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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-29090
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 Identification No.)
Incorporation or Organization)
3001 NORTH ROCKY POINT DRIVE EAST, SUITE 33607
100, 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of February 26, 1998 was $257,831,014. The Company has no
authorized class or series of non-voting common equity.
There were 19,790,328 shares of the Registrant's common stock outstanding as of
February 26, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Annual Report on
Form 10-K.
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
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 22
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 24
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 29
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... **
Item 11. Executive Compensation...................................... **
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. **
Item 13. Certain Relationships and Related Transactions.............. **
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 50
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** The information required by Items 10, 11, 12 and 13 of Part III is hereby
incorporated by reference to the Registrant's definitive proxy statement to
be filed not more than 120 days after the year ended December 31, 1997.
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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, independent physician associations ("IPAs"),
management service organizations ("MSOs"), physician practice management
organizations ("PPMs"), managed care organizations and other providers of health
care services.
Simultaneously with the consummation of the initial public offering of the
common stock, par value $.01 per share (the "Common Stock"), of MMC in February
1997 (the "Offering"), MMC acquired in separate mergers (the "Mergers") the
following companies: (i) Personalized Programming, Inc., the owner and developer
of The Medical Manager software; (ii) Systems Plus, Inc., the long-time national
distributor of The Medical Manager software; (iii) National Medical Systems,
Inc., a national dealer of The Medical Manager software located in Tampa,
Florida; (iv) RTI Business Systems, Inc., a large, regional dealer of The
Medical Manager software in Albany, New York; and (v) Systems Management, Inc.,
a large, regional dealer of The Medical Manager software in South Bend, Indiana
(collectively, the "Founding Companies"), which became separate, wholly-owned
subsidiaries of MMC.
Subsequent to the consummation of the Offering, MMC and the Founding
Companies executed and closed agreements to acquire the following resellers of
The Medical Manager software (the "Acquired Companies") in transactions which
were accounted for using the pooling of interests method of accounting: (i) The
Computer Clinic, Inc. and its affiliates ("Computer Clinic") based in Valhalla,
New York; (ii) Adaptive Health Systems of Washington, Inc. ("Adaptive Health")
based in Federal Way, Washington; (iii) LSM Computing, Inc. ("LSM") based in
Somerville, New Jersey; (iv) Specialized Systems, Inc. ("Specialized Systems")
based in Van Nuys, California; (v) Treister-Thorne, Inc. d/b/a Advanced Medical
Management, Inc. ("Advanced Medical") based in Houston, Texas; (vi) UNICO, Inc.
("UNICO") based in Evansville, Indiana; (vii) Medysis, Inc. ("Medysis") based in
Fort Wayne, Indiana; (viii) Computers for Medicine Corporation and Carecom, Inc.
(collectively, "Computers for Medicine") based in Englewood, Colorado; (ix)
Unisource Systems, Inc. ("Unisource") based in Corpus Christi, Texas; and (x)
CompRx Systems Corporation ("CompRx") based in Hauppauge, New York. All of the
acquisitions closed during the year ended December 31, 1997.
Also subsequent to the consummation of the Offering, MMC and the Founding
Companies executed and closed definitive agreements to acquire substantially all
of the assets or all of the outstanding equity securities of the following
resellers of The Medical Manager software (the "Purchased Companies") in
transactions which were accounted for using the purchase method of accounting:
(i) Artemis, Inc. ("Artemis") based in Indianapolis, Indiana; (ii) Boston
Computer Systems, Inc. ("Boston Computer") based in Norwood, Massachusetts;
(iii) Package Computer Systems, Inc. d/b/a PAC-COMP ("PAC-COMP") based in
Sterling Heights, Michigan; (iv) Matrix Computer Consultants, Inc. ("Matrix")
based in Norman, Oklahoma; (v) Professional Management Systems, Inc. ("PMSI")
based in St. Charles, Illinois; (vi) AMSC, Inc. ("AMSC") based in Orlando,
Florida, together with its wholly-owned subsidiary, AMSC Midwest, Inc. ("AMSC
Topeka") based in Topeka, Kansas; (vii) Data Concepts, Inc. ("Data Concepts")
based in Boise, Idaho; (viii) Medical Systems Consultants, Inc. ("MSCI") based
in Boise, Idaho; (ix) Advanced Practice Management, Inc. ("APM") based in San
Diego, California; (x) Medico Support Services, Inc. ("MSSI") based in Salem,
Oregon; (xi) Companion Technologies of Florida, Inc. ("Companion Florida") based
in Tampa, Florida; and (xii) Companion Technologies of Texas ("Companion Texas")
based in Arlington, Texas. All of the acquisitions closed during the year ended
December 31, 1997.
MMC, the Founding Companies, the Acquired Companies, and the Purchased
Companies are referred to collectively as the Company. As provided below, the
Company was reorganized into eight wholly-owned subsidiaries, one of which
engages in research and development activities, one of which coordinates
national sales and marketing activities and the remaining of which provide
direct sales, marketing and support of the product to customers in each of the
Company's six geographic regions.
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WHOLLY-OWNED SUBSIDIARIES
Personalized Programming, Inc. / Medical Manager Research & Development, 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 "MMR&D"). Its progressive and innovative approach to computer
programming has made it a leader in the health care information industry.
MMR&D's research and development staff works closely with its installed client
base and academic institutions to ensure that The Medical Manager practice
management system reflects the latest technologies, changes in health care
industry practices and modifications to state and federal governmental
regulations. MMR&D 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.
Representatives of MMR&D served on the President's Workgroup for Electronic Data
Interchange and currently serve on the American National Standards Institute
("ANSI X12") committee and the Health Level 7 ("HL7") group. MMR&D employs
approximately 110 programmers, technicians, and other personnel at its research
and development facility in Alachua, Florida.
Systems Plus, Inc. / Medical Manager Sales & Marketing, Inc.
Systems Plus, Inc. was founded in 1980 and is principally responsible for
sales and marketing of The Medical Manager software. In April 1997, Systems
Plus, Inc. changed its name to Medical Manager Sales & Marketing, Inc.
(hereinafter "MMS&M"). It coordinates the sales, support and training activities
of the independent resellers across the United States, 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. MMS&M also conducts market research, develops arrangements with
providers of complementary products and services, and directs national
advertising, press and media relations. MMS&M represents The Medical Manager
product at major regional and national trade shows and hosts user events such as
basic and advanced training seminars and its annual MSO users conference. MMS&M
is based in Mountain View, California.
National Medical Systems, Inc. / Medical Manager Southeast, Inc.
National Medical Systems, Inc. was founded in 1994 and, prior to the
Mergers, was a national dealer for The Medical Manager system. In March 1997,
National Medical Systems, Inc. changed its name to Medical Manager Southeast,
Inc. (hereinafter "MMSE") and became the southeast regional distributor for the
Company. MMSE is based in Tampa, Florida. It serves client sites in Florida and
throughout the Southeastern United States.
Significant Acquisitions: Prior to the Mergers, MMSE acquired Medix, Inc., a
wholly-owned subsidiary of Blue Cross and Blue Shield of New Jersey, Inc. In
September 1997, MMSE acquired AMSC, which was a wholly-owned subsidiary of CIS
Technologies, Inc., a wholly owned subsidiary of National Data Corporation. In
December 1997, MMSE acquired Companion Florida, a wholly-owned subsidiary of
Companion Technologies Corporation (hereinafter "Companion"). Companion is a
wholly-owned subsidiary of Blue Cross and Blue Shield of South Carolina, a
private label vendor of The Medical Manager system since 1988, which continues
as one of the largest resellers of The Medical Manager system in the country.
RTI Business Systems, Inc. / Medical Manager Northeast, Inc.
RTI Business Systems, Inc. was founded in 1988 and, prior to the Mergers,
was a large regional dealer for The Medical Manager software in the Northeastern
region of the United States. In July 1997, RTI Business Systems, Inc. changed
its name to Medical Manager Northeast, Inc. (hereinafter "MMNE"). Based in
Albany, New York, MMNE serves client sites in New York and throughout the
Northeastern United States.
Significant Acquisitions: In April 1997, MMSE acquired LSM, which was
merged into the New Jersey division of MMSE. In October 1997, the New Jersey
division of MMSE was transferred to MMNE. In July
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1997, MMNE acquired Computer Clinic. In August 1997, MMNE acquired Boston
Computer. In December 1997, MMNE acquired CompRx.
Systems Management, Inc. / Medical Manager Midwest, Inc.
Systems Management, Inc. was founded in 1987 and was a regional dealer for
The Medical Manager system in the Midwestern region of the United States. In May
1997, MMC acquired UNICO, a regional dealership in Evansville, Indiana. In July
1997, Systems Management, Inc. was merged into UNICO, at which time the company
changed its name to Medical Manager Midwest, Inc. (hereinafter 'MMMW'). Based in
South Bend, Indiana, MMMW serves client sites in Indiana, Michigan, and
throughout the Midwestern United States.
Significant Acquisitions: In July 1997, MMMW acquired Artemis. In August
1997, MMMW acquired PAC-COMP and MediSys. In September 1997, MMMW acquired PMSI
and AMSC Topeka.
Medical Manager Northwest, Inc.
Adaptive Health was founded in March 1992 and, prior to being acquired by
the Company in May 1997, was a regional dealer of The Medical Manager system in
the Northwestern region of the United States. In July 1997, Adaptive Health
changed its name to Medical Manager Northwest, Inc. (hereinafter 'MMNW'). Based
in Federal Way, Washington, MMNW serves client sites in the state of Washington
and throughout the Northwestern region of United States.
Significant Acquisitions: In October 1997, MMNW acquired Data Concepts and
MSCI. In November 1997, MMNW acquired MSSI.
Medical Manager West, Inc.
Specialized Systems was founded in June 1987 and prior to being acquired by
the Company in May 1997, was a regional dealer of The Medical Manager system in
Southern California. In July 1997, Specialized Systems changed its name to
Medical Manager West, Inc. (hereinafter "MMW"). Based in Van Nuys, California,
MMW serves client sites in Southern California, Nevada and other Western regions
of the United States.
Significant Acquisitions: In September 1997, MMW acquired Computers for
Medicine. In November 1997, MMW acquired APM.
Medical Manager Southwest, Inc.
Advanced Medical was founded in December 1983 and, prior to being acquired
in June 1997, was a regional dealer of The Medical Manager system operating out
of Houston, Texas. In June 1997, Advanced Medical changed its name to Medical
Manager Southwest, Inc. (hereafter "MMSW"). MMSW serves client sites in Texas
and throughout the Southwestern region of United States.
Significant Acquisitions: In September 1997, MMSW acquired Matrix. In
November 1997, MMSW acquired Unisource. In December 1997, MMSW acquired
Companion Texas, a wholly-owned subsidiary of Companion.
EMPLOYEES
At December 31, 1997, the Company had 809 employees. No employees are
covered by any collective bargaining agreements. The Company considers its
relationships with its employees to be good.
SUMMARY OF THE TERMS OF THE MERGERS
Discussions regarding the Mergers and the Offering were begun in early 1996
by MMSE with MMR&D and MMS&M. The consideration to be paid for MMR&D and MMS&M
was determined by arm's-length negotiations between representatives of MMSE and
each of MMR&D and MMS&M, with valuations based
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primarily on pro forma earnings as compared to comparable companies.
Consideration also was given to other assets, such as intellectual property
owned by MMR&D and MMS&M and dealer contracts. MMSE negotiated with MMR&D and
MMS&M based on the number of MMSE 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 MMSE negotiated with other major dealers in the spring and
summer of 1996. As of July 31, 1996, MMNE and MMMW had agreed to participate as
Founding Companies. The consideration to be paid for MMNE and MMMW was
negotiated between representatives of each of them and MMSE with valuations
based on revenues, number of client sites and pro forma earnings before
interest, taxes, depreciation and amortization ("EBITDA").
In connection with the merger of MMSE into a subsidiary of the Company, the
stockholders of MMSE sold shares of its common stock to Electronic Data Systems
Corporation, a Delaware corporation ("EDS"). Pursuant to a Stock Purchase
Agreement among MMSE, EDS and the Company (the "Stock Purchase Agreement"), EDS
purchased a number of shares of common stock of MMSE that, upon consummation of
the Merger of MMSE 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, resulting in a price per share equal to 93% of the 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 MMSE into a
subsidiary of the Company as are afforded to the other stockholders of MMSE
under the merger agreement entered into among them, MMSE, 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 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 Offering price of $11.00.
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COMMON SHARES OF PERCENTAGE
CASH STOCK TOTAL COMMON STOCK OWNERSHIP
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(IN THOUSANDS)
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MMR&D................................ $35,062 $ 70,070 $105,132 6,370 36.0%
MMS&M................................ 9,350 24,310 33,660 2,210 12.5%
MMNE................................. 1,753 3,850 5,603 350 2.0%
MMSE................................. 0 28,556 28,556 2,596 14.6%
MMMW................................. 779 1,980 2,759 180 1.0%
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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 15% of U.S. gross domestic product, in
1995. 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
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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 greater
efficiency and productivity provided by 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 MSOs.
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 Medical Manager software, the most widely utilized
physician practice management system in the United States. Key elements of this
strategy include:
Capitalizing on New Corporate Structure. As a result of the Mergers
and subsequent acquisitions, 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
Mergers and subsequent acquisitions created a vertically-integrated entity
that has greater financial strength and stability than the individual
companies which allows the Company to 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 previously handled separately by each of the
Founding Companies and the acquired companies. The Mergers and subsequent
acquisitions 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 IPAs, PPMs, MSOs, 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 continue the consolidation and rationalization of The Medical
Manager distribution network which began upon the consummation of the
Offering. 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
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into larger practice organizations. To meet the needs of these larger
groups, the Company believes it is necessary to implement a product
distribution strategy that includes the acquisition of dealers in major
medical communities and large metropolitan markets. The ownership of 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 IPAs, PPMs, 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 the Company's regional
subsidiaries and the Company's independent local and regional dealers. In
addition, the Company has enhanced the functionality of The Medical Manager
software to deliver increasingly comprehensive physician practice
management services in enterprise-wide settings. With successful sales to
such entities as Novant Health, Inc., Children's Health System of San
Diego, Physiotherapy Associates (one of the nation's largest physiotherapy
providers), and PHP Healthcare Corporation (one of the largest primary care
providers in New Jersey), the Company has demonstrated its ability to
deliver the software and services which such large providers demand. The
Company believes that through continued 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 software's entire suite of
products and services. Because of its substantial installed base of over
24,000 sites, as well as the modular, integrated product design of The
Medical Manager software, the Company intends to target many of its
customers as candidates for cross-selling opportunities, including system
upgrades, additional software application modules, services such as
hardware and software maintenance, system and process planning, project
management, custom programming and EDI capabilities.
Continuing Development of New Products, Product Enhancements and
Services. The Company intends to continue its leadership role in the
development and introduction of new products, product enhancements and
services for the physician practice marketplace. To do so, the Company
intends to continue to commit significant financial and human resources to
its research and development efforts. A key focus of the Company's research
and development efforts is the further enhancement of The Medical Manager
software'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 software
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 1996
and 1997, the Company's expenses for research and development were $2.7
million and $3.2 million, respectively, representing 8.1% and 4.0% of the
Company's revenue for those periods.
PRODUCTS
The Medical Manager software is an integrated practice management system
encompassing patient care, clinical, financial and management applications. Due
to its scalable design, The Medical Manager system is a cost-effective solution
in a stand-alone or enterprise-wide environment. The Medical Manager software 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
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existing information systems while preserving and minimizing the need for
capital investments. The latest version of The Medical Manager software 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 APPLICATION
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.
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.
Case Management System............... Tracks all clinical events related to a specific case.
Provides the capability to view a snapshot of the diverse
aspects of a patient's case on a single screen and
instantly access the desired level of underlying detail.
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PRODUCT DESCRIPTION
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Laser Form Generator................. Encounter forms, prescriptions, insurance forms, patient
bills and statement, referrals, letterheads, and other
forms can be printed. Forms are automatically created and
merged with data during printing on plain letter or legal
size paper.
Patient Advisory System.............. Allows the practice to locate and print patient education
sheets on a variety of topics spanning many different
medical specialities.
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DEVELOPMENT TOOLS
The Medical Manager 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
The Medical Manager Electronic Connectivity supports many different types
of electronic transactions between payors and providers and allows for the open
exchange of information between various medical institutions as well as the
transfer of administrative transactions to support managed care, through Medical
Manager Network Services.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Hospital Information Link............ A data merge tool that allows hospital interfaces to be
written to local hospital requirements.
HL7 Connectivity Engine.............. Allows users to provide real time demographic and
encounter information to hospitals and other organizations
(referred to as "Remotes") and queries the Remote's master
patient index in order to retrieve data on existing
patients; also allows the Remote to automatically advise
the user site of patient admissions and discharges,
changes to inpatient/outpatient status and changes to
patient demographic information.
Electronic Data Interchange.......... An interface that provides state of the art connectivity
for real-time 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 insurance payors and to post
directly into patients' accounts, thereby saving a
substantial amount of data entry time and preventing
keying errors.
Electronic Patient Statements........ An interface integrated within The Medical Manager that
allows for the batch submission of patient billing data to
a third party statement processing center. Electronic
patient statements greatly reduce the time needed to send
patient statements. Complete audit trail reports and
history logs are provided.
</TABLE>
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<PAGE> 12
MANAGED CARE APPLICATIONS
The Medical Manager Managed Care applications allow physicians to contain
costs and deliver a higher quality of care in the capitated environments.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Managed Care......................... In addition to the managed care features offered in the
base system, supports the full functions required to track
incoming as well as outgoing referrals to facilities and
specialists; maintains membership eligibility lists,
capitation payment posting, contract management (including
number of visits, allowable time period, procedures and
diagnosis treatment plan) and reporting.
Claims Adjudication.................. Fully integrated with the Managed Care module, provides
full risk management capabilities, including the
processing of received claims, comparing the claim against
authorized services to determine amounts due, generating
checks for payments and producing an EOB; also provides
advanced features in the form of claims repricing,
bundling of services and optionally, provider
credentialing and risk pool management.
</TABLE>
CLINICAL APPLICATIONS
The Medical Manager Clinical application developments provide
fully-integrated components of a patient's medical record that contain the
functionality and knowledge bases required in today's practices.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Quality Care Guidelines.............. Automates the process of tracking both the curative and
preventative services the practice has specified that it
wishes to perform; provides reports on physician
compliance with recommended care guidelines that are based
on the patient's age, sex, diagnoses and other key health
factors and are automatically printed with the patient's
encounter form. The guidelines are derived from U.S.
Preventative Healthcare Guidelines or other clinical
knowledge bases and reflect the practice's own suggested
intervals of exams, tests, injections and other procedures
specific to the individual patient.
Laboratory Interface................. Electronically downloads test requests and patient
demographics to a laboratory, and electronically transfers
results directly into the patient's file in The Medical
Manager.
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.
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Voice Dictation...................... Through The Medical Manager's link with Kurzweil Applied
Intelligence software, enables the physician to dictate,
edit and print patient charts and reports; pulls and
stores patient and physician information from the patient
file into the chart via a single, spoken command.
View Patient Chart................... Brings a snapshot of the patient's medical records to a
single screen and then gives the user instant access to
almost any desired level of underlying detail; allows the
screen to be used for valuable side-by-side analysis of
chart data.
Medical Records...................... Designed to provide maximum flexibility and speed in
creating, storing and retrieving whatever medical
information the practice wishes to maintain on each
patient, fully integrated with the product's clinical
history, this application addresses the four fundamental
issues concerning medical records: creation and
maintenance of medical records, simultaneous access to
patient records, remote access and data for analysis.
Includes patient encounter knowledge base and generates
automated progress notes.
</TABLE>
MSO ENTERPRISE SYSTEM
The Medical Manager MSO Enterprise System addresses the needs of the MSO
market by providing enterprise-wide solutions for the management of integrated
provider networks.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
MSO Enterprise Manager............... Provides the MSO or multi-practice environment with
central administration of multiple practices,
enterprise-wide roll-up reports, a master patient index
for automatic synchronization of demographic data-updates
and remote access across multiple systems.
</TABLE>
DIALYSIS VERTICAL MARKET OPTION
The Medical Manager Dialysis Vertical Market Option expedites the
repetitive process of posting dialysis patients' weekly treatments.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Dialysis Calendar Posting............ Using a calendar posting screen, automates and reduces the
repetitive, recurring posting dictated by dialysis
treatment.
</TABLE>
CHEMOTHERAPY VERTICAL MARKET OPTION
The Medical Manager Chemotherapy Vertical Market Option automates both the
clinical and financial aspects of the oncology practice.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Chemotherapy Management System....... Provides close control of chemotherapy drug administration
based on standard and customized protocols. Using an
online encounter form, automates posting of each treatment
session, reducing operator input time and opportunities
for error.
</TABLE>
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<PAGE> 14
IMAGE MANAGEMENT VERTICAL MARKET OPTION
The Medical Manager Image Management Vertical Market Option integrates
scanned documents with the patient's record.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------- ----------------------------------------------------------
<S> <C>
Document Image System................ Organizes and stores patient photographs and other scanned
documents and retrieves images and associated image
information as part of the patient's medical record. An
optional interface to a third party package provides
similar functionality for medical diagnostic images.
</TABLE>
MEDICAL MANAGER NETWORK SERVICES
The Company offers a complete single-source electronic data interchange
("EDI") solution for health care providers that is integrated within The Medical
Manager software. Medical Manager Network Services is actively collaborating
with clearinghouses, insurance payers, Company sales and support offices, and
key developers of EDI technology. A comprehensive EDI package with connectivity
to Medicare, Medicaid, Blue Cross/Blue Shield plans, as well as commercial and
managed care plans is available. The EDI transactions currently available
include batch mode electronic claims, eligibility roster download, electronic
remittance, electronic patient statements, real-time eligibility verification,
real-time referral authorization and referral status inquiry, credit card and
check authorization, HL7 messages, as well as clinical transactions such as
laboratory requisitions and test results, and prescription information.
CLIENT SERVICES
The Company's Client Services provides a wide range of services to the
Company's 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, 1997, the Company had 340 full-time employees devoted to
providing support services to its customer base.
Value-Added Services. The Company advises its enterprise-wide clients
on how best to bring together disparate physician practices into an
integrated health care delivery network. The Company works in partnership
with its client's clinical and administrative management in the areas of
patient and workflow redesign, job function review and re-education,
standardization consultation, project engineering, timeline and resource
management and ongoing relationship management. The Company and many of its
independent dealers maintain substantial resources capable of providing
custom programming solutions for a broad range of client requests. Many of
these solutions may be generated at the regional and local levels using the
Company's Data Merge language, which allows modifications to be made
without changing source code.
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<PAGE> 15
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
Training and Continuing Education Departments. Because The Medical Manager
system has been in use for 15 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,
1997, the Company had 80 full-time employees in its Education Services
Divisions. 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 105 sales personnel, as well as through its
independent dealer network of approximately 150 dealers. This distribution
effort is responsible for sales to new clients, ranging in size from solo
practitioners to enterprise-wide clients, and follow-up 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 clients, the Company has formed
the aforementioned Enterprise Business Group. The Enterprise Business 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 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 nine years. The system has been installed in vocational schools,
junior colleges and universities nationwide. Delmar Publishers Inc., one of the
leading
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<PAGE> 16
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 software. Since 1988, more than 600 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 software 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 system is its nationwide dealer network, which currently includes
approximately 150 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 system 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 system 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 continue to
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 system. 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 software began over
15 years ago. As of December 31, 1997, the Company had 110 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 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
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<PAGE> 17
research and development efforts continue the tradition of The Medical Manager
system of being a consistent leader in product innovation, as indicated by the
following:
- In 1982, The Medical Manager software was first installed.
- In 1985, The Medical Manager Electronic Media Claims module was
released.
- In 1987, The Medical Manager software became the first practice
management system to perform electronic claims submission in all 50
states.
- In 1988, The Medical Manager Report Writer module was released.
- In 1990, The Medical Manager Data Merge Language module, was released,
allowing unlimited customization within The Medical Manager software
without changing the source code.
- In January 1991, The Medical Manager Electronic Remittance module was
released.
- In June 1991, The Medical Manager software became the first practice
management system to incorporate EDI with electronic interchange
partners.
- In 1992, The Medical Manager software became the first practice
management system to introduce electronic interfaces to laboratory
systems.
- In 1994, The Medical Manager Managed Care module was announced.
- In January 1995, The Medical Manager Quality Care Guidelines module was
released.
- In May 1995, The Medical Manager Dialysis Posting System was released.
- In October 1995, The Medical Manager integrated Claims Adjudication
System was released.
- In November 1995, The Medical Manager MSO Enterprise Manager was
announced.
- In April 1996, The Medical Manager prototype HL7 Connectivity Engine was
announced.
- In March 1997, The Medical Manager Case Management System was announced
and the Chemotherapy Management System was released.
- In July 1997, The Medical Manager Patient Flow Tracking, Advanced
Appointment Search (Multi-Resource) and Laser Form Generator modules were
released.
- In September 1997, The Medical Manager Medical Records System was
released.
- In February 1998, The Medical Manager Patient Advisory System was
released.
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 software'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.
15
<PAGE> 18
Development efforts within the Managed Care module will be designed to support
the evolving subcapitation market by allowing primary care groups to receive the
total capitation from a payor and allocate the capitation payment among
contracted specialists for services they have provided.
CLINICAL APPLICATIONS
The Company recognizes that improvements in the technology that supports
the gathering, storing, retrieving and reporting of clinical data and the
creation of a sophisticated computerized patient record system are critical to
the enhancement and improvement of health care delivery across the nation. As a
result, the Company is engaged in efforts to rapidly develop fully-integrated
components of a computerized patient record containing functionality and
knowledge bases that support the way physicians provide health care services.
Research and analysis of various input technologies and devices continue with
the goal of providing physicians with usable tools that will allow them to
effectively gather and use clinical data at the point-of-care.
GRAPHICAL USER INTERFACE
The Company's graphical user interface is currently under development. The
Company's development efforts are intended to produce a product that will
support users opting to install technology to support a Windows environment, as
well as the Company's current installed base, which has a sizeable investment in
hardware that supports character based applications.
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 "FDA 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 is currently reviewing its policy for
the regulation of computer software and there is a risk that The Medical Manager
software could in the future become subject regulation by the FDA, which could
have a material adverse effect on the Company's results of operations, financial
condition or business. Currently, the Company believes that The Medical Manager
software 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 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 FDA Act
applicable to medical devices. The Company intends to distribute in the United
States, a medical image management device (the "image module"), which was
cleared by the FDA on April 4, 1997 and is manufactured by a third party in
accordance with specifications set forth in the cleared 510(k) application.
Prior to marketing the third party image module, the Company will create an
interface between The Medical Manager practice management system and the image
module. The Company believes that the addition of its practice management system
to the image module does not change the image modules intended use or
significantly change the safety or efficacy of the product such that a new
510(k) is required under 21 C.F.R. sec.807.81(a)(3).
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 the 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
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<PAGE> 19
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.
RISK FACTORS
LIMITED COMBINED OPERATING HISTORY
The Company has been conducting operations and generating revenues through
the combined efforts of the Founding Companies since the closing of the Offering
in February 1997. The Company has been integrating the operations of these
businesses and instituting the Company-wide systems and procedures that are
necessary to successfully manage the combined enterprise on a profitable basis,
but there are no guarantees that the Company will continue to operate and
integrate the operations on a successful and profitable basis. The Company's
management group has managed the combined entities and has implemented the
Company's acquisition program by acquiring a number of independent dealerships.
The acquired dealerships have begun to assimilate into the Company but there is
no guarantee that they will be fully assimilated or that their employees will
remain with the Company. See "Business -- Business Strategy."
RISKS ASSOCIATED WITH THE ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to acquire additional
independent dealers of The Medical Manager physician practice management system
and complementary technologies. Increased competition for acquisition candidates
among the independent dealers may develop, in which event there may be fewer
acquisition opportunities available to the Company as well as higher acquisition
prices. There can be no assurance that the Company will be able to identify,
acquire or profitably integrate and manage additional dealers or complementary
technologies, if any, into the Company without substantial costs, delays or
other operational or financial problems. Further, acquisitions involve a number
of special risks, including possible adverse effects on the Company's operating
results, diversion of management's attention, failure to retain key acquired
personnel, amortization of acquired intangible assets and risks associated with
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's results of operations, financial condition or
business. Customer dissatisfaction or performance problems at a single acquired
company could have an adverse effect on the reputation of the Company and render
ineffective the Company's national sales and marketing initiative. In addition,
there can be no assurance that the Founding Companies or other dealers or
complementary technologies acquired in the future will achieve anticipated
revenue and earnings. There also can be no assurance that the existing dealer
network will be receptive to the Company's acquisition program or that dealers
who are not acquired by the Company will adhere to the Company's marketing,
training, support and pricing directives, thereby impairing the Company's plans
to rationalize its distribution network. See "Business -- Business Strategy."
POSSIBLE NEED FOR ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using
shares of its Common Stock for all or a substantial portion of the consideration
to be paid. In the event that its Common Stock does not maintain a sufficient
market value, or potential acquisition candidates are otherwise unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, in order to initiate and maintain its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. On January 14, 1998, the Company entered into a $10.0 million line
of credit agreement with Barnett Bank of Tampa. The line of credit matures on
January 14, 1999. There can be no assurance that the Company will be able to
obtain financing beyond the maturity date of this line of credit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 20
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. Revenue
associated with existing products could decline as a result of several factors,
including price competition and sales practices. There can be no assurance that
the Company will continue to be successful in marketing its current products or
any new or enhanced products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Research and
Development."
DEPENDENCE ON PROPRIETARY SOFTWARE
The Company's success is dependent to a significant extent on its ability
to protect the proprietary and confidential aspects of its software technology.
The Company's software technology is not patented and existing copyright laws
offer only limited practical protection. The Company relies on a combination of
trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and technical measures to establish and protect
its proprietary rights in its products. There can be no assurance that the legal
protections afforded to the Company or the steps taken by the Company will be
adequate to prevent misappropriation of the Company's technology. In addition,
these protections do not prevent independent third-party development of
competitive products or services. The Company believes that its products,
trademarks and other proprietary rights do not infringe upon the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will not require the Company to enter into a license
agreement or royalty arrangement with the party asserting the claim. As
competing health care information systems increase in complexity and overall
capabilities and the functionality of these systems further overlap, providers
of such systems may become increasingly subject to infringement claims.
Responding to and defending any such claims may distract the attention of the
Company's management and otherwise have a material adverse effect on the
Company's results of operations, financial condition or business.
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.
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
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<PAGE> 21
existing client base and to introduce new products and technologies that address
the increasingly sophisticated needs of its clients. The Company will devote
significant resources to the development of enhancements to its existing
products and the migration of existing products to new software platforms. There
can be no assurance that the Company will successfully complete the development
of new products or the migration of products to new platforms or that the
Company's current or future products will satisfy the needs of the market for
practice management systems. Further, there can be no assurance that products or
technologies developed by others will not adversely affect the Company's
competitive position or render its products or technologies noncompetitive or
obsolete. See "Business -- Research and Development."
QUALITY ASSURANCE AND PRODUCT ACCEPTANCE CONCERNS
Health care providers demand the highest level of reliability and quality
from their information systems. Although the Company devotes substantial
resources to meeting these demands, its products may, from time to time, contain
errors. Such errors may result in loss of, or delay in, market acceptance of its
products. Delays or difficulties associated with new product introductions or
product enhancements could have a material adverse effect on the Company's
results of operations, financial condition or business. See "Business --
Research and Development."
COMPETITION
The market for practice management systems such as The Medical Manager is
highly competitive. The Company's competitors vary in size and in the scope and
breadth of the products and services that they offer. The Company competes with
different companies in each of its target markets. Many of the Company's
competitors have greater financial, development, technical, marketing and sales
resources than the Company. In addition, other entities not currently offering
products and services similar to those offered by the Company, including claims
processing organizations, hospitals, third-party administrators, insurers,
health care organizations and others, may enter certain markets in which the
Company competes. There can be no assurance that future competition will not
have a material adverse effect on the Company's results of operations, financial
condition or business. See "Business -- Competition."
RISK OF PRODUCT-RELATED CLAIMS
Certain of the Company's products provide applications that relate to
financial records, patient medical records and treatment plans. Any failure of
the Company's products to provide accurate, confidential and timely information
could result in product liability or breach of contract claims against the
Company by its clients, their patients or others. The Company's products manage
and report on financial data, and any errors in such financial data could result
in liability to the Company. In addition, because the Company's products
facilitate electronic claims submissions, any resulting loss of financial data
could result in liability to the Company. The Company maintains insurance to
protect against such claims, 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.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 issue is whether the computer systems will properly recognize date
sensitive information when the year changes to 2000. This Year 2000 problem
creates risk for the Company from unforeseen problems in its own computer
systems and from third parties with whom the Company deals on financial
transactions nationwide.
19
<PAGE> 22
The Company has begun to review software used internally by the Company in
all support systems to determine whether they are Year 2000 compliant. The
Company plans to have formal Year 2000 initiatives developed to address any
conversion update or upgrade necessary to become Year 2000 compliant on software
currently used by the Company. Any new software or support systems implemented
in the future will be Year 2000 compliant or will have updates or upgrades
available before the Year 2000 to enable the system to be Year 2000 compliant.
Management is currently assessing the Year 2000 compliance expense and related
potential effect on the Company's earnings.
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 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.
RISK ASSOCIATED WITH GOVERNMENT REGULATION
The FDA has jurisdiction under the 1976 Medical Device Amendments to the
Federal Food, Drug, and Cosmetic Act (the "FDA 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 FDA Act applicable to medical devices.
The Company intends to distribute in the United States, a medical image
management device (the "image module"), which was cleared by the FDA on April 4,
1997 and is manufactured by a third party in accordance with specifications set
forth in the cleared 510(k). Prior to marketing the third party image module,
the Company will create an interface between The Medical Manager practice
management system
20
<PAGE> 23
and the image module. The Company believes that the addition of its practice
management system to the image module does not change the image modules intended
use or significantly change the safety or efficacy of the product such that a
new 510(k) is required.
The FDA is currently reviewing its policy for the regulation of computer
software and there is a risk that The Medical Manager software 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.
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 47.09% of the outstanding shares
of Common Stock as of February 26, 1998. 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.
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 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. All
of the stockholders who received these shares, other than EDS, agreed with the
Company not to sell, transfer or otherwise dispose of any of these shares for
one year following consummation of the Offering. However, the one year lockup
period has expired and the stockholders who received these shares have certain
demand and piggyback registration rights with respect to these shares. The
Company has also registered 5,000,000 shares of Common Stock which may be used
in connection with future acquisitions. Such shares shall, upon issuance
thereof, be freely tradeable, unless acquired by parties in connection with an
acquisition by the Company 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")
21
<PAGE> 24
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, Suite 100 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 56 additional
offices in various regions of the country.
The Company leases the majority of its properties with remaining terms
between one and five years. Two of the Company's facilities are owned. 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
The Company is not presently involved in any material pending legal
proceedings, other than ordinary routine litigation incidental to the conduct of
its business.
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 February 26, 1998, the
closing price of the Common Stock on the Nasdaq National Market was $24.625. The
following table reflects the range of high and low selling prices of the
Company's Common Stock for each quarter since the Company's Offering.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Quarter Ended March 31, 1997 (since 1/30/97)................ $11.125 $ 9.125
Quarter Ended June 30, 1997................................. 15.375 8.000
Quarter Ended September 30, 1997............................ 21.625 14.750
Quarter Ended December 31, 1997............................. 21.125 15.500
</TABLE>
HOLDERS
As of February 26, 1998, there were approximately 213 holders of record of
the Company's Common Stock.
DIVIDENDS
The Company did not pay any dividends subsequent to the Mergers or the
respective acquisition dates of the Acquired Companies. The Company intends to
retain all of its earnings to finance the expansion of its business and for
general corporate purposes, including future acquisitions, and does not
anticipate paying any
22
<PAGE> 25
cash dividends on its Common Stock for the foreseeable future. In addition, the
Company's line of credit agreement with Barnett Bank of Tampa dated January 14,
1998 includes certain restrictions on the ability of the Company to pay
dividends without the consent of the lender.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data reflects the results of
MMC, MMR&D and the Acquired Companies through February 4, 1997, the date of
MMC's acquisition of the Founding Companies, after which the historical
financial statements reflect the results of MMC, MMR&D, the Acquired Companies,
and the other Founding Companies. The results of the Purchased Companies are
reflected subsequent to their respective acquisition date. The selected
historical financial data at December 31, 1995, 1996, and 1997 and for the years
ended December 31, 1995, 1996, and 1997 have been derived from the audited
financial statements of MMC and MMR&D and the financial statements of the
Acquired Companies, the majority of which were audited. The selected historical
financial data at December 31, 1993 and 1994 have been derived from the audited
financial statements of MMR&D and the unaudited financial statements of the
Acquired Companies. The selected historical financial data for the years ended
December 31, 1993 and 1994 have been derived from the unaudited financial
statements of MMR&D and the Acquired Companies.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................... $78,127 $32,952 $27,857 $25,613 $22,086
Cost of revenue............................. 36,833 14,957 12,743 11,971 10,884
------- ------- ------- ------- -------
Gross profit................................ 41,294 17,995 15,114 13,642 11,202
Selling, general and administrative
expenses.................................. 20,238 8,588 6,580 6,152 5,701
Research and development expenses........... 3,170 2,672 2,048 1,525 1,062
Depreciation and amortization............... 1,543 502 557 511 403
------- ------- ------- ------- -------
Income from operations...................... 16,343 6,233 5,929 5,454 4,036
Interest expense............................ (168) (111) (170) (161) (153)
Interest income............................. 604 116 137 1 1
Other income (expense)...................... 101 (570) (17) 65 182
------- ------- ------- ------- -------
Income before income taxes.................. 16,880 5,668 5,879 5,359 4,066
Income taxes................................ 5,657 6 6 5 5
------- ------- ------- ------- -------
Net income.................................. $11,223 $ 5,662 $ 5,873 $ 5,354 $ 4,061
======= ======= ======= ======= =======
Basic earnings per share.................... $ .58
=======
Diluted earnings per share.................. $ .56
=======
BALANCE SHEET DATA:
Working capital............................. $11,543 $ (35) $ 474 $ (536) $ (230)
Total assets................................ 55,543 8,959 8,926 7,667 6,056
Long-term obligations....................... 4,037 705 586 557 529
Stockholders' equity........................ 35,556 872 3,702 2,701 1,525
</TABLE>
23
<PAGE> 26
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 and related notes thereto and "Item 6. Selected Financial Data"
appearing elsewhere in this report.
OVERVIEW
This filing contains forward-looking statements within the meaning of the
Private Litigation Reform Act of 1995 (the "Act"). These statements are based on
current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Actual results may differ due to the factors set
forth under the heading "Risk Factors" in the section headed "Business" herein,
including, among others, risks associated with acquisitions, fluctuations in
operating results because of acquisitions, success of ongoing development of the
Company's software, variations in stock prices, changes in government
regulations, competition, risk of operations and growth and integration of the
newly acquired businesses. Forward-looking information provided by the Company
under the Act should be evaluated in the context of the foregoing factors. The
Company expressly disclaims any intent or obligation to update these forward
looking statements.
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 its core
product, The Medical Manager practice management software, the furnishing of
value-added services and the sale of hardware. The Company's primary focus is on
the sale and support of The Medical Manager software and services, while
hardware is sold primarily in response to customer demand. Since the development
of The Medical Manager software in 1982, the Company's installed base has grown
to over 24,000 client sites with over 120,000 physicians, 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 The Medical
Manager physician practice management system to new customers, sales of The
Medical Manager system upgrades and add-ons to existing customers, and sales of
The Medical Manager software licenses to independent dealers. Systems sales to
new customers include software licensing, hardware, installation, training, 90
days of software warranty, and varying periods of hardware maintenance,
depending on the warranty of the manufacturer. Systems upgrades and add-ons
include software licensing, peripheral hardware, installation, and training.
Software license sales to independent dealers include software serializations
and other services included in independent dealer agreements. Cost of system
sales reflects primarily the cost of The Medical Manager software, associated
hardware, operating systems, salaries, related benefits, travel and allocations
of other overhead costs.
Maintenance and other revenue includes software and hardware maintenance
contracts, additional training, programming, and sales of additional associated
products and services such as forms, electronic data interchange (EDI) services,
and other products and services not included in system sales. Software
maintenance represents revenue derived from maintenance agreements, providing
customers with updates and enhancements developed by the Company, and access to
the Company's 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
24
<PAGE> 27
allocated between the cost of sales for systems 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 based on
management's estimates.
Research and development expenses represent salaries, 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 is short
and software development costs qualifying for capitalization are insignificant.
As a professional sales and value-added services organization, the Company
responds to the product opportunities and service demands from its clients.
Accordingly, the Company has limited control over the timing and circumstances
under which its products and services are provided. Therefore, the Company can
experience volatility in its operating results from quarter to quarter and year
to year. The operating results for any quarter or year are not necessarily
indicative of the results for any future periods.
CONSOLIDATED RESULTS OF OPERATIONS
The financial information referenced below includes MMC, MMR&D and the
Acquired Companies through February 4, 1997, the date of MMC's acquisition of
the Founding Companies, after which the financial information referenced below
reflects the results of MMC, MMR&D, the Acquired Companies, and the other
Founding Companies. The results of the Purchased Companies are reflected
subsequent to their respective acquisition dates.
REVENUES
The following table reflects actual revenues for the Company's primary
business lines (in millions):
<TABLE>
<CAPTION>
1997 1996
YEAR ENDED DECEMBER 31, ------- -------
----------------------- PERCENT PERCENT
1997 1996 1995 CHANGE CHANGE
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Systems........................................ $47.7 $22.5 $18.8 112.3% 19.3%
Maintenance and other.......................... 30.4 10.5 9.0 190.0% 16.1%
----- ----- -----
Total.......................................... $78.1 $33.0 $27.8
===== ===== =====
</TABLE>
The consolidated statements of operations include MMR&D, as the accounting
acquirer, and the Acquired Companies for the years ended December 31, 1996 and
December 31, 1995. The increase in systems revenue between 1995 and 1996 was
primarily due to the growth of the Acquired Companies of $2.7 million. The
increase in maintenance and other revenue was also primarily due to the growth
of the Acquired Companies of $1.5 million.
The increase in systems revenue between the years of 1996 and 1997 is
primarily due to the inclusion of the other Founding Companies beginning on
February 5, 1997. For the year ended December 31, 1997, the other Founding
Companies and the Acquired Companies contributed $22.1 million to the increase
over 1996. The increase in systems sales volume, combined with an increase in
the size of individual systems projects, has been a contributing factor in the
Company's systems revenue growth. In addition, overall revenue has increased
because of the Company's continued success in marketing to smaller physician
groups and sole practitioners, securing more MSO and large IPA contracts, and
through acquisitions. This success is the result of marketing to new clients,
development of existing clients, and through new services and products.
Secondly, average overall revenue per client has increased primarily because of
the Company's continued success in
25
<PAGE> 28
marketing to MSOs, IPAs and other larger local clients. The Company's recently
formed Enterprise Business Group, which specifically targets national/regional
clients, has recently obtained contracts with a total contract price of over
$6.8 million, of which $3.5 million was recognized as income in the year ended
December 31, 1997. In addition, for the year ended December 31, 1997, the
Purchased Companies were accounted for using the purchase method of accounting.
Accordingly, these acquisitions are included prospectively from their respective
purchase dates.
The increase in maintenance and other was also primarily due to the
inclusion of the other Founding Companies. For the year ended December 31, 1997,
the other Founding Companies and the Acquired Companies contributed $16.2
million to the increase of maintenance and other revenue. In the year ended
December 31, 1997, the Company recognized approximately $1.5 million in
maintenance and other revenue related to the completion of project-oriented
national interface and national EDI agreements. The Company obtains a
maintenance contract for a minimum of one year with most new systems installed.
Therefore a portion of the Company's maintenance and other revenue will be
recognized later than billed. Unearned maintenance and other revenue as of
December 31, 1997 was $4.8 million and will be recognized in future quarters.
The balance of unearned revenues on the accompanying balance sheet represents
customer deposits on systems revenue projects. Revenue on these projects will be
recognized in future periods as the implementation of the system is completed.
OPERATING EXPENSES, NONOPERATING ITEMS, AND INCOME TAXES
The following table reflects actual operating expenses for the Company's
primary business lines (in millions):
<TABLE>
<CAPTION>
1997 1996
YEAR ENDED DECEMBER 31, ------- -------
----------------------- PERCENT PERCENT
1997 1996 1995 CHANGE CHANGE
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Systems...................................... $20.0 $ 9.5 $ 8.7 111.2% 8.3%
Maintenance and other........................ 16.8 5.5 4.0 207.1% 37.2%
----- ----- -----
Total cost of revenue...................... 36.8 15.0 12.7 146.2% 17.4%
Selling, general and administrative.......... 20.2 8.6 6.6 135.6% 30.5%
Research and Development..................... 3.2 2.7 2.0 18.6% 30.5%
Depreciation and amortization................ 1.5 .5 .6 200.0% (16.7)%
</TABLE>
The increase in systems cost of goods sold of $0.8 million between 1995 and
1996 is primarily due to the associated revenue growth of the Acquired
Companies. The increase in maintenance and other cost of goods sold is also
primarily due to the associated revenue growth of the Acquired Companies, adding
additional costs of $1.5 million. Systems revenue includes sales of licenses,
which carry a higher gross profit margin than sales of systems, primarily due to
the inclusion of the costs of equipment and installation labor in systems sales.
The increase in systems cost of goods sold between the years of 1996 and
1997 is due to the inclusion of the other Founding Companies beginning on
February 5, 1997. For the year ended December 31, 1997, the other Founding
Companies and the Acquired Companies contributed $9.4 million to the increase of
system cost of goods sold. The increase in maintenance and other was also
primarily due to the inclusion of the other Founding Companies. For the year
ended December 31, 1997, the other Founding Companies and the Acquired Companies
contributed $10.5 million to the increase of maintenance and other cost of goods
sold.
The increase in selling, general and administrative expenses of $2.0
million in 1996 is primarily due to the support of the growth in revenue during
1996. In 1997, the increase in selling, general and administrative expenses is
fundamentally from the inclusion of the other Founding Companies and the
Purchased Companies. For the year ended December 31, 1997, the other Founding
Companies and the Purchased Companies added $7.9 million of selling, general and
administrative expenses. Also included exclusively in 1997 are the corporate
general and administrative expenses related to common administration of a public
company and acquisition efforts.
26
<PAGE> 29
With regard to the increase in research and development expenses of $0.5
and $0.7 in the years ended December 31, 1997 and December 31, 1996,
respectively, investments in new research and development projects focusing on
(i) graphical user interface and relational database technologies for use in
future versions of The Medical Manager software; (ii) significant enhancements
in the development of the Enterprise Manager modules; (iii) enhancements of an
electronic medical records module; and (iv) EDI modules for focusing on
pharmaceutical formularies and laboratories have lead to increases in research
and development expenses.
Depreciation and amortization expense for the year ended December 31, 1997
has increased as a result of the Purchased Companies' acquisitions and the
inclusion of the other Founding Companies. The Purchased Companies are reflected
in the financial statements subsequent to their date of acquisition, all of
which occurred during the year ended December 31, 1997. Thus, depreciation on
the assets acquired with the Purchased Companies is reflected in 1997, while no
depreciation expense is reported for 1996 for the Purchased Companies. In
addition, in conjunction with the acquisition of the Purchased Companies,
goodwill approximating $18 million was recognized. Also, the other Founding
Companies had goodwill from acquisitions prior to the Mergers, contributing
approximately $500,000 in amortization expense in 1997. This goodwill is being
amortized over twenty years, subsequent to the acquisition date all of which is
reflected in the year ended December 31, 1997.
Other income for the year ended December 31, 1997 consists primarily of
interest revenues earned from the investment of the proceeds from the Offering.
Other expense for the year ended December 31, 1996 includes $.5 million of
expense related to the impairment of an intangible asset at one of the Acquired
Companies.
The Company's provision for income taxes in 1996 and 1995 results from
those Acquired Companies which were separate C corporations in those years.
MMR&D, the acquiring company at the Offering, had elected S corporation status
and therefore did not provide for corporate federal income taxes in years 1996
and 1995 since the income passed through and was taxed at the individual
shareholder level.
For the year ended December 31, 1997, income taxes are provided considering
the S corporation status of various acquired entities and the one time
nonrecurring benefit from the termination of S corporation elections and the
corresponding required adoption of FAS 109. In addition, the availability of
certain existing C corporation deferred tax assets has resulted in an effective
tax rate of 33.5%.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain selected statements of cash flow
information for the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Net cash provided by (used in) operations.................. $ (1.0) $ 7.4 $ 6.4
Net cash used in investing activities...................... (14.1) (.5) (1.4)
Net cash provided by (used in) financing activities........ 18.8 (5.8) (5.3)
------ ----- -----
Net increase in cash and cash equivalents........ $ 3.7 $ 1.1 $ (.3)
</TABLE>
Substantially all of the cash used in operating activities for 1997
resulted from the increase in accounts receivable of $6.2 million, the decrease
in accounts payable of $2.9 million, and the decrease of customer deposits and
deferred maintenance revenue of $3.0 million. The increase in accounts
receivable is primarily due to the significant growth in the volume of sales,
coupled with the fact that there has been a shift to a greater percentage of
sales to end-users, which have an extended period of collection as compared to
sales to dealers. The decrease in accounts payable and accrued liabilities
includes $1.4 million in accounts payable of the other Founding Companies as
well as a general reduction in payable days outstanding for the Acquired
Companies and Purchased Companies. The customer deposits and deferred
maintenance revenue decrease of
27
<PAGE> 30
$3.0 million stems primarily from the mergers and acquisitions in the year ended
December 31, 1997. The Purchased Companies and Acquired Companies, on the date
acquired, had customer deposits and deferred maintenance balances $2.5 million
greater than at December 31, 1997, relating primarily to the timing of jobs in
progress. In addition, MMR&D had increased customer deposits of $0.4 million at
December 31, 1996 over December 31, 1997, also the result of timing issues.
Investing activities included the purchase of fixed assets in the ordinary
course of business and amounts paid for the other Founding Companies and the
Purchased Companies. Amounts paid, net of cash acquired, for the other Founding
Companies is $9.4 million.
Cash flows from financing activities include cash flows from the Offering,
payments of debt acquired from the Founding Companies, Acquired Companies and
Purchased Companies and payments of dividends by MMR&D in 1997 prior to the
Offering. On February 4, 1997, the Company completed the Offering of 6,000,000
shares of Common Stock, resulting in net proceeds of approximately $58.4
million. Approximately $46.9 million of the net proceeds were used to pay the
cash portion of the purchase price for the Founding Companies, including $35.0
paid to the MMR&D stockholder. Payments on notes payable include the payment, in
full, of the $5.7 million of the assumed debt of the Acquired and Purchased
Companies. In addition, $2.0 million was paid on debt issued in connection with
the purchase of one of the Purchased Companies. Lastly, cash dividends paid by
MMR&D and the Acquired Companies prior to the Offering and their respective
purchase dates totaled $2.4 million.
For the year ended December 31, 1996, substantially all of the net cash
generated by operating activities resulted from net income, plus an increase of
$1.6 million in customer deposits and deferred maintenance revenue, less an
increase in accounts receivable of $1.1 million. The increase in accounts
receivable was a result of the revenue increase from 1995 to 1996. The increase
in customer deposits and deferred maintenance liabilities was primarily the
result of a $1.4 million timing differences of jobs in progress at December 31,
1996 for the Acquired Companies and MMR&D. Investing activities reflect the
substantial completion of the facilities built by MMR&D in the prior years.
Financing activities include dividends paid by MMR&D and other Acquired
Companies to their stockholders.
The Company generated net income of $5.9 million in the year ended December
31, 1995, which was the primary source of operating cash flow. Cash flows from
investing activities in 1995 reflect cash used to build facilities for MMR&D.
Financing activities cash flows principally include dividends paid by MMR&D and
the other Acquired Companies to their stockholders.
Each of the Founding Companies had separate banking relationships through
February 4, 1997. Effective February 5, 1997, these separate banking
relationships were consolidated into a single banking relationship. The Company
has completed negotiations for a $10 million dollar credit line with Barnett
Bank of Tampa and executed the credit line agreement on January 14, 1998. The
agreement contains customary events of default and a number of customary
covenants including certain financial ratios and restrictions on dividends.
The Company's cash and cash equivalents equaled $6.4 million at December
31, 1997. 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. These cash equivalents are predominately in
U.S. dollar domestic tax free municipal instruments.
The Company believes the net proceeds from the sale of Common Stock in the
Offering, together with existing cash and cash equivalents and future funds
generated from operations will provide adequate cash to fund its anticipated
cash needs at least through the next twelve months. The Company's cash and cash
equivalents are also managed to be available for strategic investment
opportunities or other potential cash needs that may arise in the pursuit of the
Company's long-term strategies.
28
<PAGE> 31
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 issue is whether the computer systems will properly recognize date
sensitive information when the year changes to 2000. This Year 2000 problem
creates risk for the Company from unforeseen problems in its own computer
systems and from third parties with whom the Company deals on financial
transactions nationwide.
The Company has begun to review software used internally by the Company in
all support systems to determine whether they are Year 2000 compliant. The
Company plans to have formal Year 2000 initiatives developed to address any
conversion update or upgrade necessary to become Year 2000 compliant on software
currently used by the Company. Any new software or support systems implemented
in the future will be Year 2000 compliant or will have updates or upgrades
available before the Year 2000 to enable the system to be Year 2000 compliant.
Management is currently assessing the Year 2000 compliance expense and related
potential effect on the Company's earnings.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, Earnings per Share, is effective for fiscal years ending
after December 15, 1997. This Statement establishes standards for computing and
presenting earnings per share (EPS). The provisions of this pronouncement have
been reflected in accompanying financial statements. Annual earnings per share
has not previously been reported; however, 1997 quarterly information has been
restated to comply with SFAS No. 128. Historical earnings per share calculations
for the years ended December 31, 1996 and 1995 have not been presented because
it is not considered meaningful as a result of the exclusion of the Founding
Companies in those years.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purposes financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company has addressed the
requirements of SFAS No. 130 and no material impact on the financial statements
is expected.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact its current practice of
reporting operating segment information.
SOP 97-2, Software Revenue Recognition, is effective for fiscal years
beginning after December 15, 1997. This Statement provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and establishes certain criteria for revenue recognition. The
Company is currently assessing the impact that the revenue recognition criteria
stated in this pronouncement will have on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the following Index To Consolidated Financial Statements and
Supplementary Data. In addition, the financial statements of four of the
Founding Companies included in the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 8, 1997 are incorporated
herein by reference.
29
<PAGE> 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1 Report of Independent Accountants........................... 31
2. Consolidated Balance Sheets as of December 31, 1997 and
1996........................................................ 32
3. Consolidated Statements of Operations for the Years Ended
December 31, 1997,
1996 and 1995............................................... 33
4. Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995................ 34
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997,
1996 and 1995............................................... 35
6. Notes to the Consolidated Financial Statements.............. 36
</TABLE>
30
<PAGE> 33
To the Board of Directors
Medical Manager Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Medical Manager Corporation listed in the index on page 30
and listed in Item 14(a)(2) of this Form 10-K. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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
Medical Manager Corporation as of December 31, 1997 and 1996 and the
consolidated results of its operations and cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 6, 1998, except for certain information contained
in Note 13 for which the date is February 28, 1998
31
<PAGE> 34
MEDICAL MANAGER CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 6,410 $2,693
Investments............................................... 0 202
Accounts receivable, net of allowance of $955 and $150,
respectively........................................... 16,230 4,034
Inventory................................................. 1,677 105
Prepaid expenses and other current assets................. 2,449 196
Deferred income taxes..................................... 727 0
------- ------
Total current assets................................... 27,493 7,230
PROPERTY AND EQUIPMENT, net................................. 4,158 1,403
GOODWILL AND OTHER INTANGIBLES, net......................... 23,775 0
OTHER ASSETS................................................ 117 326
------- ------
Total assets........................................... $55,543 $8,959
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................. $ 3,400 $1,303
Accounts payable and accrued liabilities.................. 6,036 2,665
Customer deposits and deferred maintenance revenue........ 5,897 3,285
Income taxes payable...................................... 617 12
------- ------
Total current liabilities.............................. 15,950 7,265
LONG-TERM OBLIGATIONS, net of current maturities............ 4,037 705
DUE TO AFFILIATE............................................ 0 117
------- ------
Total liabilities...................................... 19,987 8,087
------- ------
Commitments and contingencies (Notes 4, 5 and 13)
STOCKHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized, none issued
and outstanding
Common stock, $.01 par value, 50,000,000 shares
authorized............................................. 197 80
Additional paid-in capital................................ 28,312 121
Retained earnings......................................... 7,047 671
------- ------
Total stockholders' equity............................. 35,556 872
------- ------
Total liabilities and stockholders' equity............. $55,543 $8,959
======= ======
</TABLE>
See accompanying notes to the consolidated financial statements.
32
<PAGE> 35
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Systems............................................ $ 47,693 $ 22,464 $ 18,824
Maintenance and other.............................. 30,434 10,488 9,033
---------- ---------- ----------
Total revenue................................... 78,127 32,952 27,857
---------- ---------- ----------
Cost of revenue
Systems............................................ 20,054 9,493 8,761
Maintenance and other.............................. 16,779 5,464 3,983
---------- ---------- ----------
Total costs of revenue.......................... 36,833 14,957 12,743
---------- ---------- ----------
Gross margin.................................. 41,294 17,995 15,114
---------- ---------- ----------
Operating expenses
Selling, general and administrative................ 20,238 8,588 6,580
Research and development........................... 3,170 2,672 2,048
Depreciation and amortization...................... 1,543 502 557
---------- ---------- ----------
Total operating expenses........................ 24,951 11,762 9,185
---------- ---------- ----------
Income from operations........................ 16,343 6,233 5,929
Other income (expense)
Interest expense................................... (168) (111) (170)
Interest income.................................... 604 116 137
Other income (expense)............................. 101 (570) (17)
---------- ---------- ----------
Income before income taxes........................... 16,880 5,668 5,879
Income taxes......................................... 5,657 6 6
---------- ---------- ----------
Net income...................................... $ 11,223 $ 5,662 $ 5,873
========== ========== ==========
Basic earnings per share (Note 8):................... $ 0.58
==========
Diluted earnings per share (Note 8):................. $ 0.56
==========
</TABLE>
See accompanying notes to the consolidated financial statements.
33
<PAGE> 36
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
--------------- PAID IN GAIN (LOSS) RETAINED
SHARES AMOUNT CAPITAL ON INVESTMENT EARNINGS TOTAL
------ ------ ---------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995, as restated... 8,015 $ 80 $ 121 $ (95) $ 2,980 $ 3,086
Dividends............................ (5,354) (5,354)
Net income........................... 5,873 5,873
Change in unrealized (loss) on
investments....................... 97 0 97
------ ----- --------- --------- ------- -------
Balance December 31, 1995.............. 8,015 80 121 2 3,499 3,702
Dividends............................ (8,490) (8,490)
Net income........................... 5,662 5,662
Change in unrealized gain on
investment........................ (2) (2)
------ ----- --------- --------- ------- -------
Balance December 31, 1996.............. 8,015 80 121 0 671 872
Dividends............................ (4,802) (4,802)
Issuance of Common Stock at the
Offering, net..................... 6,000 60 58,170 58,230
Mergers:
Payments to MMR&D stockholder..... (35,062) (35,062)
Issuance of common stock and
payment to other Founding
Companies' stockholders, net.... 5,335 53 (1,609) (1,556)
Acquisitions:
Issuance of Common Stock for
acquisitions of Purchased
Companies....................... 380 4 6,521 6,525
Contributions from former
stockholders.................... 45 (45) 0
Stock options exercised.............. 11 0 126 126
Net income........................... 11,223 11,223
------ ----- --------- --------- ------- -------
Balance December 31, 1997.............. 19,741 $ 197 $ 28,312 $ 0 $ 7,047 $35,556
====== ===== ========= ========= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
34
<PAGE> 37
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 11,223 $ 5,662 $ 5,873
Adjustments to reconcile net income to net cash provided
by
(used in) operating activities:
Depreciation and amortization............................ 1,543 502 557
Allowance for doubtful accounts.......................... 144 23 45
Deferred income taxes.................................... (615) (8) (2)
Loss on sale of property and equipment................... 0 1 3
Loss on impaired asset................................... 0 532 0
Realized gain on marketable securities................... (52) 0 (2)
Changes in assets and liabilities, net of effects from
acquisitions
Accounts receivable...................................... (6,344) (1,133) (128)
Inventory................................................ (322) (51) (4)
Prepaid expenses and other assets........................ (899) (281) (115)
Accounts payable and accrued liabilities................. (2,966) 562 160
Customer deposits and deferred maintenance revenue....... (3,011) 1,579 99
Income taxes payable..................................... 345 8 2
-------- ------- -------
Net cash provided by (used in) operating activities...... (954) 7,396 6,488
-------- ------- -------
Cash flow from investing activities:
Purchases of investments................................. 0 (51) (248)
Proceeds from sale of investments........................ 254 100 263
Purchases of property and equipment...................... (1,216) (571) (1,495)
Proceeds from sale of property and equipment............. 28 26 43
Payments for acquisitions made, net of cash acquired..... (13,189) 0 0
-------- ------- -------
Net cash used in investing activities.................... (14,123) (496) (1,437)
-------- ------- -------
Cash flow from financing activities:
Proceeds from the issuance of notes payable.............. 312 142 323
Payments of notes payable................................ (7,442) (210) (292)
Due to affiliates........................................ 4,998 17 0
Net proceeds from the issuance of common stock........... 58,357 0 0
Payments made to stockholder of MMR&D.................... (35,062) 0 0
Dividends................................................ (2,369) (5,779) (5,355)
-------- ------- -------
Net cash provided by (used in) financing activities...... 18,794 (5,830) (5,324)
-------- ------- -------
Net change in cash and cash equivalents.................... 3,717 1,070 (273)
-------- ------- -------
Cash and cash equivalents:
Beginning of period...................................... 2,693 1,623 1,896
-------- ------- -------
End of period............................................ $ 6,410 $ 2,693 $ 1,623
======== ======= =======
Non-cash dividends......................................... $ 2,416 $ 2,709 $ 0
======== ======= =======
Cash paid for interest:.................................... $ 155 $ 123 $ 125
======== ======= =======
Cash paid for taxes:....................................... $ 5,705 $ 14 $ 19
======== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
35
<PAGE> 38
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
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(R) software, a leading physician practice management
system for independent physicians, physician groups, management service
organizations ("MSOs"), Physician Practice Management companies ("PPMs"),
independent practice associations ("IPAs"), managed care organizations and other
providers of health care services in the United States. On February 4, 1997 MMC
acquired ("the Mergers") simultaneously with the closing of its initial public
offering of common stock ("the Offering") five companies (the "Founding
Companies"): Medical Manager Research & Development, Inc. (formerly Personalized
Programming, Inc.) ("MMR&D"), Medical Manager Sales & Marketing, Inc. (formerly
Systems Plus, Inc.) ("MMS&M"), Medical Manager Southeast, Inc. (formerly
National Medical Systems, Inc.) ("MMSE"), Medical Manager Northeast, Inc.
(formerly RTI Business Systems, Inc.) ("MMNE") and Medical Manager Midwest, Inc.
(formerly Systems Management, Inc.) ("MMMW"). All outstanding shares of the
Founding Companies' capital stock were converted into shares of MMC Common Stock
concurrently with the consummation of the Offering. The aggregate consideration
paid by MMC for the Founding Companies was approximately $46.9 million in cash
and 11.7 million shares of Common Stock of MMC for an aggregate value of $175.7
million. The acquisitions were accounted for as a combination of the Founding
Companies at historical cost for accounting purposes. MMR&D is identified as the
acquirer for financial statement presentation purposes and is presented on a
combined basis with MMC from July 10, 1996. MMC conducted no significant
operations and generated no revenue prior to the closing of the Offering.
Subsequent to the consummation of the Offering, MMC and the Founding
Companies executed and closed agreements to acquire the following resellers of
The Medical Manager software (the "Acquired Companies"): (i) The Computer
Clinic, Inc. and its affiliates ("Computer Clinic") based in Valhalla, New York;
(ii) Adaptive Health Systems of Washington, Inc. ("Adaptive Health") based in
Federal Way, Washington; (iii) LSM Computing, Inc. ("LSM") based in Somerville,
New Jersey; (iv) Specialized Systems, Inc. ("SSI") based in Van Nuys,
California; (v) Treister-Thorne, Inc. d/b/a Advanced Medical Management, Inc.
("AMM") based in Houston, Texas; (vi) UNICO, Inc. ("UNICO") based in Evansville,
Indiana; (vii) Medysis, Inc. based in Fort Wayne, Indiana; (viii) Computers for
Medicine Corporation and Carecom, Inc. ("C4M") based in Englewood, Colorado;
(ix) Unisource Systems, Inc. ("Unisource") based in Corpus Christi, Texas; and
(x) CompRx Systems Corporation ("CompRx") based in Hauppauge, New York. All of
the acquisitions closed during the year ended December 31, 1997 and were
accounted for using the pooling of interests method of accounting. The aggregate
consideration paid for the Acquired Companies consisted of 1,644,836 shares of
Common Stock.
Also subsequent to the consummation of the Offering, MMC and the Founding
Companies executed and closed definitive agreements to acquire substantially all
of the assets or all of the outstanding equity securities of the following
resellers of The Medical Manager software (the "Purchased Companies"): (i)
Artemis, Inc. based in Indianapolis, Indiana, on July 30, 1997; (ii) Boston
Computer Systems, Inc. based in Norwood, Massachusetts, on August 6, 1997; (iii)
Package Computer Systems, Inc. d/b/a PAC-COMP based in Sterling Heights,
Michigan, on August 1, 1997; (iv) Matrix Computer Consultants, Inc. based in
Norman, Oklahoma, on September 5, 1997; (v) Professional Management Systems,
Inc. based in St. Charles, Illinois, on September 10, 1997; (vi) AMSC, Inc.
based in Orlando, Florida, together with its wholly-owned subsidiary, AMSC
Midwest, Inc. based in Topeka, Kansas, on September 11, 1997; (vii) Data
Concepts, Inc. based in Boise, Idaho, on October 30, 1997; (viii) Medical
Systems Consultants, Inc. based in Boise, Idaho, on October 30, 1997; (ix)
Advanced Practice Management, Inc. based in San Diego, California, on November
10, 1997; (x) Medico Support Services, Inc. based in Salem, Oregon, on November
18, 1997; (xi) Companion Technologies of Florida, Inc. based in Tampa, Florida,
on December 31, 1997; and (xii) Companion Technologies of Texas based in
Arlington, Texas, on December 31, 1997. All of the acquisitions were accounted
for using the purchase method of accounting. The aggregate consideration paid
36
<PAGE> 39
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the Purchased Companies was 380,230 shares of Common Stock and $4,265,866 in
cash and the issuance of $6,000,000 in debt.
MMC, the Founding Companies, the Acquired Companies, and the Purchased
Companies are referred to collectively as the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements have been
presented on a consolidated basis for the years ended December 31, 1997. The
consolidated financial statements include MMC and its wholly owned subsidiaries.
All significant intercompany balances and intercompany transactions have been
eliminated in consolidation. The accompanying consolidated financial statements
include MMC, MMR&D and the Acquired Companies through February 4, 1997, the date
of MMC's acquisition of the Founding Companies, after which the historical
financial statements reflect the results of MMC, MMR&D, the Acquired Companies,
and the other Founding Companies. The results of the Purchased Companies are
reflected as of their respective acquisition date.
The accompanying financial statements have been presented on a consolidated
basis for the years ended December 31, 1996 and 1995. The financial statements
of MMR&D have been presented on a consolidated basis with those of MMC from July
10, 1996 and with those of the Acquired Companies from January 1, 1995. As
discussed in Note 1, following the close of business of February 4, 1997, MMR&D
merged into a subsidiary of MMC upon consummation of the initial public offering
of the common stock of MMC. MMR&D is identified as the accounting acquirer.
Subsequent to the Offering, the Acquired Companies which were accounted for
under the pooling of interests method of accounting. The accompanying
consolidated financial statements have been adjusted retroactively to show the
effect of the recapitalization and the acquisition of the Acquired Companies as
if they had occurred on January 1, 1995.
Revenue Recognition. Revenue from software licenses is recognized upon
sale and shipment. Revenue from the sale of systems is recognized when the
system has been installed and when 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 they are provided. Certain expenses are
allocated between the cost of sales for systems and sales of maintenance and
other based upon revenue, which basis management believes to be reasonable.
Goodwill and Other Intangibles. Goodwill and other intangibles consist of
covenants not to compete and goodwill arising from business acquisitions,
detailed as follows (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Goodwill arising from business acquisitions................. $24,523
Covenants not to compete.................................... 227
-------
Total gross goodwill and other intangibles.................. 24,750
Accumulated amortization.................................... 975
-------
Total net goodwill and other intangibles.................... $23,775
=======
</TABLE>
The covenants not to compete are being amortized over a period of two years
and the goodwill arising from business acquisitions is being amortized over a
twenty year period.
37
<PAGE> 40
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with maturity dates of three months or less when purchased to be
cash equivalents.
Income Taxes. The Company utilizes the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years differences between the
tax basis of assets and liabilities and their financial reported amounts at each
year end based on enacted laws and statutory rates applicable to the periods in
which differences are expected to affect taxable income. A valuation allowance
is provided against the future benefits of deferred tax assets if it is
determined that it is more likely than not that the future tax benefits
associated with the deferred tax asset will not be realized. See Note 12.
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.
Asset Impairment. SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, effective for
years beginning after December 15, 1995, requires that long-lived assets and
certain intangibles to be held and used by the Company be reviewed for
impairment. The Company periodically assesses whether there has been a permanent
impairment of its long-lived assets, in accordance with SFAS No. 121. No
write-down of assets due to impairment was required in the year ended December
31, 1997. Approximately $500,000 of goodwill recorded by one of the Acquired
Companies, prior to their acquisition by the Company, was written off in the
year ended December 31, 1996.
New Accounting Pronouncements. SFAS No. 128, Earnings per Share, is
effective for fiscal years ending after December 15, 1997. This Statement
establishes standards for computing and presenting earnings per share (EPS). The
provisions of this pronouncement have been reflected in accompanying financial
statements. Annual earnings per share has not previously been reported; however,
1997 quarterly information has been restated to comply with SFAS No. 128.
Historical earnings per share calculations for the years ended December 31, 1996
and 1995 have not been presented because it is not considered meaningful as a
result of the exclusion of the Founding Companies as discussed in Note 2.
SFAS No. 130, Reporting Comprehensive Income, is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
reporting and display of comprehensive income and its
38
<PAGE> 41
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
components in a full set of general-purposes financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company has addressed the requirements of SFAS No. 130
and no material impact on the financial statements is expected.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact its current practice of
reporting operating segment information.
SOP 97-2, Software Revenue Recognition, is effective for fiscal years
beginning after December 15, 1997. This Statement provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and establishes certain criteria for revenue recognition. The
Company is currently assessing the impact that the revenue recognition criteria
stated in this pronouncement will have on the financial statements.
Reclassifications. Certain prior year amounts have been reclassified to
conform with 1997 presentations. These reclassifications had no impact on net
income or stockholders' equity.
Concentration of Credit Risk. 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.
Non-cash Transactions. Non-cash transactions during the year included the
purchase of approximately $23.7 million of assets of the other Founding
Companies and the Purchased Companies through the assumption of liabilities and
the issuance of Common Stock.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land and improvements....................................... $ 10 $ 10
Buildings................................................... 310 310
Furniture and fixtures...................................... 1,954 892
Office equipment and computers.............................. 4,317 1,276
Vehicles.................................................... 751 222
Leasehold improvements...................................... 289 23
Other....................................................... 160 0
------- -------
7,791 2,733
Less accumulated depreciation............................... (3,633) (1,330)
------- -------
Net property and equipment.................................. $ 4,158 $ 1,403
======= =======
</TABLE>
Depreciation expense was approximately $1.0 million, $449,000 and $537,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
39
<PAGE> 42
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Note payable, stockholder (1)
Interest: 5.8%............................................ $ 693 $ 0
Notes payable, stockholders (2)
Interest: various between 9% and 11%...................... 22 91
Notes payable, bank
Interest: 1% above prime (9.75% at December 31, 1996)..... 0 459
Notes payable, vehicles
Interest: various between 8.15% and 8.25%................. 0 81
Notes payable, other
Interest: various between 6.6% and 10%.................... 0 492
Notes payable, remainder of purchase price for acquisitions
Interest: 5.5% (3)........................................ 6,294 0
Promissory notes, stockholders
Interest: various between 10% and 15%..................... 0 13
Promissory note, ($250,000 note) (4)
Interest: 18%............................................. 250 250
Lines of credit(5)
Interest: various between 10% and 3% above prime
(11.25% at December 31, 1996)............................. 0 170
Line of credit (2)
Interest: 10.5%........................................... 59 26
Mortgages payable
Interest: various between 8.625% and 2% above prime
(10.25% at December 31, 1996)............................. 0 255
Non-compete agreements
Due: various monthly amounts through 1998................. 34 0
Obligations under capital leases............................ 85 171
------ ------
Total debt.................................................. 7,437 2,008
Less current maturities..................................... 3,400 1,303
------ ------
Total long-term debt........................................ $4,037 $ 705
====== ======
</TABLE>
- ---------------
(1) Upon consummation of the Offering, MMR&D elected to terminate its S
Corporation status. The Notes payable, stockholder represents amounts due
to the stockholder of MMR&D for dividends equal to the estimated balance in
the S Corporation's Accumulated Adjustment Account as of February 4, 1997
and is payable on demand.
(2) Balance was paid in full in January 1998 and has been classified as current
maturities of long-term debt. The line of credit was closed in January
1998.
40
<PAGE> 43
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) The Notes payable for the remainder of the purchase price for acquisitions
are due as follows: $231,000 due March 23, 1998; $2,000,000 due June 30,
1998; $25,000 due November 10, 1998; $37,500 due November 17, 1998;
$2,000,000 due January 15, 1999; and $2,000,000 due January 15, 2000.
(4) On August 10, 1994, one of the Acquired Companies entered into a note
payable in the amount of $250,000. The note was issued in connection with
the Acquired Company's purchase of certain assets of Solutions Plus, Inc.
The note is payable in 48 monthly installments, beginning September, 1994.
Payment of this note is in dispute. The Company has not made payments
according to its terms; accordingly, the Company may be considered to be in
default. As a result of the potential default, the entire principal amount,
plus accrued interest of $99,900, has been recorded as a current liability.
(5) These lines of credit were closed during the year ended December 31, 1997.
Future minimum payments under debt obligations, excluding capital lease
obligations, during the years subsequent to December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $3,352
1999........................................................ 2,000
2000........................................................ 2,000
------
Total....................................................... 7,352
Less current maturities..................................... 3,352
------
Total....................................................... $4,000
======
</TABLE>
Future minimum payments under capital lease obligations during the years
subsequent to December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $51
1999........................................................ 34
2000........................................................ 8
---
Total....................................................... 93
Less amount representing interest........................... 8
---
Present value of future minimum lease payments.............. 85
Less current maturities..................................... 48
---
Total....................................................... $37
===
</TABLE>
The carrying amount of all debt obligations approximates fair market value
because of the short maturity of these instruments.
5. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities and certain equipment under
operating leases having terms ranging from one to five years.
41
<PAGE> 44
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental commitments under noncancellable operating leases are
approximately as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $2,200
1999........................................................ 1,500
2000........................................................ 1,000
2001........................................................ 600
2002........................................................ 60
------
Total....................................................... $5,360
======
</TABLE>
Rent expense was approximately $1.9 million, $841,000 and $511,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
MMR&D and MMMW lease certain facilities under operating leases from
entities owned by certain stockholders. The leases expire between the years 1999
and 2001. The MMR&D lease provides for two options to renew for one year each
and the MMMW lease provides for three options to renew for five years each. Rent
paid to the stockholders for these leases was $423,000, $254,000 and $0 for the
years ended December 31, 1997, 1996 and 1995, respectively.
6. SUMMARY FINANCIAL DATA OF THE ACQUISITIONS
The acquisitions of the Acquired Companies discussed in Note 1 have been
accounted for as pooling of interests, and accordingly, the consolidated
financial statements for the periods presented have been restated to include the
Acquired Companies. The Acquired Companies generated revenues of $12,818,000 for
the period of January 1, 1997 through their respective acquisition date and
revenues of $22,387,000 and $16,838,000 for the years ended December 31, 1996
and 1995, respectively. Net income of the Acquired Companies was $199,000 for
the period of January 1, 1997 through their respective acquisition dates and
$111,000 for the year ended December 31, 1996. The Acquired Companies had a net
loss of $73,000 for the year ended December 31, 1995. Changes in the Acquired
Companies' stockholders' equity for the period of January 1, 1997 though their
respective acquisition date were $790,000. Changes in the Acquired Companies'
stockholders' equity for the year ended December 31, 1996 were $890,000. Changes
in the Acquired Companies' stockholders' equity for the year ended December 31,
1995 were $248,000.
The acquisitions of the Purchased Companies discussed in Note 1 were
accounted for using the purchase method of accounting, and accordingly the
consolidated financial statements reflect the results of operations for the
Purchased Companies only since their respective date of acquisition. Pro forma
revenues, net income and earnings per share of the Company are presented below
(in thousands, except per share data) as though the acquisitions of Companion
Technologies of Florida, Inc., Companion Technologies of Texas, and AMSC, Inc.
had occurred as of January 1, 1996. The remainder of the Purchased Companies'
revenues, net income, and earnings per share are not considered significant.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Revenues.................................................... $92,692 $47,677
Net income.................................................. 10,473 5,889
Basic earnings per share.................................... $ 0.54
Diluted earnings per share.................................. $ 0.52
</TABLE>
42
<PAGE> 45
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY
At December 31, 1997, the Company had two stock option plans as described
below:
1996 LONG-TERM INCENTIVE PLAN
In September 1996, the Company adopted the 1996 Long-Term Incentive Plan
(the "Incentive Plan") under which the Compensation Committee has discretion to
grant one or more of the following awards to executive officers, key employees,
consultants and other service providers: (i) incentive stock options, (ii)
nonqualified stock options, (iii) stock appreciation rights, (iv) restricted or
deferred stock, (v) dividend equivalents, (vi) bonus shares and awards in lieu
of the Company's obligations to pay cash compensation, and (vii) 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 Incentive
Plan), certain conditions and restrictions relating to an award with respect to
the ability to exercise or settle such award will be accelerated.
The maximum number of shares of Common Stock that may be subject to
outstanding awards under the Incentive Plan may not exceed the greater of
2,000,000 shares or 10% of the aggregate number of shares of Common Stock
outstanding. The number of shares deliverable upon exercise of incentive stock
options 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.
Information regarding the stock option component of the Incentive Plan is
summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance, January 1, 1997.................................... 0 --
Granted..................................................... 1,753,100 $11.238
Exercised................................................... (11,525) 11.000
Forfeited................................................... (84,413) 11.120
Balance, December 31, 1997.................................. 1,657,162 $11.245
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE NUMBER
EXERCISE OUTSTANDING AT REMAINING EXERCISABLE AT WEIGHTED AVERAGE
PRICES 12/31/97 CONTRACTUAL LIFE 12/31/97 EXERCISE PRICE
- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
$ 8.875 10,000 10 2,500 $ 8.875
11.000 1,575,850 10 393,963 11.000
17.000 71,312 10 0 17.000
</TABLE>
With the exception of 10,000 options, all of the 1,657,162 options which
were outstanding as of December 31, 1997, have a vesting schedule providing for
25% vesting at 6 months, 18 months, 30 months, and 42 months after the grant
date. There are a total of 10,000 options which vest fully on April 30, 1998.
All options expire 10 years after the date of grant. As of December 31, 1997,
396,463 options granted under the Incentive Plan were exercisable with a
weighted average exercise price of $10.99. No compensation expense related to
the options has been recorded as the options were granted at an exercise price
equal to or greater than the fair market value of the Common Stock on the date
of grant.
A total of 50,000 shares of restricted stock awards were issued under the
Incentive Plan. Compensation expense equal to the fair value of the Common Stock
on the date of grant ($8.375) is being recognized over a
43
<PAGE> 46
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
five year vesting period of these stock awards. A total of $49,000 was
recognized during the year ended December 31, 1997.
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
In September 1996, the Company adopted the 1996 Non-Employee Directors'
Stock Plan (the "Directors' Plan") which provides for the automatic grant to
each non-employee director 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;
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, later
amended to sixty days. This plan also provides that each non-employee director
may elect to receive 2,000 stock options in each calendar year in lieu of an
annual cash fee and other cash payments for attending board meetings. A total of
250,000 shares are reserved for issuance under the Directors' Plan. The exercise
price of options granted under the Directors' Plan may be no less than the fair
market value of the Common Stock on the date of grant, and accordingly, no
compensation expense has been recorded in connection with the stock options
granted.
Information regarding the Directors' Plan is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance, January 1, 1997.................................... 0 --
Granted..................................................... 51,000 $12.250
Balance, December 31, 1997.................................. 51,000 $12.250
</TABLE>
All options under the Directors' Plan vest one year after the date of grant
and expire 10 years after the date of grant. The exercise price of the options
outstanding under this plan range from $8.875 to $17.25. As of December 31,
1997, no options granted under the Directors' Plan were exercisable.
FINANCIAL ACCOUNTING STANDARD NO. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION"
In October 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 123, "Accounting for Stock Based Compensation" ("FAS
123") which was effective for fiscal years beginning after December 15, 1995. As
permitted by FAS 123, the Company has elected to account for its stock based
plans under APB No. 25, "Accounting for Stock Issued to Employees".
44
<PAGE> 47
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had elected to recognize compensation expense for stock
options based on the fair value at grant date, consistent with the method
prescribed in FAS 123, net income and earnings per share would have been reduced
to the pro forma amounts shown below (in thousands, except per share data):
<TABLE>
<S> <C>
Net income
As reported............................................... $11,223
Pro forma................................................. 8,136
Basic earnings per share
As reported............................................... $ 0.58
Pro forma................................................. 0.42
Diluted earnings per share
As reported............................................... $ 0.56
Pro forma................................................. 0.40
</TABLE>
There were no options outstanding as of December 31, 1996, thus pro forma
information is not provided for the year ended December 31, 1996.
The pro forma amounts were determined using the Black-Scholes Valuation
Model with the following key assumptions: (i) a volatility factor initially
based on the Company's average trading price since the Offering, as well as the
average trading stock price of comparable companies over the previous five
years; (ii) no dividend yield; (iii) a discount rate equal to the rate available
on U.S. Treasury Strip (zero-coupon) bond on the grant date, and (iv) an average
expected option life of four years for directors' options and five years for
employees' options.
8. EARNINGS PER SHARE
Basic and diluted earnings per share for the year ended December 31, 1997
are calculated as set forth below (in thousands, except per share data):
<TABLE>
<S> <C>
Net income.................................................. $11,223
=======
BASIC EARNINGS PER SHARE:
Weighted average shares outstanding......................... 19,490
-------
Basic shares................................................ 19,490
=======
Basic earnings per share.................................... $ 0.58
=======
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding......................... 19,490
Effect of dilutive shares:
Stock options............................................. 664
Stock awards.............................................. 15
-------
Diluted shares.............................................. 20,169
=======
Diluted earnings per share.................................. $ 0.56
=======
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Company began a qualified 401(k) savings plan (the "Plan") covering all
employees meeting certain eligibility requirements on July 1, 1997. The Plan
permits each participant to reduce his or her taxable
45
<PAGE> 48
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation basis by up to 15% and have the amount of such reduction
contributed to the Plan. The Company makes a matching contribution of 15% of the
first 6% of the compensation deferred by each participant. Salary reduction
contributions are immediately vested in full; matching contributions vest 20%
per year over a five year period. During the year ended December 31, 1997, the
Company made contributions of $69,000.
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1997
and 1996 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1997 1997 1997 1997 1997
------------------------------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE
As reported.............................. $ 9,997 $15,967 $19,864 $23,812
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. 5,151 2,930 406 --
As adjusted.............................. 15,148 18,897 20,270 23,812
GROSS MARGIN
As reported.............................. $ 6,357 $ 9,330 $10,709 $11,990
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. 1,895 1,068 (55) --
As adjusted.............................. 8,252 10,398 10,654 11,990
NET INCOME
As reported.............................. $ 2,550 $ 2,608 $ 2,858 $ 3,299
Effect of acquisitions treated as
poolings of interests completed
subsequent to quarter end............. 283 (117) (258) --
As adjusted.............................. 2,833 2,491 2,600 3,299
BASIC EARNINGS PER SHARE................... $ 0.15 $ 0.13 $ 0.13 $ 0.17
DILUTED EARNINGS PER SHARE................. $ 0.14 $ 0.13 $ 0.13 $ 0.16
</TABLE>
46
<PAGE> 49
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1996 1996 1996 1996 1996
------------------------------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE
As reported............................... $2,952 $5,408 $7,485 $8,765
Effect of acquisitions treated as poolings
of interests completed subsequent to
quarter end............................ 4,680 2,924 738 --
As adjusted............................... 7,632 8,332 8,223 8,765
GROSS MARGIN
As reported............................... $2,521 $3,648 $4,125 $4,889
Effect of acquisitions treated as poolings
of interest completed subsequent to
quarter end............................ 1,605 987 220 --
As adjusted............................... 4,126 4,635 4,345 4,889
NET INCOME
As reported............................... $1,602 $1,887 $1,248 $ 741
Effect of acquisitions treated as poolings
of interests completed subsequent to
quarter end............................ 160 (36) 60 --
As adjusted............................... 1,762 1,851 1,308 741
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $ 5,898 $ 6 $ 6
State..................................................... 843 -- --
------- ---- ----
Total..................................................... 6,741 6 6
Deferred:
Federal................................................... (949) -- --
State..................................................... (135) -- --
------- ---- ----
Total..................................................... (1,084) -- --
------- ---- ----
Total....................................................... $ 5,657 $ 6 $ 6
======= ==== ====
</TABLE>
Upon the acquisition of MMR&D, Adaptive Health, LSM , SSI, UNICO, Computer
Clinic, C4M, Medysis, Unisource, and CompRx (collectively, the "S
Corporations"), the S Corporation status of these entities terminated.
Accordingly, current and deferred income taxes reflecting the tax effects of
temporary differences between the Company's financial statement tax bases of
certain assets and liabilities became assets and liabilities of the Company.
Accordingly, the above provision for 1997 income taxes includes a $650,000
nonrecurring benefit resulting from the termination of the S Corporation
election and the corresponding required adoption of FAS 109.
47
<PAGE> 50
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of deferred tax assets and liabilities as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable......................................... $(570)
Deferred revenue............................................ 425
Accrued expenses............................................ 848
Other....................................................... 24
-----
Total....................................................... $ 727
=====
</TABLE>
The following table accounts for the differences between the actual tax
provision and amounts obtained by applying the statutory U.S. federal income
rate of 35% to the income before income taxes (in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Statutory tax provision at 35%.............................. $5,908 $ 1,984 $ 2,058
State taxes, net of federal benefit......................... 794 -- --
S-Corporation income not subject to tax..................... (340) (1,978) (2,052)
Change in valuation allowance............................... (418) -- --
Termination of S Corporation status......................... (650) -- --
Tax free income............................................. (180) -- --
Non-deductible expense and other............................ 543 -- --
------ ------- -------
Total....................................................... $5,657 $ 6 $ 6
====== ======= =======
</TABLE>
In addition to the foregoing, a subsidiary of one of the Founding Companies
has a net operating loss carryforward of $470,000. Due to certain federal and
state separate return limitation issues, a 100% valuation allowance has been
established. This net operating loss carryforward expires beginning in the year
2015.
12. UNAUDITED PRO FORMA INCOME TAX INFORMATION
Prior to their acquisition, MMR&D, Adaptive Health, LSM, SSI, UNICO,
Computer Clinic, C4M, Medysis, Unisource, and CompRx (collectively, the "S
Corporations") were S corporations and, accordingly, the combined historical
financial statements of MMC, MMR&D and the Acquired Companies did not reflect a
provision for income taxes for the S Corporations, as income taxes were the
responsibility of the S Corporations' individual stockholders. Effective with
their acquisition, the S Corporations terminated their S corporation status. The
following unaudited pro forma income tax information (in thousands), based on
historical information, is presented in accordance with Statement of Financial
Accounting Standards No. 109 as if the S Corporations had each been a C
corporation subject to federal and state income taxes throughout the periods
presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before provision for income taxes.................... $16,880 $ 5,668 $ 5,879
Provision for income taxes.................................. (6,364) (2,182) (2,263)
Pro forma net income........................................ $10,516 $ 3,486 $ 3,616
</TABLE>
48
<PAGE> 51
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS
On January 14, 1998, the Company entered into a $10.0 million line of
credit agreement with Barnett Bank of Tampa. The line of credit matures on
January 14, 1999. The line of credit bears interest at Prime or LIBOR, at the
election of the Company, plus an applicable margin, as defined in the agreement.
This debt instrument is due on demand. The agreement contains customary events
of default and a number of customary covenants including certain financial
ratios and restrictions on dividends.
Also subsequent to year-end, the Company executed and closed agreements to
acquire the following resellers of The Medical Manager software: (i) Medical
Practice Support Services, Inc., based in Pittsburgh, Pennsylvania; (ii) Health
Care Management Solutions, Inc. d/b/a Healthcare Informatics, Inc., based in
Springfield, Illinois; and (iii) Strategic Systems, Inc., based in Denver,
Colorado. The acquisitions were accounted for using the pooling of interest
method of accounting. The aggregate consideration paid was 130,509 shares. These
acquisitions, in aggregate, had revenues of $5.8 million and net income of
$400,000 for the year ended December 31, 1997. The acquisitions closed between
February 20, and February 28, 1998.
49
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 of Part III is hereby
incorporated by reference to the Registrant's definitive proxy statement to be
filed not more than 120 days after the year ended December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements -- See index on Page 30 herein. The financial
statements of four of the Founding Companies included on the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on April 8,
1997 are specifically incorporated herein by reference.
(a)(2) Schedule II -- Valuation and Qualifying Accounts -- See page 54
herein. 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 exhibits filed as part of this Report as required by Item 601 of
Regulation S-K are included in the Index to Exhibits included Elsewhere in this
report.
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed during
the quarter ended December 31, 1997.
50
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly cause this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 12th day of
March, 1998.
MEDICAL MANAGER CORPORATION
By: /s/ MICHAEL A. SINGER
------------------------------
Michael A. Singer
Chairman of the Board
and 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
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL A. SINGER Chairman of the Board and Chief March 12, 1998
- --------------------------------------------- Executive Officer (Principal Executive
Michael A. Singer Officer)
/s/ LEE A. ROBBINS Vice President and Chief Financial March 12, 1998
- --------------------------------------------- Officer (Principal Financial and
Lee A. Robbins Accounting Officer)
/s/ JOHN H. KANG President; Director March 12, 1998
- ---------------------------------------------
John H. Kang
/s/ FREDERICK B. KARL, JR. Vice President and General Counsel; March 12, 1998
- --------------------------------------------- Director
Frederick B. Karl, Jr.
/s/ RICHARD W. MEHRLICH Director March 12, 1998
- ---------------------------------------------
Richard W. Mehrlich
/s/ CHRIS A. PEIFER Director March 12, 1998
- ---------------------------------------------
Chris A. Peifer
</TABLE>
51
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
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 Registration Statement on Form S-1 (File 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
Registration Statement on Form S-1 (File 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
Registration Statement on Form S-1 (File No. 333-13101))
2.6 Stock for Asset Purchase Agreement dated July 17, 1997, by
and among Medical Manager Northeast, Inc., a New York
corporation; The Computer Clinic, Inc., a New York
corporation; MedPlus of New York, Inc., a New York
corporation; Command Solutions, Inc. d/b/a Great Lakes
Medical Systems, an Ohio corporation; and Michael G.
Sherman, a resident of the state of New York (Incorporated
by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated August 7, 1997)
2.7 Asset Purchase Agreement dated as September 10, 1997, by and
among Medical Manager Midwest, Inc., Professional Management
Systems, Inc. and the Stockholders named herein
(Incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated September 25, 1997)
2.8 Purchase Agreement Dated as of September 11, 1997, by and
among Medical Manager Southeast, Inc., National Data
Corporation, CIS Technologies, Inc., AMSC, Inc. and AMSC
Midwest, Inc. (Incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K dated September 25,
1997)
2.9 Asset Purchase Agreement dated as of December 31, 1997, by
and among Medical Manager Corporation, Blue Cross And Blue
Shield of South Carolina, Companion Technologies
Corporation, and Companion Technologies of Florida, Inc.
(Incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 15, 1998)
2.10 Stock Purchase Agreement dated as of December 31, 1997 by
and among Medical Manager Corporation, Blue Cross And Blue
Shield of South Carolina, Companion Technologies
Corporation, and Companion Technologies Corporation of
Texas. (Incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated January 15, 1998)
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registration Statement on
Form S-1 (File No. 333-13101))
3.2 Amended and Restated By-laws of the Company
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
4.1 Form of certificate evidencing ownership of Common Stock of
the Company (Incorporated by reference to Exhibit to
Amendment No. 4 to the Registration Statement on Form S-1
(File No. 333-13101))
4.2 Credit Agreement dated as of January 14, 1998 by and between
Medical Manager Corporation, a Delaware corporation as
Borrower, and Barnett Bank, N.A., a national banking
association, and its successors and assigns as Lender
10.1 1996 Long-Term Incentive Plan of the Company (Incorporated
by reference to Exhibit 10.1 to Amendment No. 3 to the
Registration Statement on Form S-1 (File No. 333-13101))
10.2 Amended and Restated 1996 Non-Employee Directors' Stock Plan
of the Company
10.3 Employment Agreement between the Company and Michael A.
Singer (Incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K filed April 10, 1997)
10.4 Employment Agreement between the Company and Richard W.
Mehrlich (Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K filed April 10, 1997)
10.5 Employment Agreement between the Company and John H. Kang
(Incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K filed April 10, 1997)
10.6 Employment Agreement between the Company and Frederick B.
Karl, Jr. (Incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K filed April 10, 1997)
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 Registration
Statement on Form S-1 (File No. 333-13101))
10.8 Employment Agreement between the Company and Henry W.
Holbrook (Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K filed April 10, 1997)
10.9 Employment Agreement between the Company and Thomas P.
Liddell (Incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K filed April 10, 1997)
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 the
Registration Statement on Form S-1 (File No. 333-13101))
10.11 Lease between Liddell, L.L.C. and Systems Management, Inc.
(Incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K filed April 10, 1997)
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 Registration Statement on
Form S-1 (File 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 Registration Statement on
Form S-1 (File No. 333-13101))
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
Registration Statement on Form S-1 (File No. 333-13101))
21 List of subsidiaries of the Company
23 Consents of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (for SEC use only)
99 Historical 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>
53
<PAGE> 56
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Accounts Receivable Allowance
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED ADDITIONS FROM BALANCE AT
YEAR BEGINNING OF YEAR TO EXPENSE ACQUISITIONS DEDUCTIONS END OF YEAR
- ---- ----------------- ----------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1997 $150 $269 $661 $(125) $955
1996 127 92 -- (69) 150
1995 82 45 -- -- 127
</TABLE>
54
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
MEDICAL MANAGER CORPORATION
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of
such other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman
of the Board, the Chief Executive Officer or the President. Any special meeting
of the stockholders shall be held on such date, at such time and at such place
within or without the State of Delaware as the Board of Directors or the
officer calling the meeting may designate. At a special meeting of the
stockholders, no business shall be transacted and no corporate action shall be
taken other than that stated in the notice of the meeting unless all of the
stockholders are present in person or by proxy, in which case any and all
business may be transacted at the meeting even though the meeting is held
without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall
be given not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his or her address as it appears on the records of the Corporation.
The
<PAGE> 2
notice shall state the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of
a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes,
unless the representation of a larger number of shares shall be required by
law, by the Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a
quorum for purposes of such class vote unless the representation of a larger
number of shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
may adjourn from time to time; provided, however, that if the holders of any
class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action by such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the stockholders, or the holder of any class of
stock entitled to vote separately as a class, as the case may be, may transact
any business which might have been transacted by them at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting.
2
<PAGE> 3
SECTION 6. Organization. The Chairman of the Board, or, in his
absence, the Chief Executive Officer, or, in their absence, the President, or,
in the absence of the Chairman of the Board, the Chief Executive Officer and
the President, a Corporate Vice President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board, the Chief Executive Officer, the
President and all of the Corporate Vice Presidents, the holders of a majority
in number of the shares of stock of the Corporation present in person or
represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him or her by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. When directed by the presiding officer or upon the demand of any
stockholder, the vote upon any matter before a meeting of stockholders shall be
by ballot. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall be elected by a
3
<PAGE> 4
plurality of the votes cast at a meeting of stockholders by the stockholders
entitled to vote in the election and, whenever any corporate action, other than
the election of Directors is to be taken, it shall be authorized by a majority
of the votes cast at a meeting of stockholders by the stockholders entitled to
vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or
rejection of votes shall be decided at any meeting of the stockholders by two
or more Inspectors who may be appointed by the Board of Directors before the
meeting, or if not so appointed, shall be appointed by the presiding officer at
the meeting. If any person so appointed fails to appear or act, the vacancy may
be filled by appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
4
<PAGE> 5
ARTICLE II
Board of Directors
SECTION 1. Number, Classification and Tenure. The powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation shall be managed under the direction of, the
Board of Directors. The Board of Directors shall be divided into three classes
as provided in the Certificate of Incorporation. Each Director shall hold
office for the full term for which such Director is elected and until such
Director's successor shall have been duly elected and qualified or until his
earlier death or resignation or removal in accordance with the Certificate of
Incorporation or these By-Laws.
Within the limits specified in the Certificate of Incorporation, the
number of Directors that shall constitute the whole Board of Directors shall be
fixed by, and may be increased or decreased from time to time by, the Board of
Directors. Except as provided in the Certificate of Incorporation of the
Corporation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors. Any Director elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been elected and qualified or until his earlier death, resignation or removal.
No decrease in the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent director.
SECTION 2. Qualifications. Directors need not be residents of the
State of Delaware or stockholders of the Corporation.
SECTION 3. Nomination of Directors. Subject to such rights of the
holders of one or more outstanding series of Preferred Stock of the Corporation
to elect one or more Directors in case of
5
<PAGE> 6
arrearages in the payment of dividends or other defaults or in other cases as
shall be prescribed in the Certificate of Incorporation or in the resolutions
of the Board of Directors providing for the establishment of any such series,
only persons who are nominated in accordance with the procedures set forth in
this Section 3 shall be eligible for election as, and to serve as, Directors.
Nominations of persons for election to the Board of Directors may be made at a
meeting of the stockholders at which Directors are to be elected (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of the giving of such
stockholder's notice provided for in this Section 3, who shall be entitled to
vote at such meeting in the election of Directors and who complies with the
requirements of this Section 3. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be preceded by timely advance
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation (i) with respect to an election
to be held at the annual meeting of the stockholders of the Corporation, not
later than the close of business on the 90th day prior to the first anniversary
of the preceding year's annual meeting; provided, however, that with respect to
the annual meeting of stockholders to be held in 1997 or in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Corporation; and
(ii) with respect to an election to be held at a special meeting of
stockholders of the Corporation for the election of Directors, not later than
the close of business on the 10th day following the day on which notice of the
date of the special meeting was mailed to stockholders of the Corporation as
provided in Article 1, Section 3 hereof or public disclosure of the date of the
special meeting was made, whichever first occurs. Any such stockholder's notice
to the Secretary of the Corporation shall set forth (x) as to each person whom
the stockholder proposes to nominate for election or re-election as a Director,
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the number of
shares of each class of capital stock of the Corporation beneficially owned by
such person, (iv) the written consent of such person to having such persons's
6
<PAGE> 7
name placed in nomination at the meeting and to serve as a Director if elected
and (v) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors, or is
otherwise required, pursuant to Regulation 14A under the Exchange Act, and
(y)as to the stockholder giving the notice, (i) the name and address, as they
appear on the Corporation's books, of such stockholder and (ii) the number of
shares of each class of voting stock of the Corporation which are then
beneficially owned by such stockholder. The presiding officer of the meeting of
stockholders shall determine whether the requirements of this Section 3 have
been met with respect to any nomination or intended nomination. If the
presiding officer determines that any nomination was not made in accordance
with the requirements of this Section 3, he shall so declare at the meeting and
the defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 3, a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 3.
SECTION 4. Removal, Vacancies and Additional Directors. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may,
at any special meeting the notice of which shall state that it is called for
that purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed
and the vacancy filled only by the holders of that class of stock voting
separately as a class. Except as otherwise provided in the Certificate of
Incorporation, vacancies caused by any such removal and not filled by the
stockholders at the meeting at which such removal shall have been made, or any
vacancy caused by death or resignation of any Director or for any other reason,
and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
7
<PAGE> 8
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 5. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every
Director at least five days before the first meeting held in pursuance thereof.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by facsimile, telegram or telephone at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
8
<PAGE> 9
SECTION 8. Quorum. Subject to the provisions of Section 4 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the
majority of the Directors present at any meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors. If at any
meeting of the Board there is less than a quorum present, a majority of those
present may adjourn the meeting from time to time.
SECTION 9. Organization. The Chairman of the Board, or, in his
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of both the Chairman of the Board and the President, a Chairman
shall be elected from the Directors present. The Secretary of the Corporation
shall act as Secretary of all meetings of the Directors, but in the absence of
the Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 10. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
whole Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
9
<PAGE> 10
Corporation or a revocation of a dissolution, or amending these By-Laws; and
unless such resolution, these By-laws, or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
SECTION 11. Conference Telephone Meetings. Unless otherwise restricted
by the Certificate of Incorporation or by these By-Laws, the members of the
Board of Directors or any committee designated by the Board, may participate in
a meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 12. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto
in writing and the writing or writings are filed with the minutes of
proceedings of the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more
Corporate Vice Presidents, any number of Administrative Vice Presidents, any
number of Regional Vice Presidents, a Secretary and a Treasurer, and such
additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 7 of this Article III. The Chairman of
the Board, the President, the Chief Executive Officer, one or more Vice
Presidents, any number of Administrative Vice Presidents, any number of
Regional Vice Presidents, the Secretary and the Treasurer shall be elected by
the Board
10
<PAGE> 11
of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors.
Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his or her contract rights,
if any. The election or appointment of an officer shall not of itself create
contract rights. All agents and employees other than officers elected by the
Board of Directors shall also be subject to removal, with or without cause, at
any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 3. Powers and Duties of the Chief Executive Officer. The Chief
Executive Officer shall be the chief executive officer of the Corporation, have
general charge and control of all the Corporation's business and affairs and,
subject to the control of the Board of Directors, shall have all powers and
shall perform all duties incident to the office of Chief Executive Officer. In
the
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absence of the Chairman of the Board, the Chief Executive Officer shall preside
at all meetings of the stockholders and at all meetings of the Board of
Directors. In addition, the Chief Executive Officer shall have such other
powers and perform such other duties as may from time to time be assigned by
these By-Laws or by the Board of Directors.
SECTION 4. Powers and Duties of the President. The President shall,
subject to the control of the Board of Directors, have all powers and shall
perform all duties incident to the office of President. In the absence of the
Chairman of the Board and the Chief Executive Officer, the President shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In the absence of the Chief Executive Officer, the President shall
be the chief executive officer of the Corporation, have general charge and
control of all the Corporation's business and affairs and shall have such other
powers and perform such other duties as may from time to time be assigned by
these By-Laws or by the Board of Directors.
SECTION 5. Powers and Duties of the Vice Presidents. Corporate Vice
Presidents shall have all powers and shall perform all duties incident to the
office of Vice President under the Delaware General Corporate Law and shall
have such other powers and perform such other duties as may from time to time
be assigned by these By-Laws or by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
Administrative Vice Presidents and Regional Vice Presidents may be
appointed from time to time by the President, with the consent of the Chief
Executive Officer, and shall have all powers and shall perform all duties as
set forth in writing by the President at the time of such appointment;
provided, however, that in no case shall such Administrative Vice Presidents
and Regional Vice Presidents have powers and duties equal to or greater than
those set forth above for Corporate Vice Presidents. Administrative Vice
Presidents and Regional Vice Presidents shall serve exclusively at the pleasure
of the President.
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SECTION 6. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall authorize and direct; shall have charge of the stock
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors, the Chairman of the Board, the Chief
Executive Officer President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours. The Secretary shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned by these By-Laws or by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer or the President.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations
and shall deposit the same to the credit of the Corporation in such bank or
banks or depositary or depositaries as the Board of Directors may designate;
shall sign all receipts and vouchers for payments made to the Corporation;
shall enter or cause to be entered regularly in the books of the Corporation
kept for the purpose full and accurate accounts of all monies received or paid
or otherwise disposed of and whenever required by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President shall
render statements of such accounts. The Treasurer shall, at all reasonable
times, exhibit the books and accounts to any Director of the Corporation upon
application at the office of the Corporation during business hours; and shall
have all powers and shall perform all duties incident of the office of
Treasurer and shall also have such other powers and shall perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
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SECTION 8. Additional Officers. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish
bonds to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Corporate Vice President shall have full power and authority
on behalf of the Corporation to attend and to act and to vote, or in the name
of the Corporation to execute proxies to vote, at any meeting of stockholders
of any corporation in which the Corporation may hold stock, and at any such
meeting shall possess and may exercise, in person or by proxy, any and all
rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers
upon any other person or persons.
SECTION 11. Compensation of Officers. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
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ARTICLE IV
Indemnification of Directors and Officers
SECTION 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by
reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if
the person acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful; except that in the case of an action
or suit by or in the right of the Corporation to procure a judgment in its
favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent
that the Delaware Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction,
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or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
SECTION 4. Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he or she is not
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entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. Survival: Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office, shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
SECTION 6. Severability. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement
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with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article IV that shall not have been invalidated and to the fullest extent
permitted by applicable law.
SECTION 7. Subrogation. In the event of payment of indemnification to
a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including
the execution of such documents necessary to enable the Corporation effectively
to enforce any such recovery.
SECTION 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, by-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall
not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or
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otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued
and delivered as though the person or persons who signed such certificate or
certificates had not ceased to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to
indemnify the Corporation and its agents against any claim that may be made
against it or them on account of the alleged loss, theft or destruction of any
such certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost,
stolen or destroyed. Upon the stub of every new certificate so issued shall be
noted the fact of such issue and the number, date and the name of the
registered owner of the lost, stolen or destroyed certificate in lieu of which
the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his or her attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
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transferred, except as provided in Section 2 of this Article IV.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, as the case may be, the Board of Directors may fix, in
advance, a record date, which shall not be (i) more than sixty (60) nor less
than ten (10) days before the date of such meeting, or (ii) in the case of
corporate action to be taken by consent in writing without a meeting, prior to,
or more than ten (10) days after, the date upon which the resolution fixing the
record date is adopted by the Board of Directors, or (iii) more than sixty (60)
days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is delivered to
the Corporation; and the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
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SECTION 6. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be
used by any officer of the Corporation designated by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution
shall determine.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money
shall be signed and, if so required by the Board of Directors, countersigned by
such officers of the Corporation and/or other persons as the Board of Directors
from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of
Directors from time to time may designate.
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SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation
may effect loans and advances for the Corporation from any bank, trust company
or other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized to do so,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws or
by law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or any Corporate Vice
President shall be authorized to execute and deliver, in the name and on behalf
of the Corporation, all agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary
or other capacity, and the seal of the Corporation, if appropriate, shall be
affixed thereto by any of such officers or the Secretary or an Assistant
Secretary. The Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President or any Corporate Vice President designated by
the Board of Directors may authorize any other officer, employee or agent to
execute and deliver, in the name and on behalf of the Corporation, agreements,
bonds, contracts, deeds, mortgages, and other instruments, either for the
Corporation's own account or in a fiduciary or other capacity, and, if
appropriate, to affix the seal of the Corporation thereto. The grant of such
authority by the Board or any such officer may be general or confined to
specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is required
to be given by law, by the Certificate of Incorporation or by these By-Laws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
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SECTION 5. Offices Outside of Delaware. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes
of the meeting; but these By-Laws and any amendment thereof may be altered,
amended or repealed or new By-Laws may be adopted by the holders of a majority
of the total outstanding stock of the Corporation entitled to vote at any
annual meeting or at any special meeting, provided, in the case of any special
meeting, that notice of such proposed alteration, amendment, repeal or adoption
is included in the notice of the meeting.
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EXHIBIT 4.2
===============================================================================
CREDIT AGREEMENT
DATED AS OF JANUARY 14, 1998,
BY AND BETWEEN
MEDICAL MANAGER CORPORATION, A DELAWARE CORPORATION
AS BORROWER,
AND
BARNETT BANK, N.A., A NATIONAL BANKING ASSOCIATION,
AND ITS SUCCESSORS AND ASSIGNS
AS LENDER
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C> <C>
ARTICLE I - DEFINITIONS 1
SECTION 1.1. Definitions....................................... 1
SECTION 1.2. General........................................... 11
SECTION 1.3. Other Definitions and Provisions.................. 11
ARTICLE II - CREDIT FACILITY......................................... 11
SECTION 2.1. Loans............................................. 11
SECTION 2.2. Procedure for Advances of Loans................... 11
SECTION 2.3. Repayment of Loan................................. 12
SECTION 2.4. Commercial Revolving Line of Credit Note.......... 13
SECTION 2.5. Optional Permanent Reduction of the Commitment.... 13
SECTION 2.6. Termination of Credit Facility.................... 13
SECTION 2.7. Use of Proceeds................................... 13
ARTICLE III - GENERAL LOAN PROVISIONS................................ 14
SECTION 3.1. Interest.......................................... 14
SECTION 3.2. Notice and Manner of Conversion or Continuation of
Loans............................................. 16
SECTION 3.3. Fees.............................................. 17
SECTION 3.4. Manner of Payment................................. 17
SECTION 3.5. Crediting of Payments and Proceeds................ 17
SECTION 3.6. Changed Circumstances............................. 18
SECTION 3.7. Indemnity......................................... 19
SECTION 3.8. Capital Requirements.............................. 20
SECTION 3.9. Taxes............................................. 20
ARTICLE IV - CLOSING; CONDITIONS OF CLOSING AND BORROWING............ 21
SECTION 4.1. Closing........................................... 21
SECTION 4.2. Conditions to Closing and Initial Loans........... 21
SECTION 4.3. Conditions to All Loans........................... 25
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BORROWER............... 25
SECTION 5.1. Representations and Warranties.................... 26
SECTION 5.2. Survival of Representations and Warranties, etc. . 31
ARTICLE VI - FINANCIAL INFORMATION AND NOTICES....................... 31
SECTION 6.1. Financial Statements and Projections.............. 31
SECTION 6.2. Officer's Compliance Certificate.................. 32
SECTION 6.3. Notice of Litigation and Other Matters............ 32
ARTICLE VII - AFFIRMATIVE COVENANTS.................................. 33
SECTION 7.1. Preservation of Existence and Related Matters..... 33
SECTION 7.2. Maintenance of Property........................... 33
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 7.3. Insurance........................................ 33
SECTION 7.4. Accounting Methods and Financial Records......... 34
SECTION 7.5. Payment and Performance of Obligations........... 34
SECTION 7.6. Compliance With Laws and Approvals............... 34
SECTION 7.7. Environmental Management......................... 34
SECTION 7.8. Compliance with ERISA............................ 34
SECTION 7.9. Compliance with Agreements....................... 35
SECTION 7.10. Conduct of Business.............................. 35
SECTION 7.11. Visits and Inspections........................... 35
SECTION 7.12. New Subsidiaries................................. 35
SECTION 7.13. Dividends........................................ 35
SECTION 7.14. Banking Relationship............................. 35
SECTION 7.15. Chief Executive Officer.......................... 35
SECTION 7.16. Further Assurances............................... 35
ARTICLE VIII - FINANCIAL COVENANTS................................... 36
SECTION 8.1. Leverage Ratio................................... 36
SECTION 8.2. Minimum Tangible Net Worth....................... 36
SECTION 8.3. Capital Expenditures............................. 36
ARTICLE IX - NEGATIVE COVENANTS...................................... 36
SECTION 9.1. Limitations on Debt.............................. 36
SECTION 9.2. Limitations on Guarantees........................ 37
SECTION 9.3. Limitations on Liens............................. 37
SECTION 9.4. Limitations on Loans, Advances, Investments and
Acquisitions..................................... 38
SECTION 9.5. Limitations on Mergers and Liquidation........... 39
SECTION 9.6. Restrictions on Sale of Assets, etc.............. 39
SECTION 9.7. Limitations on Dividends and Distributions....... 40
SECTION 9.8. Limitations on Exchange and Issuance of Capital
Stock............................................ 40
SECTION 9.9. Transactions with Affiliates..................... 40
SECTION 9.10. Certain Accounting Changes....................... 40
SECTION 9.11. Restrictive Agreements........................... 40
ARTICLE X - DEFAULT AND REMEDIES..................................... 41
SECTION 10.1. Events of Default................................ 41
SECTION 10.2. Remedies......................................... 43
SECTION 10.3. Rights and Remedies Cumulative; Non-Waiver; etc.. 43
ARTICLE XI - MISCELLANEOUS........................................... 44
SECTION 11.1. Notices......................................... 44
SECTION 11.2. Expenses; Indemnity............................. 45
SECTION 11.3. Stamp and Other Taxes........................... 45
SECTION 11.4. Set-off......................................... 46
SECTION 11.5. Governing Law................................... 46
SECTION 11.6. Consent to Jurisdiction......................... 46
SECTION 11.7. Waiver of Jury Trial............................ 46
SECTION 11.8. Reversal of Payments............................ 46
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 11.9. Injunctive Relief; Consequential Damages........ 47
SECTION 11.10. Accounting Matters.............................. 47
SECTION 11.11. Successors and Assigns; Participations.......... 47
SECTION 11.12. Amendments, Waivers and Consents................ 48
SECTION 11.13. Performance of Duties........................... 49
SECTION 11.14. All Powers Coupled with Interest................ 49
SECTION 11.15. Survival of Indemnities......................... 49
SECTION 11.16. Titles and Captions............................. 49
SECTION 11.17. Severability of Provisions...................... 49
SECTION 11.18. Counterparts.................................... 49
SECTION 11.19. Term of Agreement; Independent Effect........... 49
</TABLE>
EXHIBITS
Exhibit A - Form of Commercial Revolving Line of Credit Note
Exhibit B - Form of Notice of Conversion/Continuation
Exhibit C - Form of Officer's Compliance Certificate
Exhibit D - Form of Notice of Prospective Acquisitions
Exhibit E - Form of Subsidiary Guaranty Agreement
SCHEDULES
<TABLE>
<S> <C> <C> <C>
Schedule 5.1(a) - Jurisdictions of Organization and
Qualification
Schedule 5.1(b) - Subsidiaries and Capitalization
Schedule 5.1(c) - ERISA Plans
Schedule 5.1(d) - Labor and Collective Bargaining Agreements
Schedule 5.1(e) - Liens
Schedule 5.1(f) - Litigation
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, is made as of the 14th day of January, 1998, by
and between MEDICAL MANAGER CORPORATION, a corporation organized under the laws
of Delaware (the "Borrower"), and BARNETT BANK, N.A., a national banking
association and its successors and assigns (the "Lender").
STATEMENT OF PURPOSE
Borrower and Credit Parties have requested, and Lender has agreed, to
extend certain credit facilities to Borrower pursuant to the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, Borrower
and Lender hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"Affiliate" means, with respect to a Person, any other Person which
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term
"control" means (a) with respect to an Affiliate of Borrower or any Subsidiary
thereof, the power to vote ten percent (10%) or more of the securities or other
equity interests of Borrower or a Subsidiary, (b) with respect to an Affiliate
of Lender, the power to vote twenty percent (20%) or more of the securities or
other equity interests of Lender, or (c) with respect to any other Person, the
power, directly or indirectly, to direct the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time.
"Applicable Law" means all applicable provisions of constitutions,
statutes, rules, regulations and orders of all Governmental Authorities and all
orders and decrees of all courts and arbitrators.
"Applicable Margin" shall have the meaning assigned thereto in Section
3.1(c).
"Barnett Bank" means Barnett Bank, N.A., a national banking
association, and its successors and assigns.
<PAGE> 6
"Borrower" means Medical Manager Corporation, a corporation organized
under the laws of Delaware.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which commercial banks in Jacksonville, Florida are closed for business, and
(b) with respect to all notices and determinations in connection with, and
payments of principal and interest on, any LIBOR Rate Loan, any day that is a
Business Day described in clause (a) and that is also a London Banking Day.
"Capital Assets" means, with respect to a Person and its subsidiaries,
any asset that would, in accordance with GAAP, be required to be classified or
accounted for as a capital asset on a Consolidated balance sheet of such
Person.
"Capital Expenditures" means, with respect to a Person and its
Subsidiaries for any period, the aggregate cost of replacement or acquisition
of all Capital Assets of such Person and its Subsidiaries during such period,
determined on a Consolidated basis in accordance with GAAP.
"Capital Lease" means any lease of any property by a Person or any
Subsidiary thereof at any time as lessee that would, in accordance with GAAP,
be required to be classified or accounted for as a capital lease on a
Consolidated balance sheet of such Person.
"Capital Lease Obligation" means, with respect to any Capital Lease,
the amount of the obligation of a Person or any of Subsidiary thereof that
would, in accordance with GAAP, appear on a Consolidated balance sheet of such
Person as a liability in respect of such Capital Lease.
"Closing Date" means the date of this Agreement or such later Business
Day upon which each condition described in Article IV shall be satisfied or
waived in all respects in a manner acceptable to Lender.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Commitment" means the obligation of Lender to make the Loan to
Borrower hereunder in an aggregate principal or face amount at any time
outstanding not to exceed Ten Million and 00/100 Dollars ($10,000,000.00), as
the same may be reduced or modified at any time or from time to time pursuant
to the terms hereof.
"Consolidated" means, when used with reference to financial statements
or financial statement items of a Person and its Subsidiaries, such statements
or items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
2
<PAGE> 7
"Credit Facility" means the credit facility established pursuant to
Article II hereof.
"Credit Parties" means Borrower and the Subsidiary Guarantors, now or
hereafter existing or acquired, jointly and severally.
"Debt" means, with respect to any Person, all liabilities, obligations
and indebtedness (including subordinated indebtedness) of such Person for
borrowed money, whether now or hereafter owing or arising and whether primary,
secondary, direct, contingent, fixed or otherwise and whether matured or
unmatured, including without limitation: (a) all notes payable and drafts
accepted representing extensions of credit and all obligations evidenced by
bonds, debentures, notes or other similar instruments; (b) all obligations,
contingent, short term, long term, or otherwise, relative to the face amount of
all notes, letters of credit, whether or not drawn, and banker's acceptances
issued for the account of such Person; (c) all Capital Lease obligations; (d)
all obligations to pay the deferred purchase price of property or services, and
all indebtedness secured by a Lien on property owned by such Person whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse; and (e) all net obligations under any Hedging Agreement.
"Default" means any of the events specified in Section 10.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"Earnings Multiple" means, as of any date of determination, Pro Forma
EBITDA, excluding income from investments and deposits, times two (2.00).
"EBITDA" means, for any period, Net Income of Borrower and its
Subsidiaries for such period plus the sum of the following for such period to
the extent deducted in determining such Net Income: (a) Interest Expense, (b)
all federal, state, local and foreign income and gross receipt tax expense and
(c) depreciation, amortization and depletion expense; less Interest Income; in
each case determined on a consolidated book basis in accordance with GAAP.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Credit Party or any ERISA Affiliate or (b) has at any time within the preceding
six years been maintained for the employees of any Credit Party or any current
or former ERISA Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental
3
<PAGE> 8
Authorities, relating to the protection of the environment, including, but not
limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA Affiliate" means any Person who is a member of a group which is
under common control with any Credit Party, who together with any Credit Party
is treated as a single employer within the meaning of Section 414(b) and (c) of
the Code.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve
requirement (including without limitation any basic, supplemental or emergency
reserves) in respect of Eurocurrency liabilities or any similar category of
liabilities applicable to Lender.
"Event of Default" means any of the events specified in Section 10.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"Fiscal Year" means the fiscal year of Borrower and its Subsidiaries
ending on December 31.
"Funded Debt" shall mean, at any date of determination thereof, the
aggregate amount of Debt (exclusive of interest) of Borrower and its
Subsidiaries which by its terms matures or is otherwise payable more than one
year from such date, including any rights of extension or renewal and current
maturities of any such Funded Debt.
"GAAP" means generally accepted accounting principles, as recognized
by the American Institute of certified Public Accountants and the Financial
Accounting Standards Board, applied and maintained on a consistent basis for
any applicable Person and its Subsidiaries throughout the period indicated and
consistent with the prior financial practice of such Person and its
Subsidiaries.
"Governmental Approvals" means all authorizations, consents,
approvals, permits, licenses and exemptions of, registrations and filings with,
and reports to, all Governmental Authorities.
4
<PAGE> 9
"Governmental Authority" means any nation, province, state or other
political subdivision thereof, and any government or any Person exercising
executive, legislative, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantee" means, with respect to a Person, without duplication, any
obligation, contingent or otherwise, of any such Person pursuant to which such
Person has directly or indirectly guaranteed any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of any such Person (a)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement condition or
otherwise) or (b) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, mutagenic or
otherwise hazardous and are or become regulated by any Governmental Authority,
(c) the presence of which require investigation or remediation under any
Environmental Law or common law, (d) which are materials consisting of
underground or aboveground storage tanks, whether empty, filled or partially
filled with any substance, or (e) which contain, without limitation, asbestos,
polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum
hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel,
natural gas or synthetic gas.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection
with hedging the interest rate exposure of Borrower under this Agreement, and
any confirming letter executed pursuant to such hedging agreement, all as
amended or modified.
"Interest Expense" means, for any period, total interest expense of
Borrower and its Subsidiaries (including without limitation, interest expense
attributable to Capital Leases) determined on a Consolidated basis in
accordance with GAAP.
5
<PAGE> 10
"Interest Income" means, for any period, total interest income of
Borrower and its Subsidiaries determined on a Consolidated basis in accordance
with GAAP.
"Interest Period" means each one (1), two (2), three (3)or six (6)
month period commencing on each Interest Rate Adjustment Date and ending on the
next Interest Rate Adjustment Date.
"Interest Rate Adjustment Date" shall mean the first day of February,
1998, and the first day of every applicable Interest Period of one (1), two
(2), three (3), or six (6) months thereafter.
"Lender" means Barnett Bank, N.A., a national banking association.
"Lender's Office" means Lender's office at 101 East Kennedy Blvd.,
Tampa, Florida 33602.
"Leverage Ratio" means as of any fiscal quarter end of Borrower, the
ratio of (a) Consolidated Funded Debt as of such fiscal quarter end to (b) Pro
Forma EBITDA as of such fiscal quarter end.
"LIBOR" shall mean the offered rate for deposits in Dollars in the
London Interbank market for the applicable Interest Period which appears on the
LIBOR Rate Reference Page as of 11:00 A.M. (London time) on the day that is two
(2) London Banking Days preceding the first Business Day of the applicable
Interest Period. If at least two (2) such offered rates appear on the LIBOR
Rate Reference Page, the LIBOR Rate shall be the arithmetic mean of such
offered rates. Notwithstanding anything in this Agreement to the contrary,
Lender may, in Lender's sole and absolute discretion, use interest rate
quotations for daily or annual periods in lieu of quotations for substantially
equivalent monthly periods.
"LIBOR Rate" means a rate per annum (rounded upwards to the nearest
1/100 of 1%) determined by Lender pursuant to the following formula: (a) LIBOR
divided by (b) one (1) minus the Eurodollar Reserve Percentage (i.e., LIBOR )
(1 minus Eurodollar Reserve Percentage)).
"LIBOR Rate Loan" means any Loan bearing interest at a rate determined
with reference to the LIBOR Rate as provided in Section 3.1(a).
"LIBOR Rate Reference Page" means either (a) the Reuters Screen LIBO
Page, (b) the Dow Jones Telerate Page 3750, or (c) such other nationally
recognized source, as either may from time to time be used by Lender in its
sole and absolute discretion as a reference in determining any applicable LIBOR
Rate.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in
6
<PAGE> 11
respect of such asset. For the purposes of this Agreement, Borrower or any
Subsidiary thereof shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capital Lease or other title retention agreement
relating to such asset.
"Loan Documents" means, collectively, this Agreement, the Note, the
Subsidiary Guaranty Agreement, any Hedging Agreement and each other document,
instrument and agreement executed and delivered by any Credit Party in
connection with this Agreement, all as amended, modified or supplemented from
time to time.
"Loans" means any revolving loan made to Borrower pursuant to Section
2.1, all of which Loans shall be evidenced by the Note.
"London Banking Day" shall mean each day other than a Saturday, a
Sunday or any holiday on which commercial banks in London, England are closed
for business.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance, or other
properties of the Credit Parties taken as a whole or (b) the ability of any
Credit Party to perform its obligations under any Loan Document; as determined
by Lender in its sole discretion.
"Maturity Date" means May 31, 1999.
"Maximum Rate" shall have the meaning assigned thereto in Section
3.1(f).
"Medical Manager" means the software program with such name, including
any modifications or updates thereof, sold to physicians and related businesses
to assist in the administration and management of physician and medical
practices.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Credit Party or any ERISA Affiliate is
making, or is accruing an obligation to make, contributions within the
preceding six (6) years.
"Net Income" means, for any period, the net income (or loss) of
Borrower and its Subsidiaries determined on a Consolidated basis for such
period in accordance with GAAP; provided, that there shall be excluded from
such net income (a) the net income of any Person not a Wholly-Owned Subsidiary
of Borrower, and the net income of any Person accounted for by the equity
method, except in each case to the extent received by Borrower or a
Wholly-Owned Subsidiary in a cash distribution and (b) any cash or non-cash
gain or loss of an extraordinary nature.
7
<PAGE> 12
"Note" means the Commercial Revolving Line of Credit Note made by
Borrower payable to the order of Lender, substantially in the form of EXHIBIT A
hereto, evidencing the Credit Facility, and any amendments and modifications
thereto, any substitutes therefor, and any replacements, restatements, renewals
or extension thereof, in whole or in part.
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.2.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the principal of the Loans, (b) the interest on
(including interest accruing after the filing of any bankruptcy or similar
petition) the Loans, (c) all other payments and other amounts due to Lender
under the Loan Documents including without limitation all amounts due by
Borrower to Lender under any Hedging Agreement, and (d) all other fees
(including reasonable attorney's fees), charges, indebtedness, loans,
liabilities, financial accommodations, obligations, covenants and duties owing
by any Credit Party to a lender, of every kind, nature and description, direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, and whether or not evidenced by any note,
and whether or not for the payment of money, in each case under or in respect
of this Agreement, the Note or any of the other Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 6.2.
"Other Taxes" shall have the meaning assigned thereto in Section
3.9(b).
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of any of the
Credit Parties or any ERISA Affiliates or (b) has at any time within the
preceding six years been maintained for the employees of any of the Credit
Parties or any of their current or former ERISA Affiliates.
"Permitted Acquisition" means an acquisition permitted pursuant to
section 9.4(a).
"Person" means an individual, corporation, partnership, association,
trust, business trust, joint venture, joint stock company, pool, syndicate,
sole proprietorship, unincorporated organization, Governmental Authority or any
other form of entity or group thereof.
8
<PAGE> 13
"Prime Rate" means, at any time, the rate of interest publicly
announced from time to time by Barnett Bank, N.A. or its successors or assigns
as its prime rate. Each change in the Prime Rate shall be effective as of the
opening of business on the day such change in the Prime Rate occurs. The
parties hereto acknowledge that the rate announced publicly by Barnett Bank,
N.A. or its successors or assigns as its Prime Rate is an index or base rate
and shall not necessarily be its lowest rate charged to its customers.
"Prime Rate Loan" means any Loan bearing interest based upon the Prime
Rate as provided in Section 3.1(a).
"Pro Forma EBITDA" means, as of any date of determination, EBITDA for
the period of four consecutive fiscal quarters ending on, or immediately prior
to, such date of determination, as set forth on the applicable Officer's
Compliance Certificate and financial statements attached thereto, including on
a pro forma basis EBITDA for such period attributable to any Permitted
Acquisition: provided that EBITDA attributable to any Permitted Acquisition (a)
for the calendar month during which such Permitted Acquisition is consummated
shall be included in Pro Forma EBITDA on an actual or pro forma basis as
determined in accordance with GAAP; and (b) for any calendar month following
such Permitted Acquisition which is part of the same fiscal quarter during
which such Permitted Acquisition is consummated shall be included in Pro Forma
EBITDA on an actual basis.
"Security Documents" means the reference to the Subsidiary Guaranty
Agreement and any other agreement or writing hereafter executed and delivered
to Lender pursuant to which any Credit Party pledges or grants a security
interest in the collateral of a Credit Party to secure the Obligations or such
Person guaranties the payment and/or performance of the Obligations.
"Solvent" means, as to any Person on a particular date, that such
Person (a) has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage and is able to pay
its debts as they mature, (b) does not reasonably believe that it will incur
debts or liabilities beyond its ability to pay such debts or liabilities as
they mature and (c) is not insolvent within the meaning of the federal
bankruptcy laws, Title 11, U.S.C. Section 101(32)
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which more than fifty percent (50%) of the
outstanding capital stock, partnership interest or other equity interests is at
the time, directly or indirectly, owned by such Person. Unless otherwise
specified, references herein to any Subsidiary shall mean a Subsidiary of
Borrower.
"Subsidiary Guarantors" means each Subsidiary of Borrower who executed
a Subsidiary Guaranty Agreement: (a) on the Closing Date, including, without
limitation, Medical Manager Research &
9
<PAGE> 14
Development, Inc., a Florida corporation, f/k/a Personalized Programming, Inc.
("MMR&D"), Medical Manager Sales & Marketing, Inc., a California corporation,
f/k/a Systems Plus, Inc., Medical Manager Southeast, Inc., a Florida
corporation, f/k/a National Medical Systems, Inc., Medical Manager Northeast,
Inc., a New York corporation, f/k/a RTI Business Systems, Inc., Medical Manager
Mid-West, Inc., an Indiana corporation f/k/a Systems Management, Inc., Medical
Manager Southwest, Inc., a Texas corporation, f/k/a Treister Thorne, Inc.,
d/b/a Advanced Medical Management, Medical Manager West, Inc., a Delaware
corporation, f/k/a Specialized Systems, Inc., and Medical Manager Northwest,
Inc., a Washington corporation, f/k/a Adaptive Health Systems of Washington,
Inc.; or (b) after such date in accordance with Section 7.12.
"Subsidiary Guaranty Agreement" means the collective reference to each
unconditional guaranty agreement executed by the Subsidiary Guarantor party
thereto in favor of Lender, substantially in the form of EXHIBIT E hereto, as
amended, modified or supplemented from time to time.
"Tangible Net Worth" means the gross book value amount of all of the
assets of Borrower as disclosed on its financial statements less the following:
(i) intangible assets, such as (without limitation)
goodwill (whether representing the excess of cost
over book value of assets acquired or otherwise),
capitalized expenses, leasehold improvements,
patents, trademarks, trade names, copyrights,
franchises, licenses, and deferred charges (including
deferred initial costs), such as (without limitation)
unamortized costs and costs of research and
development;
(ii) treasury stock but only if such treasury stock is
presented as an asset;
(iii) all reserves, including without limitation, reserves
for depreciation, depletion, obsolescence,
amortization, deferred income taxes, insurance,
Inventory valuation and all other reserves or
appropriations of retained earnings not taken into
account in determining the depreciated book value of
Borrower's assets;
(iv) loans to officers and directors;
(v) operating lease fees; and
(vi) total liabilities, as determined in accordance with
GAAP less all nonrecourse Debt.
10
<PAGE> 15
"United States" means the United States of America.
"Wholly-Owned Subsidiary" means a Subsidiary all of the shares of the
capital stock or other ownership matters of which are, directly or indirectly,
owned or controlled by a Credit Party and/or one or more of its Wholly-Owned
Subsidiaries.
SECTION 1.2. General. Unless otherwise specified, a reference in
this Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter. Any reference herein to "Tampa time" shall refer
to the applicable time of day in Tampa, Florida.
SECTION 1.3. Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise
defined therein, all terms defined in this Agreement shall have the defined
meanings when used in the Note and the other Loan Documents or any certificate,
report or other document made or delivered pursuant to this Agreement.
(b) Miscellaneous. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
ARTICLE II
CREDIT FACILITY
SECTION 2.1. Loans. Subject to the terms and conditions of this
Agreement, Lender agrees to make the Loan to Borrower from time to time from
the Closing Date through the Maturity Date as requested by Borrower in
accordance with the terms of Section 2.2; provided, that the aggregate
principal amount of all outstanding Loans (after giving effect to any amount
requested) shall not exceed the lesser of (i) the Commitment or (ii) the
Earnings Multiple. Subject to the terms and conditions hereof, Borrower may
borrow, repay and reborrow Loans hereunder until the Maturity Date.
SECTION 2.2. Procedure for Advances of Loans.
(a) Request for Borrowing - Prime Rate Loan. For
each Prime Rate Loan, Borrower shall give Lender prior written notice not later
than 2:00 p.m. (EST) on the requested borrowing date specifying (i) the date of
such borrowing, which shall be a Business Day, and (ii) the amount of such
borrowing.
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<PAGE> 16
(b) Requests for Borrowing - LIBOR Rate Loan.
For each LIBOR Rate Loan, Borrower shall give Lender irrevocable prior written
notice not later than 11:00 a.m. (EST) at least two (2) Business Days before
each requested borrowing date specifying (i) the date of such borrowing, which
shall be a Business Day, (ii) the amount of such borrowing, which shall be an
aggregate principal amount of $500,000.00 or any integral multiple of
$100,000.00 in excess thereof and (iii) the requested duration of any Interest
Period applicable thereto. Notices received after 11:00 a.m. (EST) for a LIBOR
Rate Loan shall be deemed received on the next Business Day.
(c) Disbursement of Loans. Borrower hereby
irrevocably authorizes Lender to disburse the proceeds of each borrowing
requested pursuant to this Section 2.2 in immediately available funds by
crediting such proceeds to a deposit account of Borrower maintained with
Lender.
SECTION 2.3. Repayment of Loan.
(a) Repayment on Maturity Date. Borrower shall
repay the outstanding principal amount of the Loan in full, together with all
accrued but unpaid interest thereon and any other outstanding Obligations, on
the Maturity Date.
(b) Mandatory Repayment Loans. If at any time
the outstanding principal amount of the Loan exceeds the lesser of the
Commitment or the Earnings Multiple, Borrower shall repay immediately upon
notice from Lender, the Loan in an amount equal to such excess. Each such
repayment shall be accompanied by accrued interest on the amount repaid and any
amount required to be paid pursuant to Section 3.7.
(c) Optional Repayments. Borrower may at any
time and from time to time repay the Loans, in whole or in part, upon
irrevocable notice to Lender (which in the case of a LIBOR Rate Loan must be
received by Lender at least two (2) Business Days prior to the repayment date)
specifying the date and amount of repayment and whether the repayment is of
LIBOR Rate Loans, Prime Rate Loans, or a combination thereof, and, if of a
combination thereof, the amount allocable to each. If any such notice is
given, the amount specified in such notice shall be due and payable on the date
set forth in such notice. Partial repayments of LIBOR Rate Loans shall be in
an aggregate amount of $500,000 or a whole multiple of $100,000 in excess
thereof. Each such repayment shall be accompanied by any amount required to be
paid pursuant to Section 3.7.
(d) Limitation on Repayment of LIBOR Rate Loans.
Notwithstanding the provisions of Section 2.3(c), Borrower may not repay any
LIBOR Rate Loan on any day other than on the last day of the Interest Period
applicable thereto unless such repayment is
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<PAGE> 17
accompanied by any amount required to be paid pursuant to Section 3.7.
(e) Mandatory Interest Payments. On the first
day of each quarter of Borrower's Fiscal Year all accrued but unpaid interest
on the Prime Rate Loans shall be due and payable. All accrued but unpaid
interest on each LIBOR Loan shall be due and payable in full on the last day of
the LIBOR Rate Loan.
SECTION 2.4. Commercial Revolving Line of Credit Note. Each of
Lender's Loans and the Obligation of Borrower to repay such Loans shall be
evidenced by the Note executed by Borrower payable to the order of Lender
representing Borrower's Obligation to pay Lender's Commitment or, if less, the
aggregate unpaid principal amount of all Loans made and to be made by such
Lender to Borrower hereunder, plus interest and all other fees, charges and
other amounts due thereon. The Note shall be dated the date hereof and shall
bear interest on the unpaid principal amount thereof at the applicable interest
rate per annum specified in Section 3.1.
SECTION 2.5. Optional Permanent Reduction of the Commitment.
Borrower shall have the right at any time and from time to time, upon at least
five (5) Business Days prior written notice to Lender, to permanently reduce,
in whole at any time or in part from time to time, without premium or penalty,
the Commitment in an aggregate principal amount not less than $1,000,000 or any
whole multiple of $500,000 in excess thereof; provided, that each such
permanent reduction shall be accompanied by a prepayment of principal
sufficient to reduce the aggregate outstanding Loans of Lender after such
reduction to the lesser of the Commitment as so reduced and the Earnings
Multiple, by accrued interest on the amount so paid and by any payment required
under Section 3.7 hereof. Any reduction of the Commitment to zero shall be
accompanied by payment of all outstanding Obligations and termination of the
Credit Facility. If the reduction of the Commitment requires the repayment of
any LIBOR Rate Loan, such reduction may be made only on the last day of the
then current Interest Period applicable thereto unless such repayment is
accompanied by any amount required to be paid pursuant to Section 3.7 hereof.
SECTION 2.6. Termination of Credit Facility. The Credit Facility
shall terminate and all outstanding Obligations shall be paid in full on the
earliest of (a) the Maturity Date, (b) the date of termination by Borrower
pursuant to Section 2.5, and (c) the date of termination by Lender pursuant to
Section 10.2(a).
SECTION 2.7. Use of Proceeds. Borrower shall use the proceeds of
the Loans for working capital and other general corporate purposes.
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<PAGE> 18
ARTICLE III
GENERAL LOAN PROVISIONS
SECTION 3.1. Interest.
(a) Interest Rate Options. Subject to the
provisions of this Section 3.1, at the election of Borrower , the aggregate
principal balance of the Note or any portion thereof shall bear interest at the
Prime Rate or the LIBOR Rate plus, in each case, the Applicable Margin as set
forth below. Borrower shall select the rate of interest and Interest Period,
if any, applicable to any Loan at the time a Notice of Borrowing is given
pursuant to Section 2.2 or at the time a Notice of Conversion/ Continuation is
given pursuant to Section 3.2. Each Loan or portion thereof bearing interest
based on the Prime Rate shall be a "Prime Rate Loan", each Loan or portion
thereof bearing interest based on the LIBOR Rate shall be a "LIBOR Rate Loan".
Any Loan or any portion thereof as to which Borrower has not duly specified an
interest rate as provided herein shall be deemed a Prime Rate Loan.
(b) Interest Periods. In connection with each
LIBOR Rate Loan, Borrower, by giving notice at the times described in Section
3.1(a), shall elect an Interest Period to be applicable to each LIBOR Rate
Loan; provided that:
(i) The LIBOR Rate shall be adjusted on
each Interest Rate Adjustment Date so that interest shall accrue on each LIBOR
Rate Loan at the LIBOR Rate for the applicable Interest Period commencing on
the Interest Rate Adjustment Date for such Interest Period;
(ii) if any Interest Period would
otherwise expire on a day that is not a Business Day, such Interest Period
shall expire on the next succeeding Business Day; provided, that if any
Interest Period with respect to a LIBOR Rate Loan would otherwise expire on a
day that is not a Business Day, but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall expire on
the next preceding Business Day;
(iii) any Interest Period with
respect to a LIBOR Rate Loan that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the relevant calendar month at the end of such Interest Period;
(iv) no Interest Period shall be
selected as to extend beyond the Maturity Date; and
(v) there shall be no more than
eight (8) Interest Periods outstanding at any time.
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<PAGE> 19
(c) Applicable Margin. The Applicable Margin
provided for in Section 3.1(a) with respect to the Loans (the "Applicable
Margin") shall: (i) on the Closing Date equal the percentages set forth in the
certificate delivered pursuant to Section 4.2(e)(ii); and (ii) for each fiscal
quarter thereafter be determined by reference to the Leverage Ratio as of the
end of the fiscal quarter immediately preceding the delivery of the applicable
Officer's Compliance Certificate as follows:
<TABLE>
<CAPTION>
Leverage Ratio Applicable Margin Non-Usage Fee
Per Annum
LIBOR Rate +
- -------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal .75% .25%
to 1.0 to 1.0
Greater than 1.25% .375%
1.0 to 1.0 but less
than 2.0 to 1.0
Greater than or 1.75% .375%
equal to 2.0 to 1.0
</TABLE>
Adjustments, if any, in the Applicable Margin shall be made by Lender on the
tenth (10th) Business Day after receipt by Lender of quarterly financial
statements for Borrower and its Subsidiaries and the accompanying Officer's
Compliance Certificate setting forth the Leverage Ratio of Borrower and its
Subsidiaries as of the most recent fiscal quarter end. Subject to Section
3.1(d), in the event Borrower fails to deliver such financial statements and
certificate within the time required by Section 6.2 hereof, the Applicable
Margin shall be the highest Applicable Margin set forth above until the
delivery of such financial statements and certificate.
(d) Default Rate. Upon the occurrence and during
the continuance of an Event of Default, (i) Borrower shall no longer have the
option to request LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall
bear interest at a rate per annum five percent (5%) in excess of the rate then
applicable to LIBOR Rate Loans, as applicable, until the end of the applicable
Interest Period and thereafter at a rate equal to five percent (5%) in excess
of the rate then applicable to Prime Rate Loans, and (iii) all outstanding
Prime Rate Loans shall bear interest at a rate per annum equal to five percent
(5%) in excess of the rate then applicable to Prime Rate Loans. Interest shall
continue to accrue on the Note after the filing by or against Borrower of any
petition seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.
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<PAGE> 20
(e) Interest Payments; Interest and Fee
Computation. Interest on each Prime Rate Loan shall be payable in arrears on
the last Business Day of each fiscal quarter commencing March 31, 1998, and
interest on each LIBOR Rate Loan shall be payable on the last day of each
Interest Period applicable thereto. All interest rates, fees and other
commissions provided hereunder shall be computed on the basis of a 360-day year
and assessed for the actual number of days elapsed.
(f) Maximum Rate. In no contingency or event
whatsoever shall the aggregate of all amounts deemed interest hereunder or
under the Note charged or collected pursuant to the terms of this Agreement or
pursuant to the Note exceed the highest rate permissible under any Applicable
Law which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event that such a court determines that Lender
has charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the
maximum rate permitted by Applicable Law and Lender shall at Lender's option
promptly refund to Borrower any interest received by Lender in excess of the
maximum lawful rate or shall apply such excess to the principal balance of the
Obligations. It is the intent hereof that Borrower not pay or contract to pay,
and that neither Lender receive or contract to receive, directly or indirectly
in any manner whatsoever, interest in excess of that which may be paid by
Borrower under Applicable Law.
SECTION 3.2. Notice and Manner of Conversion or Continuation of
Loans. Provided that no Event of Default has occurred and is then continuing,
Borrower shall have the option to (a) convert at any time all or any portion of
its outstanding Prime Rate Loans in a principal amount equal to $500,000 or any
whole multiple of $100,000 in excess thereof into one or more LIBOR Rate Loans,
(b) upon the expiration of any Interest Period, convert all or any part of its
outstanding LIBOR Rate Loans in a principal amount equal to $500,000 or a whole
multiple of $100,000 in excess thereof into Prime Rate Loans or (c) continue
such LIBOR Rate Loans as LIBOR Rate Loans. Whenever Borrower desires to
convert or continue Loans as provided above, Borrower shall give Lender
irrevocable prior written notice in the form attached or to be attached as
EXHIBIT B (a "Notice of Conversion/Continuation") not later than 11:00 a.m.
(EST) two (2) Business Days before the day on which a proposed conversion or
continuation of such Loan is to be effective specifying: (A) the Loans to be
converted or continued, and, in the case of any LIBOR Rate Loan to be converted
or continued, the last day of the Interest Period therefor; (B) the effective
date of such conversion or continuation (which shall be a Business Day); (C)
the principal amount of such Loans to be converted or continued; and (D) the
Interest Period to be applicable to such converted or continued LIBOR Rate
Loan.
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<PAGE> 21
SECTION 3.3. Fees.
(a) Non-Usage Fee. Commencing on the Closing
Date, a nonrefundable non-usage fee shall accrue at a rate per annum provided
in Section 3.1(c) depending on the applicable Leverage Ratio on the average
daily unused portion of the Commitment. Such non-usage fee shall be payable by
Borrower to Lender, for the account of Lender, in arrears on the last Business
Day of each fiscal quarter during the period from the date hereof through and
including the Maturity Date with the first such payment due on March 31, 1998.
(b) Initial Fee. Borrower shall have paid Lender
a non-refundable fee of $15,000.00 within ten (10) days of the completion of
Borrower's initial public common stock offering (the "Initial Fee"). The
Initial Fee shall be retained by Lender whether or not the Credit Facility is
utilized by Borrower.
(c) Line of Credit Fee. Upon the execution of
this Agreement, Borrower shall pay Lender a non-refundable fee in the amount of
$10,000.00 for establishing the Commitment, which fee shall be retained by
Lender whether or not the Commitment is utilized by Borrower.
SECTION 3.4. Manner of Payment. Each payment by Borrower on
account of the principal of or interest on the Loans or of any fee, commission
or other amounts payable to Lender under this Agreement or the Note shall be
made not later than 2:00 p.m. (EST) on the date specified for payment under
this Agreement to Lender at Lender's Office, in Dollars, in immediately
available funds and shall be made without any set-off, counterclaim or
deduction whatsoever. Any payment received after 2:00 p.m. (EST) shall be
deemed to have been made on the next succeeding Business Day for all purposes.
Subject to Section 3.1(b)(ii), if any payment under this Agreement or the Note
shall be specified to be made upon a day which is not a Business Day, it shall
be made on the next succeeding day which is a Business Day and such extension
of time shall in such case be included in computing any interest if payable
along with such payment.
SECTION 3.5. Crediting of Payments and Proceeds. In the event
that Borrower shall fail to pay any of the Obligations when due and the
Obligations have been accelerated pursuant to Section 10.2, all payments
received by Lender pursuant to the Note and the other Obligations and all net
proceeds from the enforcement of the Obligations shall be applied first to all
expenses then due and payable by Borrower hereunder, then to all indemnity
Obligations then due and payable by Borrower hereunder, then to all Lender's
fees then due and payable, then to all Commitment and other fees then due and
payable, then to accrued and unpaid interest on the Note and any termination
payments due in respect of a Hedging Agreement with Lender, then to the
principal amount of the Note, in that order.
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<PAGE> 22
SECTION 3.6. Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate
Availability. If with respect to any Interest Period Lender shall determine
that, by reason of circumstances affecting the foreign exchange and interbank
markets generally, deposits in eurodollars, in the applicable amounts are not
being quoted via the LIBOR Rate Reference Page or offered to Lender for such
Interest Period, then Lender shall give notice thereof to Borrower.
Thereafter, until Lender notifies Borrower that such circumstances no longer
exist, the Obligation of Lender to make LIBOR Rate Loans and the right of
Borrower to convert any Loan to or continue any Loan as a LIBOR Rate Loan shall
be suspended, and Borrower shall repay in full (or cause to be repaid in full)
the then outstanding principal amount of each such LIBOR Rate Loans together
with accrued interest thereon, on the last day of the then current Interest
Period applicable to such LIBOR Rate Loan or convert the then outstanding
principal amount of each such LIBOR Rate Loan to a Prime Rate Loan as of the
last day of such Interest Period.
(b) Laws Affecting LIBOR Rate Availability. If,
after the date hereof, the introduction of, or any change in, any Applicable
Law or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender with any
request or directive (whether or not having the force of law) of any such
Authority, central bank or comparable agency, shall make it unlawful or
impossible for Lender to honor its Obligations hereunder to make or maintain
any LIBOR Rate Loan, Lender shall promptly give notice thereof to Borrower.
Thereafter, until Lender notifies Borrower that such circumstances no longer
exist, (i) the Obligations of Lender to make LIBOR Rate Loans and the right of
Borrower to convert any Loan or continue any Loan as a LIBOR Rate Loan shall be
suspended and thereafter Borrower may select only Prime Rate Loans hereunder,
and (ii) if Lender may not lawfully continue to maintain a LIBOR Rate Loan to
the end of the then current Interest Period applicable thereto as a LIBOR Rate
Loan, the applicable LIBOR Rate Loan shall immediately be converted to a Prime
Rate Loan for the remainder of such Interest Period.
(c) Increased Costs. If, after the date hereof,
the introduction of, or any change in, any Applicable Law, or in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender with any request or directive (whether or not
having the force of law) of such Authority, central bank or comparable agency:
(i) shall subject Lender to any
tax, duty or other charge with respect to the Note or shall change the basis of
taxation of payments to Lender of the principal of or interest on the Note or
any other amounts due under this Agreement in respect thereof (except for
changes in the rate of tax on the overall net
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<PAGE> 23
income of Lender imposed by the jurisdiction in which Lender is organized); or
(ii) shall impose, modify or deem
applicable any reserve (including, without limitation, any imposed by the Board
of Governors of the Federal Reserve System), special deposit, insurance or
capital or similar requirement against assets of, deposits with or for the
account of, or credit extended by Lender or shall impose on Lender or the
foreign exchange and interbank markets any other condition affecting any Note;
and the net result of any of the foregoing is to increase the costs to Lender
of maintaining any LIBOR Rate Loan or to reduce the yield or amount of any sum
received or receivable by Lender under this Agreement or under the Note in
respect of a LIBOR Rate Loan, then Lender shall promptly notify Borrower of
such fact and demand compensation therefor and, within five (5) days after such
notice by Lender, Borrower shall pay to Lender such additional amount or
amounts as will compensate Lender for such increased cost or reduction. Lender
will promptly notify Borrower of any event of which it has knowledge which will
entitle Lender to compensation pursuant to this Section 3.7(c); provided, that
Lender shall incur no liability whatsoever to Borrower in the event it fails to
do so. The amount of such compensation shall be determined, in Lender's sole
discretion, based upon the assumption that Lender funded its LIBOR Rate Loans
in the London interbank market and using any reasonable attribution or
averaging methods which Lender deems appropriate and practical. A certificate
of Lender setting forth the basis for determining such amount or amounts
necessary to compensate Lender shall be forwarded to Borrower and shall be
conclusively presumed to be correct save for manifest error.
SECTION 3.7. Indemnity. Borrower hereby indemnifies Lender
against any loss or expense which may arise or be attributable to Lender's
obtaining, liquidating or employing deposits or other funds acquired to effect,
fund or maintain any portion of the Loans (a) as a consequence of any failure
by Borrower to make any payment when due of any amount due hereunder in
connection with a LIBOR Rate Loan, (b) due to any failure of Borrower to borrow
on a date specified therefor in a Notice of Borrowing or Notice of
Continuation/Conversion or (c) due to any payment, prepayment or conversion of
any LIBOR Rate Loan on a date other than the last day of the Interest Period
therefor. The amount of such loss or expense shall be determined, in Lender's
sole discretion, based upon the assumption that Lender funded the LIBOR Rate
Loans in the London interbank market and using any reasonable attribution or
averaging methods which Lender deems appropriate and practical. A certificate
of Lender setting forth the basis for determining such amount or amounts
necessary to compensate Lender (the "Expense Certificate") shall be forwarded
to Borrower through Lender and shall be conclusively deemed to be correct,
unless Borrower shall provide Lender with written notice of any objection to
the Expense Certificate within five (5) Business Days of its receipt of the
Expense Certificate describing its specific objections to the Expense
Certificate and Lender agrees
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<PAGE> 24
with such objection, which agreement shall not be unreasonably withheld.
SECTION 3.8. Capital Requirements. If either (a) the introduction
of, or any change in, or in the interpretation of, any Applicable Law or (b)
compliance with any guideline or request issued after the date hereof from any
central bank or comparable agency or other Governmental Authority (whether or
not having the force of law), has or would have the effect of reducing the rate
of return on the capital of, or has affected or would affect the amount of
capital required to be maintained by, Lender as a consequence of, or with
reference to the Commitment below the rate which Lender could have achieved but
for such introduction, change or compliance, then within five (5) Business Days
after written demand by Lender, Borrower shall pay to such Lender from time to
time as specified by Lender additional amounts sufficient to compensate Lender
for such reduction. A certificate as to such amounts submitted to Borrower by
Lender, shall, in the absence of manifest error, be presumed to be correct and
binding for all purposes.
SECTION 3.9. Taxes.
(a) Payments Free and Clear. Any and all
payments by Borrower hereunder or under the Note shall be made free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholding, and all liabilities with respect
thereto excluding, (i) in the case of Lender, income and franchise taxes
imposed by the State of Florida or the State of Georgia or any political
subdivision thereof, and (ii) income and franchise taxes imposed by the United
States (all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under the Note to Lender, then in that event the
following shall apply: (A) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 3.11) Lender receives
an amount equal to the amount such party would have received had no such
deductions been made; (B) Borrower shall make such deductions; (C) Borrower
shall pay the full amount deducted to the relevant taxing authority or other
authority in accordance with Applicable Law; and (D) Borrower shall deliver to
Lender evidence of such payment to the relevant taxing authority or other
authority in the manner provided in Section 3.9(d).
(b) Stamp and Other Taxes. In addition, Borrower
shall pay any present or future stamp, registration, recordation or documentary
taxes or any other similar fees or charges or excise or property taxes (other
than excise and property taxes to which Lender would have been subject in the
absence of this Agreement), levies of the United States or any state or
political subdivision thereof or
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<PAGE> 25
any applicable foreign jurisdiction which arise from any payment made hereunder
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement, the Loans, the other Loan Documents, or the perfection of
any rights or security interest in respect thereto (such taxes are hereinafter
referred to as "Other Taxes").
(c) Indemnity. Borrower shall indemnify Lender
for the full amount of Taxes and Other Taxes paid by Lender and any liability
(including, to the extent resulting from late payment by Borrower or any
Subsidiary thereof, penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Such indemnification shall be made within thirty (30) days
from the date Lender makes written demand therefor. Notwithstanding the
foregoing, Lender agrees to notify Borrower at least five (5) days before
payment of any such Taxes or Other Taxes and further agrees to cooperate in
good faith with Borrower in any attempt by Borrower to seek any refund of Taxes
or Other Taxes paid by Lender.
(d) Evidence of Payment. Within thirty (30) days
after the date of any payment of Taxes or Other Taxes, Borrower shall furnish
to Lender, at its address referred to in Section 11.1, the original or a
certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to Lender.
(e) Survival. Without prejudice to the survival
of any other agreement of Borrower hereunder, the agreements and Obligations of
Borrower contained in this Section 3.11 shall survive the payment in full of
the Obligations and the termination of the Credit Facility.
ARTICLE IV
CLOSING; CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1. Closing. The closing shall take place at a location
mutually agreed to by Borrower and Lender outside of the State of Florida on or
before January 15, 1998, or on such other date as the parties hereto shall
mutually agree.
SECTION 4.2. Conditions to Closing and Initial Loans. The
Obligation of Lender to close this Agreement and to make the initial Loan is
subject to the satisfaction of each of the following conditions:
(a) Securities Offering. Borrower shall have
consummated its initial public offering of common stock and have received
opening paid-in capital of no less than Twenty One Million Six Hundred Seventy
Six Thousand and 00/100 Dollars ($21,676,000.00) on or before the Closing Date.
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<PAGE> 26
(b) Executed Loan Documents. The following Loan
Documents, in form and substance reasonably satisfactory to Lender:
(i) this Agreement;
(ii) the Note;
(iii) the Subsidiary Guaranty Agreement
executed by the Subsidiary
Guarantors; and
(iv) the Tax Indemnity Agreement executed
by the Subsidiary Guarantors;
shall have been duly authorized, executed and delivered by the applicable
Credit Parties, shall be in full force and effect and no Default or Event of
Default shall exist thereunder, and such Credit Parties shall have delivered
original counterparts thereof to Lender.
(c) Liens; Insurance.
(i) UCC-11 Searches. The Credit Parties
shall have delivered the results of UCC-11 searches of all filings made against
such Credit Parties under the Uniform Commercial Code as in effect in any state
in which any of their offices or assets are located, indicating among other
things that their assets are free and clear of any Lien, except for the Liens
permitted by Section 9.3.
(ii) Insurance. Lender shall have
received certificates of insurance and certified copies of insurance policies
in the form required under Section 7.3 and otherwise in form and substance
reasonably satisfactory to Lender.
(d) Closing Certificates and Opinions; etc.
(i) Certificate of Borrower. Lender shall
have received a certificate dated as of the Closing Date from the Credit
Parties, satisfactory to Lender, certifying that all representations and
warranties of the Credit Parties contained in this Agreement and the other Loan
Documents are true and correct in all material respects; that no Credit Party is
in violation of any of the covenants contained in this Agreement and the other
Loan Documents that apply to such Credit Party; that, after giving effect to the
transactions contemplated by this Agreement, no Default or Event of Default has
occurred and is continuing; and that the Credit Parties have satisfied each of
the closing conditions to be satisfied hereby which have not waived by Lender.
(ii) Certificate of Secretary of each
Credit Party. Lender shall have received a certificate of the secretary or
assistant secretary of each Credit Party certifying on behalf of such Credit
Party, as applicable, that attached thereto is a true
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<PAGE> 27
and complete copy of the articles of incorporation of such Credit Party and all
amendments thereto; that attached thereto is a true and complete copy of the
bylaws of such Credit Party; that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of such Credit Party,
authorizing, in the case of Borrower, the borrowings contemplated hereunder and,
in the case of each of the Credit Parties, the execution, delivery and
performance of this Agreement and the other Loan Documents; and as to the
incumbency and genuineness of the signature of each officer of such Credit Party
executing Loan Documents to which such Credit Party is a party.
(iii) Certificates of Good
Standing. Lender shall have received certificates of good standing from the
jurisdiction of incorporation of each Credit Party and, to the extent requested
by Lender, certificates of authority to do business from each jurisdiction
where any Credit Party is authorized to do business.
(iv) Opinions of Counsel. Lender
shall have received favorable opinions of counsel to the Credit Parties, dated
as of the Closing Date and addressed to Lender, in form and substance
satisfactory to Lender.
(e) Consents; Defaults.
(i) Governmental and Third Party
Approvals. All necessary approvals, authorizations and consents, if required,
of any Person and of all Governmental Authorities and courts having
jurisdiction with respect to the transactions contemplated by this Agreement
and the other Loan Documents shall have been obtained.
(ii) Permits and Licenses. All
permits and licenses, including permits and licenses required under Applicable
Laws, necessary to the conduct of business by the Credit Parties shall have
been obtained and remain in full force and effect.
(iii) No Injunction, Etc. No
action, proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any Governmental Authority to enjoin,
restrain, or prohibit, or to obtain substantial damages in respect of, or which
is related to or arises out of this Agreement or the other Loan Documents or
the consummation of the transactions contemplated hereby or thereby, or which,
in Lender's discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement and such other Loan Documents.
(iv) No Material Adverse Change.
There shall not have occurred any material change in the assets, business,
properties, business prospects, financial condition or results of operations of
the Credit Parties, or in any event, condition or state
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<PAGE> 28
of facts that could reasonably be expected to have a Material Adverse Effect.
(v) No Event of Default. No
Default or Event of Default shall have occurred and be continuing.
(f) Financial Matters.
(i) Financial Statements.
Lender shall have received (A) audited Consolidated financial statements for
the Fiscal Year of Borrower ended December 31, 1996, (B) if available,
unaudited Consolidated financial statements of Borrower and its Subsidiaries
for the fiscal quarter period ending September 30, 1997, and (C) such other
financial information as may be reasonably requested by Lender.
(ii) Financial Condition
Certificate. Borrower shall have delivered to Lender a certificate on behalf of
itself and the Credit Parties, in form and substance satisfactory to Lender,
and certified as accurate in all material respects by the chief executive
officer or chief financial officer (or other officer acceptable to Lender) of
Borrower that: (A) each Subsidiary's payables are current and not past due more
than ninety (90) days (except for those being contested in good faith by a
Subsidiary) and each Credit Party is Solvent; (B) other than as may result from
any acquisitions consummated by a Credit Party between September 30, 1997 and
the date hereof (collectively, the "Intervening Acquisitions"), which
Intervening Acquisitions do not have a Material Adverse Effect upon Borrower's
liquidity position, Borrower's and each Subsidiary's liquidity position as of
the date of such certificate is not materially and adversely different from the
September 30, 1997 financial statements previously furnished to Lender; (C) the
financial projections previously delivered to Lender represent the good faith
opinion of Borrower and senior management thereof as to the projected results
contained therein; and (D) attached thereto is a calculation of the Applicable
Margin as of the Closing Date in accordance with Section 3.1(c).
(iii) Payment at Closing; Fee
Letters. There shall have been paid by the Credit Parties to Lender the fees
set forth or referenced in Section 3.3 and any other accrued and unpaid fees
due hereunder (including, without limitation, legal fees and expenses), and to
any other Person such amount as may be due thereto in connection with the
transactions contemplated hereby, including all taxes, fees and other charges
in connection with the execution, delivery, recording, filing or registration
of any of the Loan Documents.
(g) Miscellaneous.
(i) Notice of Borrowing;
Disbursement Instructions. Lender shall have received written instructions
from
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<PAGE> 29
Borrower to Lender directing the payment of any proceeds of Loans made under
this Agreement that are to be paid on the Closing Date.
(ii) Proceedings and Documents.
All opinions, certificates and other instruments and all proceedings in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Lender. Lender shall have received
copies of all other instruments and other evidence as Lender may reasonably
request, in form and substance satisfactory to Lender, with respect to the
transactions contemplated by this Agreement and the taking of all actions in
connection therewith.
(iii) Other Documents. The Credit
Parties shall have delivered to Lender such other documents, certificates and
opinions as Lender may reasonably request.
SECTION 4.3. Conditions to All Loans. The Obligations of Lender
to make any Loan is subject to the satisfaction of the following conditions
precedent on the relevant borrowing date:
(a) Continuation of Representations and
Warranties. The representations and warranties made by the Credit Parties
contained in Article V and in the other Loan Documents shall be true and
correct on and as of such borrowing or issuance date with the same effect as if
made on and as of such borrowing date, taking into account any revised
Schedules forwarded by the Credit Parties to Lender after the Closing Date;
provided that (i) the Obligation to update Schedules shall be subject to
Section 6.3(f) and the representations and warranties relating to such
Schedules shall not be deemed to be inaccurate prior to updating such Schedules
pursuant to Section 6.3(f) and (ii) subsequent disclosures shall not constitute
a cure or waiver of any Default or Event of Default resulting from the matters
disclosed.
(b) No Existing Default. Borrower shall be in
compliance with Sections 2.1 and 2.3(b) and no other Default or Event of
Default shall have occurred and be continuing hereunder on the borrowing date
with respect to such Loan or after giving effect to the Loans to be made on
such borrowing date.
(c) Officer's Compliance Certificate; Additional
Documents. Lender shall have received the current Officer's Compliance
Certificate and each additional document, instrument, legal opinion or other
item of information reasonably requested by Lender.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 5.1. Representations and Warranties. To induce Lender to
enter into this Agreement and Lender to make the Loans, Borrower hereby
represents and warrants to Lender that:
(a) Existence; Power; Qualification. Each Credit
Party is a duly formed, validly existing corporation organized under the laws
of the state of its incorporation and is in good standing under the laws of
such state, has the corporate power and authority to own its properties and to
carry on its business as now being and hereafter proposed to be conducted and
is duly qualified (or otherwise licensed) and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification and authorization except where the failure
to so qualify could not have a Material Adverse Effect. The jurisdictions in
which the Credit Parties are organized and qualified to do business are
described on SCHEDULE 5.1(A).
(b) Ownership. Each Credit Party is listed on
SCHEDULE 5.1(B). All outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable. Borrower owns one hundred percent
(100%) of all classes of the outstanding capital stock of each Subsidiary
Guarantor. There are no outstanding stock purchase warrants, subscriptions,
options, securities, instruments or other rights of any type or nature
whatsoever, which are convertible into, exchangeable for or otherwise provide
for or permit the issuance of capital stock of any of Credit Parties, except as
described on SCHEDULE 5.1(B).
(c) Authorization of Agreement, Loan Documents
and Borrowings. Each Credit Party has the corporate right, power and authority
and has taken all necessary corporate and other action to authorize the
execution, delivery and performance of each of the Loan Documents to which it
is a party in accordance with their respective terms. Each of the Loan
Documents has been duly executed and delivered by the duly authorized officers
of the Credit Parties party thereto, and constitutes the legal, valid and
binding Obligation of each such Credit Party enforceable in accordance with its
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws, the enforcement
of creditors, rights in general and the availability of equitable remedies.
(d) Compliance of Agreement, Loan Documents and
Borrowing with Laws, Etc. The execution, delivery and performance by each
Credit Party of the Loan Documents to which each such Person is a party, in
accordance with their respective terms, the borrowings hereunder and the
transactions contemplated hereby do not and will
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not, by the passage of time, the giving of notice or otherwise, (i) require any
Governmental Approval not previously obtained or violate any Applicable Law
relating to the Credit Parties, (ii) conflict with, result in a breach of or
constitute a default under the articles of incorporation, by-laws or any other
contract or agreement to which such Person is a party or by which any of its
properties may be bound or any Governmental Approval relating to such Person,
or (iii) result in or require the creation or imposition of any Lien upon or
with respect to any property now owned or hereafter acquired by such Person
other than Liens permitted pursuant to Section 9.3.
(e) Compliance with Law; Governmental Approvals.
Each Credit Party (i) has all Governmental Approvals required by any Applicable
Law for it to conduct its business (except where the failure to have any such
approval could not reasonably be expected to have a Material Adverse Effect),
each of which is in full force and effect, is final and not subject to review
on appeal and is not the subject of any pending or, to the best of its
knowledge, threatened attack by direct or collateral proceeding, and (ii) is in
compliance with each Governmental Approval applicable to it and in all material
respects with all other Applicable Laws relating to it or any of its respective
properties, except where the failure to so comply could not have a Material
Adverse Effect.
(f) Tax Returns and Payments. Each Credit Party
has duly filed or caused to be filed all federal, state, local and other tax
returns required by Applicable Law to be filed, and has paid, or made adequate
provision for the payment of, all federal, state, local and other taxes,
assessments and governmental charges or levies upon it and its property,
income, profits and assets which are due and payable. No Governmental
Authority has asserted any Lien or other claim against any Credit Party with
respect to unpaid taxes which has not been discharged or resolved. The
charges, accruals and reserves on the books of each Credit Party in respect of
federal, state, local and other taxes for all fiscal years and portions thereof
since the formation of such Credit Party are in the judgment of such Credit
Party adequate, and the Credit Parties do not anticipate any additional taxes
or assessments for any of such years.
(g) Franchises, Intellectual Property and
Computer Equipment.
(i) Each Credit Party owns or
possesses rights to use all franchises, licenses, copyrights, copyright
applications, patents, patent rights or licenses, patent applications,
trademarks, trademark rights, trade names, trade name rights, copyrights and
rights with respect to the foregoing which are required to conduct its business
as now and presently planned to be conducted without any conflict with the
rights of others. No event has occurred which permits, or after notice or
lapse of time or both would permit, the revocation or termination of any such
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rights, and the Credit Parties are not liable to any Person for infringement
under Applicable Law with respect to any such rights as a result of their
business operations.
(ii) Each Credit Party has such
title to and the right to use all computer software programs as are necessary
to permit the Credit Parties to conduct their operations as currently
conducted, without any known conflict with the rights of others or any known
use by others which conflicts with the rights of the Credit Parties.
(h) Environmental Matters. The Credit Parties
and their properties and operations are not in violation in any material
respect of any Environmental Law, or subject to any existing, pending or
threatened investigation, inquiry or proceeding by any Governmental Authority
or to any remedial Obligations under any Environmental Law; and all material
notices, permits, licenses or similar authorizations, if any, required to be
obtained or filed by the Credit Parties relating to Hazardous Materials,
including, without limitation, past or present treatment, storage, disposal or
release of any Hazardous Materials or solid waste by the Credit Parties into
the environment, have been obtained or applications for such permits and
licenses have been filed and the Credit Parties are in full compliance in all
material respects with the requirements of such permits, licenses or
authorizations.
(i) ERISA. Except as set forth on SCHEDULE
5.1(C), the Credit Parties and each ERISA Affiliate are in compliance in all
material respects with applicable provisions of ERISA and the regulations and
published interpretations thereunder with respect to all Employee Benefit Plans
except for any required amendments for which the remedial amendment period as
defined in Section 401(b) of the Code has not yet expired. Each Employee
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
has been determined by the Internal Revenue Service to be so qualified, and
each trust related to such plan has been determined to be exempt under Section
501(a) of the Code. No material liability has been incurred by any Credit
Party or any ERISA Affiliate which remains unsatisfied with respect to any
Employee Benefit Plan or any Multiemployer Plan.
(j) Margin Stock. None of the Credit Parties are
engaged principally or as one of their activities in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" (as
each such term is defined or used in Regulations G and U of the Board of
Governors of the Federal Reserve System). No part of the proceeds of any of the
Loans will be used for purchasing or carrying margin stock or for any purpose
which violates, or which would be inconsistent with, the provisions of
Regulation G, T, U or X of such Board of Governors. If requested by Lender,
Borrower will
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furnish to Lender a statement or statements in conformity with the requirements
of said Regulation G, T, U or X to the foregoing effect.
(k) Government Regulation. No Credit Party is an
"investment company" or a company "controlled" by an "investment company" (as
each such term is defined in the Investment Company Act of 1940, as amended)
and no Credit Party is, or after giving effect to any Extension of Credit will
be, subject to regulation under the Public Utility Holding Company Act of 1935
or the Interstate Commerce Act, each as amended, or any other Applicable Law
which limits its ability to incur or consummate the transactions contemplated
hereby.
(l) Employee Relations. Each Credit Party has a
stable work force in place and is not, except as set forth on SCHEDULE 5.1(D),
party to any collective bargaining agreement nor has any labor union been
recognized as the representative of its employees. The Credit Parties know of
no pending, threatened or contemplated strikes, work stoppage or other
collective labor disputes involving its employees.
(m) Financial Statements. The Consolidated
balance sheet of Borrower and its Subsidiaries as of September 30, 1997, and
the related statements of income and retained earnings and cash flows for the
periods then ended, copies of which have been furnished to Lender, when read
together with the other financial information pertaining to the Credit Parties
which has heretofore been furnished in writing to Lender, fairly present the
assets, liabilities and financial position of the Credit Parties as at such
dates, and the results of the operations and changes of financial position for
the periods then ended, except that such financial statements do not account
for the Intervening Acquisitions; provided, however, the Intervening
Acquisitions do not result in a violation of any of the financial covenants
herein contained, including without limitation, Article VIII. All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved except as indicated in the notes thereto. The Credit Parties
have no material Debt, Obligation or other unusual forward or long-term
commitment which is not fairly reflected in the foregoing financial statements
or in the notes thereto (except for such items as are incurred in connection
with Permitted Acquisitions or as are incurred in the ordinary course of
business in each case after the date thereof), all as required by GAAP.
(n) No Material Adverse Change. There has been
no material adverse change in the properties, businesses, results of
operations, or financial or other condition of the Credit Parties taken as a
whole, including, but not limited to, any material adverse change resulting
from any fire, explosion, accident, drought, storm, hail, earthquake, embargo,
act of God, or of the public enemy or other casualty (whether or not covered by
insurance).
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(o) Solvency. As of the Closing Date and after
giving effect to each Loan made on the Closing Date, Borrower will be Solvent.
(p) Titles to Properties. Each Credit Party has
such title to the real property owned in fee or leased by it as is appropriate
to the conduct of its business, and valid and legal title to all of its
personal property and assets, including, but not limited to, those reflected on
the Consolidated balance sheets of Borrower and its Subsidiaries delivered
pursuant to Section 5.1(n), except those which have been disposed of by the
Credit Parties subsequent to such date which dispositions have been in the
ordinary course of business.
(q) Liens. Except as described on Schedule
5.1(e), none of the properties and assets owned by the Credit Parties is
subject to any Lien, except Liens permitted pursuant to Section 9.3. No
financing statement under the Uniform Commercial Code of any state which names
the Credit Parties as debtor and which has not been terminated, has been filed
in any state or other jurisdiction and none of the Credit Parties has signed
any such financing statement or any security agreement authorizing any secured
party thereunder to file any such financing statement, except to perfect those
Liens listed on Schedule 5.1(e), if any.
(r) Litigation. Except as set forth on SCHEDULE
5.1(F), there are no actions, suits or proceedings pending nor, to the
knowledge of any Credit Party, threatened against or in any other way relating
adversely to or affecting any Credit Party or any of their respective
properties in any court or before any arbitrator of any kind or before or by
any Governmental Authority which could reasonably be expected to be adversely
determined and have a Material Adverse Effect on Borrower. There are no
material outstanding or unpaid judgments against any Credit Parties.
(s) Absence of Defaults. (i) No event has
occurred or is continuing which constitutes a Default or an Event of Default
and (ii) no event has occurred and is continuing which constitutes, or which
with the passage of time or giving of notice or both would constitute, a
default or event of default by any Credit Party under any or judgment, decree
or order to which any Credit Party is a party or by which any Credit Party or
any of their respective properties may be bound or which would require any
Credit Party to make any payment thereunder prior to the scheduled maturity
date therefor, any of which events referred to in this clause (ii) could
reasonably be expected to have a Material Adverse Effect.
(t) Accuracy and Completeness of Information.
All written information, reports and other papers and data produced by or on
behalf of the Credit Parties and furnished to Lender were, at
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the time the same were so furnished, complete and correct in all respects to
the extent necessary to give the recipient a true and accurate knowledge of the
subject matter. No document furnished or written statement made to Lender or
Lender by the Credit Parties in connection with the negotiation, preparation or
execution of this Agreement or any of the Loan Documents contains or will
contain any untrue statement of a fact material to the creditworthiness of the
Credit Parties or omits or will omit to state a fact necessary in order to make
the statements contained therein not misleading. The Credit Parties are not
aware of any facts which it has not disclosed in writing to Lender which could
reasonably be expected to have a Material Adverse Effect.
SECTION 5.2. Survival of Representations and Warranties, etc. All
representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including but not limited to any such representation or warranty
made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement shall be made or deemed to be made at
and as of the Closing Date, shall survive the Closing Date and shall not be
waived by the execution and delivery of this Agreement or any borrowing
hereunder.
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been finally and indefeasibly paid and
satisfied in full and the Credit Facility terminated, unless consent has been
obtained in the manner set forth in Section 11.12 hereof, Borrower will furnish
or cause to be furnished to Lender at Lender's Office set forth in Section 11.1
hereof or such other office as may be designated by Lender from time to time,
the following:
SECTION 6.1. Financial Statements and Projections.
(a) Quarterly Financial Statements. As soon as
practicable but in no event later than fifty (50) days after the end of each
fiscal quarter, an unaudited Consolidated balance sheet of Borrower and its
Subsidiaries as of the close of such fiscal quarter and unaudited Consolidated
statements of income, retained earnings and cash flows for the fiscal quarter
then ended and that portion of the Fiscal Year then ended, all in reasonable
detail setting forth in comparative form the corresponding figures for the
preceding Fiscal Year and prepared by Borrower in accordance with GAAP applied
on a basis consistent with that of the preceding period, and certified by the
chief financial officer of Borrower to present fairly in all material respects
the financial condition of Borrower and its Subsidiaries as of their respective
dates and the results of operations of Borrower and its Subsidiaries for the
respective
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periods then ended, subject to normal year-end adjustments. Borrower's
quarterly report submitted pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 prepared in accordance with Form 10-Q of the Securities
and Exchange Commission shall satisfy Borrower's obligations pursuant to this
Section 6.1(a) provided it is timely submitted to Lender as herein required.
(b) Annual Financial Statements. As soon as
practicable but in no event later than ninety-five (95) days after the end of
each Fiscal Year, an audited Consolidated balance sheet of Borrower and its
Subsidiaries as of the close of such Fiscal Year, together with audited
Consolidated statements of income, retained earnings and cash flows for the
Fiscal Year then ended, including the notes thereto, all in reasonable detail
setting forth in comparative form the corresponding figures for the preceding
Fiscal Year and prepared by an independent certified public accounting firm
acceptable to Lender in accordance with GAAP, applied on a basis consistent
with that of the preceding year and accompanied by a report thereon by such
certified public accountants that is not qualified with respect to scope
limitations imposed by Borrower or with respect to accounting principles
followed by Borrower not in accordance with GAAP, together with accompanying
management letters received by Borrower. Borrower's annual report submitted
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 prepared
in accordance with Form 10-K of the Securities and Exchange Commission shall
satisfy its obligations of this Section 6.1(b) provided it is timely submitted
to Lender as herein required.
(c) Annual Projections. As soon as practicable
but in no event later than one hundred eight (180) days after the end of each
Fiscal Year, annual projections for Borrower and its Subsidiaries for the
following Fiscal Year indicating projected earnings and such other information
reasonably requested by Lender for such Fiscal Year.
(d) Other Financial Information. Such other
information regarding the operations, business affairs and financial condition
of the Credit Parties and any Subsidiary thereof as Lender may reasonably
request.
SECTION 6.2. Officer's Compliance Certificate. At each time
financial statements are delivered pursuant to Sections 6.1(a) or (b) and at
such other times as Lender shall reasonably request, a certificate of the chief
executive officer or chief financial officer (or other officer thereof
acceptable to Lender) of Borrower in the form of EXHIBIT C attached hereto (an
"Officers Compliance Certificate").
SECTION 6.3. Notice of Litigation and Other Matters. Prompt (but
in no event later than ten (10) Business Days after any Credit Party obtains
knowledge thereof) telephonic and written notice of:
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(a) the commencement of any significant
proceedings and investigations by or before any Governmental Authority and all
actions and proceedings in any court or before any arbitrator against or
involving any Credit Party or any of their properties, assets or businesses,
any of which could reasonably be expected to have a Material Adverse Effect;
(b) any labor controversy that has resulted in,
or threatens to result in, a strike or other work action against any Credit
Party which could reasonably be expected to have a Material Adverse Effect;
(c) any attachment, judgment, lien, levy or order
that may be assessed against or threatened against any Credit Party which could
reasonably be expected to have a Material Adverse Effect;
(d) any Default or Event of Default;
(e) any violation of ERISA or any liability
incurred under any Employee Benefit Plan or Multiemployer Plan which could
reasonably be expected to have a Material Adverse Effect;
(f) any event which makes any of the
representations set forth in Section 5.1 inaccurate in any material respect
(provided that all Schedules must be updated by the Credit Parties only at each
fiscal quarter end by forwarding any such updates to Lender with the applicable
officer's Compliance Certificate).
ARTICLE VII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facility terminated, unless consent has
been obtained in the manner provided for in Section 11.12, Borrower will, and
will cause each of its Subsidiaries to:
SECTION 7.1. Preservation of Existence and Related Matters.
Preserve and maintain its separate existence and all material rights,
franchises, licenses and privileges necessary to the conduct of its business;
and qualify and remain qualified and authorized to do business in each
jurisdiction in which the failure to so qualify could have a Material Adverse
Effect.
SECTION 7.2. Maintenance of Property. In addition to the
requirements of any of the Security Documents, protect and preserve all
properties useful in and material to its business, including copyrights,
patents, trade names and trademarks; maintain in good working order and
condition, other than ordinary wear and tear excepted all buildings, equipment
and other tangible real and personal property, and from time to time make or
cause to be made
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all renewals, replacements and additions to such property reasonably necessary
for the conduct of its business.
SECTION 7.3. Insurance. Maintain insurance with responsible
insurance companies against such risks and in such amounts as are customarily
maintained by similar businesses or as may be required by Applicable Law, and
on the Closing Date and from time to time thereafter deliver to Lender upon its
request (a) a detailed list of the insurance then in effect, stating the names
of the insurance companies, the amounts and rates of the insurance, the dates
of the expiration thereof and the properties and risks covered thereby, and (b)
a certified copy of the policies of insurance.
SECTION 7.4. Accounting Methods and Financial Records. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete in all material respects) as may be required or as may be
necessary to permit the preparation of financial statements in accordance with
GAAP consistently applied and in compliance with the regulations of any
Governmental Authority having jurisdiction over it or any of its properties.
SECTION 7.5. Payment and Performance of Obligations. Pay and
perform (a) all Obligations, (b) all taxes, assessments and other governmental
charges that may be levied or assessed upon it or its property (other than
those being contested in good faith by appropriate proceedings if adequate
reserves are maintained to the extent required by GAAP) and (c) all other
indebtedness, Obligations and liabilities in accordance with customary trade
practices the failure to make payment of which could reasonably be expected to
have a Material Adverse Effect.
SECTION 7.6. Compliance With Laws and Approvals. Observe and
remain in compliance in all material respects with all Applicable Laws and
maintain in full force and effect all Governmental Approvals, in each case
applicable or necessary to the conduct of its business including, without
limitation, all Environmental Laws and all Governmental Approvals required
thereunder.
SECTION 7.7. Environmental Management. In addition to and without
limiting the generality of Section 7.6, maintain its business premises (whether
leased or owned in fee) free of any Hazardous materials the removal of which is
required under Environmental Laws; and adopt and maintain prudent management,
disposal, clean-up and other practices as may be required by Environmental Laws
for all other Hazardous Materials located on its business premises.
SECTION 7.8. Compliance with ERISA. In addition to and without
limiting the generality of Section 7.6, make timely payment of contributions
required to meet the minimum funding standards set forth in ERISA with respect
to any Employee Benefit Plan; not take any action or fail to take action the
result of which could be a material liability to the PBGC or to a Multiemployer
Plan; not
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participate in any prohibited transaction that could result in any material
civil penalty under ERISA or material tax under the Code; furnish to Lender
upon Lender's request such information about any Employee Benefit Plan as may
be reasonably requested by Lender; and operate each Employee Benefit Plan in
such a manner that will not incur any material tax liability under Section
4980B of the Code or any material liability to any qualified beneficiary as
defined in Section 4980B of the Code.
SECTION 7.9. Compliance with Agreements. Comply with each
material term, condition and provision of all leases, agreements and other
instruments entered into in the conduct of its business.
SECTION 7.10. Conduct of Business. Remain engaged primarily in the
business of (a) distribution, marketing and sales of Medical Manager and any
other business reasonably related thereto and (b) other lines of business
approved in connection with a Permitted Acquisition.
SECTION 7.11. Visits and Inspections. At Lender's sole cost and
expense, permit representatives of Lender, upon reasonable notice to Borrower,
from time to time during normal business hours, as often as may be reasonably
requested, to visit and inspect its properties; inspect, audit and make
extracts from its books, records and files, including, but not limited to,
management letters prepared by independent accountants; and discuss with its
principal officers, and its independent accountants, its business, assets,
liabilities, financial condition, results of operations and business prospects.
SECTION 7.12. New Subsidiaries. Prior to such time as a Subsidiary
of Borrower owns assets in excess of $10,000 or conducts business or
consummates any Permitted Acquisition, cause to be executed and delivered to
Lender (i) a Subsidiary Guaranty Agreement substantially in the form of the
EXHIBIT E, executed by such new Subsidiary and (ii) corresponding closing
documents and legal opinions referred to in Section 4.2 with respect to such
new Subsidiary and such other documents reasonably requested by Lender
consistent with the terms of this Agreement, in order that such Subsidiary
shall become bound by all of the terms, covenants and agreements contained in
the Loan Documents.
SECTION 7.13. Dividends. To the extent necessary in order that
Borrower be able to make any payment required hereunder, cause its Subsidiaries
to pay dividends or make other cash distributions to Borrower.
SECTION 7.14. Banking Relationship. Maintain their bank accounts
with Lender other than such accounts that are necessary for the operation of
their business that are located outside of Florida.
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SECTION 7.15. Chief Executive Officer. Maintain Michael A. Singer
as Borrower's chief executive officer until his death or disability.
SECTION 7.16. Further Assurances. Make, execute and deliver all
such additional and further acts, things, deeds and instruments as Lender may
reasonably require to document and consummate the transactions contemplated
hereby and to vest completely in and insure Lender its rights under this
Agreement, the Note and the other Loan Documents.
ARTICLE VIII
FINANCIAL COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facility terminated, unless consent has
been obtained in the manner set forth in Section 11.12 hereof, Borrower and its
Subsidiaries on a Consolidated basis will not:
SECTION 8.1. Leverage Ratio. As of the end of any fiscal quarter
of Borrower during the term of the Credit Facility, permit the Leverage Ratio
to exceed 2.50 to 1.00.
SECTION 8.2. Minimum Tangible Net Worth. Borrower shall
demonstrate that it had a minimum Tangible Net Worth of Eight Million and
no/100ths Dollars ($8,000,000.00) as of December 31, 1997. In addition,
Borrower shall have a minimum Tangible Net Worth of Fourteen Million and
no/100ths Dollars ($14,000,000.00) as of December 31, 1998.
SECTION 8.3. Capital Expenditures. Make Capital Expenditures in
an aggregate amount in excess of Two Million and 00/100 Dollars ($2,000,000.00)
in any Fiscal Year.
ARTICLE IX
NEGATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facility terminated, unless consent has
been obtained in the manner set forth in Section 11.12 hereof, Borrower will
not and will not permit any of its Subsidiaries to:
SECTION 9.1. Limitations on Debt. Create, incur, assume or suffer
to exist any Debt, other than: (a) the Obligations; (b) letters of credit
issued by Lender (with respect to which Borrower is the account party) in
connection with Permitted Acquisitions or otherwise in the ordinary cause of
business of Borrower and its Subsidiaries, not to exceed an aggregate amount of
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$500,000.00 outstanding at any time; (c) Debt under any Hedging Agreement
reasonably acceptable to Lender; (d) Debt of Borrower incurred by reason of
merger or otherwise assumed in connection with any Permitted Acquisition in an
aggregate principal amount not to exceed Three Million Dollars ($3,000,000.00)
during the term of this Agreement, the terms and conditions of which (including
without limitation any collateral security therefor) shall be acceptable to
Lender and approved by Lender in writing and (e) those certain Notes payable to
Michael A. Singer by MMR&D as described in Note 3 of Borrower's Form 10-Q for
the quarterly period ended June 30, 1997 with an approximate balance on the
date hereof of Six Hundred Ninety-Three Thousand and 00/100 Dollars
($693,000.00) which shall be satisfied in full by MMR&D on or before December
31, 1998; provided, that, none of the Debt permitted to be incurred by this
Section shall restrict, limit or otherwise encumber (by covenant or otherwise)
the ability of any Subsidiary of Borrower to make any payment to Borrower or
any of its Subsidiaries (in the form of dividends, intercompany advances or
otherwise) for the purposes of enabling Borrower to pay the Obligations.
SECTION 9.2. Limitations on Guarantees. Other than Guarantees
created by the Loan Documents, create, incur, assume or suffer to exist any
Guarantee.
SECTION 9.3. Limitations on Liens. Create, incur, assume or
suffer to exist any Lien on or with respect to any of its owned assets and
property, real or personal (including without limitation capital stock or other
ownership interests), whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA or Environmental Laws) not yet due or as to which the
period of grace (not to exceed thirty (30) days), if any, related thereto has
not expired or which are being contested in good faith and by appropriate
proceedings if adequate reserves are maintained to the extent required by GAAP;
(b) The claims of materialmen, mechanics,
carriers, warehousemen, processors or landlords for labor, materials, supplies
or rentals incurred in the ordinary course of business (i) which are not
overdue for a period of more than thirty (30) days or (ii) which are being
contested in good faith and by appropriate proceedings;
(c) Liens consisting of deposits or pledges made
in the ordinary course of business in connection with, or to secure payment of,
Obligations under workers, compensation, unemployment insurance or similar
claims or to secure the performance of tenders, bids, contracts, statutory
Obligations and other similar Obligations;
(d) Liens constituting encumbrances in the nature
of zoning restrictions, easements, and rights or restrictions of
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record on the use of real property, which in the aggregate are not substantial
in amount and which do not, in any case, materially detract from the value of
such property or impair the use thereof in the ordinary conduct of business;
(e) Liens in favor of Lender, if any;
(f) Liens permitted in accordance with Section
9.1(d) existing on any property or asset prior to the acquisition thereof by
Borrower or any Subsidiary securing Debt permitted by such Section; provided
that (i) such Lien is not created in contemplation of or in connection with such
acquisition and (ii) such Lien does not apply to any other property or assets
of Borrower or any Subsidiary; and
(g) extensions, renewals or replacements of any
Lien referred to in clauses (a) through (f) above provided that such extension,
renewal or replacement is limited to the property originally encumbered
thereby.
SECTION 9.4. Limitations on Loans, Advances, Investments and
Acquisitions. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any capital stock, partnership or joint venture (including without
limitation the creation or capitalization of any Subsidiary) interests,
evidence of Debt or other Obligation or security, substantially all or a
material portion of the assets of any other Person or any other investment or
interest whatsoever in any other Person; or make or permit to exist any loans,
advances or extensions of credit to, or any accounts or notes receivable from,
or any investment in cash or by delivery of property in, any Person; or enter
into any commitment or option in respect of the foregoing, except:
(a) investments by Borrower in the form of
acquisitions of all or substantially all of the business or a line of business
of any other Person by the acquisition of all of the capital stock or other
equity ownership interests, or acquisition of the assets which are consummated
in accordance with the following requirements of this Section (a "Permitted
Acquisition"): (i) the acquired Person shall be engaged primarily, and
substantially all of the acquired assets shall be utilized, in the distribution
of Medical Manager, unless otherwise approved in writing by Lender; (ii) no
Default or Event of Default shall have occurred and be continuing or be created
by the relevant Permitted Acquisition as evidenced by a certificate of Borrower
delivered on the closing date thereof to Lender in form and substance
satisfactory to Lender demonstrating pro forma compliance, before and after the
Permitted Acquisition, with the financial covenants set forth in Article VIII
and the other terms of the Loan Documents; and (iii) Borrower must provide
Lender the information described on EXHIBIT D attached hereto regarding each
Permitted Acquisition in reasonable detail and the corresponding documentation
no later than (10) Business Days prior to the closing
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date thereof (to be followed by any changed pages to which the ten (10)
Business Day period shall not apply and fully executed copies promptly after
the creation thereof) and obtain Lender's approval that the acquisition meets
the requirements of clauses (i) and (ii) above, which approval shall not be
unreasonably withheld or delayed; provided, however, that clause (iii) of this
Section set forth above shall not be applied to any single Permitted
Acquisition, the aggregate cash or any other consideration for which is less
than Five Million Five Hundred Thousand and 00/100 Dollars ($5,500,000.00);
(b) investments in treasury bills, certificates
of deposits and bankers acceptances of banks with capital and surplus in excess
of $500,000,000, open market commercial paper maturing within ninety (90) days
and having the highest or second highest rating of either Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group, a Division of McGraw-Hill
Corporation, (provided that the fair market value of any investment in such
commercial paper having the second highest rating of Moody's Investor Service
or of Standard & Poor's Ratings Group, a Division of McGraw-Hill Corporation
shall not exceed ten percent (10%) of the fair market value of all commercial
paper investments permitted by this paragraph (b), commercial paper and
governmental securities repurchase Obligations issued by banks with capital and
surplus in excess of $500,000,000 and money market mutual funds and accounts
containing solely the investments permitted under this clause (b);
(c) investments in Subsidiary Guarantors;
(d) trade accounts created in the ordinary
course of business;
(e) deposits for utilities under security
deposits, leases and similar prepaid expenses incurred in the ordinary course
of business;
(f) loans and advances to employees (i) in
connection with reasonable travel and business expenses in the ordinary course
of business in an aggregate amount not in excess of $200,000 outstanding at any
time or (ii) as permitted by Section 9.9; and
(g) other investments not to exceed $1,000,000 in
any year.
SECTION 9.5. Limitations on Mergers and Liquidation. Merge,
consolidate or enter into any similar combination with any other Person or
liquidate, wind-up or dissolve itself or suffer any liquidation or dissolution
except: (a) any Wholly-Owned Subsidiary of Borrower may merge into Borrower or
with any other Wholly-Owned Subsidiary thereof (provided that a Credit Party is
the surviving entity); and (b) any Wholly-owned Subsidiary may merge into the
Person such Wholly-Owned Subsidiary was formed to acquire in
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connection with an acquisition permitted by Section 9.4 (provided that a Credit
Party is the surviving entity).
SECTION 9.6. Restrictions on Sale of Assets, etc. Sell, lease,
transfer, assign, exchange or otherwise dispose of any of its assets
(including, without limitation, accounts receivable and any transaction the
primary purpose of which is to accomplish the sale-leaseback of any asset) or
liquidate, dissolve or enter into any transaction for the purpose of winding up
its business affairs other than: (a) the sale of assets in the ordinary course
of business of Borrower or applicable Subsidiary (including sales of assets in
connection with office consolidations consummated in the ordinary course of
business); (b) the sale of obsolete assets no longer used in the business of
Borrower or applicable Subsidiary; and (c) any conveyance in connection with a
merger permitted by Section 9.5.
SECTION 9.7. Limitations on Dividends and Distributions. Declare
or pay any dividends upon any of its capital stock; purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of shares
of its capital stock; or make any change in its capital structure that could
reasonably be expected to have a Material Adverse Effect; provided that any
Subsidiary of Borrower may pay cash dividends or make any other cash
distribution to Borrower.
SECTION 9.8. Limitations on Exchange and Issuance of Capital
Stock. Issue, sell or otherwise dispose of any class or series of capital
stock that, by its terms or by the terms of any security into which it is
convertible or exchangeable, is, or upon the happening of an event or passage
of time, would be: (a) convertible or exchangeable into Debt; or (b) required
to be redeemed or repurchased, including at the option of the holder, in whole
or in part, or has, or upon the happening of an event or passage of time would
have, a redemption or similar payment due.
SECTION 9.9. Transactions with Affiliates. Directly or
indirectly, (a) make any loan or advance to, or purchase, assume or guarantee
any note or other Obligation to or from, any of its officers, partners or other
Affiliates, or to or from any member of the immediate family of any of its
officers, partners or other Affiliates, or subcontract any operations to any of
its Affiliates, or (b) enter into, or be a party to, any transaction with any
of its Affiliates.
SECTION 9.10. Certain Accounting Changes. Change its Fiscal Year
end, or make any change in its accounting treatment and reporting practices for
the purposes of compliance with the Loan Documents, subject to the provisions
of Section 11.10.
SECTION 9.11. Restrictive Agreements. Enter into any agreement
which contains any covenants materially more restrictive than the
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provisions of Articles VII, VIII and IX hereof, or which restricts, limits or
otherwise encumbers its ability to incur Liens on or with respect to any of its
assets or properties.
ARTICLE X
DEFAULT AND REMEDIES
SECTION 10.1. Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans.
Borrower shall default in any payment of principal of, or interest on, any Loan
or the Note when and as due (whether at maturity, by reason of acceleration or
otherwise).
(b) Other Payment Default. Borrower shall
default in the payment when and as due of any other Obligation and such default
shall continue unremedied for five (5) Business Days after its receipt of
written notice thereof.
(c) Misrepresentation. Any representation or
warranty made or deemed to be made by any Credit Party under this Agreement,
any Loan Document or Security Document, or any amendment supplement or other
modification hereto or thereto, shall at any time prove to have been incorrect
or misleading in any material respect when made.
(d) Default in Performance of Certain Covenants.
Any Credit Party shall default in the performance or observance of any covenant
or agreement contained in Articles VIII or IX, as applicable, of this
Agreement.
(e) Default in Performance of Other Covenants and
Conditions. Any Credit Party shall default in the performance or observance of
any term, covenant, condition or agreement contained in this Agreement (other
than as specifically provided for otherwise in this Section 10.1) or any other
Loan Document and such default shall continue for a period of thirty (30) days
after written notice thereof has been given to Borrower by Lender.
(f) Debt Cross-Default. Any Credit Party shall
(i) default in the payment of any Debt (other than the Note) the aggregate
outstanding amount of which is in excess of $100,000 beyond the period of grace
(not to exceed 30 days), if any, provided in the instrument or agreement under
which such Debt was created; or (ii) default in the observance or performance
of any other agreement or condition relating to any Debt (other than the Note)
the aggregate
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outstanding amount of which is in excess of $100,000 or contained in any
instrument or agreement evidencing, securing or relating thereto or any other
event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such Debt
(or a trustee or agent on behalf of such holder or holders) to cause, with the
giving of notice if required, any such Debt to become due prior to its stated
maturity (any applicable grace period having expired).
(g) Change of Control. (i) Borrower shall cease
to own and control 100% of the issued and outstanding common stock of each
Subsidiary free and clear of any Liens or 100% of the voting power of
Subsidiary entitled to vote in the election of members of the board of
directors of Subsidiary or (ii) any person or group of persons (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended)
shall obtain ownership or control in one or more series of transactions of more
than thirty percent (30%) of the voting power of Borrower entitled to vote in
the election of members of the board of directors of Borrower or more than such
percentage of the issued and outstanding common stock of Borrower.
(h) Voluntary Bankruptcy Proceeding. Any Credit
Party shall (i) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect); (ii) file a petition seeking to take advantage of
any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts; (iii)
consent to or fail to contest in a timely and appropriate manner any petition
filed against it in an involuntary case under such bankruptcy laws or other
laws; (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial part
of its property, domestic or foreign; (v) admit in writing its inability to pay
its debts as they become due; (vi) make a general assignment for the benefit of
creditors; or (vii) take any corporate action for the purpose of authorizing
any of the foregoing.
(i) Involuntary Bankruptcy Proceeding. A case or
other proceeding shall be commenced against any Credit Party in any court of
competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or adjustment of
debts; or (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like for any such Person or for all or any substantial part of their
respective assets, domestic or foreign, and such case or proceeding shall
continue undismissed or unstayed for a period of sixty (60) consecutive
calendar days, or an order granting the relief requested in such case or
proceeding (including, but not limited to, an order for relief under such
federal bankruptcy laws) shall be entered.
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(j) Failure of Agreements. Any material
provision of this Agreement or of any other Loan Document shall for any reason
cease to be valid and binding on any Credit Party, or any Credit Party shall so
state in writing.
(k) Judgement or Attachment. Any final judgments
or orders for the payment of money which exceed Two Hundred Fifty Thousand and
no/100ths Dollars ($250,000.00) in an amount individually or in the aggregate
shall be entered against any Credit Party by any court or warrants or writs of
attachment or execution or similar processes shall be issued against any
property of the any Credit Party which exceeds Two Hundred Fifty Thousand and
no/100ths Dollars ($250,000.00) in value individually or in the aggregate and
such judgments, order, warrants or processes as applicable, shall continue
undischarged or unstayed for a period of forty-five (45) days.
SECTION 10.2. Remedies. Upon the occurrence of an Event of
Default, with the consent of Lender, Lender may, by notice to Borrower:
(a) Acceleration; Termination of Facilities.
Declare the principal of and interest on the Loans and the Note at the time
outstanding, and all other amounts owed to Lender and to Lender under this
Agreement or any of the other Loan Documents and all other Obligations, to be
forthwith due and payable, whereupon the same shall immediately become due and
payable without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in this Agreement or the other Loan
Documents to the contrary notwithstanding, and terminate the Credit Facility
and any right of Borrower to request borrowings thereunder; provided, that upon
the occurrence of an Event of Default specified in Section 10.1(i) or (j), the
Credit Facility shall be automatically terminated and all Obligations shall
automatically become due and payable.
(b) Rights of Collection. Exercise on behalf of
Lender all of its other rights and remedies under this Agreement, the other
Loan Documents and Applicable Law, in order to satisfy all of the Obligations.
SECTION 10.3. Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of Lender set forth in this Agreement is
not intended to be exhaustive and the exercise by Lender of any right or remedy
shall not preclude the exercise of any other rights or remedies, all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of Lender in exercising any right, power or privilege shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or the exercise of
any other right, power
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or privilege or shall be construed to be a waiver of any Event of Default. No
course of dealing between Borrower, Lender or its respective agents or employees
shall be effective to change, modify or discharge any provision of this
Agreement or any of the other Loan Documents or to constitute a waiver of any
Event of Default.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices.
(a) Method of Communication. Except as otherwise
provided in this Agreement, all notices and communications hereunder shall be
in writing, or by telephone subsequently confirmed in writing. Any notice
shall be effective if delivered by hand delivery or sent via telecopy,
recognized overnight courier service or certified mail, return receipt
requested, and shall be presumed to be received by a party hereto: (i) on the
date of delivery if delivered by hand or sent by telecopy (which telecopy is
contemporaneously transmitted by another method of communication permitted by
this Section); (ii) on the next Business Day if sent by recognized overnight
courier service; and (iii) on the third Business Day following the date sent by
certified mail, return receipt requested. A telephonic notice to Lender as
understood by Lender will be deemed to be the controlling and proper notice in
the event of a discrepancy with or failure to receive a confirming written
notice.
(b) Addresses for Notices. Notices to any party
shall be sent to it at the following addresses, or any other address as to
which all the other parties are notified in writing.
If to Borrower: Medical Manager Corporation
3001 North Rocky Pointe Drive
Suite 100
Tampa, Florida 33607
Attention: Mr. Lee A. Robbins
Telephone No. 813-287-2990
Telecopy No. 813-289-6420
With a copy to: Rick Karl, Esquire
Medical Manager Research/Development
15151 NW 99th Street
Alachua, FL 32615
Telephone No. 904-462-2148
Telecopy No. 904-418-1486
If to Lender: Barnett Bank, N.A.
101 E. Kennedy Blvd.
Tampa, Florida 33602
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Attention: Kimberly A. Bruce
Telephone No. 813-225-8136
Telecopy No. 813-225-8752
With a copy to: ANNIS, MITCHELL, COCKEY,
EDWARDS & ROEHN, P.A.
One Tampa City Center, Suite 2100
Tampa, Florida 33602
Attention: Steven M. Samaha, Esquire
Telephone No. (813) 229-3321
Fax No. (813) 223-9067
(c) Lender's Office. Lender hereby designates
its office located at the address set forth above, or any subsequent office
which shall have been specified for such purpose by written notice to Borrower,
as Lender's Office referred to herein, to which payments due are to be made and
at which Loans will be disbursed.
SECTION 11.2. Expenses; Indemnity. Borrower will pay all
reasonable out-of-pocket expenses of Lender in connection with: (a) the
preparation, execution and delivery of this Agreement or any of the other Loan
Documents, and the administration, interpretation or amendment of any Loan
Document, including fees and disbursements of counsel for Lender, search fees,
recording fees, and taxes imposed in connection therewith and (b) upon the
occurrence and continuance of an Event of Default, consulting with one or more
Persons, including appraisers, accountants and attorneys, concerning or related
to the nature, scope or value of any right or remedy of Lender hereunder or
under any of the other Loan Documents or any factual matters in connection
therewith, which expenses shall include the reasonable fees and disbursements
of such Persons, and (c) prosecuting or defending any claim in any way arising
out of, related to, connected with, or enforcing any provision of, this
Agreement or any of the other Loan Documents, which expenses shall include the
fees and disbursements of counsel and of experts and other consultants retained
by Lender. Borrower shall defend, indemnify and hold harmless Lender, and its
respective parents, Subsidiaries, Affiliates, employees, agents, officers and
directors, from and against any losses, penalties, fines, liabilities,
settlements, damages, costs and expenses, suffered by any such Person in
connection with any claim, investigation, litigation or other proceeding
(whether or not Lender is a party thereto) and the prosecution and defense
thereof, arising out of or in any way connected with the Agreement, any of the
other Loan Documents or the Loans, including without limitation reasonable
attorney's and consultant's fees, except to the extent that any of the
foregoing directly result from the gross negligence or willful misconduct of
the party seeking indemnification therefor.
SECTION 11.3. Stamp and Other Taxes. Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or
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charges and shall indemnify Lender against any and all liabilities with respect
to or resulting from any delay in the payment or omission to pay any such
taxes, fees or charges which may be payable or determined to be payable in
connection with the execution, delivery, performance or enforcement of this
Agreement and any of the other Loan Documents or the perfection of any rights
thereunder.
SECTION 11.4. Set-off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the
continuance thereof, Lender is hereby authorized by Borrower at any time or
from time to time, without prior notice to Borrower or to any other Person, any
such prior notice being hereby expressly waived, to set off and to appropriate
and to apply any and all deposits (general or special, time or demand,
including, but not limited to, indebtedness evidenced by certificates of
deposit), whether matured or unmatured and any other indebtedness at any time
held or owing by Lender to or for the credit or the account of Borrower against
and on account of the Obligations irrespective of whether or not (a) Lender
shall have made any demand under this Agreement or any of the other Loan
Documents or (b) Lender shall have declared any or all of the Obligations to be
due and payable as permitted by Section 10.2 and although such Obligations
shall be contingent or unmatured.
SECTION 11.5. Governing Law. This Agreement, the Note and the
other Loan Documents, unless otherwise expressly set forth therein, shall be
governed by, construed and enforced in accordance with the laws of the State of
Florida, without reference to the conflicts or choice of law principles
thereof.
SECTION 11.6. Consent to Jurisdiction. Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located
in Hillsborough County, Florida, in any action, claim or other proceeding
arising out of any dispute in connection with this Agreement, the Note and the
other Loan Documents, any rights or Obligations hereunder or thereunder, or the
performance of such rights and Obligations. Nothing in this Section 11.6 shall
affect the right of Lender to serve legal process in any other manner permitted
by Applicable Law or affect the right of Lender to bring any action or
proceeding against Borrower or its properties in the courts of any other
jurisdictions.
SECTION 11.7. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY
LAW, LENDER AND BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF
ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
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SECTION 11.8. Reversal of Payments. To the extent Borrower makes a
payment or payments to Lender or Lender receives any payment or proceeds of any
collateral security for Borrower's benefit which payments or proceeds or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Obligations or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment or proceeds had not been
received by Lender.
SECTION 11.9. Injunctive Relief; Consequential Damages.
(a) Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of their respective
Obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to Lender. Therefore, Borrower agrees that Lender, at
Lender's option, shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
(b) Lender and Borrower (on behalf of itself and
its Subsidiaries) hereby agree that no such Person shall have a remedy of
punitive or exemplary damages against any other party to a Loan Document and
each such Person hereby waives any right or claim to punitive or exemplary
damages that they may now have or may arise in the future in connection with
any Dispute, whether such Dispute is resolved through arbitration or
judicially.
SECTION 11.10. Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by
Borrower or any Subsidiary thereof to determine whether it is in compliance
with any covenant contained herein, shall, except as otherwise expressly
contemplated hereby or unless there is an express written direction by Lender
to the contrary agreed to by Borrower, be performed in accordance with GAAP as
in effect on the Closing Date. In the event that changes in GAAP shall be
mandated by the Financial Accounting Standards Board, or any similar accounting
body of comparable standing, or shall be recommended by Borrower's Certified
public accountants, to the extent that such changes would modify such
accounting terms or the interpretation or computation thereof, such changes
shall be followed in defining such accounting terms only from and after the
date Borrower and Lender shall have amended this Agreement to the extent
necessary to reflect any such changes in the financial covenants and other
terms and conditions of this Agreement.
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SECTION 11.11. Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall
be binding upon and inure to the benefit of Borrower and Lender, all future
holders of the Note, and their respective successors and assigns, except that
Borrower shall not assign or transfer any of its rights or Obligations under
this Agreement without the prior written consent of Lender.
(b) Participations. Lender may sell
participations to one or more banks or other entities in all or a portion of
its rights and Obligations under this Agreement provided that:
(i) each such participation shall be in
an amount not less than $5,000,000 unless such participation is to an Affiliate
in which case no minimum amount shall be required;
(ii) Lender's Obligations under this
Agreement (including, without limitation, its Commitment) shall remain
unchanged;
(iii) Lender shall remain the holder of the
Note for all purposes of this Agreement;
(iv) Lender shall not permit such
participant the right to approve any waivers, amendments or other modifications
to this Agreement or any other Loan Document other than waivers, amendments or
modifications which would reduce the principal of or the interest rate on any
Loan, extend the term or increase the amount of the Commitment, reduce the
amount of any fees to which such participant is entitled, extend any scheduled
payment date for principal of any Loan or, except as expressly contemplated
hereby or thereby, release substantially all of any collateral securing the
Obligations; and
(v) any such disposition shall not, without
the consent of Borrower, require Borrower to file a registration statement with
the Securities and Exchange Commission to apply to qualify the Loans or the
Note under the blue sky law of any state.
(c) Disclosure of Information; Confidentiality.
Lender shall hold all non-public information with respect to Borrower obtained
pursuant to the Loan Documents in accordance with their customary procedures
for handling confidential information. Lender may, in connection with any
assignment, proposed assignment, participation or proposed participation
pursuant to this Section 11.11, disclose to the assignee, participant, proposed
assignee or proposed participant, any information relating to Borrower
furnished to Lender by or on behalf of Borrower; provided, that prior to any
such disclosure, each such assignee, proposed assignee, participant or proposed
participant shall agree with Lender to preserve the
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confidentiality of any confidential information relating to Borrower received
from Lender.
(d) Certain Pledges or Assignments. Nothing
herein shall prohibit Lender from pledging or assigning any Note to any Federal
Reserve Bank in accordance with Applicable Law.
SECTION 11.12. Amendments, Waivers and Consents. Except as set
forth below, any term, covenant, agreement or condition of this Agreement or
any of the other Loan Documents may be amended or waived by Lender, and any
consent given by Lender, if, but only if, such amendment, waiver or consent is
in writing signed by Lender and Borrower.
SECTION 11.13. Performance of Duties. The Credit Parties'
Obligations under this Agreement and each of the Loan Documents shall be
performed by the Credit Parties at their sole cost and expense.
SECTION 11.14. All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to Lender and any Persons designated
by Lender pursuant to any provisions of this Agreement or any of the other Loan
Documents shall be deemed coupled with an interest and shall be irrevocable so
long as any of the Obligations remain unpaid or unsatisfied or the Credit
Facility has not been terminated.
SECTION 11.15. Survival of Indemnities. Notwithstanding any
termination of this Agreement, the indemnities to which Lender is entitled
under the provisions of this Article XI and any other provision of this
Agreement and the Loan Documents shall continue in full force and effect and
shall protect Lender against events arising after such termination as well as
before.
SECTION 11.16. Titles and Captions. Titles and captions of
Articles, Sections and subsections in this Agreement are for convenience only,
and neither limit nor amplify the provisions of this Agreement.
SECTION 11.17. Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 11.18. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
49
<PAGE> 54
SECTION 11.19. Term of Agreement; Independent Effect.
(a) This Agreement shall remain in effect from
the Closing Date through and including the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and Obligations of the
parties hereto arising prior to such termination.
(b) The Credit Parties expressly acknowledge and
agree that each covenant contained in Articles VII, VIII and IX hereof shall be
given independent effect. Accordingly, no Credit Party shall engage in any
transaction or other act otherwise permitted under any covenant contained in
any such Article if, before or after giving effect thereto, such Credit Party
shall or would be in breach of any other covenant contained in any such
Article.
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to
be duly executed and delivered effective as of the day and year first above
written.
Witnesses: MEDICAL MANAGER CORPORATION,
a Delaware corporation
/s/ F. B. Karl By: /s/ Lee A. Robbins
- ---------------------------------- ---------------------------------
Print Name: Frederick B. Karl, Jr. Lee A. Robbins
Chief Financial Officer
/s/ Adrianne J. Maxey
- ----------------------------------
Print Name: Adrianne J. Maxey "BORROWER"
Witnesses: BARNETT BANK, N.A.,
a national banking association
/s/ F. B. Karl By: /s/ Kimberly A. Bruce
- ---------------------------------- ---------------------------------
Print Name: Frederick B. Karl, Jr. Kimberly A. Bruce
Vice President
/s/ Adrianne J. Maxey "LENDER"
- ----------------------------------
Print Name: Adrianne J. Maxey
STATE OF GEORGIA
COUNTY OF CLAYTON
The foregoing instrument was acknowledged before me this 14th day of
January, 1998, by Lee A. Robbins, as Chief Executive Officer
50
<PAGE> 55
of Medical Manager Corporation, a Delaware corporation, on behalf of the
corporation. He is personally known to me or has produced a driver's license
as identification.
/s/ Adrianne J. Maxey
---------------------------------
NOTARY PUBLIC
Name: Adrianne J. Maxey
Serial #:____________________
My Commission Expires:
Notary Public, Gwinnett County, Georgia
My Commission Expires September 2, 2001
STATE OF GEORGIA
COUNTY OF CLAYTON
The foregoing instrument was acknowledged before me this 14th day of
January, 1998, by Kimberly A. Bruce, as Vice President of Barnett Bank, N.A., a
national banking association. She is personally known to me or has produced a
driver's license as identification.
/s/ Adrianne J. Maxey
---------------------------------
NOTARY PUBLIC
Name: Adrianne J. Maxey
Serial #:____________________
My Commission Expires:
Notary Public, Gwinnett County, Georgia
My Commission Expires September 2, 2001
51
<PAGE> 1
EXHIBIT 10.2
MEDICAL MANAGER CORPORATION
AMENDED AND RESTATED
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purpose. The purpose of this 1996 Non-Employee Directors' Stock Plan
(the "Plan") of Medical Manager Corporation, a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing a means to attract and retain highly qualified persons to serve as
non-employee directors of the Company and to enable such persons to acquire or
increase a proprietary interest in the Company, thereby promoting a closer
identity of interests between such persons and the Company's stockholders.
2. Definitions. In addition to terms defined elsewhere in the Plan, the
following are defined terms under the Plan:
(a) "Annual Option" means an Option to purchase the number of shares
specified in or under Section 6(a), subject to adjustment as provided in
Section 8.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(c) "Deferred Share" means a credit to a Participant's deferral account
under Section 7 which represents the right to receive one Share upon settlement
of the deferral account. Deferral accounts, and Deferred Shares credited
thereto, are maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(d) "Elected Option" shall mean an option which a Participant, in his
capacity as a director, has elected to receive in lieu of fees as specified in
Section 7.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act shall be deemed to include rules
thereunder and successor provisions and rules thereto.
(f) "Fair Market Value" of a Share on a given date means the last sales
price or, if last sales price information is generally unavailable, the average
of the closing bid and asked prices per Share on such date (or, if there was no
trading or quotation in the stock on such date, on the next preceding date on
which there was trading or quotation) as reported in the Wall Street Journal;
provided, however, that the "Fair Market Value" of a Share subject to Options
granted effective on the date on which the Company commences an Initial Public
Offering shall
<PAGE> 2
be the price of the shares so issued and sold, as set forth in the first
final prospectus used in such Initial Public Offering
(g) "Initial Option" means an Option to purchase the number of shares
specified in or under Section 6(a), subject to adjustment as provided in
Section 8.
(h) "Initial Public Offering" means an initial public offering of
shares in a firm commitment underwriting registered with the Securities and
Exchange Commission in compliance with the provisions of the Securities Act
of 1933, as amended.
(i) "Option" means the right, granted to a director under Section 6 or
Section 7, to purchase a specified number of Shares at the specified exercise
price for a specified period of time under the Plan. All Options will be
non-qualified stock options.
(j) "Participant" means a person who, as a non-employee director of the
Company, has been granted an Option or Deferred Shares which remain
outstanding or who has elected to be paid fees in the form of Shares, Elected
Options or Deferred Shares under the Plan.
(k) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(l) "Share" means a share of common stock, $.01 par value, of the
Company and such other securities as may be substituted for such Share or
such other securities pursuant to Section 8.
3. Shares Available Under the Plan. Subject to adjustment as provided in
Section 8, the total number of Shares reserved and available for issuance
under the Plan is 250,000. Such Shares may be authorized but unissued Shares,
treasury Shares, or Shares acquired in the market for the account of the
Participant. For purposes of the Plan, Shares that may be purchased upon
exercise of an Option or delivered in settlement of Deferred Shares will not
be considered to be available after such Option has been granted or Deferred
Share credited, except for purposes of issuance in connection with such
Option or Deferred Share; provided, however, that, if an Option expires for
any reason without having been exercised in full, the Shares subject to the
unexercised portion of such Option will again be available for issuance under
the Plan.
4. Administration of the Plan. The Plan will be administered by the
Board of Directors of the Company; provided, however, that any action by the
Board relating to the Plan will be taken only if, in addition to any other
required vote, such action is approved by the affirmative vote of a majority
of those directors who are not then eligible to participate in the Plan.
2
<PAGE> 3
5. Eligibility. Each director of the Company who, at the time an Option
is to be granted under Section 6 or at which fees are to be paid which could
be received in the form of Shares, Elected Options or Deferred Shares under
Section 7, is not an employee of the Company or any subsidiary of the Company
will be eligible, at such date, to be granted an Option under Section 6 or
receive fees in the form of Shares, Elected Options or Deferred Shares under
Section 7. In addition, any person who, at the time the Company commences an
Initial Public Offering, has agreed to become a director upon consummation of
the Initial Public Offering will be eligible to be granted an Initial Option
under Section 6. No person other than those specified in this Section 5 will
be eligible to participate in the Plan.
6. Options. An Initial Option will be automatically granted (i) at the
commencement of the Initial Public Offering, to each person who is eligible
under Section 5 at that time, and thereafter (ii) at the effective date of
initial election to the Board of Directors, to each person so elected who is
eligible under Section 5 at that date. In addition, an Annual Option will be
automatically granted, at the close of business of the date of final
adjournment of each annual meeting of stockholders of the Company, to each
member of the Board of Directors who is then eligible under Section 5.
Notwithstanding the foregoing, (i) any person who has been automatically
granted an Initial Option at the effective date of initial election to the
Board of Directors shall not be automatically granted an Annual Option at the
first annual meeting of stockholders following such initial election if such
annual meeting takes place within sixty (60) days of the effective date of
such person's initial election to the Board of Directors, and (ii) any Initial
Option granted at the commencement of the Initial Public Offering shall be
cancelled and forfeited if the Initial Public Offering is not consummated or,
in the case of an Initial Option granted to a person who has agreed to become
a director, such person does not commence serving as a non-employee director
of the Company promptly following the consummation of the Initial Public
Offering.
(a) Number of Shares Subject to Automatic Option Grants. In the case
of any Initial or Annual Option granted on or before the date of the first
annual meeting of stockholders following the Initial Public Offering, the
number of Shares to be subject to each Initial Option shall be 10,000, and
the number of Shares to be subject to each Annual Option shall be 5,000, in
each case subject to adjustment as provided in Section 8. In the case of any
Initial or Annual Option granted thereafter, the number of Shares to be
subject to each Initial and Annual Option shall be the applicable number
specified in the preceding sentence or, if so determined by the Board of
Directors, such other number of Shares specified in the most recent
resolution of the Board adopted on or prior to the date of the annual meeting
of stockholders that coincides with or most recently precedes the date of
grant of the Option.
(b) Exercise Price. The exercise price per Share purchasable upon
exercise of an Option will be equal to 100% of the Fair Market Value of a
Share on the date of grant of the Option.
3
<PAGE> 4
(c) Option Expiration. A Participant's Option will expire at the
earlier of (i) 10 years after the date of grant or (ii) one year after the
date the Participant ceases to serve as a director of the Company for any
reason.
(d) Exercisability. Each Option may be exercised, prior to its
expiration, commencing one year after the date of grant, or at such earlier
date as may be specified by the Board of Directors; provided, however, that
an Option may be exercised following a Participant's termination of service as
a director for reasons other than death or disability only if the director
served for at least 11 months after the date of grant or the option was
otherwise exercisable at the date of termination.
(d) Method of Exercise. A Participant may exercise an Option, in whole
or in part, at such time as it is exercisable and prior to its expiration, by
giving written notice of exercise to the Secretary of the Company, specifying
the Option to be exercised and the number of Shares to be purchased, and
paying in full the exercise price in cash (including by check) or by surrender
of Shares already owned by the Participant (except for Shares acquired from
the Company by exercise of an option less than six months before the date of
surrender) having a Fair Market Value at the time of exercise equal to the
exercise price, or by a combination of cash and Shares.
7. Receipt of Shares, Options or Deferred Shares In Lieu of Fees. Each
director of the Company may elect to be paid fees, in his or her capacity as a
director (including annual retainer fees for service on the Board, fees for
service on a Board committee, fees for service as chairman of a Board
committee, and any other fees paid to directors) in the form of Shares, Elected
Options or Deferred Shares in lieu of cash payment of such fees, if such
director is eligible to do so under Section 5 at the date any such fee is
otherwise payable. If so elected, payment of fees in the form of Shares,
Elected Options or Deferred Shares shall be made in accordance with this
Section 7.
(a) Elections. Each director who elects to be paid fees for a given
calendar year in the form of Shares, Elected Options or Deferred Shares for
such year must file an irrevocable written election with the Secretary of the
Company no later than December 31 of the year preceding such calendar year or
such other date as may be specified by the Secretary; provided, however, that
a director serving at the time the Plan becomes effective, and any director
newly elected or appointed thereafter, may file an election applicable to
compensation payable for any period of service that has not yet commenced
within the year of such effectiveness, election, or appointment prior to the
commencement of such period of service. An election by a director shall be
deemed to be continuing and therefore applicable to subsequent Plan years
unless the director revokes or changes such election by filing a new election
form by the due date for such form specified in this Section 7(a). The
election must specify the following:
4
<PAGE> 5
(i) A percentage of fees to be received in the form of Shares,
Elected Options or Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by the Company's Secretary)
(b) Payment of Fees in the Form of Shares. At any date on which fees are
payable to a Participant who has elected to receive such fees in the form of
Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional Shares, the Company shall cause
fractional Shares to be credited to the Participant's account. If fractional
Shares are not so credited, any part of the Participant's fees not paid in the
form of whole Shares will be payable in cash to the Participant (either paid
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) Deferral of Fees in the Form of Elected Options. With regard to any
calendar year for which fees are payable to a participant who has elected to
receive such fees in the form of Elected Options, the Company will issue to such
participant, or to a designated third party for the account of such Participant,
2,000 Elected Options, in each case subject to adjustment as provided in Section
8, in full payment of all fees (including annual retainer fees for service on
the Board, fees for service on a Board Committee, fees for service as chairman
of a Board Committee, and any other fees paid to directors) to be paid to such
Participant, in his or her capacity as a director, during the entire calendar
year. The Elected Options shall be subject to Sections 6(b), 6(c), 6(d) and
6(e), with regard to exercise price, option expiration, exercisability and
method of exercise, respectively.
(d) Deferral of Fees in the Form of Deferred Shares. The Company will
establish a deferral account for each Participant who elects to defer fees in
the form of Deferred Shares under this Section 7. At any date on which fees
are payable to a Participant who has elected to defer fees in the form of
Deferred Shares, the Company will credit such Participant's deferral account
with a number of Deferred Shares equal to the number of Shares having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Shares. The amount of Deferred
Shares so credited shall include fractional Shares calculated to at least three
decimal places.
(e) Crediting of Dividend Equivalents. Whenever dividends are paid or
distributions made with respect to Shares, a Participant to whom Deferred
Shares are then
5
<PAGE> 6
credited in a deferral account shall be entitled to receive, as dividend
equivalents, an amount equal in value to the amount of the dividend paid or
property distributed on a single Share multiplied by the number of Deferred
Shares (including any fractional Share) credited to his or her deferral account
as of the record date for such dividend or distribution. Such dividend
equivalents shall be credited to the Participant's deferral account as a number
of Deferred Shares determined by dividing the aggregate value of such dividend
equivalents by the Fair Market Value of a Share at the payment date of the
dividend or distribution.
(f) Settlement of Deferred Shares. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited to
such deferral account. Such settlement shall be made at the time or times
specified in the Participant's election filed in accordance with Section 7(a);
provided, however, that a Participant may further defer settlement of Deferred
Shares if counsel to the Company determines that such further deferral likely
would be effective under applicable federal income tax laws and regulations.
(g) Nonforfeitability. The interest of each Participant in any fees paid
in the form of Shares, Elected Options or Deferred Shares (and any deferral
account relating thereto) at all times will be nonforfeitable.
8. Adjustment Provisions.
(a) Corporate Transactions and Events. In the event of any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Shares or other
securities, Share dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event
affects the Shares such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Board shall, in such manner as it may deem equitable, adjust any or all of the
(i) number and kind of Shares remaining reserved and available for issuance
under Section 3, (ii) number and kind of Shares to be subject to each automatic
grant of an Option under Section 6, (iii) number and kind of Shares issuable
upon exercise of outstanding Options, and/or exercise price per Share thereof
(provided that no fractional Shares will be issued upon exercise of any Option)
and (iv) number and kind of Shares, Elected Options or Deferred Shares to be
issued in lieu of fees under Section 7.
(b) Insufficient Number of Shares. If at any date an insufficient number
of Shares are available under the Plan for the automatic grant of Options or the
receipt of fees in the form of Shares, Elected Options, Deferred Shares at that
date, Options will first be automatically granted proportionately to each
eligible director, to the extent Shares are then available (provided that no
fractional Shares will be issued upon exercise of any Option) and otherwise as
provided
6
<PAGE> 7
under Section 6, and then, if any Shares remain available, fees shall be paid
in the form of Shares, Elected Options or Deferred Shares proportionately among
directors then eligible to participate to the extent Shares are then available
and otherwise as provided under Section 7.
9. Changes to the Plan. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the Plan or authority to grant Options or pay fees in
the form of Shares, Elected Options or Deferred Shares under the Plan without
the consent of stockholders or Participants, except that any amendment or
alteration will be subject to the approval of the Company's stockholders at or
before the next annual meeting of stockholders for which the record date is
after the date of such Board action if such stockholder approval is required by
any federal or state law or regulation or the rules of any stock exchange or
automated quotation system as then in effect, and the Board may otherwise
determine to submit other such amendments or alterations to stockholders for
approval; provided, however, that, without the consent of an affected
Participant no such action may materially impair the rights of such Participant
with respect to any previously granted Option or any previous payment of fees in
the form of Shares, Elected Options or Deferred Shares.
10. General Provisions.
(a) Agreements. Options, Deferred Shares, and any other right or
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as the Board of Directors may from time to time
approve.
(b) Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under any
listing agreement between the Company and any stock exchange or automated
quotation system, or any other law, regulation, or contractual obligation of the
Company, until the Company is satisfied that such laws, regulations, and other
obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws, regulations,
and other obligations of the Company, including any requirement that a legend or
legends be placed thereon.
(c) Limitations on Transferability. Options, Deferred Shares, and any
other right under the Plan will not be transferable by a Participant except by
will or the laws of descent and distribution or to a designated beneficiary in
the event of a Participant's death; provided, however, that Options and Deferred
Shares (and rights relating thereto) may be transferred to one or more
transferees during the lifetime of the Participant for purposes of the
Participant's estate planning. The Company may rely upon the beneficiary
designation last filed in accordance with
7
<PAGE> 8
this Section 10(c). Options, Deferred Shares, and other rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to the claims of creditors of any Participant.
(d) Compliance with Rule 16b-3.
(i) Six-Month Holding Period. Unless a Participant could otherwise
dispose of equity securities, including derivative securities,
acquired under the Plan without incurring liability under
Section 16(b) of the Exchange Act, equity securities acquired
under the Plan must be held for a period of six months following
the date of such acquisition, provided that this condition shall
be satisfied with respect to a derivative security if at least
six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security
(other than upon exercise or conversion) or its underlying
equity security.
(ii) Other Compliance Provisions. With respect to a Participant who
is then subject to Section 16 of the Exchange Act in respect of
the Company, it is the intent of the Company that transactions
shall be implemented under the Plan in a manner that will ensure
that each transaction by such a Participant is exempt from
liability under Rule 16b-3, except that such a Participant may
be permitted to engage in a non-exempt transaction under the
Plan if written notice has been given to the Participant
regarding the non-exempt nature of such transaction. The Board
may authorize the Company to repurchase any Shares acquired in
connection with the Plan in order to prevent a Participant who
is subject to Section 16 of the Exchange Act from incurring
liability under Section 16(b). Unless otherwise specified by
the Participant, equity securities, including derivative
securities, acquired under the Plan which are disposed of by a
Participant shall be deemed to be disposed of in the order
acquired by the Participant.
(e) No Right To Continue as a Director. Nothing contained in the Plan or
any agreement hereunder will confer upon any Participant any right to continue
to serve as a director of the Company.
(f) No Stockholder Rights Conferred. Nothing contained in the Plan or any
agreement hereunder will confer upon any Participant (or any person or entity
claiming rights by or through a Participant) any rights of a stockholder of the
Company unless and until Shares are in fact issued to such Participant (or
person) or, in the case an Option, such Option is validly exercised in
accordance with Section 6.
8
<PAGE> 9
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board of Directors nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may deem
desirable.
(h) Governing Law. The validity, construction, and effect of the Plan
and any agreement hereunder will be determined in accordance with the laws of
the State of Delaware, without giving effect to principles of conflicts of laws,
and applicable federal law
11. Stockholder Approval, Effective Date, and Plan Termination. The Plan
will be effective as of the date of its adoption by the Board, subject to
stockholder approval prior to the commencement of the Initial Public Offering,
and, unless earlier terminated by action of the Board of Directors, shall
terminate at such time as no Shares remain available for issuance under the Plan
and the Company and Participants have no further rights or obligations under the
Plan.
9
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OF THE COMPANY
Medical Manager Southeast, Inc.
Medical Manager Northeast, Inc.
Medical Manager Midwest, Inc.
Medical Manager Northwest, Inc.
Medical Manager West, Inc.
Medical Manager Southwest, Inc.
Medical Manager Research & Development, Inc.
Medical Manager Sales & Marketing, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on Form 10-K
of our reports dated March 7, 1997 on our audits of Systems Plus, Inc. and
Systems Plus Distribution, Inc.; dated February 28, 1997 on our audits of RTI
Business Systems, Inc.; dated March 14, 1997 on our audits of Systems
Management, Inc.; and dated February 28, 1997 on our audits of National Medical
Systems, Inc. which reports are included in Medical Manager Corporation's Form
8-K filed April 8, 1997.
Tampa, Florida
February 6, 1998
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Medical Manager Corporation on Form S-1 (File No. 333-13101) and S-8 (File
No. 333-32717) of our report dated February 6, 1998, on our audits of the
consolidated financial statements and financial statement schedule of Medical
Manager Corporation as of December 31, 1997 and 1996 and for the three years
ended December 31, 1997, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 6, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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