $11.0 million from $9.6
million for 1994, an increase of $1.4 million or 14.6%. Revenue from software
license for 1995 increased to $7.5 million (68.3% of total revenue) from $6.3
million (65.8% of total revenue) for 1994, an increase of $1.2 million or 19.0%.
The
25
<PAGE> 27
increase was primarily due to increased sales to MSOs, which typically generate
greater revenue per system sold than do systems sold to individual practices, as
well as a release of a new version of The Medical Manager and the availability
of a new module for use in managed care. Revenue from system sales for 1995 was
essentially unchanged at $1.0 million (9.2% of total revenue for 1995 compared
to 10.5% in 1994) from 1994. Revenue from maintenance and other sources for 1995
increased to $2.5 million (22.4% of total revenue) from $2.3 million (23.7% of
total revenue) for 1994, an increase of $0.2 million or 8.7%.
Cost of revenue. The total cost of revenue increased in 1995 to $1.6
million from $1.4 million in 1994, an increase of 15.6%, but remained
essentially unchanged as a percentage of total revenue (approximately 14%).
Gross margin decreased slightly to 85.6% in 1995 from 85.8% in 1994. Cost of
revenue for systems for 1995 decreased to $0.7 from $0.8 for 1994, a decrease of
$0.1 million or 6.4%. The decrease was primarily due to a decrease in equipment
cost. Cost of revenue for software license for 1995 increased to $0.7 million
from $0.4 in 1994, an increase of $0.3 million or 70.9%. The increase was
primarily due to a change in the sales mix towards sales requiring royalty
payments to SPI. The requirement to make such payments will be eliminated with
the Mergers. Cost of revenue for maintenance and other sources for 1995 was
essentially unchanged at $0.2 million from the prior year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.4 million in 1995 from $1.2 million in
1994, an increase of $0.2 million or 14.0%, but were essentially unchanged as a
percentage of total revenue (12.3%).
Research and development expenses. Research and development expenses for
1995 increased to $2.0 million (18.4% of total revenue) from $1.5 million (15.6%
of total revenue) for 1994, an increase of $0.5 million or 34.8%. The increase
was due to an approximate 35% increase in R&D personnel hired to support
development activity relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii) the
development of a module for use in the management of multiple physician
practices; and (iii) the development of an electronic medical records module.
Certain of these initiatives were begun in previous periods, but required
additional resources as they reached more advanced stages of development.
Other income. Other income for 1995 increased to $108,470 from $54,853 for
1994. This increase was primarily the result of an increase in interest income
in 1995.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenue. PPI's total revenue for 1994 increased to $9.6 million from $6.9
million for 1993, an increase of $2.7 million or 39.6%. Revenue from software
license for 1994 increased to $6.3 million (65.8% of total revenue) from $4.8
million in 1993 (70.3% of total revenue), an increase of $1.5 million or 30.7%.
Revenue from system sales for 1994 increased to $1.0 million (10.5% of total
revenue) from $0.7 million (10.1% of total revenue), an increase of $0.3 million
or 46.1%. Revenue from maintenance and other sources for 1994 increased to $2.3
million (23.7% of total revenue) from $1.4 million (19.7% of total revenue) for
1993, an increase of $0.9 million or 67.8%. These increases were primarily due
to sales postponed by customers to 1994 due to concerns regarding the impact of
proposed health care legislation.
Cost of revenue. The total cost of revenue for 1994 increased to $1.4
million from $0.8 million in 1993, an increase of 68.9%. The growth in cost of
revenue resulted in a decline in gross margin to 85.8% in 1994 from 88.2% in
1993. Cost of revenue for systems for 1994 increased to $0.8 million from $0.6
million in 1993, an increase of $0.2 million or 31.5%. This increase was due
primarily to increased systems sales and was partially offset by a decrease in
the cost of equipment. Cost of revenue for software license for 1994 increased
to $0.4 million from $0.1 million in 1993, an increase of $0.3 million or
504.8%. The increase was primarily due to an increase in revenue from software
license and sales requiring royalty payments to SPI that will not be necessary
following the Mergers. Cost of revenue for maintenance and other was essentially
unchanged at $0.2 million.
26
<PAGE> 28
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.2 million in 1994 from $1.0 million in
1993, an increase of $0.2 million or 20.5%, but decreased moderately as a
percentage of total revenue.
Research and development expenses. Research and development expenses for
1994 increased to $1.5 million (15.6% of total revenue) from $1.0 million (15.1%
of total revenue) for 1994, an increase of $0.5 million or 44.4%. The increase
was due to an approximate 63% increase in R&D personnel hired to support the
development of a new version of The Medical Manager incorporating additional
core and office management applications, which was released in June 1995.
Other income. Other income for 1994 decreased to $54,853 from $172,994 in
1993. The decrease was primarily the result of a decrease in interest income and
other commissions income.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from PPI's statements
of cash flows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- -------------
1993 1994 1995 1995 1996
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operations.................... $ 5.1 $ 5.3 $ 6.2 $ 5.1 $ 4.7
Net cash used in investing activities.............. (1.0) (0.2) (1.2) (1.1) (0.2)
Net cash used in financing activities.............. (4.0) (4.1) (5.1) (2.5) (2.7)
----- ----- ----- ---- -----
Net increase (decrease) in cash and cash
equivalents...................................... $ 0.1 $ 1.0 $(0.1) $ 1.5 $ 1.8
===== ===== ===== ==== =====
</TABLE>
PPI has historically funded its operations with cash flows from operations.
From 1993 through the nine months ended September 30, 1996, PPI generated $21.3
million in cash from operations. Substantially all of the cash generated from
operations was generated by net income plus depreciation and amortization, with
little change in non-cash working capital. During this same period, cash used in
investing activities totaled $2.6 million and was primarily used for the
acquisition of additional office facilities and computer and other equipment.
Cash used in financing activities during this period consisted of S corporation
distributions to PPI's stockholder. In addition, prior to the consummation of
the Mergers, PPI will make distributions to its stockholder in respect of its
estimated S corporation Accumulated Adjustment Account (the "AAA Account")
(currently estimated to be approximately $4.0 million) as of the date of the
closing.
As of September 30, 1996, PPI had a working capital surplus of $3.1 million
and no long-term debt outstanding. While there can be no assurance, management
of PPI believes that PPI has adequate cash flow from operations to fund its
operations through the fourth quarter of 1997.
RESULTS OF OPERATIONS -- THE COMBINED FOUNDING COMPANIES
The Combined Founding Companies' Statement of Operations data for the years
ended December 31, 1993, 1994 and 1995 and for the nine months ended September
30, 1995 and 1996 do not purport to present the results of operations of the
combined Founding Companies in accordance with generally accepted accounting
principles. Instead, they represent merely a summation of revenue, cost of
revenue, gross profit, SG&A and R&D of the individual Founding Companies, on a
historical basis, after the elimination of intercompany revenue and expense, and
exclude the effects of pro forma adjustments, such as the adjustment to
compensation-related expenses reflecting the implementation of the employment
agreements to be entered into by certain members of management. This data will
not be comparable to and may not be indicative of the Company's post-combination
results of operations.
27
<PAGE> 29
The following table sets forth certain selected unaudited combined
financial information on a historical basis, excluding the effects of pro forma
adjustments, for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- ------------------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Systems..................... $ 3,108 17.0% $ 4,333 17.9% $ 7,106 24.3% $ 4,142 20.1% $ 7,129 26.9%
Software license............ 9,552 52.2 12,215 50.5 13,319 45.5 9,846 47.7 10,559 39.9
Maintenance and other....... 5,624 30.8 7,636 31.6 8,862 30.2 6,652 32.2 8,782 33.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenue............. 18,284 100.0 24,184 100.0 29,287 100.0 20,640 100.0 26,470 100.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
COST OF REVENUE:
Systems..................... 2,113 11.6 1,990 8.2 2,914 10.0 1,317 6.4 4,084 15.4
Software license............ 1,818 9.9 2,532 10.5 2,278 7.8 1,857 9.0 1,577 6.0
Maintenance and other....... 3,632 19.9 4,067 16.8 5,434 18.5 4,268 20.7 5,328 20.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total cost of revenue..... 7,563 41.4 8,589 35.5 10,626 36.3 7,442 36.1 10,989 41.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross margin.......... 10,721 58.6 15,595 64.5 18,661 63.7 13,198 63.9 15,481 58.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
OPERATING EXPENSES:
Selling, general and
administrative............ 4,692 25.7 6,490 26.8 7,785 26.6 5,151 25.0 7,149 27.0
Research and development.... 1,040 5.7 1,502 6.2 2,024 6.9 1,484 7.2 2,345 8.8
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue. The Company's total revenue for the nine months ended September
30, 1996 increased to $26.5 million from $20.6 million for the corresponding
period in 1995, an increase of $5.9 million or 28.2%. Revenue from systems for
the nine months ended September 30, 1996 increased to $7.1 million (26.9% of
total revenue) from $4.1 million (20.1% of total revenue) for the corresponding
period in 1995, an increase of $3.0 million or 72.1%. The increase was primarily
due to increased sales to MSOs, which typically generate greater revenue per
system sold than do systems sold to individual practices and from additional
system sales resulting from the acquisition in January 1996 of GBP With
Excellence, Inc. ("GBP"), a dealer for The Medical Manager serving the state of
Florida. Revenue from software license for the nine months ended September 30,
1996 increased to $10.6 million (39.9% of total revenue) from $9.8 million
(47.7% of total revenue) for the corresponding period in 1995, an increase of
$0.8 million or 7.2%. The increase was due primarily to increased sales to MSOs.
Revenue from maintenance and other sources for the nine months ended September
30, 1996 increased to $8.8 million (33.2% of total revenue) from $6.7 million
(32.2% of total revenue) for the corresponding period in 1995, an increase of
$2.1 million or 32.0%. The increase was primarily a result of sales of
additional maintenance contracts due to continued growth in the Company's
installed base and the acquisition of GBP.
Cost of Revenue. The total cost of revenue for the nine months ended
September 30, 1996 increased to $11.0 million from $7.4 million for the
corresponding period in 1995, an increase of $3.6 million or 47.7%. The growth
in cost of revenue resulted in a decline in gross margin to 58.5% for the nine
months ended September 30, 1996 from 63.9% for the corresponding period in 1995.
Cost of revenue for systems for the nine months ended September 30, 1996
increased to $4.1 million from $1.3 million for the corresponding period in
1995, an increase of $2.8 million or 210.1%. The increase was due principally to
the inclusion of GBP in the Company's results for the nine months ended
September 30, 1996. The Company believes that sales by GBP carried a gross
margin which was significantly lower than the Company's consolidated gross
margin. This was partially offset by a substantial increase in sales to MSOs,
which carry lower unit costs than sales to individual practices. Cost of revenue
for software license for the nine months ended September 30, 1996 decreased to
$1.6 million from $1.9 million for the corresponding period in 1995, a decrease
of $0.3 million or 15.1%. The decrease was primarily due to greater allocation
of overhead to cost of revenue for systems and maintenance and other sources as
revenue increased for these components at a rate greater than that for software
license. Cost of revenue for maintenance and other sources for the nine months
ended September 30, 1996 increased to $5.3 million from $4.3 million for the
corresponding period in 1995, an increase of $1.0 million or 24.8%. The increase
was due principally to cost inefficiencies associated with the integration of
GBP into the Company's distribution network.
28
<PAGE> 30
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $7.1 million for the nine months ended
September 30, 1996 (27.0% of total revenue) from $5.2 million (25.0% of total
revenue) for the corresponding period in 1995, an increase of $1.9 million or
38.8%. The increase was due primarily to an increase of $0.4 million of
additional owners' compensation at RTI, $0.3 million of indirect transaction
costs at NMS, increased selling commissions and other costs from increased
revenue and the hiring of additional administrative and operational personnel in
anticipation of the Mergers.
Research and development. R&D for the nine months ended September 30, 1996
increased to $2.3 million (8.8% of total revenue) from $1.5 million (7.2% of
total revenue) for the corresponding period in 1995, an increase of $0.8 million
or 58.0%. The increase was due to an approximate 50% increase in R&D personnel
hired to support development activity relating to: (i) a new release of The
Medical Manager incorporating an advanced appointment scheduler and other
enhancements; (ii) graphical user interface and relational database technologies
for use in future versions of The Medical Manager; (iii) an electronic medical
records module; (iv) a module for use in the management of multiple physician
practices; and (v) a module for use in claims adjudication. Certain of these
initiatives were begun in previous periods, but required additional resources as
they reached more advanced stages of development.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. The Company's total revenue for 1995 increased to $29.3 million
from $24.2 million for 1994, an increase of $5.1 million or 21.1%. Revenue from
systems sales for 1995 increased to $7.1 million (24.3% of total revenue) from
$4.3 million (17.9% of total revenue) for 1994, an increase of $2.8 million or
64.0.%. The increase was primarily due to increased sales to MSOs. Revenue for
software license for 1995 increased to $13.3 million (45.5% of total revenue)
from $12.2 million (50.5% of total revenue) for 1994, an increase of $1.1
million or 9.0%. The increase was primarily due to increased sales of systems to
MSOs. Revenue from maintenance and other sources for 1995 increased to $8.9
million (30.2% of total revenue) from $7.6 million (31.6% of total revenue) for
1994, an increase of $1.3 million or 16.1%. The increase was primarily a result
from inclusion of operations of NMS for a full year.
Cost of revenue. The total cost of revenue for 1995 increased to $10.6
million from $8.6 million in 1994, an increase of $2.0 million or 23.7%.Cost of
revenue for systems for 1995 increased to $2.9 million from $2.0 million in
1994, an increase of $0.9 million or 46.4%. The increase was primarily due to
increased revenue and was partially offset by a substantial increase in sales to
MSOs. Cost of revenue for software license for 1995 decreased slightly to $2.3
million from $2.5 million in 1994, a decrease of $0.2 million or 10.0%. The
decrease was primarily due to greater allocation of overhead to cost of revenue
for systems and maintenance and other sources as revenue increased for these
components at a rate greater than that for software license. Cost of revenue for
maintenance and other sources for 1995 increased to $5.4 million from $4.1
million in 1994, an increase of $1.3 million or 33.6%. The increase was
primarily due to the new initiatives for centralized support desk services. The
growth in the cost of revenue resulted in a modest decline in gross margin to
63.7% for 1995 from 64.5% in 1994. The decline in gross margin was principally
due to the Company's decision to hire additional employees to implement new
initiatives in professional and technical services, including centralized
support desk and project managers for large system installations. The Company
does not, however, expect to recognize additional revenue from certain of these
services until future periods.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $7.8 million for 1995 from $6.5 million for
1994, an increase of $1.3 million or 20.0%, but were essentially unchanged as a
percentage of total revenue (27.0%).
Research and development expenses. Research and development expenses for
1995 increased to $2.0 million (6.9% of total revenue) from $1.5 million (6.2%
of total revenue) for 1994, an increase of $0.5 million or 34.8%. The increase
was due to an approximate 35% increase in R&D personnel hired to support
development activity relating to: (i) a new release of The Medical Manager
incorporating an advanced appointment scheduler and other enhancements; (ii) a
module for use in the management of multiple physician practices; and (iii) an
electronic medical records module. Although the Company believes that the
29
<PAGE> 31
increase in staffing levels and the development of these initiatives are
essential to the continued success of The Medical Manager, they are not expected
to yield any immediate revenue to the Company.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenue. The Company's total revenue for 1994 increased to $24.2 million
from $18.3 million for 1993, an increase of $5.9 million or 32.3%. The increase
was primarily due to sales postponed by customers to 1994 due to concerns in
1993 regarding the impact of proposed health care legislation. Revenue from
software license for 1994 increased to $12.2 million (50.5% of total revenue)
from $9.6 million (52.2% of total revenue) for 1993, an increase of $2.6 million
or 27.9%. Revenue from system sales for 1994 increased to $4.3 million (17.9% of
total revenue) from $3.1 million (17.0% of total revenue) for 1993, an increase
of $1.2 million or 39.4%. Revenue from maintenance and other sources for 1994
increased to $7.6 million (31.6% of total revenue) from $5.6 million (30.8% of
total revenue) for 1993, an increase of $2.0 million or 35.8%.
Cost of revenue. The total cost of revenue for 1994 increased to $8.6
million from $7.6 million in 1993, an increase of $1.0 million or 13.6%. The
reduced growth in the cost of revenue resulted in an increase in gross margin to
64.5% for 1994 from 58.6% in 1993. Cost of revenue for systems for 1994
decreased to $2.0 million from $2.1 million in 1993, a decrease of $0.1 million
or 5.8%. The decrease was primarily due to a decrease in equipment costs for
system sales. Cost of software license for 1994 increased to $2.5 million from
$1.8 million in 1993, a increase of $0.7 million or 39.3%. Cost of revenue for
maintenance and other sources for 1994 increased to $4.1 million from $3.6
million in 1993, an increase of $0.5 million or 12.0%. The increase in the cost
of software license and maintenance and other sources was primarily due to
increased revenue and was partially offset by non-recurring costs in 1993
associated with an inventory write-down in the amount of $0.3 million and a
legal settlement requiring the buy out of a non-competition agreement by the
founders of RTI in the amount of $0.4 million.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $6.5 million for 1994 (26.8% of total
revenue) from $4.7 million (25.7% of total revenue) for 1993, an increase of
$1.8 million or 38.3%. The increase was due primarily to an increase in RTI
owner compensation of $0.5 million.
Research and development expenses. Research and development expenses for
1994 increased to $1.5 million (6.2% of total revenue) from $1.0 million (5.7%
of total revenue) for 1993, an increase of $0.5 million or 44.4%. The increase
was due to an approximate 60% increase in R&D personnel hired to support the
development of a new version of The Medical Manager incorporating additional
core and office management applications, which was released in June 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain selected unaudited combined
statements of cash flow information on an historical basis, excluding the
effects of pro forma adjustments, for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1993 1994 1995 1995 1996
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operations............ $ 5.0 $ 7.0 $ 9.2 $ 7.9 $ 6.5
Net cash used in investing activities...... (0.7) (0.2) (2.3) (1.9) (0.3)
Net cash used in financing activities...... (4.3) (5.5) (6.8) (3.9) (3.7)
----- ----- ----- ----- -----
Net increase in cash and cash
equivalents......................... $ 0.0 $ 1.3 $ 0.1 $ 2.1 $ 2.5
===== ===== ===== ===== =====
</TABLE>
On a combined basis, for the period from 1993 through the nine months ended
September 30, 1996, the Founding Companies generated $27.7 million in net cash
from operating activities. Substantially all of the net cash generated by
operating activities resulted from net income plus depreciation and
amortization, with little change in non-cash working capital. During this same
period, cash used in investing activities totaled
30
<PAGE> 32
$3.5 million and was primarily used for the acquisition of dealer operations and
net purchases of investments. Cash used in financing activities during this
period consisted primarily of S corporation distributions to PPI's stockholder
and SPI's stockholder.
On the closing of this Offering, the Company intends to repay an aggregate
of $8.2 million in outstanding indebtedness and other obligations of the
Founding Companies. In addition, prior to the consummation of the Mergers, PPI
and SPI will make distributions to their stockholders in respect of their
estimated S corporation AAA Account as of the date of closing. These
distributions relating to the AAA Account (approximately $4.9 million as of
September 30, 1996) are expected to be funded primarily through cash and
investments provided by operating activities. See "Certain Transactions."
The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs and planned capital
expenditures for property and equipment. On a combined basis, the Founding
Companies made capital expenditures of $2.0 million and $1.1 million during 1995
and the nine months ended September 30, 1996, respectively.
The Company intends to focus on the continued consolidation and
rationalization of The Medical Manager dealer network. As such, the Company's
dealer acquisition strategy will target dealerships with strong presences in key
markets and demonstrated expertise with The Medical Manager product line. The
timing, size or success of any acquisition effort and the associated potential
capital commitments are unpredictable. The Company expects to fund future
acquisitions through a combination of working capital, cash flow from operations
and issuances of additional equity.
The Company has negotiated a line of credit of approximately $30 million
with Barnett Bank of Tampa to be used for working capital and other general
corporate purposes, including future acquisitions, prior to the consummation of
this Offering. The Company intends to have the line of credit executed and
effective upon the consummation of this Offering. There can be no assurance that
any line of credit will be obtained or that, if obtained, it will be on terms
that are favorable to the Company. See "Risk Factors -- Risks Related to
Acquisition Financing" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
IMPACT OF INFLATION
Due to the relatively low levels of inflation experienced in recent years,
inflation did not have a significant effect on the results of operations of the
combined Founding Companies for the periods presented.
31
<PAGE> 33
BUSINESS
The Company is a leading provider of comprehensive physician practice
management systems to independent physicians, physician groups, MSOs, IPAs,
managed care organizations and other providers of health care services in the
United States. The Company develops, markets and supports The Medical Manager
practice management system, which addresses the financial and administrative,
clinical and practice management needs of physicians. The Company's system has
been implemented in a wide variety of practice settings, from small physician
groups to multi-provider IPAs and MSOs, and enables physicians and their
administrative staffs to efficiently manage their practices while delivering
quality patient care in a constantly changing health care environment. Since the
development of The Medical Manager in 1982, the Company's installed base has
grown to over 22,500 client sites, representing more than 80 practice
specialities, making it the most widely installed physician practice management
system in the United States.
The Company has entered into agreements to acquire, simultaneously with the
consummation of this Offering, the five Founding Companies. These five entities
include: (i) PPI, the developer of The Medical Manager practice management
system; (ii) SPI, the "master" distributor for The Medical Manager, which
coordinates the sales, support and training activities of approximately 180
independent dealers and implements national marketing strategies; (iii) NMS, a
national dealer for The Medical Manager; (iv) RTI, a regional dealer serving the
Northeastern region of the United States; and (v) SMI, a regional dealer serving
the Midwestern region of the United States. The vertical integration of these
five entities will bring together the research and development, sales and
support efforts for The Medical Manager in one entity covering the entire United
States. Although the five Founding Companies have not previously operated as a
single entity, they have successfully worked together for many years. PPI has
been expanding and improving The Medical Manager system since developing it in
1982, SPI has been the master distributor of The Medical Manager since 1982 and
NMS, RTI and SMI have been selling and supporting The Medical Manager as
independent dealers since 1994, 1988 and 1987, respectively.
INDUSTRY OVERVIEW
Over the past decade, health care costs in the United States have risen
faster than the overall rate of inflation. According to the U.S. Health Care
Financing Administration, health care expenditures have increased from less than
$250 billion, or approximately 9% of U.S. gross domestic product, in 1980 to
almost $1 trillion, or approximately 14% of U.S. gross domestic product, in
1994. This increase has resulted in broad pressures to reduce costs without
sacrificing the quality of care and has caused significant changes in the health
care industry. While reimbursement for health care has historically been based
on a fee-for-service model of payment, managed care organizations and other
payors are increasingly utilizing alternative reimbursement models that shift
the financial risk of delivering health care from payors to health care
providers, including discounted fee schedules, single payment based on
diagnosis, capitation and other risk sharing arrangements.
The ongoing pressure to contain health care costs and the growing
administrative burdens placed on medical practices have caused physicians to
join together in group practices to share administrative costs and achieve
economies of scale. In addition, other providers and payors are buying and/or
managing physician practices and transforming them into integrated delivery
systems. The Company believes the movement toward group practices has
accelerated the trend toward automation as group practices require the greater
efficiency and productivity of more powerful practice management systems. This
general increase in the size and complexity of medical practices has created a
greater need for analysis of data and production of timely management
information reports that allow physicians, other providers of medical care and
payors to reach informed conclusions regarding the quality and appropriateness
of various procedures and practices.
The expansion in the number of managed care and third-party payor
organizations, as well as additional governmental regulation and the change in
reimbursement models, have greatly increased the complexity of pricing
practices, billing procedures and reimbursement policies impacting medical
practices. Practice management systems help providers reduce the costs and
improve the quality of delivering health care services by automating patient
care information systems and administrative processes, ensuring timely access to
32
<PAGE> 34
relevant information, streamlining the storage and retrieval of information, and
efficiently matching patient needs with available resources. While early systems
concentrated principally on patient billing and collection activities, systems
are now available that record and store clinical information, automate the
processing of insurance and third-party payor claims and integrate the
operations of physician practices with larger health care organizations such as
hospitals, HMOs and management service organizations.
BUSINESS STRATEGY
The Company's strategy is to integrate its research and development,
marketing, sales and support resources and to build upon its leadership position
as the provider of the most widely utilized physician practice management
system. Key elements of this strategy include:
Capitalizing on New Corporate Structure. As a result of the Mergers,
the Company expects to achieve significant benefits through a national
market presence, centralized client support and the implementation of a
national retail pricing structure. While the Founding Companies have worked
together successfully for many years, the consummation of this Offering and
the completion of the Mergers will create a vertically integrated entity
that will have greater financial strength and stability than the individual
Founding Companies and that will compete more effectively on national,
regional and local levels. In addition, the Company expects to achieve
significant cost savings as a result of the consolidation of many of the
administrative functions currently handled separately by each of the
Founding Companies. The Mergers will also allow the Company to further
develop its Enterprise Business Group, a national accounts group that
assists regional dealers in marketing to, and addressing the support needs
of, larger provider organizations such as MSOs, IPAs, and managed care
organizations. The Company plans to establish local and regional resource
centers, supported by centralized corporate and regional operations,
including help desks, EDI departments and advanced technical and
programming personnel. The Company expects this structure to result in
greater overall consistency and a higher level of client support.
Consolidating and Rationalizing the Distribution Network. The Company
intends to consolidate and rationalize The Medical Manager distribution
network. Prior to the 1990s, when independent physician practices were most
prevalent, the local focus of The Medical Manager independent dealer
network effectively addressed the practice management needs of the market.
However, due to the numerous trends in the health care industry toward
improved efficiency and cost containment, physicians have been forced to
consolidate into larger practice organizations. To meet the needs of these
larger groups, this Company believes it is necessary to adopt and implement
a product distribution strategy that includes the acquisition of dealers in
major medical communities and large metropolitan markets. These dealers
should enable the Company to market more effectively to larger customers
while assisting the remaining independent dealers in conducting their
marketing activities. The Company also intends to further standardize the
sales and support practices of the independent dealers in order to ensure
that The Medical Manager is sold and supported on a consistent and
effective basis. See "-- Distribution Network."
Increasing Penetration of Management Service Organizations and Other
Large Physician Groups. The Company seeks to increase its sales of
enterprise-wide systems, products and services to MSOs and large physician
groups. As trends in the health care marketplace continue to drive
physician affiliations, the Company believes there is significant
opportunity to increase its share of this rapidly growing segment of the
practice management market. In order to capitalize on these opportunities,
the Company has established the Enterprise Business Group to coordinate
large group sales and support in conjunction with local and regional
dealers. In addition, the Company has enhanced the functionality of The
Medical Manager to deliver increasingly comprehensive physician practice
management services in enterprise-wide settings. The Company believes that
through these efforts it can significantly increase its share of this
market segment.
33
<PAGE> 35
Cross-Selling Products and Services to Existing Client Base. The
Company intends to aggressively cross-sell additional products and services
to its existing client base. A majority of the Company's existing clients
do not currently use The Medical Manager's entire suite of products and
services. Because of its substantial installed base of over 22,500 sites,
as well as the modular, integrated product design of The Medical Manager,
the Company intends to work with the sales offices to target many of its
customers as candidates for cross-selling opportunities, including system
upgrades, additional software application modules, services such as
hardware and software maintenance, system and process planning, project
management, custom programming and EDI capabilities.
Continuing Development of New Products, Product Enhancements and
Services. The Company intends to continue its leadership role in the
development and introduction of new products, product enhancements and
services for the physician practice marketplace. To do so, the Company
intends to continue to commit significant financial and human resources to
its research and development efforts. A key focus of the Company's research
and development efforts is the further enhancement of The Medical Manager's
ability to operate within a variety of integrated delivery environments.
The Company's strategic development initiatives include advanced systems,
such as a version of The Medical Manager incorporating relational
databases, a graphical user interface and enhanced client-server
applications. The Company develops new products, product enhancements and
services with input from its physician-clients. For 1995 and the first six
months of 1996, the Company's pro forma expenses for research and
development were $2.1 million and $1.5 million, respectively, representing
5.8% and 7.6% of the Company's pro forma revenue for those periods.
PRODUCTS
The Medical Manager is an integrated practice management system
encompassing patient care, clinical, financial and management applications. Due
to its scalable design, The Medical Manager is a cost-effective solution in a
stand-alone or enterprise-wide environment. The Medical Manager is designed to
operate on a wide range of hardware platforms, from Intel-based computer systems
for small and medium sized practices, to RISC-based systems, such as the IBM
RS/6000 and Hewlett-Packard 9000, for larger practices. Its modular, fully
integrated product portfolio allows clients to add incremental capabilities to
existing information systems while preserving and minimizing the need for
capital investments. The latest version of The Medical Manager software,
currently in Beta testing, is year 2000 enabled.
The pricing of The Medical Manager system is a function of the number of
modules purchased, the number of users per site, the number of practices, the
operating system and the complexity of the installation. Hardware support and
services are priced separately from software products and are typically
coordinated by the dealer.
The Medical Manager system provides to physician practices a broad range of
patient care and practice management features, including:
CORE APPLICATION
The Medical Manager Core Application includes base financial, clinical and
practice management functions.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
The Medical Manager Provides accounts receivable, insurance billing, basic
appointment scheduling and recalls, clinical history, financial
history, referral of physician information, encounter form
tracking, e-mail, office notes, hospital rounds and over 150
standard reports.
</TABLE>
34
<PAGE> 36
OFFICE MANAGEMENT
The Medical Manager Office Management application automates the essential
administrative tasks of a physician practice.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Automated Collections Maintains notes, promise to pay dates, budget payments, next
action to be taken indicators and prints collection letters;
automates "tickler" system to alert the user when an account
needs attention.
Chart and X-Ray Locator Tracks the location of a patient's medical and X-ray charts.
Advanced Billing Handles sophisticated billing needs, including the necessary
collapsing and sorting of charge items into revenue codes for
UB92 billing purposes; also used for the specialized reporting
needs for Workers' Compensation First Report of Injury.
Custom Report Writer Provides access to all data elements of The Medical Manager;
allows for the creation of user defined custom reports.
Multiple Resource Includes multi-resource display, search and posting of scheduled
Scheduling appointments; coordinates the utilization of exam rooms and
equipment and schedules of teams of physicians, nurses,
therapists and others whose services are needed within a
specific time sequence of one another.
Patient Flow Tracking Allows patient encounters to be tracked from the time the
patient makes the appointment, through encounters in the waiting
room, examination rooms, labs and other areas; reports on time
and resource utilization.
</TABLE>
DEVELOPMENT TOOLS
Development Tools allow data to be accessed and manipulated, adding
flexibility to the system and allowing for customization to meet specialized
needs.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Data Merge A proprietary 4GL type language that allows the Company, dealers
and other qualified programmers to customize functions and
features of The Medical Manager without changing source code;
also supports the exchange of data between The Medical Manager
and hospital, lab, pharmacy and other medical management
systems.
</TABLE>
ELECTRONIC CONNECTIVITY
Electronic Connectivity supports the electronic submission of claims to
payors, and allows for the open exchange of information between various medical
institutions as well as the transfer of administrative transactions to support
managed care.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Hospital Information Link A Data Merge tool that allows hospital interfaces to be written
to local hospital requirements.
HL7 Connectivity Engine Allows users to provide real time demographic and encounter
information to hospitals and other organizations (referred to as
"Remotes") and queries the Remote's master patient index in
order to retrieve data on existing patients; also allows the
Remote to automatically advise the user site of patient
admissions and discharges, changes to inpatient/outpatient
status and changes to patient demographic information.
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Electronic Data Interchange An interface that provides state of the art connectivity for
immediate access to various insurance providers, third-party
connectivity networks and other outside facilities; features
include pre-authorization status, benefit eligibility, referral
verification and rosters, as well as credit card and check
approval.
Electronic Claims Supports direct electronic submission of claims to Medicare,
Medicaid, commercial carriers and clearinghouses; expedites
insurance payment turnaround time; verifies claims for accuracy
and reports on submitted claims that have been accepted or
rejected; provides a complete audit trail and reports to ensure
that claims have been processed properly; supports NSF and ANSI
national standards.
Electronic Remittance Used in combination with the Electronic Claims Module to
electronically download Explanation of Benefits ("EOBs") from
Medicare or other claim centers and to post directly into
patients' accounts, thereby saving a substantial amount of data
entry time and preventing keying errors.
</TABLE>
MANAGED CARE APPLICATIONS
Managed Care applications allow physicians to contain costs and deliver a
higher quality of care in the capitated environments.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Managed Care In addition to the managed care features offered in the base
system, supports the full functions required to track incoming
as well as outgoing referrals to facilities and specialists;
maintains membership eligibility lists, capitation payment
posting, contract management (including number of visits,
allowable time period, procedures and diagnosis treatment plan)
and reporting.
Claims Adjudication Fully integrated with the Managed Care module, provides full
risk management capabilities, including the processing of
received claims, comparing the claim against authorized services
to determine amounts due, generating checks for payments and
producing an EOB; also provides advanced features in the form of
claims repricing, bundling of services, and provider
credentialing.
</TABLE>
CLINICAL APPLICATIONS
The Medical Manager Clinical application developments provide
fully-integrated components of a patient's medical record that contain the
functionality and knowledge bases required in today's practices.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Quality Care Guidelines Automates the process of tracking both the curative and
preventative services the practice has specified that it wishes
to perform; provides reports on physician compliance with
recommended care guidelines that are based on the patient's age,
sex, diagnoses and other key health factors and are
automatically printed with the patient's encounter form. The
guidelines are derived from U.S. Preventative Healthcare
Guidelines or other clinical knowledge bases and reflect the
practice's own suggested intervals of exams, tests, injections
and other procedures specific to the individual patient.
Laboratory Interface Electronically downloads test requests and patient demographics
to a laboratory, and electronically transfers results directly
into the patient's file in The Medical Manager.
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Prescription Writer Provides a full set of tools for managing both the clinical and
administrative aspects of the prescription process; provides for
extensive interaction checking, patient information printouts
and prescription history on the drugs being prescribed;
administratively reduces physician and staff time spent
preparing and issuing prescriptions.
Pharmacy Interface Offers a direct electronic link to transfer prescriptions and
handle authorization requests between the Prescription Writer
module and the pharmacy.
Voice Dictation Through The Medical Manager's link with Kurzweil Applied
Intelligence software, enables the physician to dictate, edit
and print patient charts and reports; pulls and stores patient
and physician information from the patient file into the chart
via a single, spoken command.
View Patient Chart Brings a snapshot of the patient's medical records to a single
screen and then gives the user instant access to almost any
desired level of underlying detail; allows the screen to be used
for valuable side-by-side analysis of chart data.
Medical Records Designed to provide maximum flexibility and speed in creating,
storing and retrieving whatever medical information the practice
wishes to maintain on each patient, fully integrated with the
product's clinical history, this application addresses the four
fundamental issues concerning medical records: creation and
maintenance of medical records, simultaneous access to patient
records, remote access and data for analysis. Includes patient
encounter knowledge base and generates automated progress notes.
</TABLE>
MSO ENTERPRISE SYSTEM
The MSO Enterprise system addresses the needs of the MSO market by
providing enterprise-wide solutions for the management of integrated provider
networks.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
MSO Enterprise Manager Provides the MSO or multi-practice environment with central
administration of multiple practices, enterprise-wide roll-up
reports, a master patient index for automatic synchronization of
demographic data-updates and remote access across multiple
systems.
</TABLE>
DIALYSIS VERTICAL MARKET OPTION
The Medical Manager Dialysis Vertical Market Option expedites the
repetitive process of posting dialysis patients' weekly treatments.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- --------------------------- ----------------------------------------------------------------
<S> <C>
Dialysis Calendar Posting Using a calendar posting screen, automates and reduces the
repetitive, recurring posting dictated by dialysis treatment.
</TABLE>
CLIENT SERVICES
The Company's Client Services Division provides a wide range of services to
the entire client base to ensure customer satisfaction and maximize the utility
of The Medical Manager system. These services include both fundamental and
value-added services as described below:
Implementation Services. These services include planning, design and
installation of software, hardware and network solutions for stand-alone
practices to enterprise-wide environments. To ensure customer satisfaction,
the Company utilizes a team approach involving technical and professional
staff members who have a broad array of technical and business expertise.
This team approach includes
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<PAGE> 39
project engineering, business redesign and practice staff re-education. A
client relationship manager, part of the team from the outset, works with
the client throughout the life of the contract.
Support Services. A critical element in assuring proper use of and
satisfaction with the Company's products involves ongoing support services
provided to the end-users. The Company provides to its clients continuing
software and hardware support under agreements that typically have a one
year term. These agreements provide for general support via help desks,
error corrections to software, remote diagnostics and on-site hardware and
software technicians. Support services are provided during normal business
hours and can be expanded to include seven days a week, 24 hour coverage.
As of November 15, 1996, the Company had 165 full-time employees devoted to
providing support services to its customer base.
Value-Added Services. The Company advises its enterprise-wide clients
on how best to bring together disparate physician practices into an
integrated health care delivery network. The Company works in partnership
with its client's clinical and administrative management in the areas of
patient and workflow redesign, job function review and re-education,
standardization consultation, project engineering, timeline and resource
management and ongoing relationship management. The Company and many of its
independent dealers maintain substantial resources capable of providing
custom programming solutions for a broad range of client requests. Many of
these solutions may be generated at the regional and local levels using the
Company's Data Merge language, which allows modification to be made without
changing source code.
Training and Continuing Education. The Company believes initial and
continuing education are key components in ensuring customer satisfaction
and retention and, accordingly, has devoted significant resources to its
Educational Services Division. Because the Medical Manager has been in use
for 14 years, a substantial amount of experience and expertise has been
gained by the Company's training staff in optimizing methodology and
curriculum to achieve the best results. As of November 15, 1996, the
Company had 13 full-time employees in its Education Services Division.
Training methods include classroom and computer-based training, on-site
visits for system setup and review and video training tapes available on
selected modules. The Company also assists its clients in developing their
own training staff, materials and guidelines. Continuing education
programs, a quarterly newsletter and user group conferences are sponsored
by the Company, providing the user with valuable information as well as an
opportunity for the Company to demonstrate new enhancements and features of
the product. The Company makes available to clients extensive user
documentation and reference manuals including, among others, installation
guides, advanced system manuals, a custom report writer manual and an MSO
implementation workbook.
SALES AND MARKETING
The Company sells its products and services nationally through a direct
sales organization consisting of 57 sales personnel, as well as through its
independent dealer network of approximately 180 dealers. This distribution
effort is responsible for sales to new clients, ranging in size from solo
practitioners to enterprise-wide clients, and follow-on sales of upgrades and
enhancements to existing clients. To enhance the effectiveness of its selling
effort, the Company provides its sales force and independent dealer network with
(i) comprehensive training in the Company's products and services; (ii)
marketing materials; and (iii) on-going support.
Small and medium-sized sales, routinely handled by the direct sales force
and independent dealers, generally involve a sales cycle of 30 to 60 days.
Larger sales, managed by the Enterprise Business Group, typically involve a
Request For Proposal process which lengthens the sales cycle to 60 to 90 days or
longer. Hardware and software maintenance agreements are generally renewed on an
annual basis. Standard payment terms are 50% due upon system order with the
balance due upon completion of system installation.
To address the more complex needs of larger potential clients, the Company
has formed the Enterprise Business Group. The Group coordinates the Company's
sales effort for large clients (such as MSOs, IPAs and managed care
organizations) and assists in the implementation of systems and the maintenance
of ongoing
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<PAGE> 40
client relationships. Many of the independent dealers are experienced in selling
to and supporting enterprise wide clients. The Company intends to continue to
utilize the Enterprise Business Group to assist local and regional dealers in
these efforts. At the enterprise-wide client level, relationship managers work
with the client throughout the contract term to keep informed of customer
expectations and help ensure customer satisfaction.
The Company generates sales leads through referrals from customers and
management consultants, responses to requests for proposals, strategic alliances
with complementary companies, the Company's Internet web sites and associated
links, industry seminars, trade shows, direct telephone and mail campaigns and
advertisements in trade journals.
In order to capitalize on opportunities to cross-sell its products and
services to existing clients, the Company maintains contacts with its clients at
the local, regional and national levels through electronic mail links on its
Internet web sites, monthly and quarterly newsletters, technical updates,
product release bulletins, user meetings, training seminars, industry
conferences and market-specific seminars, such as its MSO User Conference. The
Company also works with certain of its client base on the selection,
implementation, use and benefits derived from the product and publishes these as
Client Profiles, providing both the client and the Company with market exposure
and the opportunity to share successes.
An educational license of The Medical Manager physician practice management
system has been utilized to teach office automation within the medical field for
more than eight years. The system has been installed in vocational schools,
junior colleges and universities nationwide. Delmar Publishers Inc., one of the
leading educational textbook publishers in the country, markets a student
textbook and instructor's manual for courses that teach computer skills in the
medical field, using The Medical Manager. Since 1988, more than 400 site
licenses of the educational version have been sold.
DISTRIBUTION NETWORK
Prior to the 1990s, when independent physician practices were most
prevalent, the local focus of independent dealers effectively addressed the
practice management needs of the market. However, due to the numerous trends in
the health care industry focusing attention on the delivery of high quality and
cost effective care (as well as the need to demonstrate such quality and
effectiveness), individual physicians and small group practices have been forced
to pool their resources in order to compete effectively. As a result, large
physician organizations have become much more prevalent in the medical
marketplace. To keep pace with the increasingly sophisticated practice
management needs of these larger groups, the independent dealers for The Medical
Manager have been consolidating in order to build the necessary technical,
service and support resources.
The Company believes that a fundamental and unique strength of The Medical
Manager is its nationwide dealer network, which currently includes approximately
180 dealer organizations. As a result of the many years of selling and
supporting The Medical Manager product line, the personnel in the Company's
dealer network represent a valuable resource. The Company believes that the
continued consolidation and rationalization of the dealers for The Medical
Manager is a necessary response to changes in the physician marketplace. The
Company's strategy for its dealer network includes the acquisition of dealers in
strategic markets as well as the rationalization of the remaining independent
dealers in order to ensure that The Medical Manager is sold and supported on a
consistent and effective basis throughout the dealer network.
Dealer Acquisitions. The Company believes that it must have representation
in all major medical communities and metropolitan markets throughout the
country. As a result, the Company's dealer acquisition strategy will focus on
acquiring dealerships that have both a strong presence in key markets and
demonstrated expertise with The Medical Manager product line.
Rationalization of Independent Dealers. The Company intends to continue to
use its existing network of independent dealers as an integral part of its
distribution network for The Medical Manager. The Company will work with its
independent dealers to institute a program to standardize hardware
configurations, client training programs and service levels developed by the
Company. The Company will also provide services to
39
<PAGE> 41
the independent dealers, many of which are unable to provide such resources as
independent entities. Such services include: (i) dealer training; (ii) help
desks; (iii) advanced technical services, such as custom programming services;
and (iv) sales support for large systems sales from the Enterprise Business
Group.
RESEARCH AND DEVELOPMENT
The Company seeks to meet the needs of its clients by continuing to develop
new products and enhancements of existing products. Accordingly, the Company
believes that continued leadership in the practice management systems industry
will require significant additional commitments of resources to research and
development. The Company maintains its research and development campus in
Alachua, Florida, where development of The Medical Manager began over 14 years
ago. As of November 15, 1996, the Company had 50 employees engaged primarily in
its research and development efforts. Pro forma research and development
expenses for 1995 and the first nine months of 1996 were $2.1 million and $2.4
million, respectively, and represented 5.8% and 8.1% of pro forma revenue.
The Company's research and development activities involve Company personnel
as well as physicians, physician groups practice staff and leading health care
institutions. A key goal of current research and development efforts involves
adapting The Medical Manager system to operate more effectively within
integrated delivery environments. To achieve this goal, the Company is pursuing
a strategic development initiative directed toward the development of advanced
health care information systems that include a relational database, graphical
user interfaces and enhanced client-server applications. The Company's current
research and development efforts continue the tradition of The Medical Manager
of being a consistent leader in product innovation, as indicated by the
following:
- In 1982, The Medical Manager was first installed.
- In 1985, The Medical Manager released its electronic media claims module.
- In 1987, The Medical Manager became the first practice management system
to perform electronic claims submission in all 50 states.
- In 1988, The Medical Manager released its Report Writer Module.
- In 1990, The Medical Manager released its Data Merge Language module
allowing unlimited customization within The Medical Manager without
changing the source code.
- In January 1991, The Medical Manager released its Electronic Remittance
module.
- In June 1991, The Medical Manager became the first practice management
system to incorporate EDI with electronic interchange partners.
- In 1992, The Medical Manager became the first practice management system
to introduce electronic interfaces to laboratory systems.
- In 1994, The Medical Manager announced its Managed Care Module.
- In January 1995, The Medical Manager released its Quality Care Guidelines
module.
- In October 1995, The Medical Manager released an integrated Claims
Adjudication System.
- In November 1995, The Medical Manager announced its MSO Enterprise
Manager.
- In April 1996, The Medical Manager announced its prototype HL7
Connectivity Engine.
Current focus areas for new product development and enhancement include the
following:
ENTERPRISE SYSTEM
The Company intends to develop an increasing number of automation tools to
support the growing number of integrated health care delivery systems across the
nation. Developments within The Medical Manager's MSO Enterprise System are
expected to include enterprise appointment and resource scheduling
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<PAGE> 42
and enterprise communications. In addition, further developments in The Medical
Manager's connectivity engines should continue to promote the open exchange of
information between medical institutions.
MANAGED CARE
Physicians realize that sophisticated health care automation systems are
required to support managed care, compete for capitated contracts and contain
healthcare costs while providing effective, high quality care. Development
efforts within the Managed Care module are expected to result in a product that
provides referral outcome reporting that can perform outcome analysis across
multiple practices within the provider network. As managed care matures, new
markets will be created that require the support of automation. Development
efforts within the Managed Care module will be designed to support the evolving
subcapitation market by allowing primary care groups to receive the total
capitation from a payor and allocate the capitation payment among contracted
specialists for services they have provided.
CLINICAL APPLICATIONS
The Company recognizes that improvements in the technology that supports
the gathering, storing, retrieving and reporting of clinical data and the
creation of a sophisticated computerized patient record system are critical to
the enhancement and improvement of health care delivery across the nation. As a
result, the Company is engaged in efforts to rapidly develop fully-integrated
components of a computerized patient record containing functionality and
knowledge bases that support the way physicians provide health care services.
Research and analysis of various input technologies and devices continue with
the goal of providing physicians with usable tools that will allow them to
effectively gather and use clinical data at the point-of-care.
GRAPHICAL USER INTERFACE
The Company's graphical user interface is currently under development. The
Company's development efforts are intended to produce a product that will
support users opting to install technology to support a Windows environment, as
well as the Company's current installed base, which has a sizeable investment in
hardware that supports character based applications.
PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of trade secret, copyright and
trademark laws, license agreements, nondisclosure and other contractual
provisions and technical measures to establish and protect its proprietary
rights in its products. The Company distributes its products under software
license agreements that grant clients a nonexclusive, nontransferable license to
the Company's products and contain terms and conditions prohibiting the
unauthorized reproduction or transfer of the Company's products. In addition,
the Company attempts to protect its trade secrets and other proprietary
information through agreements with employees and consultants. Substantially all
current employees involved in product development have signed an assignment of
inventions agreement. There can be no assurance that the legal protections
afforded to the Company or the precautions taken by the Company will be adequate
to prevent misappropriation of the Company's technology. In addition, these
protections do not prevent independent third-party development of functionally
equivalent or superior technologies, products or services. Any infringement or
misappropriation of the Company's proprietary software could disadvantage the
Company in its efforts to attract and retain new clients in a highly competitive
market and could cause the Company to lose revenues or incur substantial
litigation expense. The Company believes that, due to the rapid pace of
innovation within the software industry, factors such as the technological and
creative skills of its personnel and ongoing reliable product maintenance and
support are more important in establishing and maintaining a leadership position
within the industry than are the various legal protections afforded to its
technology.
GOVERNMENT REGULATION
The FDA has jurisdiction under the FDC Act to regulate computer products
and software as medical devices if they are intended for use in the diagnosis,
cure, mitigation, treatment or prevention of disease in humans. The FDA has
issued a draft policy statement relating to picture archiving and communications
systems that requires manufacturers of medical image storage devices and related
software to submit to the
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<PAGE> 43
FDA premarket notification applications and otherwise comply with the
requirements of the FDC Act applicable to medical devices. Recently, the FDA
initiated agency rulemaking to exempt certain medical image management devices
from premarket notification procedures. There can be no assurance that such
rulemaking will be adopted, and if so, that the rulemaking will apply to the
Company's product.
The Company marketed The Medical Manager with a medical image management
capability until recently, when it decided to cease offering this feature after
considering the draft policy statement and other regulatory factors. The Company
believes that The Medical Manager, when marketed without a medical image
management capability, would not be subject to FDA regulation requiring
registration, listing, premarket notification or approval and adherence with
device good manufacturing practices or medical device reporting requirements.
The FDA is currently reviewing its policy for the regulation of computer
software and there is a risk that The Medical Manager could in the future become
subject to some or all of the above requirements, which could have a material
adverse effect on the Company's results of operations, financial condition or
business.
In addition, prior to the decision to remove its medical image management
capability, a small number of The Medical Manager systems possessing a medical
image capability were sold. While there can be no assurance that the FDA will
not take enforcement action with respect to these prior sales, the Company
believes that such action is unlikely due to the nature of the product and the
small number of units sold with a medical image capability. Enforcement action
can consist of warning letters, refusal to approve or clear products, revocation
of approvals or clearances previously granted, civil penalties, product
seizures, injunctions, recalls, operating restrictions and criminal
prosecutions. Any enforcement action by the FDA could have a material adverse
effect on the Company's results of operations, financial condition or business.
COMPETITION
The market for physician practice management systems and services is highly
competitive. The Company believes that the principal competitive factors in this
market include the functionality and price of the practice management system,
the support provided to system users, ongoing research and development efforts
and the national presence and financial stability of the seller. The industry is
fragmented and includes numerous competitors. The Company believes its principal
competitive advantages are the product's substantial installed client base, open
system design and advanced features and capabilities, as well as the Company's
focus on customer support and training programs and its network of dealers. The
Company's principal competitors include other physician practice management
system companies, local software companies and other companies that provide
information systems to health care providers. Certain of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, as the market for the Company's
products develops, additional competitors may enter the market and competition
may intensify.
EMPLOYEES
At November 15, 1996, the Company employed 348 full-time and five part-time
employees. No employees are covered by any collective bargaining agreements. The
Company considers its relationships with its employees to be good.
FACILITIES
The Company's principal corporate offices are located at 3001 North Rocky
Point Drive East, Tampa, Florida. The Company's research and support facilities
are located in Alachua, Florida. The Company also maintains national sales and
support offices in Mountain View, California, and has 17 additional offices in
various regions of the country.
The Company leases all of its properties (an aggregate of 107,413 square
feet) with remaining terms between one and five years. The Company believes that
its facilities are adequate for its current needs and that suitable additional
space will be available as required. See "Certain Transactions" and Note 4 of
Notes to the
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<PAGE> 44
Company's Unaudited Pro Forma Combined Financial Statements for information
regarding the Company's obligations under its lease agreements.
LEGAL PROCEEDINGS
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to the Company received telephonic notice from counsel to such
dealer that a lawsuit with respect to the foregoing matters had been filed that
day in federal court. Neither MMC nor any of such Founding Companies has been
served with such lawsuit. MMC and the Founding Companies intend to defend
themselves vigorously against any such action.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's current directors, executive officers and those persons who will
become directors and executive officers in connection with this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael A. Singer.................. 49 Chairman of the Board; Chief Executive Officer(1)
John H. Kang....................... 33 President; Director
Richard W. Mehrlich................ 48 Executive Vice President -- Sales and Marketing;
Director(1)
Lee A. Robbins..................... 55 Vice President and Chief Financial Officer(2)
Wayne Burks........................ 49 Director(3)
Ricardo A. Salas................... 32 Director(3)
Frederick B. Karl, Jr.............. 42 Vice President, General Counsel and Secretary(3)
Thomas P. Liddell.................. 34 Vice President -- Midwest Region(1)
Henry W. Holbrook.................. 42 Vice President, Sales -- Northeast Region(1)
</TABLE>
- ---------------
(1) Appointment will become effective upon the consummation of this Offering.
(2) Appointment will become effective upon the resignation of Mr. Burks as Chief
Financial Officer.
(3) Mr. Burks currently is Vice President, Treasurer and Chief Financial Officer
and Mr. Salas currently is Vice President and Secretary of the Company. Mr.
Burks will resign as Vice President, Treasurer and Chief Financial Officer
on or prior to the commencement of this Offering, Mr. Salas will resign as
Vice President and Secretary of the Company upon the consummation of this
Offering and Messrs. Burks and Salas will resign as directors upon the
consummation of this Offering. Mr. Karl will become Vice President, General
Counsel and Secretary upon the consummation of this Offering.
Michael A. Singer will serve as Chairman of the Board and Chief Executive
Officer of the Company, effective upon the consummation of this Offering. Mr.
Singer is the founder of PPI and the principal inventor of The Medical Manager
software program. From PPI's inception in 1981, he has been the sole
shareholder, a director and the President and Chief Executive Officer. Mr.
Singer received a B.A. in Business Administration from the University of Florida
in 1969, and a Masters degree in Economics from the University of Florida in
1971.
John H. Kang has been President and a director of the Company since July
1996. He is the founder of NMS and has served as its President since its
inception in 1994. In 1987, Mr. Kang founded J. Holdsworth Capital Ltd., a
private investment firm, and is currently its President. He has been a director
of Amorphous Technologies International, a company engaged in the research and
development and manufacture of metal alloy, since May 1995. Mr. Kang also has
been a director of Nutcracker Snacks, Inc., a manufacturer of snack foods, since
December 1988. From June 1988 to September 1996, Mr. Kang was the Chairman and a
director of Clayton Group, Inc., a distributor of waterworks materials. Mr. Kang
received an A.B. in Economics from Harvard College in 1985.
Richard W. Mehrlich will serve as Executive Vice President -- Sales and
Marketing and will be a director of the Company, effective upon the consummation
of this Offering. Mr. Mehrlich is the founder and a director of SPI, and has
been President and Chief Executive Officer of SPI since its inception in 1980.
Mr. Mehrlich's previous sales and marketing experience includes serving as
Director of Marketing for Dynabyte Corporation, a microcomputer hardware
manufacturer, and as a regional sales representative for Texas Instruments,
Component Sales Division. Mr. Mehrlich received a degree in Electrical
Engineering from the Milwaukee School of Engineering in 1970.
Lee A. Robbins has been Vice President of the Company since November 1996.
From July 1995 through November 1996, Mr. Robbins served as Vice President and
Chief Financial Officer of American Ophthalmic Incorporated, a physician
practice management company. From 1985 to June 1995, he was Vice
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<PAGE> 46
President and Chief Financial Officer of Puritan-Bennett Corporation, a
respiratory equipment company. Before entering the health care management
industry in 1985, Mr. Robbins held a number of financial positions with Armco
Inc., a Fortune 500 company based in Middletown, Ohio. Mr. Robbins received a
B.S. in Accounting from the University of Cincinnati and an M.B.A. from Xavier
University.
Wayne Burks has been Vice President, Treasurer and Chief Financial Officer
and a director of the Company since July 1996. He has served as Vice President
and Chief Financial Officer of NMS since 1995. Previously, Mr. Burks was a
partner with Coopers & Lybrand L.L.P. from 1981. Mr. Burks received a B.S. in
Accounting and Business Administration from Troy State University, Alabama in
1969. He is a member of the American and Florida Institute of Certified Public
Accountants.
Ricardo A. Salas has been Vice President, Secretary and a director of the
Company since July 1996. He has served as a Vice President of NMS since its
inception in 1994. Since 1987, Mr. Salas has been a Vice President of J.
Holdsworth Capital Ltd., a private investment firm. He also has been a director
of Amorphous Technologies International, a company engaged in the research and
development and manufacture of metal alloy, since May 1995. Mr. Salas has been a
director of Nutcracker Snacks, Inc., a manufacturer of snack foods, since
December 1988. From June 1988 to September 1996, Mr. Salas was a director of
Clayton Group, Inc., a distributor of waterworks materials. Mr. Salas received
an A.B. in Economics from Harvard College in 1986.
Frederick B. Karl, Jr. will serve as Vice President, General Counsel and
Secretary of the Company, effective upon the consummation of this Offering. Mr.
Karl has been the General Counsel of PPI since 1988, and also has served as a
Vice President of PPI since 1990. He provided legal services to PPI from 1984
through 1988 while he was in private practice. Mr. Karl received a B.A. from
Florida State University in 1977 and a J.D. from the University of Florida
College of Law in 1981.
Thomas P. Liddell will serve as Vice President -- Midwest Region, effective
upon the consummation of this Offering. Mr. Liddell founded SMI in 1987 and is
presently responsible for its Marketing, Finance and Administration. Prior to
1987, he was employed by Holy Cross Health System, where he developed software
systems to support national group purchasing and coordinated Hospital ADT and
Clinical Systems selection. Mr. Liddell received a B.S. from Indiana University
in 1985.
Henry W. Holbrook will serve as Vice President, Sales -- Northeast Region
of the Company, effective upon the consummation of this Offering. Mr. Holbrook
is a co-founder, President and Director of Sales and Marketing of RTI, and has
been with RTI since its inception in 1988. Prior to founding RTI, he was Sales
Manager and then Branch Manager of the Hartford, Connecticut office of Contel
Business Systems, Inc. from 1978 to 1988. Mr. Holbrook received a B.S. from
Thomas College in 1978.
BOARD OF DIRECTORS
Board Classification. Effective upon the consummation of this Offering,
the Board of Directors will be divided into three classes, with directors
serving staggered three-year terms, expiring at the annual meeting of
stockholders in 1997, 1998 and 1999, respectively. At each annual meeting of
stockholders, one class of directors will be elected for a full term of three
years to succeed that class of directors whose terms are expiring.
Board Committees. The Board of Directors has established an Audit
Committee and a Compensation Committee, effective upon the consummation of this
Offering. The Audit Committee and the Compensation Committee are expected to
consist solely of outside directors.
Director Compensation. Directors who are also employees of the Company or
one of its subsidiaries will not receive additional compensation for serving as
directors. Under the compensation policy to become effective upon the
consummation of this Offering, non-employee directors will receive an annual
retainer of $2,000 and fees for attending each meeting of the Board and any
Board committee of $1,000. Such cash fees may, at the election of the director,
be paid instead in the form of shares of Common Stock or be deferred in the form
of "deferred shares" under the Company's 1996 Non-Employee Directors' Stock
Plan. In addition,
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<PAGE> 47
under such plan, each non-employee director will automatically receive an option
to acquire a specified number of shares of Common Stock (currently 10,000
shares) upon such person's initial election as a director, and, subject to a
limited exception, an annual option to acquire a specified number of shares
(currently 5,000 shares) at each annual meeting of the Company's stockholders
thereafter at which such director is re-elected or remains a director. See
"-- 1996 Non-Employee Directors' Stock Plan." Directors also will be reimbursed
for out-of-pocket expenses incurred in attending meetings of the Board of
Directors or committees thereof, in their capacity as directors. The Board will
periodically review and may revise the compensation policies for non-employee
directors.
Officers. All officers serve at the discretion of the Board of Directors.
The Company intends to have seven members on its Board of Directors.
Accordingly, the Company expects that, within 30 days after the date of this
Prospectus, the Board will vote to increase the size of the Board and to add
four additional directors, three of whom will not be either current or former
employees of the Company, and one of whom will be designated by Mr. Singer
pursuant to the contractual right given to him by MMC in connection with the
Mergers. See "Certain Transactions."
EXECUTIVE COMPENSATION
The Company was incorporated in July 1996, has conducted no operations and
generated no revenue to date and has not paid any of its executive officers
compensation since its formation.
Each of Messrs. Singer, Kang, Mehrlich, Holbrook and Liddell will enter
into an employment agreement with the Company providing for an annual base
salary of $150,000 and a bonus to be determined annually pursuant to an
incentive bonus plan to be established by the Company. Each employment agreement
will be effective as of the consummation of this Offering for a term of five
years. Effective as of the expiration of such initial five-year term and as of
each anniversary date thereof, the term shall be extended automatically for an
additional 12-month period on the same terms and conditions existing at the time
of renewal unless, not later than two months prior to each such respective date,
the Company shall have given notice to the employee that the term shall not be
so extended. Each of these agreements will provide that, in the event of a
termination of employment by the Company without cause (other than upon the
death or disability of the employee) or by the employee for good reason
(including a notice of termination by such employee following a change of
control of the Company, as defined in the agreement, or the non-renewal of the
employment agreement by the Company), the employee shall be entitled to
severance payments equal to the employee's base salary as in effect immediately
prior to such termination over the longer of the then-remaining term or 24
months (the "Severance Period"). The employee will also be entitled to coverage
under the group medical care, disability and life insurance benefit plans or
arrangements in which the employee is participating at the time of termination,
for the continuation of the Severance Period, provided the employee does not
have comparable substitute coverage from another employer. Each employment
agreement will contain a covenant not to compete with the Company during the
period of employment, as well as during the Severance Period, without the prior
approval of the Board. In November 1996, Mr. Robbins entered into an employment
agreement with the Company, effective immediately. The terms of his employment
agreement are otherwise as described in this paragraph.
1996 LONG-TERM INCENTIVE PLAN
As of September 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Long-Term Incentive Plan (the "Plan"). The maximum
number of shares of Common Stock that may be subject to outstanding awards may
not exceed the greater of 2,000,000 shares or 10% of the aggregate number of
shares of Common Stock outstanding. Awards may be settled in cash, shares, other
awards or other property, as determined by the Committee. The number of shares
reserved or deliverable under the Plan and the annual per-participant limit is
subject to adjustment in the event of stock splits, stock dividends and other
extraordinary corporate events.
The purpose of the Plan is to provide executive officers (including
directors who also serve as executive officers), key employees, consultants and
other service providers with additional incentives by enabling such persons to
increase their ownership interests in the Company. Individual awards under the
Plan may take the
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<PAGE> 48
form of one or more of: (i) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"); (ii) stock appreciation rights ("SARs");
(iii) restricted or deferred stock; (iv) dividend equivalents; (v) bonus shares
and awards in lieu of Company obligations to pay cash compensation; and (vi)
other awards the value of which is based in whole or in part upon the value of
the Common Stock. Upon a change of control of the Company (as defined in the
Plan), certain conditions and restrictions relating to an award with respect to
the exercisability or settlement of such award will be accelerated.
The Compensation Committee will administer the Plan and generally select
the individuals who will receive awards and the terms and conditions of those
awards (including exercise prices, vesting and forfeiture conditions,
performance conditions and periods during which awards will remain outstanding).
The number of shares deliverable upon exercise of ISOs is limited to 500,000,
and the number of shares deliverable as non-performance based restricted stock
and deferred stock, is limited to 500,000. Shares of Common Stock that are
attributable to awards that have expired, terminated or been canceled or
forfeited or otherwise terminate without delivery of shares are available for
issuance or use in connection with future awards. The Plan also provides that no
participant may be granted in any calendar year awards settleable by delivery of
more than 250,000 shares, and limits payments under cash-settled awards in any
calendar year to an amount equal to the fair market value of that number of
shares.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the Plan,
except (i) no deduction is permitted in connection with ISOs if the participant
holds the shares acquired upon exercise for the required holding periods; and
(ii) deductions for some awards could be limited under the $1 million
deductibility cap of Section 162(m) of the Internal Revenue Code. This
limitation, however, should not apply to awards granted under a plan during a
grace period of up to three years following this Offering, and should not apply
to certain options, SARs and performance-based awards granted thereafter if the
Company complies with certain requirements under Section 162(m).
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with this Offering, NQSOs to purchase a total of 1,181,666
shares of Common Stock of the Company will be granted as follows: 140,000 shares
to Mr. Karl, 100,000 shares to Mr. Robbins, 25,000 shares to Mr. Liddell and
33,333 shares to Mr. Holbrook. In addition, options to purchase approximately
883,333 shares will be granted to the employees of the Founding Companies. Each
of the foregoing options will have an exercise price equal to the initial public
offering price per share in this Offering. These options will vest as to 25%
each on the date that is six months, 18 months, 30 months and 42 months after
the consummation of this Offering, and will expire on the earlier of 10 years
after the date of grant or three months after termination of employment.
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders as of September 1996, provides for (i) the automatic
grant to each non-employee director serving at the commencement of this Offering
of an initial option to purchase 10,000 shares; and thereafter (ii) the
automatic grant to each non-employee director of an initial option to purchase
10,000 shares upon such person's initial election as a director. In addition,
the Directors' Plan provides for an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders following this Offering; provided, however, that a director will
not be granted an annual option if he or she was granted an initial option
during the preceding three months. The number of shares to be subject to initial
or annual options granted after the first annual meeting of stockholders
following this Offering may be altered by the Board of Directors. A total of
250,000 shares are reserved for issuance under the Directors' Plan. The number
of shares reserved, as well as the number to be subject to automatically granted
options, will be adjusted in the event of stock splits, stocks dividends and
other extraordinary corporate events.
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<PAGE> 49
Options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share at the date of grant. The
options to be granted to the non-employee directors of the Company in connection
with this Offering will have an exercise price equal to the initial public
offering price per share in this Offering. Options will expire at the earlier of
10 years after the date of grant or one year after termination of service as a
director. Options will become exercisable one year after the date of grant,
subject to acceleration by the Board of Directors, and will be forfeited upon
termination of service as a director for reasons other than death or disability
unless the director served for at least 11 months after the date of grant or the
option was otherwise exercisable at the date of termination. In addition, the
Directors' Plan permits non-employee directors to elect to receive, in lieu of
cash directors' fees, shares or credits representing "deferred shares" to be
settled at future dates, as elected by the director. The number of shares or
deferred shares received will be equal to the number of shares which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees. Each "deferred share" will be settled by
delivery of a share of Common Stock at such time as may have been elected by the
director prior to the deferral.
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<PAGE> 50
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Simultaneously with the closing of this Offering, MMC will acquire by
merger all of the issued and outstanding stock of the five Founding Companies,
at which time each Founding Company will become a wholly-owned subsidiary of the
Company. The aggregate consideration to be paid by MMC in the Mergers is
approximately $220.8 million, consisting of approximately $60.3 million in cash
and 11,470,331 shares of Common Stock. The factors considered by the Company in
determining the consideration to be paid included, among others, the historical
operating results, the net worth, the amount and type of indebtedness and the
future prospects of the Founding Companies. Immediately prior to the Mergers,
certain of the Founding Companies will make distributions of approximately $4.9
million, representing S corporation earnings previously taxed to their
respective stockholders. Also, prior to the Mergers, SMI distributed to its
stockholders approximately $283,000 in net book value of assets.
The closing of each Merger is subject to a minimum price requirement for
the Common Stock sold in this Offering and to certain other conditions. These
conditions include, among others, the accuracy on the closing date of the
representations and warranties made by the Founding Companies, their principal
stockholders and by the Company; the performance of each of their respective
covenants included in the merger agreements; and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
the Company. In addition, the stockholders of NMS are obligated on or prior to
the consummation of this Offering, (i) to cause a capital contribution estimated
at $30.1 million to be made to NMS; (ii) to pay down all indebtedness (estimated
to be $2.9 million as of the closing of this Offering) of NMS (other than trade
payables); and (iii) to pay to NMS $1.8 million, representing the net purchase
price for the Division of Medix acquired by NMS anticipated to be remaining as
of the closing of this Offering, for an estimated total capital contribution as
of the closing of this Offering of $34.8 million. Such stockholders intend to
meet these obligations by causing NMS to sell shares of its Common Stock to EDS
and through the cancellation of shares of Common Stock of the Company to be
received by them pursuant to the merger agreement among MMC, its acquisition
subsidiary, NMS and such stockholders with a value per share equal to the
initial public offering price. See "The Company -- Summary of the Terms of the
Mergers."
There can be no assurance that the conditions of the Mergers will be
satisfied or waived or that the merger agreements will not be terminated prior
to consummation. If any of the Mergers is terminated for any reason, the Company
likely will not consummate this Offering on the terms described herein.
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
The aggregate consideration paid by MMC for each of the Founding Companies
is as follows: PPI: $134.2 million, consisting of $45.0 million to be paid in
cash and 6,370,000 shares of Common Stock; SPI: $42.9 million, consisting of
$12.0 million to be paid in cash and 2,210,000 shares of Common Stock; NMS:
$33.0 million, consisting of 2,360,506 shares of Common Stock; RTI: $7.2
million, consisting of $2.3 million to be paid in cash and 350,000 shares of
Common Stock; and SMI: $3.5 million, consisting of $1.0 million to be paid in
cash and 179,825 shares of Common Stock.
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain executive officers, directors and holders of
more than 5% of the outstanding shares of Common Stock of the Company will
receive, directly or indirectly, cash and shares of Common Stock of the Company
as follows: Mr. Singer -- $45.0 million and 6,370,000 shares of Common Stock;
Mr. Kang -- 500,780 shares of Common Stock; Mr. Mehrlich -- $12.0 million and
2,210,000 shares of Common Stock; Mr. Burks -- 69,937 shares of Common Stock;
Mr. Salas -- 500,780 shares of Common Stock; Mr. Thomas Liddell -- $0.5 million
and 89,913 shares of Common Stock; and Mr. Holbrook -- $1.1 million and 175,000
shares of Common Stock. See "The Company -- Summary of the Terms of the
Mergers."
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In connection with the Mergers, the Company has agreed that for so long as
Mr. Singer beneficially owns at least 10% of the outstanding Common Stock of
MMC, Mr. Singer shall have the right to designate two individuals to serve as
directors on the Board of Directors if the Board consists of six or more members
and one individual to serve as a director if the Board consists or five or fewer
members.
CERTAIN INDEBTEDNESS
Certain of the Founding Companies have incurred indebtedness that has been
personally guaranteed by their respective stockholders. At September 30, 1996,
the aggregate amount of indebtedness of these Founding Companies that was
subject to personal guarantees was approximately $2.7 million. The Company
intends to repay substantially all of such indebtedness in connection with the
consummation of the Mergers and to use its best efforts to have the personal
guarantees of the balance of this indebtedness released within 120 days after
the closing of this Offering and, in the event that any guarantee cannot be
released, to repay the balance of such indebtedness. The Company will also repay
all of the indebtedness owed to Messrs. Kang, Salas and Burks, which aggregated
$1.1 million as of September 30, 1996 and is estimated to be approximately $1.0
million as of the consummation of the Mergers.
In addition, Messrs. Singer and Kang have each made an interest-free loan
of $50,000 to the Company to be used for working capital purposes. Such loans
will be repaid out of the proceeds of this Offering.
REAL ESTATE AND OTHER TRANSACTIONS
PPI leases property in Alachua, Florida that is owned by a company
controlled by Mr. Singer and a member of his family. PPI is responsible for all
real estate taxes, insurance and maintenance relating to the property. The term
of the lease is through March 31, 1999 and provides for two one year extensions
in favor of PPI. The lease commenced on April 1, 1996 and provides for annual
rentals of approximately $320,000. The Company believes that the rent for such
property does not exceed the fair market rental thereof.
Certain property owned by SMI with a net book value of $283,000 as of
September 30, 1996 has been distributed to an entity controlled by the
stockholders of SMI and will be leased to the Company. The lease is for a term
of five years with three renewal options for five years each and provides for
annual rent of approximately $83,160. SMI is responsible for all real estate
taxes, insurance and maintenance. The Company believes that the rent for such
property does not exceed the fair market rental thereof.
Mr. Mehrlich owns a 90% interest in Professional Management Systems, Inc.
("PMSI"), an independent dealer for The Medical Manager system in the greater
Chicago, Illinois area. He acquired the interest in February 1996. SPI
recognized revenue, primarily from software license, from PMSI totaling
approximately $243,000, $190,000 and $154,000 for 1995 and for the nine months
ended September 30, 1995 and 1996, respectively.
COMPANY POLICY
In the future, the Company intends that any transactions with executive
officers, directors and holders of more than 5% of the Common Stock (including
any transactions with respect to PMSI) will be approved by a majority of the
Board of Directors, including a majority of the disinterested members of the
Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company, after giving effect to the Mergers
and this Offering, by (i) each person known to beneficially own more than 5% of
the outstanding shares of Common Stock; (ii) each of the Company's directors and
persons who have consented to be named as directors ("named directors"); (iii)
each named executive officer; and (iv) all executive officers, directors and
named directors as a group. All persons listed have an address in care of the
Company's principal executive offices and have sole voting and investment power
with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENT OF
OWNERSHIP
----------
NUMBER OF SHARES AFTER
NAME BENEFICIALLY OWNED OFFERING
<S> <C> <C>
Michael A. Singer................................................ 6,370,000 36.5%
John H. Kang..................................................... 500,780 2.9
Richard W. Mehrlich.............................................. 2,210,000 12.7
Electronic Data Systems Corporation.............................. 960,061 5.5
5400 Legacy Drive
Plano, Texas 75024-3105
Henry W. Holbrook(1)............................................. 175,000 1.0
Thomas P. Liddell(2)............................................. 89,913 *
Frederick B. Karl, Jr.(3)........................................ -- *
Lee A. Robbins(4)................................................ -- *
All executive officers, directors and persons to be named as
directors as a group (9 persons)............................... 9,345,693 53.5%
</TABLE>
- ---------------
(1) Does not include 33,333 shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
(2) Does not include 25,000 shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
(3) Does not include 140,000 shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
(4) Does not include 100,000 shares issuable in connection with options that are
not exercisable within 60 days of the date hereof.
* less than 1.0%
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, and 500,000 shares of undesignated
preferred stock, par value $0.01 per share (the "Preferred Stock"). After giving
effect to the Mergers and the completion of this Offering, the Company will have
outstanding 17,470,331 shares of Common Stock (18,370,331 shares if the
Underwriters' over-allotment option is exercised in full) and no shares of
Preferred Stock designated or issued.
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-laws, copies of which have been filed as exhibits to the
Registration Statement. The following is qualified in its entirety by reference
thereto.
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COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters voted upon by stockholders, including the
election of directors. The Certificate of Incorporation does not provide for
cumulative voting, and, accordingly, the holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to the rights of any then outstanding
shares of Preferred Stock, the holders of the Common Stock are entitled to such
dividends as may be declared in the discretion of the Board of Directors out of
funds legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of shares of Common Stock have no
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock are,
and the shares of Common Stock to be issued pursuant to this Offering will be
upon payment therefor, fully paid and nonassessable.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "MMGR," subject to notice of issuance.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
Upon consummation of this Offering, the Company will be subject to the
provisions of Section 203 ("Section 203") of the Delaware General Corporation
Law ("DGCL"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of Directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66% of
the corporation's outstanding voting stock at an annual or
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<PAGE> 54
special meeting, excluding shares owned by the interested stockholder. Under
Section 203, an "interested stockholder" is defined as any person who is (i) the
owner of 15% or more of the outstanding voting stock of the corporation or (ii)
an affiliate or associate of the corporation and who was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. The provisions of Section 203 could
delay or frustrate a change in control of the Company, deny stockholders the
receipt of a premium on their Common Stock and have an adverse effect on the
Common Stock. The provisions also could discourage, impede or prevent a merger
or tender offer, even if such event would be favorable to the interests of
stockholders.
LIMITATION ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Limitation on Liability. Pursuant to the Company's Certificate of
Incorporation and as permitted by Section 102(b)(7) of the DGCL, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases that are illegal under Delaware law or for any
transaction in which a director has derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of the Company against any expense, liability and loss to which they become
subject, or which they may incur as a result of having been a director or
officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Certificate of Incorporation and By-laws of the Company contain
provisions that could have an anti-takeover effect. The provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors.
These provisions also are intended to help ensure that the Board of Directors,
if confronted by an unsolicited proposal from a third party which has acquired a
block of stock of the Company, will have sufficient time to review the proposal
and appropriate alternatives to the proposal and to act in what it believes to
be the best interest of the stockholders.
The following is a summary of such provisions included in the Certificate
of Incorporation and By-laws of the Company. The Board of Directors has no
current plans to formulate or effect additional measures that could have an
antitakeover effect.
Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. At least two annual meetings
of stockholders, instead of one, generally will be required to effect a change
in a majority of the Board of Directors. Such a delay may help ensure that the
Board of Directors and the stockholders, if confronted with an unsolicited
proposal by a stockholder attempting to force a stock repurchase at a premium
above market, a proxy contest or an extraordinary corporate transaction, will
have sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interest of the
stockholders. Directors, if any, elected by holders of preferred stock voting as
a class, will not be classified as aforesaid. Moreover, under Delaware law, in
the case of a corporation having a classified board, stockholders may remove a
director only for cause. This provision will preclude a stockholder from
removing incumbent directors without cause.
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<PAGE> 55
Advance Notice Requirements for Director Nominees. The By-laws establish
an advance notice procedure with regard to the nomination of candidates for
election as directors at any meeting of stockholders called for the election of
directors. The procedure provides that a notice relating to the nomination of
directors must be timely given in writing to the Secretary of the Company prior
to the meeting. To be timely, notice relating to the nomination of directors
must be delivered not less than 90 days prior to any annual meeting or 10 days
following notice to the stockholder of any special meeting called for the
election of directors.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must be accompanied by each proposed
nominee's written consent and contain the name, address and principal occupation
of each proposed nominee and other information that may be required under the
proxy rules of the Commission. Such notice must also contain the total number of
shares of capital stock of the Company that will be voted for each of the
proposed nominees, the name and address of the notifying stockholder and the
number of shares of capital stock of the Company owned by the notifying
stockholder.
The presiding officer of a meeting of stockholders may determine that a
person is not nominated in accordance with the nomination procedure, in which
case such person's nomination will be disregarded. Nothing in the nomination
procedure will preclude discussion by any stockholder of any nomination properly
made or brought before any meeting called for the election of directors in
accordance with the above-mentioned procedures.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 17,470,331 shares of Common Stock. The 6,000,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction unless acquired by affiliates of the Company. None of the remaining
11,470,331 outstanding shares of Common Stock have been registered under the
Securities Act, which means that they may be resold publicly only upon
registration under the Securities Act or in compliance with an exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares of
Common Stock from the Company or from any affiliate of the Company, the acquiror
or subsequent holder thereof may sell, within any three-month period commencing
90 days after the date of this Prospectus, a number of shares that does not
exceed the greater of 1% of the then outstanding shares of the Common Stock, or
the average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of the
proposed sale is sent to the Commission. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. If three years have elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from the Company or any affiliate of the Company, a person who is not
deemed to have been an affiliate of the Company at any time for 90 days
preceding a sale would be entitled to sell such shares under Rule 144 without
regard to the volume limitations, manner of sale provisions or notice
requirements.
The Company and its executive officers, directors and certain stockholders
who will beneficially own 11,470,331 shares in the aggregate upon the
consummation of this Offering have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, except that the Company may issue Common Stock in
connection with acquisitions or in connection with the Plan and the Directors'
Plan (collectively, the "Plans"). See "Underwriting." In addition, the
stockholders of the Founding Companies and the Company's executive officers,
certain directors and certain stockholders have agreed with
54
<PAGE> 56
the Company that they will not sell any of their shares for a period of two
years after the closing of this Offering. If the two-year "holding" period for
restricted securities under Rule 144 described above is reduced by the
Commission, this two-year restriction on sales of Common Stock will be
correspondingly reduced.
In connection with the Mergers, the Company has agreed to provide certain
registration rights with respect to the Common Stock issued to the stockholders
of the Founding Companies and EDS. The registration rights provide for a single
demand registration right, exercisable by the holders of a majority of the
shares of Common Stock subject to the registration rights, pursuant to which the
Company will file a registration statement under the Securities Act to register
the sale of shares by those requesting stockholders and any other holders of
Common Stock subject to the registration rights who desire to sell pursuant to
such registration statement. The demand request may not be made until the
expiration of two years after the closing of this Offering. Subject to certain
conditions and limitations, the registration rights also provide the holders of
Common Stock subject to the registration rights with the right to participate in
registrations by the Company of its equity securities in underwritten offerings,
subject to certain exceptions. In addition, Mr. Singer has been granted an
additional separate demand registration right with respect to the shares of
Common Stock received by him in connection with the Mergers, exercisable
commencing two years after the closing of this Offering.
In the case of each of the registration rights described above, the Company
is generally required to pay the costs associated with such an offering other
than underwriting discounts and commissions attributable to the shares sold on
behalf of the selling stockholders.
Within 90 days after the closing of this Offering, the Company intends to
register 5,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. Upon such registration,
these shares will generally be freely tradable after their issuance unless
acquired by parties to the transaction or affiliates thereof, other than the
issuer, in which case they may be sold pursuant to Rule 145 under the Securities
Act. Rule 145 permits, in part, such persons to resell immediately securities
acquired in transactions covered under the Rule, provided such securities are
resold in accordance with the public information requirements, volume
limitations and manner of sale requirements of Rule 144. If a period of two
years has elapsed since the date such securities were acquired in such
transaction and if the issuer meets the public information requirements of Rule
144, Rule 145 permits a person who is not an affiliate of the issuer to freely
resell such securities. In some instances, the Company may contractually
restrict the sale of shares issued in connection with future acquisitions. The
registration rights described above do not apply to the registration statement
relating to these 5,000,000 shares.
In addition to the shares described above, 2,000,000 shares of Common Stock
have been reserved for issuance upon exercise of options that may be granted
under the Plans. The Company intends to file one or more registration statements
on Form S-8 under the Securities Act with respect to such shares of Common
Stock. Shares of Common Stock covered by such registration statements will be
freely tradable by holders who are not affiliates of the Company and, subject to
the volume and other limitations of Rule 144, by holders who are affiliates of
the Company.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the ability of the
Company to raise equity capital in the future.
55
<PAGE> 57
UNDERWRITING
Subject to the terms and certain conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation and Dean Witter Reynolds
Inc. are acting as representatives (collectively, the "Representatives"), have
severally agreed to purchase from the Company an aggregate of 6,000,000 shares
of Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Dean Witter Reynolds Inc..............................................
-----------
Total....................................................... 6,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than the shares of the
Common Stock covered by the over-allotment option described below) if any are
taken.
Prior to this Offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiations between the Company and the
Representatives. The factors to be considered in determining the initial price
to the public are expected to include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operations of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies, and the general condition of the securities
markets at the time of this Offering.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain liabilities, including liabilities
under the Securities Act.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share to any other Underwriter and certain other
dealers. After this Offering, the prices and concessions and reallowances to
dealers may be changed by the Underwriters. The Common Stock is offered subject
to receipt and acceptance by the Underwriters and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 900,000
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions, solely to cover over-allotments. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares offered.
Subject to certain exceptions, the Company and certain of its directors,
executive officers, and holders of more than 5% of the Company's Common Stock
who are expected to be the holders of 11,470,331 shares of Common Stock upon the
consummation of this Offering have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities convertible
or exchangeable into any shares of Common Stock prior to the expiration of 180
days from the date of this Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. See "Shares Eligible for
Future Sale."
The Underwriters do not intend to confirm sales of shares of Common Stock
to accounts over which they exercise discretionary authority.
56
<PAGE> 58
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
New York, New York. Certain legal matters related to this Offering will be
passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The audited historical financial statements as indicated in the index on
pages F-1 and F-2 of this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of that
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a Registration
Statement on Form S-1 with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information pertaining to the Company and the shares of Common Stock offered
hereby, reference is made to such Registration Statement, including the
exhibits, financial statements and schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza Building, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained from the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically.
The address of such Internet web site is http://www.sec.gov.
57
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation............................................................... F-3
Pro Forma Combined Balance Sheet as of September 30, 1996 (unaudited)............... F-4
Pro Forma Combined Statements of Operations for the Year Ended December 31, 1995
(unaudited)...................................................................... F-5
Pro Forma Combined Statements of Operations for the Nine Months Ended September 30,
1995 (unaudited)................................................................. F-6
Pro Forma Combined Statements of Operations for the Nine Months Ended September 30,
1996 (unaudited)................................................................. F-7
Notes to Unaudited Pro Forma Combined Financial Statements.......................... F-8
Historical Financial Statements
Medical Manager Corporation
Report of Independent Accountants................................................ F-14
Balance Sheet.................................................................... F-15
Notes to Balance Sheet........................................................... F-16
Personalized Programming, Inc.
Report of Independent Accountants................................................ F-18
Balance Sheets................................................................... F-19
Statements of Operations......................................................... F-20
Statements of Changes in Stockholder's Equity.................................... F-21
Statements of Cash Flows......................................................... F-22
Notes to Financial Statements.................................................... F-23
Systems Plus, Inc.
Report of Independent Accountants................................................ F-27
Combined Balance Sheets.......................................................... F-28
Combined Statements of Operations................................................ F-29
Combined Statements of Changes in Stockholder's Equity........................... F-30
Combined Statements of Cash Flows................................................ F-31
Notes to Combined Financial Statements........................................... F-32
RTI Business Systems, Inc.
Report of Independent Accountants................................................ F-37
Balance Sheets................................................................... F-38
Statements of Operations and Accumulated Deficit................................. F-39
Statements of Cash Flows......................................................... F-40
Notes to Financial Statements.................................................... F-41
National Medical Systems, Inc.
Report of Independent Accountants................................................ F-46
Consolidated Balance Sheets...................................................... F-47
Consolidated Statements of Operations............................................ F-48
Consolidated Statements of Changes in Stockholder's Deficit...................... F-49
Consolidated Statements of Cash Flows............................................ F-50
Notes to Consolidated Financial Statements....................................... F-51
</TABLE>
F-1
<PAGE> 60
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Systems Management, Inc.
Report of Independent Accountants................................................ F-58
Balance Sheets................................................................... F-59
Statements of Operations......................................................... F-60
Statements of Changes in Stockholders' Equity.................................... F-61
Statements of Cash Flows......................................................... F-62
Notes to Financial Statements.................................................... F-63
GBP With Excellence, Inc.
Report of Independent Accountants................................................ F-67
Balance Sheet.................................................................... F-68
Statements of Operations and Accumulated Deficit................................. F-69
Statements of Cash Flows......................................................... F-70
Notes to Financial Statements.................................................... F-71
Medical Manager Division
Report of Independent Accountants................................................ F-73
Financial Position............................................................... F-74
Statements of Operations......................................................... F-75
Statements of Cash Flows......................................................... F-76
Notes to Financial Statements.................................................... F-77
</TABLE>
F-2
<PAGE> 61
MEDICAL MANAGER CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisition by Medical Manager Corporation ("MMC") of substantially all
of the net assets of (a) Personalized Programming, Inc. ("PPI"), Systems Plus,
Inc. ("SPI"), RTI Business Systems, Inc. ("RTI"), National Medical Systems, Inc.
("NMS") and Systems Management, Inc. ("SMI") (together, the "Founding
Companies"). MMC and the Founding Companies are hereinafter referred to as the
"Company." These acquisitions (the "Mergers") will occur simultaneously with the
closing of MMC's initial public offering (this "Offering") and will be accounted
for as a combination of the Founding Companies at historical cost for accounting
purposes. PPI, one of the Founding Companies, has been identified as the
acquiror for financial statement presentation purposes. In addition, NMS
acquired the Medical Manager Division of Medix, Inc. on December 31, 1996. The
unaudited pro forma combined financial statements also give effect to a capital
contribution required to be made by the stockholders of NMS and to the issuance
of Common Stock by MMC to the stockholders of the Founding Companies upon the
consummation of the Mergers. These statements are based on historical financial
statements of the Founding Companies included elsewhere in this Prospectus and
the estimates and assumptions set forth below and in the notes to the Unaudited
Pro Forma Combined Financial Statements of the Company.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and this Offering as if they had occurred on September 30, 1996. The unaudited
pro forma combined statements of operations give effect to these transactions as
if they had occurred at the beginning of each period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein do not purport to
represent what the Company's financial position or results of operations would
have actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Founding
Companies. The unaudited pro forma combined financial statements should be read
in conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. Also see "Risk Factors" included elsewhere herein.
F-3
<PAGE> 62
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET(1)
SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PPI SPI RTI NMS SMI ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................ $2,977 $ 0 $ 84 $ 10 $ 455 $ 3,526
Investments.............................................. 202 0 0 0 0 202
Accounts receivable...................................... 1,324 1,262 174 934 248 $ (702) 3,240
Inventory................................................ 109 82 164 122 189 666
Prepaid expenses and other current assets................ 132 198 16 56 15 417
Deferred income taxes.................................... 0 0 262 0 0 262
------ ------ ------ ------- ------ ----- -------
Total current assets............................... 4,744 1,542 700 1,122 907 (702) 8,313
PROPERTY AND EQUIPMENT, net................................ 444 599 533 356 147 2,079
GOODWILL AND OTHER INTANGIBLES, net........................ 0 0 0 2,693 99 2,792
OTHER ASSETS............................................... 0 986 0 520 0 1,506
------ ------ ------ ------- ------ ----- -------
Total assets....................................... $5,188 $3,127 $ 1,233 $ 4,691 $1,153 $ (702) $14,690
====== ====== ====== ======= ====== ===== =======
CURRENT LIABILITIES
Current maturities of long-term obligations.............. $ 0 $ 625 $ 514 $ 1,322 $ 104 $ 2,565
Accounts payable and accrued liabilities................. 575 1,365 566 774 192 $ (702) 2,770
Customer deposits and deferred maintenance revenue....... 1,112 190 630 729 505 3,166
Income taxes payable..................................... 0 16 147 0 0 163
------ ------ ------ ------- ------ ----- -------
Total current liabilities.......................... 1,687 2,196 1,857 2,825 801 (702) 8,664
LONG-TERM OBLIGATIONS, net of current maturities........... 0 0 140 729 230 1,099
SUBORDINATED NOTES PAYABLE................................. 0 0 0 1,065 0 1,065
------ ------ ------ ------- ------ ----- -------
Total liabilities.................................. 1,687 2,196 1,997 4,619 1,031 (702) 10,828
------ ------ ------ ------- ------ ----- -------
REDEEMABLE PREFERRED STOCK................................. 0 0 0 500 0 500
STOCKHOLDERS' EQUITY
Common stock............................................. 0 28 102 69 16 215
Additional paid-in capital............................... 8 0 0 790 0 798
Retained earnings (deficit).............................. 3,493 903 (866) (1,287) 106 2,349
------ ------ ------ ------- ------ ----- -------
Total stockholders' equity......................... 3,501 931 (764) (428) 122 3,362
------ ------ ------ ------- ------ ----- -------
Total liabilities and stockholders' equity......... $5,188 $3,127 $ 1,233 $ 4,691 $1,153 $ (702) $14,690
====== ====== ====== ======= ====== ===== =======
<CAPTION>
PRO FORMA POST-MERGER AS
ADJUSTMENT PROFORMA ADJUSTMENTS ADJUSTED
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................ $ 828 $ 4,354 $15,550 $19,904
Investments.............................................. (202) 0 0
Accounts receivable...................................... 382 3,622 3,622
Inventory................................................ 192 858 858
Prepaid expenses and other current assets................ 315 732 732
Deferred income taxes.................................... 0 262 262
------- ------- ------- -------
Total current assets............................... 1,515 9,828 15,550 25,378
PROPERTY AND EQUIPMENT, net................................ 103 2,182 2,182
GOODWILL AND OTHER INTANGIBLES, net........................ 2,810 5,602 5,602
OTHER ASSETS............................................... (1,282) 224 224
------- ------- ------- -------
Total assets....................................... $ 3,146 $17,836 $15,550 $33,386
======= ======= ======= =======
CURRENT LIABILITIES
Current maturities of long-term obligations.............. $ (2,565) $ 0 $ 0
Accounts payable and accrued liabilities................. 0 2,770 2,770
Customer deposits and deferred maintenance revenue....... 602 3,768 3,768
Income taxes payable..................................... 0 163 163
------- ------- ------- -------
Total current liabilities.......................... (1,963) 6,701 6,701
LONG-TERM OBLIGATIONS, net of current maturities........... (1,099) 0 0
SUBORDINATED NOTES PAYABLE................................. (1,065) 0 0
------- ------- ------- -------
Total liabilities.................................. (4,127) 6,701 6,701
------- ------- ------- -------
REDEEMABLE PREFERRED STOCK................................. (500) 0 0
STOCKHOLDERS' EQUITY
Common stock............................................. (100) 115 $ 60 175
Additional paid-in capital............................... 10,222 11,020 15,490 26,510
Retained earnings (deficit).............................. (2,349) 0 0
------- ------- ------- -------
Total stockholders' equity......................... 7,773 11,135 15,550 26,685
------- ------- ------- -------
Total liabilities and stockholders' equity......... $ 3,146 $17,836 $15,550 $33,386
======= ======= ======= =======
</TABLE>
- ---------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 63
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems................................................... $ 1,018 $ 766 $2,712 $3,588 $1,094 $ 0 $ 9,178
Software license.......................................... 7,529 12,503 0 0 0 (6,713) 13,319
Maintenance and other..................................... 2,473 1,910 2,241 5,568 1,623 0 13,815
------- ------- ------ ------ ------ ------- -------
Total revenue...................................... 11,020 15,179 4,953 9,156 2,717 (6,713) 36,312
------- ------- ------ ------ ------ ------- -------
Cost of revenue
Systems................................................... 704 441 1,486 2,764 517 (1,363) 4,549
Software license.......................................... 651 6,978 0 0 0 (5,350) 2,279
Maintenance and other..................................... 227 1,682 1,215 3,300 1,714 0 8,138
------- ------- ------ ------ ------ ------- -------
Total costs of revenue............................. 1,582 9,101 2,701 6,064 2,231 (6,713) 14,966
------- ------- ------ ------ ------ ------- -------
Gross margin....................................... 9,438 6,078 2,252 3,092 486 $ 0 21,346
------- ------- ------ ------ ------ ------- -------
Operating expenses
Selling, general and administrative....................... 1,351 3,345 2,269 2,132 426 9,523
Research and development.................................. 2,024 0 0 0 0 2,024
Depreciation and amortization............................. 226 102 58 493 32 911
------- ------- ------ ------ ------ ------- -------
Total operating expenses........................... 3,601 3,447 2,327 2,625 458 12,458
------- ------- ------ ------ ------ ------- -------
Income (loss) from operations...................... 5,837 2,631 (75) 467 28 8,888
Other income (expense)
Interest expense.......................................... 0 (37) (33) (109) (23) (202)
Interest income........................................... 136 88 0 0 0 224
Other..................................................... (27) 169 3 0 0 145
------- ------- ------ ------ ------ ------- -------
Income (loss) before income taxes........................... 5,946 2,851 (105) 358 5 9,055
Income taxes................................................ 0 53 0 0 0 53
------- ------- ------ ------ ------ ------- -------
Net income (loss).................................. $ 5,946 $ 2,798 $ (105) $ 358 $ 5 $ 9,002
======= ======= ====== ====== ====== ======= =======
Pro Forma income per share.........................................................................................................
Shares used in computing pro forma income per share................................................................................
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------
(I) (J) (K) (L) (M) PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems................................................... $ 9,178
Software license.......................................... 13,319
Maintenance and other..................................... 13,815
------- ------- ------- ------- ------- -------
Total revenue...................................... 36,312
------- ------- ------- ------- ------- -------
Cost of revenue
Systems................................................... $ (47) $ 35 4,537
Software license.......................................... (27) 11 2,263
Maintenance and other..................................... (51) 41 8,128
------- ------- ------- ------- ------- -------
Total costs of revenue............................. (125) 87 14,928
------- ------- ------- ------- ------- -------
Gross margin....................................... 125 (87) 21,384
------- ------- ------- ------- ------- -------
Operating expenses
Selling, general and administrative....................... (557) 39 9,005
Research and development.................................. 99 2,123
Depreciation and amortization............................. (99) 812
------- ------- ------- ------- ------- -------
Total operating expenses........................... (557) 39 11,940
------- ------- ------- ------- ------- -------
Income (loss) from operations...................... 682 (126) 9,444
Other income (expense)
Interest expense.......................................... 19 $ 183 0
Interest income........................................... $ (224) 0
Other..................................................... (169) (24)
------- ------- ------- ------- ------- -------
Income (loss) before income taxes........................... 682 (107) 183 (393) 9,420
Income taxes................................................ $ 3,574 3,627
------- ------- ------- ------- ------- -------
Net income (loss).................................. $ 682 $ (107) $ 183 $ (393) $(3,574) $ 5,793
======= ======= ======= ======= ======= =======
Pro Forma income per share................................................................................... $ 0.33
=======
Shares used in computing pro forma income per share.......................................................... 17,470(n)
=======
</TABLE>
- ------------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
(2) NMS is presented on a pro forma basis to include acquisitions of GBP and
Medix as if each had occurred on January 1, 1995. See Note 6.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 64
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------
PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL (I) (J) (K)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems...................... $ 751 $ 139 $1,617 $2,849 $ 523 $ 0 $ 5,879
Software license............. 5,771 9,350 0 0 0 (5,275) 9,846
Maintenance and other........ 1,825 1,465 1,736 3,946 1,215 (68) 10,119
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total revenue......... 8,347 10,954 3,353 6,795 1,738 (5,343) 25,844
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Cost of revenue
Systems...................... 487 136 1,010 2,083 282 (1,426) 2,572 $ (3) $ 26
Software license............. 600 5,174 0 0 0 (3,917) 1,857 (19) 7
Maintenance and other........ 191 1,386 1,083 2,294 1,179 0 6,133 (16) 33
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total costs of
revenue............. 1,278 6,696 2,093 4,377 1,461 (5,343) 10,562 (38) 66
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross margin.......... 7,069 4,258 1,260 2,418 277 15,282 38 (66)
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Operating expenses
Selling, general and
administrative............. 908 2,357 1,313 1,542 323 6,443 (254) 32
Research and development..... 1,484 0 0 0 0 1,484 74
Depreciation and
amortization............... 140 77 44 297 27 585
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total operating
expenses............ 2,532 2,434 1,357 1,839 350 8,512 (254) 106
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) from
operations.......... 4,537 1,824 (97) 579 (73) 6,770 292 (172)
Other income (expense)
Interest expense............. 0 (31) (24) (41) (8) (104) $ 104
Interest income.............. 143 63 206
Other........................ 0 176 176
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) before income
taxes........................ 4,680 2,032 (121) 538 (81) 7,048 292 (172) 104
Income taxes................... 0 60 0 0 0 60
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Net income (loss)..... $4,680 $1,972 $ (121) $ 538 $ (81) $ 6,988 $ 292 $ (172) $ 104
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Pro forma income per share.......................................................................................................
Shares used in computing pro forma income per share..............................................................................
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
(L) (M) PRO FORMA
<S> <C> <C> <C>
Revenue
Systems...................... $ 5,879
Software license............. 9,846
Maintenance and other........ 10,119
------- ------- -------
Total revenue......... 25,844
------- ------- -------
Cost of revenue
Systems...................... 2,595
Software license............. 1,845
Maintenance and other........ 6,150
------- ------- -------
Total costs of
revenue............. 10,590
------- ------- -------
Gross margin.......... 15,254
------- ------- -------
Operating expenses
Selling, general and
administrative............. 6,221
Research and development..... 1,558
Depreciation and
amortization............... 585
------- ------- -------
Total operating
expenses............ 8,364
------- ------- -------
Income (loss) from
operations.......... 6,890
Other income (expense)
Interest expense............. 0
Interest income.............. $ (206) 0
Other........................ (176) 0
------- ------- -------
Income (loss) before income
taxes........................ (382) 6,890
Income taxes................... $ 2,593 2,653
------- ------- -------
Net income (loss)..... $ (382) $(2,593) $ 4,237
======= ======= =======
Pro forma income per share........................ $ 0.24
=======
Shares used in computing pro
forma income per share.......................... 17,470(n)
=======
</TABLE>
- ---------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
(2) NMS is presented on a pro forma basis to include the acquisitions of GBP and
Medix as if each had occurred on January 1, 1995. See Note 6.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 65
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------
PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL (I) (J) (K)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems...................... $ 566 $ 827 $1,804 $2,708 $1,502 $ 0 $ 7,407
Software license............. 6,055 10,132 0 0 0 (5,628) 10,559
Maintenance and other........ 1,866 1,244 2,575 4,621 1,445 (18) 11,733
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total revenue......... 8,487 12,203 4,379 7,329 2,947 (5,646) 29,699
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Cost of revenue
Systems...................... 553 648 1,252 1,891 1,192 (1,291) 4,245 $ (29) $ 31
Software license............. 381 5,551 0 0 0 (4,355) 1,577 (34) 4
Maintenance and other........ 322 1,228 1,521 2,675 1,044 0 6,790 (42) 25
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total costs of
revenue............. 1,256 7,427 2,773 4,566 2,236 (5,646) 12,612 (105) 60
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Gross margin........ 7,231 4,776 1,606 2,763 711 17,087 105 (60)
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Operating expenses
Selling, general and
administrative............. 1,041 2,921 1,741 1,650 377 7,730 (638) 22
Research and development..... 1,935 0 0 410 0 2,345 50
Depreciation and
amortization .............. 189 117 68 450 47 871
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Total operating
expenses............ 3,165 3,038 1,809 2,510 424 10,946 (638) 72
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) from
operations........ 4,066 1,738 (203) 253 287 6,141 743 (132)
Other income (expense)
Interest expense............. 0 (12) (34) (130) (16) (192) $ 192
Interest income.............. 83 48 0 0 131
Other........................ 0 240 0 0 240
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Income (loss) before income
taxes........................ 4,149 2,014 (237) 123 271 6,320 743 (132) 192
Income taxes................... 0 36 0 0 0 36
------ ------ ------ ------ ------ ------- ------- ------- ------- -------
Net income(loss)...... $4,149 $1,978 $ (237) $ 123 $ 271 $ 6,284 $ 743 $ (132) $ 192
====== ====== ====== ====== ====== ======= ======= ======= ======= =======
Pro forma income per share.......................................................................................................
Shares used in computing pro forma income per share..............................................................................
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
(L) (M) PRO FORMA
<S> <C> <C> <C>
Revenue
Systems...................... $ 7,407
Software license............. 10,559
Maintenance and other........ 11,733
------- ------- -------
Total revenue......... 29,699
------- ------- -------
Cost of revenue
Systems...................... 4,247
Software license............. 1,547
Maintenance and other........ 6,773
------- ------- -------
Total costs of
revenue............. 12,567
------- ------- -------
Gross margin........ 17,132
------- ------- -------
Operating expenses
Selling, general and
administrative............. 7,114
Research and development..... 2,395
Depreciation and
amortization .............. 871
------- ------- -------
Total operating
expenses............ 10,380
------- ------- -------
Income (loss) from
operations........ 6,752
Other income (expense)
Interest expense............. 0
Interest income.............. $ (131) 0
Other........................ (240) 0
------- ------- -------
Income (loss) before income
taxes........................ (371) 6,752
Income taxes................... $ 2,564 2,600
------- ------- -------
Net income(loss)...... $ (371) $(2,564) $ 4,152
======= ======= =======
Pro forma income per share........................ $ 0.24
=======
Shares used in computing pro
forma income per share.......................... 17,470(n)
=======
</TABLE>
- ---------------
(1) Pro forma amounts for Medical Manager Corporation have not been included as
such amounts are insignificant.
(2) NMS is presented on a pro forma basis to include the acquisition of Medix as
if it had occurred on January 1, 1996. See Note 6.
See accompanying notes to unaudited pro forma combined financial statements.
F-7
<PAGE> 66
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. MEDICAL MANAGER CORPORATION BACKGROUND:
Medical Manager Corporation ("MMC") was formed to bring together the
research, development, service and support and sales and marketing efforts for
The Medical Manager, a comprehensive physician practice management system, in
one entity serving the United States. MMC has conducted no operations to date
and will acquire the Founding Companies simultaneously with the consummation of
this Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of all the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31 year-end or they have been converted to a December 31 year-end. The
audited historical financial statements included elsewhere in this Prospectus
have been included in accordance with Securities and Exchange Commission (the
"SEC") Staff Accounting Bulletin No. 80. Eliminations are for intercompany
transactions.
3. ACQUISITION OF FOUNDING COMPANIES;
Concurrent with the closing of this Offering, MMC will acquire
substantially all of the net assets of the Founding Companies. The Mergers will
be accounted for as a combination of the Founding Companies at historical cost
for accounting purposes, with PPI being treated as the acquiror.
The following table sets forth for each Founding Company the consideration
(in thousands) to be paid to its common stockholders (i) in cash; and (ii) in
shares of common stock of MMC:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
FAIR VALUE
CASH SHARES OF SHARES
------- ------ ----------
<S> <C> <C> <C>
PPI....................................................... $45,000 6,370 $ 89,180
SPI....................................................... 12,000 2,210 30,940
RTI....................................................... 2,250 350 4,900
NMS....................................................... -- 2,360 33,040
SMI....................................................... 1,000 180 2,520
------ ------ --------
Total........................................... $60,250 11,470 $ 160,580
====== ====== ========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records additional capital contribution by NMS.
(b) Records the distribution of PPI's Accumulated Adjustment Account.
(c) Records the distribution of SPI's Accumulated Adjustment Account.
(d) Records the purchase of Medix by NMS.
(e) Records the conversion of NMS preferred stock and notes payable to
common stock and exercise of warrants for NMS.
(f) Records the repayment of debt obligations and other pro forma
adjustments.
(g) Records the proceeds from the issuance of 6,000,000 shares of MMC
Common Stock, net of estimated offering costs of $8,200,000 (based on an assumed
initial public offering price of $14.00 per share, the midpoint of the estimated
price range). Offering costs primarily consist of underwriting discounts and
commissions, legal fees, accounting fees and printing expenses.
The holders of 10.5 million shares of Common Stock issued in partial
payment of the Mergers have agreed not to offer, sell or otherwise dispose of
any of those shares for a period of two years after this Offering (or for such
shorter period as the SEC may prescribe as the holding period for restricted
securities under Rule 144(d)).
F-8
<PAGE> 67
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS: -- (CONTINUED)
(h) Records the cash portion to be paid to the stockholders of the Founding
Companies in connection with the Mergers.
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(i) Adjusts compensation expense to the level the stockholders of certain
of the Founding Companies have agreed to receive subsequent to the Mergers.
(j) Adjusts for the effects of assets distributed to and the costs of
certain building leases executed by MMC with the stockholders of PPI and SMI.
(k) Records change in interest expense for pro forma adjustments to debt.
(l) Records pro forma change in interest and dividend income and realized
gains (losses) on investments for pro forma adjustments to cash and investments.
(m) Records the incremental provision for federal and state income taxes
relating to the compensation differential, S corporation income and other pro
forma adjustments.
(n) The number of shares estimated to be outstanding on completion of this
Offering includes the following:
<TABLE>
<S> <C>
Outstanding...................................................... 3
Issued at Initial Public Offering................................ 6,000,000
Issued to acquire Founding Companies............................. 11,470,328
Shares assumed issued from Long-Term Incentive Plan.............. 1,081,666
Shares assumed repurchased from proceeds from shares assumed
issued from Long-Term Incentive Plan........................... (1,081,666)
----------
Shares estimated to be outstanding............................... 17,470,331
=========
</TABLE>
6. NMS AND AFFILIATES PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
The following statements set forth the pro forma combination of NMS's
operations with those of Medix in 1995 and 1996 and GBP in 1995. Pro forma
adjustments for NMS and GBP relate to contractual salary amounts. Pro forma
adjustments for Medix relate to adjustments of expenses for payroll, occupancy
costs, administrative and other operating costs as provided for by NMS's
management services agreement with Medix's parent company.
F-9
<PAGE> 68
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma combined balance
sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
ADJUSTMENTS (A) (B) (C) (D) (E) (F) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 11,875 $ (2,977) $ $ $ 91 $(8,161) $ 828
Investments.................................... (202) (202)
Accounts receivable............................ 382 382
Inventory...................................... 192 192
Prepaid expenses and other current assets...... 315 315
Property and equipment, net.................... 103 103
Goodwill and other intangibles................. 2,810 2,810
Other assets................................... (782) (500) (1,282)
Current maturities of long term
obligations.................................. (821) (111) (2,700) 6,197 2,565
Customer deposits and deferred maintenance..... (602) (602)
Long-term obligations.......................... 200 899 1,099
Subordinated notes payable..................... 1,065 1,065
Redeemable preferred stock..................... 500 500
Common stock................................... (9) (13) 122 100
Additional paid-in capital..................... (11,866) 8 (778) 2,414 (10,222)
Retained earnings.............................. 3,992 893 (2,536) 2,349
-------- -------- ----- ------- ----- ------- --------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ===== ------- ----- ------- --------
</TABLE>
<TABLE>
<CAPTION>
POST-MERGER BALANCE SHEET
ADJUSTMENTS (G) (H) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 75,800 $(60,250) $ 15,550
Investments.................................... 0
Accounts receivable............................ 0
Inventory...................................... 0
Prepaid expenses and other current assets...... 0
Property and equipment, net.................... 0
Goodwill and other intangibles................. 0
Other assets................................... 0
Current maturities of long term debt........... 0
Customer deposits and deferred
maintenance.................................. 0
Long-term debt, net of current maturities...... 0
Subordinated notes payable..................... 0
Redeemable preferred stock..................... 0
Common stock................................... (60) (60)
Additional paid-in capital..................... (75,740) 60,250 (15,490)
Marketable securities valuation................ 0
Retained earnings.............................. 0
-------- -------- ----- ------- ----- ------- -------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ===== ======= ===== ======= =======
</TABLE>
F-10
<PAGE> 69
NMS AND AFFILIATES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NMS MEDIX
------------------------------------- -------------------------------------
PRO PRO
FORMA PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems........................................ $1,516 $1,516 $ 520 $ 520
Maintenance and other.......................... 615 615 3,944 3,944
------ ------ ------ ------
Total revenue............................ 2,131 2,131 4,464 4,464
------ ------ ------ ------
Cost of revenue
Systems........................................ 1,129 1,129 361 361
Maintenance and other.......................... 596 596 2,829 $ (686) 2,143
------ ------ ------ ------ ------
Total costs of revenue................... 1,725 1,725 3,190 686 2,504
------ ------ ------ ------ ------
Gross margin............................. 406 406 1,274 686 1,960
------ ------ ------ ------ ------
Operating expenses
Selling, general and administrative............ 395 $ 300 695 1,189 (453) 736
Depreciation and amortization.................. 197 197 90 113 203
------ ----- ------ ------ ------ ------
Total operating
expenses............................... 592 300 892 1,279 (340) 939
------ ----- ------ ------ ------ ------
Income (loss) from operations............ (186) (300) (486) (5) 1,026 1,021
Other income (expense)
Interest expense............................... (28) (28) (60) 60
Interest income................................ 15 (15)
------ ----- ------ ------ ------ ------
Income (loss) before income
taxes.......................................... (214) (300) (514) (50) 1,071 1,021
Income taxes (benefit)........................... (10) 10 0
------ ----- ------ ------ ------ ------
Net income (loss)........................ $ (214) $ (300) $ (514) $ (40) $ 1,061 $1,021
====== ===== ====== ====== ====== ======
<CAPTION>
GBP
-------------------------------------
PRO
FORMA PRO
HISTORICAL ADJUSTMENTS FORMA TOTAL
---------- ----------- ------ ------
<S> <C> <C> <C> <C>
Revenue
Systems........................................ $1,552 $1,552 $3,588
Maintenance and other.......................... 1,009 1,009 5,568
------ ------ ------
Total revenue............................ 2,561 2,561 9,156
------ ------ ------
Cost of revenue
Systems........................................ 1,274 1,274 2,764
Maintenance and other.......................... 561 561 3,300
------ ------ ------
Total costs of revenue................... 1,835 1,835 6,064
------ ------ ------
Gross margin............................. 726 726 3,092
------ ------ ------
Operating expenses
Selling, general and administrative............ 752 $ (51) 701 2,132
Depreciation and amortization.................. 22 71 93 493
------ ---- ------ ------
Total operating
expenses............................... 774 20 794 2,625
------ ---- ------ ------
Income (loss) from operations............ (48) (20) (68) 467
Other income (expense)
Interest expense............................... (31) (50) (81) (109)
Interest income................................
------ ------ ------
Income (loss) before income
taxes.......................................... (79) (149) 358
Income taxes (benefit)........................... 0 0 0
------ ---- ------ ------
Net income (loss)........................ $ (79) $ (70) $ (149) $ 358
====== ==== ====== ======
</TABLE>
F-11
<PAGE> 70
NMS AND AFFILIATES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NMS MEDIX GBP
--------------------------------- --------------------------------- ----------
PRO FORMA PRO PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA HISTORICAL
---------- ----------- ------ ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems............................... $1,112 $1,112 $ 472 $ 472 $1,265
Maintenance and other................. 479 479 2,925 2,925 542
------ ------ ------ ------ ------
Total revenue................. 1,591 1,591 3,397 3,397 1,807
------ ------ ------ ------ ------
Cost of revenue
Systems............................... 828 828 368 $ (16) 352 903
Maintenance and other................. 429 429 2,080 (581) 1,499 366
------ ------ ------ ------ ------
Total costs of revenue........ 1,257 1,257 2,448 (597) 1,851 1,269
------ ------ ------ ------ ------
Gross margin.................. 334 334 949 597 1,546 538
------ ------ ------ ----- ------ ------
Operating expenses
Selling, general and administrative... 250 $ 225 475 862 (357) 505 612
Depreciation and amortization......... 134 134 56 92 148 15
------ ----- ------ ------ ----- ------ ------
Total operating expenses...... 384 225 609 918 (265) 653 627
------ ----- ------ ------ ----- ------ ------
Income (loss) from
operations.................. (50) (225) (275) 31 862 893 (89)
Other income (expense)
Interest expense...................... (19) (19) (58) 58 (22)
Interest income....................... 13 (13)
------ ----- ------ ------ ----- ------ ------
Income (loss) before income taxes....... (69) (225) (294) (14) 907 893 (111)
Income taxes (benefit).................. 0 (3) 3
------ ----- ------ ------ ----- ------ ------
Net income (loss)............. $ (69) $(225) $ (294) $ (11) $ 904 $ 893 $ (111)
====== ===== ====== ====== ===== ====== ======
<CAPTION>
GBP
--------------------
PRO FORMA PRO
ADJUSTMENTS FORMA TOTAL
----------- ------ ------
<S> <C> <C> <C>
Revenue
Systems............................... $1,265 $2,849
Maintenance and other................. 542 3,946
------ ------
Total revenue................. 1,807 6,795
------ ------
Cost of revenue
Systems............................... 903 2,083
Maintenance and other................. 366 2,294
------ ------
Total costs of revenue........ 1,269 4,377
------ ------
Gross margin.................. 538 2,418
------ ------
Operating expenses
Selling, general and administrative... $ (50) 562 1,542
Depreciation and amortization......... 15 297
----- ------ ------
Total operating expenses...... (50) 577 1,839
----- ------ ------
Income (loss) from
operations.................. 50 (39) 579
Other income (expense)
Interest expense...................... (22) (41)
Interest income.......................
----- ------ ------
Income (loss) before income taxes....... 50 (61) 538
Income taxes (benefit)..................
----- ------ ------
Net income (loss)............. $ 50 $ (61) $ 538
===== ====== ======
</TABLE>
- ------------------
F-12
<PAGE> 71
NMS AND AFFILIATES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MEDIX
---------------------------------
PRO
NMS FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA TOTAL
---------- ---------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue
Systems........................................ $2,430 $ 278 $ 278 $2,708
Maintenance and other.......................... 1,670 2,951 2,951 4,621
------ ------ ------ ------
Total revenue.......................... 4,100 3,229 3,229 7,329
------ ------ ------ ------
Cost of revenue
Systems........................................ 1,731 195 $ (35) 160 1,891
Maintenance and other.......................... 1,212 1,934 (471) 1,463 2,675
------ ------ ----- ------ ------
Total costs of revenue................. 2,943 2,129 (506) 1,623 4,566
------ ------ ----- ------ ------
Gross margin........................... 1,157 1,100 506 1,606 2,763
------ ------ ----- ------ ------
Operating expenses
Selling, general and administrative............ 1,069 899 (318) 581 1,650
Research and development....................... 410 0 0 0 410
Depreciation and amortization.................. 294 65 91 156 450
------ ------ ----- ------ ------
Total operating expenses............... 1,773 964 (227) 737 2,510
------ ------ ----- ------ ------
Income (loss) from operations.......... (616) 136 733 869 253
Other income (expense)
Interest expense............................... (130) (41) 41 (130)
Interest income................................ 11 (11)
------ ------ ----- ------ ------
Income (loss) before income taxes................ (746) 106 763 869 123
Income taxes..................................... 37 (37)
------ ------ ----- ------ ------
Net income (loss)...................... $ (746) $ 69 $ 800 $ 869 $ 123
====== ====== ===== ====== ======
</TABLE>
F-13
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Medical Manager Corporation
We have audited the accompanying balance sheet of Medical Manager
Corporation as of July 31, 1996. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Medical Manager Corporation as of
July 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 4 to the balance sheet, the Company was formed
in July 1996 and has entered into definitive agreements for the acquisition of
substantially all the net assets of Personalized Programming, Inc., Systems
Plus, Inc. and Systems Plus Distribution, Inc., RTI Business Systems, Inc.,
National Medical Systems, Inc. and Systems Management, Inc. in connection with
an initial public offering of its common stock.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 27, 1996, except for information in Note 5
for which the date is December 31, 1996
F-14
<PAGE> 73
MEDICAL MANAGER CORPORATION
BALANCE SHEET
JULY 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash.......................................................................... $100
====
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and Contingencies (Note 4)........................................
STOCKHOLDERS' EQUITY
Preferred Stock, 500,000 shares authorized, none issued and outstanding.......
Common Stock, $0.01 par value, 50,000,000 shares authorized, 3 issued and
outstanding.................................................................
Additional paid in capital.................................................... 100
----
$100
====
</TABLE>
See accompanying notes to balance sheet.
F-15
<PAGE> 74
MEDICAL MANAGER CORPORATION
NOTES TO BALANCE SHEET
1. ORGANIZATION AND OPERATIONS:
Medical Manager Corporation ("MMC") was formed in July 1996 to bring
together the research and development, sales, marketing and support resources
for The Medical Manager, a leading physician practice management system for
independent physicians, physician groups, MSO's, IPA's, management care
organizations and other providers of health care services in the United States.
MMC intends to acquire five companies (the "Founding Companies"), including the
developer of The Medical Manager, the master distributor of The Medical Manager
and three of the national dealers for The Medical Manager (the "Mergers");
complete an initial public offering (the "Offering") of its common stock and,
subsequent to the Offering, continue to acquire, through mergers or purchase,
other dealers to expand its national and regional operations. MMC plans to file
a registration statement on Form S-1 in September 1996 for the sale of its
common stock.
MMC's primary asset at July 31, 1996 was cash. MMC has not conducted any
operations, and all activities to date relating to the Mergers and the Offering
have been conducted by National Medical Systems, Inc. ("NMS"), one of the
companies to be acquired in the Mergers. Cash of $100 results from the initial
capitalization of MMC. There is no assurance that the Acquisitions discussed
below will be completed and that MMC will be able to generate future operating
revenue. MMC is dependent upon the Offering to fund the Mergers and future
operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Income Taxes. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
that are different from the tax returns. Deferred tax assets or liabilities
represent the future tax consequences of those differences, which will either be
taxable or deductible when the underlying assets or liabilities are recovered or
settled. MMC provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported periods. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," is effective for years beginning after December 15, 1995. This
statement requires that long-lived assets and certain intangibles to be held and
used by MMC be reviewed for impairments. This pronouncement is not expected to
have a material impact on the financial position of MMC.
SFAS No. 123, "Accounting for Stock-Based Compensation," will be effective
for MMC. SFAS No. 123 permits, but does not require, a fair-value based method
of accounting for employee stock option plans which results in compensation
expense recognition when stock options are granted. As permitted by SFAS No.
123, MMC will provide pro forma disclosure of net income and earnings per share,
as applicable, in the notes to future consolidated financial statements.
3. STOCK OPTIONS:
MMC has approved the 1996 Incentive Plan (the "Plan"), which provides for
the granting or awarding of stock options and stock appreciation rights to
non-employee directors, officers and other key employees (including officers of
the Founding Companies). The number of shares authorized and reserved for
issuance under the Plan is limited to the greater of 2,000,000 shares or 10% of
the number of shares of Common Stock
F-16
<PAGE> 75
3. STOCK OPTIONS: -- (CONTINUED)
outstanding at the time of the grant. The options will have an exercise price
equal to the initial public offering price and will vest as to 25% each on the
date that is six months, 18 months, 30 months and 42 months after the
consummation of the Offering, and will expire on the earlier of 10 years after
the date of the grant or three months after termination of employment.
4. COMMITMENTS AND CONTINGENCIES:
As discussed in Note 1, MMC has entered into definitive agreements with the
Founding Companies providing for the acquisition by MMC of Personalized
Programming, Inc. ("PPI"), Systems Plus, Inc. and Systems Plus Distribution,
Inc. ("SPI"), RTI Business Systems, Inc. ("RTI"), National Medical Systems, Inc.
("NMS") and Systems Management, Inc. ("SMI"). The Mergers will be accounted for
as a net book value purchase of the Founding Companies at historical cost for
accounting purposes, with PPI being treated as the acquiror.
The following table sets forth for each Founding Company the consideration
to be paid to its common stockholders (i) in cash and (ii) in shares of common
stock of MMC (in thousands):
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
FAIR VALUE
CASH SHARES OF SHARES
------- ------- ----------
<S> <C> <C> <C>
PPI.................................................. $45,000 6,370 $ 89,180
SPI.................................................. 12,000 2,210 30,940
RTI.................................................. 2,250 350 4,900
NMS.................................................. -- 2,360 33,040
SMI.................................................. 1,000 180 2,520
------- ------- --------
$60,250 11,470 $ 160,580
======= ======= ========
</TABLE>
5. SUBSEQUENT EVENTS:
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to MMC received telephonic notice from counsel to such dealer that
a lawsuit with respect to the foregoing matters had been filed that day in
federal court. Neither MMC nor any of such Founding Companies has been served
with such lawsuit. MMC and the Founding Companies intend to defend themselves
vigorously against any such action.
F-17
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Personalized Programming, Inc.
We have audited the accompanying balance sheets of Personalized
Programming, Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the
related statements of operations, changes in stockholder's equity and cash flows
for each of the three years in the period ended December 31, 1995 and for the
six months ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Personalized Programming,
Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, in July 1996 the
Company and its stockholder entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 23, 1996, except for certain
information in Note 8 for which the
date is December 31, 1996
F-18
<PAGE> 77
PERSONALIZED PROGRAMMING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, JUNE 30, 1996
1994 1995 1996 (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................... $1,308,844 $1,166,679 $2,609,824 $ 2,977,039
Investments................................. 255,962 355,414 507,421 202,488
Accounts receivable......................... 1,272,374 1,383,849 1,395,878 1,323,792
Inventory................................... 0 0 0 109,127
Prepaid expenses and other current assets... 61,194 71,039 79,506 132,051
---------- ---------- ---------- ----------
Total current assets................ 2,898,374 2,976,981 4,592,629 4,744,497
PROPERTY AND EQUIPMENT, net................... 1,817,798 2,842,315 370,252 444,343
---------- ---------- ---------- ----------
Total assets........................ $4,716,172 $5,819,296 $4,962,881 $ 5,188,840
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.... $ 337,106 $ 474,783 $ 486,944 $ 575,388
Customer deposits and deferred maintenance
revenue.................................. 551,793 581,357 1,107,110 1,111,983
---------- ---------- ---------- ----------
Total current liabilities........... 888,899 1,056,140 1,594,054 1,687,371
---------- ---------- ---------- ----------
Commitments and contingencies (Notes 5 and 8)
STOCKHOLDER'S EQUITY
Common stock $0.10 par value, 1,000 shares
authorized, issued and outstanding....... 100 100 100 100
Additional paid-in capital.................. 8,035 8,035 8,035 8,035
Unrealized gain (loss) on investments....... (95,014) 2,085 2,085 0
Retained earnings........................... 3,914,152 4,752,936 3,358,607 3,493,334
---------- ---------- ---------- ----------
Total stockholder's equity.......... 3,827,273 4,763,156 3,368,827 3,501,469
---------- ---------- ---------- ----------
Total liabilities and stockholder's
equity............................ $4,716,172 $5,819,296 $4,962,881 $ 5,188,840
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 78
PERSONALIZED PROGRAMMING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- JUNE 30, ------------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems......................... $ 693,964 $1,013,675 $ 1,017,993 $ 406,971 $ 750,739 $ 566,011
Software license................ 4,840,055 6,327,994 7,528,997 4,058,340 5,771,264 6,055,033
Maintenance and other........... 1,355,726 2,275,515 2,472,704 1,308,373 1,825,222 1,865,514
---------- ---------- ---------- ---------- ---------- ----------
Total revenue................ 6,889,745 9,617,184 11,019,694 5,773,684 8,347,225 8,486,558
---------- ---------- ---------- ---------- ---------- ----------
Cost of revenue
Systems......................... 571,735 751,643 703,755 385,229 487,160 553,233
Software license................ 63,675 380,877 650,460 286,062 600,158 380,855
Maintenance and other........... 174,820 235,012 227,435 260,164 190,584 321,683
---------- ---------- ---------- ---------- ---------- ----------
Total costs of revenue....... 810,230 1,367,532 1,581,650 931,455 1,277,902 1,255,771
---------- ---------- ---------- ---------- ---------- ----------
Gross margin............ 6,079,515 8,249,652 9,438,044 4,842,229 7,069,323 7,230,787
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses
Selling, general and
administrative............... 982,373 1,184,097 1,350,427 646,855 907,917 1,040,812
Research and development........ 1,039,971 1,501,605 2,024,252 1,223,679 1,484,176 1,934,956
Depreciation and amortization... 104,475 196,547 226,167 132,888 139,636 189,477
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses..... 2,126,819 2,882,249 3,600,846 2,003,422 2,531,729 3,165,245
---------- ---------- ---------- ---------- ---------- ----------
Income from
operations............ 3,952,696 5,367,403 5,837,198 2,838,807 4,537,594 4,065,542
Other income (expense)
Interest and dividend income.... 91,612 69,950 136,020 33,161 142,843 83,593
Other........................... 81,382 (15,097) (27,550) 20,966
---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $4,125,690 $5,422,256 $ 5,945,668 $2,892,934 $4,680,437 $ 4,149,135
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 79
PERSONALIZED PROGRAMMING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
--------------- PAID IN GAIN (LOSS) RETAINED
SHARES AMOUNT CAPITAL ON INVESTMENT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993.......... 1,000 $100 $8,035 $ (49,775) $ 2,520,860 $ 2,479,220
Net income..................... 4,125,690 4,125,690
Dividends...................... (3,985,000) (3,985,000)
Change in unrealized (loss) on
investments................. (37,850) (37,850)
----- ---- ----- -------- ---------- ----------
Balance December 31, 1993........ 1,000 100 8,035 (87,625) 2,661,550 2,582,060
Net income..................... 5,422,256 5,422,256
Dividends...................... (4,169,654) (4,169,654)
Change in unrealized (loss) on
investments................. (7,389) (7,389)
----- ---- ----- -------- ---------- ----------
Balance December 31, 1994........ 1,000 100 8,035 (95,014) 3,914,152 3,827,273
Net income..................... 5,945,668 5,945,668
Dividends...................... (5,106,884) (5,106,884)
Change in unrealized (loss) on
investments................. 97,099 97,099
----- ---- ----- -------- ---------- ----------
Balance December 31, 1995........ 1,000 100 8,035 2,085 4,752,936 4,763,156
Net income..................... 2,892,934 2,892,934
Dividends...................... (4,287,263) (4,287,263)
----- ---- ----- -------- ---------- ----------
Balance June 30, 1996............ 1,000 100 8,035 2,085 3,358,607 3,368,827
Net income..................... 1,256,201 1,256,201
Dividends...................... (1,121,474) (1,121,474)
Change in unrealized gain on
investments................. (2,085) (2,085)
----- ---- ----- -------- ---------- ----------
Balance September 30, 1996
(unaudited).................... 1,000 $100 $8,035 $ 0 $ 3,493,334 $ 3,501,469
===== ==== ===== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 80
PERSONALIZED PROGRAMMING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED SEPTEMBER 30,
------------------------------------------ JUNE 30, -------------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 4,125,690 $ 5,422,256 $ 5,945,668 $2,892,934 $ 4,680,437 $ 4,149,135
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 104,475 196,547 226,167 132,888 139,636 189,477
Gain on sale of property and
equipment............................. 0 0 0 (3,309) 0 (3,309)
Realized (gains) losses on marketable
securities............................ 0 39,183 3,082 26 (62,813) 26
Changes in assets and liabilities
Accounts receivable..................... 873,687 (635,245) (111,475) (12,030) (314,147) 60,057
Prepaid expenses and other current
assets................................ (36,757) 62,710 (9,845) (8,466) (22,500) (61,014)
Accounts payable and accrued
liabilities........................... (59,347) 101,965 137,677 12,161 330,267 (8,522)
Customer deposits and deferred
maintenance revenue................... 112,218 115,813 29,564 323,265 371,745 328,140
Income taxes payable.................... (10,729) 0 0 0 --
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities........................ 5,109,237 5,303,229 6,220,838 3,337,469 5,122,625 4,653,990
----------- ----------- ----------- ----------- ----------- -----------
Cash flow from investing activities:
Purchases of investments.................. (6,232,076) (150,433) (247,595) (49,812) (147,305) (50,543)
Proceeds from the sale of investments..... 6,204,571 190,489 242,160 100,264 133,919 100,264
Purchases of property and equipment....... (969,767) (210,644) (1,250,684) (124,851) (1,070,207) (255,531)
Proceeds on sale of property and
equipment............................... 8,900 0 0 25,690 0 25,690
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities........................ (988,372) (170,588) (1,256,119) (48,709) (1,083,593) (180,120)
----------- ----------- ----------- ----------- ----------- -----------
Cash flow from financing activities:
Dividends................................. (3,985,000) (4,169,654) (5,106,884) (1,845,615) (2,512,387) (2,663,510)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities........................ (3,985,000) (4,169,654) (5,106,884) (1,845,615) (2,512,387) (2,663,510)
----------- ----------- ----------- ----------- ----------- -----------
Net change in cash and cash
equivalents....................... 135,865 962,987 (142,165) 1,443,145 1,526,645 1,810,360
Cash and cash equivalents:
Beginning of period....................... 209,992 345,857 1,308,844 1,166,679 1,308,844 1,166,679
----------- ----------- ----------- ----------- ----------- -----------
End of period............................. $ 345,857 $ 1,308,844 $ 1,166,679 $2,609,824 $ 2,835,489 $ 2,977,039
=========== =========== =========== =========== =========== ===========
Non-cash dividends.......................... $ 0 $ 0 $ 0 $2,441,648 $ 0 $ 2,747,312
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 81
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Personalized Programming, Inc. is the developer of The Medical Manager
physician practice management system that is sold through a master distributor
and by direct sales to certain other dealers to clients throughout the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of September 30, 1995 and 1996 and for the nine months then ended are unaudited.
All adjustments and accruals (consisting only of normal recurring adjustments)
have been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from software license is recognized upon sale
and shipment. Revenue from the sale of systems is recognized when the system has
been installed and the related client training has been completed. Amounts
billed in advance of installation and pending completion of remaining
significant obligations are deferred. Revenue from support and maintenance
contracts is recognized as the services are performed ratably over the contract
period, which typically does not exceed one year. Revenue from other services
are recognized as they are provided. Certain expenses are allocated between the
cost of sales for systems, software license and maintenance and other based upon
revenue, which basis management believes to be reasonable.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. With the exception of approximately $749,000, $708,000,
$728,000 and $702,000 in receivables from a significant customer at December 31,
1994 and 1995, June 30, 1996 and (unaudited) September 30, 1996, respectively
(See Note 8), the Company's credit concentrations are limited due to the wide
variety of customers in the health care industry and the geographic areas into
which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Investments. The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires fair value accounting for debt and equity
securities. The Company classifies its investments as available for sale, which
requires that they be recorded at fair market value with gross unrealized
holding gains and losses treated as a separate component of stockholder's
equity.
Inventory. Inventory primarily consists of peripheral computer equipment.
Inventory cost is accounted for on the first-in, first-out basis and reported at
the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided principally on accelerated methods
over the estimated useful lives of the assets. Amortization of leasehold
improvements is provided for over the shorter of the estimated service life of
the leased asset or the lease term using the straight-line method.
Research and Development. Software development costs are included in
research and development and are expensed as incurred. SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized cost is then amortized
over the estimated product life. To date, the
F-23
<PAGE> 82
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
period between achieving technological feasibility and the general availability
of such software has been short and software development costs qualifying for
capitalization have been insignificant.
Income Taxes. The Company has elected S corporation status, as defined by
the Internal Revenue Code, whereby the Company is not subject to taxation for
federal purposes. Instead, the taxable income of the S corporation is included
in the individual income tax return of the Company's single stockholder for
federal income tax purposes. Accordingly, a provision for income taxes has not
been reflected in the financial statements. The Company's S corporation status
will terminate with the effective date of the Merger discussed in Note 8.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. SFAS No. 121, Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of, is effective
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. INVESTMENTS:
Investments held consisted of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED
------------------ FAIR MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1996
Marketable equity securities.................. $202,488 $ $ $ 202,488
======== ======== ======== ========
JUNE 30, 1996
-------------------------------------------
Marketable equity securities.................. $505,336 $18,105 $ 16,020 $ 507,421
======== ======== ======== ========
DECEMBER 31, 1995
-------------------------------------------
Marketable equity securities.................. $253,120 $17,824 $ 15,530 $ 255,414
Fixed income securities....................... 100,209 209 100,000
-------- -------- -------- --------
$353,329 $17,824 $ 15,739 $ 355,414
======== ======== ======== ========
DECEMBER 31, 1994
-------------------------------------------
Marketable equity securities.................. $350,976 $10,687 $105,701 $ 255,962
======== ======== ======== ========
</TABLE>
F-24
<PAGE> 83
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and improvements................... $ 760,467 $ 856,748
Building................................ 857,896 1,784,932
Furniture and equipment................. 326,959 446,234 $466,386 $ 527,845
Computers............................... 270,809 374,800 440,287 509,511
Leasehold improvements.................. 42,359 46,460 19,810 19,810
---------- ---------- --------- ----------
2,258,490 3,509,174 926,483 1,057,166
Less accumulated depreciation and
amortization.......................... (440,692) (666,859) 556,231 (612,823)
---------- ---------- --------- ----------
$1,817,798 $2,842,315 $370,252 $ 444,343
========== ========== ========= ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under an operating lease from an
entity owned by the Company's stockholder. Such facilities were distributed to
the stockholder in March 1996 at their fair value. The lease provides for two
one year renewals. Future minimum rental commitments under the noncancelable
operating lease are approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING SEPTEMBER 30:
<S> <C>
1997....................................................... $320,000
1998....................................................... 320,000
1999....................................................... 160,000
--------
Total............................................ $800,000
========
</TABLE>
Rent expense for the nine months ended September 30, 1996 was approximately
$170,000.
6. RETIREMENT PLANS:
The Company has a non-contributory profit sharing plan covering
substantially all full-time employees. Contributions are made at the discretion
of the Board of Directors. Total expense amounted to approximately $186,400,
$246,300 and $265,700 for 1993, 1994 and 1995 and (unaudited) $199,300 for the
nine months ended September 30, 1995, respectively. There was no contribution
for the nine months ended September 30, 1996.
7. SIGNIFICANT CUSTOMER:
Revenue from one customer comprised 52%, 48%, 47%, 47%, 47% and 49% of the
Company's revenue for 1993, 1994 and 1995 for the six months ended June 30, 1996
and for the (unaudited) nine months ended September 30, 1995 and 1996,
respectively.
8. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholder entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with a subsidiary of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
F-25
<PAGE> 84
PERSONALIZED PROGRAMMING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENTS: -- (CONTINUED)
In connection with the Merger, the Company will elect to terminate its S
corporation status and will be required to effect the asset and liability method
of accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are established based on the differences between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Had the
Company elected to terminate its S Corporation status immediately prior to
September 30, 1996, the Company would have been required to establish a deferred
tax asset of approximately $325,000 related primarily to the use of different
methods of accounting for deferred revenue for tax and financial reporting
purposes. Also, the Company will dividend certain assets to the stockholder,
consisting primarily of cash and investments, in an amount equal to the balance
in the Company's S corporation Accumulated Adjustment Account. Had the estimated
balance of the Accumulated Adjustment Account of $4,000,000 at September 30,
1996 been distributed and recorded as of that date, the effect on the
accompanying balance sheet would be a decrease of $3,180,000 in assets, an
increase of $820,000 in notes payable and a decrease of $4,000,000 in
stockholder's equity.
Revenue from other companies which have also entered into definitive
agreements with MMC totaled approximately $3,617,000, $4,741,000, $5,568,000,
$3,044,000, $4,507,000 and $4,722,000 for 1993, 1994 and 1995 for the six months
ended June 30, 1996 and for the (unaudited) nine months ended September 30, 1995
and 1996, respectively. Such amounts include the significant customer discussed
in Note 2.
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to MMC received telephonic notice from counsel to such dealer that
a lawsuit with respect to the foregoing matters had been filed that day in
federal court. Neither MMC nor any of such Founding Companies has been served
with such lawsuit. MMC and the Founding Companies intend to defend themselves
vigorously against any such action.
F-26
<PAGE> 85
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Systems Plus, Inc. and Systems Plus Distribution, Inc.
We have audited the accompanying combined balance sheets of Systems Plus,
Inc. and Systems Plus Distribution, Inc. as of December 31, 1994 and 1995 and
June 30, 1996 and the related combined statements of operations, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Systems
Plus, Inc. and Systems Plus Distribution, Inc. as of December 31, 1994 and 1995
and June 30, 1996 and the combined results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 and for
the six months ended June 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the combined financial statements, in July 1996
the Companies and their stockholder entered into a definitive agreement with
Medical Manager Corporation (MMC) providing for the merger of the Companies with
subsidiaries of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 28, 1996, except for certain
information in Note 10 for which the
date is December 31, 1996
F-27
<PAGE> 86
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................... $ 286,389 $ 597,606 $ 285,603 $ 0
Investments................................. 1,184,628 1,793,420 50,000 0
Accounts receivable......................... 1,394,759 1,479,740 1,462,861 1,262,046
Inventory................................... 125,000 199,439 114,000 82,000
Prepaid expenses and other current assets... 235,450 198,930 145,027 197,456
------------ ------------ ---------- -------------
Total current assets................ 3,226,226 4,269,135 2,057,491 1,541,502
PROPERTY AND EQUIPMENT, net................... 237,375 421,238 623,829 598,830
OTHER ASSETS.................................. 498,679 422,312 797,333 986,019
------------ ------------ ---------- -------------
Total assets........................ $3,962,280 $5,112,685 $3,478,653 $ 3,126,351
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable............................... $ 536,354 $ 504,159 $ 0 $ 625,000
Accounts payable and accrued liabilities.... 860,256 947,063 1,029,014 1,364,751
Customer deposits and deferred maintenance
revenue.................................. 42,811 117,677 172,357 189,836
Income taxes payable........................ 31,624 5,450 3,014 15,948
------------ ------------ ---------- -------------
Total current liabilities........... 1,471,045 1,574,349 1,204,385 2,195,535
------------ ------------ ---------- -------------
Commitments and contingencies (Notes 7 and 10)
STOCKHOLDER'S EQUITY
Common stock................................ 28,000 28,000 28,000 28,000
Unrealized loss on investments.............. (220,585) (8,341) 0 0
Retained earnings........................... 2,683,820 3,518,677 2,246,268 902,816
------------ ------------ ---------- -------------
Total stockholder's equity.......... 2,491,235 3,538,336 2,274,268 930,816
------------ ------------ ---------- -------------
Total liabilities and stockholder's
equity............................ $3,962,280 $5,112,685 $3,478,653 $ 3,126,351
========== ========== ========= ==========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE> 87
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------- JUNE 30, -------------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems.................... $ 159,143 $ 300,253 $ 766,037 $ 668,425 $ 139,547 $ 827,462
Software license........... 8,944,307 11,518,566 12,502,491 6,586,715 9,349,804 10,131,760
Maintenance and other...... 1,732,276 1,681,941 1,910,430 982,041 1,464,708 1,243,634
----------- ----------- ----------- ----------- ----------- -----------
Total revenue...... 10,835,726 13,500,760 15,178,958 8,237,181 10,954,059 12,202,856
----------- ----------- ----------- ----------- ----------- -----------
Cost of revenue
Systems.................... 290,239 209,521 440,588 451,684 135,673 648,366
Software license........... 5,371,347 6,832,020 6,977,948 3,719,590 5,174,094 5,551,150
Maintenance and other...... 1,450,877 1,277,082 1,682,022 827,503 1,386,544 1,227,743
----------- ----------- ----------- ----------- ----------- -----------
Total costs of
revenue.......... 7,112,463 8,318,623 9,100,558 4,998,777 6,696,311 7,427,259
----------- ----------- ----------- ----------- ----------- -----------
Gross margin..... 3,723,263 5,182,137 6,078,400 3,238,404 4,257,748 4,775,597
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses
Selling, general and
administrative.......... 2,471,567 3,022,941 3,345,004 1,972,701 2,356,887 2,920,452
Depreciation and
amortization............ 89,486 76,015 102,309 75,782 76,732 117,253
----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses......... 2,561,053 3,098,956 3,447,313 2,048,483 2,433,619 3,037,705
----------- ----------- ----------- ----------- ----------- -----------
Income from
operations.... 1,162,210 2,083,181 2,631,087 1,189,921 1,824,129 1,737,892
Other income (expense)
Interest expense........... (25,572) (44,969) (37,385) (10,765) (30,870) (12,259)
Interest and dividend
income.................. 17,780 54,031 88,457 46,646 62,674 48,209
Gain (loss) on investments
and other............... 187,536 (16,731) 169,498 239,925 176,406 240,340
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes... 1,341,954 2,075,512 2,851,657 1,465,727 2,032,339 2,014,182
Income taxes................. 34,955 50,125 53,300 17,405 60,798 35,772
----------- ----------- ----------- ----------- ----------- -----------
Net income....... $ 1,306,999 $ 2,025,387 $ 2,798,357 $ 1,448,322 $ 1,971,541 $ 1,978,410
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE> 88
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON UNREALIZED
STOCK GAIN (LOSS) RETAINED
AMOUNT ON INVESTMENTS EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance January 1, 1993........................ $28,000 $ (59,474) $ 962,434 $ 930,960
Net income................................... 1,306,999 1,306,999
Dividends.................................... (640,000) (640,000)
Change in unrealized loss on investments..... 20,232 20,232
------- --------- ----------- -----------
Balance December 31, 1993...................... 28,000 (39,242) 1,629,433 1,618,191
Net income................................... 2,025,387 2,025,387
Dividends.................................... (971,000) (971,000)
Change in unrealized loss on investments..... (181,343) (181,343)
------- --------- ----------- -----------
Balance December 31, 1994...................... 28,000 (220,585) 2,683,820 2,491,235
Net income................................... 2,798,357 2,798,357
Dividends.................................... (1,963,500) (1,963,500)
Change in unrealized loss on investments..... 212,244 212,244
------- --------- ----------- -----------
Balance December 31, 1995...................... 28,000 (8,341) 3,518,677 3,538,336
Net income................................... 1,448,322 1,448,322
Dividends.................................... (2,720,731) (2,720,731)
Change in unrealized gain on investments..... 8,341 8,341
------- --------- ----------- -----------
Balance June 30, 1996.......................... 28,000 0 2,246,268 2,274,268
Net income................................... 530,088 530,088
Dividends.................................... (1,873,540) (1,873,540)
------- --------- ----------- -----------
Balance September 30, 1996 (unaudited)......... $28,000 $ 0 $ 902,816 $ 930,816
======= ========= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE> 89
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- 30, ----------------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 1,306,999 $ 2,025,387 $ 2,798,357 $ 1,448,322 $ 1,971,541 $ 1,978,410
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 89,486 76,015 102,309 75,782 76,732 117,253
(Gain) loss on sale of property
and equipment................. 2,200 994 (1,374) 0 (1,374) (415)
Realized gains on investments... (326,745) (208,406) (541,416) (448,158) (383,641) (448,158)
Realized losses on
investments................... 137,009 224,143 373,292 208,233 200,468 208,233
Changes in assets and liabilities:
Accounts receivable............. (122,215) (529,520) 19,033 97,561 269,780 299,769
Inventory....................... (48,879) 99,109 (74,439) 85,439 (45,000) 117,439
Prepaid expenses and other
current
assets........................ 165,496 (183,069) 8,873 (400,764) (4,783) (644,308)
Accounts payable and accrued
liabilities................... (1,790,912) 110,661 86,807 81,951 258,085 84,949
Customer deposits and deferred
maintenance revenue........... 29,266 (2,677) 74,866 54,680 395,852 72,159
Income taxes payable............ (11,603) 23,023 (26,174) (2,436) (1,676) 10,498
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities............... (569,898) 1,635,660 2,820,134 1,200,610 2,735,984 1,795,829
----------- ----------- ----------- ----------- ----------- -----------
Cash flow from investing activities:
Purchases of investments.......... (5,837,730) (6,800,249) (11,268,708) (8,694,966) (7,625,731) (8,694,966)
Proceeds from the sale of
investments..................... 6,485,016 6,836,814 11,027,950 9,945,924 7,628,644 9,945,924
Purchases of property and
equipment....................... (45,795) (100,817) (306,894) (278,373) (186,330) (296,840)
Proceeds on sale of property and
equipment....................... 0 0 22,096 0 22,096 2,410
Proceeds from investment
margin accounts................. 6,573,612 7,516,828 10,614,724 9,840,665 7,197,015 9,841,701
Payments on investment
margin accounts................. (6,845,885) (7,242,266) (10,634,585) (10,345,860) (7,445,197) (10,345,860)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) investing
activities............... 329,218 210,310 (545,417) 467,390 (409,503) 452,369
----------- ----------- ----------- ----------- ----------- -----------
Cash flow from financing activities:
Proceeds from short-term
obligations..................... 1,393,000 1,962,000 0 790,000 0 1,465,000
Payment on short-term
obligations..................... (1,368,000) (1,987,000) 0 (790,000) 0 (840,000)
Cash overdraft.................... 563,581 (563,581) 0 0 0 (332,759)
Dividends......................... (640,000) (971,000) (1,963,500) (1,980,003) (1,793,500) (3,803,543)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities............... (51,419) (1,559,581) (1,963,500) (1,980,003) (1,793,500) (3,511,282)
Net change in cash and cash
equivalents.............. (292,099) 286,389 311,217 (312,003) 532,981 (597,606)
Cash and cash equivalents:
Beginning of period............... 292,099 0 286,389 597,606 286,389 597,606
----------- ----------- ----------- ----------- ----------- -----------
End of period..................... $ 0 $ 286,389 $ 597,606 $ 285,603 $ 819,370 $ 0
=========== =========== =========== =========== =========== ===========
Non-cash dividends.................. $ 0 $ 0 $ 0 $ 740,728 $ 0 $ 790,728
=========== =========== =========== =========== =========== ===========
Cash paid during the period for
Interest.......................... $ 25,072 $ 44,315 $ 37,465
=========== =========== ===========
Income taxes...................... $ 63,097 $ 10,563 $ 85,574
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 90
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Systems Plus, Inc. and its combined affiliate (the "Company") is the master
distributor for The Medical Manager physician practice management system that is
sold to an independent dealers' network throughout the United States. The
Company purchases substantially all of its software from Personalized
Programming, Inc. ("PPI"), the developer of The Medical Manager, under a license
and master distributor agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of September 30, 1995 and 1996 and for the nine months then ended are unaudited.
All adjustments and accruals (consisting only of normal recurring adjustments)
have been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Principles of Combination. The financial statements include the accounts
of Systems Plus, Inc. ("SPI") and its sister company, Systems Plus Distribution,
Inc. ("SPDI"), which is affiliated through common ownership and management. All
material intercompany accounts and transactions have been eliminated.
Revenue Recognition. Revenue from software license is recognized upon sale
and shipment. Revenue from the sale of systems is recognized when the system has
been installed and the related client training has been completed. Amounts
billed in advance of installation and pending completion of remaining
significant obligations are deferred. Revenue from support and maintenance
contracts is recognized as the services are performed ratably over the contract
period, which typically does not exceed one year. Revenue from other services
are recognized as they are provided. Certain expenses are allocated between the
cost of sales for systems, software license and maintenance and other based upon
revenue, which basis management believes to be reasonable.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and geographic areas into
which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows the
Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Investments. The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires fair value accounting for debt and equity
securities. The Company classifies its investments as available for sale, which
requires that they be recorded at fair market value with gross unrealized
holding gains and losses treated as a separate component of stockholder's
equity.
Inventory. Inventory primarily consists of purchased software packages,
peripheral computer equipment and replacement parts. Inventory cost is accounted
for on the first-in, first-out basis and reported at the lower of cost or
market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on the straight line and
accelerated methods over the estimated useful lives of the assets. Amortization
of leasehold improvements is provided for over the shorter of the estimated
service life of the leased asset or the lease term using the straight-line
method.
F-32
<PAGE> 91
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes. SPI has elected to be taxed as an S corporation and SPDI is
taxed as a C corporation under the provisions of the Internal Revenue Code of
1986. SPI is not subject to taxation at the federal level. Instead, the taxable
income of SPI is included in the individual income tax return of that company's
single stockholder for federal income tax purposes. The provision for income
taxes in the combined statements of operations represents SPDI's provision for
federal income taxes and the provision for state income taxes for both SPI and
SPDI. The Company utilizes the asset and liability method of accounting for
deferred federal and state income taxes for SPDI taxed as a regular corporation
and to account for state income taxes for SPI taxed as an S corporation for
Federal tax purposes, but taxed as a regular corporation for certain state
income tax purposes. Under this method, deferred tax assets and liabilities are
established based on the differences between financial statement and income tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Other assets are comprised
primarily of federal income tax deposits for fiscal year S corporation purposes.
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
SPI's S corporation election will terminate with the effective date of the
Merger discussed in Note 10.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. SFAS No. 121, Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of, is effective
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. INVESTMENTS:
Investments held consisted of the following:
<TABLE>
<CAPTION>
FAIR MARKET
COST GAINS LOSSES VALUE
GROSS UNREALIZED
------------------
JUNE 30, 1996
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $ 50,000 $ -- $ -- $ 50,000
========= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $1,801,761 $19,629 $ 27,970 $ 1,793,420
========= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $1,405,213 $ 3,038 $223,623 $ 1,184,628
========= ======= ======== =========
</TABLE>
During the nine months ended September 30, 1996, investments of $790,728
were distributed to the stockholder at their fair value as a non-cash dividend.
F-33
<PAGE> 92
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment................ $ 314,168 $ 497,877 $ 613,411 $ 613,411
Computers.............................. 335,632 435,700 527,694 543,501
Leasehold improvements................. 0 0 70,845 70,845
--------- ---------- ---------- -------------
649,800 933,577 1,211,950 1,227,757
Less accumulated depreciation and
amortization......................... (412,425) (512,339) (588,121) (628,927)
--------- ---------- ---------- -------------
$ 237,375 $ 421,238 $ 623,829 $ 598,830
========= ========= ========= ==========
</TABLE>
5. NOTES PAYABLE:
Notes payable at December 31, 1995 and 1994 consisted of the margin account
borrowings collateralized by investments, with interest generally at prime rate.
The Company has a $750,000 revolving line of credit that was available at
September 30, 1996. The line of credit agreement provides for interest at prime
plus 1/2% and is collateralized by receivables, inventory, fixed assets,
general intangibles and personally guaranteed by the stockholder. There was
$625,000 outstanding under the line at September 30, 1996.
The carrying value approximates fair market value due to the short-term
nature of the debt.
6. INCOME TAXES:
Income taxes consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- JUNE 30, ---------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current
Federal............................ $ 6,000
State.............................. $34,955 $50,125 47,300 $ 17,405 $60,798 $35,772
------- ------- ------- ------- ------- -------
$34,955 $50,125 $53,300 $ 17,405 $60,798 $35,772
======= ======= ======= ======= ======= =======
</TABLE>
F-34
<PAGE> 93
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
The following table summarizes the principal differences between income
taxes at the federal statutory rate and the effective income tax amounts
reflected in the financial statements:
<TABLE>
<CAPTION>
SIX
MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- JUNE 30, ----------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statutory tax................ $ 456,000 $ 706,000 $ 970,000 $ 498,000 $ 691,000 $ 685,000
State income tax, net of
federal benefit............ 34,955 50,125 47,300 17,405 60,798 35,772
Effect of graduated rate
brackets................... (6,000)
Effect of S corporation
income not subject to
federal income tax......... (456,000) (706,000) (958,000) (498,000) (691,000) (685,000)
--------- --------- --------- --------- --------- ---------
$ 34,955 $ 50,125 $ 53,300 $ 17,405 $ 60,798 $ 35,772
========= ========= ========= ========= ========= =========
</TABLE>
The Company was examined by the California Franchise Tax Board for tax
years ended in 1992 through 1995. The Company has reviewed various matters that
are under consideration and believes that it has adequately provided for any
liability that may result from this examination. In the opinion of management,
any liability that may arise from prior periods as a result of the examination
will not have a material effect on the Company's financial position or results
of operations.
7. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating leases having
remaining terms ranging from one to five years. Future minimum rental
commitments under noncancelable operating leases are approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING SEPTEMBER 30:
<S> <C>
1997............................................................. $201,000
1998............................................................. 131,000
1999............................................................. 117,000
2000............................................................. 117,000
2001............................................................. 39,000
--------
Total.................................................. $605,000
========
</TABLE>
Rent expense was approximately $141,000, $133,000, $112,000, $134,000,
$101,000 and $204,000 for 1993, 1994 and 1995, for the six months ended June 30,
1996 and for the (unaudited) nine months ended September 30, 1995 and 1996,
respectively.
8. STOCKHOLDER'S EQUITY:
The common stock ownership of the companies are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
AND 1995,
JUNE 30, 1996 AND
SEPTEMBER 30, 1996
--------------------------
SHARES SHARES
AUTHORIZED OUTSTANDING
<S> <C> <C>
Systems Plus, Inc. .................................. 1,000,000 500,000
Systems Plus Distribution, Inc. ..................... 1,000,000 50,000
</TABLE>
F-35
<PAGE> 94
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS:
The Company's stockholder acquired a controlling interest in a Medical
Manager dealer in the greater Chicago, Illinois area in February 1996. Revenue,
primarily from software license, from this dealer was approximately $243,000,
$131,000, $190,000 and $154,000 for 1995, for the six months ended June 30, 1996
and for the (unaudited) nine months ended September 30, 1995 and 1996,
respectively.
10. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholder entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with subsidiaries of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
In connection with the Merger, SPI will elect to terminate its S
corporation status and will be required to effect the asset and liability method
of accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are established based on the differences between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Had SPI
elected to terminate its S corporation status immediately prior to September 30,
1996, the Company would have been required to establish a deferred tax liability
of approximately $40,000 related primarily to the use of the cash method of
accounting for income tax purposes. Also, the Company will dividend certain
assets to the stockholder, consisting primarily of cash, investments and other
assets, in an amount equal to the balance in the Company's S corporation
Accumulated Adjustment Account. Had the estimated balance of the Accumulated
Adjustment Account at September 30, 1996 of $893,000 been distributed and
recorded as of that date, the effect on the accompanying balance sheet would be
an increase of $893,000 in notes payable and a decrease of $893,000 in
stockholder's equity.
Revenue from four other companies which have also entered into definitive
merger agreements with MMC totaled approximately $616,000, $891,000, $1,145,000,
$574,000, $836,000 and $924,000 for 1993, 1994 and 1995 for the six months ended
June 30, 1996 and for the (unaudited) nine months ended September 30, 1995 and
1996, respectively.
Purchases of software from Personalized Programming, Inc., which has also
entered into a definitive merger agreement with MMC, totaled approximately
$3,617,000, $4,681,000, $5,350,000, $2,837,000, $3,917,000 and $4,355,000 for
1993, 1994 and 1995 for the six months ended June 30, 1996 and for the
(unaudited) nine months ended September 30, 1995 and 1996, respectively.
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to MMC received telephonic notice from counsel to such dealer that
a lawsuit with respect to the foregoing matters had been filed that day in
federal court. Neither MMC nor any of such Founding Companies has been served
with such lawsuit. MMC and the Founding Companies intend to defend themselves
vigorously against any such action.
F-36
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
RTI Business Systems, Inc.
We have audited the accompanying balance sheets of RTI Business Systems,
Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the related
statements of operations and accumulated deficit and cash flows for each of the
three years in the period ended December 31, 1995 and for the six months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RTI Business Systems, Inc.
as of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, in July 1996 the
Company and its stockholders entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 28, 1996, except for certain
information in Note 8 for which the
date is December 31, 1996
F-37
<PAGE> 96
RTI BUSINESS SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................... $ 25,349 $ 28,851 $ 5,473 $ 83,712
Accounts receivable......................... 236,802 347,725 283,744 173,871
Inventory................................... 0 29,274 32,384 163,681
Prepaid expenses and other current assets... 26,453 20,437 9,177 16,500
Deferred income taxes....................... 108,982 212,456 262,456 262,456
-------- ---------- ---------- ----------
Total current assets................ 397,586 638,743 593,234 700,220
PROPERTY AND EQUIPMENT, net................... 143,895 335,951 494,207 533,023
-------- ---------- ---------- ----------
Total assets........................ $ 541,481 $ 974,694 $1,087,441 $ 1,233,243
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term
obligations.............................. $ 156,934 $ 282,460 $ 467,146 $ 513,891
Accounts payable and accrued liabilities.... 391,619 355,947 399,032 565,965
Customer deposits and deferred maintenance
revenue.................................. 307,464 530,066 379,541 630,294
Income taxes payable........................ 103,608 233,097 200,626 146,904
-------- ---------- ---------- ----------
Total current liabilities........... 959,625 1,401,570 1,446,345 1,857,054
LONG-TERM OBLIGATIONS, net of current
maturities.................................. 3,895 99,950 130,664 140,045
-------- ---------- ---------- ----------
Total liabilities................... 963,520 1,501,520 1,577,009 1,997,099
-------- ---------- ---------- ----------
Commitments and Contingencies (Notes 6 and 8)
STOCKHOLDERS' DEFICIT
Common stock, no par value, 200 shares
authorized, issued and outstanding....... 102,000 102,000 102,000 102,000
Accumulated deficit......................... (524,039) (628,826) (591,568) (865,856)
-------- ---------- ---------- ----------
Total stockholders' deficit......... (422,039) (526,826) (489,568) (763,856)
-------- ---------- ---------- ----------
Total liabilities and stockholders'
deficit........................... $ 541,481 $ 974,694 $1,087,441 $ 1,233,243
======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 97
RTI BUSINESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, 30, SEPTEMBER 30,
------------------------------------ ---------- -----------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems................. $1,645,102 $2,242,200 $2,712,211 $1,301,127 $1,617,456 $1,803,593
Maintenance and other... 1,401,533 2,085,244 2,241,440 1,731,903 1,735,875 2,574,904
---------- ---------- ---------- ---------- ---------- ----------
Total revenue... 3,046,635 4,327,444 4,953,651 3,033,030 3,353,331 4,378,497
---------- ---------- ---------- ---------- ---------- ----------
Cost of revenue
Systems................. 1,372,675 1,334,929 1,486,156 603,239 1,009,354 1,251,550
Maintenance and other... 1,169,441 1,241,483 1,214,985 1,162,229 1,083,252 1,521,235
---------- ---------- ---------- ---------- ---------- ----------
Total costs of
revenue....... 2,542,116 2,576,412 2,701,142 1,765,468 2,092,606 2,772,785
---------- ---------- ---------- ---------- ---------- ----------
Gross
margin... 504,519 1,751,032 2,252,509 1,267,562 1,260,725 1,605,712
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses
Selling, general and
administrative....... 925,189 1,710,987 2,268,533 1,164,657 1,313,132 1,740,565
Depreciation and
amortization......... 55,434 46,777 58,057 45,724 43,585 68,054
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 980,623 1,757,764 2,326,590 1,210,381 1,356,717 1,808,619
---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
from
operations.... (476,104) (6,732) (74,081) 57,181 (95,992) (202,907)
Other income (expense)
Interest expense........ (32,928) (19,988) (33,326) (19,923) (23,859) (34,123)
Other................... 0 (27,746) 2,620 0 0
---------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)........ (509,032) (54,466) (104,787) 37,258 (119,851) (237,030)
---------- ---------- ---------- ---------- ---------- ----------
Retained earnings
(accumulated deficit):
Beginning of period..... 39,459 (469,573) (524,039) (628,826) (524,039) (628,826)
---------- ---------- ---------- ---------- ---------- ----------
End of period........... $ (469,573) $ (524,039) $ (628,826) $ (591,568) $ (643,890) $ (865,856)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE> 98
RTI BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- JUNE 30, -------------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................ $(509,032) $ (54,466) $(104,787) $ 37,258 $ (119,851) $(237,030)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation................... 55,434 46,777 58,057 45,724 43,585 68,054
Deferred income taxes.......... (51,642) (57,340) (103,474) (50,000) (77,606) (50,000)
Loss on sale of property and
equipment.................... 0 27,746 13,110 0 13,110 0
Changes in assets and
liabilities:
Accounts receivable............ 66,795 (160,167) (110,923) 63,981 (193,474) 173,854
Inventory...................... 121,998 0 (29,274) (3,110) (10,069) (134,407)
Prepaid expenses and other
current assets............... 12,170 (16,009) 6,016 11,260 10,333 3,936
Accounts payable and accrued
liabilities.................. 16,864 245,366 (35,672) 43,085 48,811 210,018
Customer deposits and deferred
maintenance revenue.......... 517,699 (97,275) 222,602 (150,525) 172,086 100,228
Income taxes payable........... 50,000 53,152 129,489 (32,471) 66,760 (86,193)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities.............. 280,286 (12,216) 45,144 (34,798) (46,315) 48,460
--------- --------- --------- --------- --------- ---------
Cash flow from investing
activities:
Purchases of property and
equipment...................... (51,055) (73,540) (226,023) (203,980) (116,781) (243,680)
Proceeds on sale of property and
equipment...................... 0 50,963 0 0 0 0
--------- --------- --------- --------- --------- ---------
Net cash used in investing
activities.............. (51,055) (22,577) (226,023) (203,980) (116,781) (243,680)
--------- --------- --------- --------- --------- ---------
Cash flow from financing
activities:
Proceeds from issuance of
long-term obligations.......... 100,000 200,000 365,000 238,845 215,000 288,847
Payment on short-term and
long-term obligations.......... (421,333) (189,169) (180,619) (23,445) (25,829) (38,766)
Capital contributions............ 100,000 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities.............. (221,333) 10,831 184,381 215,400 189,171 250,081
--------- --------- --------- --------- --------- ---------
Net change in cash and cash
equivalents...................... 7,898 (23,962) 3,502 (23,378) 26,075 54,861
Cash and cash equivalents:
Beginning of period.............. 41,413 49,311 25,349 28,851 25,349 28,851
--------- --------- --------- --------- --------- ---------
End of period.................... $ 49,311 $ 25,349 $ 28,851 $ 5,473 $ 51,424 $ 83,712
========= ========= ========= ========= ========= =========
Cash paid during the period for
Interest......................... $ 32,928 $ 19,988 $ 33,326
========= ========= =========
Income taxes..................... $ 456 $ 731 $ 10,846
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 99
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
RTI Business Systems, Inc. (the "Company") is an independent dealer for The
Medical Manager physician practice management system that is sold to clients
primarily in the upstate New York and New England areas of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of September 30, 1995 and 1996 and for the nine months then ended are unaudited.
All adjustments and accruals (consisting only of normal recurring adjustments)
have been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services are recognized as they are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon revenue, which basis management believes to be reasonable.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and the geographic areas
into which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on accelerated methods over the
estimated useful lives of the assets.
Income Taxes. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
that are different from the tax returns. The deferred tax assets and liabilities
represent the future tax consequences of those differences, which will either be
taxable or deductible when the underlying assets or liabilities are recovered or
settled.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of, is effective for years beginning after
December 15, 1995. This Statement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
F-41
<PAGE> 100
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment..... $ 113,028 $ 252,978 $ 254,906 $ 276,626
Computers................... 0 0 155,586 169,831
Vehicles.................... 203,960 290,903 337,369 345,125
--------- --------- --------- ---------
316,988 543,881 747,861 791,582
Less accumulated
depreciation.............. (173,093) (207,930) (253,654) (258,559)
--------- --------- --------- ---------
$ 143,895 $ 335,951 $ 494,207 $ 533,023
========= ========= ========= =========
</TABLE>
4. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Term note payable, bearing interest at
prime plus 1% (9 1/4% at September
30, 1996), with monthly payments of
$2,085 plus interest through October
1999, collateralized by accounts
receivable, inventory and equipment
and guaranteed by stockholders. The
note contains certain financial
restrictions and covenants as
defined.............................. $ 95,830 $ 80,905 $ 74,650
Term notes payable, bearing interest at
prime plus 1%, with various monthly
payments totaling approximately
$3,350 plus interest due through
August 2001, collateralized by
accounts receivable, inventory and
property and equipment and guaranteed
by stockholders...................... $ 25,829 36,580 166,905 179,286
Revolving line of credit, interest
payable monthly at prime plus 3/4%
(9% at September 30, 1996), principal
due on demand, maturity date of
October, 1996, collateralized by
accounts receivable, inventory and
equipment and guaranteed by
stockholders......................... 135,000 250,000 350,000 400,000
-------- -------- --------- ---------
Total........................ 160,829 382,410 597,810 653,936
Less portion due within one
year....................... 156,934 282,460 (467,146) 513,891
-------- -------- --------- ---------
Long term obligations, net of
current maturities......... $ 3,895 $ 99,950 $ 130,664 $ 140,045
======== ======== ========= =========
</TABLE>
F-42
<PAGE> 101
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG TERM OBLIGATIONS: -- (CONTINUED)
Annual maturities of long-term debt for the four years subsequent to
September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $40,992
1999............................................................... 40,992
2000............................................................... 39,684
2001............................................................... 18,377
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
5. INCOME TAXES:
Income taxes consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED JUNE SEPTEMBER 30,
------------------------------- 30, -------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current
Federal................ $ 46,623 $ 51,115 $ 92,261 $ 45,000 $ 85,461 $ 45,000
State.................. 5,019 6,225 11,213 5,000 11,606 5,000
------- ------- -------- ------- ------- -------
51,642 57,340 103,474 50,000 97,067 50,000
------- ------- -------- ------- ------- -------
Deferred
Federal................ (46,623) (51,115) (92,261) (45,000) (85,461) (45,000)
State.................. (5,019) (6,225) (11,213) (5,000) (11,606) (5,000)
------- ------- -------- ------- ------- -------
(51,642) (57,340) (103,474) (50,000) (97,067) (50,000)
------- ------- -------- ------- ------- -------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======= ======= ======== ======= ======= =======
</TABLE>
The significant components of the net deferred tax asset consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Bad debts................................ $ 17,000 $ 21,000 $ 14,000 $ 14,000
Deferred revenue......................... 125,000 230,000 226,000 321,000
Inventory valuations..................... 64,000 34,000
Loss carryforwards....................... 71,000 80,000
Other.................................... 20,982 41,456 456 456
--------- --------- -------- ---------
226,982 326,456 311,456 415,456
Valuation allowance...................... (118,000) (114,000) (49,000) (153,000)
--------- --------- -------- ---------
Net deferred tax asset................... $ 108,982 $ 212,456 $262,456 $ 262,456
========= ========= ======== =========
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. At September 30, 1996,
the Company established a valuation allowance of $153,000. This results in an
increase in the valuation allowance from December 31, 1995 of $39,000.
F-43
<PAGE> 102
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES: -- (CONTINUED)
The following table summarizes the principal differences between income
taxes at the federal statutory rate and the effective income tax amounts
reflected in the financial statements:
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED JUNE SEPTEMBER 30,
--------------------------------- 30, -------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statutory tax (benefit).......... $(173,000) $ (19,000) $ (36,000) $ 13,000 $(41,000) $(82,000)
State taxes, net of federal
benefit........................ (20,000) (2,000) (4,000) 1,000 (5,000) (9,000)
Effect of graduated tax
brackets....................... (1,000) (6,000) (11,000) -- --
Tax contingency.................. 50,000 50,000 50,000 50,000 50,000 50,000
Change in valuation allowance.... 142,000 (24,000) (4,000) (65,000) (4,000) 39,000
Other............................ 2,000 1,000 5,000 1,000 0 2,000
--------- -------- -------- -------- -------- --------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ======== ======== ======== ======== ========
</TABLE>
At September 30, 1996, the Company had an estimated net operating loss
carryforward of approximately $211,000, the use of which is limited to the
Company's future taxable income. The estimated net operating loss will expire in
the year 2012.
The Company is currently under examination by the Internal Revenue Service
for tax years ended in 1993 and 1994. The Company has reviewed various matters
that are under consideration and believes that is has adequately provided for
any liability that may result from this examination. In the opinion of
management, any liability that may arise from prior periods as a result of the
examination will not have a material effect on the Company's financial position
or results of operations.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating leases. Future
minimum rental commitments under the noncancelable operating leases are
approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING SEPTEMBER 30:
<S> <C>
1997........................................................... $ 335,000
1998........................................................... 251,000
1999........................................................... 223,000
2000........................................................... 246,000
2001........................................................... 236,000
--------
Total................................................ $1,291,000
========
</TABLE>
Rent expense was approximately $139,000, $240,000, $187,000, $107,000
$124,000 and $163,000 for 1993, 1994 and 1995 for the six months ended June 30,
1996 and for the (unaudited) nine months ended September 30, 1995 and 1996
respectively.
7. RETIREMENT PLANS:
The Company has a non-contributory profit sharing plan covering
substantially all full-time employees effective January 1995. The Company
contributes a matching 25% of the first six percent of employee contributions.
Contributions are made at the discretion of the Board of Directors. Total
expense amounted to approximately $19,000 for 1995, $10,000 for the six months
ended June 30, 1996 and $14,000 and $18,000 for the (unaudited) nine months
ended September 30, 1995 and 1996, respectively.
F-44
<PAGE> 103
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholders entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with a subsidiary of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC.
Purchases of software from one of the other companies which have also
entered into definitive merger agreements with MMC totaled approximately
$265,000, $275,000, $371,000, $190,000, $228,000 and $314,000 for 1993, 1994 and
1995 for the six months ended June 30, 1996 and for the (unaudited) nine months
ended September 30, 1995 and 1996 respectively.
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to MMC received telephonic notice from counsel to such dealer that
a lawsuit with respect to the foregoing matters had been filed that day in
federal court. Neither MMC nor any of such Founding Companies has been served
with such lawsuit. MMC and the Founding Companies intend to defend themselves
vigorously against any such action.
F-45
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
National Medical Systems, Inc.
We have audited the accompanying consolidated balance sheets of National
Medical Systems, Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows for the four months ended December 31, 1994, the year ended
December 31, 1995 and the six months ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
National Medical Systems, Inc. as of December 31, 1994 and 1995 and June 30,
1996 and the consolidated results of its operations and its cash flows for the
four months ended December 31, 1994, the year ended December 31, 1995 and the
six months ended June 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the financial statements, in July 1996 the
Company and its stockholders entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 10, 1996, except for certain
information in Note 11 for which
the dates are December 26, 1996 and
December 31, 1996
F-46
<PAGE> 105
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $ 0 $ 0 $ 78,948 $ 9,568
Accounts receivable........................... 66,271 223,446 983,069 933,878
Inventory..................................... 51,280 73,925 49,568 122,061
Prepaid expenses and other current assets..... 182 12,000 0 56,001
--------- -------- -------- ----------
Total current assets.................. 117,733 309,371 1,111,585 1,121,508
PROPERTY AND EQUIPMENT, net..................... 85,615 199,797 368,653 355,969
GOODWILL AND OTHER INTANGIBLES, net............. 211,609 80,201 2,753,593 2,693,303
OTHER ASSETS.................................... 3,586 5,184 11,084 520,028
--------- -------- -------- ----------
Total................................. $ 418,543 $ 594,553 $4,244,915 $ 4,690,808
========= ======== ======== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations... $ 74,930 $ 261,580 $1,274,701 $ 1,322,528
Accounts payable and accrued liabilities...... 113,174 184,214 729,219 773,909
Customer deposits and deferred maintenance
revenue.................................... 220,627 338,075 875,857 729,031
--------- -------- -------- ----------
Total current liabilities............. 408,731 783,869 2,879,777 2,825,468
LONG-TERM OBLIGATIONS, net of current
maturities.................................... 76,860 40,768 800,660 729,220
SUBORDINATED NOTES PAYABLE...................... 0 0 292,500 1,065,018
--------- -------- -------- ----------
Total liabilities..................... 485,591 824,637 3,972,937 4,619,706
--------- -------- -------- ----------
Redeemable preferred stock...................... 0 0 500,000 500,000
--------- -------- -------- ----------
Commitments and contingencies (Notes 10 and
11)...........................................
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 25,000,000
shares authorized.......................... 56,570 62,566 68,566 68,566
Additional paid-in capital.................... 203,430 248,503 790,003 790,003
Accumulated deficit........................... (327,048) (541,153) (1,086,591) (1,287,467)
--------- -------- -------- ----------
Total stockholders' deficit........... (67,048) (230,084) (228,022) (428,898)
--------- -------- -------- ----------
Total................................. $ 418,543 $ 594,553 $4,244,915 $ 4,690,808
========= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE> 106
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, JUNE 30, --------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Systems........................ $ 155,771 $1,516,022 $1,489,054 $1,112,299 $2,429,572
Maintenance and other.......... 85,337 614,487 959,823 478,851 1,670,485
--------- ---------- ---------- --------- ----------
Total revenue.......... 241,108 2,130,509 2,448,877 1,591,150 4,100,057
--------- ---------- ---------- --------- ----------
Cost of revenue
Systems........................ 147,490 1,129,059 1,189,960 828,212 1,730,825
Maintenance and other.......... 155,655 595,692 664,426 429,071 1,212,510
--------- ---------- ---------- --------- ----------
Total costs of
revenue.............. 303,145 1,724,751 1,854,386 1,257,283 2,943,335
--------- ---------- ---------- --------- ----------
Gross margin (loss).... (62,037) 405,758 594,491 333,867 1,156,722
--------- ---------- ---------- --------- ----------
Operating expenses
Selling, general and
administrative.............. 201,254 395,523 613,874 249,714 1,068,842
Research and development....... 0 0 262,855 0 409,425
Depreciation and
amortization................ 60,113 196,838 189,854 134,425 294,243
--------- ---------- ---------- --------- ----------
Total operating
expenses............. 261,367 592,361 1,066,583 384,139 1,772,510
--------- ---------- ---------- --------- ----------
Loss from operations... (323,404) (186,603) (472,092) (50,272) (615,788)
Other expense
Interest expense............... (3,644) (27,502) (73,346) (18,468) (130,526)
--------- ---------- ---------- --------- ----------
Net loss............... $ (327,048) $ (214,105) $ (545,438) $ (68,740) $ (746,314)
========= ========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE> 107
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Formation of company..................... 5,657,000 $56,570 $ 203,430 $ 260,000
Net loss................................. $ (327,048) (327,048)
--------- ------- -------- --------- -----------
Balance December 31, 1994................ 5,657,000 56,570 203,430 (327,048) (67,048)
Capital contributions.................... 45,000 45,000
Stock issued for compensation............ 599,642 5,997 73 6,069
Net loss................................. (214,105) (214,105)
--------- ------- -------- --------- -----------
Balance December 31, 1995................ 6,256,642 62,566 248,503 (541,153) (230,084)
Stock issued for acquisition............. 600,000 6,000 54,000 60,000
Warrants issued.......................... 20,000 20,000
Capital contributions.................... 467,500 467,500
Net loss................................. (545,438) (545,438)
--------- ------- -------- --------- -----------
Balance June 30, 1996.................... 6,856,642 68,566 790,003 (1,086,591) (228,022)
Net loss................................. (200,876) (200,876)
--------- ------- -------- --------- -----------
Balance September 30, 1996 (unaudited)... 6,856,642 $68,566 $ 790,003 $(1,287,467) $(428,898)
========= ======= ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE> 108
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, JUNE 30, -----------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (327,048) $ (214,105) $ (545,438) $ (68,740) $ (746,314)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 60,113 196,838 189,854 134,425 294,243
Stock issued for compensation.......... 0 6,069 0
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable.................... (66,271) (157,175) (446,895) (224,825) (365,815)
Inventory.............................. (51,280) (22,645) 43,723 (120,402) (28,769)
Prepaid expenses and other assets...... (3,768) (13,416) 16,804 (1,443) (47,579)
Accounts payable and accrued
liabilities.......................... 113,174 71,040 22,254 174,382 (21,221)
Customer deposits and deferred
maintenance revenue.................. 220,627 117,448 283,582 46,743 195,768
--------- --------- ----------- --------- -----------
Net cash provided by (used in)
operating activities............ (54,453) (15,946) (436,116) (59,860) (719,687)
--------- --------- ----------- --------- -----------
Cash flow from investing activities:
Purchases of property and equipment...... (32,670) (152,183) (78,552) (131,419) (102,594)
Payments for acquisitions made, net of
assets acquired........................ (150,000) 0 (569,434) (575,778)
Payment of deposit for acquisition....... 0 0 0 0 (500,000)
--------- --------- ----------- --------- -----------
Net cash used in investing
activities...................... (182,670) (152,183) (647,986) (131,419) (1,178,372)
--------- --------- ----------- --------- -----------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations............................ 0 200,000 392,299 196,471 575,425
Proceeds from issuance of subordinated
long-term obligations.................. 0 0 292,500 1,357,518
Payment on short-term and long-term
obligations............................ (22,877) (76,871) (509,249) (50,192) (1,012,816)
Proceeds from issuance of redeemable
preferred stock........................ 0 0 500,000 500,000
Capital contributions.................... 260,000 45,000 487,500 45,000 487,500
--------- --------- ----------- --------- -----------
Net cash provided by financing
activities...................... 237,123 168,129 1,163,050 191,280 1,907,627
--------- --------- ----------- --------- -----------
Net change in cash and cash
equivalents..................... 0 0 78,948 0 9,568
Cash and cash equivalents:
Beginning of period...................... 0 0 0 0 0
--------- --------- ----------- --------- -----------
End of period............................ $ 0 $ 0 $ 78,948 $ 0 $ 9,568
========= ========= =========== ========= ===========
Cash paid for interest:.................... $ 3,645 $ 27,502
========= =========
Details of acquisitions:
Fair value of assets..................... $ 150,000 0 $ 3,190,537 $ 0 $ 3,196,881
Liabilities assumed...................... 0 0 (1,457,354) 0 (1,457,354)
Less common stock and debt issued........ 0 0 (1,129,139) 0 (1,129,139)
--------- --------- ----------- --------- -----------
Cash paid................................ 150,000 0 604,044 0 610,388
Less cash acquired....................... 0 0 (34,610) 0 (34,610)
--------- --------- ----------- --------- -----------
Net cash paid for acquisitions........... $ 150,000 0 $ (569,434) $ 0 $ 575,778
========= ========= =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE> 109
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
National Medical Systems, Inc. ("NMS") and Preferred System Solutions, Inc.
(collectively, the "Company") are independent dealers for The Medical Manager
physician practice management system that is sold to clients in the Southeast,
Midwest and Southwest parts of the United States. NMS commenced operations in
September 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of September 30, 1996 and 1995 and for the nine months then ended are unaudited.
All adjustments and accruals (consisting only of normal recurring adjustments)
have been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Principles of Consolidation. The financial statements include the accounts
of NMS and its wholly owned subsidiary, Preferred System Solutions, Inc., since
its acquisition in March 1996. All material intercompany accounts and
transactions have been eliminated.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon revenue, which basis management believes to be reasonable.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and the geographic areas
into which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided principally on accelerated methods
over the estimated useful lives of the assets.
Goodwill and Other Intangibles. Goodwill and other intangibles consist of
covenants not to compete and goodwill arising from business acquisitions. These
intangible assets are being amortized over periods ranging from two to 20 years.
Research and Development. Software development costs are included in
research and development and are expensed as incurred. Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," requires the capitalization
of certain software development costs once technological feasibility is
established. The capitalized cost is then amortized over the estimated product
life. To date, the period between achieving technological feasibility and the
general availability of such software has been short and software development
costs qualifying for capitalization have been insignificant.
F-51
<PAGE> 110
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Income Taxes. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
that are different from the tax return. The deferred tax assets and liabilities
represent the future tax consequences of those differences, which will be either
taxable or deductible when the underlying assets or liabilities are recovered or
settled. Deferred tax assets are reduced by a valuation allowance for the
estimated amounts of tax benefits not likely to be realized.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. SFAS No. 121, Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of, is effective
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. ACQUISITIONS:
During the nine months ended September 30, 1996, the Company made two
acquisitions set forth below, each of which has been accounted for as a
purchase. The consolidated financial statements include the operating results of
each business from the date of acquisition.
The Company acquired substantially all of the business assets of GBP With
Excellence, Inc., a Medical Manager independent dealer in central Florida. Total
consideration was $2,321,000, of which approximately $1,825,000 has been
assigned to excess of purchase price over net assets of the business acquired as
goodwill, which is being amortized on a straight-line basis over 20 years.
On the basis of the pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of 1995 rather than in
January 1996, consolidated net sales would have been $4,692,000 for 1995 and the
consolidated pro forma net loss would have been approximately $293,000. Such pro
forma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1995.
The Company also acquired Preferred System Solutions, Inc., a Medical
Manager independent dealer in Oklahoma and Kansas. Total consideration was
$50,000 and 600,000 shares of the Company's common stock valued at $60,000 by
independent appraisal for purposes of accounting for the transaction. The excess
of the purchase price over the net liabilities assumed was approximately
$718,000 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 20 years. Pro forma results of operations have not been
presented because the effects of this acquisition were not significant.
F-52
<PAGE> 111
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment.............. $ 35,074 $ 88,282 $128,477 $ 94,799
Computers............................ 66,937 191,813 372,019 544,653
-------- -------- -------- ---------
102,011 280,095 500,496 639,452
Less accumulated depreciation........ (16,397) (80,298) 131,843 (283,483)
-------- -------- -------- ---------
$ 85,615 $199,797 $368,653 $ 355,969
======== ======== ======== =========
</TABLE>
Depreciation expense was approximately $16,400, $65,700, $35,500 and
$85,500 for 1994 and 1995 and for the nine months ended September 30, 1995 and
1996 (unaudited), respectively.
5. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving line of credit, $500,000 available
principal, monthly interest at prime plus 1%,
(9 1/4% at September 30, 1996) principal due on
demand, collateralized by accounts receivable
and other assets, guaranteed by two of the
Company's stockholders.......................... $ 308,014 $ 491,140
Revolving line of credit, monthly interest at
prime plus 2% (10 1/4% at September 30, 1996),
principal due on demand, collateralized by
accounts receivable and other assets, guaranteed
by two of the Company's stockholders............ 196,597 30,270
Note payable, interest at prime plus 1% (9 1/4% at
September 30, 1996), collateralized by certain
assets, guaranteed by two of the Company's
stockholders, $1,800 monthly interest and
principal payments through 2000................. 66,676 63,212
Notes payable due on demand, interest at 12%
annually unsecured, $200,000 convertible into
320,000 shares of common stock of the Company,
interest payable monthly........................ $200,000 300,000 300,000
Note payable, monthly payments of $4,057 with
interest at 9%, balloon payment of $202,070 due
1998, unsecured, guaranteed by two of the
Company's stockholders.......................... 0 247,814 241,169
Note payable, monthly interest at 8%, principal
due in two equal annual installments, guaranteed
by two of the Company's stockholders, $5,100
monthly interest and principal payment.......... 0 613,046 599,141
Note payable, annual interest at 8%, due $40,000
in 1997 and $40,000 in 1998, unsecured.......... 0 80,000 80,000
</TABLE>
F-53
<PAGE> 112
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG TERM OBLIGATIONS: -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Note payable to stockholder, due on demand,
monthly interest at prime plus 1/2% (8 3/4% at
September 30, 1996), unsecured.................. 0 50,000 50,000
Non-compete agreements due in various monthly
amounts through 1998............................ $ 92,290 36,916 109,229 100,000
Various installments notes, payable monthly,
interest at 8%-10%, collateralized by certain
assets.......................................... 59,500 65,432 103,985 96,816
-------- -------- ---------- -------------
Total................................... 151,790 302,348 2,075,361 2,051,748
Less portion due within one year........ 74,930 261,580 1,274,701 1,322,528
-------- -------- ---------- -------------
Long term obligations, net of current
maturities............................ $ 76,860 $ 40,768 $ 800,660 $ 729,220
======== ======== ========= ==========
</TABLE>
Annual maturities of long-term obligations for the four years subsequent to
September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998......................................................... $718,719
1999......................................................... 6,073
2000......................................................... 3,507
2001......................................................... 921
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
6. SUBORDINATED NOTES PAYABLE:
Subordinated notes payable as of September 30, 1996 totaling $1,065,018,
with interest at 8%, are due in February 1998.
In conjunction with the issuance of the subordinated notes payable, the
Company also issued warrants to acquire 560,000 shares of the Company's common
stock for $.10 per share and up to an additional 560,000 shares if the
subordinated notes were not repaid by a certain date, of which warrants
entitling the holders thereof to purchase 350,000 shares remain outstanding. The
warrants were valued at $20,000.
Included above are primary and additional warrants to purchase 700,000
shares of NMS common stock issued in January, 1996 to two of the Company's
principal stockholders in conjunction with the issuance of subordinated
promissory notes totaling $467,500. These promissory notes were subsequently
contributed as additional paid in capital by the stockholders with the warrants
remaining in effect.
7. REDEEMABLE PREFERRED STOCK:
During the nine months ended September 30, 1996 the Company issued 100,000
shares of convertible redeemable preferred stock with a par value of $1.00 for
$500,000. The preferred stock carries a dividend rate of 8% from and after
January 1, 1997. The holders may request the Company to redeem the stock at the
stated value on or after January 1, 1997. The preferred stock is convertible
into common stock of the Company on a one for one share basis. In the event of a
change in control of the Company prior to January 1, 1997, the holders of the
preferred stock have the right to request the preferred be redeemed or be
converted into 85,000 shares of common stock of any entity which controls the
Company.
F-54
<PAGE> 113
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY:
In January 1996, the Company's Articles of Incorporation were amended to
increase the authorized common stock of the Company from 10,000 shares to
25,000,000 shares. In addition, a 5,657 for 1 split of the Company's common
stock was effected, increasing the number of issued and outstanding shares of
common stock to 6,256,642. All share information has been restated to give
retroactive effect to the stock split for all periods presented.
9. INCOME TAXES:
The tax effected amounts of temporary differences consisted of the
following:
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED SIX MONTHS SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ENDED JUNE ----------------------
1994 1995 30, 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Deferred tax assets
Deferred revenue......... $ 57,350 $ 48,840 $ 126,540 $ 50,690 $ 126,540
Inventory................ 21,460 21,460 21,460
Bad debts................ 1,577 22,200 21,090 11,937 21,090
Valuation allowance...... (58,927) (92,500) (169,090) (62,627) (169,090)
------------ ------------ ---------- -------- -----------
Total current
deferred tax
asset............. $ 0 $ 0 $ 0 $ 0 $ 0
========== ========== ========= ======== =========
Non-current
Deferred tax asset
Net operating loss....... $ 40,700 $ 55,870 $ 155,770 $ 42,205 $ 227,150
Other assets............. 16,923 47,360 65,490 36,718 65,490
Valuation allowance...... (57,623) (103,230) (221,260) (78,923) (292,640)
------------ ------------ ---------- -------- -----------
Total non-current
deferred
tax asset......... $ 0 $ 0 $ 0 $ 0 $ 0
========== ========== ========= ======== =========
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. At September 30, 1996,
the Company established a valuation allowance of $461,730. The result is an
increase in the valuation allowance from December 31, 1995 of $266,000.
The following table summarizes the principal differences between income tax
benefits at the Federal statutory rate and the effective income tax amounts
reflected in the financial statements.
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED SIX MONTHS SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ENDED JUNE ------------------------
1994 1995 30, 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory tax benefit....... $ (111,196) $ (72,796) $(185,300) $(23,000) $ (254,000)
State taxes................. (9,811) (6,423) (16,350) (2,000) (22,000)
Permanent differences....... 925 1,203
Other....................... 3,533 (1,164) 7,030 0 10,000
Changes in valuation
allowance................. 116,550 79,180 194,620 25,000 266,000
------------ ------------ ----------- -------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0
========== ========== ========= ======== =========
</TABLE>
F-55
<PAGE> 114
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES: -- (CONTINUED)
As of September 30, 1996 and December 31, 1995, the Company had net
operating losses of approximately $620,000 and $151,000, respectively. These
amounts expire between the years 2009 and 2011.
10. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities and certain furniture and
equipment under operating leases having terms ranging from one to five years.
The leases contain up to two five year renewals.
Future minimum rental commitments under noncancelable operating leases are
approximately as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING SEPTEMBER 30:
<S> <C>
1997............................................................ $173,000
1998............................................................ 138,000
1999............................................................ 96,000
2000............................................................ 36,000
2001............................................................ 7,000
--------
Total...................................................... $450,000
========
</TABLE>
Rent expense was approximately $22,000, $82,000, $70,000, $82,000 and
$140,000 for 1994 and 1995 for the six months ended June 30, 1996 and for the
(unaudited) nine months ended September 30, 1995 and 1996 respectively.
11. SUBSEQUENT EVENTS:
In July 1996, the Company and certain of its stockholders entered into a
definitive agreement with Medical Manager Corporation ("MMC") providing for the
Merger of the Company with a subsidiary of MMC. All outstanding shares of the
Company's common stock will be exchanged for shares of MMC's common stock
concurrent with the consummation of the initial public offering (IPO) of the
common stock of MMC.
The stockholders of the Company are obligated, on or prior to the
consummation of the IPO (i) to cause a capital contribution estimated at $30.1
million to be made to the Company; (ii) to pay down certain indebtedness
(approximately $2.4 million) of the Company; (iii) and to pay to the Company
$3.2 million representing the aggregate purchase price for the division of Medix
discussed below, for an estimated total capital contribution of $35.7 million.
In the event that all or part of the capital contribution is not invested in the
Company, the common stock of MMC to be received by the Company's stockholders
pursuant to the merger will be reduced.
The stockholders of the Company intend to meet a portion of the capital
contribution by causing the Company to sell shares of its common stock to
Electronic Data Systems Corporation ("EDS"). On December 26, 1996, EDS agreed to
purchase a number of shares of common stock of NMS that, upon the consummation
of the merger of NMS into a subsidiary of MMC, will result in the acquisition by
EDS of shares of common stock of MMC for an aggregate price of $12,500,000 and a
price per share equal to 93% of the price per share to the public in the IPO
discussed above. The agreement with EDS also provides for EDS to receive
preferential treatment in the creation of an electronic data interchange
relationship for certain sectors of MMC's clients and conditions relating to
EDS's obligation to purchase shares of common stock of the Company. The Company
has agreed to pay a 5% placement fee to an unrelated party for the placement of
the $12,500,000.
Purchases of software from two of the other companies which have also
entered into definitive merger agreements with MMC totaled approximately
$60,000, $400,000, $399,000, $152,000 and $592,000 for 1994,
F-56
<PAGE> 115
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS: -- (CONTINUED)
1995, for the six months ended June 30, 1996 and for the (unaudited) nine months
ended September 30, 1995 and 1996, respectively.
The Company has entered into a Management Services Agreement and Option
Agreement (the "Agreements") effective as of September 1, 1996, for the Medical
Manager Division (the "Division") of Medix, Inc., a wholly, owned subsidiary of
Blue Cross and Blue Shield of New Jersey, Inc. The Agreements provide for the
Company to manage the Division, which is an independent dealer of a private
label physician practice management system licensed from the developer of The
Medical Manager, until December 31, 1996 or the date of its purchase by NMS, if
earlier. The Agreements provided for NMS to acquire the Division by December 31,
1996 for $3,200,000. In connection with the Agreements, the Company made a
nonrefundable payment of $500,000 that was applied against the purchase price.
The $500,000 payment is included in other assets at September 30, 1996. The
closing occurred on December 31, 1996, at which time NMS issued to Medix a note
for approximately $2.1 million, representing the balance of the purchase price
after giving effect to a deposit made by NMS and management fees owed to the
Company by Medix. NMS was given a credit of approximately $80,000 on such $2.1
million note representing the cash in Medix's bank accounts relating to the
Division of the time of such closing. In addition, all cash collections of Medix
accounts receivable relating to the Division subsequent to December 31, 1996
will be deposited in a Medix bank account and applied against the amount owed by
the Company on such note.
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to MMC received telephonic notice from counsel to such dealer that
a lawsuit with respect to the foregoing matters had been filed that day in
federal court. Neither MMC nor any of such Founding Companies has been served
with such lawsuit. MMC and the Founding Companies intend to defend themselves
vigorously against any such action.
F-57
<PAGE> 116
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Systems Management, Inc.
We have audited the accompanying balance sheets of Systems Management, Inc.
as of December 31, 1994 and 1995 and June 30, 1996 and the related statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995 and for the six months ended June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Systems Management, Inc. as
of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, in July 1996 the
Company and its stockholders entered into a definitive agreement with Medical
Manager Corporation (MMC) providing for the merger of the Company with a
subsidiary of MMC.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 30, 1996, except for certain
information in Note 7 for which
the date is December 31, 1996
F-58
<PAGE> 117
SYSTEMS MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................... $178,911 $ 187,609 $ 297,251 $ 455,390
Accounts receivable......................... 167,214 276,366 288,978 248,077
Inventory................................... 109,018 183,835 149,864 188,526
Prepaid expenses and other current assets... 4,361 29,122 0 15,000
-------- ---------- ---------- ----------
Total current assets................ 459,504 676,932 736,093 906,993
PROPERTY AND EQUIPMENT, net................... 272,139 419,101 434,946 146,782
GOODWILL...................................... 0 0 100,000 98,750
-------- ---------- ---------- ----------
Total assets........................ $731,643 $1,096,033 $1,271,039 $ 1,152,525
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations.............................. $ 22,885 $ 50,118 $ 106,201 $ 104,040
Accounts payable and accrued liabilities.... 177,645 223,349 183,911 191,938
Customer deposits and deferred maintenance
revenue.................................. 157,213 424,656 434,957 504,963
-------- ---------- ---------- ----------
Total current liabilities........... 357,743 698,123 725,069 800,941
LONG-TERM OBLIGATIONS, net of current
maturities.................................. 154,310 212,767 233,922 229,941
-------- ---------- ---------- ----------
Total liabilities................... 512,053 910,890 958,991 1,030,882
-------- ---------- ---------- ----------
Commitments and contingencies (Notes 6 and 7)
STOCKHOLDERS' EQUITY
Common stock, no par value, 100 shares
authorized............................... 15,485 15,485 15,485 15,485
Retained earnings........................... 204,105 169,658 296,563 106,158
-------- ---------- ---------- ----------
Total stockholders' equity.......... 219,590 185,143 312,048 121,643
-------- ---------- ---------- ----------
Total liabilities and stockholders'
equity............................ $731,643 $1,096,033 $1,271,039 $ 1,152,525
======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 118
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED JUNE SEPTEMBER 30,
------------------------------------ 30, -----------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems.......................... $ 610,179 $ 621,258 $1,094,127 $ 945,910 $ 523,295 $1,502,339
Maintenance and other............ 1,134,307 1,507,640 1,622,742 969,414 1,214,912 1,445,130
---------- ---------- ---------- ---------- ---------- ----------
Total revenue............ 1,744,486 2,128,898 2,716,869 1,915,324 1,738,207 2,947,469
---------- ---------- ---------- ---------- ---------- ----------
Cost of revenue
Systems.......................... 493,611 497,560 516,997 696,767 282,367 1,192,576
Maintenance and other............ 836,634 1,158,147 1,714,203 774,225 1,179,031 1,043,893
---------- ---------- ---------- ---------- ---------- ----------
Total costs of revenue... 1,330,245 1,655,707 2,231,200 1,470,992 1,461,398 2,236,469
---------- ---------- ---------- ---------- ---------- ----------
Gross margin........... 414,241 473,191 485,669 444,332 276,809 711,000
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses
Selling, general and
administrative................ 313,510 371,037 425,509 236,548 323,455 377,104
Depreciation and amortization.... 25,229 26,217 31,828 34,640 26,864 46,890
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 338,739 397,254 457,337 271,188 350,319 423,994
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations.......... 75,502 75,937 28,332 173,144 73,510 287,006
Interest expense................... (4,134) (6,426) (23,279) (10,039) (23,279) (16,174)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)........ $ 71,368 $ 69,511 $ 5,053 $ 163,105 $ (81,040) $ 270,832
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 119
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK
------- RETAINED
AMOUNT EARNINGS TOTAL
<S> <C> <C> <C>
Balance January 1, 1993....................................... $15,485 $ 98,719 $ 114,204
Net income.................................................. 71,368 71,368
Dividends................................................... (13,523) (13,523)
------- -------- --------
Balance December 31, 1993..................................... 15,485 156,564 172,049
Net income.................................................. 69,511 69,511
Dividends................................................... (21,970) (21,970)
------- -------- --------
Balance December 31, 1994..................................... 15,485 204,105 219,590
Net income.................................................. 5,053 5,053
Dividends................................................... (39,500) (39,500)
------- -------- --------
Balance December 31, 1995..................................... 15,485 169,658 185,143
Net income.................................................. 163,105 163,105
Dividends................................................... (36,200) (36,200)
------- -------- --------
Balance June 30, 1996......................................... 15,485 296,563 312,048
Net income.................................................. 107,727 107,727
Dividends................................................... (298,132) (298,132)
------- -------- --------
Balance September 30, 1996 (unaudited)........................ $15,485 $ 106,158 $ 121,643
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE> 120
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- JUNE 30, ---------------------
1993 1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 71,368 $ 69,511 $ 5,053 $163,105 $ (81,040) $ 270,832
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 25,229 26,217 31,828 34,640 26,864 46,890
Changes in assets and liabilities, net
of effects from acquisition:
Accounts receivable.................. 20,333 (52,123) (109,152) (12,612) (42,876) 28,289
Inventory............................ 88,461 (54,341) (74,817) 33,971 (100,239) (4,691)
Prepaid expenses and other assets.... 4,407 1,187 (24,761) 29,122 149 14,122
Accounts payable and accrued
liabilities........................ 19,069 70,527 45,704 (39,438) 1,856 (31,411)
Customer deposits and deferred
maintenance
revenue............................ (81,333) 29,403 267,443 10,301 292,161 80,307
-------- --------- --------- --------- -------- ---------
Net cash provided by operating
activities.................... 147,534 90,381 141,298 219,089 96,875 404,338
-------- --------- --------- --------- -------- ---------
Cash flow from investing activities:
Purchases of property and equipment.... (34,035) (33,486) (80,995) (80,485) (178,382) (155,853)
-------- --------- --------- --------- -------- ---------
Net cash used in investing
activities.................... (34,035) (33,486) (80,995) (80,485) (178,382) (155,853)
-------- --------- --------- --------- -------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations.......................... 24,532 26,000 85,000 57,735 0 96,600
Payment on short-term and long-term
obligations.......................... (52,914) (61,106) (97,105) (50,497) 87,302 (25,504)
Dividends.............................. (13,523) (21,970) (39,500) (36,200) (22,000) (51,800)
-------- --------- --------- --------- -------- ---------
Net cash provided by (used in)
financing activities.......... (41,905) (57,076) (51,605) (28,962) 65,302 19,296
-------- --------- --------- --------- -------- ---------
Net change in cash and cash
equivalents............................ 71,594 (181) 8,698 109,642 (16,205) 267,781
Cash and cash equivalents:
Beginning of period.................... 107,498 179,092 178,911 187,609 178,911 187,609
-------- --------- --------- --------- -------- ---------
End of period.......................... $179,092 $ 178,911 $ 187,609 $297,251 $ 162,706 $ 455,390
======== ========= ========= ========= ======== =========
Cash paid for interest:.................. $ 4,134 $ 6,425 $ 23,280
======== ========= =========
Non-cash dividends....................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 282,532
======== ========= ========= ========= ======== =========
Details of acquisitions:
Fair value of assets................... $ 11,500 $ 165,500 $ 97,795 $100,000 $ 97,795 $ 100,000
Less debt issued....................... (11,500) (165,500) (97,795) (70,000) (97,795) (70,000)
-------- --------- --------- --------- -------- ---------
Net cash paid for acquisitions......... $ 0 $ 0 $ 0 $ 30,000 $ 0 $ 30,000
======== ========= ========= ========= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE> 121
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Systems Management, Inc. (the "Company") is an independent dealer for The
Medical Manager physician practice management system that is sold to clients
primarily in northern Indiana, Ohio and adjacent areas of the Midwestern United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of September 30, 1996 and 1995 and for the nine months then ended are unaudited.
All adjustments and accruals (consisting only of normal recurring adjustments)
have been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim periods are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon revenue, which basis management believes to be reasonable.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers in the health care industry and the geographic areas
into which the Company's systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on the straight-line method over
the estimated useful lives of the assets.
Income Taxes. The Company has elected S corporation status, as defined by
the Internal Revenue Code, whereby the Company is not subject to taxation for
federal purposes. Instead, the taxable income of the S corporation is included
in the individual income tax return of the Company's single stockholder for
federal income tax purposes. Accordingly, a provision for income taxes has not
been reflected in the financial statements. The Company's S corporation status
will terminate with the effective date of the Merger discussed in Note 7.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of, is effective
F-63
<PAGE> 122
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
for years beginning after December 15, 1995. This Statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1996 presentations.
3. ACQUISITION:
On June 28, 1996, the Company acquired certain assets from an independent
dealer for The Medical Manager physician practice management system. Pro forma
results of operations have not been presented because the effects of this
acquisition were not significant. The acquisition has been accounted for as a
purchase with the excess of the purchase price over the fair value of the assets
acquired, approximately $100,000, accounted for as goodwill. The goodwill is
being amortized on the straight-line basis over 20 years.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and improvements..................... $ 41,265 $ 41,265 $ 41,265 $ 1,686
Building.................................. 151,152 249,844 250,944 0
Furniture and equipment................... 75,741 119,660 169,045 174,414
Vehicles.................................. 65,568 101,338 101,338 101,338
-------- -------- --------- ---------
333,726 512,107 562,592 277,438
Less accumulated depreciation............. (61,587) (93,006) (127,646) (130,656)
-------- -------- --------- ---------
$272,139 $419,101 $ 434,946 $ 146,782
======== ======== ========= =========
</TABLE>
F-64
<PAGE> 123
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Revolving lines of credit, interest monthly at
prime plus 1/2% (8 3/4% at September 30, 1996),
due on demand, scheduled maturity of June 1997,
collateralized by substantially all of the
Company's assets, $93,400 available at September
30, 1996. ....................................... $ 13,039 $ 29,194 $ 47,600 $ 56,600
Mortgage note payable, bearing interest at the
bank's base rate plus 1% (9 1/4% at September 30,
1996), with monthly principal and interest
payments of $2,057 (adjusted periodically)
through December 1999, with a balloon payment,
including all unpaid principal and interest, due
December 1999. Collateralized by all of the
Company's assets. ............................... 143,500 195,386 192,793 191,187
Various notes payable, bearing interest at rates
ranging from 6.42% to 11.50%, with various
monthly payments of $391, with maturity dates
through 2000; collateralized by certain Company
vehicles. ....................................... 20,656 38,305 29,730 26,194
Promissory note payable, unsecured, bearing
interest at 9% due monthly. Principal reductions
of $10,000, $30,000 and $30,000 are due in
September 1996, January 1997 and January 1998,
respectively;.................................... 0 0 70,000 60,000
-------- -------- -------- --------
Total.................................... 177,195 262,885 340,123 333,981
Less portion due within one year......... 22,885 50,118 106,201 104,040
-------- -------- -------- --------
Long term obligations, net of current
maturities............................. $154,310 $212,767 $233,922 $ 229,941
======== ======== ======== ========
</TABLE>
Annual maturities of long-term obligations for the three years subsequent
to September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 61,331
1999............................................................ 19,841
2000............................................................ 148,769
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
In conjunction with the Merger discussed in Note 7, the Company distributed
land and a building with a net book value of approximately $283,000 as of
September 30, 1996 to the stockholders as a non-cash dividend and entered into
an operating lease for use of the facilities. The lease contains three options
for renewal for a period of five years each beginning in November 1996 for an
annual rate of $83,160.
Rent expense was approximately $40,000, $44,000, $9,000, $4,000, $6,000 and
$11,000 for 1993, 1994, 1995, for the six months ended June 30, 1996 and for the
(unaudited) nine months ended September 30, 1995 and 1996 respectively.
F-65
<PAGE> 124
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS:
In July 1996, the Company and its stockholders entered into a definitive
agreement with Medical Manager Corporation ("MMC") providing for the Merger of
the Company with a subsidiary of MMC. All outstanding shares of the Company's
common stock will be exchanged for cash and shares of MMC's common stock
concurrent with the consummation of the initial public offering of the common
stock of MMC. In addition, in connection with the merger, the Company will elect
to terminate its S corporation status and will be required to effect the asset
and liability method of accounting for deferred income taxes. Under this method,
deferred tax assets and liabilities are established based on the differences
between financial statement and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Had the Company elected to terminate its S corporation status
immediately prior to September 30, 1996, the Company would have been required to
establish a deferred tax asset of approximately $90,000 related primarily to the
use of different methods of accounting for deferred revenue for tax and
financial reporting purposes.
Purchases of software from one of the other companies which have also
entered into definitive merger agreements with MMC totaled approximately
$87,000, $169,000, $230,000, $164,000, $192,000 and $224,000 for 1993, 1994 and
1995 for the six months ended June 30, 1996 and for the (unaudited) nine months
ended September 30, 1995 and 1996 respectively.
In the course of MMC's consolidation efforts, MMC undertook preliminary
discussions with certain dealers of The Medical Manager practice management
system to determine their suitability to be acquired by MMC in connection with
the proposed transactions. One of such dealers, Computer Clinic, Inc.,
threatened litigation against MMC and certain of the Founding Companies
alleging, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include such dealer as one of the Founding Companies. In
connection with such threatened litigation, such dealer is seeking damages in
the amount of $15 million, together with costs and expenses, and is demanding
that MMC and such Founding Companies cease such activities. On December 31,
1996, counsel to MMC received telephonic notice from counsel to such dealer that
a lawsuit with respect to the foregoing matters had been filed that day in
federal court. Neither MMC nor any of such Founding Companies has been served
with such lawsuit. MMC and the Founding Companies intend to defend themselves
vigorously against any such action.
F-66
<PAGE> 125
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
GBP With Excellence, Inc.
and
National Medical Systems, Inc.
We have audited the accompanying balance sheet of GBP With Excellence, Inc.
as of December 31, 1995 and the related statements of operations and accumulated
deficit and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GBP With Excellence, Inc. as
of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, on January 29, 1996,
substantially all of the assets of GBP With Excellence, Inc. were sold to
National Medical Systems, Inc., pursuant to an asset purchase agreement dated
January 12, 1996.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 10, 1996
F-67
<PAGE> 126
GBP WITH EXCELLENCE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 24,381
Accounts receivable........................................................ 60,328
Inventory.................................................................. 6,096
Prepaid expenses and other current assets.................................. 2,298
-----------
Total current assets............................................... 93,103
PROPERTY AND EQUIPMENT, net.................................................. 19,417
OTHER ASSETS................................................................. 6,160
-----------
Total assets....................................................... $ 118,680
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term obligations................................ $ 353,403
Accounts payable and accrued liabilities................................... 214,763
Customer deposits and deferred maintenance revenue......................... 305,286
-----------
Total current liabilities.......................................... 873,452
LONG-TERM OBLIGATIONS, net of current maturities............................. 29,147
-----------
Total liabilities.................................................. 902,599
-----------
Commitments and contingencies (Note 5)
STOCKHOLDERS' DEFICIT
Common stock, $1.00 par value, 1,000 shares authorized, issued and
outstanding............................................................. 1,000
Additional paid-in capital................................................. 233,433
Accumulated deficit........................................................ (1,018,352)
-----------
Total stockholders' deficit........................................ (783,919)
-----------
Total liabilities and stockholders' deficit........................ $ 118,680
===========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 127
GBP WITH EXCELLENCE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995
(UNAUDITED)
<S> <C> <C>
Revenue
Systems.................................................. $ 1,551,807 $ 1,265,307
Maintenance and other.................................... 1,009,026 542,274
----------- -----------
Total revenues........................................ 2,560,833 1,807,581
----------- -----------
Cost of revenue
Systems.................................................. 1,274,165 903,300
Maintenance and other.................................... 560,852 366,150
----------- -----------
Total costs of revenue................................ 1,835,017 1,269,450
----------- -----------
Gross margin..................................... 725,816 538,131
----------- -----------
Operating expenses
Selling, general and administrative...................... 752,114 611,839
Depreciation expense..................................... 21,957 15,300
----------- -----------
Total operating expenses.............................. 774,071 627,139
----------- -----------
Loss from operations............................. (48,255) (89,008)
Interest expense........................................... (31,259) (21,692)
----------- -----------
Net loss................................................... (79,514) (110,700)
Accumulated deficit
Beginning of period...................................... (938,838) (938,838)
----------- -----------
End of period............................................ $(1,018,352) $(1,049,538)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 128
GBP WITH EXCELLENCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (79,514) $(110,700)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................... 21,957 15,300
Changes in assets and liabilities
Accounts receivable................................... 121,567 120,965
Inventory............................................. 75,295 61,960
Prepaid expenses and other current assets............. (2,091) 2,177
Accounts payable and accrued liabilities.............. (14,014) (49,410)
Customer deposits and deferred maintenance revenue.... (253,303) (184,468)
--------- ---------
Net cash used in operating activities.................... (130,103) (144,176)
Cash flow from investing activities:
Purchases of property and equipment...................... (6,178) (37,148)
--------- ---------
Net cash used in investing activities.................... (6,178) (37,148)
Cash flow from financing activities:
Proceeds from issuance of long-term obligations.......... 87,715 135,652
Payment on short-term and long-term obligations.......... (60,813) (82,895)
--------- ---------
Net cash provided by financing activities................ 26,902 52,757
--------- ---------
Net change in cash and cash equivalents.................... (109,379) (128,567)
Cash and cash equivalents:
Beginning of period...................................... 133,760 133,760
--------- ---------
End of period............................................ $ 24,381 $ 5,193
========= =========
Cash paid for interest................................... $ 31,259
=========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 129
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
GBP With Excellence, Inc. (the "Company") was an independent dealer for The
Medical Manager physician practice management system that is sold to clients
primarily in Central Florida. In January 1996, substantially all of the
Company's operating assets were sold to National Medical Systems, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Company as
of September 30, 1995, and for the nine months then ended, are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments) have
been recorded that, in the opinion of management, are necessary for a fair
presentation. Results of operations for the interim period are not necessarily
indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services is recognized as the services are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon revenue, which basis management believes to be reasonable.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable. The Company's credit concentrations are limited due to the
wide variety of customers and the geographic areas into which the Company's
systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturity dates of three
months or less when purchased to be cash equivalents.
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on accelerated methods over the
estimated useful lives of the assets.
Income Taxes. The Company has elected S corporation status, as defined by
the Internal Revenue Code of 1986, whereby the Company is not subject to
taxation for federal purposes. Instead, the taxable income or loss of the S
corporation is included in the individual income tax returns of the Company's
stockholders for federal income tax purposes.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
F-71
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Furniture and equipment.......................................... $ 92,302
Computers........................................................ 57,040
-------
149,342
Less accumulated depreciation.......................... (129,925)
-------
$ 19,417
=======
</TABLE>
4. NOTES PAYABLE:
Notes payable consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
Revolving line of credit, $100,000 available principal, monthly
interest at prime plus 1% (9 1/4% at December 31, 1995),
principal due on demand, collateralized by accounts receivable
and other assets, guaranteed by the Company's stockholders.... $ 65,716
Note payable, monthly payments of $4,057 with interest at 9%,
balloon payment of $202,070 due 1998, unsecured............... 260,666
Note payable, monthly payments of $507 with interest at 9%,
balloon payment of $25,259 due 1998, unsecured................ 32,584
Note payable, monthly payments of $997 with interest at 10%, due
1996, unsecured............................................... 5,814
Note payable, monthly payments of $1,015 with interest at 10%,
due 1997, unsecured........................................... 17,770
-------
Total................................................. 382,550
Less portion due within one year...................... 353,403
-------
Long term obligations, net of current maturities...... $ 29,147
=======
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under operating leases. Future
minimum rental commitments under noncancelable operating leases were
approximately as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996......................................................... $ 43,000
1997......................................................... 44,000
1998......................................................... 15,000
--------
Total................................................... $102,000
========
</TABLE>
Rent expense was approximately $51,000 and $38,000 for 1995 and for the
nine months ended September 30, 1995 (unaudited).
F-72
<PAGE> 131
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Medix, Inc.
and
National Medical Systems, Inc.
We have audited the accompanying statements of financial position of
Medical Manager Division of Medix, Inc. as of December 31, 1994 and 1995 and
June 30, 1996 and the related statements of operations and cash flows for each
of the two years in the period ended December 31, 1995 and for the six months
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medical Manager Division of
Medix, Inc. as of December 31, 1994 and 1995 and June 30, 1996 and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1995 and for the six months ended June 30, 1996 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective September 1,
1996, Medical Manager Division's management was taken over by National Medical
Systems, Inc., pursuant to a management services agreement and option to
purchase agreement, both dated September 1, 1996.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 1, 1996
F-73
<PAGE> 132
MEDICAL MANAGER DIVISION
FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996 SEPTEMBER 30, 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Accounts receivable....... $ 781,707 $ 417,584 $ 292,692 $382,100
Inventory................. 251,102 210,929 186,432 191,786
Prepaid expenses and other
current assets......... 0 341,670 317,675 314,650
----------- ----------- --------- --------
Total current
assets.......... 1,032,809 970,183 796,799 888,536
PROPERTY AND EQUIPMENT,
net....................... 183,178 152,804 128,672 102,682
----------- ----------- --------- --------
Total assets...... $ 1,215,987 $ 1,122,987 $ 925,471 $991,218
=========== =========== ========= ========
LIABILITIES AND DIVISIONAL
EQUITY
CURRENT LIABILITIES
Customer deposits and
deferred maintenance
revenue................ $ 488,618 $ 657,984 $ 790,833 $601,886
----------- ----------- --------- --------
Total
liabilities..... 488,618 657,984 790,833 601,886
----------- ----------- --------- --------
Commitments and
contingencies (Note 5)
DIVISIONAL EQUITY
Divisional equity......... 727,369 465,003 134,638 389,332
----------- ----------- --------- --------
Total divisional
equity.......... 727,369 465,003 134,638 389,332
----------- ----------- --------- --------
Total liabilities
and divisional
equity.......... $ 1,215,987 $ 1,122,987 $ 925,471 $991,218
=========== =========== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE> 133
MEDICAL MANAGER DIVISION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- JUNE 30, -------------------------
1994 1995 1996 1995 1996
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Systems.................... $2,405,039 $ 519,959 $ 223,126 $ 472,455 $ 278,121
Maintenance and other...... 3,463,369 3,943,654 1,884,515 2,924,426 2,950,479
---------- ---------- ---------- ---------- ----------
Total revenues.......... 5,868,408 4,463,613 2,107,641 3,396,881 3,228,600
---------- ---------- ---------- ---------- ----------
Cost of revenue
Systems.................... 1,602,664 360,676 161,868 367,471 194,789
Maintenance and other...... 2,728,861 2,828,966 1,441,218 2,080,117 1,934,033
---------- ---------- ---------- ---------- ----------
Total costs of
revenue............... 4,331,525 3,189,642 1,603,086 2,447,588 2,128,822
---------- ---------- ---------- ---------- ----------
Gross margin.......... 1,536,883 1,273,971 504,555 949,293 1,099,778
---------- ---------- ---------- ---------- ----------
Operating expenses
Selling, general and
administrative.......... 1,235,313 1,188,753 673,956 862,102 898,899
Depreciation and
amortization............ 99,394 90,192 44,701 56,378 64,760
---------- ---------- ---------- ---------- ----------
Total operating
expenses.............. 1,334,707 1,278,945 718,657 918,480 963,659
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations......... 202,176 (4,974) (214,102) 30,813 136,119
Other income (expense)
Interest expense........... (58,818) (59,720) (29,273) (57,796) (40,437)
Interest income............ 26,167 15,154 10,546 12,723 10,779
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes...................... 169,525 (49,540) (232,829) (14,260) 106,461
Income taxes (benefit)....... 59,334 (9,908) (46,566) (2,852) 37,261
---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 110,191 $ (39,632) $ (186,263) $ (11,408) $ 69,200
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 134
MEDICAL MANAGER DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SIX MONTHS SEPTEMBER 30,
--------------------- ENDED -------------------------
1994 1995 JUNE 30, 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $ 110,191 $ (39,632) $(186,263) $ (11,408) $ 69,200
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.... 99,394 90,192 44,701 56,378 64,760
Changes in assets and liabilities,
net of effects from acquisitions:
Accounts receivable.............. (31,483) 364,123 124,892 363,518 35,484
Inventory........................ (36,371) 40,173 24,497 (7,255) 19,143
Prepaid expenses and other
current assets................. 87,575 (341,670) 23,995 (344,775) 27,020
Customer deposits and deferred
maintenance revenue............ 101,406 169,366 132,849 228,758 (56,098)
--------- --------- --------- --------- ---------
Net cash provided by operating
activities..................... 330,712 282,552 164,671 285,216 159,509
Cash flow from investing activities:
Purchases of property and
equipment...................... (128,325) (59,818) (20,569) (40,302) (14,638)
--------- --------- --------- --------- ---------
Net cash used in investing
activities..................... (128,325) (59,818) (20,569) (40,302) (14,638)
Cash flow from financing activities:
Net remittances to Medix, Inc.... (202,387) (222,734) (144,102) (244,914) (144,871)
--------- --------- --------- --------- ---------
Net cash used in financing
activities..................... (202,387) (222,734) (144,102) (244,914) (144,871)
--------- --------- --------- --------- ---------
Net change in cash and cash
equivalents......................... $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Medical Manager Division (the "Division"), a wholly-owned division of
Medix, Inc. ("Medix"), whose parent is Blue Cross and Blue Shield of New Jersey,
Inc. (BCBSNJ), markets and supports "The System by Medix," a private label
physician practice management system, to clients primarily in New Jersey and New
York. The system is licensed from Personalized Programming, Inc., the developer
of the system.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Effective September 1, 1996, Medix
entered into a management services agreement and an option agreement with
National Medical Systems, Inc. ("NMS") that provides for NMS to manage the
Division pending its sale to NMS.
BCBSNJ provides certain services to, and incurs certain costs on behalf of,
its subsidiaries and divisions. These costs, which include office space,
employee benefit and executive compensation programs, retirement savings and
health plans, treasury, accounting, data processing, legal, administrative and
business insurance, are allocated to BCBSNJ's subsidiaries, including Medix and
ultimately to the Division, on a pro-rata basis based on applicable allocation
statistics that include square footage occupied, number of employees and data
processing usage. Liabilities related to the benefit plans described above are
not fully reflected in the statement of financial position. Interest income and
expense are also allocated. As such, these financial statements are not
necessarily indicative of the financial position or the results of operations
had the Division been operated as an unaffiliated company. However, management
believes that with respect to expenses, the amounts reflected in the statements
of operation are not less than the amounts the Division would have incurred had
the Division been an unaffiliated company in those periods, and the allocation
process is reasonable.
These financial statements present the results of operations for the years
ended December 31, 1994 and 1995 and for the six months ended June 30, 1996 and
for the (unaudited) nine months ended September 30, 1995 and 1996 and the
financial position at December 31, 1994 and 1995 and June 30, 1996 and
(unaudited) September 30, 1996. The effects of the pending purchase by NMS,
including purchase accounting by the acquiror, have not been reflected in these
financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information. The financial statements of the Division as
of September 30, 1995 and 1996, and for the nine months then ended, are
unaudited. All adjustments and accruals (consisting only of normal recurring
adjustments) have been recorded, which, in the opinion of management, are
necessary for a fair presentation. Results of operations for the interim periods
are not necessarily indicative of the results for the full year.
Revenue Recognition. Revenue from the sale of systems is recognized when
the system has been installed and the related client training has been
completed. Amounts billed in advance of installation and pending completion of
remaining significant obligations are deferred. Revenue from support and
maintenance contracts is recognized as the services are performed ratably over
the contract period, which typically does not exceed one year. Revenue from
other services are recognized as they are provided. Certain expenses are
allocated between the cost of sales for systems and maintenance and other based
upon revenue which management believes to be a reasonable basis.
Concentration of Credit Risk. Financial instruments that potentially
subject the Division to concentrations of credit risk consist principally of
accounts receivable. The Division's credit concentrations are limited due to the
wide variety of customers and the geographic areas into which the Division's
systems and services are sold.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Division considers all highly liquid investments with maturity dates of
three months or less when purchased to be cash equivalents.
F-77
<PAGE> 136
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Inventory. Inventory primarily consists of computers, peripheral equipment
and replacement parts. Inventory cost is accounted for on the first-in,
first-out basis and reported at the lower of cost or market.
Property and Equipment. Property and equipment are stated at cost.
Additions and major renewals are capitalized. Repairs and maintenance are
charged to expense as incurred. Upon disposal, the related cost and accumulated
depreciation are removed from the accounts, with the resulting gain or loss
included in income. Depreciation is provided on accelerated methods over the
estimated useful lives of the assets.
Income Taxes. The Division participates in the consolidated federal income
tax return of BCBSNJ. Under terms of an agreement between Medix and BCBSNJ,
income tax provisions are allocated at 35% of income before income taxes and
income tax benefits at 20% of loss before income taxes for financial reporting
purposes. The Division's current income taxes payable or receivable are included
in divisional equity in the accompanying statements of financial position.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates; however,
management does not believe these differences would have a material effect on
operating results.
New Accounting Pronouncements. Statements of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed Of, is effective for years beginning
after December 15, 1995. This Statement requires that long-lived assets and
certain intangibles to be held and used by the Company be reviewed for
impairment. This pronouncement is not expected to have a material impact on the
financial statements of the Company.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Property and equipment consisted of the
following:
Furniture and equipment.......................... $1,105,744 $ 679,500 $ 683,999 $ 683,999
Less accumulated depreciation............... (922,566) (526,696) (555,327) (581,317)
--------- --------- -------- --------
$ 183,178 $ 152,804 $ 128,672 $ 102,682
========= ========= ======== ========
</TABLE>
F-78
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS
4. DIVISIONAL EQUITY:
Divisional equity reflects the historical activity between the Division and
Medix. An analysis of the changes in divisional equity is as follows:
<TABLE>
<S> <C>
Balance January 1, 1994.................................................. $ 819,565
Net income............................................................... 110,191
Net remittances to Medix................................................. (202,387)
---------
Balance December 31, 1994................................................ 727,369
Net loss................................................................. (39,632)
Net remittances to Medix................................................. (222,734)
---------
Balance December 31, 1995................................................ 465,003
Net loss................................................................. (186,263)
Net remittances to Medix................................................. (144,102)
---------
Balance June 30, 1996.................................................... 134,638
---------
Net income............................................................... 255,463
Net remittances to Medix................................................. (769)
Balance September 30, 1996 (unaudited)................................... $ 389,332
=========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
Medix leases its office facilities, including those utilized by the
Division, from BCBSNJ under the terms of an operating lease that expires in
December 1998. In conjunction with the purchase by NMS, operations of the
Division will be moved to another location. The Division will not be responsible
for obligations under the existing lease after the relocation.
Rent expense allocated to the Division totaled $145,000, $155,000, $78,000,
$100,000 and $89,000 for 1994 and 1995, for the six months ended June 30, 1996
and the (unaudited) nine months ended September 30, 1995 and 1996, respectively.
F-79
<PAGE> 138
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 11
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 32
Management............................ 44
Certain Transactions.................. 49
Principal Stockholders................ 51
Description of Capital Stock.......... 51
Shares Eligible For Future Sale....... 54
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 57
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 1997 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,000,000 SHARES
MEDICAL MANAGER CORPORATION LOGO
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this Offering. All of
such amounts (except the SEC Registration Fee, the Nasdaq National Market
Listing Fee and the NASD Filing Fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee....................................................... $ 31,363.63
Nasdaq National Market Listing Fee......................................... 50,000.00
NASD Filing Fee............................................................ 10,850.00
Blue Sky Fees and Expenses................................................. 20,000.00
Printing and Engraving Costs............................................... 500,000.00
Legal Fees and Expenses.................................................... 1,000,000.00
Accounting Fees and Expenses............................................... 400,000.00
Transfer Agent and Registrar Fees and Expenses............................. 3,000.00
Miscellaneous.............................................................. 304,786.37
----------
Total............................................................ $2,320,000.00
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
Article Seven of the Company's Certificate of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which makes directors liable for unlawful dividends or
unlawful stock repurchases or redemptions, or (d) for transactions from which
directors derive improper personal benefit.
Section 7 of the Underwriting Agreement filed as Exhibit 1.1 provides that
the Underwriters named therein will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). Section 7 of such Underwriting Agreement also
provides that such Underwriters will contribute to certain liabilities of such
persons under the Securities Act.
II-1
<PAGE> 140
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued or
sold by the Company within the past three years which were not registered under
the Securities Act:
In July 1996, the Company sold one share of Common Stock to each of
John H. Kang, Ricardo A. Salas and Wayne Burks at a price of $1.00 per
share.
Simultaneously with the completion of this Offering, the Company will issue
11,470,331 shares of its Common Stock in connection with the Mergers of the five
Founding Companies.
Each of these transactions was effected without registration of the
relevant security under the Securities Act in reliance upon the exemption
provided by Section 4(2) of, and/or Regulation D under, the Securities Act for
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <C> <S>
1 -- Form of Underwriting Agreement
2.1 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, Personalized Programming, Inc., PPI Acquisition I Corp. and the Stockholder named
therein*
2.2 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, Systems Plus, Inc., Systems Plus Distribution, Inc., SPI Acquisition I Corp.,
SPDI Acquisition I Corp. and the Stockholder named therein*
2.3 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, National Medical Systems, Inc., NMS Acquisition I Corp. and the Stockholders
named therein*
2.4 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, RTI Business Systems, Inc., RTI Acquisition I Corp. and the Stockholders named
therein*
2.5 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and among the
Company, Systems Management, Inc., SMI Acquisition I Corp. and the Stockholders named
therein*
3.1 -- Certificate of Incorporation of the Company*
3.2 -- By-laws of the Company*
4 -- Form of certificate evidencing ownership of Common Stock of the Company*
5 -- Opinion of Morgan, Lewis & Bockius LLP*
10.1 -- 1996 Long-Term Incentive Plan of the Company*
10.2 -- 1996 Non-Employee Directors' Stock Plan of the Company
10.3 -- Form of Employment Agreement between the Company and Michael A. Singer*
10.4 -- Form of Employment Agreement between the Company and Richard W. Mehrlich*
10.5 -- Form of Employment Agreement between the Company and John H. Kang*
10.6 -- Form of Employment Agreement between the Company and Frederick B. Karl, Jr.*
10.7 -- Employment Agreement, dated as of November 25, 1996, between the Company and Lee A.
Robbins
10.8 -- Form of Employment Agreement between the Company and Henry W. Holbrook*
10.9 -- Form of Employment Agreement between the Company and Thomas P. Liddell*
10.10 -- Lease between PPI Holding Company, Inc. and Personalized Programming, Inc., dated March
12, 1996, as amended*
10.11 -- Form of Lease between Liddell, L.L.C. and Systems Management, Inc.
10.12 -- Master License Agreement between Personalized Programming, Inc. and Systems Plus, Inc.
dated November 15, 1982, together with eight addenda thereto*
</TABLE>
II-2
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <C> <S>
10.13 -- Management Services Agreement and Option Agreement, dated as of September 1, 1996, between
Medix, Inc. and National Medical Systems, Inc.*
10.14 -- Stock Purchase Agreement, dated as of December 26, 1996, by and among the Company,
National Medical Systems, Inc. and Electronic Data Systems Corporation
21 -- List of subsidiaries of the Company*
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)*
23.3 -- Consent of Michael A. Singer to be named as a director*
23.4 -- Consent of Richard W. Mehrlich to be named as a director*
24 -- Powers of Attorney*
27 -- Financial Data Schedule (for SEC use only)*
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this Offering of such securities at that time shall be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
Florida, on the 6th day of January, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ JOHN H. KANG
---------------------------------------
John H. Kang
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------ ----------------
<C> <S> <C>
/s/ JOHN H. KANG President and Director (Principal January 6, 1997
- --------------------------------------------- Executive Officer)
John H. Kang
/s/ WAYNE BURKS Vice President, Chief Financial January 6, 1997
- --------------------------------------------- Officer and Director (Principal
Wayne Burks Financial and Accounting Officer)
/s/ RICARDO A. SALAS Vice President, Secretary and January 6, 1997
- --------------------------------------------- Director
Ricardo A. Salas
</TABLE>
II-4
<PAGE> 143
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ---------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1 -- Form of Underwriting Agreement..............................................
2.1 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, Personalized Programming, Inc., PPI Acquisition I Corp.
and the Stockholder named therein*..........................................
2.2 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, Systems Plus, Inc., Systems Plus Distribution, Inc., SPI
Acquisition I Corp., SPDI Acquisition I Corp. and the Stockholder named
therein*....................................................................
2.3 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, National Medical Systems, Inc., NMS Acquisition I Corp.
and the Stockholders named therein*.........................................
2.4 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, RTI Business Systems, Inc., RTI Acquisition I Corp. and
the Stockholders named therein*.............................................
2.5 -- Agreement and Plan of Reorganization, dated as of September 30, 1996, by and
among the Company, Systems Management, Inc., SMI Acquisition I Corp. and the
Stockholders named therein*.................................................
3.1 -- Certificate of Incorporation of the Company*................................
3.2 -- By-laws of the Company*.....................................................
4 -- Form of certificate evidencing ownership of Common Stock of the Company*....
5 -- Opinion of Morgan, Lewis & Bockius LLP*.....................................
10.1 -- 1996 Long-Term Incentive Plan of the Company*...............................
10.2 -- 1996 Non-Employee Directors' Stock Plan of the Company......................
10.3 -- Form of Employment Agreement between the Company and Michael A. Singer*.....
10.4 -- Form of Employment Agreement between the Company and Richard W. Mehrlich*...
10.5 -- Form of Employment Agreement between the Company and John H. Kang*..........
10.6 -- Form of Employment Agreement between the Company and Frederick B. Karl,
Jr.*........................................................................
10.7 -- Employment Agreement, dated as of November 25, 1996, between the Company and
Lee A. Robbins..............................................................
10.8 -- Form of Employment Agreement between the Company and Henry W. Holbrook*.....
10.9 -- Form of Employment Agreement between the Company and Thomas P. Liddell*.....
10.10 -- Lease between PPI Holding Company, Inc. and Personalized Programming, Inc.,
dated March 12, 1996, as amended.*..........................................
10.11 -- Form of Lease between Liddell, L.L.C. and Systems Management, Inc...........
10.12 -- Master License Agreement between Personalized Programming, Inc. and Systems.
Plus, Inc. dated November 15, 1982, together with eight addenda thereto*....
10.13 -- Management Services Agreement and Option Agreement, dated as of September 1,
1996, between Medix, Inc. and National Medical Systems, Inc.*...............
10.14 -- Stock Purchase Agreement, dated as of December 26, 1996, by and among the
Company, National Medical Systems, Inc. and Electronic Data Systems
Corporation.................................................................
21 -- List of subsidiaries of the Company*........................................
23.1 -- Consent of Coopers & Lybrand L.L.P..........................................
23.2 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)*..........
23.3 -- Consent of Michael A. Singer to be named as a director*.....................
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ---------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
23.4 -- Consent of Richard W. Mehrlich to be named as a director*...................
24 -- Powers of Attorney*.........................................................
27 -- Financial Data Schedule (for SEC use only)*.................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1
6,000,000 Shares
MEDICAL MANAGER CORPORATION
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
As representatives of the
several underwriters
named in Schedule I hereto
277 Park Avenue
New York, New York 10172
Attn: Equity Capital Markets
Ladies and Gentlemen:
Medical Manager Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell 6,000,000 shares of its common stock, par
value $0.01 per share (the "Firm Shares") to the several underwriters named in
Schedule I hereto (the "Underwriters"). The Company also proposes to issue and
sell to the several Underwriters not more than 900,000 additional shares of its
common stock, par value $0.01 per share (the "Additional Shares"), if requested
by the Underwriters as provided in Section 2 hereof. The Firm Shares and the
Additional Shares are herein collectively called the "Shares." The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock."
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively called the "Act"), a registration statement on Form S-1 including
a prospectus relating to the Shares, which may be amended. The registration
statement as amended at the time when it becomes effective, including a
registration statement (if any) filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act and information (if
any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "Registration Statement"; and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred as the "Prospectus."
<PAGE> 2
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company at a price per
share of $___ (the "Purchase Price") the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to issue and sell the Additional Shares and the Underwriters shall have the
right to purchase, severally and not jointly, up to 900,000 Additional Shares
from the Company at the Purchase Price. Additional Shares may be purchased
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. The Underwriters may exercise their right to
purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Company within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and such
notice shall specify the aggregate number of Additional Shares to be purchased
pursuant to such exercise and the date for payment and delivery thereof. The
date specified in any such notice shall be a business day (i) no earlier than
the Closing Date (as hereinafter defined), (ii) no later than ten business days
after such notice has been given and (iii) no earlier than two business days
after such notice has been given. If any Additional Shares are to be purchased,
each Underwriter, severally and not jointly, agrees to purchase from the Company
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) which bears the same proportion to the
total number of Additional Shares to be purchased from the Company as the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
bears to the total number of Firm Shares.
The Company hereby agrees and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company, and (ii) each stockholder listed on Annex
I hereto, pursuant to which the Company and each such person agrees not to
offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose of any Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for any Common Stock or in any other manner transfer
all or a portion of the economic consequences associated with the ownership of
any such common stock, except to the Underwriters pursuant to this Agreement,
for a period of 180 days after the date of the Prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Notwithstanding the foregoing, during such period the Company may (i) issue
shares of Common Stock (or other securities convertible into or exchangeable or
exercisable for Common Stock or derivatives therefrom) in connection with the
acquisition of another business (whether in an asset purchase, stock purchase,
merger, joint venture or other type of transaction), (ii) grant stock options
pursuant to the Company's existing stock option plan, and (iii) issue shares of
its common stock upon the exercise of an option or warrant or the conversion of
a security outstanding on the date hereof.
3. Terms of Public Offering. The Company is advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the effective date of the Registration
Statement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
2
<PAGE> 3
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(the "Closing Date"), following the date of the initial public
offering, at such place as you shall designate. The Closing Date and the
location of delivery of and the form of payment for the Firm Shares may be
varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at such place as you
shall designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
the form of payment for such Additional Shares may be varied by agreement
between you and the Company.
Certificates for the Shares shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or an Option Closing Date, as
the case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next preceding
the Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the applicable Option Closing Date, as the case may be,
with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by wire or certified or official bank checks payable in Federal funds
to the order of the Company.
5. Agreements of the Company. The Company agrees with you:
(a) To use its best efforts to cause the Registration
Statement to become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment to it becomes
effective, (ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information, (iii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation of any
proceeding for such purposes, and (iv) of the happening of any event
during the period referred to in paragraph (e) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires the making of any additions to or
changes in the Registration Statement or the Prospectus in order to
make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable
effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
3
<PAGE> 4
(c) To furnish to you, without charge, four signed copies of
the Registration Statement as first filed with the Commission and of
each amendment to it, including all exhibits, and to furnish to you and
each Underwriter designated by you such number of conformed copies of
the Registration Statement as so filed and of each amendment to it,
without exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to
which you shall reasonably object; and to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the
Shares by you, and to use its best efforts to cause the same to become
promptly effective.
(e) Promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as in the
opinion of counsel for the Underwriters a prospectus is required by law
to be delivered in connection with sales by an Underwriter or a dealer,
to furnish to each Underwriter and dealer as many copies of the
Prospectus (and of any supplement to the Prospectus) as such
Underwriter or dealer may reasonably request.
(f) If during the period specified in paragraph (e) any event
shall occur as a result of which, in the opinion of counsel for the
Underwriters it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus
to comply with any law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so
that the statements in the Prospectus, as so amended or supplemented,
will not in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with law, and to
furnish to each Underwriter and to such dealers as you shall specify,
such number of copies thereof as such Underwriter or dealers may
reasonably request.
(g) Prior to any public offering of the Shares, to cooperate
with you and counsel for the Underwriters in connection with the
registration or qualification of the Shares for offer and sale by the
several Underwriters and by dealers under the state securities or Blue
Sky laws of such jurisdictions as you may request, to continue such
qualification in effect so long as required for distribution of the
Shares and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification.
(h) To mail and make generally available to its stockholders
as soon as reasonably practicable an earnings statement covering a
period of at least twelve months after the effective date of the
Registration Statement (but in no event commencing later than 90 days
after such date) which shall satisfy the provisions of Section 11(a) of
the Act
4
<PAGE> 5
and Rule 158 under the Act, and to advise you in writing when such
statement has been so made available.
(i) During the period of five years after the date of this
Agreement, (i) to mail as soon as reasonably practicable after the end
of each fiscal year to the record holders of its Common Stock a
financial report of the Company and its subsidiaries (as set forth in
Annex II hereto) on a consolidated basis (and a similar financial
report of all unconsolidated subsidiaries, if any), all such financial
reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of
and for the preceding year, certified by independent certified public
accountants, and (ii) to mail and make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a consolidated
balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of
all unconsolidated subsidiaries, if any) as of the end of and for such
period, and for the period from the beginning of such year to the close
of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish
to you as soon as available a copy of each report or other publicly
available information of the Company mailed to the holders of Common
Stock or filed with the Commission and such other publicly available
information concerning the Company and its subsidiaries as you may
reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i)
the preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits),
each preliminary prospectus and all amendments and supplements to any
of them prior to or during the period specified in paragraph (e), (ii)
the printing and delivery of the Prospectus and all amendments or
supplements to it during the period specified in paragraph (e), (iii)
the printing and delivery of this Agreement, the Preliminary and
Supplemental Blue Sky Memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection
with the offering of the Shares (including in each case any
disbursements of counsel for the Underwriters relating to such printing
and delivery), (iv) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several
states (including in each case the fees and disbursements of counsel
for the Underwriters relating to such registration or qualification and
memoranda relating thereto), (v) filings and clearance with the
National Association of Securities Dealers, Inc. in connection with the
offering, (vi) the listing of the Shares on the National Association of
Securities Dealers Automated Quotation system ("NASDAQ") National
Market System and (vii) furnishing such copies of the Registration
Statement, the Prospectus and all amendments and supplements thereto as
may be requested for use in connection with the offering or sale of the
Shares by the Underwriters or by dealers to whom Shares may be sold.
5
<PAGE> 6
(l) To use its best efforts to maintain the inclusion of such
Common Stock in the NASDAQ National Market System (or on a national
securities exchange) for a period of five years after the effective
date of the Registration Statement.
(m) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by
the Company prior to the Closing Date or any Option Closing Date, as
the case may be, and to satisfy all conditions precedent to the
delivery of the Shares.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such
part became effective, did not contain and each such part, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Act and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph (b)
do not apply to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, and each
Registration Statement filed pursuant to Rule 462(b) under the Act, if
any, complied when so filed in all material respects with the Act; and
did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as it is
currently being conducted and as described in the Registration
Statement, and to own, lease and operate its properties, and each is
duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of
its business or its ownership or leasing of property requires such
qualification, except
6
<PAGE> 7
where the failure to be so qualified would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(e) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature.
(f) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights; and
the Shares have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(g) The authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained in the Prospectus.
(h) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of the
business of the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require
any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body
(except as such may be required under the securities or Blue Sky laws
of the various states) and will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
charter or by-laws of the Company or any of its subsidiaries or any
agreement, indenture or other instrument to which it or any of its
subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound, or violate or conflict with any
laws, administrative regulations or rulings or court decrees applicable
to the Company, any of its subsidiaries or their respective property.
(j) Except as otherwise set forth in the Prospectus, there are
no material legal or governmental proceedings (including investigations
and third party payor audits) pending to which the Company or any of
its subsidiaries is a party or of which any of their respective
property is the subject, and, to the best of the Company's knowledge,
no such proceedings are threatened or contemplated. No contract or
document of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement is not so described or filed as required.
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(k) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants,
nor any federal or state law relating to discrimination in the hiring,
promotion or pay of employees nor any applicable federal or state wages
and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder
(collectively, "Laws"), which in each case might result in any material
adverse change in the business, prospects, financial condition or
results of operation of the Company and its subsidiaries, taken as a
whole.
(l) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Laws, as are necessary to own, lease and operate its
respective properties and to conduct its business, the absence of any
of which would have a Material Adverse Effect on the business and
operations of the Company and its subsidiaries taken as a whole; the
Company and each of its subsidiaries has fulfilled and performed all of
its material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except
as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company or any of its
subsidiaries.
(m) The Company owns or possesses enforceable licenses or
other rights to use all patents, patent applications, trademarks,
trademark registrations, service marks, service mark registrations,
trade names, copyrights, trade secrets and know-how (including without
limitation, rights in and to computer software) (collectively, the
"Intellectual Property") which are described in the Prospectus as owned
or used by it or which are necessary for the conduct of its business as
now conducted or proposed to be conducted in the Prospectus, and the
Company is not aware of any claim by a third party to the contrary. To
the best of the Company's knowledge, none of the Company's products,
services or Intellectual Property infringes or conflicts with the
rights or claims of others. The Company knows of no infringement by
others of the Company's Intellectual Property which might result in a
material adverse effect or change in the business, prospects, financial
condition or results of operation of the Company and its subsidiaries
taken as a whole.
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<PAGE> 9
(n) Except as otherwise set forth in the Prospectus or such as
are not material to the business, prospects, financial condition or
results of operation of the Company and its subsidiaries, taken as a
whole, the Company and each of its subsidiaries has good and marketable
title, free and clear of all liens, claims, encumbrances and
restrictions except liens for taxes not yet due and payable, to all
property and assets described in the Registration Statement as being
owned by it. All leases to which the Company or any of its subsidiaries
is a party are valid and binding and no default has occurred or is
continuing thereunder, which might result in any material adverse
change in the business, prospects, financial condition or results of
operation of the Company and its subsidiaries taken as a whole, and the
Company and its subsidiaries enjoy peaceful and undisturbed possession
under all such leases to which any of them is a party as lessee with
such exceptions as do not materially interfere with the use made by the
Company or such subsidiary.
(o) The Company and each of its subsidiaries maintain
reasonably adequate insurance and, to their best knowledge, believe
that they will be able to renew such insurance when it expires.
(p) Coopers & Lybrand L.L.P. are independent public
accountants with respect to the Company as required by the Act.
(q) The financial statements, together with related schedules
and notes forming part of the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the financial
position, results of operations and cash flows of the Company and its
subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein;
and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and
the books and records of the Company.
(r) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(s) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of
the Company.
(t) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(u) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange Act, to register the Common Stock, has
filed an application to list the
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<PAGE> 10
Shares on the Nasdaq National Market, and has received notification
that the listing has been approved, subject to notice of issuance of
the Shares.
(v) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interest in, the
Company or any subsidiary thereof except as otherwise disclosed in the
Registration Statement.
(w) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(x) There is (i) no significant unfair labor practice
complaint pending against the Company or any of its subsidiaries or, to
the best of the Company's knowledge, threatened against any of them,
before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or more significant
arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of its
subsidiaries or, to the best of the Company's knowledge, threatened
against any of them, and (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any of its
subsidiaries or, to the best of the Company's knowledge, threatened
against it or any of its subsidiaries except for such actions specified
in clause (i) or (ii) above, which, singly or in the aggregate could
not reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(y) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(z) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of its
subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided.
(aa) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
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<PAGE> 11
consummation of the transactions contemplated herein (except (i) such
additional steps as may be required by the NASD or may be necessary to
qualify the Shares for public offering by the Underwriters under state
securities or Blue Sky laws and (ii) such approvals, consents, orders,
authorizations, designations, declarations and filings the absence of
which does not and will not have a material adverse effect on the
business or financial condition of the Company and each of its
subsidiaries taken as a whole) has been obtained or made as of the
Closing Date, or the Option Closing Date, as the case may be, and is in
full force and effect as of the Closing Date, or Option Closing Date,
as the case may be. All consents and waivers from all other persons
required in connection with the execution and delivery by the Company
of this Agreement and the consummation of the transactions contemplated
herein have been obtained or made and are in full force and effect as
of the Closing Date (except such consents and waivers the absence of
which do not and will not have a material adverse effect on the
business or financial condition of the Company and each of its
subsidiaries taken as a whole).
(bb) Neither the Company nor, to the Company's knowledge, any
of its affiliates or subsidiaries, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of stock to facilitate the
sale or resale of the Shares.
(cc) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Prospectus.
(dd) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(ee) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Company and this Agreement
has been duly and validly executed and delivered by the Company.
(ff) The Company has obtained from each of the persons listed
on Annex I hereto their agreement that for a period of 180 days from
the date of this Agreement they will not, without the prior consent of
Donaldson, Lufkin Jenrette Securities Corporation, offer, sell or
dispose of any shares of Common Stock of the Company, or any securities
convertible into, exercisable for, or exchangeable for any shares of
Common Stock or derivative therefrom owned by them.
The representations and warranties contained in this Section 6
regarding the Company's subsidiaries apply to the Company's subsidiaries as they
presently exist and as they will exist
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immediately following the closing of the transactions described in those certain
Agreements and Plans of Reorganization each dated as of September 30, 1996, by
and between the Company and its subsidiaries and certain other parties.
7. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriters furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages and liabilities and judgments
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended and supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or judgment.
(b) In case any action shall be brought against any
Underwriter or any person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company, such Underwriter shall promptly notify the Company
in writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses. Any Underwriter or any such controlling person
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the employment of such counsel shall have been specifically authorized in
writing by the Company and (ii) the Company shall have failed to assume the
defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the Company and such Underwriter or such controlling
person shall have been advised by such counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of such Underwriter or such
controlling person, it being understood, however, that the Company shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all
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<PAGE> 13
such Underwriters and controlling persons, which firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation and that all such
fees and expenses shall be reimbursed as they are incurred). The Company shall
not be liable for any settlement of any such action effected without its written
consent but if settled with such written consent, the Company agrees to
indemnify and hold harmless any Underwriter and any such controlling person from
and against any loss or liability by reason of such settlement. Notwithstanding
the immediately preceding sentence, if in any case where the fees and expenses
of counsel are at the expense of the indemnifying party and an indemnified party
shall have requested the indemnifying party to reimburse the indemnified party
for such fees and expenses of counsel as incurred, such indemnifying party
agrees that it shall be liable for any settlement of any action effected without
its written consent if (i) such settlement is entered into more than ten
business days after the receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall have failed to reimburse the
indemnified party in accordance with such request for reimbursement prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter but only
with reference to information relating to such Underwriter furnished in writing
by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any preliminary prospectus. In case
any action shall be brought against the Company, any of its directors, any such
officer, or any person controlling the Company based on the Registration
Statement, the Prospectus or any preliminary prospectus and in respect of which
indemnity may be sought against any Underwriter, the Underwriter shall have the
rights and duties given to the Company (except that if the Company shall have
assumed the defense thereof, such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
Underwriter), and the Company, its directors, any such officers and any person
controlling the Company shall have the rights and duties given to the
Underwriter, by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the
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<PAGE> 14
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by the
Company and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing
Date.
(b) The Registration Statement shall have become effective not
later than 5:00 P.M. (and in the case of a Registration Statement filed
under Rule 462 (b) of the Act, not later than 10:00 P.M.), New York
City time, on the date of this Agreement or at such later date and time
as you may approve in writing, and at the Closing Date no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no
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<PAGE> 15
proceedings for that purpose shall have been commenced or shall be
pending before or contemplated by the Commission.
(c)(i) Since the date of the latest balance sheet included in
the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a
prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, affairs or business prospects, whether
or not arising in the ordinary course of business, of the Company, (ii)
since the date of the latest balance sheet included in the Registration
Statement and the Prospectus there shall not have been any change, or
any development involving a prospective material adverse change, in the
capital stock or in the long-term debt of the Company from that set
forth in the Registration Statement and Prospectus, (iii) the Company
and its subsidiaries shall have no liability or obligation, direct or
contingent, which is material to the Company and its subsidiaries,
taken as a whole, other than those reflected in the Registration
Statement and the Prospectus and (iv) on the Closing Date you shall
have received a certificate of the Company dated the Closing Date,
signed by John H. Kang and Lee A. Robbins, in their capacities as the
President and Chief Executive Officer and Vice President, and Chief
Financial Officer, respectively, of the Company, confirming the matters
set forth in paragraphs (a), (b) and (c) of this Section 8.
(d) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the
Closing Date, of Morgan, Lewis & Bockius LLP, counsel for the Company,
to the effect that:
(i) the Company and each of its subsidiaries has been
duly incorporated, is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority
required to carry on its business as it is currently being
conducted and to own, lease and operate its properties;
(ii) the Company and each of its subsidiaries is duly
qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction as listed on a
schedule attached to the opinion;
(iii) all of the outstanding shares of capital stock
of, or other ownership interests in, each of the Company's
subsidiaries have been duly and validly authorized and issued
and are fully paid and non-assessable, and are owned by the
Company, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature, and, to such
counsel's knowledge, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other
rights to convert any obligations into any shares of capital
stock of the Company's subsidiaries are outstanding, except as
described in or contemplated by the Registration Statement,
including the exhibits thereto;
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(iv) all the outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any statutory or, to such
counsel's knowledge, other preemptive or similar rights;
(v) the Shares have been duly authorized, and when
issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will have been validly
issued and will be fully paid and non-assessable, and the
issuance of such Shares is not subject to any statutory or, to
such counsel's knowledge, other preemptive or similar rights;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance
with its terms (except as rights to indemnity and contribution
hereunder may be limited by applicable law);
(vii) the authorized capital stock of the Company,
including the Common Stock, conforms as to legal matters to
the description thereof contained in the Prospectus;
(viii) the Registration Statement has become
effective under the Act, and, to such counsel's knowledge, no
stop order suspending its effectiveness has been issued and no
proceedings for that purpose are pending before or
contemplated by the Commission;
(ix) the statements under the captions "Description
of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus insofar as such statements constitute a summary of
legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such
legal matters, documents and proceedings. Such counsel does
not know of any laws, rules or regulations or legal or
governmental proceedings applicable to the business of the
Company or any of its subsidiaries required to be described in
the Registration Statement or the Prospectus that are not
described as required;
(x) neither the Company nor any of its subsidiaries
is in violation of its respective charter or by-laws;
(xi) the execution, delivery and performance of this
Agreement by the Company, compliance by the Company with all
the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as
such may be required under the Act or other securities or Blue
Sky laws, as to which such counsel expresses no opinion) and
will not conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or
by-laws of the
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Company or any of its subsidiaries, or, in any respect
material to the Company and its subsidiaries taken as a whole,
any agreement, indenture or other instrument known to such
counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or
their respective properties are bound, or violate or conflict
with any laws, administrative regulations or rulings or court
decrees applicable to the Company or any of its subsidiaries
or their respective properties and no consents or waivers from
any other person, which consent or waiver is in any respect
material to the Company and its subsidiaries taken as a whole,
are required in connection with the execution and delivery of
this Agreement and the consummation of the transactions
contemplated herein and therein, except such as have been
obtained or made;
(xii) such counsel does not know of any legal or
governmental proceeding pending or threatened to which the
Company or any of its subsidiaries is a party or to which any
of their respective property is subject which is required to
be described in the Registration Statement or the Prospectus
and is not so described, or of any contract or other document
which is required to be described in the Registration
Statement or the Prospectus or is required to be filed as an
exhibit to the Registration Statement which is not described
or filed as required;
(xiii) the Company is not an "investment company" or
a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(xiv) to the best of such counsel's knowledge, no
holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security
of the Company;
(xv) the Registration Statement (including any
Registration Statement filed under 462 (b) of the Act, if any)
and the Prospectus and any supplement or amendment thereto
(except for financial statements as to which no opinion need
be expressed) comply as to form in all material respects with
the Act;
(xvi) except as described in or contemplated by the
Prospectus, to the best knowledge of such counsel, there are
no outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as
described in the Prospectus, to the best knowledge of such
counsel, there is no holder of any securities of the Company
or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to
them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Stock or other
securities of the Company included in the Registration
Statement or the right, as a result of the filing of the
Registration
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Statement, to require registration under the Act of any Common
Stock or other securities of the Company.
(xvii) the Shares to be sold under this Agreement to
the Underwriters have been duly approved for listing on the
Nasdaq National Market.
In rendering such opinion Morgan, Lewis & Bockius LLP may
provide that its opinion is limited to matters governed by the laws of New York
and the General Corporation law of the State of Delaware, and the Federal
securities laws of the United States and may rely on counsel to one or more of
the Company's subsidiaries with respect to matters related to such subsidiaries
, provided that, in lieu of such reliance, Morgan, Lewis & Bockius LLP may
provide separate opinions of such counsel so long as such opinions are addressed
to the Underwriters, and further provided, that, in each case, Morgan, Lewis &
Bockius LLP shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set forth
above, such opinion of Morgan, Lewis & Bockius LLP shall also include a
statement of belief to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules or other
financial information therein). With respect to such statement of belief,
Morgan, Lewis & Bockius LLP may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
The opinion of Morgan, Lewis & Bockius LLP described in
paragraph (d) above shall be rendered to you at the request of the Company and
shall so state therein.
(e) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Hogan & Hartson L.L.P., counsel for the
Underwriters, as to the matters referred to in clauses (viii), (ix)
(but only with respect to the statements under the caption "Description
of Capital Stock" and "Underwriting") and (xvii) of the foregoing
paragraph (d). In giving such opinion with respect to the matters
covered by clause (xvii) such counsel may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
(f) You shall have received a letter on and as of the Closing
Date, in form and substance satisfactory to you, from Coopers & Lybrand
L.L.P., independent public accountants, with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus and substantially in the form
18
<PAGE> 19
and substance of the letter delivered to you by Coopers & Lybrand
L.L.P. on the date of this Agreement.
(g) The Company shall have delivered to you the agreements
specified in Section 2 hereof.
(h) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company
at or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
9. Effective Date of Agreement and Termination. This Agreement
shall become effective upon the later of (i) execution of this Agreement and
(ii) when notification of the effectiveness of the Registration Statement has
been released by the Commission.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Company if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or
development involving a prospective material adverse change in the condition,
financial or otherwise, of the Company and its subsidiaries, taken as a whole,
or the earnings, affairs, or business prospects of the Company or any of its
subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business, which would, in your judgment, make it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) any
outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in your judgment, is material and
adverse and would, in your judgment, make it impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus, (iii) the
suspension or material limitation of trading in securities on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market System or
limitation on prices for securities on any such exchange or National Market
System, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business or operations of the
Company or any subsidiary, (v) the declaration of a banking moratorium by either
federal or New York State authorities, (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States or (vii) Electronic Data Systems
Corporation ("EDS") elects not to consummate the transactions contemplated in
that certain Stock Purchase Agreement dated as of December __ 1996, by and
between EDS, the Company and National Medical Systems, Inc. (the "EDS
Agreement") because the conditions to EDS' obligations to consummate such
transactions as set forth in Section 7.1 of the EDS Agreement have not been
satisfied.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the
19
<PAGE> 20
aggregate number of Firm Shares or Additional Shares, as the case may be, which
such defaulting Underwriter or Underwriters, as the case may be, agreed but
failed or refused to purchase is not more than one-tenth of the total number of
Shares to be purchased on such date by all Underwriters, each non-defaulting
Underwriter shall be obligated severally, in the proportion which the number of
Firm Shares set forth opposite its name in Schedule I bears to the total number
of Firm Shares which all the non-defaulting Underwriters, as the case may be,
have agreed to purchase, or in such other proportion as you may specify, to
purchase the Firm Shares or Additional Shares, as the case may be, which such
defaulting Underwriter or Underwriters, as the case may be, agreed but failed or
refused to purchase on such date; provided, that in no event shall the number of
Firm Shares or Additional Shares, as the case may be, which any Underwriter has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section 9 by an amount in excess of one-ninth of such number of Firm Shares or
Additional Shares, as the case may be, without the written consent of such
Underwriter. If on the Closing Date or on an Option Closing Date, as the case
may be, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares, or Additional Shares, as the case may be, and the aggregate number of
Firm Shares or Additional Shares, as the case may be, with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares to be
purchased on such date by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter and the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date or the applicable Option Closing Date, as
the case may be, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.
10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to Medical
Manager Corporation, 3001 North Rocky Point Drive, Suite 100, Tampa, Florida
33607, and (b) if to any Underwriter or to you, to you c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Equity Capital Markets, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, its officers
and directors and of the several Underwriters set forth in or made pursuant to
this Agreement shall remain operative and in full force and effect, and will
survive delivery of and payment for the Shares, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any Underwriter or by or on behalf of the Company, the officers or directors of
the Company or any controlling person of the Company, (ii) acceptance of the
Shares and payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, the Company agrees
to reimburse the several Underwriters for all
20
<PAGE> 21
out-of-pocket expenses (including the fees and disbursements of counsel)
reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York (excluding the choice of law rules
thereof).
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
21
<PAGE> 22
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
MEDICAL MANAGER CORPORATION
By:____________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:__________________________
Name:
Title:
22
<PAGE> 23
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Dean Witter Reynolds Inc.
---------------------
Total
</TABLE>
<PAGE> 24
ANNEX I
STOCKHOLDERS SIGNING LOCKUP AGREEMENTS
Michael A. Singer
John H. Kang
Richard W. Mehrlich
Ricardo A. Salas
Wayne Burks
Henry W. Holbrook
Thomas P. Liddell
Frederick B. Karl, Jr.
Electronic Data Systems Corporation
<PAGE> 25
ANNEX II
LIST OF SUBSIDIARIES
Set forth below is a list of all of the subsidiaries of the Company
immediately following the Closing Date:
National Medical Systems, Inc.
Personalized Programming, Inc.
RTI Business Systems, Inc.
Systems Management, Inc.
Systems Plus, Inc.
Systems Plus Distribution, Inc.
<PAGE> 1
Exhibit 10.2
MEDICAL MANAGER CORPORATION
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1996 Non-Employee
Directors' Stock Plan (the "Plan") of Medical Manager Corporation, a Delaware
corporation (the "Company"), is to advance the interests of the Company and its
stockholders by providing a means to attract and retain highly qualified
persons to serve as non-employee directors of the Company and to enable such
persons to acquire or increase a proprietary interest in the Company, thereby
promoting a closer identity of interests between such persons and the Company's
stockholders.
2. Definitions. In addition to terms defined elsewhere in the
Plan, the following are defined terms under the Plan:
(a) "Annual Option" means an Option to purchase the number of
shares specified in or under Section 6(a), subject to adjustment as provided in
Section 8.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations
thereto.
(c) "Deferred Share" means a credit to a Participant's deferral
account under Section 7 which represents the right to receive one Share upon
settlement of the deferral account. Deferral accounts, and Deferred Shares
credited thereto, are maintained solely as bookkeeping entries by the Company
evidencing unfunded obligations of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act shall be deemed to
include rules thereunder and successor provisions and rules thereto.
(e) "Fair Market Value" of a Share on a given date mean the last
sales price or, if last sales information is generally unavailable, the average
of the closing bid and asked prices per Share on such date (or, if there was no
trading or quotation in the stock on such date, on the next preceding date on
which there was trading or quotation) as reported in the Wall Street Journal;
provided, however, that the "Fair Market Value" of a Share subject to Options
granted effective on the date on which the Company commences an Initial Public
Offering shall be the price of the shares so issued and sold, as set forth in
the first final prospectus used in such Initial Public Offering.
(f) "Initial Option" means an Option to purchase the number of shares
<PAGE> 2
specified in or under Section 6(a), subject to adjustment as provided in
Section 8.
(g) "Initial Public Offering" means an initial public offering of
shares in a firm commitment underwriting registered with the Securities and
Exchange Commission in compliance with the provisions of the Securities Act of
1933, as amended.
(h) "Option" means the right, granted to a director under Section 6,
to purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified
stock options.
(i) "Participant" means a person who, as a non-employee director of
the Company, has been granted an Option or Deferred Shares which remain
outstanding or who has elected to be paid fees in the form of Shares or
Deferred Shares under the Plan.
(j) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(k) "Share" means a share of common stock, $.01 par value, of the
Company and such other securities as may be substituted for such Share or such
other securities pursuant to Section 8.
3. Shares Available Under the Plan. Subject to adjustment as
provided in Section 8, the total number of Shares reserved and available for
issuance under the Plan is 250,000. Such Shares may be authorized but
unissued Shares, treasury Shares, or Shares acquired in the market for the
account of the Participant. For purposes of the Plan, Shares that may be
purchased upon exercise of an Option or delivered in settlement of Deferred
Shares will not be considered to be available after such Option has been
granted or Deferred Share credited, except for purposes of issuance in
connection with such Option or Deferred Share; provided, however, that, if an
Option expires for any reason without having been exercised in full, the Shares
subject to the unexercised portion of such Option will again be available for
issuance under the Plan.
4. Administration of the Plan. The Plan will be administered by
the Board of Directors of the Company; provided, however, that any action by
the Board relating to the Plan will be taken only if, in addition to any other
required vote, such action is approved by the affirmative vote of a majority of
those directors who are not then eligible to participate in the Plan.
5. Eligibility. Each director of the Company who, at the time an
Option is to be granted under Section 6 or at which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or
<PAGE> 3
defer fees in the form of Deferred Shares under Section 7. In addition, any
person who, at the time the Company commences an Initial Public Offering, has
agreed to become a director upon consummation of the Initial Public Offering
will be eligible to be granted an Initial Option under Section 6. No person
other than those specified in this Section 5 will be eligible to participate in
the Plan.
6. Options. An Initial Option will be automatically granted (i)
at the commencement of the Initial Public Offering, to each person who is
eligible under Section 5 at that time, and thereafter (ii) at the effective date
of initial election to the Board of Directors, to each person so elected who is
eligible under Section 5 at that date. In addition, an Annual Option will be
automatically granted, at the close of business of the date of final adjournment
of each annual meeting of stockholders of the Company, to each member of the
Board of Directors who is then eligible under Section 5. Notwithstanding the
foregoing, (i) any person who has been automatically granted an Initial Option
at the effective date of initial election to the Board of Directors shall not be
automatically granted an Annual Option at the first annual meeting of
stockholders following such initial election if such annual meeting takes place
within three months of the effective date of such person's initial election to
the Board of Directors, and (ii) any Initial Option granted at the commencement
of the Initial Public Offering shall be cancelled and forfeited if the Initial
Public Offering is not consummated or, in the case of an Initial Option granted
to a person who has agreed to become a director, such person does not commence
serving as a non-employee director of the Company promptly following the
consummation of the Initial Public Offering.
(a) Number of Shares Subject to Automatic Option Grants. In the
case of any Initial or Annual Option granted on or before the date of the first
annual meeting of stockholders following the Initial Public Offering, the
number of Shares to be subject to each Initial Option shall be 10,000, and
the number of Shares to be subject to each Annual Option shall be 5,000, in
each case subject to adjustment as provided in Section 8. In the case of any
Initial or Annual Option granted thereafter, the number of Shares to be subject
to each Initial and Annual Option shall be the applicable number specified in
the preceding sentence or, if so determined by the Board of Directors, such
other number of Shares specified in the most recent resolution of the Board
adopted on or prior to the date of the annual meeting of stockholders that
coincides with or most recently precedes the date of grant of the Option.
(b) Exercise Price. The exercise price per Share purchasable upon
exercise of an Option will be equal to 100% of the Fair Market Value of a Share
on the date of grant of the Option.
(c) Option Expiration. A Participant's Option will expire at the
earlier of (i) 10 years after the date of grant or (ii) one year after the date
the Participant ceases to serve as a director of the Company for any reason.
(d) Exercisability. Each Option may be exercised, prior to its
expiration, commencing one year after the date of grant, or at such earlier
date as may be specified by the Board of Directors; provided, however, that an
Option may be exercised following a Participant's termination of service as a
director for reasons other than death or disability only if the director served
for at least 11 months after the date of grant or the option was otherwise
exercisable at the date of termination.
(e) Method of Exercise. A Participant may exercise an Option, in
whole or in
<PAGE> 4
part, at such time as it is exercisable and prior to its expiration, by giving
written notice of exercise to the Secretary of the Company, specifying the
Option to be exercised and the number of Shares to be purchased, and paying in
full the exercise price in cash (including by check) or by surrender of Shares
already owned by the Participant (except for Shares acquired from the Company
by exercise of an option less than six months before the date of surrender)
having a Fair Market Value at the time of exercise equal to the exercise price,
or by a combination of cash and Shares.
7. Receipt of Shares or Deferred Shares In Lieu of Fees. Each
director of the Company may elect to be paid fees, in his or her capacity as a
director (including annual retainer fees for service on the Board, fees for
service on a Board committee, fees for service as chairman of a Board
committee, and any other fees paid to directors) in the form of Shares or
Deferred Shares in lieu of cash payment of such fees, if such director is
eligible to do so under Section 5 at the date any such fee is otherwise
payable. If so elected, payment of fees in the form of Shares or Deferred
Shares shall be made in accordance with this Section 7.
(a) Elections. Each director who elects to be paid fees for a
given calendar year in the form of Shares or to defer such payment of fees in
the form of Deferred Shares for such year must file an irrevocable written
election with the Secretary of the Company no later than December 31 of the
year preceding such calendar year or such other date as may be specified by the
Secretary; provided, however, that a director serving at the time the Plan
becomes effective, and any director newly elected or appointed thereafter, may
file an election applicable to compensation payable for any period of service
that has not yet commenced within the year of such effectiveness, election, or
appointment prior to the commencement of such period of service. An election
by a director shall be deemed to be continuing and therefore applicable to
subsequent Plan years unless the director revokes or changes such election by
filing a new election form by the due date for such form specified in this
Section 7(a). The election must specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by the Company's Secretary).
(b) Payment of Fees in the Form of Shares. At any date on which fees
are payable to a Participant who has elected to receive such fees in the form
of Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable
<PAGE> 5
without requiring the actual issuance of fractional Shares, the Company shall
cause fractional Shares to be credited to the Participant's account. If
fractional Shares are not so credited, any part of the Participant's fees not
paid in the form of whole Shares will be payable in cash to the Participant
(either paid separately or included in a subsequent payment of fees, including
a subsequent payment of fees subject to an election under this Section 7).
(c) Deferral of Fees in the Form of Deferred Shares. The Company
will establish a deferral account for each Participant who elects to defer fees
in the form of Deferred Shares under this Section 7. At any date on which fees
are payable to a Participant who has elected to defer fees in the form of
Deferred Shares, the Company will credit such Participant's deferral account
with a number of Deferred Shares equal to the number of Shares having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Shares. The amount of Deferred
Shares so credited shall include fractional Shares calculated to at least three
decimal places.
(d) Crediting of Dividend Equivalents. Whenever dividends are
paid or distributions made with respect to Shares, a Participant to whom
Deferred Shares are then credited in a deferral account shall be entitled to
receive, as dividend equivalents, an amount equal in value to the amount of the
dividend paid or property distributed on a single Share multiplied by the
number of Deferred Shares (including any fractional Share) credited to his or
her deferral account as of the record date for such dividend or distribution.
Such dividend equivalents shall be credited to the Participant's deferral
account as a number of Deferred Shares determined by dividing the aggregate
value of such dividend equivalents by the Fair Market Value of a Share at the
payment date of the dividend or distribution.
(e) Settlement of Deferred Shares. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited
to such deferral account. Such settlement shall be made at the time or times
specified in the Participant's election filed in accordance with Section 7(a);
provided, however, that a Participant may further defer settlement of Deferred
Shares if counsel to the Company determines that such further deferral likely
would be effective under applicable federal income tax laws and regulations.
(f) Nonforfeitability. The interest of each Participant in any
fees paid in the form of Shares or Deferred Shares (and any deferral account
relating thereto) at all times will be nonforfeitable.
8. Adjustment Provisions.
<PAGE> 6
(a) Corporate Transactions and Events. In the event of any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Shares or other
securities, Share dividend or other special, large and non- recurring dividend
or distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event
affects the Shares such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Board shall, in such manner as it may deem equitable, adjust any or all of the
(i) number and kind of Shares remaining reserved and available for issuance
under Section 3, (ii) number and kind of Shares to be subject to each automatic
grant of an Option under Section 6, (iii) number and kind of Shares issuable
upon exercise of outstanding Options, and/or exercise price per Share thereof
(provided that no fractional Shares will be issued upon exercise of any
Option), (iv) kind of Shares to be issued in lieu of fees under Section 7, and
(v) number and kind of Shares to be issued upon settlement of Deferred Shares
under Section 7.
(b) Insufficient Number of Shares. If at any date an insufficient
number of Shares are available under the Plan for the automatic grant of
Options or the receipt of fees in the form of Shares or deferral of fees in the
form of Deferred Shares at that date, Options will first be automatically
granted proportionately to each eligible director, to the extent Shares are
then available (provided that no fractional Shares will be issued upon exercise
of any Option) and otherwise as provided under Section 6, and then, if any
Shares remain available, fees shall be paid in the form of Shares or deferred
in the form of Deferred Shares proportionately among directors then eligible to
participate to the extent Shares are then available and otherwise as provided
under Section 7.
9. Changes to the Plan. The Board of Directors may amend, alter,
suspend, discontinue, or terminate the Plan or authority to grant Options or
pay fees in the form of Shares or Deferred Shares under the Plan without the
consent of stockholders or Participants, except that any amendment or
alteration will be subject to the approval of the Company's stockholders at or
before the next annual meeting of stockholders for which the record date is
after the date of such Board action if such stockholder approval is required by
any federal or state law or regulation or the rules of any stock exchange or
automated quotation system as then in effect, and the Board may otherwise
determine to submit other such amendments or alterations to stockholders for
approval; provided, however, that, without the consent of an affected
Participant, no such action may materially impair the rights of such
Participant with respect to any previously granted Option or any previous
payment of fees in the form of Shares or Deferred Shares.
10. General Provisions.
(a) Agreements. Options, Deferred Shares, and any other right or
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as
<PAGE> 7
the Board of Directors may from time to time approve.
(b) Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under
any listing agreement between the Company and any stock exchange or automated
quotation system, or any other law, regulation, or contractual obligation of
the Company, until the Company is satisfied that such laws, regulations, and
other obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws,
regulations, and other obligations of the Company, including any requirement
that a legend or legends be placed thereon.
(c) Limitations on Transferability. Options, Deferred Shares, and
any other right under the Plan will not be transferable by a Participant except
by will or the laws of descent and distribution or to a designated beneficiary
in the event of a Participant's death; provided, however, that Options and
Deferred Shares (and rights relating thereto) may be transferred to one or more
transferees during the lifetime of the Participant for purposes of the
Participant's estate planning. The Company may rely upon the beneficiary
designation last filed in accordance with this Section 10(c). Options,
Deferred Shares, and other rights under the Plan may not be pledged, mortgaged,
hypothecated, or otherwise encumbered, and shall not be subject to the claims
of creditors of any Participant.
(d) Compliance with Rule 16b-3.
(i) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including
derivative securities, acquired under the Plan
without incurring liability under Section 16(b) of
the Exchange Act, equity securities acquired under
the Plan must be held for a period of six months
following the date of such acquisition, provided that
this condition shall be satisfied with respect to a
derivative security if at least six months elapse
from the date of acquisition of the derivative
security to the date of disposition of the derivative
security (other than upon exercise or conversion) or
its underlying equity security.
(ii) Other Compliance Provisions. With respect to a
Participant who is then subject to Section 16 of the
Exchange Act in respect of the Company, it is the
intent of the Company that transactions shall be
implemented under the Plan in a manner that will
ensure that each transaction by such a Participant is
exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a
non-exempt transaction under the Plan if written
notice has
<PAGE> 8
been given to the Participant regarding the
non-exempt nature of such transaction. The Board may
authorize the Company to repurchase any Shares
acquired in connection with the Plan in order to
prevent a Participant who is subject to Section 16 of
the Exchange Act from incurring liability under
Section 16(b). Unless otherwise specified by the
Participant, equity securities, including derivative
securities, acquired under the Plan which are
disposed of by a Participant shall be deemed to be
disposed of in the order acquired by the Participant.
(e) No Right To Continue as a Director. Nothing contained in the
Plan or any agreement hereunder will confer upon any Participant any right to
continue to serve as a director of the Company.
(f) No Stockholder Rights Conferred. Nothing contained in the
Plan or any agreement hereunder will confer upon any Participant (or any person
or entity claiming rights by or through a Participant) any rights of a
stockholder of the Company unless and until Shares are in fact issued to such
Participant (or person) or, in the case an Option, such Option is validly
exercised in accordance with Section 6.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan
by the Board of Directors nor its submission to the stockholders of the Company
for approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may
deem desirable.
(h) Governing Law. The validity, construction, and effect of the
Plan and any agreement hereunder will be determined in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
laws, and applicable federal law.
11. Stockholder Approval, Effective Date, and Plan Termination.
The Plan will be effective as of the date of its adoption by the Board, subject
to stockholder approval prior to the commencement of the Initial Public
Offering, and, unless earlier terminated by action of the Board of Directors,
shall terminate at such time as no Shares remain available for issuance under
the Plan and the Company and Participants have no further rights or obligations
under the Plan.
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 25th day of November 1996 (the
"Effective Date") between MEDICAL MANAGER CORPORATION, a Delaware corporation
(the "Company"), and LEE A. ROBBINS (the "Executive").
WHEREAS, the parties wish to enter into an employment agreement to employ the
Executive as a Vice President and, upon resignation of the current Chief
Financial Officer, its Chief Financial Officer and to set forth certain
additional agreements between the Executive and the Company.
NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:
1. TERM
The Company will employ the Executive, and the Executive will serve the
Company, under the terms of this Agreement for an initial term of five (5)
years, commencing on the Effective Date. Effective as of the expiration of
such initial five (5) year term and as of each anniversary date thereof, the
term of this Agreement shall be extended for an additional 12-month period
unless, not later than 60 days prior to each such respective date, the Company
shall have given notice to the Executive that the term shall not be so
extended. Notwithstanding the foregoing the Executive's employment hereunder
may be earlier terminated, as provided in Section 4 hereof. The term of this
Agreement, as in effect from time to time in accordance with the foregoing,
shall be referred to herein as "Term." The period of time between the
Effective Date and the termination of the Executive's employment hereunder
shall be referred to herein as the "Employment Period."
2. EMPLOYMENT
(a) POSITIONS AND REPORTING. The Company hereby employs the
Executive for the Employment Period as a Vice President and, upon the
resignation of the current Chief Financial Officer, its Chief Financial Officer
on the terms and conditions set forth in this Agreement.
(b) AUTHORITY AND DUTIES. The Executive shall exercise such
authority, perform such executive duties and functions and discharge such
responsibilities as are reasonably associated with the Executive's positions,
commensurate with the authority vested in the Executive's positions, pursuant
to this Agreement and consistent with the By-Laws of the Company. Without
limiting the generality of the foregoing, the Executive shall report directly
and be responsible to the President of the Company. During the Employment
Period, the Executive shall devote his full business time, skill and efforts to
the business of the Company. Notwithstanding the foregoing, the Executive may
(i) make and manage passive personal business investments of his choice (in the
case of publicly held corporations not to exceed 1% of the outstanding voting
stock) and serve in any capacity with any civic, educational or charitable
organization, or any trade association, without seeking or obtaining
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approval by the Board of Directors of the Company (the "Board"), provided such
activities and service do not materially interfere or conflict with the
performance of his duties hereunder and (ii) with the approval of the Board,
serve on the boards of directors of other corporations.
3. COMPENSATION AND BENEFITS
(a) SALARY. During the Employment Period, the Company shall pay
to the Executive, as compensation for the performance of his duties and
obligations under this Agreement, a base salary at the rate of One Hundred
Fifty Thousand ($150,000.00) Dollars per annum, payable in arrears not less
frequently than monthly in accordance with the normal payroll practices of the
Company. Such base salary shall be subject to review each year for a possible
increase by the President, but shall in no event be decreased from its
then-existing level during the Employment Period.
(b) ANNUAL BONUS. During the Employment Period, the Executive
shall have the opportunity to earn an annual bonus in accordance with a Company
annual bonus program for senior executives. The payment of any annual bonus
under any such program shall be contingent upon the achievement of certain
corporate and/or individual performance goals established by the Board in its
discretion.
(c) EQUITY PARTICIPATION. Effective on the date of commencement
of the Company's initial public offering of Common Stock (but subject to the
Executive being an executive officer of the Company on the date of closing of
such initial public offering), the Executive shall be granted a stock option to
acquire One Hundred Thousand (100,000) shares, at the initial public offering
price of the Common Stock of the Company, subject to the terms and conditions
of the stock option agreement between the Company and the Executive dated as of
the date hereof and the Company's 1996 Long-Term Incentive Plan. In addition,
the Executive shall be entitled to receive awards under any other stock option
or equity based incentive compensation plan or arrangement adopted by the
Company during the Employment Period for which senior executives are eligible.
The level of the Executive's future participation in any such plan or
arrangement shall be in the sole discretion of the Board.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in all of the employee benefit plans, programs
and arrangements of the Company in effect during the Employment Period which
are generally available to senior executives of the Company, subject to and on
a basis consistent with the terms, conditions and overall administration of
such plans, programs and arrangements. In addition, during the Employment
Period, the Executive shall be entitled to fringe benefits and perquisites
comparable to those of other senior executives of the Company, including, but
not limited, to three (3) weeks of vacation pay per year.
(e) COBRA PAYMENTS. If the Executive elects to maintain continued
medical coverage under his current employer's group policy the Company shall
pay all monthly insurance premiums
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<PAGE> 3
associated with such coverage. The Company's obligation to make such payments
shall begin in December 1996 and continue until such time as the Company
provides medical coverage for the Executive. In no event shall such payments
be made by the company for coverage beyond February 28, 1998.
(f) BUSINESS EXPENSES. During the Employment Period, the Company
shall reimburse the Executive for all documented reasonable business expenses
incurred by the Executive in the performance of his duties under this
Agreement, in accordance with the Company's policies.
(g) DIRECT LIVING AND MOVING EXPENSES. The Company shall
reimburse the Executive up to Five Hundred ($500.00) Dollars per month to
defray direct living expenses incurred by the Executive during his transition
from Orlando, Florida to Tampa, Florida. The Company shall continue to
reimburse the Executive until the Executive and his family relocate to Tampa,
Florida or for six (6) months, whichever is earlier. Additionally, the Company
shall pay the direct and reasonable expenses related to moving the Executive's
household (including packing and unpacking) to Tampa, Florida.
(h) INDEMNIFICATION. During the Employment Period and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all costs, charges and expenses
whatsoever incurred or sustained by the Executive in connection with any
action, suit or proceeding to which he may be made a party by reason of being
or having been a director, officer or employee of the Company or having served
any other enterprise as a director, officer or employee at the request of the
Company.
4. TERMINATION OF EMPLOYMENT
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement,
the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful material fraud or material dishonesty in
connection with the Executive's performance hereunder that results in
harm to the Company if the Executive has been provided an opportunity
to cure as provided in Section 4(c) of this Agreement;
(ii) the failure by the Executive to substantially perform
his material duties hereunder that results in harm to the Company if
the Executive has been provided an opportunity to cure as provided in
Section 4(c) of this Agreement;
(iii) the Executive's material breach of this Agreement if
the Executive has been provided an opportunity to cure as provided in
Section 4(c) of this Agreement;
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<PAGE> 4
(iv) the appropriation of a material business opportunity
of the Company, including attempting to secure or securing any
personal profit in connection with any transaction entered into on
behalf of the Company;
(v) the misappropriation of any of the Company's funds or
property; or
(vi) the conviction of, or the entering of a guilty plea
or plea of no contest with respect to a felony or the equivalent
thereof.
(b) TERMINATION FOR GOOD REASON. The Executive shall have the
right at any time to terminate his employment with the Company at any time and
for any reason. For purposes of this Agreement and subject to the Company's
opportunity to cure as provided in Section 4 (c) hereof, the Executive shall
have "good reason" to terminate his employment hereunder if such termination
shall be the result of:
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in Section 2
hereof;
(ii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iii) a notice of non renewal of the Agreement by the
Company in accordance with Section 1 hereof;
(iv) a notice of termination by the Executive under
Section 4 (c) hereof within 12 months following the occurrence of a
Change in Control (as defined in Section 4 (e) hereof);
(v) a material breach by the Company of any other term of
this Agreement; or
(vi) the involuntary relocation of the Executive to a
place of employment that is more than 50 miles from his current place
of employment, Tampa, Florida.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to the Company's right to
terminate the Executive's employment for "cause" and the Executive's right to
terminate his employment for "good reason" that (1) the party seeking the
termination shall first have given the other party written notice stating with
specificity the reason for the termination ("breach") and (2) if such breach is
susceptible of cure or remedy, a period of 30 days from and after the giving of
such notice shall have elapsed without the breaching party having effectively
cured or remedied such breach during such 30-day period, unless such breach
cannot be cured or remedied within 30 days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the breaching party has made and continues to make a diligent
effort to effect such remedy or cure.
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<PAGE> 5
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY.
Except as specifically provided in this Agreement, the Employment Period, all
benefits and any other rights of the Executive shall be terminated by the death
of the Executive. The Employment Period may be terminated by the Company if
the Executive shall be rendered incapable of performing his duties to the
Company by reason of any medically determined physical or mental impairment
that can be expected to result in death or that can be expected to last for a
period of six or more consecutive months from the first date of the Executive's
absence due to the Disability (a "Disability"). If the Employment Period is
terminated by reason of a Disability of the Executive, the Company shall give
30 days' advance written notice to that effect to the Executive.
(e) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall
be deemed to have taken place if:
(i) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
capital stock are converted into cash, securities or other property
other than a consolidation or merger of the Company in which the
holders of the Company's voting stock immediately prior to the
consolidation or merger shall, upon consummation of the consolidation
or merger, own at least 50% of the voting stock of the surviving
corporation, or any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets
of the Company; or
(ii) any person (as such term is used in Sections 13 (d)
and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), shall after the date hereof become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing 35%
or more of the voting power of all then outstanding securities of the
Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities
of the Company that any such person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by
such person); or
(iii) individuals who at the date hereof constitute the
entire Board and any new directors whose election by the Board, or
whose nomination for election by the Company's stockholders, shall
have been approved by a vote of at least a majority of the directors
then in office who either were directors at the date hereto or whose
election or nomination for election shall have been so approved (the
"Continuing Directors") shall cease for any reason to constitute a
majority of the members of the Board.
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5. CONSEQUENCES OF TERMINATION
(a) TERMINATION WITHOUT CAUSE OR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other then upon death or Disability) or by the Executive for "good
reason" (each as defined in Section 4 hereof), the Executive shall be entitled
to the following severance pay and benefits:
(i) SEVERANCE PAY - severance payment in the form of
continuation of the Executive's base salary as in effect immediately
prior to such termination over the longer of: (A) the then-remaining
Term hereof; or (B) 24 months (the "Severance Period").
(ii) BENEFITS CONTINUATION - continuation for the
Severance Period of coverage under the group medical care, disability
and life insurance benefit plans or arrangements in which the
Executive is participating at the time of termination; provided,
however, that the Company's obligation to provide such coverages shall
be terminated if the Executive is able to obtain substitute coverage
from another employer at any time during the Severance Period. The
Executive shall be entitled, at the expiration of the Severance
Period, to elect continued medical coverage in accordance with section
4980B of the Internal Revenue Code of 1986, as amended (or any
successor provision thereto); and
(iii) STOCK OPTIONS - all options to purchase shares of the
Company's Common Stock held by the Executive immediately prior to
termination of employment shall become immediately vested and
exercisable and, subject to the terms of the Company's 1996 Long-Term
Incentive Plan, shall remain exercisable for the duration of the
Severance Period.
(b) FAILURE TO CONSUMMATE MERGER. Notwithstanding the provisions
of Section 5(a) hereof, the Executive and the Company shall each have the right
to terminate this Employment Agreement if the mergers contemplated by those
certain Agreements and Plans of Reorganization, dated as of the 30th day of
September 1996, between the Company and its acquisition subsidiary or
subsidiaries is not consummated within nine (9) months of the Effective Date of
this Agreement. In the event that the Executive's employment is terminated
pursuant to the provisions of this Section 5(b), then the Executive shall not
be entitled to the stock option rights contemplated by this Agreement but shall
be entitled to a continuation of the Executive's base salary as in effect
immediately prior to such termination and a continuation of his then existing
benefits for a period of six (6) months from the date of termination.
(c) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) and 5(b) hereof, the Executive shall not be entitled to any
severance pay, benefits continuation or stock option rights contemplated by the
foregoing, except as may otherwise be provided under the applicable benefit
plans or award agreements relating to the Executive.
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<PAGE> 7
(d) ACCRUED RIGHTS. Notwithstanding the foregoing provisions of
this Section 5, in the event of termination of the Executive's employment
hereunder for any reason, the Executive shall be entitled to payment of any
unpaid portion of his base salary through the effective date of termination,
and payment of any accrued but unpaid rights solely in accordance with the
terms of any incentive bonus, stock option or employee benefit plan or program
of the Company.
6. CONFIDENTIALITY
The Executive agrees that he will not at any time during the Employment Period
or at any time thereafter for any reason, in any fashion, form or manner,
either directly or indirectly, divulge, disclose or communicate to any person,
firm, corporation or other business entity, in any manner whatsoever, any
confidential information or trade secrets concerning the business of the
Company, including, without limiting the generality of the foregoing, the
techniques, methods or systems of its operation or management, any information
regarding its financial matters, or any other material information concerning
the business of the Company, its manner of operation, its plans or other
material data. The provisions of this Section 6 shall not apply to (i)
information that is public knowledge other than as a result of disclosure by
the Executive in breach of this Section 6; (ii) information disseminated by the
Company to third parties in the ordinary course of business; (iii) information
lawfully received by the Executive from a third party who, based upon inquiry
by the Executive, is not bound by a confidential relationship to the Company;
or (iv) information disclosed under a requirement of law or as directed by
applicable legal authority having jurisdiction over the Executive.
The Executive further agrees that he will not remove from the Company's
premises (except to the extent such removal is for purposes of the performance
of the Executive's duties at home or while traveling, or except as otherwise
specifically authorized by the Company) Company property which includes but is
not limited to any document, record, notebook, plan, model, component, device,
or computer software or code, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The Executive recognizes that, as
between the Company and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the Company.
Upon termination of this Agreement by either party, or upon the request of the
Company during the Employment Period, the Executive will return to the Company
all of the Proprietary Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any copies, abstracts,
sketches, or other physical embodiment of any of the Proprietary Items.
7. INVENTIONS
The Executive is hereby retained in a capacity such that the Executive's
responsibilities include the making of technical and managerial contributions
of value to Company. The Executive hereby assigns to the Company all right,
title and interest in such contributions and inventions made or conceived by
the Executive along or jointly with others during the Employment Period which
relate to the business or of the Company. This assignment shall include (a)
the right to file and prosecute patent
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<PAGE> 8
applications on such inventions in any and all countries, (b) the patent
applications filed and patents issuing thereon, and (c) the right to obtain
copyright, trademark or trade name protection for any such work product. The
Executive shall promptly and fully disclose all such contributions and
inventions to Company and assist the Company in obtaining and protecting the
rights therein (including patents thereon) in any and all countries; provided
however, that said contributions and inventions will be the property of
Company, whether or not patented or registered for copyright, trademark or
trade name protection, as the case may be. Inventions conceived by the
Executive which are not related to the business of the Company will remain the
property of the Executive.
8. NON-COMPETITION
The Executive agrees that he shall not during the Employment Period and for one
(1) year after the Employment Period or, if applicable, the Severance Period,
whichever is longer, without the approval of the Board, directly or indirectly,
alone or as partner, joint venturer, officer, director, employee, consultant,
agent, independent contractor or stockholder (other than as provided below) of
any company or business, engage in any "Competitive Business" within the United
States. For purposes of the foregoing, the term "Competitive Business" shall
mean any business involved in development, marketing, sale or support of health
care information systems. Notwithstanding the foregoing, the Executive shall
not be prohibited during the non-competition period applicable above from
acting as a passive investor where he owns not more than one percent (1%) of
the issued and outstanding capital stock of any publicly-held company. During
the period that the above non-competition restriction applies, the Executive
shall not, without the written consent of the Company, solicit any employee of
the Company or any employee of a current or future subsidiary or affiliate
thereof to terminate his or her employment. The period of time applicable to
any covenant in this Section 8 will be extended by the duration of any
violation by the Executive of such covenant.
If any covenant in this Section 8 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine may be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
9. BREACH OF RESTRICTIVE COVENANTS.
The parties agree that a breach or violation of Section 6, 7 or 8 hereof will
result in immediate and irreparable injury and harm to the innocent party, who
shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other
equitable relief to prevent the violation of the obligation hereunder.
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10. NOTICE
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Company, to:
MEDICAL MANAGER CORPORATION
FRANKLYN M. KRIEGER
ASSOCIATE GENERAL COUNSEL
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
LEE A. ROBBINS
11325 RIVERBANK BOULEVARD
ORLANDO, FLORIDA 32817
or to such other respective addresses as the parties hereto shall designate to
the other by like notice, provided that notice of a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION: LEGAL FEES.
Except as provided in Section 9 hereof, any dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Florida in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction. The Company shall reimburse the Executive
for all reasonable legal fees and costs and other fees and expenses which the
Executive may incur in respect of any dispute or controversy arising against
the Company under or in connection with this Agreement; provided, however, that
the Company shall not reimburse any such fees, costs and expenses if the fact
finder determines that the action brought by the Executive was substantially
without merit.
12. WAIVER OF BREACH.
Any waiver of any breach of the Agreement shall not be construed to be a
continuing waiver or consent to any subsequent breach on the part either of the
Executive or of the Company.
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13. NON-ASSIGNMENT: SUCCESSORS.
Neither party hereto may assign his or its rights or delegate his or its duties
under this Agreement without the prior written consent of the other party;
provided, however, that (i) this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger, consolidation or
reorganization of the Company with or into any other corporation, all as though
such successors and assigns of the Company and their respective successors and
assigns were the Company; and (ii) this Agreement shall insure to the benefit
of and be binding upon the heirs, assigns or designees of the executive to the
extent of any payments due to them hereunder. As used in this Agreement, the
term "Company" shall be deemed to refer to any such successor or assign or the
Company referred to in the preceding sentence.
14. WITHHOLDING OF TAXES.
All payments required to be made by the Company to the Executive under this
Agreement shall be subject to the withholding of such amounts, if any, relating
to tax, and other payroll deductions as the Company may reasonable determine it
should withhold pursuant to any applicable law or regulation.
15. SEVERABILITY.
To the extent any provision of this Agreement or portion thereof shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this agreement shall be unaffected and shall
continue in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
17. GOVERNING LAW.
This Agreement will be governed by the laws of the State of Florida without
regard to conflicts of laws principles.
18. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement by the Company and the
Executive with respect to the subject matter hereof and supersedes any and all
prior agreements or understandings between the Executive and the Company with
respect to the subject matter hereof, whether written or oral. This Agreement
may be amended or modified only by written instrument executed by the Executive
and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
November 25, 1996.
THE EXECUTIVE MEDICAL MANAGER CORPORATION
/s/ Lee A. Robbins /s/ John Kang
- --------------------------- ---------------------------
LEE A. ROBBINS By: JOHN KANG
Its: PRESIDENT
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EXHIBIT 10.11
FORM OF COMMERCIAL LEASE
THIS COMMERCIAL LEASE is made this 23rd day of December, 1996, in
consideration of the rights and obligations of the parties hereinafter
expressed.
ARTICLE 1.
IDENTIFICATIONS AND DEFINITIONS
SECTION 1.1. LESSOR: "Lessor" refers to Liddell L.L.C., an Indiana
limited liability company. "Lessor's Address" is designated as 1520 E.
LaSalle, South Bend, Indiana 46615.
SECTION 1.2. LESSEE: "Lessee" refers to Systems Management, Inc..
"Lessee's Address" is the same as the Leased Premises described hereinbelow.
SECTION 1.3. DEFINITIONS: The following definitions shall apply to
the use of the words in this Lease.
1.3.1. LEASED PREMISES: The "Leased Premises" refers to the
real estate located at 53702 Generations Drive, South Bend, Indiana
46635, and the buildings and improvements located thereon, which real
estate is more fully described on Exhibit "A" hereto.
1.3.2. IMPROVEMENTS: "Improvements" includes any and all of
the following improvements located on or belonging to the Leased
Premises: all fixtures, additions, alterations, and installations of a
permanent type of any nature whatsoever installed upon the Premises,
including without limiting the generality thereof, heating systems;
heat regulators; electrical systems; lighting systems; interior or
exterior lighting fixtures; plumbing systems; water heaters; water
pumps; sump pumps; pressure tanks; water softeners; air conditioning
systems; air conditioners; interior walls; ceilings; carpets; carpet
pads; other floor coverings; affixed cabinets; counters; window
shades; venetian blinds; curtain rods; storm windows; screens;
awnings; fences; wash tubs; shrubbery; shower stalls; towel racks;
bars; soap dispensers; hand dryers; saunas; door bells or chimes;
lattices; television towers; antennas and rotors; and, satellite
dishes.
1.3.3. LEASE: "Lease" refers to this Commercial Lease as
amended or supplemented, in writing, from time to time.
<PAGE> 2
SECTION 1.4. LESSEE'S USE: The Leased Premises shall be used
by Lessee for any legal purposes compatible with the premises. As used in this
Lease, "Use", "Lessee's Use", or words of similar import refer to Lessee's
aforesaid uses of the Leased Premises.
SECTION 1.5 USE RESTRICTIONS: Lessee shall use the Leased
Premises in the manner provided in Section 1.4 and in no other manner. Lessee
will not commit nor permit any act on the Leased Premises which violates any
law of the United States of America, or the State of Indiana, or the political
subdivisions thereof in which the Leased Premises are located. Lessee will not
use nor permit upon the Leased Premises anything that may be dangerous to life
or limb. Lessee will not in any manner deface or injure the Leased Premises or
any part thereof nor overload the floors of the Leased Premises. Lessee will
not permit any objectionable noise or odor to escape or be emitted from the
Leased Premises, nor do anything or permit anything to be done upon the Leased
Premises in any way tending to create a nuisance, or tending to disturb any
occupant of neighboring property, nor tending to injure the reputation of the
Leased Premises. Lessee will comply with all governmental, health and police
requirements and regulations respecting the Leased Premises which are required
to be complied with by tenants generally.
ARTICLE 2.
RENT AND LEASE TERM
SECTION 2.1. GRANT OF LEASE: Pursuant to the terms of this Lease,
Lessor does hereby let, lease and demise the Leased Premises unto Lessee, and
Lessee does hereby lease and take the Leased Premises from Lessor together with
structures which are a part of the Leased Premises and Improvements located
therein and all the easements, rights and appurtenances in connection therewith
or belonging thereto, including, but not limited to, the right to the free and
unobstructed use of common areas, alley rights, access at all reasonable times
to loading areas and docks, the right to the use of sidewalks, streets, roads,
walks, parking lots, service areas and all driveways and approaches leading
from abutting highways and public thoroughfares.
SECTION 2.2. EXCEPTIONS TO DEMISE: Notwithstanding anything to the
contrary herein contained, this Lease is subject to all easements, both
recorded and unrecorded, affecting the real property upon which the Leased
Premises is located.
SECTION 2.3. COMMENCEMENT DATE: The "Commencement Date" shall be the
date hereof. This Lease shall be binding upon the parties upon the execution
hereof by the last person so to do.
SECTION 2.4. TERM: The Lease term shall commence on December 1,
1996, and shall continue until November 30, 2001, subject to the conditions and
provisions herein
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contained. In addition, Lessee shall have three (3) options to renew the Lease
term for an additional five (5) years per option. Each option to renew may be
exercised by Lessee providing Lessor written notice of Lessee's intention to
exercise that option, which written notice shall be given not less than thirty
(30), but not more than ninety (90), days before the expiration of the then
current lease term (including as extended by virtue of options to renew
previously exercised).
SECTION 2.5. BASE RENT: In addition to such other payments as are
required by this Lease, Lessee agrees to pay as the base rental for the Leased
Premises from the Commencement Date for the term of this Lease the sum of
$6,930.00 per month, which monthly rent shall be payable in advance each month,
commencing on December 1, 1996, and continuing on like date of each month
thereafter. There shall be an additional 6% increased adjustment in the rental
payment after the first year of the lease and each subsequent year during the
first five year term. Said increase to be based upon the Consumer Price Index
increase as published by The Wall Street Journal. If Lessee exercises any of
its renewal options provided for in the preceding Section 2.4, the amount of
base rent during that option period shall be a fair and equitable amount agreed
upon by Lessor and Lessee.
SECTION 2.6. PLACE OF PAYMENT, LATE PAYMENTS AND CHARGES: All
payments of any amounts owed hereunder shall be sent to Lessor at Lessor's
address, and shall be deemed to have been made when received by Lessor. If
Lessor desires payments to be made to some other person or sent to an address
other than herein provided, Lessor shall notify Lessee thereof in writing at
least fifteen (15) days prior to the next ensuing date upon which payment is
due. In the event payment of any sums required to be paid by Lessee to Lessor
under this Lease, including without limiting the generality of the foregoing,
rent, deposits, and payments made by Lessor under any provision hereof for
which Lessor is entitled to reimbursement by Lessee, shall become overdue more
than fifteen (15) days beyond the date on which they are due and payable as in
this Lease provided, a late charge of one and one-half percent (1-1/2%) per
month (computed on a 30-day month), on the sums so overdue shall become
immediately due and payable to Lessor as liquidated damages for Lessee's
failure to make prompt payment. Late charges shall be payable on the first day
of the month next succeeding any month during which such late charges accrue
and shall accrue from the date payment is due and payable. In the event of
nonpayment of any late charges, Lessor shall have, in addition to all other
rights and remedies, all the rights and remedies provided for herein and by law
for nonpayment of rent. No failure by Lessor to insist upon the strict
performance by Lessee of Lessee's obligations to timely pay late charges shall
constitute a waiver by Lessor of its rights to enforce the provisions of this
Section in any instance thereafter occurring or to demand payment of accrued
and unpaid late charges.
SECTION 2.7. REAL PROPERTY TAXES AND ASSESSMENTS: Lessor shall pay,
when due, all general real property taxes and special assessments levied and
assessed, or to
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be levied and assessed, upon the Leased Premises, or upon any Improvements now
or hereafter located thereon during the term of this Lease. Personal property
taxes upon Lessee's property installed, attached, situated or stored in or on
the Leased Premises shall be paid by Lessee on or before the due date thereof.
SECTION 2.8. DELIVERY OF POSSESSION: On or before the Commencement
Date hereof, Lessor agrees to place Lessee in actual and exclusive physical
possession of the Leased Premises. Such possession shall be delivered to
Lessee in conformity with law and free and clear of all other lessees and
occupants.
SECTION 2.9. TERMINATION: Upon the termination of the Lease by reason
of the expiration of the term hereof or any extensions or renewals hereof, or
upon earlier termination upon default, as herein provided, Lessee shall vacate
the Leased Premises. Possession of the Leased Premises shall be redelivered to
Lessor in good condition reasonable wear and tear, casualty and condemnation
excepted.
ARTICLE 3.
DEPOSIT
SECTION 3.1. RECEIPT OF DEPOSIT: Lessee agrees to deposit with
Lessor no later than the close of business of the date hereof, the additional
sum of _____________________ as security for the full and faithful performance
by Lessee of the terms, conditions, and covenants of this Lease on Lessee's
part to be performed.
SECTION 3.2. APPLICATION TOWARD RENT: If at any time Lessee is in
default in the payment of rent herein reserved or any portion thereof, or of
any other sums expressly constituting rent hereunder, Lessor may appropriate
and apply any portion of the security deposit as may be necessary to the
payment of the overdue rent or other sums expressly constituting rent
hereunder.
SECTION 3.3. APPLICATION TOWARD REPAIRS: If at any time during the
term hereof Lessee fails to repair any damage to the Leased Premises that
Lessee is required to repair pursuant to the terms hereof, after thirty (30)
days written notice. Lessor may appropriate and apply any portion of the
security deposit as may be reasonably necessary to make such repairs.
SECTION 3.4. REPLENISHMENT OF DEPOSIT: In the event any portion of
the deposit is appropriated as provided in this Article and the tenancy hereby
created is not terminated, Lessee shall within fifteen (15) days of notice
thereof pay to Lessor an additional deposit equal to the amount of such
appropriation.
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SECTION 3.5. APPLICATION FOR CLEANING: If on termination of this
tenancy for any reason Lessee does not leave the Leased Premises in reasonably
clean condition, then Lessor may appropriate and apply any portion of the
security deposit as may be reasonably necessary to put the Leased Premises in
such a clean condition.
SECTION 3.6. TRANSFER OF DEPOSIT: Should Lessor transfer this Lease
in any manner, Lessor shall:
3.6.1. Transfer the portion of such deposit remaining after
any lawful deductions, as above, to Lessor's successors in interest.
On receipt of such remaining deposit, the successor in interest of
Lessor shall have all of the rights and obligations of Lessor with
respect to such deposit; or
3.6.2. Return to Lessee the portion of such deposit remaining
after any lawful deductions have been made.
SECTION 3.7. RETURN OF DEPOSIT: Any remaining portion of the
security deposit, after any lawful deductions as above, shall be returned to
Lessee no later than thirty days after termination of this Lease (including as
may be extended under renewal options provided for herein), directed to the
address left by Lessee specifically for such purpose, or otherwise directed to
Lessee's last known address.
ARTICLE 4.
PERSONAL PROPERTY, FIXTURES, MAINTENANCE
AND
ALTERATION OF PREMISES
SECTION 4.1. ALTERATIONS, FIXTURES, AND IMPROVEMENTS: All
Improvements installed upon the Leased Premises by Lessee shall be or remain
the property of Lessor. All Improvements made or placed in or on the Leased
Premises by Lessee shall, on expiration or earlier termination of this Lease,
belong to Lessor without compensation to Lessee, provided, however, that Lessor
shall have the option, to be exercised not less than ninety (90) days prior to
the expiration or earlier termination of this Lease, to require Lessee to
remove any or all such Improvements. Before making any structural alterations
or modifications to the Leased Premises, Lessee shall submit plans and designs
therefor to Lessor for approval, which approval shall not be unreasonably
withheld or delayed, and in the event that the plans and designs are
disapproved by Lessor, such modifications shall not be installed.
SECTION 4.2. COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT:
Lessee assumes all liability, obligation and expense for compliance with the
Americans with Disabilities Act, hereinafter referred to in this Section as the
"Act", with respect to the
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Leased Premises only if required because of tenant's specific use of the Leased
Premises. To the extent that such compliance with the Act requires alteration
of the Leased Premises and consent by Lessor under Section 4.1, such consent
shall not be unreasonably withheld. Lessee further agrees to indemnify and
hold Lessor harmless for any claim made against Lessor arising from, through or
in any manner relating to the Lessee's non-compliance with this provision.
SECTION 4.3. FIXTURES AND PERSONAL PROPERTY: Any equipment,
inventory, or other personal property stored or situated on or about the Leased
Premises by and at the expense of Lessee shall remain the property of Lessee,
and Lessor agrees that Lessee shall have the right at any time, and from time
to time, to remove any and all of its equipment, inventory or other personal
property which it may have stored or situated on or about the Leased Premises.
SECTION 4.4. CONDITION AND REPAIR OF PREMISES: Lessor will keep the
structural elements and exterior of the Leased Premises in good repair
including the roof, foundation, exterior walls, heating, air conditioning,
equipment, dock areas, and roof drains. Lessee shall keep the non-structural
interior of said premises in good repair, replacing all broken glass with glass
of the same size and quality of that broken, and will keep the Leased Premises
and appurtenances, as well as all catch basins, drains, stools lavatories,
sidewalks, adjoining alleys and all other facilities and equipment located
within the interior of Leased Premises, according to the applicable rules,
regulations, laws and ordinances, and the direction of the proper public
officers, during the term of the Lease, at its own expense. Upon the
termination of this Lease in any way, Lessee will yield up said premises to
Lessor in good condition and repair (loss by fire or other casualty,
condemnation and ordinary wear excepted) and will deliver the keys to Lessor.
SECTION 4.5. DAMAGE AND DESTRUCTION: In the event the Leased
Premises are damaged by any peril covered by Lessor's policies of insurance to
an extent which is less than twenty-five percent (25%) of the cost of
replacement of the Leased Premises, the damage to that portion of the Leased
Premises together with such of Lessee's installations that become a part of the
real property shall promptly be repaired by Lessor, at Lessor's expense, except
under the conditions hereinafter stated. Lessor shall not be obligated to
expend for such repairs an amount in excess of the insurance proceeds recovered
as a result of such damage and in no event shall Lessor be required to repair
or replace Lessee's stock-in-trade, trade fixtures, furniture, furnishings, or
other property which Lessee is required to insure under the terms of this
Lease. In the event of such damage and (a) Lessor is not required to repair as
hereinabove provided, or, (b) the Leased Premises are damaged to the extent of
twenty-five percent (25%) or more of the costs of replacement of the Leased
Premises, or (c) the building of which the Leased Premises are a part is
damaged to the extent of fifty percent (50%) or more of the cost of
replacement, or (d) such damage occurs during the last year of the term of this
Lease, and Lessor and Lessee do not agree upon an extension of this Lease or
Lessee fails to exercise an option
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to renew this Lease should there be such right, Lessor may elect either to
repair or rebuild the Leased Premises or the building of which the Leased
Premises are a part, as the case may be, or to terminate this Lease upon giving
notice of such election in writing to Lessee within sixty (60) days after the
occurrence of the event causing the damage. If the casualty, repairing, or
rebuilding shall render the Leased Premises untenantable, in whole or in part,
a proportionate abatement of the Base Rent shall be allowed from the date when
the damage occurred until the date Lessor completes the repairs or rebuilding,
the proportion to be computed on the basis of the relation which the
untenantable portion of the Leased Premises bears to the gross square foot area
of the Leased Premises. If Lessor is required or elects to repair the Leased
Premises as herein provided, Lessee shall repair or replace its stock-in-trade,
trade fixtures, furniture, adornments, special equipment, and all other items
of Lessee's personal property located on or within the Leased Premises and all
Improvements previously installed by Lessee upon the Leased Premises such
repair and replacement by Lessee shall be in a manner and to at least a
condition equal to that existing prior to the damage or destruction.
SECTION 4.6. METERED UTILITIES: Lessee shall arrange for and pay all
charges for utilities used by Lessee, which are separately measured and
assessed to the Leased Premises.
SECTION 4.7. SIGNS: Lessor agrees to permit Lessee to place signs
advertising Lessee, or the goods, wares or services offered by Lessee, in and
about the Leased Premises, upon the exterior of any buildings thereon and to
permit Lessee to remove such signs at any reasonable time. Such signs shall be
harmonious in size, style and type to other signs as may be erected in the
neighborhood or vicinity immediately surrounding the Leased Premises.
Notwithstanding the foregoing, Lessee shall not install any sign without the
express written consent of Lessor, which consent shall not be unreasonably
withheld or delayed.
ARTICLE 5.
INSURANCE
SECTION 5.1. LESSEE'S OBLIGATION TO MAINTAIN: During the term of
this lease, Lessee shall maintain, or cause to be maintained, at Lessee's sole
cost and expense, policies of insurance as follows:
5.1.1. FIRE INSURANCE: Lessee will at all times during the
term of this Lease insure and keep in effect on the Leased Premises,
fire and casualty insurance with additional coverage commonly known as
supplemental contract or extended coverage, in the amount of the
replacement value of the Improvements on the Leased Premises, written
by an insurance company or companies authorized to do business in the
State of Indiana. Lessee shall name Lessor as an "additional insured"
and shall cause all notices including invoices from the insurer to be
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simultaneously made to Lessor at Lessor's address stated herein.
Also, Lessee shall not be allowed to cancel such insurance for any
reason without first notifying Lessor in writing ten (10) days prior
to the intended cancellation. Lessee shall also obtain insurance
against loss or damage to Lessee's stock-in-trade, trade fixtures,
furniture, adornments, special equipment, floor and wall coverings,
and all other items of Lessee's personal property located on or within
the Leased Premises and also upon all Improvements installed by Lessee
upon the Leased Premises. Such insurance shall include fire and
extended coverage and coverage for such other hazards as may be
covered by the form of all-risk insurance in effect, in an amount
sufficient to cover at least eighty percent (80%) of the replacement
cost (without depreciation) of such property and to prevent any
co-insurance provision from becoming effective.
5.1.2. GENERAL LIABILITY INSURANCE: Lessee shall obtain
Comprehensive general liability insurance (containing so-called
"occurrence clause") against claims for bodily injury, death, and
property damage occurring in or about the Leased Premises, including
but not limited to any streets, alleys, sidewalks or parking areas,
malls, vaults, passageways, or common areas adjoining or appurtenant
to the Leased Premises. Such insurance shall afford minimum
protection of $1,000,000.00 with respect to the personal injury or
death occurring or resulting from one occurrence and $100,000.00 with
respect to property damage.
5.1.3. OTHER INSURANCE REQUIRED: Lessee shall obtain such
other insurance in such amounts as may from time to time be reasonably
required by Lessor or any mortgagee against other insurable hazards
which at the time are commonly insured against in the case of premises
similarly situated.
SECTION 5.2. INCREASE IN POLICY LIMITS: If by reason of changed
economic conditions the insurance amounts referred to above become inadequate,
Lessee agrees to increase the amounts of such insurance promptly upon Lessor's
request. All policies of insurance carried by Lessee pursuant to this Lease
shall name Lessor and Lessee as insureds, and, if required, any mortgagee, as
their respective interests may appear; provided, however, that rent insurance
shall provide that the proceeds thereof shall be paid to Lessor solely and said
proceeds shall then be held by Lessor as security for the payment of the rent
provided for herein until restoration of the Leased Premises by Lessee. To the
extent Lessor receives and applies the proceeds of rent insurance, Lessee shall
receive a credit against net annual rent payable hereunder.
SECTION 5.3. RESPONSIBILITY FOR PREMIUMS: All premiums on policies
of insurance which Lessee is obligated to obtain shall be paid by Lessee. The
originals of such policies shall be delivered to Lessor except when such
originals are required to be held by any mortgagee, in which case certificates
of insurance shall be delivered to Lessor. Policies or certificates with
respect to renewal policies shall be delivered to Lessor by Lessee not
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less than thirty (30) days prior to the expiration of the original policies, or
succeeding renewals, as the case may be, together with receipts or other
evidence that the premiums thereon have been paid for at least one year.
Premiums on polices shall not be financed in any manner whereby the lender, on
default or otherwise, shall have the right or privilege of surrendering or
canceling the policies; provided, however, that Lessee may pay premiums in
annual installments so long as such method of payment does not constitute a
default under any mortgage.
SECTION 5.4. LIMITATION OF OBLIGATION AND CANCELLATION: Each policy
of insurance required of Lessee under this Lease shall have attached thereto an
endorsement that such policy shall not be canceled or modified without at least
ten (10) days' prior written notice to Lessor, and, if required, to each
mortgagee. Each such policy shall contain a provision that no act or omission
of Lessee shall affect or limit the obligation of the insurer to pay the amount
of any loss sustained.
SECTION 5.5. SATISFACTION OF INSURER'S REQUIREMENTS: Lessee shall so
perform and satisfy the requirements of the companies writing any insurance
policies referred to in this Lease so that at all times insurers of recognized
responsibility satisfactory to Lessor shall be willing to issue or continue
such policies of insurance.
SECTION 5.6. APPROVED INSURERS: All insurance provided for in this
Lease shall be effected under valid and enforceable policies issued by insurers
of recognized responsibility which are licensed to do business in the State of
Indiana.
SECTION 5.7. WAIVER OF SUBROGATION: Each policy of insurance
provided for in this Lease shall contain the standard form of waiver of
subrogation.
SECTION 5.8. FAILURE TO SECURE INSURANCE: If Lessee, at any time
during the term hereof, fails to secure or maintain the insurance required
hereunder, Lessor shall be permitted to obtain such insurance in Lessee's name
or as the agent of Lessee and Lessee shall pay Lessor as additional rent the
cost of such insurance.
SECTION 5.9. INDEMNITY: Lessee, during the term hereof, shall
indemnify and save harmless Lessor from and against any and all claims and
demands, whether for injuries to persons or loss of life, or damage to
property, occurring on or about the Leased Premises and arising out of the use
and occupancy of the Leased Premises by Lessee.
SECTION 5.10. INSURANCE HAZARDS PROHIBITED: Lessee shall not commit
or permit any act or acts in or on the Leased Premises or use the Leased
Premises or suffer them to be used in any manner which will increase the
existing fire, liability, and other insurance rates on the Leased Premises or
which will cause a cancellation of any insurance policy covering the Leased
Premises or any portion thereof. Lessee shall not keep, hold, store, use, or
sell in or on the Leased Premises any product or article prohibited by the
standard
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form fire insurance policy, as it now exists or may hereafter provide, covering
the Leased Premises and its contents, or permit or suffer any such product or
article to be kept, held, stored, used, or sold in or on the Leased Premises
and Lessee shall, at Lessee's sole expense, comply with any and all
requirements of Lessor's insurance carriers pertaining to the Leased Premises
necessary for the continued maintenance of fire and liability insurance at
standard rates of the Leased Premises and appurtenances thereto. If any act or
failure to act by Lessee shall cause an increase of insurance premiums paid by
Lessor, Lessee shall pay all such increases within fifteen (15) days of
Lessor's demand thereof.
SECTION 5.11. LESSOR'S INSURANCE OBLIGATION: Lessor may obtain its
own additional insurance on the Leased Premises in its own discretion.
However, the insurance obtained by Lessee shall be considered the primary
policy of insurance for any claim for damage to the Leased Premises. All
claims for damage shall be submitted to the insurers under policies of
insurance obtained by Lessee before any claim is submitted to insurers under
policies of insurance obtained by Lessor.
ARTICLE 6.
DEFAULT AND REMEDIES
SECTION 6.1. DEFAULT AND REMEDIES FOR DEFAULT: Each of the
following events shall be an "Event of Default" hereunder:
6.1.1. Failure of Lessee to pay any installment of rent or
any part thereof (including but not limited to failure to make any
deposit required under the terms of this lease) or any other payment
of money, costs, or expenses herein agreed to be paid by Lessee, after
fifteen (15) days written notice from Lessor;
6.1.2. Failure to observe or perform one or more of the other
terms, conditions, covenants, or agreements of this Lease and the
continuance of such failure for a period of 15 days after written
notice by Lessor specifying such failure (unless such failure requires
work to be performed, acts to be done, or conditions to be removed
which cannot by their nature reasonably be performed, done, or
removed, as the case may be, within such 15 day period, in which case
no default shall be deemed to exist so long as Lessee shall have
commenced to observe or perform the same within such 15 day period and
shall diligently and continuously prosecute the same to completion);
6.1.3. The filing of an application by Lessee for, or a
consent to the appointment of, a receiver, trustee, or liquidator of
itself or of all of its assets;
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6.1.4. The filing by Lessee of a voluntary petition in
bankruptcy or the filing of a pleading in any court or record
admitting in writing its inability to pay its debts as they become
due;
6.1.5. The making by Lessee of a general assignment for the
benefit of creditors;
6.1.6. The filing by Lessee of an answer admitting the
material allegations of or consenting to or defaulting in answering a
petition filed against it in any bankruptcy proceeding;
6.1.7. The entry of an order, judgment, or decree by any
court of competent jurisdiction adjudging Lessee a bankrupt or
appointing a receiver, trustee, or liquidator of it, or all of its
assets, and such order, judgment, or decree continuing unstayed and in
effect for any period of sixty (60) consecutive days;
6.1.8. Abandonment of the Leased Premises by Lessee;
6.1.9. Assignment, sublease, or transfer in any manner of
this Lease or the estate of Lessee to any person, except in a manner
herein expressly permitted; or
6.1.10. A levy under execution or attachment shall be made
against Lessee or its property if such execution or attachment shall
not be vacated or removed by court order, bonding, or otherwise within
a period of thirty (30) days.
SECTION 6.2. NOTICE OF DEFAULT AND TERMINATION: If an Event of
Default shall occur, Lessor, at any time thereafter, may at its option give
notice thereof to Lessee stating that this Lease and the term hereby demised
shall expire and terminate on the date specified in such notice, and upon the
date specified in such notice, this Lease and the term hereby demised, and all
rights of Lessee under this Lease shall expire and terminate as if that date
were the date herein definitely fixed for the termination of the term of this
Lease. Lessee shall thereupon quit and surrender the Leased Premises but shall
remain liable as hereinafter provided. After any such termination Lessor may
at its option file a written declaration of termination in the official records
of the county in which the Leased Premises are located, which written
declaration shall be deemed a conclusive termination of this Lease.
SECTION 6.3. REENTRY BY LESSOR: If any Event of Default shall occur,
Lessor may without notice, reenter and repossess the Leased Premises using such
force for that purpose as may be necessary without being liable to indictment,
prosecution, or damages therefor, and Lessee shall nevertheless remain liable
as hereinafter provided for the remainder of the term hereof. If Lessor shall
so reenter, Lessor may repair and alter the Leased Premises in such manner as
Lessor may deem necessary or advisable, and/or let
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or relet the Leased Premises or any parts thereof for the whole or any part of
the remainder of the term hereof or for a longer period, in Lessor's name or as
agent of Lessee, and out of any rent collected or received as a result of such
letting or reletting Lessor shall first receive payment for the cost and
expense of retaking, repossessing, repairing and/or altering the Leased
Premises, and the cost and expense of removing all persons and property
therefrom; second, receive payment for the cost and expense sustained in
securing any new lessees, and if Lessor shall maintain and operate the Leased
Premises, the costs and expense of operating and maintaining the Leased
Premises; and, third, receive payment for any balance remaining on account of
the liability of Lessee to Lessor. No reentry by Lessor shall absolve or
discharge Lessee from liability hereunder. Lessor shall not be responsible or
liable for any failure to relet the Leased Premises or any part thereof, or for
any failure to collect any rent due on any such reletting. If any rent so
collected by Lessor after the aforementioned payments be insufficient to fully
pay to Lessor a sum equal to all such rent and other payments and charges
reserved herein, the deficiency shall be paid by Lessee on the dates herein
specified for payment of rent.
SECTION 6.4. REMEDIES CUMULATIVE: No remedy herein or otherwise
conferred upon or reserved to Lessor shall be considered to exclude or suspend
any other remedy, but the same shall be cumulative and shall be in addition to
every other remedy given hereunder, or now or hereafter existing at law or in
equity or by statute. Every power and remedy given by this Lease to Lessor may
be exercised from time to time and so often as occasion may arise or as may be
deemed expedient.
ARTICLE 7.
ENVIRONMENTAL OBLIGATIONS
SECTION 7.1. DEFINITIONS: The following definitions apply to the
use of such words used in this Article.
7.1.1. ENVIRONMENTAL LAWS: "Environmental Laws" refer to any
federal, state or local statute, rule, regulation or ordinance
relating to the environment, including, without limitation, the Clear
Air Act, 42 U.S.C. Section 7401, et seq.; the Clean Water Act, 33
U.S.C. Section 1251, et seq.; the Solid Waste Disposal Act, 42 U.S.C.
Section 6901, et seq.; the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601, et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section
11001, et seq., together with any parallel or similar state laws, and
all rules and regulations promulgated pursuant thereto.
7.1.2. HAZARDOUS SUBSTANCE: "Hazardous Substance" refers to
the following:
a. any "hazardous substance" or "pollutant or
contaminant" as defined by Environmental Laws;
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b. petroleum, including crude oil or any faction
thereof;
c. any chemical substance or mixture which is deemed
to present an unreasonable risk of injury to health or the
environment or to be imminently hazardous so as to warrant
restrictions on its manufacture, use or distribution in
commerce; and
d. radon.
7.1.3. CONTAMINATION AT THE LEASED PREMISES: The presence
at, on, in or under the Leased Premises, or in the groundwater beneath
the Leased Premises, of any hazardous substance in a quantity or
concentration which would:
a. require the owner or operator of the Leased
Premises to "respond" to such contamination or to incur
"response" costs as a result of such contamination;
b. present a substantial endangerment to the public
health, welfare or the environment; or
c. have a materially adverse effect on the market
value of the Leased Premises or of any adjacent property.
The term includes contamination on any adjacent property resulting
from activities related to Lessee's occupancy or use of the Leased
Premises.
7.1.4. RESPOND OR RESPONSE: "Respond" and "Response" shall
have the meaning ascribed to them in 42 U.S.C. Section 9601.
7.1.5. MATERIAL: When used to describe a violation of an
environmental law, "Material" shall mean any such violation:
a. for which any permit or license needed to
construct or operate any equipment or process may be
suspended, terminated or revoked;
b. for which monetary penalties, including punitive
damages, in excess of $999.00 could be imposed;
c. which would constitute a criminal violation; or
d. which would require the expenditure of more than
$999.00 to correct;
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e. which could result in the imposition of
additional restrictions or conditions on the process rate or
hours of operation of equipment or a process which would not
otherwise have been imposed except for the violation.
The terms also include any commission, omission, activity or condition
which would prevent or impair Lessee's ability to transfer any
existing permit or to obtain a permit or license required to operate
any equipment or process at the Leased Premises.
SECTION 7.2. STORAGE TANKS: Lessee shall not install or make use of
underground storage tanks or outside storage tanks for any purpose whatsoever
without the express written consent of Lessor. Lessor shall not be obligated
to exercise reasonableness in the determination of whether to grant or withhold
such consent, it being agreed that the risks associated with the installation
of such tanks are beyond the objects of this Lease. This restriction shall
also apply to any storage tanks which may be located upon the Leased Premises
at the commencement of this Lease.
SECTION 7.3. ENVIRONMENTAL WARRANTIES AND COVENANTS: Lessee hereby
represents and warrants and agrees that:
7.3.1. Lessee will not cause any Contamination at the Leased
Premises;
7.3.2. Lessee will not cause any Material violations of any
Environmental Law at the Leased Premises;
7.3.3. Lessee shall not arranged for the transport, treatment
or disposal of any hazardous substance generated at the Leased
Premises to any off-site property which appears on the National
Priorities List established under 42 U.S.C. Section 9605(a)(F)(B), or
any state list which identifies facilities for Response activities or
investigation;
7.3.4. All federal, state and local environmental permits,
licenses or authorizations required to construct or operate any
process, facility or equipment at the Leased Premises will be obtained
by Lessee; and
7.3.5. Lessee will complete all environmental investigations,
studies, sampling and analysis necessary to establish, to the greatest
extent practicable, the accuracy of the foregoing representations.
SECTION 7.4. ADDITIONAL ENVIRONMENTAL WARRANTIES AND COVENANTS:
Lessee further represents, warrants and covenants to Lessor that Lessee will:
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7.4.1. do all things necessary to ensure that the
representations and warranties set forth in Section 7.3 continue to
be accurate and true;
7.4.2. operate all facilities, processes, operations and
equipment at the Leased Premises so as not to cause, suffer or allow
any Contamination at the Leased Premises, or any Material violation of
any Environmental Law;
7.4.3. institute sufficient control programs, policies or
policies to prevent any Hazardous Substance generated at the Leased
Premises from being transported to any off-site facility which is, or
is likely to be, included on any list referenced in Section 7.3.3
above;
7.4.4. permit Lessor access to the Leased Premises for the
purpose of investigating Lessee's continued compliance with the
representations, warranties and covenants contained in Sections 7.3
and 7.4; and
7.4.5. promptly notify Lessor in writing of any claim,
notice, occurrence or condition which would cause any representation,
warranty or covenant to be incorrect, and to promptly take all steps
necessary to correct, mitigate or abate such occurrence or condition.
SECTION 7.5. BREACH OF ENVIRONMENTAL WARRANTIES AND COVENANTS: Any
breach of the representations, warranties or covenants contained in Sections
7.3 and 7.4 shall be deemed an Event of Default.
SECTION 7.6. ENVIRONMENTAL INVESTIGATION AND NON-WAIVER: The
exercise of Lessor's rights under Section 7.4.5 shall not be or be deemed to be
a waiver of Lessor's right to assert the existence of any event of default or
of Lessor's right to exercise any other remedy provided by this Lease.
ARTICLE 8.
CONDEMNATION
SECTION 8.1. "EMINENT DOMAIN" DEFINED: "Eminent domain" is the power
to take private property for public or quasi-public use. As used in this
Lease, the words "condemned" and "condemnation" are coextensive with such
right, and a voluntary conveyance by Lessor to the condemnor under threat of a
taking under the power of eminent domain in lieu of or after commencement of
formal proceedings shall be deemed to be such a taking within the meaning of
this Lease.
SECTION 8.2. "TOTAL CONDEMNATION" DEFINED: As used in this Lease,
the terms "total condemnation" and "total taking" mean the taking of the entire
Leased Premises
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<PAGE> 16
under the power of eminent domain or a taking of so much of the Leased Premises
under such power as to prevent or substantially impair the conduct of Lessee's
business thereon.
SECTION 8.3. "PARTIAL CONDEMNATION" DEFINED: As used in this Lease,
the terms "partial condemnation" and "partial taking" mean the taking of a
portion of the Leased Premises under the power of eminent domain where such
taking does not constitute a total taking as defined in this Lease.
SECTION 8.4. EFFECT OF TOTAL CONDEMNATION:
8.4.1. TERMINATION OF LEASEHOLD: In the event that there is
a total condemnation of the Leased Premises during the lease term or
any extension hereof, the leasehold estate hereby created shall cease
and terminate as of the date title to the property is taken by the
condemnor or at the time the condemnor is authorized to take
possession of the property as stated in an order for possession,
whichever is earlier.
8.4.2. DISPOSITION OF AWARD: Upon such total condemnation as
in this Section provided, all compensation and damages for such taking
shall belong to and be the sole property of Lessor, and Lessee shall
have no claim thereto and hereby irrevocably assigns and transfers to
Lessor all right, title and interest Lessee may have to compensation
for damages to which Lessee may become entitled thereby.
Notwithstanding the foregoing, Lessee shall be entitled to receive any
award made for the taking of or damage to Lessee's trade fixtures and
any Improvements made by Lessee to the Leased Premises which Lessee
would have had the right to remove on expiration or earlier
termination of this Lease but for the condemnation and for any
reasonable and necessary moving expenses.
8.4.3. RENT OBLIGATION: Upon termination of this Lease by a
total condemnation of the Leased Premises, all rents and other charges
payable by Lessee to or on behalf of Lessor under the provisions of
this Lease shall be paid up to the date on which actual physical
possession of the Leased Premises shall be taken by the condemnor.
The parties hereto shall thereafter be released from all further
liability in relation thereto.
SECTION 8.5. EFFECT OF PARTIAL CONDEMNATION:
8.5.1. TERMINATION OF LEASEHOLD: In the event that there is
a partial condemnation of the Leased Premises during the lease term or
any extension hereof, this Lease shall terminate as to the portion of
the Leased Premises so taken on the date title to the property is
taken by the condemnor or at the time the condemnor is authorized to
take possession of the property as stated in an order for possession,
whichever is earlier.
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8.5.2. DISPOSITION OF AWARD: Upon such partial condemnation,
all compensation and damages for such partial condemnation shall
belong to and be the sole property of Lessor, and Lessee shall have no
claim thereto and hereby irrevocably assigns and transfers to Lessor
all right, title and interest Lessee may have to compensation for
damages to which Lessee may become entitled thereby. Notwithstanding
the foregoing, Lessee shall be entitled to receive any award made for
the taking of or damage to Lessee's trade fixtures and any
Improvements made by Lessee to the Leased Premises which Lessee would
have had the right to remove on expiration or earlier termination of
this Lease but for the condemnation.
8.5.3. REPAIR OF THE LEASED PREMISES: In the event the
Leased Premises are condemned in an amount which is less than
twenty-five percent (25%) of the cost of replacement of the Premises,
the damage to that portion of the Leased Premises and the improvements
shall promptly be repaired by Lessor, at Lessor's expense, except
under the conditions hereinafter stated. Lessor shall not be
obligated to expend for such repairs an amount in excess of the
condemnation proceeds recovered. In no event shall Lessor be required
to repair or replace Lessee's stock-in-trade, trade fixtures,
furniture, furnishings, or other property of Lessee. In the event of
a condemnation and (a) Lessor is not required to repair as hereinabove
provided, or, (b) the Leased Premises are condemned to the extent of
twenty-five percent (25%) or more of the cost of replacement of the
Leased Premises, or (c) such condemnation occurs during the last year
of the term of this Lease, and Lessor and Lessee do not agree upon an
extension of this Lease or Lessee fails to exercise its option to
renew this Lease should there be such right, Lessor may elect either
to repair or rebuild the Leased Premises or to terminate this Lease by
giving Lessee thirty (30) days notice of the same. If the repairing
or rebuilding of the Leased Premises renders the Leased Premises
untenantable, in whole or in part, a proportionate abatement of the
Base Rent shall be allowed from the date when the condemnation
occurred until the date Lessor completes the repairs or rebuilding,
the proportion to be computed on the basis of the relation which the
untenantable portion of the Leased Premises bears to the gross square
foot area of the Leased Premises. If Lessor is required or elects to
repair the Leased Premises as herein provided, Lessee shall repair or
replace its stock-in-trade, trade fixtures, furniture, adornments,
special equipment, and all other items of personal property of Lessee
located on or within the Leased Premises and all Improvements
previously installed by Lessee upon the Leased Premises. Such repair
and replacement by Lessee shall be in a manner and in a condition at
least equal to that existing prior to the damage or destruction.
8.5.4. RENT OBLIGATION: Upon termination of this Lease in
whole or in part as herein provided, all rentals and other charges
payable by Lessee to or on behalf of Lessor hereunder shall be paid up
by Lessee to the date on which actual physical possession shall be
taken by the condemnor, and, Lessee shall thereafter be liable
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only for rent in an amount in proportion to the amount of the Leased
Premises remaining.
ARTICLE 9.
MISCELLANEOUS RIGHTS AND DUTIES
SECTION 9.1. ASSIGNMENT AND SUBLETTING: Lessee shall not assign any
interest in this Lease or sublet the Leased Premises, or any part thereof,
without the express written consent of Lessor obtained in advance which consent
shall not be unreasonably withheld or delayed.
SECTION 9.2. INSPECTION BY LESSOR: Upon reasonable prior notice,
Lessor shall have the right to inspect the Leased Premises at any time during
normal business hours and during the last ninety (90) days of the term of this
Lease, to advertise the Leased Premises as for sale or rent and to enter the
Leased Premises for the purpose of showing the same to prospective lessees or
purchasers.
SECTION 9.3. NON-WAIVER: Any waiver by Lessor of any Event of
Default or breach of this Lease shall not be construed as a waiver of
subsequent Events of Default or breaches which may be committed by Lessee, and
failure of Lessor to exercise any right or remedy herein granted to Lessor
shall not operate as a waiver of such right or remedy.
SECTION 9.4. WAIVER OF LESSOR LIABILITY: Lessor shall not be liable
for any damage either to person or property sustained by Lessee or by other
persons due to any act or neglect of any other person other than Lessor, its
employees, agents, invitees, Licensees, or contractors. If any damage shall be
caused to the Leased Premises by the acts or neglect of Lessee, its employees,
agents, invitees, licensees, or contractors, Lessor may, at its option, repair
such damage, and Lessee shall on demand reimburse Lessor for any amount
expended. Lessee further agrees that all personal property upon the Leased
Premises, whether belonging to Lessee or to any other person, shall be at the
risk of Lessee only, and Lessor shall not be liable for any damage thereto or
theft thereof. Lessee hereby waives any claim against Lessor, including
incidental and consequential damages, arising from, through or in any manner
related to this Lease, the Leased Premises, Lessor's negligence or Lessor's
obligations hereunder.
SECTION 9.5. CONDITION OF LEASED PREMISES: The Leased Premises are
leased to Lessee "AS IS". Lessor makes no representation or warranty of any
kind concerning the condition of the Leased Premises. Lessee assumes all
obligations for the care and maintenance of the Leased Premises not
specifically assumed herein by Lessor.
SECTION 9.6. LESSOR'S WARRANTIES: Lessor warrants that Lessee shall
have peaceful possession and quiet enjoyment of the Leased Premises during the
term of this Lease (including any renewal thereof) and that Lessee may use the
same in the manner
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provided in Section 1.4, including any activities which are ancillary or
incident to such use; provided, however, that Lessee shall, at its own cost and
expense, obtain any and all licenses and permits necessary for any such use.
SECTION 9.7. HOLDOVER PROVISIONS: If Lessee fails to notify Lessor
in the manner provided in this Section of its intention to exercise this option
and thereafter remains on the Leased Premises upon the expiration of the term
of this Lease, Lessor may determine that no tenancy of any duration shall be
created; that a tenancy shall exist and be deemed to continue for month to
month; or that Lessee has exercised its option to renew and extend as provided
by this Section and in such latter event both Lessor and Lessee shall be bound
by the terms of such renewal and extension. If Lessor deems the tenancy to
continue for month to month it shall so continue at One and one-half (1 1/2)
times the monthly installment of Base Rent above provided and on the terms
herein expressed where applicable.
SECTION 9.8. ABANDONED PERSONAL PROPERTY AND LIENS: At Lessor's
election and demand, Lessee shall remove all of Lessee's personal property from
the Leased Premises at the termination of the tenancy hereby created or at any
time Lessee vacates the Leased Premises or fails to occupy the same for 15
days, whichever first occurs. In the event Lessee fails to remove Lessee's
stock-in-trade, trade fixtures, furniture, adornments, special equipment, and
all other items of personal property of Lessee located on or within the Leased
Premises and all Improvements installed by Lessee upon the Leased Premises as
may be required hereunder, Lessor shall have no obligation to store or protect
the same and may dispose of the same without notice to Lessee in any manner,
including without limitation, by:
gift of the same to charity;
disposal of the same as rubbish; and
sale of the same in any manner.
In the event such personal property is sold, Lessor shall be entitled to
compensation for the costs of such sale including, without limitation, an
amount equal to the value of Lessor's labor. If Lessee makes no claim to the
proceeds of any such sale within six (6) months thereof, all such proceeds
shall become the property of Lessor.
SECTION 9.9. LESSOR'S LIEN: The rent hereunder and each and every
installment thereof, and all costs, reasonable attorneys' fees, or other
expenses which may be incurred by Lessor in enforcing the provisions of this
Lease, or on account of any delinquency of Lessee in carrying out the
provisions of this Lease, shall be and hereby are declared to constitute a
valid lien upon the interest of Lessee in this Lease and the stock-in-trade,
trade fixtures, furniture, adornments, special equipment, and all other items
of personal property of Lessee located on or within the Leased Premises and all
Improvements installed by
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Lessee upon the Leased Premises. Lessor is hereby authorized by Lessee, at
Lessor's expense, to cause this Lease, or any statement or other instrument in
respect to this Lease showing the interest of Lessor in the property of Lessee,
including Uniform Commercial Code Financing Statements to be filed or recorded
and refiled and rerecorded. Lessee further grants Lessor the right to file such
statements without Lessee's signature.
SECTION 9.10. SUBORDINATION: Lessor reserves the right to subject
and subordinate this Lease to the lien of any mortgage hereafter placed upon
the Leased Premises or the land and building of which the Leased Premises are a
part. Provided that the Lease will only be subordinate if Lessee receives a
non-disturbance agreement.
SECTION 9.11. INDIANA RESPONSIBLE PROPERTY TRANSFER ACT: If, during
the term of this Lease, Lessor transfers the Leased Premises, Lessee shall
provide such information required by the Indiana Responsible Property Transfer
Act ("Act"), Ind. Code 13-7-22.5-1, et seq., to enable Lessor to deliver the
environmental disclosure document for transfer of real property, as required by
the Act.
ARTICLE 10.
ADMINISTRATION AND ENFORCEMENT
SECTION 10.1. ATTORNEYS' FEES AND COSTS: If litigation occurs
between the parties, the successful party shall pay and discharge all
reasonable costs, attorney's fees and expenses that shall be made and incurred
by the successful party in enforcing the covenants and agreements of this
Lease, including the agreement to deliver possession for any reason herein
provided.
SECTION 10.2. FORCE MAJEURE: If Lessor or Lessee is delayed or
prevented from the performance of any act required by this Lease by reason of
an act of God, strikes, lockouts, labor troubles, inability to procure
materials, restrictive governmental laws or regulations, or any other cause
without fault and beyond the reasonable control of Lessor, performance of such
act shall be excused for the period of the delay. The performance of such act
shall be extended for a period equivalent to the period of such delay,
provided, however, that nothing in this Section shall excuse Lessor from the
prompt payment of any sum or charge required except as may be expressly
provided elsewhere in this Lease.
SECTION 10.3. ADDITIONAL DOCUMENTS: Lessor agrees to assist and
cooperate in any application or petition to any governmental authority
necessary or convenient to obtain any permit, license, or approval of such
authority as needed for Lessee's Use and to sign any additional documents, as
landowner, necessary or convenient to such application or petition. Such
assistance shall be without cost or expense to Lessor and shall not create any
obligation for the payment of any expense by Lessor. Any such cost and expense
to be incurred by Lessor shall be paid in advance by Lessee.
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SECTION 10.4. NOTICES: Except as may be otherwise specifically
provided in this Agreement, all notices required or permitted hereunder shall
be in writing and shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, Registered or Certified mail, return receipt
requested, addressed to Lessor or Lessee, as the case may be, at the addresses
shown above in Article 1. or at such other addresses as the parties may specify
in writing. Notwithstanding the foregoing, notice to Lessee shall be
sufficient if mailed to the Leased Premises in the manner specified in this
Section or if conspicuously posted thereon.
SECTION 10.5. INDIANA LAW TO APPLY: This Lease shall be construed
under and in accordance with the laws of the state of Indiana and all
obligations of the parties created hereunder are performable in that state.
SECTION 10.6. HEADINGS: The headings used in this Lease are used for
administrative purposes only and do not constitute substantive matters to be
considered in construing the terms of this Lease.
SECTION 10.7. PARTIES BOUND: This Lease is binding on and shall
inure to the benefit of the parties and their respective heirs, executors,
administrators, legal representatives, successors and assigns as permitted by
this Lease.
SECTION 10.8. CONSTRUCTION: This Lease shall not be strictly
construed against any party.
SECTION 10.9. SEVERABILITY: In case any one or more of the
provisions contained in this Lease shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect other provisions hereof, and this Lease
shall be construed as if such invalid, illegal or unenforceable provisions had
never been contained herein.
SECTION 10.10. COUNTERPARTS: This Lease may be executed in any
number of counterparts and each such counterpart shall, for all purposes, be
deemed to be an original.
SECTION 10.11. GENDER: Wherever the context shall so require, all
words in the masculine gender shall be deemed to include the feminine or neuter
gender; all singular words shall include the plural; and, all plural words
shall include the singular.
SECTION 10.12. PRIOR LEASES SUPERSEDED: Except as otherwise
specifically referred to in this Lease, this Lease supersedes any prior
understandings, written or oral, among the parties respecting the within
subject matter.
SECTION 10.13. MEMORANDUM OF LEASE: Lessor and Lessee agree to
execute a Memorandum of Lease and to file the same in the Office of the
Recorder of the county in
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which the Leased Premises is located. Neither party shall cause this Lease to
be recorded.
SECTION 10.14. MODIFICATION: This Lease shall not be modified except
through written instrument or superseding lease executed by the parties hereto,
their successors in interest, or their lawful representatives.
SECTION 10.15. ENTIRE AGREEMENT: This Lease and the exhibits
attached hereto, if any, set forth all of the covenants, promises, and
agreements between Lessee and Lessor concerning the Leased Premises. There
are no covenants, promises, agreements, conditions, or understandings, either
oral or written, other than herein set forth. No subsequent alteration,
amendment, change, or supplement to this Lease shall be binding unless such
alteration, amendment, change or supplement is made in writing and executed by
Lessor and Lessee.
SECTION 10.16. WARRANTIES OF PERSONS SIGNING: Each of the person
executing this Lease on behalf of an entity represents and warrants that he or
she is lawfully entitled so to do and bind that entity hereto.
IN WITNESS WHEREOF, Liddell L.L.C., Lessor, and Systems Management,
Inc., Lessee, have executed this Lease on the date first above written.
"SYSTEMS MANAGEMENT, INC." "LIDDELL L.L.C." AN INDIANA LIMITED
LIABILITY COMPANY
BY: BY:
---------------------------- ----------------------------------
THOMAS P. LIDDELL, PRESIDENT THOMAS P. LIDDELL, MANAGING MEMBER
MEDICAL MANAGER CORPORATION BY:
-----------------------------------
TIMOTHY S. LIDDELL, MANAGING MEMBER
BY:
----------------------------
JOHN H. KANG, PRESIDENT
STATE OF INDIANA: )
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) SS:
ST. JOSEPH COUNTY: )
Before me the undersigned, a Notary Public in and for said County and
State, personally appeared Thomas P. Liddell, for and on behalf of Systems
Management, Inc., and acknowledged the execution of the foregoing Commercial
Lease as his voluntary act and deed for the purposes therein set forth.
WITNESS my hand and notarial Seal this 23rd day of December, 1996.
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in
----------------------------
County
My Commission Expires: State of Indiana
-------------
STATE OF INDIANA: )
) SS:
ST. JOSEPH COUNTY: )
Before me the undersigned, a Notary Public in and for said County and
State, personally appeared Thomas P. Liddell, for and on behalf of Liddell
L.L.C., and acknowledged the execution of the foregoing Commercial Lease as his
voluntary act and deed for the purpose therein set forth.
WITNESS my hand and notarial Seal this 23rd day of December, 1996.
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in
----------------------------
County
My Commission Expires: State of Indiana
-------------
23
<PAGE> 24
STATE OF INDIANA: )
) SS:
ST. JOSEPH COUNTY: )
Before me the undersigned, a Notary Public in and for said County and
State, personally appeared Timothy S. Liddell, for and on behalf of Liddell
L.L.C., and acknowledged the execution of the foregoing Commercial Lease as his
voluntary act and deed for the purpose therein set forth.
WITNESS my hand and notarial Seal this 23rd day of December, 1996.
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in
----------------------------
County
My Commission Expires: State of Indiana
-------------
STATE OF FLORIDA )
) SS:
Hillsborough COUNTY )
Before me the undersigned, a Notary Public in and for said County and
State, personally appeared John H. Kang, President of Medical Manager
Corporation, for and on behalf of said corporation, and acknowledged the
execution of the foregoing Commercial Lease as his voluntary act and deed for
the purpose therein set forth.
WITNESS my hand and notarial Seal this 11th day of December, 1996.
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in
----------------------------
County
My Commission Expires: State of Florida
-------------
24
<PAGE> 1
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
December 26, 1996, is by and among Electronic Data Systems Corporation, a
Delaware corporation ("EDS"), Medical Manager Corporation, a Delaware
corporation ("MMC"), and National Medical Systems, Inc., a Florida corporation
("NMS").
RECITALS
WHEREAS, pursuant to a certain Agreement and Plan of
Reorganization, dated as of September 30, 1996 (the "Reorganization
Agreement"), by and among MMC, NMS, NMS Acquisition I Corp., a Delaware
corporation and wholly owned subsidiary of MMC ("Newco"), and the several
stockholders named therein (the "Stockholders"), the parties thereto have
agreed to consummate a transaction involving, among other things, the merger of
Newco with and into NMS (the "Merger");
WHEREAS, MMC has entered into other separate agreements
substantially similar to the Reorganization Agreement (collectively, the "Other
Reorganization Agreements"), each of which is entitled "Agreement and Plan of
Reorganization," with each of RTI Business Systems, Inc., a New York
corporation, Systems Plus, Inc., a California corporation, Systems Plus
Distribution, Inc., a California corporation, Personalized Programming, Inc., a
Florida corporation, Systems Management, Inc., an Indiana corporation, and
their respective stockholders in order to acquire additional medical software
development and distribution companies;
WHEREAS, the Reorganization Agreement, the Other
Reorganization Agreements and the IPO (as hereinafter defined) constitute the
"MMC Plan of Organization;"
WHEREAS, in contemplation of the MMC Plan of Organization, EDS
desires to purchase from NMS, and NMS desires to issue and sell to EDS, a
number of shares (the "NMS Shares") of the common stock, par value $.01 per
share, of NMS ("NMS Common Stock") that, upon consummation of the Merger, will
result in the acquisition by EDS of shares (the "MMC Shares") of the common
stock, par value $.01 per share, of MMC ("MMC Stock") for an aggregate price of
$12,500,000 and a per share price of 93% of the IPO Price (as hereinafter
defined); and
WHEREAS, the parties hereto intend that the closing of the
purchase and sale of the NMS Shares hereunder will occur immediately prior to,
and on the same date as, the closing of the Merger and the IPO;
<PAGE> 2
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Amendment No. 2" means the draft dated January 3, 1997 of
Amendment No. 2 to the Registration Statement.
"Closing" means the closing of the sale and purchase of the
NMS Shares pursuant to this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"EDS" has the meaning set forth in the Preamble to this
Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Financial Statements" means the financial statements of MMC,
each of the Founding Companies and their respective consolidated subsidiaries,
including the notes thereto, as contained in the Registration Statement.
"Founding Companies" means, collectively, NMS, together with
each of the other entities with which MMC has entered into the Other
Reorganization Agreements.
"Funding and Consummation Date" means the date upon which each
of the following actions has occurred: (i) the articles or certificates of
merger with respect to the Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be or, as of 8:00 a.m. New
York City time on the Funding and Consummation Date, shall become effective and
the Merger shall thereby be effected, (ii) all transactions contemplated by the
Reorganization Agreement, including without limitation the conversion and
delivery of shares which the Stockholders shall be entitled to receive pursuant
to the Merger in accordance with Section 3 thereof, shall have been
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<PAGE> 3
consummated and (iii) the closing with respect to the IPO shall occur and be
deemed to be completed.
"GAAP" means generally accepted accounting principles, as set
forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements of the Financial
Accounting Standards Board or in such opinions and statements of such other
entities as shall be approved by a significant segment of the accounting
profession in the United States of America.
"Governmental Authority" means (i) the United States of
America or any state within the United States of America and (ii) any court or
any governmental department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any state within the
United States of America.
"IPO" means the initial public offering of MMC Stock pursuant
to the Registration Statement.
"IPO Price" means the price at which the MMC Stock is sold to
the public in the IPO.
"Law" means any applicable statute, law, ordinance,
regulation, rule, ruling, order, restriction, requirement, writ, injunction,
decree or other official act of or by any Governmental Authority.
"MMC" has the meaning set forth in the Preamble to this
Agreement.
"MMC Plan of Organization" has the meaning set forth in the
Recitals to this Agreement.
"MMC Shares" has the meaning set forth in the Recitals to this
Agreement.
"MMC Stock" has the meaning set forth in the Recitals to this
Agreement.
"Material Adverse Effect" with respect to a Person means a
material and adverse effect on the financial condition, results of operations,
business, properties or prospects of such Person and its consolidated
subsidiaries, taken as a whole.
"Merger" has the meaning set forth in the Recitals to this
Agreement.
"NMS" has the meaning set forth in the Preamble to this
Agreement.
"NMS Common Stock" has the meaning set forth in the Recitals
to this Agreement.
"NMS Shares" has the meaning set forth in the Recitals to this
Agreement.
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"Other Founding Companies" means all of the Founding
Companies other than NMS.
"Other Reorganization Agreements" has the meaning set forth in
the Recitals to this Agreement.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Purchase Price" has the meaning set forth in Section 2.1.
"Registration Statement" means that certain registration
statement on Form S-1 (Registration No. 333- 13101), as amended, filed with the
Commission by MMC with respect to the IPO.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders" has the meaning set forth in the Recitals to
this Agreement.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 Purchase and Sale of Shares. Subject to the
satisfaction of the terms and conditions herein set forth and in reliance upon
the respective representations and warranties of the parties set forth herein
or in any document delivered pursuant hereto, at the Closing, NMS shall sell to
EDS, free and clear of any liens, claims, charges or encumbrances whatsoever,
and EDS shall purchase from NMS, the number of NMS Shares that will result in
the conversion of such NMS Shares in the Merger into a number of shares of MMC
Stock equal to the quotient obtained by dividing (i) $13,440,860.21 by (ii) the
IPO Price, in exchange for payment to NMS by EDS of $12,500,000 in cash (the
"Purchase Price").
2.2 Closing. The Closing shall take place at the offices
of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178
immediately prior to the closing of the Merger on the Funding and Consummation
Date, or at such other time, date and place as may be agreed to in writing by
each of the parties hereto.
2.3 Delivery. At the Closing, NMS shall deliver to EDS,
against payment by EDS of the Purchase Price, one or more certificates
representing the NMS Shares duly issued and in form sufficient to vest title
thereto fully in EDS, free and clear of all liens, claims and encumbrances. At
the effective time of the Merger and on the Funding and Consummation Date, MMC
shall deliver to EDS, upon surrender of the certificate or certificates
referenced in the immediately preceding sentence, one or more certificates
representing the MMC Shares into which the NMS Shares are
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convertible in the Merger, duly issued and in form sufficient to vest title
thereto fully in EDS, free and clear of any liens, claims, charges or
encumbrances whatsoever.
2.4 Payment. At the Closing, EDS shall pay to NMS, by
wire transfer of immediately available funds to an account designated by NMS or
by such other means as may be acceptable to NMS, the Purchase Price.
2.5 Further Assurances. At or after the Closing, the
parties hereto shall execute and deliver such additional documents and take
such additional actions as any party may reasonably deem to be necessary or
advisable in order more fully to consummate the transactions contemplated by
this Agreement and to carry out and effectuate the purposes intended hereby to
be accomplished.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MMC AND NMS
MMC and NMS hereby jointly and severally represent and warrant
to EDS that the following are true and correct as of the date of this Agreement
and will be true and correct at and as of the date of the Closing, in each case
as if made on such date:
3.1 Organization. MMC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
NMS is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida. Each of MMC and NMS is duly qualified
or licensed to do business as a foreign corporation, and in good standing, in
every jurisdiction in which its ownership of property or the conduct of its
business requires such qualification or licensing, except where the failure to
be so qualified or licensed would not have a Material Adverse Effect upon MMC
or NMS, as applicable. True and complete copies of the certificates of
incorporation and bylaws of MMC and NMS, each as amended to date, have been
provided to EDS.
3.2 Authority. Each of MMC and NMS has all requisite
corporate power and authority, as applicable, to carry on its business as
presently conducted, to enter into this Agreement, to issue, sell and deliver
the NMS Shares and the MMC Shares on the terms described in this Agreement, and
to perform its other obligations contemplated by this Agreement.
3.3 Authorization. The execution and delivery of this
Agreement and the performance of the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action on the part of
each of MMC and NMS and their respective stockholders.
3.4 Binding Agreement. This Agreement has been duly
executed and delivered by each of MMC and NMS and constitutes a legal, valid
and binding obligation of each of them, enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy
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and other similar laws of general application with respect to creditors and
subject to principles of equity and public policy that affect enforceability of
agreements generally.
3.5 No Conflicts. Neither the execution or delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will result in a breach or violation of, or constitute a default under, the
certificate of incorporation, bylaws or other governing documents of MMC or
NMS, or any agreement, indenture or other instrument to which MMC or NMS is a
party or by which either of them are bound or to which any of either of their
properties are subject or, as a result of the MMC Plan of Organization, MMC or
NMS will become a party or by which either of them will become bound or to
which any of either of their properties will be subject. The performance by
MMC or NMS of their respective obligations hereunder violate any Law or result
in the creation or imposition of any lien, charge, claim or encumbrance upon
any property or assets of MMC or NMS. No permit, consent, approval,
authorization or order of, or filing with, any Governmental Authority or other
Person is required in connection with the consummation by MMC and NMS of the
transactions contemplated by this Agreement, except such as have been obtained
and as otherwise contemplated by this Agreement.
3.6 Capitalization.
(a) The authorized capital stock of NMS consists
solely of (i) 25,000,000 shares of NMS Common Stock, of which
7,176,642 shares are issued and outstanding on the date hereof, and
(ii) 5,000,000 shares of convertible redeemable preferred stock, par
value $1.00 per share, of NMS ("NMS Preferred Stock"), of which
100,000 shares are issued and outstanding on the date hereof. No
shares of capital stock of NMS are held in its treasury. All
outstanding shares of capital stock of NMS have been validly issued
and are fully paid and non-assessable and have not been issued in
violation of preemptive or similar rights. Holders of shares of NMS'
capital stock have no preemptive rights. Except for (i) outstanding
warrants for the purchase of an aggregate of 910,000 shares of NMS
Common Stock (the "Outstanding NMS Warrants") and (ii) the outstanding
NMS Preferred Stock, there is no outstanding subscription, contract,
convertible or exchangeable security, option, warrant, call or other
right obligating NMS or any other Person to issue, sell, exchange or
otherwise dispose of, or to purchase, redeem or otherwise acquire,
shares of, or securities convertible into or exchangeable for, capital
stock of NMS, and, except for any shares reserved for issuance upon
any exercise of the Outstanding NMS Warrants or the NMS Preferred
Stock, no shares of capital stock of NMS are reserved for any such
purpose. To the knowledge of NMS, except for the shareholders
agreement identified on Schedule 7.6 of the Reorganization Agreement,
there are no agreements among the stockholders of NMS and any other
Person or among NMS and any other Person limiting or restricting the
free transferability of shares of capital stock of NMS or granting to
any Person a right of first refusal with respect to any such capital
stock.
(b) Except for the transactions contemplated by
this Agreement or the Reorganization Agreement, there are (i) to the
knowledge of NMS, no voting trusts or voting
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agreements or other arrangements among, or irrevocable proxies
executed by, stockholders of NMS, (ii) except for the shareholders
agreement identified on Schedule 7.6 of the Reorganization Agreement,
no existing rights of stockholders to require NMS to register any
securities of NMS or to participate with NMS in any registration by
NMS of its securities, (iii) to the knowledge of NMS, except for the
shareholders agreement identified on Schedule 7.6 of the
Reorganization Agreement, no agreements among stockholders providing
for the purchase or sale of capital stock of NMS and (iv) no
obligations (contingent or otherwise) of NMS to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in
respect thereof.
(c) Immediately prior to the Funding and
Consummation Date, the authorized capital stock of MMC will consist
solely of (i) 50,000,000 shares of MMC Stock, of which the number of
issued and outstanding shares are as set forth in Amendment No. 1, and
(ii) 500,000 shares of preferred stock, $.01 par value, of which no
shares will be issued and outstanding. Upon and immediately following
the consummation of the Merger and the IPO, EDS will own not less than
4% of the issued and outstanding shares of MMC Stock.
3.7 Validity of the NMS Shares and the MMC Shares.
(a) The issuance, sale and delivery of the NMS
Shares in accordance with this Agreement have been duly authorized by
all necessary corporate action on the part of NMS and its
stockholders, and the NMS Shares when so issued, sold and delivered
against payment therefor in accordance with this Agreement will be
duly and validly issued, fully paid and nonassessable.
(b) The Merger, including the issuance of the MMC
Shares in exchange for the NMS Shares in accordance with the
Reorganization Agreement, has been duly authorized by all necessary
corporate action on the part of MMC and its stockholders, and the MMC
Shares when exchanged for the NMS Shares in accordance with the
provisions of the Reorganization Agreement will be duly and validly
issued, fully paid and nonassessable.
3.8 Absence of Bankruptcy Proceedings. There are no
bankruptcy, reorganization or arrangement proceedings pending against, being
contemplated by, or to the knowledge of MMC or NMS, threatened against, MMC or
NMS.
3.9 Brokers. Except for Morgan Stanley & Co., no broker
or finder has acted for or on behalf of MMC or NMS in connection with this
Agreement or the transactions contemplated by this Agreement, and no broker or
finder is entitled to any brokerage or finder's fee or commission in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of MMC or NMS.
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3.10 Financial Statements. The Financial Statements
(i) present fairly the financial position of the relevant entities (including,
without limitation, MMC and NMS) and their respective consolidated
subsidiaries as of the dates identified therein, (ii) present fairly the
results of operations, cash flows and changes in stockholders' equity of such
entities and their respective consolidated subsidiaries for the periods
identified therein, and (iii) were prepared in accordance with GAAP
consistently followed throughout the periods involved, except as otherwise
noted therein. MMC and NMS have no material liabilities, contingent or
otherwise, not reflected in the relevant balance sheets (or the notes thereto)
included in the Financial Statements, other than any such liabilities incurred
in the ordinary course of business since September 30, 1996.
3.11 No Material Adverse Change. Since September 30,
1996, there has not been any material adverse change in the financial
condition, results of operations, business, properties or prospects of MMC, NMS
or, to the knowledge of MMC or NMS, any of the Other Founding Companies.
3.12 Amendment No. 2. MMC has furnished EDS true and
complete copies of Amendment No. 2. Amendment No. 2 will comply as to form when
filed in all material respects with the rules and regulations of the Commission
and will not on the date of filing contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.13 Registration Rights. Except as provided in this
Agreement, the Reorganization Agreement or the Other Reorganization Agreements,
there are no contracts, agreements or understandings between MMC and any person
granting such person the right to require MMC to include any securities of MMC
in a registration statement filed under the Securities Act.
3.14 Offering. Subject to the accuracy of EDS'
representations in Article IV hereof, the offer, sale and issuance of the NMS
Shares as contemplated by this Agreement and the issuance of the MMC Shares
pursuant to the Merger as contemplated by the Reorganization Agreement are each
exempt from the registration requirements of the Securities Act and the
securities laws of any state having jurisdiction with respect to the
transactions contemplated by this Agreement, and none of MMC, NMS or anyone
acting on their behalf has or will take any action that would cause the loss of
such exemptions.
3.15 No Defaults. None of MMC, NMS or, to the knowledge
of MMC or NMS, any Other Founding Company is (a) in violation of any provision
of its charter or bylaws, (b) in breach, violation or default, in any material
respect, of or under any material contract, lease, commitment or instrument to
which it is a party or by which it is bound or to which any of its properties
or assets are subject, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a breach, violation or default or (c) in material violation of
any Law.
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3.16 Litigation. There is no action, suit, proceeding or
investigation pending or, to the knowledge of MMC or NMS, threatened against or
affecting MMC, NMS or any Other Founding Company or any properties or rights of
any of them by or before any Governmental Authority that (i) relates to or
challenges the legality of this Agreement, the Reorganization Agreement, any
Other Reorganization Agreement, the NMS Shares or the MMC Shares to be issued
in connection with the Merger, (ii) would reasonably be expected to have a
Material Adverse Effect upon MMC, NMS or any Other Founding Company (except as
disclosed in Amendment No. 1) or (iii) would reasonably be expected to impair
the ability of MMC, NMS or any Other Founding Company to perform fully on a
timely basis any obligations that it has under this Agreement, the
Reorganization Agreement, any Other Reorganization Agreement, or any documents
related hereto or thereto.
3.17 Compliance with Laws. Each of MMC, NMS and the Other
Founding Companies are in compliance in all material respects with all laws and
regulations in all jurisdictions in which MMC, NMS and the Other Founding
Companies are presently doing business.
3.18 Taxes. All tax returns required to be filed by MMC,
NMS and the Other Founding Companies in any jurisdiction have been so filed,
and all taxes, assessments, fees and other charges shown thereon to be due and
payable have been paid, other than those being contested in good faith.
Neither MMC nor NMS knows of any actual or proposed material additional tax
assessments for any fiscal period against it or any of the Other Founding
Companies. None of MMC's, NMS's or the Other Founding Companies' tax returns
are under audit, and no waivers of the statute of limitations or extensions of
time with respect to any tax returns have been granted to MMC, NMS or any of
the Other Founding Companies.
3.19 ERISA. Assuming the accuracy of the representations
and warranties of EDS contained in Section 4.8 of this Agreement, none of the
execution and delivery of this Agreement, the sale of the NMS Shares pursuant
to this Agreement, or the issuance of the MMC Shares in the Merger pursuant to
the Reorganization Agreement is a prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) on the part of MMC, NMS or
any of the Other Founding Companies that is not exempt by statute, regulation
or class exemption. Each of MMC and NMS is in compliance in all material
respects with all presently applicable provisions of ERISA; no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which MMC or NMS would have any material liability;
neither MMC nor NMS has incurred or expects to incur liability under (i) Title
IV of ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 (whether or not waived) or 4971 of the Code; and
each "pension plan" for which MMC or NMS would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in
all material respects and nothing has occurred, whether by action or by failure
to act, that would cause the loss of such qualification.
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3.20 Compliance with Environmental Laws. The business and
properties of MMC, NMS and, to the knowledge of MMC or NMS, each of the Other
Founding Companies have been operated in compliance with all applicable
federal, state or local laws, rules, regulations or orders (collectively,
"Environmental Laws") relating to pollution or protection of the environment
including, without limitation, any law, rule, regulation or order relating to
emissions, discharges, releases or threatened releases ("Releases") of
chemicals, pollutants, contaminants, wastes, petroleum or petroleum products,
toxic substances or hazardous substances ("Pollutants") for which noncompliance
would have a Material Adverse Effect upon MMC or NMS. None of MMC, NMS or any
Other Founding Company has received any written communication, whether from a
Governmental Authority, citizens' group, landowner, employee or otherwise, nor,
to the knowledge of MMC, has MMC, NMS or any Other Founding Company received
any oral communication from a Governmental Authority, alleging that (i) MMC,
NMS or any such Other Founding Company is not in compliance with any
Environmental Law applicable to it and its business and properties, or (ii) any
employee or third party has suffered bodily injury or property damage as a
result of one or more Releases of Pollutants arising out of or resulting from
the operations of MMC, NMS, any Other Founding Company, or prior owners and
operators of their business or property, which allegation, if true, would have
a Material Adverse Effect upon MMC, NMS or such Other Founding Company, as the
case may be. Except as disclosed in Amendment No. 1, none of MMC, NMS or, to
the knowledge of MMC or NMS, any Other Founding Company has any material
obligation to remediate, repair or replace any property, whether real or
personal, owned by MMC, NMS, any Other Founding Company or any third party, as
a result of one or more Releases of Pollutants arising out of or resulting from
the operations of MMC, NMS, or such Other Founding Company, as the case may be,
or prior owners and operators of their business or properties.
3.21 Insurance. MMC, NMS and the Other Founding Companies
are beneficiaries of policies of insurance, issued by insurers of recognized
responsibility, providing adequate coverage to insure the properties and
businesses thereof against such risks and in such amounts as are prudent and
customary in the respective industries of MMC, NMS and the Other Founding
Companies. All premiums due thereon have been paid and no notice of
cancellation has been received with respect thereto.
3.22 Patents, Trademarks, Copyrights, Etc.
(a) MMC, NMS and the Other Founding Companies own
all patents, technology, know-how, processes, trademarks and
copyrights, if any, necessary to conduct their business, or possess
adequate licenses or other rights, if any, therefor, without conflict
with the rights of others, including without limitation The Medical
Manager(R) (the "Proprietary Rights").
(b) MMC, NMS, or such Other Founding Company, as
the case may be, has the right to use the Proprietary Rights without
infringing or violating the rights of any third parties. No consent
of third parties (other than those which have been obtained) is
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required for the use thereof by MMC, NMS or such Other Founding
Company, and no claim has been asserted by any person to the ownership
of or right to use any Proprietary Right or challenging or questioning
the validity or effectiveness of any such license or agreement, and
none of MMC, NMS or such Other Founding Company knows of any basis for
any such claim. Each of the Proprietary Rights is valid and
subsisting, has not been cancelled, abandoned or otherwise terminated
and, if applicable, has been duly issued or filed.
(c) There is no claim that, or inquiry as to
whether, any product, activity or operation of MMC, NMS or any Other
Founding Company infringes upon or involves, or has resulted in the
infringement of, any Proprietary Right of any other person,
corporation or other entity; and no proceedings have been instituted,
are pending or, to the knowledge of MMC and NMS, are threatened which
challenge the rights of MMC, NMS or such Other Founding Company with
respect thereto.
3.23 Accuracy of Information Furnished. No representation
or warranty made by MMC or NMS in this Agreement, the Reorganization Agreement,
any Other Reorganization Agreement or in any other agreement executed pursuant
hereto or thereto, contains any untrue statement of material fact or omits to
state any material fact necessary to make such statements, in light of the
circumstances under which they were made, not false or misleading.
3.24 Accuracy of Representations and Warranties in Other
Agreements. All of the representations and warranties made by MMC or NMS in
the Reorganization Agreement and the Other Reorganization Agreements and, to
the knowledge of MMC and NMS, all of the representations and warranties in such
agreements made by the other parties thereto, were true and correct when made
and remain true and correct on the date hereof, with the same force and effect
as if made on the date hereof.
3.25 Direct Ownership of Assets. Substantially all of the
properties and assets of each of the Founding Companies used in connection with
their respective businesses are owned directly by such Founding Companies and
not through subsidiaries or other Persons.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF EDS
EDS hereby represents and warrants to NMS and MMC that the
following are true and correct as of the date of this Agreement and will be
true and correct at and as of the date of the Closing, in each case as if made
on such date:
4.1 Organization. EDS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
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4.2 Authority. EDS has all requisite corporate
power and authority to enter into this Agreement and the other
documents and agreements contemplated hereby, to purchase the Shares
on the terms described in this Agreement, and to perform its other
obligations contemplated by this Agreement.
4.3 Authorization. The execution and delivery of this
Agreement and the performance of the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action on the part of
EDS.
4.4 Binding Agreement. This Agreement has been duly
executed and delivered by EDS and constitutes a legal, valid and binding
obligation of EDS enforceable against EDS in accordance with its terms, subject
to bankruptcy and other similar laws of general application with respect to
creditors and subject to principles of equity and public policy that affect
specific enforceability of agreements generally.
4.5 No Conflicts. Neither the execution or delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will result in a breach or violation of, or constitute a default under, the
certificate of incorporation or bylaws of EDS, or any agreement, indenture or
other instrument to which EDS is a party or by which EDS is bound or to which
any of its properties is subject, nor will the performance by EDS of its
obligations hereunder violate any Law or result in the creation or imposition
of any lien, charge, claim or encumbrance upon any property or assets of EDS.
No permit, consent, approval, authorization or order of any Governmental
Authority or other Person is required in connection with the consummation by
EDS of the transactions contemplated by this Agreement, except such as have
been obtained and as otherwise contemplated by this Agreement.
4.6 No Brokers. No broker or finder has acted for or on
behalf of EDS in connection with this Agreement or the transactions
contemplated by this Agreement, and no broker or finder is entitled to any
brokerage or finder's fee or commission in respect thereof based in any way on
agreements, arrangements or understandings made by or on behalf of EDS.
4.7 Accredited Investor; Investment Intent. EDS is an
"accredited investor" within the meaning of Rule 501 under the Securities Act.
EDS is acquiring the NMS Shares for its own account and not for distribution or
resale, with no present intention of distributing or reselling the NMS Shares
or any part thereof; provided, however, that the disposition of EDS' property,
including without limitation the NMS Shares, shall at all times remain within
EDS' control.
4.8 ERISA. No part of the funds used by EDS to purchase
the NMS Shares hereunder constitutes assets allocated to any "separate account"
maintained by EDS in which any "employee benefit plan" (or its related trust)
has any interest (as such terms are defined in Section 3 of ERISA).
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ARTICLE V
PRE-CLOSING COVENANTS
Each of MMC and NMS hereby agrees that from and after the date
of execution of this Agreement and through the Funding and Consummation Date it
will comply with each of the following covenants:
5.1 Additional Actions. Neither MMC nor NMS shall take
any action that would adversely affect, or fail to take any action that would
result in an adverse effect upon, the condition (financial or otherwise),
business, operations, assets or prospects of NMS or MMC without the prior
written consent of EDS.
5.2 Access. NMS and MMC shall permit EDS and their
authorized agents or representatives reasonable access to, and make available
for inspection, all of the assets and business of NMS, MMC and the Other
Founding Companies, including their books and records, employees, customers and
suppliers, and shall furnish EDS all documents, records and information with
respect to the affairs of NMS, MMC and the Other Founding Companies as EDS and
its agents or representatives may reasonably request.
5.3 Notification of Material Adverse Change. Prior to
the Funding and Consummation Date, NMS and MMC shall promptly inform EDS in
writing of any material adverse change in the condition (financial or
otherwise), business, operations, assets or prospects of NMS, MMC or any of the
Other Founding Companies of which they become aware.
5.4 Obtainment of Consents. As soon as practicable after
the execution of this Agreement, but in any event prior to the Closing, NMS and
MMC will use their respective best efforts to secure all necessary approvals
and consents of third parties to the consummation of the transactions
contemplated by this Agreement and the Reorganization Agreement.
5.5 Certain Transactions. Except as contemplated by the
Reorganization Agreement, the Other Reorganization Agreements and the
Registration Statement, neither NMS nor MMC will seek or solicit indications of
interest, or seek or solicit offers, or negotiate or enter into any agreements,
from or with any other person with respect to the sale of substantially all of
the assets of NMS, MMC or any of the Other Founding Companies as an entirety,
the sale of all of the capital stock NMS, MMC or any of the Other Founding
Companies, the merger or consolidation of NMS, MMC or any of the Other Founding
Companies or otherwise relating to the sale of the business of NMS, MMC or the
Other Founding Companies.
5.6 Registration Statement. MMC will provide EDS with
advance drafts of any and all versions of, or amendments or exhibits to, the
Registration Statement that contain references to EDS or the transactions
contemplated by this Agreement prior to the filing thereof with the Commission;
provided, that if due to time constraints it is impracticable to provide
complete drafts of any such version, MMC will provide EDS with only those
portions of such drafts that contain
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references to EDS and the transactions contemplated by this Agreement, together
with all such other portions as are reasonably necessary for EDS' review of
such references in context. MMC will allow EDS a reasonable amount of time to
review and comment on such portions of the Registration Statement. MMC will
not file any Registration Statement containing any references to EDS without
EDS' prior approval.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Piggyback Registration Rights. At any time following
the Funding and Consummation Date, whenever MMC proposes to register any MMC
Stock for its own or others' account under the Securities Act for a public
offering, other than (i) any shelf registration of shares to be used as
consideration for acquisitions of additional businesses by MMC, (ii)
registrations relating to employee benefit plans and (iii) registrations
relating to rights offerings made to the stockholders of MMC, MMC shall give
EDS prompt written notice of its intent to do so. Upon the written request of
EDS given within 30 days after receipt of such notice, MMC shall cause to be
included in such registration all of the MMC Stock which EDS requests, provided
that MMC shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares would, in the opinion
of tax counsel to MMC or its independent auditors, jeopardize the status of the
transactions contemplated by the Reorganization Agreement and by the
Registration Statement as a tax-free reorganization. In addition, if MMC is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 6.1 that the number of shares to be sold by persons other
than MMC is greater than the number of such shares which can be offered without
adversely affecting the offering, MMC may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by
such managing underwriter, provided, that, for each such offering made by MMC
after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than EDS, the Stockholders and the
stockholders of the Other Founding Companies (collectively, EDS, the
Stockholders and the stockholders of the Other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a
further reduction is required, by reducing the number of shares to be sold by
the Founding Stockholders.
6.2 Demand Registration Rights. At any time after the
date that is two years after the Funding and Consummation Date, the holders of
a majority of the shares of MMC Stock issued to the Founding Stockholders
pursuant to the Reorganization Agreement and the Other Reorganization
Agreements that have not been previously registered or sold and that are not
entitled to be sold under Rule 144(k)(or any successor provision) promulgated
under the Securities Act may request in writing that MMC file a registration
statement under the Securities Act covering the registration of shares of MMC
Stock issued to such stockholders (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security that is issued by MMC as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such MMC Stock) then held
by such stockholders (a "Demand Registration").
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<PAGE> 15
Within ten days of the receipt of such request, MMC shall give written notice
of such request to all other of such stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from any such
stockholder, file and thereafter use its best efforts to cause to become
effective a registration statement covering all such shares. MMC shall be
obligated to effect only one Demand Registration for all such stockholders and
will keep such Demand Registration current and effective for not less than 120
days (or such shorter period as is required to sell all of the shares
registered thereon).
Notwithstanding the foregoing paragraph, following such a
demand a majority of MMC's disinterested directors (i.e., directors who have
not demanded or elected to sell shares in any such public offering) may defer
the filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration MMC
has plans to file within 60 days after such request a registration statement
covering the sale of any of its securities in a public offering under the
Securities Act, no registration of the MMC Stock held by the Founding
Stockholders shall be initiated under this Section 6.2 until 90 days after the
effective date of such registration unless MMC is no longer proceeding
diligently to effect such registration; provided that MMC shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 6.1 hereof.
In addition, if the stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 6.2 that the number of shares to be sold by such
stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, the stockholders offering shares may
reduce pro rata the number of shares offered for the account of each
stockholder (based upon the number of shares proposed to be sold by each such
stockholder) to a number deemed satisfactory by such managing underwriter.
6.3 Registration Procedures. All expenses incurred in
connection with the registrations under this Article VI (including all
registration, filing, qualification, legal, printer and accounting fees, but
excluding underwriting commissions and discounts), shall be borne by MMC. In
connection with registrations under Sections 6.1 and 6.2, MMC shall (i) use its
best efforts to prepare and file with the Commission, as soon as reasonably
practicable, a registration statement with respect to the MMC Stock and use its
best efforts to cause such registration to promptly become and remain effective
for a period of at least 120 days (or such shorter period during which holders
shall have sold all MMC Stock which they requested to be registered); (ii) use
its best efforts to register and qualify the MMC Stock covered by such
registration statement under applicable state securities laws as the holders
shall reasonably request for the distribution of the MMC Stock; and (iii) take
such other actions as are reasonable and necessary to comply with the
requirements of the Securities Act and the regulations thereunder.
6.4 Underwriting Agreement. In connection with each
registration pursuant to Sections 6.1 and 6.2 covering an underwritten
registered public offering, MMC and each
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<PAGE> 16
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in
the securities business for such an arrangement between such managing
underwriters and companies of MMC's size and investment stature, including
indemnification.
6.5 Availability of Rule 144. Notwithstanding any other
provision of this Article VI, MMC shall not be obligated to register shares of
MMC Stock held by EDS at any time when the resale provisions of Rule 144(k) (or
any successor provision) promulgated under the Securities Act are available to
EDS for such shares. In such event, MMC shall be required to deliver to EDS an
opinion of counsel reasonably acceptable to EDS as to the availability of such
resale provisions.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to the Obligation of EDS to Close. The
obligation of EDS to consummate the transactions contemplated hereby shall be
subject to the satisfaction of each of the following conditions:
(a) The representations and warranties made by
NMS and MMC herein shall be true and correct when made, and shall be
true and correct as of the Closing as if made at the Closing.
(b) All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by NMS
and MMC at or prior to the Closing shall have been performed or
complied with in all material respects.
(c) There shall have been no material adverse
change in the condition (financial or otherwise), business,
operations, assets or prospects of MMC or NMS.
(d) As of the Closing, all of the conditions to
closing contained in the Reorganization Agreement and each of the
Other Reorganization Agreements shall have been satisfied in
accordance with their terms and without waiver and each of NMS, MMC
and the Other Founding Companies shall be prepared to
contemporaneously effect the closing of the Merger and the IPO upon
the terms provided in the Reorganization Agreement and the Other
Reorganization Agreements and as described in Amendment No. 1.
(e) At the Closing, each of NMS and MMC shall
have delivered to EDS a certificate, executed by its chief executive
officer, dated the date of the Closing, certifying to the fulfillment
of the conditions specified in Sections 7.1(a), (b), (c) and (d) of
this Agreement.
(f) At the Closing, MMC shall have delivered to
EDS copies of each of the following, in each case certified to be in
full force and effect on the date of the Closing
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<PAGE> 17
by the Secretary of MMC: (i) the Certificate of Incorporation of
MMC certified by the Secretary of State of the State of Delaware as of
a date not more than five days prior to the Closing; (ii) the Bylaws
of MMC; and (iii) resolutions of the Board of Directors of MMC
authorizing the execution, delivery and performance of this Agreement,
the Reorganization Agreement, the Other Reorganization Agreements,
the transactions contemplated hereby and thereby (including without
limitation the consummation of the Merger), the issuance and sale of
the MMC Shares and the IPO.
(g) At the Closing, NMS shall have delivered to
EDS copies of each of the following, in each case certified to be in
full force and effect on the date of the Closing by the Secretary of
NMS: (i) the Certificate of Incorporation of NMS certified by the
Secretary of State of the State of Florida as of a date not more than
five days prior to the Closing; (ii) the Bylaws of NMS; and (iii)
resolutions of the Board of Directors of NMS authorizing the
execution, delivery and performance of this Agreement and the
Reorganization Agreement, and the transactions contemplated hereby and
thereby, and the issuance and sale of the NMS Shares.
(h) At the Closing, EDS shall have received the
legal opinion of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill &
Mullis, counsel for NMS, dated the date of the Closing, in form and
content reasonably acceptable to EDS.
(i) At the Closing, EDS shall have received the
legal opinion of Morgan, Lewis & Bockius LLP, counsel for MMC, dated
the date of the Closing, in form and content reasonably acceptable to
EDS.
(j) As of the Closing, no suit, action or other
proceeding (excluding any such matter initiated by EDS) shall be
pending or threatened before any Governmental Authority seeking to
prohibit the Closing or the MMC Plan of Organization, or seeking
damages against EDS, MMC or NMS as a result of the consummation of
this Agreement or the MMC Plan of Organization.
(k) As of the Closing, all authorizations,
approvals or permits of, or filings with any Governmental Authority,
including state securities or "blue sky" offices, that are required by
Law in advance of the lawful sale and issuance of the NMS Shares and
the MMC Shares, shall have been duly obtained, and shall be effective
as of the Closing.
(l) As of the Closing, there shall have been no
material adverse change to the Registration Statement since Amendment
No. 2.
7.2 Conditions to the Obligations of MMC and NMS to
Close. The obligations of each of MMC and NMS to consummate the transactions
contemplated hereby shall be subject to the satisfaction of each of the
following conditions:
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<PAGE> 18
(a) The representations and warranties made by
EDS herein shall be true and correct when made, and shall be true and
correct as of the Closing as if made at the Closing.
(b) All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by EDS at
or prior to the Closing shall have been performed or complied with in
all material respects.
(c) At the Closing, EDS shall have delivered to
MMC and NMS a certificate, executed by a duly authorized officer of
EDS, dated the date of the Closing, certifying to the fulfillment of
the conditions specified in Sections 7.2(a) and (b) of this Agreement.
(d) As of the Closing, no suit, action or other
proceeding (excluding any such matter initiated by MMC, NMS or any
Other Founding Company) shall be pending or threatened before any
Governmental Authority seeking to restrain prohibit the Closing or the
MMC Plan of Organization or seeking damages against EDS, MMC or NMS as
a result of the consummation of this Agreement or the MMC Plan of
Reorganization.
ARTICLE VIII
TERMINATION
8.1 Grounds for Termination. This Agreement may be
terminated at any time prior to Closing:
(a) By mutual agreement of MMC, NMS and EDS;
(b) By any of MMC, NMS or EDS if the Closing
shall not have occurred on or before March 1, 1997, provided, however,
that no party shall be entitled to terminate this Agreement under this
Section 8.1(b) if the Closing has failed to occur because such party
negligently or willfully failed to perform or observe in any material
respect its covenants and agreements hereunder; or
(c) By EDS, if it becomes reasonably apparent to
EDS that MMC has determined not to consummate the IPO.
8.2 Effect of Termination. In the event that the Closing
does not occur as a result of any party hereto exercising its rights to
terminate pursuant to this Article VIII, then this Agreement shall be null and
void and, except as expressly provided herein, no party shall have any rights
or obligations under this Agreement, except that nothing herein shall relieve
any party from liability for any willful or negligent failure to perform or
observe in any material respect any agreement or covenant contained herein. In
the event the termination of this Agreement results from the willful or
negligent failure of any party to perform in any material respect any agreement
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<PAGE> 19
or covenant herein, then the other parties shall be entitled to all remedies
available at law or in equity and shall be entitled to recover court costs and
reasonable attorneys' fees in addition to any other relief to which such party
may be entitled.
ARTICLE IX
ADDITIONAL COVENANTS
9.1 Board Observer. From and after the Merger and for so
long as EDS owns at least 25% of the MMC Shares received by EDS in connection
with the Merger, EDS shall have the right to designate an observer to attend
all meetings of the Board of Directors of MMC and EDS shall be given advance
notice of all such meetings, and all advance materials, of the same character
and at the same time as such notice and materials are provided to members of
the Board of Directors of MMC.
9.2 EDI Relationship. MMC hereby agrees that it will
afford EDS preferential treatment in the creation of an electronic data
interchange ("EDI") relationship with respect to government sector and Blue
Cross/Blue Shield matters that leverages the physician base of MMC and its
subsidiaries and EDS' government sector and Blue Cross/Blue Shield
relationships. Both parties agree that such a relationship shall not be to the
financial or competitive detriment of MMC and its subsidiaries. MMC further
agrees that prior to the first anniversary of the Funding and Consummation
Date, neither it, any of the Founding Companies nor any future subsidiary will
enter into any exclusive relationship for EDI services involving the government
sector and Blue Cross/Blue Shield unless (i) EDS has publicly announced that it
will no longer provide EDI services or (ii) in the good faith judgment of MMC,
EDS has materially and repeatedly failed to provide satisfactory services to
MMC. Notwithstanding anything to the contrary in the previous sentence, a
future subsidiary (which is not a Founding Company or a subsidiary thereof as
of the date of the Merger) may be a party to such a relationship if such
relationship existed prior to its acquisition by MMC or a subsidiary of MMC and
such relationship was not created in anticipation of such acquisition. MMC and
EDS agree to cooperate in good faith to establish a business relationship for
the provision of EDI and other services within 90 days following the Funding
and Consummation Date.
9.3 Return of Funds. If for any reason whatsoever EDS
tenders the Purchase Price pursuant to this Agreement and the Merger is not
thereafter consummated in the manner contemplated by this Agreement and
described in Amendment No. 1, then MMC and NMS shall cause the Purchase Price
to be immediately returned to EDS by wire transfer of immediately available
funds to an account identified to MMC or NMS in writing by EDS. MMC and NMS
hereby represent and warrant that there is and will be no impediment to their
compliance with this Section 9.3.
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<PAGE> 20
ARTICLE X
MISCELLANEOUS
10.1 Consent to Amendments; Waivers. Except as otherwise
expressly provided herein, the provisions of this Agreement shall not be
amended or waived except upon the written agreement of NMS, MMC and EDS.
10.2 No Assignment. This Agreement may not be assigned by
EDS to any Person other than a Person in which EDS owns a majority economic or
voting interest without the prior written consent of NMS and MMC. This
Agreement may not be assigned by NMS or MMC without the prior written consent
of EDS. Any purported or attempted assignment in violation of this Section
10.2 shall be void ab initio.
10.3 Severability. Whenever possible, each provision of
this Agreement shall be interpreted so as to be effective and valid under
applicable law. If any provision of this Agreement is held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
10.4 Headings. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not affect the interpretation of this Agreement.
10.5 Notices. Any notices required or permitted to be
sent hereunder shall be delivered personally or mailed by certified mail,
return receipt requested, or delivered by overnight courier service to the
following addresses, or such other address as any party hereto designates by
written notice to the others and shall be deemed to have been given upon
delivery, if delivered personally, three days after mailing, if mailed, or one
business day after delivery to the courier, if delivered by overnight courier
service:
If to NMS, to:
National Medical Systems, Inc.
c/o Medical Manager Corporation
3001 N. Rocky Point Drive
Suite 100
Tampa, FL 33607-1439
Attention: John H. Kang, President
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With a copy to:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis
2700 Barnett Plaza
101 East Kennedy Boulevard
Tampa, FL 33602
Attention: Gary I. Teblum
If to MMC, to:
Medical Manager Corporation
3001 N. Rocky Point Drive
Suite 100
Tampa, FL 33607-1439
Attention: Michael A. Singer, Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attention: Christopher T. Jensen
If to EDS, to:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024-3105
Attention: President Healthcare SBU
With a copies to:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024-3105
Attention: General Counsel
and
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Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael A. Saslaw
10.6 Governing Law. This Agreement shall be governed in
accordance with the laws of the State of Texas, without giving effect to the
choice of law principles thereof.
10.7 Entire Agreement. This Agreement constitutes the
entire agreement of the parties concerning the transactions contemplated
hereby, and supersedes all prior agreements and understandings, written or
oral, regarding the subject matter hereof.
10.8 Expenses. Each party to this Agreement shall bear
and be responsible for its own costs and expenses with respect to this
Agreement and the transactions contemplated hereby, including without
limitation fees of its respective legal counsel, consultants and accountants;
provided, however, that NMS shall pay the fees and expenses of Morgan Stanley &
Co. earned or incurred in connection with its representation associated with
this Agreement and the transactions contemplated hereby.
10.9 Indemnification.
(a) NMS and MMC shall jointly and severally
indemnify, defend and hold harmless EDS and EDS' stockholders,
directors, officers, agents, attorneys and affiliates (each, an "EDS
Indemnified Person"), from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without
limitation, reasonable fees and expenses of counsel incurred by such
EDS Indemnified Person in connection with any investigative,
administrative or judicial proceeding, whether or not any such EDS
Indemnified Person shall be designated a party thereto) which may be
incurred by such EDS Indemnified Person as a result of any
misrepresentation or breach of warranty or the nonperformance of any
obligation on the part of MMC or NMS under this Agreement or that
arises out of or is based upon any untrue statement or omission or
alleged untrue statement or omission made in any registration
statement or prospectus relating to the IPO or any registration
statement or prospectus contemplated by Article VI of this Agreement;
provided, that no EDS Indemnified Person shall have the right to be
indemnified under this Section 10.9 for liabilities, losses,
damages, costs and expenses arising out of or based upon any untrue
statement or omission or alleged untrue statement or omission made in
any registration statement or prospectus relating to the IPO or any
registration statement or prospectus contemplated by Article VI of
this Agreement in reliance upon and in conformity with information
furnished for inclusion therein by EDS.
(b) EDS shall indemnify, defend and hold harmless
MMC and NMS and their respective stockholders, directors, officers,
agents, attorneys and affiliates (each, a "MMC/NMS Indemnified
Person"), from and against any and all liabilities, losses, damages,
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costs and expenses of any kind (including, without limitation,
reasonable fees and expenses of counsel incurred by such MMC/NMS
Indemnified Person in connection with any investigative,
administrative or judicial proceeding, whether or not any such MMC/NMS
Indemnified Person shall be designated a party thereto) which may be
incurred by such MMC/NMS Indemnified Person as a result of any
misrepresentation or breach of warranty or the nonperformance of any
obligation on the part of EDS under this Agreement or that arises out
of or is based upon any untrue statement or omission or alleged untrue
statement or omission made by MMC or NMS in any registration statement
or prospectus relating to the IPO or any registration statement or
prospectus contemplated by Article VI of this Agreement in reliance
upon and in conformity with information furnished for inclusion
therein by EDS.
(c) Notwithstanding the other provisions of this
Section 10.9, no Person shall have the right to be indemnified
hereunder for liabilities, losses, damages, costs and expenses
resulting from his or its gross negligence, wilful misconduct or
wilful breach of this Agreement.
10.10 Public Announcements. Except as set forth in the
following sentence, the parties to this Agreement agree that prior to making
any public announcement or statement with respect to the transactions
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party and exercise
reasonable efforts to (i) agree upon the text of a joint public announcement or
statement to be made by both of such parties or (ii) obtain approval of the
other parties to the text of a public announcement or statement to be made
solely by NMS, MMC or EDS, as the case may be. Except as provided in Section
5.6, nothing contained in this Section 10.10 shall be construed to require any
party to obtain approval of any other party to disclose information with
respect to any disclosure (i) required by applicable law or by any applicable
rules, regulations or orders of any Governmental Authority having jurisdiction
or (ii) necessary to comply with disclosure requirements of any applicable
stock exchange.
10.11 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement or in any Related
Agreement or in any certificate, document, or instrument delivered pursuant to
this Agreement shall survive only until the close of business on the date that
is two years after the date of the Closing, provided that the representations
and warranties of MMC and NMS set forth in Sections 3.14, 3.18, 3.19 and 3.20
shall survive until the applicable statute of limitations period has expired
and the representations and warranties of MMC and NMS set forth in Sections
3.3, 3.4, 3.6, and 3.13 (in the case of Section 3.13, solely with respect to
the rights granted under Section 6.2) shall survive forever and without any
limit upon duration.
10.12 No Third Party Beneficiaries. Except as otherwise
provided, this Agreement has been and is made solely for the benefit of and
shall be binding upon (i) NMS, (ii) MMC, (iii) EDS, (iv) their respective
successors and assigns to the extent permitted in Section 10.2 hereof and (v)
the Indemnified Parties to the extent provided in Section 10.9 hereof; and no
other person shall acquire or have any rights under or by virtue of this
Agreement.
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10.13 Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, and all of which together shall
constitute one and the same instrument.
10.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES
TRIAL BY JURY IN ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING
OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY ANY COURT OF
COMPETENT JURISDICTION.
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EXHIBIT 10.14
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
EDS:
---
ELECTRONIC DATA SYSTEMS CORPORATION
By: /s/ W. Phillip Witcomb
--------------------------------------
Name: W. Phillip Witcomb
------------------------------------
Title: Division Vice President
-----------------------------------
Health Care SBU
NMS:
---
NATIONAL MEDICAL SYSTEMS, INC.
By: /s/ John Kang
--------------------------------------
Name: John Kang
------------------------------------
Title: President
-----------------------------------
MMC:
---
MEDICAL MANAGER CORPORATION
By: /s/ John Kang
--------------------------------------
Name: John Kang
------------------------------------
Title: President
-----------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated August 23, 1996, except for certain information in Note 8 for
which the date is December 31, 1996, on our audits of the financial statements
of Personalized Programming, Inc., dated August 28, 1996, except for certain
information in Note 10 for which the date is December 31, 1996, on our audits
of Systems Plus, Inc. and Systems Plus Distribution, Inc., dated August 28,
1996, except for certain information in Note 8 for which the date is December
31, 1996, on our audits of RTI Business Systems, Inc., dated August 30, 1996,
except for certain information in Note 7 for which the date is December 31,
1996, on our audits of Systems Management, Inc., dated September 1, 1996, on
our audits of Medical Manager Division of Medix, Inc., dated September 10,
1996, except for certain information in Note 11 for which the dates are
December 26, 1996, and December 31, 1996, on our audits of National Medical
Systems, Inc., dated September 10, 1996, on our audit of GBP with Excellence,
Inc., and dated September 27, 1996, except for information in Note 5
for which the date is December 31, 1996, on our audit of Medical Manager
Corporation. We also consent to the reference to our firm under the
caption "Experts".
COOPERS & LYBRAND L.L.P.
Tampa, Florida
January 6, 1997
