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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ___________________ TO
_______________
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COMMISSION FILE NUMBER: 0-29090
MEDICAL MANAGER CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 59-3396629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3001 NORTH ROCKY POINT DRIVE EAST -- SUITE 100 33607
TAMPA, FLORIDA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (813) 287-2990
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
The Registrant became subject to such filing requirements
on January 29, 1997.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 31, 1997 was $79,514,392.
Number of shares of the Registrant's common stock outstanding as of March
31, 1997 was 17,705,470.
DOCUMENTS INCORPORATED BY REFERENCE
Financial statements of four of the Founding Companies included in the Form
8-K of the Registrant filed with the Securities and Exchange Commission on April
8, 1997 are incorporated by reference herein.
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MEDICAL MANAGER CORPORATION
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 18
Item 3. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 19
Item 6. Selected Financial Data..................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 22
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 29
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 30
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 34
Item 13. Certain Relationships and Related Transactions.............. 35
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on
Form 8-K.................................................... 37
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PART I
ITEM 1. BUSINESS
Medical Manager Corporation ("MMC") was founded in July 1996 to bring
together the research and development, sales, marketing and support resources
for The Medical Manager(R) software, 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 consummation of the initial public offering of the
common stock of MMC (the "Offering"), MMC acquired in separate mergers (the
"Mergers") the following companies: Personalized Programming, Inc., Systems
Plus, Inc., National Medical Systems, Inc., RTI Business Systems, Inc. and
Systems Management, Inc. (collectively, the "Founding Companies"), which became
separate, wholly-owned subsidiaries of MMC (collectively, the "Company").
FOUNDING COMPANIES
PERSONALIZED PROGRAMMING, INC.
Personalized Programming, Inc. was founded in 1981 and is the developer of
The Medical Manager practice management system. In March 1997, Personalized
Programming, Inc. changed its name to Medical Manager Research & Development,
Inc. (hereinafter referred to as "PPI"). 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 has signed a five-year employment agreement with the Company
to be Chairman of the Board and Chief Executive Officer of the Company and to
continue as President and Chief Executive Officer of PPI.
SYSTEMS PLUS, INC.
Systems Plus, Inc. was founded in 1980 and is principally responsible for
sales and marketing of The Medical Manager (hereinafter referred to as "SPI").
Systems Plus, Inc. intends to change its name to Medical Manager Sales &
Marketing, Inc. 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 has signed a five-year employment agreement with the
Company to be Executive Vice President of Sales and Marketing of the Company and
to continue as President and Chief Executive Officer of SPI.
NATIONAL MEDICAL SYSTEMS, INC.
National Medical Systems, Inc. was founded in 1994 and is a national dealer
for The Medical Manager system. In March 1997, National Medical Systems, Inc.
changed its name to Medical Manager Southeast, Inc. (hereinafter referred to as
"NMS"). 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. John H. Kang, the President of NMS,
has been employed by NMS for two years and
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has signed a five-year employment agreement with the Company to be President of
the Company and to continue as President of NMS.
RTI BUSINESS SYSTEMS, INC.
RTI Business Systems, Inc. was founded in 1988 and is a regional dealer for
The Medical Manager system in the Northeastern region of the United States. In
March 1997, RTI Business Systems, Inc. changed its name to Medical Manager RTI,
Inc. (hereinafter referred to as "RTI"). 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 has signed a five-year employment agreement with the
Company to be Vice President -- Northeast Region of the Company and to continue
as President and Director of Sales and Marketing of RTI.
SYSTEMS MANAGEMENT, INC.
Systems Management, Inc. was founded in 1987 and is a regional dealer for
The Medical Manager system in the Midwestern region of the United States. In
April 1997, Systems Management, Inc. changed its name to Medical Manager Systems
Management, Inc. (hereinafter referred to as "SMI"). Its headquarters are in
South Bend, Indiana. Thomas P. Liddell, a founder of SMI, has been employed by
SMI since its inception and has signed a five-year employment agreement with the
Company to be Vice President -- Midwest Region of the Company and to continue as
President of SMI.
SUMMARY OF THE TERMS OF THE MERGERS
Discussions regarding the Mergers and the 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.
In connection with the merger of NMS into a subsidiary of the Company, the
stockholders of NMS sold 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
purchased a number of shares of common stock of NMS that, upon consummation of
the Merger of NMS into a subsidiary of the Company, resulted in the acquisition
by EDS of 1,221,896 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 of $11.00. EDS is entitled to the same registration rights with respect to
the shares of Common Stock of the Company 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 is also 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 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
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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 the Merger.
The following table sets forth the aggregate cash and shares of Common
Stock paid by MMC to the stockholders of each of the Founding Companies and
their respective percentage ownership of the Common Stock outstanding
immediately following the Mergers, based on the initial public offering price of
$11.00.
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COMMON SHARES OF PERCENTAGE
CASH STOCK TOTAL COMMON STOCK OWNERSHIP
(IN THOUSANDS)
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PPI....................................... $35,062 $ 70,070 $105,132 6,370 36.0%
SPI....................................... 9,350 24,310 33,660 2,210 12.5%
RTI....................................... 1,753 3,850 5,603 350 2.0%
NMS....................................... 0 28,556 28,556 2,596 14.6%
SMI....................................... 779 1,980 2,759 180 1.0%
------- -------- -------- ------ ----
Total........................... $46,944 $128,766 $175,710 11,706 66.1%
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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
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.
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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 the Offering and
the Mergers created a vertically integrated entity that has 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
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, the 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.
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.
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 23,600 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
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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 1996, the Company's pro forma expenses for research and development
were $2.3 million and $3.4 million, respectively, representing 6.2% and
8.0% 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.
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PRODUCT DESCRIPTION
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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.
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OFFICE MANAGEMENT
The Medical Manager Office Management application automates the essential
administrative tasks of a physician practice.
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PRODUCT DESCRIPTION
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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.
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PRODUCT DESCRIPTION
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Custom Report Writer Provides access to all data elements of The Medical Manager;
allows for the creation of user defined custom reports.
Multiple Resource Scheduling Includes multi-resource display, search and posting of
scheduled 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.
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DEVELOPMENT TOOLS
Development Tools allow data to be accessed and manipulated, adding
flexibility to the system and allowing for customization to meet specialized
needs.
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PRODUCT DESCRIPTION
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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.
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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.
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PRODUCT DESCRIPTION
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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.
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.
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MANAGED CARE APPLICATIONS
Managed Care applications allow physicians to contain costs and deliver a
higher quality of care in the capitated environments.
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PRODUCT DESCRIPTION
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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.
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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.
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PRODUCT DESCRIPTION
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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.
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.
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PRODUCT DESCRIPTION
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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.
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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.
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PRODUCT DESCRIPTION
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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.
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DIALYSIS VERTICAL MARKET OPTION
The Medical Manager Dialysis Vertical Market Option expedites the
repetitive process of posting dialysis patients' weekly treatments.
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PRODUCT DESCRIPTION
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Dialysis Calendar Posting Using a calendar posting screen, automates and reduces the
repetitive, recurring posting dictated by dialysis
treatment.
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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 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 December 31, 1996, the Company had 180 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
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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 December 31, 1996, the
Company had 15 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 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
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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 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 December 31, 1996, the Company had 55 employees engaged primarily in
its research and development efforts.
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
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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 May 1995, The Medical Manager released its dialysis posting system.
- 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.
- In March 1997, The Medical Manager announced its case management system
and released its chemotherapy management system.
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 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.
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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 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
relating to picture archiving and communications systems that requires
manufacturers of medical image storage devices and related software 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 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
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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 December 31, 1996, the Company employed 355 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.
RECENT DEVELOPMENTS
Subsequent to the consummation of the Offering, MMC executed definitive
agreements to acquire the following Medical Manager dealers (the "Proposed
Acquisitions"): (i) Adaptive Health Systems of Washington based in Federal Way,
Washington; (ii) LSM Computing, Inc. based in Somerville, New Jersey; (iii)
Specialized Systems, Inc. based in Van Nuys, California; and (iv) UNICO, Inc.
based in Evansville, Indiana. The Proposed Acquisitions are expected to be
accounted for using the pooling-of-interests method of accounting. The aggregate
consideration payable for the Proposed Acquisitions consists of approximately
994,136 shares of Common Stock. The closings of the Proposed Acquisitions are
subject to various conditions, including completion of the Company's due
diligence investigation, and such acquisitions are expected to close in April or
May 1997.
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RISK FACTORS
ABSENCE OF COMBINED OPERATING HISTORY
MMC was founded in July 1996 but conducted no significant operations and
generated no revenue prior to the closing of the Offering. MMC entered into
agreements to acquire the Founding Companies simultaneously with the closing of
the Offering. Prior to the closing of the Offering the Founding Companies
operated 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
Strategy."
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 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 by June 1, 1997. 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 "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
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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 "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "-- 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
"-- 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 "-- 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 "-- Research and
Development" and " -- Competition."
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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 "-- 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, 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 has entered into
an employment agreement, which includes 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.
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 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
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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 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 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 "-- Government Regulation."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
The Company's directors, executive officers and holders of more than 5% of
the Common Stock beneficially own approximately 59.6% of the outstanding shares
of Common Stock. 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 "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
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. The 6,000,000 shares sold in the Offering are freely tradable
unless held by affiliates of the Company. Simultaneously with the closing of the
Offering, the stockholders of the Founding Companies received, in the aggregate,
11,705,470 shares of Common Stock as a portion of the consideration for the sale
of their businesses to the Company. These shares have not been
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<PAGE> 20
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 received these shares
other than EDS have agreed with MMC not to sell, transfer or otherwise dispose
of any of these shares for one year following the consummation of the Offering.
However, the stockholders who received these shares also have certain demand and
piggyback registration rights with respect to these shares. 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 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.
POSSIBLE VOLATILITY OF STOCK PRICE
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.
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.
ITEM 2. PROPERTIES
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 "Item 13. Certain Relationships and
Related Transactions" for information regarding the Company's obligations under
its lease agreements.
ITEM 3. 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. On January 7, 1997, two affiliated dealers, Computer
Clinic, Inc. and Command Solutions, Inc. (collectively, "CCI"), and CCI's
President filed suit in the Supreme Court of the State of New York, Westchester
County against MMC, each of the Founding
18
<PAGE> 21
Companies and certain principals thereof alleging in five separate causes of
action, among other things, breach of contract, fraud, misrepresentation,
tortious interference and anti-competitive and predatory practices arising out
of the decision not to include CCI as one of the Founding Companies. In
connection with three of the five causes of action brought by CCI, CCI seeks
damages in excess of $11.0 million for each such cause of action. CCI seeks
damages in excess of $12.0 million in connection with the fourth cause of action
and damages in an amount to be determined at trial in connection with the fifth
cause of action. On February 5, 1997, the defendants removed the action to the
United States District Court for the Southern District of New York. Plaintiffs
moved to remand the action to the Supreme Court of the State of New York,
Westchester County, which motion was subsequently granted by the Court. MMC has
agreed to indemnify all of the other defendants for any liability, obligation or
claim arising out of this action, including the costs of defending against this
action and any settlement costs incurred in connection therewith. MMC, its
subsidiaries and such principals intend to defend vigorously against this
action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
On January 30, 1997, the Company's Common Stock began trading on the Nasdaq
National Market under the symbol "MMGR". Prior to such date, there was no
established trading market for the Company's Common Stock. The initial public
offering price per share of Common Stock was $11.00. On March 31, 1997, the
closing price of the Common Stock on the Nasdaq National Market was $9.50.
HOLDERS
As of March 31, 1997, there were approximately 50 holders of record of the
Company's Common Stock.
DIVIDENDS
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.
19
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
MMC acquired the Founding Companies simultaneously with the consummation of
the Offering on February 4, 1997. 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, 1995 and 1996 and for the
years ended December 31, 1993, 1994, 1995 and 1996 have been derived from the
audited financial statements of PPI. The following selected historical financial
data of PPI at December 31, 1992 and 1993 and for the year ended December 31,
1992 have been derived from the 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. As described in
Note 1 of the Notes to the Combined Financial Statements, results of PPI are
presented below as if MMC and PPI were combined from July 10, 1996, the date of
MMC's formation. 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 the Offering. See the Unaudited Pro Forma Financial Combined Statements and
the notes thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PPI STATEMENT OF OPERATIONS DATA:
Revenue........................................ $8,377 $6,890 $9,617 $11,020 $11,956
Cost of revenue................................ 1,187 810 1,367 1,582 1,832
------ ------ ------ ------- -------
Gross profit................................... 7,190 6,080 8,250 9,438 10,124
Selling, general and administrative expenses... 745 982 1,184 1,350 1,763
Research and development expenses.............. 878 1,040 1,502 2,024 2,648
Depreciation and amortization.................. 21 105 197 226 266
------ ------ ------ ------- -------
Income from operations......................... 5,546 3,953 5,367 5,838 5,447
Other income................................... 110 173 55 108 104
------ ------ ------ ------- -------
Income before income taxes..................... 5,656 4,126 5,422 5,946 5,551
Income taxes................................... 0 0 0 0 0
------ ------ ------ ------- -------
Net income..................................... $5,656 $4,126 $5,422 $ 5,946 $ 5,551
====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PPI BALANCE SHEET DATA:
Working capital................................ $1,527 $778 $2,009 $ 1,921 $ 2,165
Total assets................................... 3,097 3,253 4,716 5,819 4,530
Stockholder's equity........................... 2,479 2,582 3,827 4,763 2,713
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
1996
(IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenue................................................... $41,957
Cost of revenue........................................... 17,658
-------
Gross profit.............................................. 24,299
Selling, general and administrative expenses(2)........... 10,364
Research and development expenses......................... 3,374
Depreciation and amortization............................. 1,169
-------
Income before income taxes................................ 9,392
Income taxes.............................................. 3,616
-------
Net income................................................ $ 5,776
=======
Net income per share...................................... $ 0.33
=======
Pro forma weighted average shares outstanding............. 17,705
=======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------
PRO FORMA(1) AS ADJUSTED(3)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 4,931 $17,047
Working capital........................................... 2,937 15,053
Total assets.............................................. 19,550 31,666
Stockholders' equity...................................... 11,542 23,658
</TABLE>
- ---------------
(1) The pro forma combined statement of operations and the pro forma balance
sheet assume that the Mergers were closed on January 1, 1996 and as of
December 31, 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 Report.
(2) The pro forma combined statement of operations includes the effect of a
$790,000 reduction in salary and benefits to the owners and employees of
two of the Founding Companies. Additionally, the pro forma combined
statement includes 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 approximately $59.1
million of the net proceeds of the Offering.
21
<PAGE> 24
ITEM 7. 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
"Item 6. Selected Financial Data" appearing elsewhere in this Report.
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 23,600 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.
22
<PAGE> 25
The Company acquired, simultaneously with the consummation of the Offering,
the five Founding Companies: PPI, SPI, NMS, RTI and SMI. The Founding Companies
were 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 agreed to reductions in their compensation and benefits pursuant to
employment agreements entered into in connection with the Mergers.
MMC, which conducted no significant operations prior to the closing of the
Offering, 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 -- PPI
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 years presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Systems..................................... $1,014 10.5% $ 1,018 9.2% $ 1,191 10.0%
Software license............................ 6,328 65.8 7,529 68.3 8,292 69.3
Maintenance and other....................... 2,275 23.7 2,473 22.5 2,473 20.7
------ ----- ------- ----- ------- -----
Total revenue............................ 9,617 100.0 11,020 100.0 11,956 100.0
------ ----- ------- ----- ------- -----
COST OF REVENUE:
Systems..................................... 752 7.8 704 6.4 843 7.0
Software license............................ 381 4.0 651 5.9 624 5.2
Maintenance and other....................... 235 2.4 227 2.1 365 3.1
------ ----- ------- ----- ------- -----
Total cost of revenue.................... 1,368 14.2 1,582 14.4 1,832 15.3
------ ----- ------- ----- ------- -----
Gross margin........................ 8,249 85.8 9,438 85.6 10,124 84.7
------ ----- ------- ----- ------- -----
OPERATING EXPENSES:
Selling, general and administrative......... 1,184 12.3 1,351 12.3 1,763 14.7
Research and development.................... 1,502 15.6 2,024 18.4 2,648 22.1
Depreciation and amortization............... 196 2.0 226 2.0 266 2.2
------ ----- ------- ----- ------- -----
Total operating expenses................. 2,882 29.9 3,601 32.7 4,677 39.1
------ ----- ------- ----- ------- -----
Income from operations.............. 5,367 55.9 5,837 52.9 5,447 45.6
OTHER INCOME (EXPENSE):
Interest income............................. 70 0.6 136 1.2 108 0.9
Other....................................... (15) (0.1) (27) (0.2) (4) (0.0)
------ ----- ------- ----- ------- -----
Net income.......................... $5,422 56.4% $ 5,946 53.9% $ 5,551 46.4%
====== ===== ======= ===== ======= =====
</TABLE>
23
<PAGE> 26
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue. PPI's total revenue for 1996 increased to $12.0 million from
$11.0 million for 1995, an increase of $0.9 million or 8.2%. Revenue from
systems for 1996 increased to $1.2 million (10.0% of total revenue) from $1.0
million (9.2% of total revenue) for 1995, a increase of $0.2 million or 20.0%.
The increase was due primarily due to a change in sales personnel. Revenue from
software license for 1996 increased to $8.3 million (69.3% of total revenue)
from $7.5 million (68.3% of total revenue) for 1995, an increase of $0.8 million
or 10.7%. 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 1996 was
essentially unchanged from the prior year at approximately $2.5 million (20.7%
of total revenue in 1996 compared to 22.5% in 1995).
Cost of revenue. The total cost of revenue for 1996 increased to $1.8
million from $1.6 million in 1995. The slight growth in cost of revenue resulted
in a modest decrease in gross margin to 84.7% for 1996 from 85.6% for 1995. Cost
of revenue for systems for 1996 increased to $0.8 million from $0.7 million for
1995, an increase of $0.1 million or 14.3%. The increase was primarily
attributable to an increase in equipment costs. Cost of revenue for software
license for 1996 decreased to $0.6 million from $0.7 million for 1995, a
decrease of $0.1 million or 14.3%. The decrease was primarily due to reduced
software royalties to SPI. Cost of revenue for maintenance and other sources for
1996 increased to $0.4 million from $0.2 million for 1995, an increase of $0.2
million or 100.0%. The increase was primarily due to higher 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 1996 increased to $1.8 million (14.8% of total
revenue) from $1.4 million (12.3% of total revenue) for 1995, an increase of
$0.4 million or 30.5%. 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 1996 increased to $2.6 million (22.1% of total revenue) from $2.0
million (18.4% of total revenue) for 1995, an increase of $0.6 million or 30.0%.
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 1996 decreased to $104,560 from $108,470
for 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 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 (22.5% of total revenue) from $2.3
million (23.7% of total revenue) for 1994, an increase of $0.2 million or 8.7%.
24
<PAGE> 27
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.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from PPI's statements
of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Net cash provided by operations............................. $ 5.3 $ 6.2 $ 5.7
Net cash used in investing activities....................... (0.2) (1.2) (0.3)
Net cash used in financing activities....................... (4.1) (5.1) (4.8)
----- ----- -----
Net increase (decrease) in cash and cash equivalents........ $ 1.0 $(0.1) $ 0.6
===== ===== =====
</TABLE>
PPI has historically funded its operations with cash flows 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. Cash used in investing activities was primarily used for the
acquisition of additional office facilities and computer and other equipment.
Cash used in financing activities consisted primarily of S corporation
distributions to PPI's stockholder. In addition, prior to the consummation of
the Mergers, PPI issued notes of approximately $2.4 million to its stockholder
in respect of its estimated S corporation Accumulated Adjustment Account (the
"AAA Account") (after 1997 distributions of approximately $1.6 million) as of
February 4, 1997, the date of the closing.
As of December 31, 1996, PPI had a working capital surplus of $2.2 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 at least the next 12 months.
RESULTS OF OPERATIONS -- THE COMBINED FOUNDING COMPANIES
The Combined Founding Companies' Statement of Operations data for the years
ended December 31, 1994, 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
25
<PAGE> 28
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 entered into by certain members of management. Such data will not be
comparable to and may not be indicative of the Company's post-combination
results of operations.
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>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Systems................................. $ 4,333 17.9% $ 7,106 24.3% $10,875 28.6%
Software license........................ 12,215 50.5 13,319 45.5 14,349 37.8
Maintenance and other................... 7,636 31.6 8,862 30.2 12,781 33.6
------- ----- ------- ----- ------- -----
Total revenue........................ 24,184 100.0 29,287 100.0 38,005 100.0
------- ----- ------- ----- ------- -----
COST OF REVENUE:
Systems................................. 1,990 8.2 2,914 10.0 6,066 16.0
Software license........................ 2,532 10.5 2,278 7.8 2,080 5.5
Maintenance and other................... 4,067 16.8 5,434 18.5 7,320 19.2
------- ----- ------- ----- ------- -----
Total cost of revenue................ 8,589 35.5 10,626 36.3 15,466 40.7
------- ----- ------- ----- ------- -----
Gross margin.................... 15,595 64.5 18,661 63.7 22,539 59.3
------- ----- ------- ----- ------- -----
OPERATING EXPENSES:
Selling, general and administrative..... 6,490 26.8 7,785 26.6 10,212 26.9
Research and development................ 1,502 6.2 2,024 6.9 3,324 8.7
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue. The Company's total revenue for 1996 increased to $38.0 million
from $29.3 million for 1995, an increase of $8.7 million or 29.7%. Revenue from
systems for 1996 increased to $10.9 million (28.6% of total revenue) from $7.1
million (24.3% of total revenue) for 1995, an increase of $3.8 million or 53.5%.
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 1996
increased to $14.3 million (37.8% of total revenue) from $13.3 million (45.5% of
total revenue) for 1995, an increase of $1.0 million or 7.5%. The increase was
due primarily to increased sales to MSOs. Revenue from maintenance and other
sources for 1996 increased to $12.8 million (33.6% of total revenue) from $8.9
million (30.2% of total revenue) for 1995, an increase of $3.9 million or 43.8%.
The increase was primarily a result of sales of additional maintenance contracts
due to continued growth in the Company's installed base, the acquisition of GBP
and maintenance and service agreement income of approximately $0.5 million in
NMS from its management of the Medical Manager Division of Blue Cross and Blue
Shield of New Jersey, Inc. for the four month period ended December 31, 1996.
Cost of revenue. The total cost of revenue for 1996 increased to $15.5
million from $10.6 million in 1995, an increase of $4.9 million or 46.2%. The
growth in cost of revenue resulted in a decline in gross margin to 59.3% for
1996 from 63.7% for 1995. Cost of revenue for systems for 1996 increased to $6.1
million from $2.9 million for 1995, an increase of $3.2 million or 110.3%. The
increase was due principally to the inclusion of GBP in the Company's results
for 1996. The Company believes that sales by GBP carried a gross profit margin
which was significantly lower than the Company's combined 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 1996 decreased to $2.1 million from $2.3 million in 1995, a decrease
of $0.2 million or 8.7%. The decrease was primarily due to greater allocation of
overhead 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 1996 increased to
$7.3 million from
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<PAGE> 29
$5.4 million for 1995, an increase of $1.9 million or 35.2%. The increase was
due principally to cost inefficiencies associated with the integration of GBP
into the Company's distribution network.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $10.2 million for 1996 (26.9% of total
revenue) from $7.8 million (26.6% of total revenue) for 1995, an increase of
$2.4 million or 31.2%. The increase was due primarily to an increase of $0.4
million of additional owners' compensation at RTI, $0.4 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 1996 increased to $3.3 million (8.7% of
total revenue) from $2.0 million (6.9% of total revenue) for 1995, an increase
of $1.3 million or 64.2%. 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
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<PAGE> 30
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.
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>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
(IN MILLIONS)
<S> <C> <C> <C>
Net cash provided by operations............................. $ 7.0 $ 9.2 $ 9.6
Net cash used in investing activities....................... (0.2) (2.3) (1.7)
Net cash used in financing activities....................... (5.5) (6.8) (6.6)
----- ----- -----
Net increase in cash and cash equivalents.............. $ 1.3 $ 0.1 $ 1.3
===== ===== =====
</TABLE>
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. Cash used in investing activities totaled 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 the Offering, the Company repaid certain outstanding
indebtedness and other obligations of the Founding Companies (aggregating
approximately $5.5 million). In addition, during 1997 and prior to the
consummation of the Mergers, each of PPI and SPI made cash distributions and
issued notes to its sole stockholder in respect of its estimated S corporation
AAA Account as of the date of closing. Such cash distributions aggregated
approximately $1.6 million and such notes aggregated approximately $3.9 million
for PPI and SPI. The distributions relating to the AAA Account were funded
through cash and investments provided by operating activities. See "Item 13.
Certain Relationships and Related 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 $1.3 million during 1995
and 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 is negotiating a line of credit of $30.0 million with Barnett
Bank of Tampa to be used for working capital and other general corporate
purposes, including future acquisitions.
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.
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<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in a separate section of
this Report on Form 10-K. See the accompanying "Index of Financial Statements
and Financial Statement Schedules" at page F-1. The financial statements
included therein are specifically incorporated herein by reference, as are the
financial statements of four of the Founding Companies included in the Company's
Report on Form 8-K filed with the Securities and Exchange Commission on April 8,
1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and offices held and a brief
description of the business experience during the preceding five years of the
directors and executive officers of the Company (in each case as of March 31,
1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael A. Singer......................... 49 Chairman of the Board; Chief Executive Officer
John H. Kang.............................. 33 President; Director
Richard W. Mehrlich....................... 49 Executive Vice President -- Sales and Marketing;
Director
Lee A. Robbins............................ 55 Vice President and Chief Financial Officer
Frederick B. Karl, Jr..................... 42 Vice President, General Counsel and Secretary
Thomas P. Liddell......................... 34 Vice President -- Midwest Region
Henry W. Holbrook......................... 42 Vice President, Sales -- Northeast Region
</TABLE>
Michael A. Singer has been Chairman of the Board and Chief Executive
Officer of the Company since the consummation of the 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 has been Executive Vice President -- Sales and
Marketing and a director of the Company since the consummation of the 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
and Chief Financial Officer since the consummation of the Offering. 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 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.
Frederick B. Karl, Jr. has been Vice President, General Counsel and
Secretary of the Company since the consummation of the 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 has been Vice President -- Midwest Region of the Company
since the consummation of the Offering. Mr. Liddell founded SMI in 1987 and is
presently responsible for its Marketing, Finance and
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<PAGE> 33
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 has been Vice President, Sales -- Northeast Region of the
Company since the consummation of the 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
The Board of Directors is 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. Mr. Singer
has contractual rights to designate up to two directors of the Company. See
"Item 13. Certain Relationships and Related Transactions." All officers serve at
the discretion of the Board of 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. Non-employee directors 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, 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. 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.
ITEM 11. EXECUTIVE COMPENSATION
The Company was incorporated in July 1996, conducted no significant
operations and generated no revenue prior to the closing of the Offering and did
not pay any of its executive officers compensation during 1996, except for Mr.
Robbins, whose employment commenced on November 25, 1996.
Each of Messrs. Singer, Kang, Mehrlich, Karl, Robbins, Holbrook and Liddell
has entered 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 is 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
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
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<PAGE> 34
employer. Each employment agreement contains 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.
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 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 the 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 the Offering, NQSOs to purchase a total of 1,536,900
shares of Common Stock of the Company were granted as follows: 140,000 shares to
Mr. Karl, 100,000 shares to Mr. Robbins, 25,000 shares to Mr. Liddell, 70,000
shares to Mr. Holbrook and 1,201,900 shares to employees of and a consultant to
the Company and the Founding Companies. Each of the foregoing options has an
exercise price of $11 per share. These options will vest as to 25% each on the
date that is six months, 18 months, 30 months and 42 months after February 4,
1997, and generally will expire on the earlier of 10 years after the date of
grant or three months after termination of employment. If termination is for
cause, all options will terminate immediately. In
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<PAGE> 35
addition, under the employment agreements described above, if termination is
without cause or if the employee leaves for good reason, all unvested options
will become immediately vested and exercisable and remain exercisable for the
longer of three months or the duration of the severance periods provided
thereunder.
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 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
the 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 the 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.
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. 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> 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company, as of March 31, 1997, 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; (iii) each executive
officer; and (iv) all executive officers and directors as a group. All persons
listed have an address in care of the Company's principal executive offices,
except as otherwise indicated, and have sole voting and investment power with
respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED OWNERSHIP
NAME ------------------ ----------
<S> <C> <C>
Michael A. Singer........................................... 6,370,000 36.0%
John H. Kang................................................ 490,621 2.8
Richard W. Mehrlich......................................... 2,210,000 12.5
Electronic Data Systems Corporation......................... 1,221,896 6.9
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 and directors as a group (7
persons).................................................. 9,335,534 52.7%
</TABLE>
- ---------------
(1) Does not include 70,000 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%
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<PAGE> 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Simultaneously with the closing of the Offering, MMC acquired by merger all
of the issued and outstanding stock of the five Founding Companies, at which
time each Founding Company became a wholly-owned subsidiary of the Company. The
aggregate consideration paid by MMC in the Mergers was approximately $175.7
million, consisting of approximately $46.9 million in cash and 11,705,470 shares
of Common Stock. The factors considered by the Company in determining the
consideration 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. Certain of the Founding Companies have made distributions or
issued notes totaling approximately $5.5 million, representing S corporation
earnings previously taxed to their respective stockholders.
Pursuant to the agreements 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 February 4, 1997.
The aggregate consideration paid by MMC for each of the Founding Companies
was as follows: PPI: $105.1 million, consisting of $35.0 million paid in cash
and 6,370,000 shares of Common Stock; SPI: $33.7 million, consisting of $9.3
million paid in cash and 2,210,000 shares of Common Stock; NMS: $28.5 million,
consisting of 2,595,645 shares of Common Stock; RTI: $5.6 million, consisting of
$1.8 million paid in cash and 350,000 shares of Common Stock; and SMI: $2.8
million, consisting of $0.8 million 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 received,
directly or indirectly, cash and shares of Common Stock of the Company as
follows: Mr. Singer -- $35.0 million and 6,370,000 shares of Common Stock; Mr.
Kang -- 490,621 shares of Common Stock; Mr. Mehrlich -- $9.3 million and
2,210,000 shares of Common Stock; Mr. Thomas Liddell -- $0.4 million and 89,913
shares of Common Stock; and Mr. Holbrook -- $0.9 million and 175,000 shares of
Common Stock.
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 February 1, 1997, the
aggregate amount of indebtedness of these Founding Companies that was subject to
personal guarantees was approximately $5.5 million. The Company repaid
substantially all of such indebtedness immediately prior to the consummation of
the Mergers and intends to use its best efforts to have the personal guarantees
of the balance of this indebtedness released within 120 days thereafter. The
Company also repaid all of the indebtedness owed to Mr. Kang, which aggregated
approximately $400,000 immediately prior to the consummation of the Mergers.
In addition, Messrs. Singer and Kang each made an interest-free loan of
$50,000 to MMC to be used for working capital purposes. Such loans were repaid
out of the proceeds of the 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.
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<PAGE> 38
Certain property owned by SMI with a net book value of $283,000 was
distributed to an entity controlled by the stockholders of SMI and is 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 and $255,000 for 1995 and 1996, respectively.
COMPANY POLICY
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.
36
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements -- see index on Page F-1.
(a)(2) Other financial statements and schedules are not presented because
they are either not required or the information required by statements or
schedules is presented elsewhere.
(a)(3) The following exhibits are filed as part of this Report as required
by Item 601 of Regulation S-K. The exhibits designated by an asterisk are
management contracts and compensatory plans and arrangements required to be
filed as Exhibits to this Report.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
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 (Incorporated by reference to
Exhibit 2.1 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-13101))
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
(Incorporated by reference to Exhibit 2.2 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
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 (Incorporated by reference to Exhibit 2,3 to
the Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
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 (Incorporated by reference to Exhibit 2.4 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
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 (Incorporated by reference to Exhibit 2.5 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
3.2 -- By-laws of the Company (Incorporated by reference to Exhibit
3.2 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
4 -- Form of certificate evidencing ownership of Common Stock of
the Company (Incorporated by reference to Exhibit 4 to
Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-13101))
10.1* -- 1996 Long-Term Incentive Plan of the Company (Incorporated
by reference to Exhibit 10.1 to Amendment No. 3 to the
Registrant's Registration Statement on Form S-1
(Registration No. 13101))
10.2* -- 1996 Non-Employee Directors' Stock Plan of the Company
(Incorporated by reference to Exhibit 10.2 to Amendment No.
2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
10.3* -- Employment Agreement, dated as of February 4, 1997, between
the Company and Michael A. Singer
</TABLE>
37
<PAGE> 40
<TABLE>
<S> <C> <C>
10.4* -- Employment Agreement, dated as of February 4, 1997, between the Company and Richard W. Mehrlich
10.5* -- Employment Agreement, dated as of February 4, 1997, between the Company and John H. Kang
10.6* -- Employment Agreement, dated as of February 4, 1997, 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
(Incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
10.8* -- Employment Agreement, dated as of February 4, 1997, between the Company and Henry W. Holbrook
10.9* -- Employment Agreement, dated as of February 4, 1997, 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 (Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
10.11 -- 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 (Incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-13101))
10.13 -- Management Services Agreement and Option Agreement, dated as of September 1, 1996, between Medix, Inc.
and National Medical Systems, Inc. (Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 (Registration No. 13101))
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 (Incorporated by reference to Exhibit 10.14 to
Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Registration No. 13101))
21 -- List of subsidiaries of the Company
27 -- Financial Data Schedule (for SEC use only)
99 -- Financial Statements of Systems Plus, Inc. and Systems Plus Distribution, Inc., National Medical
Systems, Inc., RTI Business Systems, Inc. and Systems Management, Inc. included in the Registrant's
Form 8-K filed with the Securities and Exchange Commission on April 8, 1997
</TABLE>
(b) Reports on Form 8-K:
None
38
<PAGE> 41
INDEX TO COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Report of Independent Accountants........................... F-2
2. Combined Balance Sheets as of December 31, 1996 and December F-3
31, 1995....................................................
3. Combined Statements of Operations for the Years Ended F-4
December 31, 1996, 1995 and 1994............................
4. Combined Statements of Changes in Stockholders' Equity for F-5
the Years Ended December 31, 1996, 1995 and 1994............
5. Combined Statements of Cash Flows for the Years Ended F-6
December 31, 1996, 1995 and 1994............................
6. Notes to Combined Financial Statements...................... F-7
7. Unaudited Pro Forma Combined Financial Statements
Basis of Presentation....................................... F-11
Pro Forma Combined Balance Sheet as of December 31, 1996
(unaudited)................................................. F-12
Pro Forma Combined Statements of Operations for the Year
Ended December 31, 1996
(unaudited)................................................. F-13
Notes to Unaudited Pro Forma Combined Financial
Statements.................................................. F-14
NMS and Affiliates Pro Forma Combined Statements of
Operations for the Year Ended December 31, 1996............. F-16
8. Financial Statements of Systems Plus, Inc., Systems Plus
Distribution, Inc., National Medical System, Inc., RTI
Business Systems, Inc. and Systems Management, Inc. included
in the Registrant's Form 8-K filed with the Securities and
Exchange Commission on April 8, 1997 are incorporated herein
by reference.
</TABLE>
Other financial statements and schedules are not presented because they are
either not required or the information required by statements or schedules is
presented elsewhere.
F-1
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Medical Manager Corporation and
Personalized Programming, Inc.
We have audited the accompanying combined balance sheets of Medical Manager
Corporation and Personalized Programming, Inc. as of December 31, 1996 and 1995
and the related combined statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 Medical
Manager Corporation and Personalized Programming, Inc. as of December 31, 1996
and 1995 and the combined results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, on February 4, 1997,
Personalized Programming, Inc. merged with a subsidiary of Medical Manager
Corporation.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 14, 1997, except for
certain information in Note 8
for which the date is April 6, 1997
F-2
<PAGE> 43
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $1,764,946 $1,166,679
Investments............................................... 202,488 355,414
Accounts receivable....................................... 1,779,142 1,383,849
Prepaid expenses and other current assets................. 117,755 71,039
---------- ----------
Total current assets.............................. 3,864,331 2,976,981
PROPERTY AND EQUIPMENT, net................................. 504,734 2,842,315
OTHER ASSETS................................................ 161,103 0
---------- ----------
Total assets...................................... $4,530,168 $5,819,296
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................. $ 759,658 $ 474,783
Customer deposits and deferred maintenance revenue........ 939,964 581,357
---------- ----------
Total current liabilities......................... 1,699,622 1,056,140
---------- ----------
DUE TO RELATED PARTIES...................................... 117,326 0
---------- ----------
Total liabilities................................. 1,816,948 1,056,140
---------- ----------
Commitments and contingencies (Notes 5 and 8)
STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized, none issued
and outstanding
Common stock $0.01 par value, 50,000,000 shares
authorized............................................. 63,700 63,700
Unrealized gain on investments............................ 0 2,085
Retained earnings......................................... 2,649,520 4,697,371
---------- ----------
Total stockholders' equity........................ 2,713,220 4,763,156
---------- ----------
Total liabilities and stockholders' equity........ $4,530,168 $5,819,296
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 44
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenue
Systems................................................... $ 1,190,922 $ 1,017,993 $ 1,013,675
Software license.......................................... 8,291,805 7,528,997 6,327,994
Maintenance and other..................................... 2,472,909 2,472,704 2,275,515
----------- ----------- -----------
Total revenue.......................................... 11,955,636 11,019,694 9,617,184
----------- ----------- -----------
Cost of revenue
Systems................................................... 843,149 703,755 751,643
Software license.......................................... 623,536 650,460 380,877
Maintenance and other..................................... 364,828 227,435 235,012
----------- ----------- -----------
Total costs of revenue................................. 1,831,513 1,581,650 1,367,532
----------- ----------- -----------
Gross margin...................................... 10,124,123 9,438,044 8,249,652
----------- ----------- -----------
Operating expenses
Selling, general and administrative....................... 1,762,918 1,350,427 1,184,097
Research and development.................................. 2,648,265 2,024,252 1,501,605
Depreciation and amortization............................. 266,403 226,167 196,547
----------- ----------- -----------
Total operating expenses............................... 4,677,586 3,600,846 2,882,249
----------- ----------- -----------
Income from operations............................ 5,446,537 5,837,198 5,367,403
Other income (expense)
Interest and dividend income.............................. 108,394 136,020 69,950
Other..................................................... (3,834) (27,550) (15,097)
----------- ----------- -----------
Net income........................................ $ 5,551,097 $ 5,945,668 $ 5,422,256
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 45
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
------------------- GAIN (LOSS) RETAINED
SHARES AMOUNT ON INVESTMENT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balance January 1, 1994............... 6,370,000 $63,700 $(87,625) $ 2,605,985 $ 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............. 6,370,000 63,700 (95,014) 3,858,587 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............. 6,370,000 63,700 2,085 4,697,371 4,763,156
Net income.......................... 5,551,097 5,551,097
Dividends........................... (7,598,948) (7,598,948)
Change in unrealized gain on
investment....................... (2,085) (2,085)
Issuance of common stock............ 3
--------- ------- -------- ----------- -----------
Balance December 31, 1996............. 6,370,003 $63,700 $ 0 $ 2,649,520 $ 2,713,220
========= ======= ======== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 46
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 5,551,097 $ 5,945,668 $ 5,422,256
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 266,403 226,167 196,547
Gain on sale of property and equipment............. (3,309) 0 0
Realized (gains) losses on marketable securities... 26 3,082 39,183
Changes in assets and liabilities
Accounts receivable................................ (395,293) (111,475) (635,245)
Prepaid expenses and other current assets.......... (207,819) (9,845) 62,710
Accounts payable and accrued liabilities........... 284,875 137,677 101,965
Customer deposits and deferred maintenance
revenue.......................................... 156,119 29,564 115,813
Due to related parties............................. 17,326 0 0
----------- ----------- -----------
Net cash provided by operating activities..... 5,669,425 6,220,838 5,303,229
----------- ----------- -----------
Cash flow from investing activities:
Purchases of investments.............................. (50,543) (247,595) (150,433)
Proceeds from the sale of investments................. 100,264 242,160 190,489
Purchases of property and equipment................... (357,029) (1,250,684) (210,644)
Proceeds on sale of property and equipment............ 25,690 0 0
----------- ----------- -----------
Net cash used in investing activities......... (281,618) (1,256,119) (170,588)
----------- ----------- -----------
Cash flow from financing activities:
Loans from related parties............................ 100,000 0 0
Dividends............................................. (4,889,540) (5,106,884) (4,169,654)
----------- ----------- -----------
Net cash used in financing activities......... (4,789,540) (5,106,884) (4,169,654)
----------- ----------- -----------
Net change in cash and cash equivalents....... 598,267 (142,165) 962,987
Cash and cash equivalents:
Beginning of period................................... 1,166,679 1,308,844 345,857
----------- ----------- -----------
End of period......................................... $ 1,764,946 $ 1,166,679 $ 1,308,844
=========== =========== ===========
Non-cash dividends...................................... $ 2,709,408 $ 0 $ 0
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 47
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Medical Manager Corporation ("MMC") was founded on July 10, 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. Personalized
Programming, Inc. ("PPI") 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:
Basis of Presentation. The accompanying financial statements of PPI have
been presented on a combined basis with those of MMC from July 10, 1996,
(collectively "the Company"). As discussed in Note 8, following the close of
business on February 4, 1997, PPI merged into a subsidiary of MMC upon
consummation of the initial public offering of the common stock of MMC. PPI is
identified as the accounting acquiror. The accompanying combined statements of
changes in stockholders' equity of the Company have been adjusted retroactively
to show the effect of the Recapitalization as if it had occurred on January 1,
1994.
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 $870,000 and $708,000
in receivables from a significant customer at December 31, 1996 and 1995,
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.
Other Assets. Other assets include approximately $161,000 in costs
incurred in connection with the initial public offering of common stock of MMC
that have been deferred as of December 31, 1996. These
F-7
<PAGE> 48
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
costs will be offset against additional paid-in capital upon the consummation of
the Company's merger into a subsidiary of Medical Manager Corporation. See Note
8.
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 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. PPI has elected S corporation status, as defined by the
Internal Revenue Code, whereby PPI 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 PPI's single stockholder for federal income tax
purposes. Accordingly, a provision for income taxes has not been reflected in
the financial statements. PPI's S corporation status terminated on February 4,
1997, 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 did not 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>
DECEMBER 31, 1996
Marketable equity securities.................. $202,488 $ $ $202,488
======== ======= ======== ========
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
======== ======= ======== ========
</TABLE>
F-8
<PAGE> 49
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Land and improvements..................................... $ 856,748
Building.................................................. 1,784,932
Furniture and equipment................................... $ 480,739 446,234
Computers................................................. 648,910 374,800
Leasehold improvements.................................... 20,815 46,460
---------- ----------
1,150,464 3,509,174
Less accumulated depreciation and amortization............ (645,730) (666,859)
---------- ----------
$ 504,734 $2,842,315
========== ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under an operating lease from an
entity owned by PPI'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>
YEAR ENDING DECEMBER 31:
<S> <C>
1997................................................. $320,000
1998................................................. 320,000
1999................................................. 80,000
--------
Total...................................... $720,000
========
</TABLE>
Rent expense for the year ended December 31, 1996 was approximately
$250,000.
6. RETIREMENT PLANS:
PPI 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 $265,700 and $246,300 for
1995 and 1994, respectively. There was no contribution for 1996.
7. SIGNIFICANT CUSTOMER:
Revenue from one customer comprised approximately 49% of PPI's revenue for
1996, 1995 and 1994, respectively.
8. SUBSEQUENT EVENTS:
Following the close of business on February 4, 1997, PPI merged into a
subsidiary of MMC. All outstanding shares of PPI's common stock were exchanged
for cash and shares of MMC's common stock upon the consummation of the initial
public offering of the common stock of MMC.
F-9
<PAGE> 50
MEDICAL MANAGER CORPORATION AND PERSONALIZED PROGRAMMING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENTS: -- (CONTINUED)
In connection with the Merger, PPI's S corporation status was terminated
and in future periods 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 PPI
elected to terminate its S corporation status immediately prior to December 31,
1996, PPI would have been required to establish a deferred tax asset of
approximately $375,000 related primarily to the use of different methods of
accounting for deferred revenue for tax and financial reporting purposes. Also,
PPI will dividend certain assets to the stockholder, consisting primarily of
cash and investments, in an amount equal to the remaining balance in PPI's S
corporation Accumulated Adjustment Account. Had the estimated balance of the
Accumulated Adjustment Account (AAA) of $3,340,000 at December 31, 1996 been
distributed and recorded as of that date, the effect on the accompanying
combined balance sheet would be a decrease of $1,967,000 in assets, an increase
of $1,373,000 in notes payable and a decrease of $3,340,000 in stockholder's
equity. The Company entered into a Note payable agreement with the stockholder
in February, 1997 for approximately $2,400,000 related to the AAA balance at the
merger date. The note is payable on demand at an interest rate of 5.8%.
Revenue from other companies which have also entered into definitive
agreements with MMC totaled approximately $6,342,000, $5,568,000 and $4,741,000
for 1996, 1995 and 1994, respectively. Such amounts include the significant
customer discussed in Notes 2 and 7.
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. On January 7, 1997, two affiliated dealers, Computer
Clinic, Inc. and Command Solutions, Inc. (collectively, "CCI"), and CCI's
President filed suit in the Supreme Court of the State of New York, Westchester
County against MMC, each of the Founding Companies and certain principals
thereof alleging in five separate causes of action, among other things, breach
of contract, fraud, misrepresentation, tortious interference and
anti-competitive and predatory practices arising out of the decision not to
include CCI as one of the Founding Companies. In connection with three of the
five causes of action brought by CCI, CCI seeks damages in excess of $11.0
million for each such cause of action. CCI seeks damages in excess of $12.0
million in connection with the fourth cause of action and damages in an amount
to be determined at trial in connection with the fifth cause of action. On
February 5, 1997, the defendants removed the action to the United States
District Court for the Southern District of New York. Plaintiffs moved to remand
the action to the Supreme Court of the State of New York, Westchester County,
which motion was subsequently granted by the Court. MMC has agreed to indemnify
all of the other defendants for any liability, obligation or claim arising out
of this action, including the costs of defending against this action and any
settlement costs incurred in connection therewith. MMC, its subsidiaries and
such principals intend to defend vigorously against this action.
Subsequent to the consummation of the Offering, MMC executed definitive
agreements to acquire the following Medical Manager dealers (the "Proposed
Acquisitions"): (i) Adaptive Health Systems of Washington based in Federal Way,
Washington; (ii) LSM Computing, Inc. based in Somerville, New Jersey; (iii)
Specialized Systems, Inc. based in Van Nuys, California; and (iv) UNICO, Inc.
based in Evansville, Indiana. The Proposed Acquisitions are expected to be
accounted for using the pooling-of-interests method of accounting. The aggregate
consideration payable for the Proposed Acquisitions consists of approximately
994,136 shares of Common Stock. The closings of the Proposed Acquisitions are
subject to various conditions, including completion of the Company's due
diligence investigation, and such acquisitions are expected to close in April or
May 1997.
F-10
<PAGE> 51
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") occurred simultaneously with the
closing of MMC's initial public offering (the "Offering") and were accounted for
as a combination of the Founding Companies at historical cost for accounting
purposes. PPI, one of the Founding Companies, is identified as the acquiror for
financial statement presentation purposes. The unaudited pro forma combined
financial statements also give effect to a capital contribution 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 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 the Offering as if they had occurred on December 31, 1996. The unaudited pro
forma combined statements of operations give effect to these transactions as if
they had occurred on January 1, 1996.
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 years 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 Report. Also see "Risk Factors" included elsewhere
herein.
F-11
<PAGE> 52
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET(1)
DECEMBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MMC/PPI SPI RTI NMS SMI ELIMINATIONS TOTAL ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........ $1,765 0 $ 248 $ 124 $ 448 $ 2,585 $ 2,346
Investments...................... 202 0 0 0 0 202 (202)
Accounts receivable.............. 1,779 $1,647 178 901 225 $(870) 3,860 0
Inventory........................ 0 65 46 400 305 816 0
Prepaid expenses and other
current assets................. 118 522 79 10 0 729 0
Deferred income taxes............ 0 0 112 0 0 112 0
------ ------ ------- ------- ------ ----- ------- -------
Total current assets....... 3,864 2,234 663 1,435 978 (870) 8,304 2,144
PROPERTY AND EQUIPMENT, net........ 505 636 587 501 121 2,350 0
GOODWILL AND OTHER INTANGIBLES,
net.............................. 0 0 0 6,046 98 6,144 0
OTHER ASSETS....................... 161 1,013 25 143 48 1,390 (782)
------ ------ ------- ------- ------ ----- ------- -------
Total assets............... $4,530 $$3,883 $ 1,275 $ 8,125 $1,245 $(870) $18,188 $ 1,362
====== ====== ======= ======= ====== ===== ======= =======
CURRENT LIABILITIES
Current maturities of long-term
obligations.................... 0 $ 275 $ 456 $ 1,085 $ 92 $ 1,908 $(1,908)
Accounts payable and accrued
liabilities.................... 760 1,646 668 1,148 260 $(870) 3,612 0
Customer deposits and deferred
maintenance revenue............ 940 342 701 1,209 575 3,767 0
Income taxes payable............. 0 17 115 0 0 132 0
------ ------ ------- ------- ------ ----- ------- -------
Total current
liabilities.............. 1,700 2,280 1,940 3,442 927 (870) 9,419 (1,908)
LONG-TERM OBLIGATIONS, net of
current maturities............... 0 0 134 2,823 225 3,182 (3,182)
SUBORDINATED NOTES PAYABLE......... 0 0 0 1,015 0 1,015 (1,015)
DUE TO RELATED PARTIES............. 117 0 0 380 0 497 0
------ ------ ------- ------- ------ ----- ------- -------
Total liabilities.......... 1,817 2,280 2,074 7,660 1,152 (870) 14,113 (6,105)
------ ------ ------- ------- ------ ----- ------- -------
REDEEMABLE PREFERRED STOCK......... 0 0 0 500 0 500 (500)
------ ------ ------- ------- ------ ----- ------- -------
STOCKHOLDERS' EQUITY
Common stock..................... 64 28 102 72 16 282 (165)
Additional paid-in capital....... 0 0 0 987 0 987 10,438
Retained earnings (deficit)...... 2,649 1,575 (901) (1,094) 77 2,306 (2,306)
------ ------ ------- ------- ------ ----- ------- -------
Total stockholders'
equity................... 2,713 1,603 (799) (35) 93 3,575 7,967
------ ------ ------- ------- ------ ----- ------- -------
Total liabilities and
stockholders' equity..... $4,530 $3,883 $ 1,275 $ 8,125 $1,245 $(870) $18,188 $ 1,362
====== ====== ======= ======= ====== ===== ======= =======
<CAPTION>
POST-MERGER AS
PRO FORMA ADJUSTMENTS ADJUSTED
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........ $ 4,931 $12,116 $17,047
Investments...................... 0 0
Accounts receivable.............. 3,860 3,860
Inventory........................ 816 816
Prepaid expenses and other
current assets................. 729 729
Deferred income taxes............ 112 112
------- ------- -------
Total current assets....... 10,448 12,116 22,564
PROPERTY AND EQUIPMENT, net........ 2,350 2,350
GOODWILL AND OTHER INTANGIBLES,
net.............................. 6,144 6,144
OTHER ASSETS....................... 608 608
------- ------- -------
Total assets............... $19,550 $12,116 $31,666
======= ======= =======
CURRENT LIABILITIES
Current maturities of long-term
obligations.................... $ 0 $ 0
Accounts payable and accrued
liabilities.................... 3,612 3,612
Customer deposits and deferred
maintenance revenue............ 3,767 3,767
Income taxes payable............. 132 132
------- ------- -------
Total current
liabilities.............. 7,511 7,511
LONG-TERM OBLIGATIONS, net of
current maturities............... 0 0
SUBORDINATED NOTES PAYABLE......... 0 0
DUE TO RELATED PARTIES............. 497 497
------- ------- -------
Total liabilities.......... 8,008 8,008
------- ------- -------
REDEEMABLE PREFERRED STOCK......... 0 0
------- ------- -------
STOCKHOLDERS' EQUITY
Common stock..................... 117 $ 60 177
Additional paid-in capital....... 11,425 12,056 23,481
Retained earnings (deficit)...... 0 0
------- ------- -------
Total stockholders'
equity................... 11,542 12,116 23,658
------- ------- -------
Total liabilities and
stockholders' equity..... $19,550 $12,116 $31,666
======= ======= =======
</TABLE>
- ---------------
(1) Pro forma amounts for PPI are presented as if MMC and PPI were combined
from July 10, 1996, the date of MMC's formation.
See accompanying notes to unaudited pro forma combined financial statements.
F-12
<PAGE> 53
MEDICAL MANAGER AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MMC/PPI SPI RTI NMS(2) SMI ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems................... $1,191 $ 915 $2,765 $4,251 $2,130 $11,252
Software license.......... 8,292 13,654 0 0 0 $(7,596) 14,350
Maintenance and other..... 2,473 1,835 3,602 6,438 2,056 (49) 16,355
------- ------ ------ ------ ------ ------- -------
Total revenue...... 11,956 16,404 6,367 10,689 4,186 (7,645) 41,957
------- ------ ------ ------ ------ ------- -------
Cost of revenue
Systems................... 843 753 1,703 3,025 1,772 (1,832) 6,264
Software license.......... 624 7,269 0 0 0 (5,813) 2,080
Maintenance and other..... 365 1,733 2,311 3,586 1,390 0 9,385
------- ------ ------ ------ ------ ------- -------
Total costs of
revenue.......... 1,832 9,755 4,014 6,611 3,162 (7,645) 17,729
------- ------ ------ ------ ------ ------- -------
Gross margin..... 10,124 6,649 2,353 4,078 1,024 24,228
------- ------ ------ ------ ------ ------- -------
Operating expenses
Selling, general and
administrative.......... 1,763 3,980 2,323 2,470 446 10,982
Research and
development............. 2,648 0 0 676 0 3,324
Depreciation and
amortization ........... 266 160 102 567 74 1,169
------- ------ ------ ------ ------ ------- -------
Total operating
expenses......... 4,677 4,140 2,425 3,713 520 15,475
------- ------ ------ ------ ------ ------- -------
Income (loss)
from
operations..... 5,447 2,509 (72) 365 504 8,753
Other income (expense)
Interest expense.......... 0 (24) (50) (178) (24) (276)
Interest income........... 108 49 0 0 0 157
Other..................... (4) 240 0 0 0 236
------- ------ ------ ------ ------ ------- -------
Income (loss) before income
taxes..................... 5,551 2,774 (122) 187 480 8,870
Income taxes................ 0 (53) (150) 0 0 (203)
------- ------ ------ ------ ------ ------- -------
Net income(loss)... $5,551 $2,721 $ (272) $ 187 $ 480 $ 8,667
======= ====== ====== ====== ====== ======= =======
Pro forma income per share........................................................................
Shares used in computing pro forma income per share...............................................
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------
(H) (I) (J) (K) (L) PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Revenue
Systems................... $11,252
Software license.......... 14,350
Maintenance and other..... 16,355
------- ------- ------- ------- ------- -------
Total revenue...... 41,957
------- ------- ------- ------- ------- -------
Cost of revenue
Systems................... $ (43) $ 41 6,262
Software license.......... (38) 4 2,046
Maintenance and other..... (66) 31 9,350
------- ------- ------- ------- ------- -------
Total costs of
revenue.......... (147) 76 17,658
------- ------- ------- ------- ------- -------
Gross margin..... 147 (76) 24,299
------- ------- ------- ------- ------- -------
Operating expenses
Selling, general and
administrative.......... (643) 25 10,364
Research and
development............. 50 3,374
Depreciation and
amortization ........... 1,169
------- ------- ------- ------- ------- -------
Total operating
expenses......... (643) 75 14,907
------- ------- ------- ------- ------- -------
Income (loss)
from
operations..... 790 (151) 9,392
Other income (expense)
Interest expense.......... $ 276 0
Interest income........... $ (157) 0
Other..................... (236) 0
------- ------- ------- ------- ------- -------
Income (loss) before income
taxes..................... 790 (151) 276 (393) 9,392
Income taxes................ $(3,413) 3,616
------- ------- ------- ------- ------- -------
Net income(loss)... $ 790 $ (151) $ 276 $ (393) $(3,413) $ 5,776
======= ======= ======= ======= ======= =======
Pro forma income per share.................................................... $ 0.33
=======
Shares used in computing pro forma income per share........................... 17,705(m)
=======
</TABLE>
- ---------------
(1) Pro forma amounts for PPI are presented as if MMC and PPI were combined on
July 10, 1996, the date of MMC's formation.
(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-13
<PAGE> 54
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 conducted no operations prior to the
consummation of the Offering, at which time it acquired the Founding Companies.
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.
Eliminations are for intercompany transactions.
3. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, MMC acquired substantially all
of the net assets of the Founding Companies. The Mergers were 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) 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....................................................... $35,062 6,370 $ 70,070
SPI....................................................... 9,350 2,210 24,310
RTI....................................................... 1,753 350 3,850
NMS....................................................... -- 2,596 28,556
SMI....................................................... 779 180 1,980
------- ------ --------
Total........................................... $46,944 11,706 $128,766
======= ====== ========
</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 conversion of NMS preferred stock and notes payable to
common stock and exercise of warrants for NMS.
(e) Records the repayment of debt obligations and other pro forma
adjustments.
(f) Records the proceeds from the issuance of 6,000,000 shares of MMC
Common Stock, net of approximate offering costs of $6,940,000 (based on the
initial public offering price of $11.00 per share). 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 the Offering (or for such
shorter period as the SEC may prescribe as the holding period for restricted
securities under Rule 144(d)).
(g) Records the cash portion paid to the stockholders of the Founding
Companies in connection with the Mergers.
F-14
<PAGE> 55
MEDICAL MANAGER CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(h) Adjusts compensation expense to the level the stockholders of certain
of the Founding Companies have agreed to receive subsequent to the Mergers.
(i) 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.
(j) Records change in interest expense for pro forma adjustments to debt.
(k) Records pro forma change in interest and dividend income and realized
gains (losses) on investments for pro forma adjustments to cash and investments.
(l) Records the incremental provision for federal and state income taxes
relating to the compensation differential, S corporation income and other pro
forma adjustments.
(m) The number of shares outstanding on completion of the Offering includes
the following:
<TABLE>
<S> <C>
Outstanding................................................. 3
Issued at Initial Public Offering........................... 6,000,000
Issued to acquire Founding Companies........................ 11,705,467
Shares assumed issued from Long-Term Incentive Plan......... 1,530,000
Shares assumed repurchased from proceeds from shares assumed
issued from Long-Term Incentive Plan...................... (1,530,000)
----------
Shares estimated to be outstanding.......................... 17,705,470
==========
</TABLE>
The following tables summarize the unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
ADJUSTMENTS (A) (B) (C) (D) (E) TOTAL
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 11,875 $ (1,765) $ $ 91 $(7,855) $ 2,346
Investments...................... (202) (202)
Other assets..................... (782) (782)
Current maturities of long term
obligations.................... (1,373) (577) 3,858 1,908
Long-term obligations............ 200 2,982 3,182
Subordinated notes payable....... 1,015 1,015
Redeemable preferred stock....... 500 500
Common stock..................... (9) (13) 187 165
Additional paid-in capital....... (11,866) -- (778) 2,206 (10,438)
Retained earnings................ 3,340 1,359 (2,393) 2,306
-------- -------- ----- ----- ------- --------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ===== ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
POST-MERGER BALANCE SHEET
ADJUSTMENTS (F) (G) TOTAL
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 59,060 $(46,944) $ 12,116
Common stock........................................... (60) (60)
Additional paid-in capital............................. (59,000) 46,944 (12,056)
-------- -------- --------
$ 0 $ 0 $ 0
======== ======== ========
</TABLE>
6. NMS AND AFFILIATES PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
The following statement sets forth the pro forma combination of NMS's
operations with those of Medix in 1996. Pro forma adjustments for NMS 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-15
<PAGE> 56
NMS AND AFFILIATES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NMS MEDIX
--------------------------------- ------------------------------------------
MANAGEMENT PRO
FEE PRO FORMA PRO
HISTORICAL ADJUSTMENT FORMA HISTORICAL ADJUSTMENTS FORMA TOTAL
---------- ---------- ------- ---------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Systems........................ $3,873 $ 3,873 $ 378 $ 378 $4,251
Maintenance and other.......... 2,864 $(515) 2,349 4,089 4,089 6,438
------ ----- ------- ------ ----- ------ ------
Total revenue.......... 6,737 (515) 6,222 4,467 0 4,467 10,689
------ ----- ------- ------ ----- ------ ------
Cost of revenue
Systems........................ 2,827 2,827 233 $ (35) 198 3,025
Maintenance and other.......... 1,521 1,521 2,536 (471) 2,065 3,586
------ ----- ------- ------ ----- ------ ------
Total costs of
revenue.............. 4,348 4,348 2,769 (506) 2,263 6,611
------ ----- ------- ------ ----- ------ ------
Gross margin........... 2,389 (515) 1,874 1,698 506 2,204 4,078
------ ----- ------- ------ ----- ------ ------
Operating expenses
Selling, general and
administrative.............. 1,700 1,700 1,088 (318) 770 2,470
Research and development....... 676 676 0 0 0 676
Depreciation and
amortization................ 387 387 89 91 180 567
------ ----- ------- ------ ----- ------ ------
Total operating
expenses............. 2,763 2,763 1,177 (227) 950 3,713
------ ----- ------- ------ ----- ------ ------
Income (loss) from
operations........... (374) (515) (889) 521 733 1,254 365
------ ----- ------- ------ ----- ------ ------
Other income (expense)
Interest expense............... (178) (178) (41) 41 0 (178)
Interest income................ 0 0 11 (11) 0 0
------ ----- ------- ------ ----- ------ ------
Income (loss) before income
taxes.......................... (552) (515) (1,067) 491 763 1,254 187
Income taxes..................... 0 0 (37) 37 0 0
------ ----- ------- ------ ----- ------ ------
Net income (loss)...... $ (552) $(515) $(1,067) $ 454 $ 800 $1,254 $ 187
====== ===== ======= ====== ===== ====== ======
</TABLE>
F-16
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 9th day of
April, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ MICHAEL A. SINGER
------------------------------------
Michael A. Singer
Chairman of the Board & Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL A. SINGER Chairman of the Board and Chief April 9, 1997
- ----------------------------------------------------- Executive Officer (Principal
Michael A. Singer Executive Officer)
/s/ LEE A. ROBBINS Vice President and Chief April 9, 1997
- ----------------------------------------------------- Financial Officer (Principal
Lee A. Robbins Financial and Accounting
Officer)
/s/ JOHN H. KANG President; Director April 9, 1997
- -----------------------------------------------------
John H. Kang
/s/ RICHARD W. MEHRLICH Executive Vice April 9, 1997
- ----------------------------------------------------- President -- Sales and
Richard W. Mehrlich Marketing; Director
</TABLE>
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
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 (Incorporated by reference to
Exhibit 2.1 to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-13101))
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
(Incorporated by reference to Exhibit 2.2 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
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 (Incorporated by reference to Exhibit 2,3 to
the Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
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 (Incorporated by reference to Exhibit 2.4 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
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 (Incorporated by reference to Exhibit 2.5 to the
Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
3.2 -- By-laws of the Company (Incorporated by reference to Exhibit
3.2 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
4 -- Form of certificate evidencing ownership of Common Stock of
the Company (Incorporated by reference to Exhibit 4 to
Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-13101))
10.1* -- 1996 Long-Term Incentive Plan of the Company (Incorporated
by reference to Exhibit 10.1 to Amendment No. 3 to the
Registrant's Registration Statement on Form S-1
(Registration No. 13101))
10.2* -- 1996 Non-Employee Directors' Stock Plan of the Company
(Incorporated by reference to Exhibit 10.2 to Amendment No.
2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
10.3* -- Employment Agreement, dated as of February 4, 1997, between
the Company and Michael A. Singer
10.4* -- Employment Agreement, dated as of February 4, 1997, between
the Company and Richard W. Mehrlich
10.5* -- Employment Agreement, dated as of February 4, 1997, between
the Company and John H. Kang
10.6* -- Employment Agreement, dated as of February 4, 1997, 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 (Incorporated by reference to
Exhibit 10.7 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 (Registration No.
333-13101))
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
10.8* -- Employment Agreement, dated as of February 4, 1997, between
the Company and Henry W. Holbrook
10.9* -- Employment Agreement, dated as of February 4, 1997, 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
(Incorporated by reference to Exhibit 10.10 to Amendment No.
1 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-13101))
10.11 -- 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 (Incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-13101))
10.13 -- Management Services Agreement and Option Agreement, dated as
of September 1, 1996, between Medix, Inc. and National
Medical Systems, Inc. (Incorporated by reference to Exhibit
10.13 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 13101))
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 (Incorporated by
reference to Exhibit 10.14 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1
(Registration No. 13101))
21 -- List of subsidiaries of the Company
27 -- Financial Data Schedule (for SEC use only)
99 -- Financial Statements of Systems Plus, Inc., and Systems Plus
Distribution, Inc., National Medical Systems, Inc., RTI
Business Systems, Inc. and Systems Management, Inc. included
in the Registrant's Form 8-K filed with the Securities and
Exchange Commission on April 8, 1997
</TABLE>
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 4th day of February, 1997, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
MICHAEL A. SINGER, (the "Executive").
WHEREAS, the Executive is currently the President and sole shareholder of
Personalized Programming, Inc. ("PPI"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiary, PPI and the Executive (the "Business Combination"). PPI will become
a wholly-owned subsidiary of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President of PPI and to employ
the Executive as the Chief Executive Officer and Chairman of the Board of the
Company following the Business Combination, 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 of the Business Combination (which also will be
the closing date of the Company's initial public offering of Common Stock).
Effective as of the expiration of such initial five-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 two months 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 the "Term". The period of time
between the commencement 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 its Chief Executive Officer and Chairman
of the Board and as the President of PPI on the terms and
<PAGE> 2
use its best efforts to cause the Executive to be nominated and re-nominated for
election as Chairman of the Board of Directors of the Company (the "Board") for
each term of such office commencing during the Employment Period. During the
Employment Period, the Executive shall report directly to the Board and the
Board of Directors of PPI in his respective capacities with each such company.
(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 position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and PPI,
respectively. Without limiting the generality of the foregoing, the Executive
shall report directly and be solely responsible to the Board with respect to the
research and development functions of the Company and its subsidiaries. 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 and serve in any capacity with any civic, educational or charitable
organization, or any trade association, without seeking or obtaining approval by
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 $ 150,000
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 possible increase by the Board in its sole
discretion, 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. The Executive shall be eligible to be
granted stock options to acquire shares of the Common Stock of the Company under
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.
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<PAGE> 3
(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,
four weeks of vacation pay per year.
(e) 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.
(f) 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 (other than any action, suit or proceeding brought by the
Company against the Executive) to which he may be made a party by reason of
being or having been a director, officer or employee of the Company or PPI or
his serving or having served any other enterprise as a director, officer or
employee at the request of the Company.
(g) TRAVEL. During the Executive's employment with the Company,
any travel by the Executive will be at the Executive's discretion.
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR CAUSE. The Company may terminate the
Executive's employment hereunder for cause. For purposes of this Agreement and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm
to the Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the
Company; or
(iii) the conviction for, or plea or nolo contender to, a
charge of commission of a felony.
(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:
3
<PAGE> 4
(i) a material diminution during the Employment Period in
the Executive's duties or responsibilities as set forth in
Section 2 hereof;
(ii) a failure of the Board to have the Executive elected or
re-elected to the office of the Chairman of the Board;
(iii) a material breach by the Company of the compensation
and benefits provisions set forth in Section 3 hereof;
(iv) a notice of non-renewal of the Agreement by the Company
in accordance with Section 1 hereof;
(v) 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); or
(vi) a material breach by the Company of any other term of
this Agreement.
( 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.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period 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
4
<PAGE> 5
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 hereof 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; or
(iv) the sale by the Company of the majority of the
capital stock of PPI or all or substantially all of the assets of
PPI, or the liquidation on dissolution of PPI.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than 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 payments 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 obtains
5
<PAGE> 6
comparable 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) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) 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.
( c) 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 Term hereof 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.
6
<PAGE> 7
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 Company all right, title and
interest in such contributions and inventions made or conceived by the Executive
alone or jointly with others during the Employment Period which relate to the
business of the Company. This assignment shall include (a) the right to file and
prosecute patent 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.
(a) Prohibited Activities. The Executive will not, for a period
of five years from the effectiveness of the Business Combination, for any
reason whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder,
owner, partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant or
advisor, or as a sales representative, in any business selling
any products or services in direct competition with the
Company or any of the subsidiaries thereof, within 100 miles of
where PPI or any of the other for businesses which are part of
the Business Combination (the "Other Foundry Companies
conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) solicit any person who is at that time within the
Territory, an employee of the Company (including the
subsidiaries thereof) in a sales representative or managerial
capacity for the purpose or with the intent of enticing such
employee away from or out of the Company (including the
subsidiaries thereof);
(iii) solicit any person or entity which is, at that
time, or which has been within one (1) year prior to the
consummation of the Business Combination, a customer of the
Company (including the subsidiaries thereof), of PPI or of any
of the Other Founding companies within the Territory for the
purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) solicit any prospective acquisition candidate, on
the Executive's own behalf or on behalf of any competitor in
the medical software development or distribution business,
which candidate was either called upon by the Company
(including the subsidiaries thereof) or for which the Company
(or any subsidiary thereof) made an acquisition analysis which
was known (or should have been known) to the Executive, for the
purpose of acquiring such entity; or
(v) disclose customers, whether in existence or
proposed, of PPI to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever except to the
extent that PPI has in the past disclosed such information to
the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit the Executive from acquiring as an investment not more than
three percent (3%) of the capital stock of a competitive business whose stock
is traded on a national securities exchange or over-the-counter.
In addition to the foregoing, in the event the Executive is
not actively employed during the initial five-year term and is not receiving
any severance pay and provided the Company pays the Executive, in equal monthly
installments, an amount equal to $25,000 per annum, as a condition of the
Executive shall be bound by the non-competition provisions set forth above for
the Severance.
(b) Reasonable Restraint. It is agreed by the parties hereto
that the foregoing covenants in this Section 8 impose a reasonable restraint on
the Executive in light of the activities and business of the Company (including
the subsidiaries thereof) on the date of the execution of this Agreement and
the current plans of the Company; but it is also the intent of the Company and
the Executive that such covenant be construed and enforced in accordance with
the changing activities and business of the Company (including the subsidiaries
thereof) throughout the term of this covenant so long as such activities and
business are reasonably related to the activities of the Company immediately
upon consummation of the Company Plan of Organization.
(c) Severability; Reformation. The covenants in this Section 8
are severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
(d) Independent Covenant. all of the Covenants in this Section
8 shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the Executive
against the Company (including the subsidiaries thereof), whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by Company of such covenants. The covenants contained in Section 8 shall not be
affect by any breach of any other provision hereof by any party hereto and
shall have no effect if the transactions contemplated by this Agreement are not
consummated.
(e) Materiality, PPI and the Executive each hereby agree that
this covenant is a material and substantial part of this transaction.
(f) Additional Restrictions. The Executive agrees that he
shall not during the Employment Period and, if applicable, the Severance Period,
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 the development, 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 five percent (5%) of the issued
and outstanding capital stock of a 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 current or future subsidiary or affiliate thereof to terminate his or
her employment. Notwithstanding the foregoing this provision only applies
after the initial five-year term hereof is completed; provisions 8(a)-8(e)
hereof shall govern during such initial five-year term.
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.
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
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<PAGE> 8
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
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
MICHAEL A. SINGER
PERSONALIZED PROGRAMMING, INC.
15151 NORTHWEST 99TH STREET
ALACHUA, FL 32615
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 against the Company arising
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.
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
8
<PAGE> 9
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 inure 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 shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
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 a written instrument executed by the Executive and
the Company.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as
of February 4, 1997.
MEDICAL MANAGER CORPORATION
/s/ John Kang
--------------------------------
By: JOHN KANG
THE EXECUTIVE
/s/ Michael A. Singer
--------------------------------
MICHAEL A. SINGER
10
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 4th day of February, 1997, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Richard W. Mehrlich (the "Executive").
WHEREAS, the Executive is currently the President and shareholder of
Systems Plus, Inc. ("SPI) and Systems Plus Distribution, Inc. ("SPDI"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiaries, SPI, SPDI and the Executive (the "Business Combination"),
SPI and SPDI will become wholly-owned subsidiaries of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President of SPI and SPDI and to
employ the Executive as the Executive Vice President-Sales and Marketing of the
Company following the Business Combination, 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 of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-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 two months 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 the "Term".
The period of time between the commencement 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 its Executive Vice President-sales and
Marketing and as the President of SPI and SPDI of on the terms and conditions
set forth in this Agreement.
<PAGE> 2
(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 position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and SPI and SPDI,
respectively. 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 approval by 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 $150,000 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 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. The Executive shall be eligible to be
granted stock options to acquire shares of the Common Stock of the Company
under 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
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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, four weeks of vacation pay per year.
(e) 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.
(f) 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 (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company SPI or
SPDI or his serving 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 and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(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;
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(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 10 miles from his current place
of employment.
(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.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period 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
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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 hereof 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; or
(iv) the sale by the Company of the majority of the
capital stock of SPI or SPDI or all or substantially all of the assets
of SPI or SPDI, or the liquidation on dissolution of SPI or SPDI.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than 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 payments 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 obtains comparable 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
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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) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) 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.
(c) 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 Term hereof 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.
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 Company all right, title
and interest in such contributions and inventions made or
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conceived by the Executive alone 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 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, if
applicable, the Severance Period, 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 current or future subsidiary
or affiliate thereof to terminate his or her employment.
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.
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:
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(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
Systems Plus, Inc.
500 Clyde Avenue
Mantain View, California 94043
Attn: Richard W. Mehrlich
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.
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 inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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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 shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
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 a written instrument executed by the
Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 4, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ John Kang
-------------------------------------
THE EXECUTIVE
/s/ Richard W. Mehrlich
-----------------------------------------
Richard W. Mehrlich
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 4th day of February, 1997, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
John H. Kang (the "Executive").
WHEREAS, the Executive is currently the President and a shareholder
of National Medical Systems, Inc. ("NMS"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiary, the Executive, NMS and the stockholders thereof (the "Business
Combination"), NMS will become a wholly-owned subsidiary of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President of NMS and to employ
the Executive as the President of the Company following the Business
Combination, 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 of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-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 two months 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 the "Term".
The period of time between the commencement 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 its President and as the President of
NMS on the terms and conditions set forth in this Agreement.
<PAGE> 2
(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 position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and NMS,
respectively. 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 approval by 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 $150,000 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 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. The Executive shall be eligible to be
granted a stock option to acquire shares of the Common Stock of the Company,
under 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
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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, four weeks of vacation pay per year.
(e) 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.
(f) 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 (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
NMS or his serving 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 and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(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;
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(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 10 miles from his current place of
employment; or
(vii) a failure of the Board to have the Executive
re-elected to the Board at the Company's 1997 Annual Meeting of Stockholders.
(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.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period 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
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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 hereof 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; or
(iv) the sale by the Company of the majority of the
capital stock of NMS or all or substantially all of the assets of
NMS, or the liquidation on dissolution of NMS.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than 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 payments 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 obtains comparable 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
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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) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) 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.
(c) 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 Term hereof 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.
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 Company all right, title
and interest in such contributions and inventions made or
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<PAGE> 7
conceived by the Executive alone 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 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, if
applicable, the Severance Period, 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 current or future subsidiary
or affiliate thereof to terminate his or her employment.
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.
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:
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(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
NATIONAL MEDICAL SYSTEMS, INC.
3001 North Rocky Point Dive East
Suite 100
Tampa, FL 33607
ATTN: John H. Kany
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.
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 inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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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 shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
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 a written instrument executed by the
Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 4, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ Wayne Burks
-------------------------------------
THE EXECUTIVE
/s/ John Kang
-----------------------------------------
John H. Kang
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 28th day of January, 1997, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Frederick B. Karl, Jr. (the "Executive").
WHEREAS, the Executive is currently the Vice President and General Counsel
of Personalized Programming, Inc. ("PPI"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiary, PPI and the stockholders thereof (the "Business Combination"), PPI
will become a wholly-owned subsidiary of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the Vice President and General
Counsel of PPI and to employ the Executive as the Vice President, General
Counsel and Secretary of the Company following the Business Combination, 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 of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-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 two months 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 the "Term".
The period of time between the commencement 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 its Vice President, General Counsel and
Secretary and as the Vice President and General Counsel of PPI on the terms and
conditions set forth in this Agreement.
<PAGE> 2
(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 position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and PPI,
respectively. 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 approval by 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 $150,000 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 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 effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
140,000 shares 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
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<PAGE> 3
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, four weeks of vacation pay per year.
(e) 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.
(f) 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 (other than any action, suit or proceeding brought
By the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or PPI
or his serving 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 and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(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;
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(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 10 miles from his current place of
employment.
(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.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period 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
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<PAGE> 5
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 hereof 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; or
(iv) the sale by the Company of the majority of the
capital stock of PPI or all or substantially all of the assets of
PPI, or the liquidation on dissolution of PPI.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than 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 payments 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 obtains comparable 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
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<PAGE> 6
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) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) 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.
(c) 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 Term hereof 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.
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 Company all right, title
and interest in such contributions and inventions made or
6
<PAGE> 7
conceived by the Executive alone 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 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, if
applicable, the Severance Period, 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 current or future subsidiary
or affiliate thereof to terminate his or her employment.
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.
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:
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<PAGE> 8
(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
PERSONALIZED PROGRAMMING, INC.
15151 N.W. 99TH STREET
ALACHUA, FLORIDA 32615
ATTN: FREDERICK B. KARL, JR.
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.
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 inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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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 shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
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 a written instrument executed by the
Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
January 28, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ John Kang
-------------------------------------
John Kang
THE EXECUTIVE
/s/ Frederick B. Karl, Jr.
-----------------------------------------
Frederick B. Karl, Jr.
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 4th day of February, 1997, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Henry W. Holbrook (the "Executive").
WHEREAS, the Executive is currently the President and a shareholder of
RTI Business Systems, Inc. ("RTI"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiary, the Executive, RTI and the stockholders thereof (the "Business
Combination"), RTI will become a wholly-owned subsidiary of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President of RTI and to employ
the Executive as the Vice President, Sales-Northeast Region of the Company
following the Business Combination, 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 of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-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 two months 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 the "Term".
The period of time between the commencement 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 its Vice President, Sales - Northeast
Region and as the President of RTI on the terms and conditions set forth in
this Agreement.
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(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 position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and RTI,
respectively. 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 approval by 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 $150,000 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 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 effective date of the
Business Combination, the Executive shall be granted a stock option to acquire
70,000 shares 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
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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, four weeks of vacation pay per year.
(e) 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.
(f) 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 (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
RTI or his serving 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 and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(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;
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(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
(iv) the involuntary relocation of the Executive to a place
of employment that is more than 50 miles from his current place of
employment.
(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.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period 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
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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 hereof 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; or
(iv) the sale by the Company of the majority of the
capital stock of RTI or all or substantially all of the assets of
RTI, or the liquidation on dissolution of RTI.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than 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 payments 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 obtains comparable 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
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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) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) 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.
(c) 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 Term hereof 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.
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 Company all right, title
and interest in such contributions and inventions made or
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conceived by the Executive alone 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 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, if
applicable, the Severance Period, 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 current or future subsidiary or affiliate thereof
to terminate his or her employment.
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.
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:
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(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
RTI BUSINESS SYSTEMS, INC.
9 WASHINGTON SQUARE
ALBANY, NEW YORK 12205
ATTN: HENRY W. HOLBROOK
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.
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 inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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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 shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
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 a written instrument executed by the
Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 4, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ John Kang
-------------------------------------
President
THE EXECUTIVE
/s/ Henry W. Holbrook
-----------------------------------------
Henry W. Holbrook
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 4th day of February, 1997, between
MEDICAL MANAGER CORPORATION, a Delaware corporation (the "Company"), and
Thomas P. Liddell (the "Executive").
WHEREAS, the Executive is currently the President and a shareholder of
Systems Management, Inc. ("SMI"); and
WHEREAS, as a result of the proposed business combination pursuant to that
certain Agreement and Plan of Reorganization among the Company, its acquisition
subsidiary, the Executive, SMI and the stockholders thereof (the "Business
Combination"), SMI will become a wholly-owned subsidiary of the Company; and
WHEREAS, the parties hereto wish to enter into an employment agreement to
continue the employment of the Executive as the President of SMI and to employ
the Executive as the Vice President - Midwest Region of the Company following
the Business Combination, 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 of the Business Combination (which also
will be the closing date of the Company's initial public offering of Common
Stock). Effective as of the expiration of such initial five-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 two months 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 the "Term".
The period of time between the commencement 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 its Vice President - Midwest Region and
as the President of SMI on the terms and conditions set forth in this Agreement.
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(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 position,
commensurate with the authority vested in the Executive's position, pursuant to
this Agreement and consistent with the By-Laws of the Company and SMI,
respectively. 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 approval by 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 $150,000 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 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. The Executive shall be eligible to be
granted stock options to acquire shares of the Common Stock of the Company,
under 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
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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, four weeks of vacation pay per year.
(e) 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.
(f) 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 (other than any action, suit or proceeding brought
by the Company against the Executive) to which he may be made a party by reason
of being or having been a director, officer or employee of the Company or
SMI or his serving 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 and
subject to the Executive's opportunity to cure as provided in Section 4 (c)
hereof, the Company shall have "cause" to terminate the Executive's employment
hereunder if such termination shall be the result of:
(i) willful fraud or dishonesty in connection with the
Executive's performance hereunder that results in material harm to the
Company;
(ii) the failure by the Executive to substantially perform
his duties hereunder that results in material harm to the Company; or
(iii) the conviction for, or plea or nolo contendere to, a
charge of commission of a felony.
(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;
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(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 10 miles from his current place of
employment.
(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.
(d) TERMINATION UPON DEATH OR PERMANENT AND TOTAL DISABILITY. The
Employment Period 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
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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 hereof 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; or
(iv) the sale by the Company of the majority of the
capital stock of SMI or all or substantially all of the assets of
SMI, or the liquidation on dissolution of SMI.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event of
termination of the Executive's employment hereunder by the Company without
"cause" (other than 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 payments 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 obtains comparable 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
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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) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reason other than those specified in
Section 5(a) 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.
(c) 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 Term hereof 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.
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 Company all right, title
and interest in such contributions and inventions made or
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conceived by the Executive alone 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 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, if
applicable, the Severance Period, 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 current or future subsidiary or affiliate thereof
to terminate his or her employment.
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.
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:
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(a) If to the Company, to:
THE MEDICAL MANAGER CORPORATION
3001 NORTH ROCKY POINT DRIVE EAST
SUITE 100
TAMPA, FL 33607
(b) If to the Executive, to:
SYSTEMS MANAGEMENT, INC.
537202 GENERATION DRIVE
SOUTH BEND, INDIANA 46635
ATTN: THOMAS P. LIDDELL
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.
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 inure to the benefit of
and be binding upon the heirs, assigns or designees of the
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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 shall be construed, interpreted and enforced in accordance with
the laws of the State of Florida, without giving effect to the conflict of law
principles thereof.
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 a written instrument executed by the
Executive and the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
February 4, 1997.
MEDICAL MANAGER CORPORATION
By: /s/ John Kang
-------------------------------------
President
THE EXECUTIVE
/s/ Thomas P. Liddell
-----------------------------------------
Thomas P. Liddell
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<PAGE> 1
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 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 $0 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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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
19
<PAGE> 20
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.
20
<PAGE> 21
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
21
<PAGE> 22
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: /s/ Thomas P. Liddell BY: /s/ Thomas P. Liddell
---------------------------- ----------------------------------
THOMAS P. LIDDELL, PRESIDENT THOMAS P. LIDDELL, MANAGING MEMBER
MEDICAL MANAGER CORPORATION BY: /s/ Timothy S. Liddell
-----------------------------------
TIMOTHY S. LIDDELL, MANAGING MEMBER
BY: /s/ John H. Kang
----------------------------
JOHN H. KANG, PRESIDENT
STATE OF INDIANA: )
22
<PAGE> 23
) 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.
/s/ Michael A. Trippel
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in St. Joseph
----------------------------
County
My Commission Expires: June 27, 2000 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.
/s/ Michael A. Trippel
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in St. Joseph
----------------------------
County
My Commission Expires: June 27, 2000 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.
/s/ Michael A. Trippel
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in St. Joseph
----------------------------
County
My Commission Expires: June 27, 2000 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.
/s/ Barbara L. Walton
----------------------------------------
Notary Public
----------------------------------------
Print Name
Residing in Hillsborough
----------------------------
County
My Commission Expires:April 24, 2000 State of Florida
--------------
24
<PAGE> 1
EXHIBIT 21
List of Subsidiaries of Medical Manager Corporation
<TABLE>
<CAPTION>
Company Name Jurisdiction
- ------------ -------------
<S> <C>
Medical Manager Research &
Development, Inc. Florida
Systems Plus, Inc. California
Systems Plus Distribution, Inc. California
Medical Manager RTI, Inc. New York
Medical Manager Southeast, Inc. Florida
Preferred System Solutions, Inc.
(a wholly owned subsidiary of National
Medical Systems, Inc.) Oklahoma
Medical Manager Systems Management, Inc. Indiana
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMBINED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FILED AS OF APRIL 9,
1997.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,764,946
<SECURITIES> 202,488
<RECEIVABLES> 1,779,142
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,864,331
<PP&E> 1,150,464
<DEPRECIATION> (645,730)
<TOTAL-ASSETS> 4,530,168
<CURRENT-LIABILITIES> 1,699,622
<BONDS> 0
0
0
<COMMON> 63,700
<OTHER-SE> 2,649,520
<TOTAL-LIABILITY-AND-EQUITY> 4,530,168
<SALES> 11,955,636
<TOTAL-REVENUES> 11,955,636
<CGS> 1,831,513
<TOTAL-COSTS> 1,831,513
<OTHER-EXPENSES> 4,677,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,551,097
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,551,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,551,097
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
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, June
30, 1996 and February 4, 1997 and the related combined statements of operations,
changes in stockholder's equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1995, for the six months ended June 30,
1996 and for the period from July 1, 1996 through February 4, 1997. 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,
June 30, 1996 and February 4, 1997 and the combined results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, for the six months ended June 30, 1996 and for the period from July 1,
1996 through February 4, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 10 to the combined financial statements, on February
4, 1997, System Plus, Inc. and Systems Plus Distribution, Inc. merged with a
subsidiary of Medical Manager Corporation.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
March 7, 1997
1
<PAGE> 2
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................... $ 286,389 $ 597,606 $ 285,603 $ 31,523
Investments.................................. 1,184,628 1,793,420 50,000 0
Accounts receivable.......................... 1,394,759 1,479,740 1,462,861 997,333
Inventory.................................... 125,000 199,439 114,000 79,825
Prepaid expenses and other current assets.... 235,450 198,930 75,971 43,967
---------- ---------- ---------- ----------
Total current assets................. 3,226,226 4,269,135 1,988,435 1,152,648
PROPERTY AND EQUIPMENT, net.................... 237,375 421,238 623,829 649,867
OTHER ASSETS................................... 498,679 422,312 866,389 1,400,818
---------- ---------- ---------- ----------
Total assets......................... $3,962,280 $5,112,685 $3,478,653 $3,203,333
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable................................ $ 536,354 $ 504,159 $ 0 $1,456,027
Accounts payable and accrued liabilities..... 860,256 947,063 1,029,014 1,232,461
Customer deposits and deferred maintenance
revenue................................... 42,811 117,677 172,357 223,138
Income taxes payable......................... 31,624 5,450 3,014 19,169
---------- ---------- ---------- ----------
Total current liabilities............ 1,471,045 1,574,349 1,204,385 2,930,795
---------- ---------- ---------- ----------
DUE TO AFFILIATED COMPANIES.................... 0 0 0 750,000
---------- ---------- ---------- ----------
Total liabilities.................... 1,471,045 1,574,349 1,204,385 3,680,795
---------- ---------- ---------- ----------
Commitments and contingencies (Notes 7 and 10)
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock................................. 28,000 28,000 28,000 28,000
Unrealized loss on investments............... (220,585) (8,341) 0 0
Retained earnings (Accumulated deficit)...... 2,683,820 3,518,677 2,246,268 (505,462)
---------- ---------- ---------- ----------
Total stockholder's equity
(deficit).......................... 2,491,235 3,538,336 2,274,268 (477,462)
---------- ---------- ---------- ----------
Total liabilities and stockholder's
equity (deficit)................... $3,962,280 $5,112,685 $3,478,653 $3,203,333
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 3
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS JULY 1, 1996
YEARS ENDED DECEMBER 31, ENDED THROUGH
--------------------------------------- JUNE 30, FEBRUARY 4,
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Revenue
Systems................................ $ 159,143 $ 300,253 $ 766,037 $ 668,425 $ 459,525
Software license....................... 8,944,307 11,518,566 12,502,491 6,586,715 8,198,171
Maintenance and other.................. 1,732,276 1,681,941 1,910,430 982,041 972,602
----------- ----------- ----------- ----------- -----------
Total revenue.................. 10,835,726 13,500,760 15,178,958 8,237,181 9,630,298
----------- ----------- ----------- ----------- -----------
Cost of revenue
Systems................................ 290,239 209,521 440,588 451,684 386,274
Software license....................... 5,371,347 6,832,020 6,977,948 3,719,590 4,336,125
Maintenance and other.................. 1,450,877 1,277,082 1,682,022 827,503 839,438
----------- ----------- ----------- ----------- -----------
Total costs of revenue......... 7,112,463 8,318,623 9,100,558 4,998,777 5,561,837
----------- ----------- ----------- ----------- -----------
Gross margin................. 3,723,263 5,182,137 6,078,400 3,238,404 4,068,461
----------- ----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative.... 2,471,567 3,022,941 3,345,004 1,972,701 2,426,822
Depreciation and amortization.......... 89,486 76,015 102,309 75,782 99,740
----------- ----------- ----------- ----------- -----------
Total operating expenses....... 2,561,053 3,098,956 3,447,313 2,048,483 2,526,562
----------- ----------- ----------- ----------- -----------
Income from
operations................ 1,162,210 2,083,181 2,631,087 1,189,921 1,541,899
Other income (expense)
Interest expense....................... (25,572) (44,969) (37,385) (10,765) (17,373)
Interest and dividend income........... 17,780 54,031 88,457 46,646 2,174
Gain (loss) on investments and other... 187,536 (16,731) 169,498 239,925 415
----------- ----------- ----------- ----------- -----------
Income before income taxes............... 1,341,954 2,075,512 2,851,657 1,465,727 1,527,115
Income taxes............................. 34,955 50,125 53,300 17,405 55,485
----------- ----------- ----------- ----------- -----------
Net income................... $ 1,306,999 $ 2,025,387 $ 2,798,357 $ 1,448,322 $ 1,471,630
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 4
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON UNREALIZED EARNINGS
STOCK GAIN (LOSS) (ACCUMULATED
AMOUNT ON INVESTMENTS DEFICIT) 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................................... 1,471,630 1,471,630
Dividends.................................... (4,223,360) (4,223,360)
------- --------- ----------- -----------
Balance February 4, 1997....................... $28,000 $ 0 $ (505,462) $ (477,462)
======= ========= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 5
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS JULY 1, 1996
YEARS ENDED DECEMBER 31, ENDED THROUGH
---------------------------------------- JUNE 30, FEBRUARY 4,
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 1,306,999 $ 2,025,387 $ 2,798,357 $ 1,448,322 $ 1,471,630
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 89,486 76,015 102,309 75,782 99,740
(Gain) loss on sale of property and
equipment................................... 2,200 994 (1,374) 0 (415)
Realized gains on investments................. (326,745) (208,406) (541,416) (448,158) 0
Realized losses on investments................ 137,009 224,143 373,292 208,233 0
Changes in assets and liabilities:
Accounts receivable........................... (122,215) (529,520) 19,033 97,561 468,168
Inventory..................................... (48,879) 99,109 (74,439) 85,439 34,175
Prepaid expenses and other assets............. 165,496 (183,069) 8,873 (400,764) (505,065)
Accounts payable and accrued liabilities...... (1,790,912) 110,661 86,807 81,951 203,447
Customer deposits and deferred maintenance
revenue..................................... 29,266 (2,677) 74,866 54,680 50,781
Income taxes payable.......................... (11,603) 23,023 (26,174) (2,436) 16,155
----------- ----------- ------------ ------------ -----------
Net cash provided by (used in) operating
activities............................. (569,898) 1,635,660 2,820,134 1,200,610 1,838,616
----------- ----------- ------------ ------------ -----------
Cash flow from investing activities:
Purchases of investments........................ (5,837,730) (6,800,249) (11,268,708) (8,694,966) 0
Proceeds from the sale of investments........... 6,485,016 6,836,814 11,027,950 9,945,924 0
Purchases of property and equipment............. (45,795) (100,817) (306,894) (278,373) (127,773)
Proceeds on sale of property and
equipment..................................... 0 0 22,096 0 2,410
Proceeds from investment
margin accounts............................... 6,573,612 7,516,828 10,614,724 9,840,665 0
Payments on investment
margin accounts............................... (6,845,885) (7,242,266) (10,634,585) (10,345,860) 0
----------- ----------- ------------ ------------ -----------
Net cash provided by (used in) investing
activities............................. 329,218 210,310 (545,417) 467,390 (125,363)
----------- ----------- ------------ ------------ -----------
Cash flow from financing activities:
Proceeds from short-term obligations............ 1,393,000 1,962,000 0 790,000 2,220,000
Payment on short-term obligations............... (1,368,000) (1,987,000) 0 (790,000) (2,220,000)
Increase in due to affiliated companies......... 0 0 0 0 750,000
Cash overdraft.................................. 563,581 (563,581) 0 0 0
Dividends....................................... (640,000) (971,000) (1,963,500) (1,980,003) (2,717,333)
----------- ----------- ------------ ------------ -----------
Net cash used in financing activities.... (51,419) (1,559,581) (1,963,500) (1,980,003) (1,967,333)
----------- ----------- ------------ ------------ -----------
Net change in cash and cash
equivalents............................ (292,099) 286,389 311,217 (312,003) (254,080)
Cash and cash equivalents:
Beginning of period............................. 292,099 0 286,389 597,606 285,603
----------- ----------- ------------ ------------ -----------
End of period................................... $ 0 $ 286,389 $ 597,606 $ 285,603 $ 31,523
=========== =========== ============ ============ ===========
Non-cash dividends................................ $ 0 $ 0 $ 0 $ 740,728 $ 1,506,027
=========== =========== ============ ============ ===========
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.
5
<PAGE> 6
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:
Basis of Presentation. The financial statements of the Company as of
February 4, 1997 and for the period from July 1, 1996 through February 4, 1997
are presented prior to its merger into a subsidiary of Medical Manager
Corporation ("MMC"), which merger occurred following the close of business on
February 4, 1997.
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.
6
<PAGE> 7
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Other Assets. Other assets include approximately $227,000 in costs
incurred in connection with the initial public offering of common stock of MMC
that have been deferred as of February 4, 1997. These costs will be offset
against additional paid-in capital upon the consummation of the Company's merger
into a subsidiary of Medical Manager Corporation. See Note 10.
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 terminated on February 4, 1997, 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 did not have a material impact on
the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1997 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>
7
<PAGE> 8
SYSTEMS PLUS, INC. AND SYSTEMS PLUS DISTRIBUTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS: -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------
<S> <C> <C> <C> <C>
Marketable equity securities................ $1,405,213 $ 3,038 $223,623 $1,184,628
========== ======= ======== ==========
</TABLE>
Investments of $740,728 and $50,000 were distributed to the stockholder at
their fair value as non-cash dividends during the six months ended June 30, 1996
and the period from July 1, 1996 through February 4, 1997, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Furniture and equipment................. $ 314,168 $ 497,877 $ 613,411 $ 661,076
Computers............................... 335,632 435,700 527,694 586,765
Leasehold improvements.................. 0 0 70,845 89,222
--------- ---------- ---------- ----------
649,800 933,577 1,211,950 1,337,063
Less accumulated depreciation and
amortization.......................... (412,425) (512,339) (588,121) (687,196)
--------- ---------- ---------- ----------
$ 237,375 $ 421,238 $ 623,829 $ 649,867
========= ========== ========== ==========
</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 at February 4, 1997.
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 $750,000 available under the
line at February 4, 1997.
At February 4, 1997, notes payable of $1,456,027 were due to the Company's
stockholder. The note provides for interest at 8% and is due on demand. The note
represents the amount due SPI's stockholder for its undistributed Accumulated
Adjustment Account as of February 4, 1997. See Note 10.
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 PERIOD FROM
YEARS ENDED DECEMBER 31, ENDED JULY 1, 1996
--------------------------- JUNE 30, THROUGH
1993 1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C> <C>
Current
Federal................................. $ 6,000
State................................... $34,955 $50,125 47,300 $17,405 $55,485
------- ------- ------- ------- -------
$34,955 $50,125 $53,300 $17,405 $55,485
======= ======= ======= ======= =======
</TABLE>
8
<PAGE> 9
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 PERIOD FROM
YEARS ENDED DECEMBER 31, ENDED JULY 1, 1996
--------------------------------- JUNE 30, THROUGH
1993 1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C> <C>
Statutory tax....................... $ 456,000 $ 706,000 $ 970,000 $ 498,000 $ 519,000
State income tax, net of federal
benefit........................... 34,955 50,125 47,300 17,405 55,485
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) (519,000)
--------- --------- --------- --------- ---------
$ 34,955 $ 50,125 $ 53,300 $ 17,405 $ 55,485
========= ========= ========= ========= =========
</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 FEBRUARY 4:
<S> <C>
1998................................................... $187,000
1999................................................... 117,000
2000................................................... 117,000
2001................................................... 117,000
--------
Total........................................ $538,000
========
</TABLE>
Rent expense was approximately $141,000, $133,000, $112,000, $134,000, and
$166,000 for 1993, 1994 and 1995, for the six months ended June 30, 1996 and for
the period from July 1, 1996 through February 4, 1997, 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
FEBRUARY 4, 1997
-------------------------
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>
9
<PAGE> 10
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, and $132,000 for 1995, for the six months ended June 30, 1996 and for
the period from July 1, 1996 through February 4, 1997, respectively.
10. SUBSEQUENT EVENTS:
Following the close of business on February 4, 1997, the Company merged
into a subsidiary of Medical Manager Corporation ("MMC"). All outstanding shares
of the Company's common stock were exchanged for cash and shares of MMC's common
stock upon the consummation of the initial public offering of the common stock
of MMC. The Company received $750,000 in advances from one of the companies
merging with MMC. The funds were used for the repayment of debt.
In connection with the Merger, SPI's S corporation status terminated and in
future periods 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. Also, the Company
issued notes for $1,456,027 to SPI's stockholder for the estimated balance in
SPI's S corporation Accumulated Adjustment Account as of February 4, 1997.
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, and $858,000 for 1993, 1994 and 1995, for the six months ended June
30, 1996 and for the period from July 1, 1996 through February 4, 1997.
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, and $3,490,000 for 1993, 1994
and 1995, for the six months ended June 30, 1996 and for the period from July 1,
1996 through February 4, 1997.
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. On January 7, 1997, two affiliated dealers, Computer
Clinic, Inc. and Command Solutions, Inc. (collectively, "CCI"), and CCI's
President filed suit in the Supreme Court of the State of New York, Westchester
County against MMC, each of the Founding Companies and certain principals
thereof alleging in five separate causes of action, among other things, breach
of contract, fraud, misrepresentation, tortious interference and
anti-competitive and predatory practices arising out of the decision not to
include CCI as one of the Founding Companies. In connection with three of the
five causes of action brought by CCI, CCI seeks damages in excess of $11.0
million for each such cause of action. CCI seeks damages in excess of $12.0
million in connection with the fourth cause of action and damages in an amount
to be determined at trial in connection with the fifth cause of action. On
February 5, 1997, the defendants removed the action to the United States
District Court for the Southern District of New York. Plaintiffs moved to remand
the action to the Supreme Court of the State of New York, Westchester County,
which motion was subsequently granted by the Court. MMC has agreed to indemnify
all of the other defendants for any liability, obligation or claim arising out
of this action, including the costs of defending against this action and any
settlement costs incurred in connection therewith. MMC, its subsidiaries and
such principals intend to defend vigorously against this action.
10
<PAGE> 11
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, June 30, 1996 and February 4, 1997 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, for the six
months ended June 30, 1996 and for the period from July 1, 1996 through February
4, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RTI Business Systems, Inc.
as of December 31, 1994 and 1995, June 30, 1996 and February 4, 1997 and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, for the six months ended June 30, 1996 and for
the period from July 1, 1996 through February 4, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, on February 4, 1997,
the Company merged with a subsidiary of Medical Manager Corporation.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 28, 1997
11
<PAGE> 12
RTI BUSINESS SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............. $ 25,349 $ 28,851 $ 5,473 $ 72,600
Accounts receivable................... 236,802 347,725 283,744 252,636
Inventory............................. 0 29,274 32,384 115,014
Prepaid expenses and other current
assets............................. 26,453 20,437 9,177 47,557
Deferred income taxes................. 108,982 212,456 262,456 112,456
--------- ---------- ---------- -----------
Total current assets.......... 397,586 638,743 593,234 600,263
PROPERTY AND EQUIPMENT, net............. 143,895 335,951 494,207 590,462
OTHER ASSETS............................ 0 0 0 82,281
--------- ---------- ---------- -----------
Total assets.................. $ 541,481 $ 974,694 $1,087,441 $ 1,273,006
========= ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term
obligations........................ $ 156,934 $ 282,460 $ 467,146 $ 0
Accounts payable and accrued
liabilities........................ 391,619 355,947 399,032 841,195
Customer deposits and deferred
maintenance revenue................ 307,464 530,066 379,541 868,185
Income taxes payable.................. 103,608 233,097 200,626 114,446
--------- ---------- ---------- -----------
Total current liabilities..... 959,625 1,401,570 1,446,345 1,823,826
LONG-TERM OBLIGATIONS, net of current
maturities............................ 3,895 99,950 130,664 0
DUE TO AFFILIATED COMPANIES............. 0 0 0 585,657
--------- ---------- ---------- -----------
Total liabilities............. 963,520 1,501,520 1,577,009 2,409,483
--------- ---------- ---------- -----------
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) (1,238,477)
--------- ---------- ---------- -----------
Total stockholders' deficit... (422,039) (526,826) (489,568) (1,136,477)
--------- ---------- ---------- -----------
Total liabilities and
stockholders' deficit....... $ 541,481 $ 974,694 $1,087,441 $ 1,273,006
========= ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 13
RTI BUSINESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
YEARS ENDED DECEMBER 31, ENDED JULY 1, 1996
------------------------------------ JUNE 30, THROUGH
1993 1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C> <C>
Revenue
Systems......................... $1,645,102 $2,242,200 $2,712,211 $1,301,127 $ 1,566,435
Maintenance and other........... 1,401,533 2,085,244 2,241,440 1,731,903 2,129,188
---------- ---------- ---------- ---------- -----------
Total revenue........... 3,046,635 4,327,444 4,953,651 3,033,030 3,695,623
---------- ---------- ---------- ---------- -----------
Cost of revenue
Systems......................... 1,372,675 1,334,929 1,486,156 603,239 1,203,827
Maintenance and other........... 1,169,441 1,241,483 1,214,985 1,162,229 1,417,145
---------- ---------- ---------- ---------- -----------
Total costs of
revenue............... 2,542,116 2,576,412 2,701,142 1,765,468 2,620,972
---------- ---------- ---------- ---------- -----------
Gross margin....... 504,519 1,751,032 2,252,509 1,267,562 1,074,651
---------- ---------- ---------- ---------- -----------
Operating expenses
Selling, general and
administrative............... 925,189 1,710,987 2,268,533 1,164,657 1,465,734
Depreciation and amortization... 55,434 46,777 58,057 45,724 67,008
---------- ---------- ---------- ---------- -----------
Total operating expenses..... 980,623 1,757,764 2,326,590 1,210,381 1,532,742
---------- ---------- ---------- ---------- -----------
Income (loss) from
operations............ (476,104) (6,732) (74,081) 57,181 (458,091)
Other income (expense)
Interest expense................ (32,928) (19,988) (33,326) (19,923) (38,818)
Other........................... 0 (27,746) 2,620 0 0
---------- ---------- ---------- ---------- -----------
Income before income taxes........ (509,032) (54,466) (104,787) 37,258 (496,909)
Income taxes...................... 0 0 0 0 (150,000)
---------- ---------- ---------- ---------- -----------
Net income (loss)....... (509,032) (54,466) (104,787) 37,258 (646,909)
Retained earnings (accumulated
deficit):
Beginning of period............. 39,459 (469,573) (524,039) (628,826) (591,568)
---------- ---------- ---------- ---------- -----------
End of period................... $ (469,573) $ (524,039) $ (628,826) $ (591,568) $(1,238,477)
========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 14
RTI BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
YEARS ENDED DECEMBER 31, ENDED JULY 1, 1996
--------------------------------- JUNE 30, THROUGH
1993 1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $(509,032) $ (54,466) $(104,787) $ 37,258 $(646,909)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 55,434 46,777 58,057 45,724 67,008
Deferred income taxes................... (51,642) (57,340) (103,474) (50,000) 150,000
Loss on sale of property and
equipment............................. 0 27,746 13,110 0 0
Changes in assets and liabilities:
Accounts receivable..................... 66,795 (160,167) (110,923) 63,981 31,108
Inventory............................... 121,998 0 (29,274) (3,110) (82,630)
Prepaid expenses and other current
assets................................ 12,170 (16,009) 6,016 11,260 (38,380)
Other assets............................ 0 0 0 0 (82,281)
Accounts payable and accrued
liabilities........................... 16,864 245,366 (35,672) 43,085 442,163
Customer deposits and deferred
maintenance revenue................... 517,699 (97,275) 222,602 (150,525) 488,644
Income taxes payable.................... 50,000 53,152 129,489 (32,471) (86,180)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities............. 280,286 (12,216) 45,144 (34,798) 242,543
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Purchases of property and equipment....... (51,055) (73,540) (226,023) (203,980) (163,263)
Proceeds on sale of property and
equipment............................... 0 50,963 0 0
--------- --------- --------- --------- ---------
Net cash used in investing
activities....................... (51,055) (22,577) (226,023) (203,980) (163,263)
--------- --------- --------- --------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations............................. 100,000 200,000 365,000 238,845 50,000
Payment on short-term and long-term
obligations............................. (421,333) (189,169) (180,619) (23,445) (647,810)
Increase in due to affiliated companies... 0 0 0 0 585,657
Capital contributions..................... 100,000 0 0 0 0
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities............. (221,333) 10,831 184,381 215,400 (12,153)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents..... 7,898 (23,962) 3,502 (23,378) 67,127
Cash and cash equivalents:
Beginning of period....................... 41,413 49,311 25,349 28,851 5,473
--------- --------- --------- --------- ---------
End of period............................. $ 49,311 $ 25,349 $ 28,851 $ 5,473 $ 72,600
========= ========= ========= ========= =========
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.
14
<PAGE> 15
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
RTI Business Systems, Inc. (the "Company") is a 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:
Basis of Presentation. The financial statements of the Company as of
February 4, 1997 and for the period from July 1, 1996 through February 4, 1997
are presented prior to its merger into a subsidiary of Medical Manager
Corporation ("MMC"), which merger occurred following the close of business on
February 4, 1997.
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.
Other Assets. Other assets include approximately $82,000 in costs incurred
in connection with the initial public offering of common stock of MMC that have
been deferred as of February 4, 1997. These costs will be offset against
additional paid-in capital upon the consummation of the Company's merger into a
subsidiary of Medical Manager Corporation. See Note 8.
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
15
<PAGE> 16
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement did not have a material impact on the financial statements of the
Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1997 presentations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Furniture and equipment....... $ 113,028 $ 252,978 $ 254,906 $ 337,379
Computers..................... 0 0 155,586 211,195
Vehicles...................... 203,960 290,903 337,369 345,125
--------- --------- --------- ---------
316,988 543,881 747,861 893,699
Less accumulated
depreciation................ (173,093) (207,930) (253,654) (303,237)
--------- --------- --------- ---------
$ 143,895 $ 335,951 $ 494,207 $ 590,462
========= ========= ========= =========
</TABLE>
4. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
<S> <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
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
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
-------- -------- ---------
Total.................................... 160,829 382,410 597,810
Less portion due within one year......... 156,934 282,460 (467,146)
-------- -------- ---------
Long term obligations, net of current
maturities............................. $ 3,895 $ 99,950 $ 130,664
======== ======== =========
</TABLE>
16
<PAGE> 17
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG TERM OBLIGATIONS: -- (CONTINUED)
The carrying value approximates fair market value due to the short-term
nature of the debt. See Note 8.
5. INCOME TAXES:
Income taxes consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
YEARS ENDED DECEMBER 31, ENDED JULY 1, 1996
------------------------------- JUNE 30, THROUGH
1993 1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C> <C>
Current
Federal..................... $ 46,623 $ 51,115 $ 92,261 $ 45,000 0
State....................... 5,019 6,225 11,213 5,000 0
-------- -------- --------- -------- --------
51,642 57,340 103,474 50,000 0
-------- -------- --------- -------- --------
Deferred
Federal..................... (46,623) (51,115) (92,261) (45,000) $125,000
State....................... (5,019) (6,225) (11,213) (5,000) 25,000
-------- -------- --------- -------- --------
(51,642) (57,340) (103,474) (50,000) 150,000
-------- -------- --------- -------- --------
$ 0 $ 0 $ 0 $ 0 $150,000
======== ======== ========= ======== ========
</TABLE>
The significant components of the net deferred tax asset consisted of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 31, JULY 1, 1996
--------------------- JUNE 30, THROUGH
1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C>
Bad debts............................... $ 17,000 $ 21,000 $ 14,000 $ 5,000
Deferred revenue........................ 125,000 230,000 226,000 262,000
Inventory valuations.................... 64,000 34,000
Loss carryforwards...................... 71,000 232,000
Other................................... 20,982 41,456 456 456
--------- --------- -------- ---------
226,982 326,456 311,456 499,456
Valuation allowance..................... (118,000) (114,000) (49,000) (387,000)
--------- --------- -------- ---------
Net deferred tax asset.................. $ 108,982 $ 212,456 $262,456 $ 112,456
========= ========= ======== =========
</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 February 4, 1997, the
Company established a valuation allowance of $387,000. This results in an
increase in the valuation allowance from June 30, 1996 of $338,000.
17
<PAGE> 18
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 PERIOD FROM
YEARS ENDED DECEMBER 31, ENDED JULY 1, 1996
--------------------------------- JUNE 30, THROUGH
1993 1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C> <C>
Statutory tax (benefit)............... $(173,000) $ (19,000) $ (36,000) $ 13,000 $(168,000)
State taxes, net of federal benefit... (20,000) (2,000) (4,000) 1,000 (20,000)
Effect of graduated tax brackets...... (1,000) (6,000) (11,000)
Tax contingency....................... 50,000 50,000 50,000 50,000
Change in valuation allowance......... 142,000 (24,000) (4,000) (65,000) 338,000
Other................................. 2,000 1,000 5,000 1,000 0
--------- --------- --------- -------- ---------
$ 0 $ 0 $ 0 $ 0 $ 150,000
========= ========= ========= ======== =========
</TABLE>
At February 4, 1997, the Company had an estimated net operating loss
carryforward of approximately $600,000, the use of which is limited to the
Company's future taxable income. The estimated net operating loss will expire in
the year 2012.
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 FEBRUARY 4:
<S> <C>
1998.............................................. $ 320,000
1999.............................................. 225,000
2000.............................................. 225,000
2001.............................................. 246,000
2002.............................................. 154,000
----------
Total................................... $1,170,000
==========
</TABLE>
Rent expense was approximately $139,000, $240,000, $187,000, $107,000, and
$190,000 for 1993, 1994 and 1995, for the six months ended June 30, 1996 and for
the period from July 1, 1996 through February 4, 1997, 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 $17,000 for the period from July 1, 1996 through
February 4, 1997, respectively.
8. SUBSEQUENT EVENTS:
Following the close of business on February 4, 1997, the Company merged
into a subsidiary of Medical Manager Corporation ("MMC"). All outstanding shares
of the Company's common stock were exchanged for cash and shares of MMC's common
stock upon the consummation of the initial public offering of the common stock
of MMC. The Company received $585,657 in advances from one of the other
companies merging with MMC. The funds were used for the repayment of debt.
18
<PAGE> 19
RTI BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENTS: -- (CONTINUED)
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 and $233,000 for 1993, 1994 and 1995, for
the six months ended June 30, 1996 and for the period from July 1, 1996 through
February 4, 1997.
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. On January 7, 1997, two affiliated dealers, Computer
Clinic, Inc. and Command Solutions, Inc. (collectively, "CCI"), and CCI's
President filed suit in the Supreme Court of the State of New York, Westchester
County against MMC, each of the Founding Companies and certain principals
thereof alleging in five separate causes of action, among other things, breach
of contract, fraud, misrepresentation, tortious interference and
anti-competitive and predatory practices arising out of the decision not to
include CCI as one of the Founding Companies. In connection with three of the
five causes of action brought by CCI, CCI seeks damages in excess of $11.0
million for each such cause of action. CCI seeks damages in excess of $12.0
million in connection with the fourth cause of action and damages in an amount
to be determined at trial in connection with the fifth cause of action. On
February 5, 1997, the defendants removed the action to the United States
District Court for the Southern District of New York. Plaintiffs moved to remand
the action to the Supreme Court of the State of New York, Westchester County,
which motion was subsequently granted by the Court. MMC has agreed to indemnify
all of the other defendants for any liability, obligation or claim arising out
of this action, including the costs of defending against this action and any
settlement costs incurred in connection therewith. MMC, its subsidiaries and
such principals intend to defend vigorously against this action.
19
<PAGE> 20
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, June 30, 1996 and
February 4, 1997 and the related consolidated statements of operations, changes
in stockholders' equity (deficit) and cash flows for the four months ended
December 31, 1994, the year ended December 31, 1995, the six months ended June
30, 1996 and for the period from July 1, 1996 through February 4, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, June 30, 1996
and February 4, 1997 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, the six months ended June 30, 1996 and for the period from July 1, 1996
through February 4, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the financial statements on February 4, 1997,
the Company merged with a subsidiary of Medical Manager Corporation.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 28, 1997
20
<PAGE> 21
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................... $ 0 $ 0 $ 78,948 $ 2,218,781
Accounts receivable.......................... 66,271 223,446 983,069 989,644
Inventory.................................... 51,280 73,925 49,568 410,270
Prepaid expenses and other current assets.... 182 12,000 0 31,644
---------- ---------- ---------- -----------
Total current assets................. 117,733 309,371 1,111,585 3,650,339
PROPERTY AND EQUIPMENT, net.................... 85,615 199,797 368,653 493,510
GOODWILL AND OTHER INTANGIBLES, net............ 211,609 80,201 2,753,593 6,141,498
DUE FROM RELATED PARTIES....................... 0 0 0 6,693,314
OTHER ASSETS................................... 3,586 5,184 11,084 202,013
---------- ---------- ---------- -----------
Total................................ $ 418,543 $ 594,553 $4,244,915 $17,180,674
========== ========== ========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term
obligations............................... $ 74,930 $ 261,580 $1,274,701 $ 158,500
Accounts payable and accrued liabilities..... 113,174 184,214 729,219 2,207,052
Customer deposits and deferred maintenance
revenue................................... 220,627 338,075 875,857 1,870,667
---------- ---------- ---------- -----------
Total current liabilities............ 408,731 783,869 2,879,777 4,236,219
LONG-TERM OBLIGATIONS, net of current
maturities................................... 76,860 40,768 800,660 0
DUE TO RELATED PARTIES......................... 0 0 0 1,030,000
SUBORDINATED NOTES PAYABLE..................... 0 0 292,500 0
---------- ---------- ---------- -----------
Total liabilities.................... 485,591 824,637 3,972,937 5,266,219
---------- ---------- ---------- -----------
REDEEMABLE PREFERRED STOCK..................... 0 0 500,000 0
---------- ---------- ---------- -----------
Commitments and contingencies (Notes 10 and
11)..........................................
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 25,000,000
shares authorized......................... 56,570 62,566 68,566 162,855
Additional paid-in capital................... 203,430 248,503 790,003 13,636,714
Accumulated deficit.......................... (327,048) (541,153) (1,086,591) (1,885,114)
---------- ---------- ---------- -----------
Total stockholders' equity
(deficit).......................... (67,048) (230,084) (228,022) 11,914,455
---------- ---------- ---------- -----------
Total................................ $ 418,543 $ 594,553 $4,244,915 $17,180,674
========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FOUR MONTHS SIX MONTHS JULY 1, 1996
ENDED YEAR ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Revenue
Systems................................... $ 155,771 $1,516,022 $1,489,054 $2,601,473
Maintenance and other..................... 85,337 614,487 959,823 2,458,997
--------- ---------- ---------- ----------
Total revenue..................... 241,108 2,130,509 2,448,877 5,060,470
--------- ---------- ---------- ----------
Cost of revenue
Systems................................... 147,490 1,129,059 1,189,960 1,785,368
Maintenance and other..................... 155,655 595,692 664,426 1,540,930
--------- ---------- ---------- ----------
Total costs of revenue............ 303,145 1,724,751 1,854,386 3,326,298
--------- ---------- ---------- ----------
Gross margin (loss)............... (62,037) 405,758 594,491 1,734,172
--------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative....... 201,254 395,523 613,874 1,170,994
Research and development.................. 0 0 262,855 244,863
Restructuring charges..................... 0 0 0 647,500
Depreciation and amortization............. 60,113 196,838 189,854 258,245
--------- ---------- ---------- ----------
Total operating expenses.......... 261,367 592,361 1,066,583 2,321,602
--------- ---------- ---------- ----------
Loss from operations.............. (323,404) (186,603) (472,092) (587,430)
Other expense
Interest expense.......................... (3,644) (27,502) (73,346) (211,093)
--------- ---------- ---------- ----------
Net loss.......................... $(327,048) $ (214,105) $ (545,438) $ (798,523)
========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (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........................... (798,523) (798,523)
Sale of common stock............... 8,575,596 85,756 11,855,244 11,941,000
Capital contribution............... 300,000 300,000
Conversion of preferred stock...... 533,250 5,333 494,667 500,000
Conversion of notes payable........ 320,000 3,200 196,800 200,000
---------- -------- ----------- ----------- -----------
Balance February 4, 1997........... 16,285,488 $162,855 $13,636,714 $(1,885,114) $11,914,455
========== ======== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
NATIONAL MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS SIX MONTHS PERIOD FROM
ENDED YEAR ENDED ENDED JULY 1, 1996
DECEMBER 31, DECEMBER 31, JUNE 30, THROUGH
1994 1995 1996 FEBRUARY 4, 1997
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(327,048) $(214,105) $ (545,438) $ (798,523)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 60,113 196,838 189,854 258,245
Stock issued for compensation................. 0 6,069 0 0
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable........................... (66,271) (157,175) (446,895) 252,539
Inventory..................................... (51,280) (22,645) 43,723 (33,855)
Prepaid expenses and other assets............. (3,768) (13,416) 16,804 (210,573)
Accounts payable and accrued liabilities...... 113,174 71,040 22,254 1,477,833
Customer deposits and deferred maintenance
revenue..................................... 220,627 117,448 283,582 464,514
--------- --------- ----------- -----------
Net cash provided by (used in) operating
activities............................. (54,453) (15,946) (436,116) 1,410,180
--------- --------- ----------- -----------
Cash flow from investing activities:
Purchases of property and equipment............. (32,670) (152,183) (78,552) (102,193)
Payments for acquisitions made, net of assets
acquired...................................... (150,000) 0 (569,434) (736,479)
--------- --------- ----------- -----------
Net cash used in investing activities.... (182,670) (152,183) (647,986) (838,672)
--------- --------- ----------- -----------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations................................... 0 200,000 684,799 1,254,256
Payment on long-term obligations................ (22,877) (76,871) (509,249) (5,513,617)
Increase in due from affiliates................. 0 0 0 (6,693,314)
Proceeds from issuance of common stock.......... 12,521,000
Proceeds from issuance of redeemable preferred
stock......................................... 0 0 500,000 0
Capital contributions........................... 260,000 45,000 487,500 0
--------- --------- ----------- -----------
Net cash provided by financing
activities............................. 237,123 168,129 1,163,050 1,568,325
--------- --------- ----------- -----------
Net change in cash and cash
equivalents............................ 0 0 78,948 2,139,833
Cash and cash equivalents:
Beginning of period............................. 0 0 0 78,948
--------- --------- ----------- -----------
End of period................................... $ 0 $ 0 $ 78,948 $ 2,218,781
========= ========= =========== ===========
Cash paid for interest:........................... $ 3,645 $ 27,502
========= =========
Details of acquisitions:
Fair value of assets............................ $ 150,000 0 $ 3,190,537 $ 4,266,775
Liabilities assumed............................. 0 0 (1,457,354) (530,296)
Less common stock and debt issued............... 0 0 (1,129,139) (3,000,000)
--------- --------- ----------- -----------
Cash paid....................................... 150,000 0 604,044 736,479
Less cash acquired.............................. 0 0 (34,610) 0
--------- --------- ----------- -----------
Net cash paid for acquisitions.................. $ 150,000 0 $ 569,434 $ 736,479
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
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 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:
Basis of Presentation. The financial statements of the Company as of
February 4, 1997 and for the period from July 1, 1996 through February 4, 1997
are presented prior to its merger into a subsidiary of Medical Manager
Corporation ("MMC"), which merger occurred following the close of business on
February 4, 1997.
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.
Other Assets. Other assets include approximately $174,000 in costs
incurred in connection with the initial public offering of common stock of MMC
that have been deferred as of February 4, 1997. These costs will be offset
against additional paid-in capital upon the consummation of the Company's merger
into a subsidiary of Medical Manager Corporation. See Note 11.
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
25
<PAGE> 26
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
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.
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 did not have a material impact on
the financial statements of the Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1997 presentations.
3. ACQUISITIONS:
During the six months ended June 30, 1996 and the period from July 1, 1996
through February 4, 1997, the Company made four 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 in January, 1996, 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 in March, 1996, 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.
In September, 1996, the Company acquired substantially all of the operating
assets of Schutzman Medical Systems, Inc., a Medical Manager independent dealer
in Dallas, Texas for $380,000. The purchase
26
<PAGE> 27
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS: -- (CONTINUED)
price was paid by an affiliated company. Pro forma results of operations have
not been presented because the results of this acquisition were not significant.
On December 31, 1996, the Company acquired the Medical Manager Division
(the "Division") of Medix, Inc., a wholly owned subsidiary of Blue Cross and
Blue Shield of New Jersey, Inc. NMS issued to Medix a note for approximately
$2.1 million, representing the balance of the $3,200,000 purchase price after
giving effect to a $500,000 deposit made by NMS and approximately $515,000 in
management fees owed to the Company by Medix. The Company was given a credit of
approximately $80,000 on such $2,100,000 million note representing the cash in
Medix's bank accounts relating to the Division of the time of such closing. In
addition, cash collections of approximately $660,000 of Medix accounts
receivable relating to the Division from January 1, 1997 through February 4,
1997 were deposited in a Medix bank account and applied against the amount owed
by the Company on such note.
On the basis of the pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of the period from July 1,
1996 through February 4, 1997 rather than on December 31, 1996, consolidated net
sales would have been approximately $7,187,000 for the period and the
consolidated pro forma net loss would have been approximately $324,000. 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 the period from July 1, 1996 through February 4, 1997.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Furniture and equipment.............. $ 35,074 $ 88,282 $128,477 $ 219,637
Computers............................ 66,937 191,813 372,019 620,634
-------- -------- -------- ---------
102,011 280,095 500,496 840,271
Less accumulated depreciation........ (16,397) (80,298) (131,843) (346,761)
-------- -------- -------- ---------
$ 85,615 $199,797 $368,653 $ 493,510
======== ======== ======== =========
</TABLE>
Depreciation expense was approximately $16,400, $65,700, $49,000 and
$100,000 for 1994 and 1995, for the six months ended June 30, 1996 and for the
period from July 1, 1996 through February 4, 1997, respectively.
5. LONG TERM OBLIGATIONS:
Long term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Revolving line of credit, $500,000 available
principal, monthly interest at prime plus 1%,
(9 1/4% at June 30, 1996) principal due on
demand, collateralized by accounts receivable
and other assets, guaranteed by two of the
Company's stockholders.......................... $ 308,014
Revolving line of credit, monthly interest at
prime plus 2% (9 1/4% at June 30, 1996),
principal due on demand, collateralized by
accounts receivable and other assets, guaranteed
by two of the Company's stockholders............ 196,597
</TABLE>
27
<PAGE> 28
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG TERM OBLIGATIONS: -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Note payable, interest at prime plus 1% (9 1/4% at
June 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
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
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
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
Note payable, annual interest at 8%, due $40,000
in 1997 and $40,000 in 1998, unsecured.......... 0 80,000
Note payable to stockholder, due on demand,
monthly interest at prime plus 1/2% (8 3/4% at
June 30, 1996), unsecured....................... 0 50,000
Non-compete agreements due in various monthly
amounts through 1998............................ $ 92,290 36,916 109,229 $ 58,500
Other............................................. 59,500 65,432 103,985 100,000
-------- -------- ---------- ----------
Total................................... 151,790 302,348 2,075,361 158,500
Less portion due within one year........ 74,930 261,580 1,274,701 158,500
-------- -------- ---------- ----------
Long term obligations, net of current
maturities............................ $ 76,860 $ 40,768 $ 800,660 $ 0
======== ======== ========== ==========
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt.
6. SUBORDINATED NOTES PAYABLE:
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 supplemental warrants to acquire up to an
additional 560,000 shares, exercisable if the subordinated notes were not repaid
by a certain date. The warrants were valued at $20,000.
Included above are primary and supplemental 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.
Warrants to acquire an aggregate of 910,000 shares were exercised prior to
February 4, 1997.
28
<PAGE> 29
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. REDEEMABLE PREFERRED STOCK:
During the six months ended June 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 was converted into
533,250 shares of common stock of the Company on February 4, 1997.
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.
In connection with the merger described in Note 11, the Company sold
7,665,596 shares of its common stock to Electronic Data Systems Corporation
("EDS"). Pursuant to a Stock Purchase Agreement among the Company, EDS and MMC
(the "Stock Purchase Agreement"), EDS purchased a number of shares of common
stock of the Company that, upon consummation of the merger, resulted in the
acquisition by EDS of 1,221,896 shares of Common Stock of MMC for an aggregate
price of $12,500,000 and a price per share equal to 93% of the initial public
offering price of $11.00.
9. INCOME TAXES:
The tax effected amounts of temporary differences consisted of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
FOUR MONTHS SIX MONTHS JULY 1, 1996
ENDED YEAR ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Current
Deferred tax assets
Deferred revenue................... $ 57,350 $ 48,840 $ 126,540 $ 282,000
Inventory.......................... 21,460 21,460 21,460
Bad debts.......................... 1,577 22,200 21,090 89,090
Valuation allowance................ (58,927) (92,500) (169,090) (392,550)
-------- --------- --------- ---------
Total current deferred tax
asset....................... $ 0 $ 0 $ 0 $ 0
======== ========= ========= =========
Non-current
Deferred tax asset
Net operating loss................. $ 40,700 $ 55,870 $ 155,770 $ 191,770
Other assets....................... 16,923 47,360 65,490 83,030
Valuation allowance................ (57,623) (103,230) (221,260) (274,800)
-------- --------- --------- ---------
Total non-current deferred
tax asset................... $ 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 February 4, 1997, the
Company established a valuation allowance of $667,350. The result is an increase
of $277,000 in the valuation allowance from June 30, 1996.
29
<PAGE> 30
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES: -- (CONTINUED)
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>
PERIOD FROM
FOUR MONTHS SIX MONTHS JULY 1, 1996
ENDED YEAR ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Statutory tax benefit................... $(111,196) $ (72,796) $(185,300) $(271,000)
State taxes............................. (9,811) (6,423) (16,350) (32,000)
Permanent differences................... 925 1,203 6,000
Other................................... 3,533 (1,164) 7,030 20,000
Changes in valuation allowance.......... 116,550 79,180 194,620 277,000
--------- --------- --------- ---------
$ 0 $ 0 $ 0 $ 0
========= ========= ========= =========
</TABLE>
As of February 4, 1997, the Company had net operating losses of
approximately $500,000. 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 FEBRUARY 4:
<S> <C>
1998.............................................. $ 274,000
1999.............................................. 270,000
2000.............................................. 271,000
2001.............................................. 177,000
2002.............................................. 52,000
----------
Total........................................ $1,044,000
==========
</TABLE>
Rent expense was approximately $22,000, $82,000, $70,000 and $107,000 for
1994 and 1995, for the six months ended June 30, 1996 and for the period from
July 1, 1996 through February 4, 1997, respectively.
11. SUBSEQUENT EVENTS:
Following the close of business on February 4, 1997, the Company merged
into a subsidiary of Medical Manager Corporation ("MMC"). All outstanding shares
of the Company's common stock were exchanged for shares of MMC's common stock
upon the consummation of the initial public offering (IPO) of the common stock
of MMC. Restructuring charges of $647,500, principally for severance costs for
former employees, were accrued in conjunction with the merger. Immediately prior
to the merger, the Company advanced $6,693,314 to other companies who merged
with MMC. The funds were used for repayment of debt and concentration of cash
for cash management purposes. Fees of $650,000 were paid on behalf of the
Company by one of the other companies who merged with MMC.
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 and $479,000 for 1994, 1995, for the six months
ended June 30, 1996 and for the period from July 1, 1996 through February 4,
1997, respectively.
30
<PAGE> 31
NATIONAL MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS: -- (CONTINUED)
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. On January 7, 1997, two affiliated dealers, Computer
Clinic, Inc. and Command Solutions, Inc. (collectively, "CCI"), and CCI's
President filed suit in the Supreme Court of the State of New York, Westchester
County against MMC, each of the Founding Companies and certain principals
thereof alleging in five separate causes of action, among other things, breach
of contract, fraud, misrepresentation, tortious interference and
anti-competitive and predatory practices arising out of the decision not to
include CCI as one of the Founding Companies. In connection with three of the
five causes of action brought by CCI, CCI seeks damages in excess of $11.0
million for each such cause of action. CCI seeks damages in excess of $12.0
million in connection with the fourth cause of action and damages in an amount
to be determined at trial in connection with the fifth cause of action. On
February 5, 1997, the defendants removed the action to the United States
District Court for the Southern District of New York. Plaintiffs moved to remand
the action to the Supreme Court of the State of New York, Westchester County,
which motion was subsequently granted by the Court. MMC has agreed to indemnify
all of the other defendants for any liability, obligation or claim arising out
of this action, including the costs of defending against this action and any
settlement costs incurred in connection therewith. MMC, its subsidiaries and
such principals intend to defend vigorously against this action.
31
<PAGE> 32
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, June 30, 1996 and February 4, 1997 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, for the six
months ended June 30, 1996 and for the period from July 1, 1996 through February
4, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Systems Management, Inc. as
of December 31, 1994 and 1995, June 30, 1996 and February 4, 1997 and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, for the six months ended June 30, 1996 and for
the period from July 1, 1996 through February 4, 1997, in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, on February 4, 1997,
the Company merged with a subsidiary of Medical Manager Corporation.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
March 14, 1997
32
<PAGE> 33
SYSTEMS MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............. $178,911 $ 187,609 $ 297,251 $ 92,986
Accounts receivable.................... 167,214 276,366 288,978 315,794
Inventory.............................. 109,018 183,835 149,864 65,782
Prepaid expenses and other current
assets.............................. 4,361 29,122 0 140
-------- ---------- ---------- ----------
Total current assets........... 459,504 676,932 736,093 474,702
PROPERTY AND EQUIPMENT, net.............. 272,139 419,101 434,946 123,998
GOODWILL................................. 0 0 100,000 96,667
OTHER ASSETS............................. 0 0 0 48,505
-------- ---------- ---------- ----------
Total assets................... $731,643 $1,096,033 $1,271,039 $ 743,872
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations......................... $ 22,885 $ 50,118 $ 106,201 $ 53,130
Accounts payable and accrued
liabilities......................... 177,645 223,349 183,911 304,521
Customer deposits and deferred
maintenance revenue................. 157,213 424,656 434,957 31,816
-------- ---------- ---------- ----------
Total current liabilities...... 357,743 698,123 725,069 389,467
LONG-TERM OBLIGATIONS, net of current
maturities............................. 154,310 212,767 233,922 0
DUE TO AFFILIATED COMPANIES.............. 0 0 0 328,633
-------- ---------- ---------- ----------
Total liabilities.............. 512,053 910,890 958,991 718,100
-------- ---------- ---------- ----------
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 10,287
-------- ---------- ---------- ----------
Total stockholders' equity..... 219,590 185,143 312,048 25,772
-------- ---------- ---------- ----------
Total liabilities and
stockholders' equity......... $731,643 $1,096,033 $1,271,039 $ 743,872
======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 34
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS JULY 1, 1996
YEARS ENDED DECEMBER 31, ENDED THROUGH
------------------------------------ JUNE 30, FEBRUARY 4,
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Revenue
Systems..................................... $ 610,179 $ 621,258 $1,094,127 $ 945,910 $1,996,810
Maintenance and other....................... 1,134,307 1,507,640 1,622,742 969,414 1,327,794
---------- ---------- ---------- ---------- ----------
Total revenue....................... 1,744,486 2,128,898 2,716,869 1,915,324 3,324,604
---------- ---------- ---------- ---------- ----------
Cost of revenue
Systems..................................... 493,611 497,560 516,997 696,767 1,563,985
Maintenance and other....................... 836,634 1,158,147 1,714,203 774,225 704,226
---------- ---------- ---------- ---------- ----------
Total costs of revenue.............. 1,330,245 1,655,707 2,231,200 1,470,992 2,268,211
---------- ---------- ---------- ---------- ----------
Gross margin...................... 414,241 473,191 485,669 444,332 1,056,393
---------- ---------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative......... 313,510 371,037 425,509 236,548 257,227
Depreciation and amortization............... 25,229 26,217 31,828 34,640 44,006
---------- ---------- ---------- ---------- ----------
Total operating expenses............ 338,739 397,254 457,337 271,188 301,233
---------- ---------- ---------- ---------- ----------
Income from operations............ 75,502 75,937 28,332 173,144 755,160
Interest expense.............................. (4,134) (6,426) (23,279) (10,039) (15,522)
---------- ---------- ---------- ---------- ----------
Net income.......................... $ 71,368 $ 69,511 $ 5,053 $ 163,105 $ 739,638
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 35
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........................................... 739,638 739,638
Dividends............................................ (1,025,914) (1,025,914)
------- ----------- -----------
Balance February 4, 1997............................... $15,485 $ 10,287 $ 25,772
======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 36
SYSTEMS MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX PERIOD FROM
MONTHS JULY 1, 1996
YEARS ENDED DECEMBER 31, ENDED THROUGH
-------------------------------- JUNE 30, FEBRUARY 4,
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 71,368 $ 69,511 $ 5,053 $163,105 $ 739,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 25,229 26,217 31,828 34,640 44,006
Changes in assets and liabilities, net of effects
from acquisition:
Accounts receivable............................ 20,333 (52,123) (109,152) (12,612) (26,816)
Inventory...................................... 88,461 (54,341) (74,817) 33,971 84,082
Prepaid expenses and other assets.............. 4,407 1,187 (24,761) 29,122 (48,645)
Accounts payable and accrued liabilities....... 19,069 70,527 45,704 (39,438) 120,610
Customer deposits and deferred maintenance
revenue...................................... (81,333) 29,403 267,443 10,301 (403,141)
-------- --------- --------- -------- ---------
Net cash provided by operating
activities.............................. 147,534 90,381 141,298 219,089 509,734
-------- --------- --------- -------- ---------
Cash flow from investing activities:
Purchases of property and equipment.............. (34,035) (33,486) (80,995) (80,485) (18,731)
-------- --------- --------- -------- ---------
Net cash used in investing activities..... (34,035) (33,486) (80,995) (80,485) (18,731)
-------- --------- --------- -------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term
obligations.................................... 24,532 26,000 85,000 57,735 111,668
Payment on short-term and long-term
obligations.................................... (52,914) (61,106) (97,105) (50,497) (398,661)
Increase in due to affiliated companies.......... 0 0 0 0 328,633
Dividends........................................ (13,523) (21,970) (39,500) (36,200) (736,908)
-------- --------- --------- -------- ---------
Net cash provided by (used in) financing
activities.............................. (41,905) (57,076) (51,605) (28,962) (695,268)
-------- --------- --------- -------- ---------
Net change in cash and cash equivalents............ 71,594 (181) 8,698 109,642 (204,265)
Cash and cash equivalents:
Beginning of period.............................. 107,498 179,092 178,911 187,609 297,251
-------- --------- --------- -------- ---------
End of period.................................... $179,092 $ 178,911 $ 187,609 $297,251 $ 92,986
======== ========= ========= ======== =========
Cash paid for interest:............................ $ 4,134 $ 6,425 $ 23,280
======== ========= =========
Non-cash dividends................................. $ 0 $ 0 $ 0 $ 0 $ 289,006
======== ========= ========= ======== =========
Details of acquisitions:
Fair value of assets............................. $ 11,500 $ 165,500 $ 97,795 $100,000
Less debt issued................................. (11,500) (165,500) (97,795) (70,000)
-------- --------- --------- --------
Net cash paid for acquisitions................... $ 0 $ 0 $ 0 $ 30,000
======== ========= ========= ========
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 37
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Systems Management, Inc. (the "Company") is a 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:
Basis of Presentation. The financial statements of the Company as of
February 4, 1997 and for the period from July 1, 1996 through February 4, 1997
are presented prior to its merger into a subsidiary of Medical Manager
Corporation ("MMC"), which merger occurred following the close of business on
February 4, 1997.
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.
Other Assets. Other assets include approximately $48,000 in costs incurred
in connection with the initial public offering of common stock of MMC that have
been deferred as of February 4, 1997. These costs will be offset against
additional paid-in capital upon the consummation of the Company's merger into a
subsidiary of Medical Manager Corporation. See Note 7.
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
terminated on February 4, 1997, 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
37
<PAGE> 38
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
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 did not have a material impact on the financial statements of the
Company.
Reclassifications. Certain prior year amounts have been reclassified to
conform to 1997 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, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Land and improvements................. $ 41,265 $ 41,265 $ 41,265
Building.............................. 151,152 249,844 250,944
Furniture and equipment............... 75,741 119,660 169,045 $ 180,166
Vehicles.............................. 65,568 101,338 101,338 74,748
-------- -------- --------- ---------
333,726 512,107 562,592 254,914
Less accumulated depreciation......... (61,587) (93,006) (127,646) (130,916)
-------- -------- --------- ---------
$272,139 $419,101 $ 434,946 $ 123,998
======== ======== ========= =========
</TABLE>
38
<PAGE> 39
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, FEBRUARY 4,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Revolving lines of credit, interest monthly at prime
plus 1/2% (8 3/4% at June 30, 1996), due on
demand, scheduled maturity of June 1997,
collateralized by substantially all of the
Company's assets, $93,400 available at June 30,
1996. ............................................. $ 13,039 $ 29,194 $ 47,600
Mortgage note payable, bearing interest at the bank's
base rate plus 1% (9 1/4% at June 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
Various notes payable, bearing interest at rates
ranging from 6.42% to 11.50%, with various monthly
payments; collateralized by certain Company
vehicles. ......................................... 20,656 38,305 29,730 $ 53,130
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
-------- -------- -------- --------
Total...................................... 177,195 262,885 340,123 53,130
Less portion due within one year........... 22,885 50,118 106,201 53,130
-------- -------- -------- --------
Long term obligations, net of current
maturities............................... $154,310 $212,767 $233,922 $ 0
======== ======== ======== ========
</TABLE>
The carrying value approximates fair market value due to the short-term
nature of the debt. See Note 7.
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 and $17,000
for 1993, 1994, 1995, for the six months ended June 30, 1996 and for the period
from July 1, 1996 through February 4, 1997, respectively.
7. SUBSEQUENT EVENTS:
Following the close of business on February 4, 1997, the Company merged
into a subsidiary of Medical Manager Corporation ("MMC"). All outstanding shares
of the Company's common stock were exchanged for cash and shares of MMC's common
stock upon the consummation of the initial public offering of the common stock
of MMC. The Company received $328,633 in advances from one of the other
companies that also merged with MMC. The funds were used for repayment of debt.
In addition, in connection with the merger, the Company's S corporation status
terminated and in future periods 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
39
<PAGE> 40
SYSTEMS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS: -- (CONTINUED)
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 February 4, 1997, the Company would have
been required to establish a deferred tax asset of approximately $120,000
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 and $240,000 for 1993, 1994 and 1995, for
the six months ended June 30, 1996 and for the period from July 1, 1996 through
February 4, 1997, 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. On January 7, 1997, two affiliated dealers, Computer
Clinic, Inc. and Command Solutions, Inc. (collectively, "CCI"), and CCI's
President filed suit in the Supreme Court of the State of New York, Westchester
County against MMC, each of the Founding Companies and certain principals
thereof alleging in five separate causes of action, among other things, breach
of contract, fraud, misrepresentation, tortious interference and
anti-competitive and predatory practices arising out of the decision not to
include CCI as one of the Founding Companies. In connection with three of the
five causes of action brought by CCI, CCI seeks damages in excess of $11.0
million for each such cause of action. CCI seeks damages in excess of $12.0
million in connection with the fourth cause of action and damages in an amount
to be determined at trial in connection with the fifth cause of action. On
February 5, 1997, the defendants removed the action to the United States
District Court for the Southern District of New York. Plaintiffs moved to remand
the action to the Supreme Court of the State of New York, Westchester County,
which motion was subsequently granted by the Court. MMC has agreed to indemnify
all of the other defendants for any liability, obligation or claim arising out
of this action, including the costs of defending against this action and any
settlement costs incurred in connection therewith. MMC, its subsidiaries and
such principals intend to defend vigorously against this action.
40
