<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1997
REGISTRATION NO. 333-18923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INFOCURE CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 58-2271614
(State or other jurisdiction of (Primary SIC Code) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Address and telephone number of principal executive offices)
---------------------
FREDERICK L. FINE
CHIEF EXECUTIVE OFFICER
INFOCURE CORPORATION
2970 CLAIRMONT ROAD, SUITE 950
ATLANTA, GEORGIA 30329
(404) 633-0046
(Name, address and telephone number of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
UGO F. IPPOLITO, ESQ. STEPHEN H. KAY, ESQ.
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
1409 PEACHTREE STREET, N.E. 551 FIFTH AVENUE
ATLANTA, GEORGIA 30309 NEW YORK, NEW YORK 10176
(404) 885-6705 (212) 661-6500
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 9, 1997
2,000,000 SHARES
[INFOCURE LOGO]
INFOCURE CORPORATION
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by InfoCure Corporation (the "Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently anticipated that the initial offering
price will be between $7.00 and $9.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial offering
price. The Company has been approved for listing on the American Stock Exchange
under the symbol "INC."
Concurrently with the offering made pursuant to this Prospectus and as a
condition to the closing thereof, the Company will issue 3,676,161 shares of
Common Stock pursuant to a Registration Statement on Form S-4 to the
stockholders of the Founding Businesses (as hereinafter defined) being acquired
by the Company.
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, INCLUDING MATERIAL
CONTINGENCIES RELATING TO THE ACQUISITION OF THE FOUNDING BUSINESSES, SEE "RISK
FACTORS" COMMENCING ON PAGE 13 AND "DILUTION" COMMENCING ON PAGE 21.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total (3)......................... $ $ $
=============================================================================================================
</TABLE>
(1) Excludes additional compensation payable to the Representatives of the
several Underwriters in the form of a non-accountable expense allowance.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933
(the "Securities Act"). See "Underwriting" for a description of the
foregoing and certain other arrangements between the Company and the
Underwriters.
(2) Before deducting offering expenses estimated to be approximately $
payable by the Company and the non-accountable expense allowance payable by
the Company to the Representatives of the several Underwriters.
(3) Certain stockholders of the Company (the "Selling Stockholders") have
granted the Underwriters a 30-day option to purchase up to 300,000
additional shares of Common Stock solely to cover over-allotments, if any,
on the same terms and conditions as the shares offered hereby. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Josephthal Lyon & Ross Incorporated, New
York, New York, on or about , 1997.
---------------------
JOSEPHTHAL LYON & ROSS INCORPORATED CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS, PENALTY BIDS AND SHORT SALES. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
This Prospectus includes tradenames, trademarks and registered trademarks
of companies other than the Company.
<PAGE> 4
PROSPECTUS SUMMARY
Prior to and as a condition to the consummation of the offering made by
this Prospectus (the "Offering"), InfoCure Corporation will acquire (the
"Acquisitions") six practice management systems businesses (the "Founding
Businesses"). Unless otherwise indicated, all references herein to "InfoCure"
shall mean InfoCure Corporation prior to the consummation of the Acquisitions,
and references herein to the "Company" shall mean InfoCure and the Founding
Businesses. The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information set forth herein
assumes (i) the consummation of the Acquisitions, (ii) an initial public
offering price of $8.00 per share and (iii) no exercise of the Underwriters'
over-allotment option. "Equivalent Shares of Common Stock" means the number of
shares of Common Stock which are to be issued to the holders of common stock of
American Medcare Corporation ("AMC") upon the merger of AMC into InfoCure.
This Prospectus includes forward-looking statements which involve known and
unknown risks and uncertainties or other factors that may cause actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed under the heading "Risk Factors." In
addition to statements which explicitly describe such risks and uncertainties,
investors are urged to consider statements labeled with the terms "believes,"
"belief," "expects," "intends," "plans" or "anticipates" to be uncertain and
forward-looking.
THE COMPANY
The Company is a leading provider of practice management software products
and related services that address the growing needs of health care providers to
manage and communicate cost-effectively administrative, clinical and financial
data. The Company's practice management systems are used primarily by small to
mid-size medical practices, including multi-provider management services
organizations and independent physician alliances. Recently, the Company
developed and introduced an all-payor-based electronic data interchange ("EDI")
system to enable its customers to realize significant cost savings by replacing
paper-based transactions with electronic transaction processing. The Company has
an installed customer base of approximately 17,000 health care providers in a
broad range of specialties at over 6,000 client sites.
Health care costs totalled approximately $1.0 trillion in 1995, having
risen at a rate approximately twice that of inflation during the last decade.
The escalation of such expenditures has led to pressure to contain costs and
attempts to shift the financial risk of delivering health care from payors to
providers. Many providers now participate in complex reimbursement arrangements,
resulting in multiple transactions, information exchanges and other
communications with payors per patient visit. As a result of these trends,
health care providers increasingly need to reduce operating costs, improve cash
flows and manage their businesses more efficiently while responding to the
increased administrative burdens and informational demands placed upon them by
payors. The Company's practice management systems address the efficiencies and
cost savings demanded by health care providers.
The Company's existing customer base comprises primarily office-based
health care practices that range in size from single practitioners to up to
several hundred providers with an emphasis on small and mid-size (up to 25
providers) health care practices. Based on industry sources, 60% of the
physicians in the United States are organized into approximately 190,000
office-based health care practices. Nearly all of these practices are small to
mid-size; there are fewer than 1,000 office-based medical practices in the
United States with more than 25 providers. Small and mid-size medical practices
are significantly under-penetrated with regard to practice management software
and EDI transaction processing. For example, while it is estimated that the
majority of hospitals submit their claims electronically, among small and
mid-size medical practices only approximately 35% submit claims electronically.
3
<PAGE> 5
The Company markets a broad range of software products and services
designed to automate office-based practices of varying sizes; therefore, the
Company believes that it is well-positioned to take advantage of the increased
technology needs of the health care industry, particularly among practices with
fewer than 25 health care providers. As the supplier of the core practice
management system adopted by its customers, the Company has established its
technology at its customer sites, which, the Company believes, will yield
significant growth opportunities and competitive advantages. The Company's
primary growth strategies include (i) increasing its recurring transactional
revenue by expanding its customers' utilization of EDI services, (ii) acquiring
established practice management system companies and consolidating niche
specialities, (iii) leveraging its customer base by cross-selling its products
and services, (iv) expanding its national sales efforts, (v) continuing to
develop and provide sophisticated practice management systems and (vi)
capitalizing on synergistic opportunities resulting from the Acquisitions.
InfoCure has entered into agreements to acquire, prior to and as a
condition to the consummation of the Offering, the Founding Businesses. The
integration of these businesses will combine existing and proven products,
research and development, sales, marketing and support efforts. Following
consummation of the Acquisitions, the Founding Businesses will be consolidated
into three operating divisions according to technical platform, thereby allowing
the Company to market and service cost-effectively its practice management
systems to a wide range of health care providers.
InfoCure was incorporated in Delaware in November 1996. InfoCure will have
a January 31 year-end. InfoCure's executive offices are located at 2970
Clairmont Road, Suite 950, Atlanta, GA 30329, and its telephone number is
(404)633-0046.
THE OFFERING
Common Stock Offered by the Company..... 2,000,000 shares
Common Stock to be Outstanding after the
Offering................................ 5,676,261 shares (1)
Use of Proceeds......................... For payments due upon the
consummation of the Acquisitions,
repayment of certain assumed
indebtedness, working capital and
general corporate purposes
including future acquisitions. See
"Use of Proceeds."
American Stock Exchange Symbol.......... "INC"
- ---------------
(1) Excludes an aggregate of (i) 800,000 shares of Common Stock reserved for
future issuance under the Company's Stock Option Plan, (ii) 323,739
Equivalent Shares of Common Stock reserved for issuance pursuant to
outstanding stock options and a warrant to be assumed by the Company upon
the consummation of the Acquisitions, (iii) 200,000 shares of Common Stock
reserved for issuance pursuant to warrants issuable to the Representatives
of the Underwriters upon consummation of the Offering, (iv) 27,021
Equivalent Shares of Common Stock reserved for issuance to the stockholders
of Millard-Wayne, Inc. upon it meeting certain specific revenue or
operating profit amounts for each of the 12 month periods ending July 31,
1998 and 1999, (v) 80,000 Equivalent Shares of Common Stock reserved for
issuance to the stockholders of Rovak, Inc. upon it meeting certain
specified net operating profit amounts for the 12-month period ending
January 31, 1998, (vi) 125,000 Equivalent Shares of Common Stock reserved
for issuance to stockholders of KComp Management Systems, Inc. upon it
meeting certain specified operating income amounts for the 12-month period
ending July 31, 1998, (vii) 243,047 Equivalent Shares of Common Stock to be
assigned and transferred to AMC for cancellation prior to the consummation
of the Offering, pursuant to a written agreement dated November 19, 1996,
(viii) 132,964 Equivalent Shares of Common Stock that AMC has the right to
redeem upon the payment of $65,000 (such right is subject to court approval
of a certain settlement agreement) and (ix) approximately 48,000 Equivalent
Shares of Common Stock AMC intends to sell to an unaffiliated third party
for an estimated $210,000 in a private placement prior to the Offering. See
"Shares Eligible for Future Sale," "Management--Stock Options,"
"Underwriting" and "AMC Financial Statements -- Note 3."
4
<PAGE> 6
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
InfoCure will acquire the Founding Businesses prior to and as a condition
to the consummation of the Offering. For financial statement presentation
purposes, AMC, a holding company and parent of International Computer Solutions,
Inc. ("ICS") and Health Care Division, Inc. ("HCD"), has been identified as the
accounting acquiror. The following summary unaudited pro forma combined
financial data present certain data for the Company as adjusted for (i) the
effects of the acquisition by AMC of the capital stock of Millard-Wayne, Inc.
("Millard-Wayne") prior to the consummation of the AMC Merger (as defined
herein) and the acquisition by HCD, a wholly-owned AMC subsidiary founded in
November 1996, of the assets of the Health Care Division of Info Systems of
North Carolina, Inc. ("Info Systems") on December 3, 1996 (the "HCD
Acquisition"), using the purchase method of accounting at their estimated fair
values, (ii) the effects of the merger of AMC with and into InfoCure (the "AMC
Merger"), (iii) the effects of the acquisitions by InfoCure of the capital stock
of KComp Management Systems, Inc. ("KComp"), DR Software, Inc. ("DR Software")
and Rovak, Inc. ("Rovak") using the purchase method of accounting at their
estimated fair values and (iv) the effects of certain pro forma adjustments to
the combined financial statements. KComp was founded in December 1995;
accordingly, results of KComp are included only for the year ended January 31,
1997. See "The Company," "Management's Discussion and Analysis of Pro Forma
Combined Financial Condition and Pro Forma Combined Results of Operations" and
the Unaudited Pro Forma Combined Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
YEAR ENDED JANUARY 31,
---------------------------
1996 1997
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<S> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software................................... $ 9,746 $ 9,655
Maintenance and support................................ 6,034 8,580
Other.................................................. 762 871
------- -------
Total revenues....................................... 16,542 19,106
Cost of revenues.......................................... 5,137 5,656
------- -------
Gross profit.............................................. 11,405 13,450
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)....... 8,386 10,053
Depreciation and amortization (6)...................... 1,337 1,402
------- -------
Operating income.......................................... 1,682 1,995
Other expense (income):
Interest expense (7)................................... 77 73
Other.................................................. (121) (41)
------- -------
Income before taxes....................................... 1,726 1,963
Income tax (8)............................................ 842 938
------- -------
Net income................................................ $ 884 1,025
======= =======
Pro forma net income per share............................ $ 0.16 $ 0.19
Pro forma weighted average shares outstanding (9)......... 5,436 5,436
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
-------------- ----------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 664 $ 3,917
Working capital........................................... (2,425) 828
Total assets.............................................. 18,328 21,581
Short-term debt........................................... 521 521
Long-term debt, less current portion...................... 512 512
Total stockholders' equity................................ 12,502 15,790
</TABLE>
5
<PAGE> 7
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the selected pro forma statements of operations data,
and as of January 31, 1997, in the case of the selected pro forma balance
sheet data. The pro forma balance sheet data also give effect to the
issuances in March 1997 of an aggregate of 55,216 Equivalent Shares of
Common Stock by AMC for an aggregate of $280,000 to unaffiliated third
parties. The pro forma combined financial data are based upon preliminary
estimates, available information and certain assumptions that management
believes are appropriate. The selected pro forma combined financial data
presented herein are not necessarily indicative of the results the Company
would have obtained had such events occurred at the beginning of the period
or of the future results of the Company. The selected pro forma combined
financial data should be read in conjunction with the other financial data
and notes thereto included elsewhere in this Prospectus.
(2) Includes pro forma adjustments to reflect (i) the elimination, as provided
in the respective acquisition agreements, of duplicative administrative
functions at the Company of approximately $1,773,000 and $1,830,000 for the
years ended January 31, 1996 and 1997, respectively, and (ii) the
additional overhead expenses at the Founding Businesses of approximately
$452,000 and $475,000 for the years ended January 31, 1996 and 1997,
respectively. The Company considers that the elimination of approximately
$1,130,000 of these expenses, on an annualized basis, was effected
concurrent with HCD Acquisition on December 3, 1996.
(3) Includes pro forma adjustments to reflect the elimination of allocations
from Info Systems for (i) overhead of approximately $476,000 and $328,000
for the years ended January 31, 1996 and 1997, respectively, and (ii)
expense related to HCD's participation in Info System's employee stock
ownership plan of approximately $159,000 and $75,000 for the years ended
January 31, 1996 and 1997, respectively. Upon the consummation of the HCD
Acquisition on December 3, 1996, these eliminations were effected.
(4) Includes pro forma adjustments to reflect the elimination of rent and other
expenses of approximately $352,000 and $350,000, for the years ended
January 31, 1996 and 1997, respectively. Upon the consummation of the HCD
Acquisition on December 3, 1996, the elimination of $117,000 of such
expenses, on an annualized basis, was effected.
(5) Includes pro forma adjustments to reflect the elimination of certain
commissions and royalties which are payable by Rovak under agreements that
will be terminated following the consummation of the Offering. Such
adjustments are approximately $125,000 and $323,000 for the years ended
January 31, 1996 and 1997, respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$782,000 and $753,000 for the years ended January 31, 1996 and 1997,
respectively. Also includes pro forma adjustments to depreciation and
amortization expense, after adopting appropriate useful lives for related
assets, of $300,000 and $240,000 for the years ended January 31, 1996 and
1997, respectively.
(7) Includes pro forma adjustments to reflect a reduction in interest expense
related to debt reduction, in connection with the Acquisitions and the
Offering, of $185,000 and $254,000 for the years ended January 31, 1996 and
1997, respectively.
(8) The pro forma provision for income taxes includes (i) the effects of the
non-deductible portion of goodwill for tax purposes and (ii) assumes that
the deferred tax asset represented by AMC's net operating loss
carryforwards of approximately $1,600,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 100 shares
issued to the incorporators of the Company, (ii) 5,203,067 shares to be
issued in connection with the Acquisitions and the Offering and (iii)
232,758 Equivalent Shares of Common Stock issuable upon outstanding stock
options and a warrant.
(10) The selected pro forma combined balance sheet data reflects the adjustments
referenced above but excludes the effects of the receipt and application of
the net proceeds of the Offering. The pro forma combined balance sheet data
as adjusted reflects the changes that are expected to occur from the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds" and "Capitalization."
6
<PAGE> 8
THE COMPANY
InfoCure was incorporated in November 1996 to develop, market and service
practice management systems for use by health care providers throughout the
United States. Prior to and as a condition to the consummation of the Offering,
InfoCure will acquire the six Founding Businesses, which will be consolidated
into three operating divisions according to technical platform: the Desktop
Division (DOS and Windows-based products), the Mid-Range Division (UNIX and
AIX-based products) and the Enterprise Division (IBM AS/400-based products).
All of the Founding Businesses provide practice management software
products to physicians and other professionals which are designed to automate
the administrative, financial, practice management and clinical requirements of
a professional's office practice. These systems range in capacity from one to
hundreds of users, allowing the Company to address the needs of both small and
large customers. The combination of the Founding Businesses will position the
Company as a national supplier of practice management products and services to
office-based health care providers. The Company believes that the combination of
the Founding Businesses will provide unique opportunities for (i) the
coordination of product research and development, sales and marketing, (ii) the
reduction of redundant expenses and operations and (iii) the maximization of the
experience of the assembled management team.
THE FOUNDING BUSINESSES
DR Software, Inc. ("DR Software")
DR Software was founded in 1983 and is headquartered in Atlanta, Georgia.
DR Software markets DOS and Windows-based practice management systems to small
(one to two providers) medical practices. DR Software currently has
approximately 2,200 clients serving an estimated 3,150 health care providers,
including approximately 25% of all podiatry practices in the United States. Upon
the consummation of the Acquisitions, DR Software will be organized into the
Company's Desktop Division. Donald M. Rogers, the founder of DR Software, will
become President of the Desktop Division.
Key technologies developed by DR Software include DR Dictation(TM), a
voice-activated medical records software product designed to give physicians and
other health care providers the power to dictate directly into the computer and
to create accurate medical reports in seconds. Additionally, Wisdom(TM), DR
Software's new Windows-based practice management software application, is
positioned to serve medical practices of a wide range of sizes and specialties,
and was created in a rapid development language applying relational database and
object-oriented technology. Wisdom(TM) incorporates a comprehensive suite of EDI
services that are fully integrated with the core practice management system, as
well as complying with open database connection ("ODBC") standards.
KComp Management Systems, Inc. ("KComp")
KComp was founded in December 1995 to acquire certain assets of a software
developer and is headquartered in Los Angeles, California. KComp markets DOS and
Windows-based practice management systems to small to mid-size (three to 25
providers) dental and oral surgery practices. KComp currently has approximately
725 clients serving an estimated 1,600 health care providers. Upon the
consummation of the Acquisitions, KComp will be organized into the Company's
Desktop Division. Key technologies of KComp include The Dental Wizard(TM), a
comprehensive Windows-based practice management software system designed to be
utilized by dental practices of all sizes and specialty concentrations.
International Computer Solutions, Inc. ("ICS")
ICS, which was founded in 1985 and acquired in 1993 by AMC, is
headquartered in Atlanta, Georgia. ICS markets DOS, Windows and UNIX-based
practice management systems to small to mid-size health care providers. ICS
currently has approximately 600 desktop clients serving an estimated 750 health
care providers and approximately 500 mid-range clients serving an estimated
1,800 health care providers. Upon the consummation of the Acquisitions, ICS's
DOS and Windows-based operations will be organized into the
7
<PAGE> 9
Company's Desktop Division and its UNIX operations will be organized into the
Company's Mid-Range Division. Key technologies of ICS include The Provider
Information Manager(TM), a Windows-based product which was created for use by
the professional business manager or managing physician to provide a "top down"
view of the practice, identifying financial, payor, patient, clinical, system
and EDI utilization, practice demographic and practice profitability trends.
Rovak, Inc. ("Rovak")
Rovak was founded in 1984 and is headquartered in Lake Elmo, Minnesota.
Rovak markets UNIX and AIX-based practice management software to mid-size
medical practices and clinics. Rovak's software products are targeted
specifically to meet the practice management needs of oral surgeons and
orthodontists. Rovak currently has approximately 1,000 clients serving an
estimated 1,800 health care providers. Upon the consummation of the
Acquisitions, Rovak will be organized into the Company's Mid-Range Division.
Brad Schraut, the President of Rovak, will become President of the Mid-Range
Division. Key technologies developed by Rovak include the Optical Mark
System(R), which uses optical scanning technologies to automate daily tasks and
eliminate data entry. Additionally, Rovak has developed its Digital Record
Keeping System(TM) which operates with third-party products to enable a practice
to store and merge radiographic and photographic images with correspondence and
clinical medical records.
Millard-Wayne, Inc. ("Millard-Wayne")
Millard-Wayne, which was founded in 1977 and will be acquired by AMC
immediately prior to the consummation of the Offering, is headquartered in
Atlanta, Georgia. Millard-Wayne markets IBM AS/400-based enterprise-wide
practice management systems to mid-size to large (over 25 providers) medical
practices and clinics. Millard-Wayne currently has approximately 190 clients
serving an estimated 2,000 health care providers. Upon the consummation of the
Acquisitions, Millard-Wayne will be organized into the Company's Enterprise
Division. M. Wayne George, the founder of Millard-Wayne, will become President
of the Enterprise Division. Key technologies developed by Millard-Wayne include
a graphical user interface ("GUI") technology to work in conjunction with its
practice management system, which operates on the IBM AS/400.
Health Care Division, Inc. ("HCD")
HCD, which was founded in 1996 by AMC to acquire certain assets of Info
Systems, is headquartered in Charlotte, North Carolina. HCD markets IBM
AS/400-based practice management systems to mid-size to large medical practices
and clinics. HCD currently has approximately 200 clients serving an estimated
5,000 health care providers. Upon the consummation of the Acquisitions, HCD will
be organized into the Company's Enterprise Division. Key technologies developed
by HCD include a comprehensive managed care module designed for use in
conjunction with its practice management products which run on the IBM AS/400.
THE ACQUISITIONS
Prior to and as a condition to the consummation of the Offering (i) AMC, a
holding company and the parent company of ICS and HCD, will acquire
Millard-Wayne and immediately thereafter merge with and into InfoCure, with
InfoCure as the surviving corporation, and (ii) InfoCure will acquire all of the
outstanding capital stock of each of DR Software, KComp and Rovak. Upon the
consummation of the Acquisitions, each of the Founding Businesses will become a
wholly-owned subsidiary of InfoCure. See "Certain Transactions" and "Shares
Eligible for Future Sale."
The aggregate consideration to be paid by InfoCure to acquire the Founding
Businesses consists of approximately $6.9 million in cash, $4.1 million in
assumed indebtedness and 3,676,161 shares of Common
8
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Stock. The following table summarizes the consideration paid or payable upon the
consummation of the Acquisitions:
<TABLE>
<CAPTION>
ACQUISITION CONSIDERATION
----------------------------------------------
INDEBTEDNESS SHARES OF
FOUNDING BUSINESS CASH ASSUMED (1) COMMON STOCK(2)
----------------- ------------ ------------ ---------------
<S> <C> <C> <C>
AMC (3)(4)(5)............................ $1,100,000 $2,573,691 3,486,903
Rovak (5)(6)............................. 2,986,000 1,081,311 --
KComp (5)(7)............................. 734,000 299,919 102,500
DR Software.............................. 2,128,500 98,082 86,758
---------- ---------- ---------
Total.......................... $6,948,500 $4,053,003 3,676,161
========== ========== =========
</TABLE>
- ---------------
(1) Assumed indebtedness is as of January 31, 1997, prior to application of the
proceeds of the Offering. Excludes the assumption of current liabilities
except the current portion of the indebtedness.
(2) Excludes 100 shares of Common Stock issued to the incorporators of the
Company.
(3) Includes ICS, HCD and Millard-Wayne. AMC formed HCD in November 1996 to
consummate the HCD Acquisition and will acquire Millard-Wayne immediately
prior to the consummation of the Offering.
(4) Represents the cash portion of the purchase price of Millard-Wayne.
(5) Includes (i) 27,021 Equivalent Shares of Common Stock to be issued upon the
consummation of the AMC Merger to stockholders of Millard-Wayne in
connection with AMC's acquisition of Millard-Wayne. Excludes an aggregate
of (i) 323,739 Equivalent Shares of Common Stock reserved for issuance upon
exercise of outstanding stock options and a warrant of AMC assumed by the
Company, (ii) 132,964 Equivalent Shares of Common Stock which AMC has the
right to purchase for $65,000, which right is subject to court approval of
a certain settlement agreement (see "AMC Financial Statements -- Note 3"),
(iii) 27,021 Equivalent Shares of Common Stock reserved for issuance if
Millard-Wayne meets certain specified revenue or operating profits for the
12-month periods ending July 31, 1998 and 1999, (iv) 80,000 shares of
Common Stock reserved for issuance if Rovak meets a certain specified level
of net income for the 12-month period ending January 31, 1998, (v) 125,000
Equivalent Shares of Common Stock reserved for issuance if KComp meets a
certain specified level of operating income for the 12-month period ending
July 31, 1998), (vi) 243,047 Equivalent Shares of Common Stock to be
assigned and transferred to AMC for cancellation prior to the consummation
of the Offering, pursuant to a written agreement dated November 19, 1996
and (vii) approximately 48,000 Equivalent Shares of Common Stock AMC
intends to sell to an unaffiliated third party for an estimated $210,000 in
a private placement prior to the Offering.
(6) Includes reduction for an estimated post-closing adjustment of $4,000.
(7) Includes reduction for an estimated post-closing adjustment of $66,000.
InfoCure has filed a registration statement on Form S-4 for the concurrent
offering of 3,676,161 shares of Common Stock to be issued to the stockholders of
certain of the Founding Businesses upon the consummation of the Acquisitions.
The following is a summary of the material terms of the Acquisitions.
AMC Acquisition. The merger agreement ("AMC Merger Agreement") between
InfoCure and AMC provides that AMC shall merge with and into InfoCure, with
InfoCure continuing as the surviving corporation ("AMC Merger"). The AMC Merger
will occur at the time the Offering becomes effective. Upon the consummation of
the AMC Merger, the holders of common stock of AMC will receive an aggregate of
3,486,903 shares of Common Stock of InfoCure, an estimated 0.06902 of a share of
Common Stock for each share of common stock of AMC owned of record (the
equivalent of one share of Common Stock for approximately 14.49 shares of common
stock of AMC). This exchange ratio ("Exchange Ratio") is subject to adjustment
depending upon the number of shares of common stock of AMC outstanding at the
time of the AMC Merger. Outstanding stock options and warrants to purchase
common stock of AMC which are not exercised prior to the AMC Merger will not be
terminated upon the AMC Merger and may be exercised after the AMC Merger for a
number of shares of Common Stock of InfoCure equal to the product of the
Exchange Ratio times the number of shares of common stock of AMC such holder
would have otherwise been entitled to purchase. At the time of the AMC Merger,
ICS, HCD and Millard-Wayne will be wholly-owned subsidiaries of AMC.
InfoCure and AMC make certain representations and warranties in the AMC
Merger Agreement as to, among other matters, their respective financial
positions, corporate existence, business and capital structure.
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<PAGE> 11
The consummation of the AMC Merger is subject to the fulfillment of various
conditions at or prior to the effective date of the AMC Merger including, among
others, the correctness of the representations and warranties and the absence of
any material and adverse change in the business of AMC.
InfoCure and AMC may, by written agreement, (i) extend the time for the
performance of any obligation or other act of the parties, (ii) waive any
inaccuracies in the representations or warranties contained in the AMC Merger
Agreement and (iii) waive compliance with or modify, amend or supplement any of
the covenants, agreements, representations or warranties contained in the merger
agreement or waive or modify performance of any of the obligations of any of the
parties to the AMC Merger Agreement.
The AMC Merger Agreement provides that it may be terminated prior to the
effective date of the AMC Merger, notwithstanding the approval of the holders of
a majority of outstanding shares of InfoCure and AMC, (i) by the mutual consent
of InfoCure and AMC, (ii) at any time after June 30, 1997 (or such later date as
the parties shall have agreed to in writing) by InfoCure if the conditions
precedent to its obligations have not been fulfilled or waived by it or (iii) at
any time after June 30, 1997 (or such later date as the parties shall have
agreed to in writing) by AMC if the conditions precedent to its obligations have
not been fulfilled or waived by it.
The AMC Merger has been approved by the boards of directors of AMC and
InfoCure. The membership of each board is identical. Under the Delaware General
Corporation Law, the written consent to the AMC Merger of the holders of a
majority of the outstanding shares of common stock of AMC and of InfoCure is
sufficient to approve the merger. AMC has obtained the written consents of the
holders of a majority of the outstanding shares of common stock of AMC approving
the AMC Merger. All of the outstanding shares of InfoCure are owned by its
directors and officers and such stockholders voted for the AMC Merger.
AMC conducts business solely through its subsidiaries ICS, HCD and, upon
its acquisition, Millard-Wayne. The current directors of AMC, Messrs. Fine and
Price, and executive officers of AMC, Messrs. Fine, Price, Warren and Chastain,
are also executive officers of InfoCure. Also, employment agreements have been
or will be entered into between AMC or InfoCure and certain of their respective
officers. See "Management."
For a description of transactions between AMC and any director, executive
officer and any holder of more than 5% of the common stock of AMC and their
affiliates, see "Certain Transactions."
DR Software Acquisition. The stock purchase agreement among the
stockholders of DR Software and InfoCure ("DR Stock Purchase Agreement")
provides that InfoCure will acquire all of the outstanding capital stock of DR
Software ("DR Software Acquisition") at the time the Offering becomes effective
for consideration consisting of (i) $2,128,500 payable in cash upon the closing
of the Offering and (ii) 86,758 shares of Common Stock. In addition, the DR
Stock Purchase Agreement provides for a reduction to the purchase price in the
event the net worth of DR Software at the time of the acquisition is less than a
negative $100,000 and an increase to the purchase price in the event the net
worth exceeds such amount. Shares of Common Stock and/or cash having a value
equivalent to 10% of the aggregate consideration payable will be held in escrow
as a source of recovery of damages to InfoCure in the event of breach of any
warranty, representation or covenant of the stockholders of DR Software or
adjustment to the purchase price. Donald M. Rogers, a stockholder of DR
Software, has also agreed not to compete with the business of DR Software for a
period of five years after the closing. See "Risk Factors -- Dependence on Key
Personnel."
InfoCure and the stockholders of DR Software will make certain
representations and warranties in the DR Stock Purchase Agreement as to, among
other matters, the financial position, corporate existence, business and capital
structure of InfoCure or DR Software. The consummation of the sale/purchase of
the capital stock of DR Software by its stockholders and InfoCure is subject to
the fulfillment of various conditions at or prior to the effective date of the
Offering including, among others, the correctness of the representations and
warranties and the absence of any material, adverse change in the business of DR
Software.
InfoCure and the stockholders of DR Software may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the DR Stock Purchase Agreement,
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<PAGE> 12
(ii) waive any inaccuracies in the representations and warranties contained in
the DR Stock Purchase Agreement and (iii) waive compliance with or modify, amend
or suspend any of the covenants, agreements, representations or warranties
contained in the DR Stock Purchase Agreement or waive or modify performance of
any of the obligations of any of the parties to the DR Stock Purchase Agreement.
The DR Stock Purchase Agreement provides that it may be terminated or
abandoned prior to the effective date of the Offering (i) by mutual consent of
InfoCure and the stockholders of DR Software, (ii) at any time after June 30,
1997 (or such later date as the parties shall have agreed to in writing) by
InfoCure if the conditions precedent to its obligations have not been fulfilled
or waived by it or (iii) at any time after June 30, 1997 (or such later date as
the parties shall have agreed to in writing) by the stockholders of DR Software
if the conditions precedent to their obligations have not been fulfilled or
waived by them. In event of termination, each party shall pay its own expenses
incurred in connection with the DR Stock Purchase Agreement.
Donald M. Rogers, a director, officer and principal stockholder of DR
Software, will become an officer of InfoCure. In addition, Mr. Rogers will enter
into an employment agreement with InfoCure upon the consummation of the
acquisition. See "Management."
Rovak Acquisition. The stock purchase agreement entered into among all of
the stockholders of Rovak and InfoCure ("Rovak Stock Purchase Agreement")
provides that InfoCure will acquire all of the outstanding capital stock of
Rovak at the time of the Offering in consideration of $2,990,000. The Rovak
Stock Purchase Agreement provides for an adjustment to the consideration in the
event the net worth of Rovak at the time of the acquisition is less than or more
than a negative $161,000. In addition, the purchase price is to be increased
("Earn Out") if the net income before interest and taxes ("net income") of Rovak
for the 12-month period ending January 31, 1998 is more than $621,000. The
maximum increase of $815,000 is applicable if such net income is $750,000 or
more and is prorated if it is less than $750,000 and more than $621,000. Cash
consideration and shares of Common Stock having an aggregate value of $815,000,
which comprise the Earn Out, will be a source of recovery of damages to InfoCure
in the event of breach of any warranty, representation or covenant of the
stockholders of Rovak or an adjustment to the purchase price. Certain
stockholders of Rovak have also agreed not to compete with the business of Rovak
for a period of five years after the closing. See "Risk Factors -- Dependence on
Key Personnel."
InfoCure and the stockholders of Rovak have made certain representations
and warranties in the stock purchase agreement as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or Rovak. The consummation of the sale/purchase of the capital stock of
Rovak by its stockholders and InfoCure is subject to the fulfillment of various
conditions at or prior to the effective date of the Offering including, among
others, the correctness of the representations and warranties and the absence of
any material, adverse change in the business of Rovak.
InfoCure and the stockholders of Rovak may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the Rovak Stock Purchase Agreement, (ii) waive any
inaccuracies in the representations and warranties contained in the Rovak Stock
Purchase Agreement and (iii) waive compliance with or modify, amend or suspend
any of the covenants, agreements, representations or warranties contained in the
Rovak Stock Purchase Agreement or waive or modify performance of any of the
obligations of any of the parties to the Rovak Stock Purchase Agreement.
The Rovak Stock Purchase Agreement provides that it may be terminated or
abandoned prior to the effective date of the Offering (i) by mutual consent of
InfoCure and the stockholders of Rovak, (ii) at any time after June 30, 1997 (or
such later date as the parties shall have agreed to in writing) by InfoCure if
the conditions precedent to its obligations have not been fulfilled or waived by
it or (iii) at any time after June 30, 1997 (or such later date as the parties
shall have agreed to in writing) by the stockholders of Rovak if the conditions
precedent to their obligations have not been fulfilled or waived by them. In
event of termination, each party shall pay its own expenses incurred in
connection with the Rovak Stock Purchase Agreement.
A two-year employment agreement is to be entered into by the Company and
Brad Schraut, a director, officer and principal stockholder of Rovak, Mr.
Schraut will become an officer of InfoCure upon the Rovak Acquisition. The
employment agreement will provide for an annual based salary of $110,000 and a
seven-year incentive stock option with an exercise price at the fair market
value of the Common Stock at the time the
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<PAGE> 13
stock option is granted. Also, Mr. Schraut will be eligible for a bonus based
upon his performance. The number of shares of Common Stock to be subject to the
stock option and the terms of the bonus have not been determined as of this
date.
KComp Acquisition. The plan of merger is to be entered into among all of
the stockholders of KComp, CMA Corporation, a wholly-owned subsidiary of
InfoCure ("CMA"), and InfoCure ("KComp Merger Agreement") which will provide
that KComp will merge into CMA ("KComp Acquisition") at the time of the Offering
and the shareholders of KComp will receive consideration consisting of $800,000
payable in cash and 102,500 shares of Common Stock. The KComp Merger Agreement
provides for a reduction to the consideration in the event the net worth of
KComp at the time of the KComp Acquisition is less than negative $242,703 and an
increase to the consideration in the event the net worth exceeds such amount. In
addition the purchase price is to be increased in the event the operating income
for the 12-month period ending July 31, 1998 exceeds $400,000 and is less than
$750,000. If the operating income of KComp for the 12-month period ending July
31, 1998 exceeds $400,000, the purchase price is to be increased by an amount
equal to 5.5 times the operating profit which is in excess of $400,000 and less
than $427,273 (a maximum of $150,000 payable in cash). If operating income
exceeds $427,273 and is less than $750,000, the purchase price is to be further
increased by the delivery of 3,873 shares of Common Stock for each $10,000 of
operating income in excess of $427,273 (assuming an initial offering price of
$8.00 per share which number of shares of Common Stock will be increased or
decreased, pro rata, if the initial offering price is less than or greater than
$8.00 per share). As a source of recovery of damages to InfoCure in the event of
breach of any warranty, representation or covenant of the stockholders of KComp
or adjustment to the purchase price in favor of InfoCure, an escrow account will
be established in the amount of $80,000 and InfoCure will be granted a right of
offset against certain notes of KComp payable to its stockholders in the
principal amount of $250,000 and any additional purchase price to be paid as
described above. In addition, InfoCure has agreed to grant to the holders of
certain notes of KComp and recipients of deferred bonuses from KComp a right to
purchase an aggregate of $450,000 in value of Common Stock at 120% of the
initial public offering price of the Common Stock of InfoCure. The right is
exercisable within 30 days of the final installment of such payments, which are
due no later than the second anniversary of the KComp Acquisition.
InfoCure and the stockholders of KComp will make certain representations
and warranties in the KComp Merger Agreement as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or KComp. The consummation of the KComp Acquisition by its stockholders
and InfoCure is subject to the fulfillment of various conditions at or prior to
the effective date of the Offering including, among others, the correctness of
the representations and warranties and the absence of any material and adverse
change in the business of KComp.
InfoCure and the stockholders of KComp may, by written agreement, (i)
extend the time period for the performance of any obligation or other act of the
parties pursuant to the stock purchase agreement, (ii) waive any inaccuracies in
the representations and warranties contained in the stock purchase agreement and
(iii) waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the KComp Merger
Agreement or waive or modify performance of any of the obligations of any of the
parties to the KComp Merger Agreement.
The KComp Merger Agreement provides that it may be terminated prior to the
effective date of the Offering (i) by mutual consent of InfoCure and the
stockholders of KComp, (ii) at any time after June 30, 1997 (or such later date
as the parties shall have agreed to in writing) by InfoCure if the conditions
precedent to its obligations have not been fulfilled or waived by it or (iii) at
any time after June 30, 1997 (or such later date as the parties shall have
agreed to in writing) by the stockholders of KComp if the conditions precedent
to their obligations have not been fulfilled or waived by them. In event of
termination, each party shall pay its own expenses incurred in connection with
the KComp Merger Agreement.
A two-year employment agreement is to be entered into by the Company and
Marc Kloner, a principal stockholder of KComp, upon the consummation of the
KComp Acquisition. The employment agreement will provide for an annual based
salary of $110,000. Mr. Kloner will be eligible for a bonus based upon his
performance after the first year of employment.
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<PAGE> 14
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the other
information contained in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; OPERATING LOSSES
InfoCure was incorporated in November 1996 and to date has conducted no
operations and generated no revenue. InfoCure has entered into agreements to
acquire the Founding Businesses concurrently with the consummation of the
Offering. The Founding Businesses have been operating as separate independent
entities, and there can be no assurance that the Company will be able to
successfully integrate the operations of these businesses or institute the
necessary company-wide systems and procedures to successfully manage the
combined enterprise on a profitable basis. Although the unaudited pro forma
combined financial statements indicate that the Company had pro forma net income
of $884,000 and $1,025,000 for the years ended January 31, 1996 and 1997,
respectively, the pro forma combined financial results of the Company cover
periods when the Founding Businesses were not under common control or management
and include adjustments to compensation expense and certain other operating
expenses as provided in the respective purchase agreements to levels effective
concurrent with the Acquisitions. These adjustments total $2,136,000 and
$2,172,000 for the years ended January 31, 1996 and 1997, respectively. The
management believes that these adjustments reflect appropriate provisions of the
several acquisition agreements which provide for reductions in the combined
workforce of the Founding Businesses of approximately 14%. With this reduction
in the workforce, there can be no assurance that the Company will be able to
effectively integrate the Founding Businesses or perform all of the current
functions and maintain historic sales levels. Such pro forma financial results
may not be indicative of the Company's future financial condition or operating
results. AMC, which is considered the predecessor to the Company for accounting
purposes, had a net loss of $180,196 for the year ended January 31, 1996 and a
pre-tax loss of $636,906, before income tax benefit, for the year ended January
31, 1997. In addition, each of DR Software, Rovak and Millard-Wayne recorded a
net loss for certain of the periods reflected in their respective financial
statements and notes thereto included elsewhere in this Prospectus. The
inability of the Company to successfully integrate the Founding Businesses and
reduce operating expenses in the manner described in the Notes to the Unaudited
Pro Forma Combined Financial Statements, or otherwise improve results of
operations, could have a material adverse effect on the Company's results of
operations, financial condition or business and could negatively impact the
Company's ability to acquire other companies or otherwise execute its business
strategy. See "Management's Discussion and Analysis of Pro Forma Combined
Financial Condition and Pro Forma Combined Results of Operations,"
"Business--Business Strategy," "Management" and Unaudited Pro Forma Combined
Financial Statements and the Notes thereto.
MATERIAL CONTINGENCIES RELATING TO THE FOUNDING BUSINESSES
InfoCure has entered into definitive agreements to acquire the Founding
Businesses. InfoCure and each of the Founding Businesses have made certain
representations and warranties in the definitive agreements as to, among other
matters, their respective financial positions, corporate existence, business and
capital structure. The consummation of each Acquisition is subject to the
fulfillment of various conditions at or prior to the effective date of each
Acquisition, including, among others, the correctness of the representations and
warranties and the absence of any material and adverse change in the business of
the respective Founding Business. There can be no assurances that InfoCure will
consummate all of the Acquisitions, which is a condition precedent to the
consummation of the Offering. See "The Company -- The Acquisitions."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As part of its growth strategy, the Company intends to acquire additional
companies providing health care practice management systems and complementary
products and technologies. Increased competition for acquisition candidates 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
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<PAGE> 15
identify, acquire or profitably integrate and manage additional companies or
complementary products or 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 personnel of the acquired companies, 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. In addition, there can be no
assurance that the Founding Businesses or other companies or complementary
products or technologies acquired in the future will achieve anticipated revenue
and earnings. See "The Company -- The Acquisitions", "Business--Business
Strategy", "Principal Stockholders", "Certain Transactions" and Unaudited Pro
Forma Combined Financial Statements and the Notes thereto.
POSSIBLE NEED FOR FUTURE ACQUISITION FINANCING
The Company currently intends to finance future acquisitions by using the
remaining net proceeds of the Offering and/or issuing 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. There can be no assurance that the
Company will be able to obtain the financing it will need on terms it deems
acceptable, or at all. See "Use of Proceeds" and "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON EDI
The Company's business strategy is largely based upon increasing the
percentage of its customers who utilize EDI for establishing patient eligibility
with insurers, precertification and eligibility of insurance claims, insurance
claims submission, claim status, remittance advice and patient statements.
Failure to increase the use of EDI services by health care providers in general,
and by the Company's customers in particular, could have a material adverse
effect on the Company's results of operations, financial condition or business.
A decrease or limited growth in the net fees realized by the Company for EDI
services could have a material adverse effect on the Company's future results of
operations, financial condition or business. See "Business--Business Strategy."
DIFFICULTIES IN MANAGING GROWTH
The continued growth of the Company may place a significant strain on the
Company's management and operations. Certain of the Company's key personnel have
recently joined the Company, and none of the Company's officers has had
experience in managing a large, public health care information services company.
The Company's future growth will depend in part of the ability of its officers
and other key employees to implement and expand financial control systems and to
expand, train and manage its employee base and provide support to an expanded
customer base. The Company's inability to manage growth effectively could have a
material adverse affect on the Company's results of operations, financial
condition or business.
DEPENDENCE ON PROPRIETARY SOFTWARE; RISK OF INFRINGEMENT
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 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's software technology is not patented and existing
copyright laws offer only limited practical protection. 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
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<PAGE> 16
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 such a 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 require significant management resources and otherwise have
a material adverse effect on the Company's results of operations, financial
condition or business. See "Business--Product Protection."
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for the Company's products and services is characterized by
technological advances and rapid changes 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 (i) enhance its current products, (ii) respond
effectively to market requirements and technological changes, (iii) sell
additional products to its existing customer base and (iv) introduce new
products and technologies that address the increasingly sophisticated needs of
its customers and the health care industry. The Company will be required to
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 existing 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--Product Research and Development."
COMPETITION
The market for practice management systems, such as those marketed by the
Company, is highly competitive. The Company's competitors vary in size and in
the scope and breadth of the products and services they offer. The Company's
principal competitors are providers of health care information systems such as
Medic Computer Systems, Inc., IDX Systems Corporation, Physician Computer
Network, Inc., Medical Manager Corporation, Quality Systems, Inc., Reynolds and
Reynolds, Inc. (HealthCare Division) and National Data Corporation (Dental
Division). Many of the Company's competitors have greater financial, research
and development, technical, marketing and sales resources than the Company,
including the competitors named herein. In addition, other entities not
currently offering products and services similar to those offered by the
Company, including claims processing organizations, third-party administrators,
insurers and others, may enter certain markets in which the Company competes.
There can be no assurance that future competition and industry pressures for
cost reduction and containment will not have a material adverse effect on the
Company's results of operations, financial condition or business. See
"Business--Competition."
PRODUCT RELATED CLAIMS; PRODUCT ACCEPTANCE CONCERNS
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 litigation against the
Company by its clients, their patients or others. In addition, because the
Company's products facilitate electronic claims submissions, any resulting loss
of financial data could result in claims against the Company. The Company
currently does not maintain product liability insurance but intends to obtain
insurance to protect against claims associated with the use of its products;
however, there can be no assurance that such insurance coverage will be
available or, if available, at a reasonable cost or 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.
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Even unsuccessful claims could result in the expenditure of funds in litigation,
as well as diversion of management time and resources. Additionally, such
failures or errors may result in the loss of, or delay in, market acceptance of
the Company's products.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers. Furthermore, the Company will likely be dependent on the
senior management of any businesses acquired in the future. If any of these
persons becomes unable or unwilling to continue in his or her role with the
Company, or if the Company is unable to attract and retain other qualified
employees, the Company's business or prospects could be adversely affected.
Although the Company will have entered into an employment agreement upon the
consummation of the Offering with each of the Company's executive officers,
which will include confidentiality and non-compete provisions, there can be no
assurance that any individual will continue in his or her present capacity with
the Company for any particular period of time or that the non-compete provisions
will be enforceable or free from certain limitations under the laws of all
jurisdictions. 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. The Company does not
intend to maintain key man insurance on its executive officers or key employees.
Although the Company has been successful to date in attracting and retaining
skilled personnel, there can be no assurance that the Company will continue to
be successful in attracting and retaining the personnel it requires to
successfully develop new and enhanced products and to continue to grow and
operate profitably. See "Business--Employees" and "Management."
UNCERTAINTY IN HEALTH CARE INDUSTRY; GOVERNMENT REGULATION
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. Governmental
organizations account for a substantial portion of revenues paid to health care
providers in the United States and impose significant regulatory burdens. From
time to time, certain proposals to reform the health care system have been
considered by Congress and further proposals may be considered in the future.
These reforms may increase government involvement in health care, lower
reimbursement rates and otherwise adversely affect the operating environment for
the Company's clients. Health care organizations may react to these reforms 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 health care reforms might have on its results of operations, financial
condition or business.
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. It is unclear to what extent the Company's
Digital Record Keeping System, when marketed with the Company's practice
management applications, would be deemed to be a medical device subject to FDA
regulation. The FDA has issued a draft policy statement under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications and otherwise comply
with the requirements of the FDC Act applicable to medical devices. Recently,
the FDA has initiated agency rulemaking which may exempt certain medical image
management devices from premarket notification procedures, but there can be no
assurance that such an exemption actually will be adopted and, if so, that the
rulemaking will apply to the Company's product.
Enforcement action may consist of warning letters, refusal to approve or
clear products, revocation of approvals or clearances previously granted, civil
penalties, product seizures, injunctions, recalls, operating restrictions and
criminal prosecutions. Any enforcement action by the FDA could have a material
adverse effect on the Company's ability to market its Digital Record Keeping
System.
16
<PAGE> 18
The Health Insurance Portability and Accounting Act of 1996, signed into
law by the President on August 21, 1996 requires that the Department of Health
and Human Services ("HHS") study security provisions relating to electronic data
transmission and make recommendations to Congress by August 21, 1997, regarding
the development of standards to protect the privacy of individually identifiable
health information. If Congress does not enact legislation by August 21, 1999,
adopting standards for the privacy of health information, HHS must do so by
regulation no later than February 21, 2000. The law also provides penalties for
knowingly obtaining or disclosing individually identifiable health information.
The Company cannot predict what impact, if any, such security provisions might
have on its results of operations, financial condition or business. See
"Business--Government Regulation."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES; INTERESTS OF CERTAIN
PERSONS
Approximately $6.9 million, representing approximately 50% of the net
proceeds of the Offering will be paid and 3,676,161 shares of Common Stock will
be issued, upon the consummation of the Acquisitions. Approximately $3.7 million
of such payments and 2,637,008 shares of Common Stock will be paid or issued, as
the case may be, directly or indirectly, to stockholders of the Founding
Businesses who will become directors or executive officers of the Company or
holders of more than 5% of the outstanding Common Stock. In addition, upon the
consummation of the Acquisitions and the Offering, Messrs. Fine, Price, Warren,
Chastain, Rogers, George and Schraut, former executive officers of the Founding
Businesses, will become executive officers of the Company. Proceeds available
for repayment of indebtedness, working capital and other uses by the Company
will be approximately $7.0 million, representing 50% of the net proceeds of the
Offering. See "The Company -- The Acquisitions," "Use of Proceeds," "Management"
and "Certain Transactions."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the consummations of the Acquisitions and the Offering, the
Company's directors, executive officers and holders of more than 5% of the
Common Stock will beneficially own approximately 24% of the outstanding shares
of Common Stock. Although these persons do not presently have any agreements or
understanding to act in concert, any such agreement or understanding would make
it difficult for others to elect the entire Board of Directors and to control
the disposition of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
SUBSTANTIAL SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following the Offering. The 2,000,000 shares of Common Stock being
sold in the Offering will be freely tradable unless acquired by affiliates of
the Company. Concurrently with the consummation of the Offering, not more than
3,676,161 shares of Common Stock will be issued in connection with the AMC
Merger and the Acquisitions of which 2,739,408 shares of Common Stock will be
issued to affiliates of the Company and the Founding Businesses and 936,753
shares of Common Stock to persons who are not affiliates. In addition 171,032
Equivalent Shares of Common Stock are subject to outstanding stock options and a
warrant which may be exercised prior to the consummation of the AMC Merger. Such
shares will be registered under the Securities Act and therefore also will be
freely tradable unless acquired by affiliates of the Company. The future sales
of such shares may have a depressive effect on the market price of the Common
Stock.
The Company, its directors, executive officers and certain of its
stockholders, including all affiliates of the Company, holding an aggregate of
2,745,739 Equivalent Shares of Common Stock (and have the right to acquire
163,267 shares of Common Stock pursuant to immediately exercisable stock options
and a warrant), are expected to agree not to offer or dispose of, without the
prior written consent of Josephthal Lyon & Ross Incorporated, any shares of
Common Stock for a period of six months (the "Lock-Up Period") following the
date the public trading of the Common Stock commences. In addition, holders of
more than 5% of the outstanding shares of Common Stock which hold 2,420,655
shares are expected to agree, for a period of three months following expiration
of the Lock-Up Period, not to offer or dispose of any shares of Common Stock
17
<PAGE> 19
except with respect to shares of Common Stock being sold in connection with the
Offering. The Company may issue Common Stock in connection with future
acquisitions and upon the exercise of stock options and warrants. See "Principal
Stockholders," "Shares Eligible for Future Sale" and "Underwriting."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained upon consummation of the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price for the Common Stock will be determined by
negotiation among the Company and the Representatives of the Underwriters and
may not be indicative of the prices that will prevail in the public market. 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.
See "Underwriting."
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from quarter to
quarter, in part because of changes in customer purchasing patterns,
competition, the timing of the recognition of licensing revenues and the timing
of, and costs related to, any new product introductions. The Company operates
without any backlog of product orders and a majority of the revenues realized in
a quarter result from orders received or services rendered in that quarter. The
Company's operating results for any particular quarter are not necessarily
indicative of any future results. The uncertainties associated with the
introduction of any new products and with general market trends may limit
management's ability to forecast short-term results of operations accurately.
The Company is subject to slight seasonal increases in its systems and software
sales in the fourth quarter of its fiscal year. Additionally, a high percentage
of the Company's expenses is relatively fixed, including costs of personnel, and
are not susceptible to rapid reduction. See "Management's Discussion and
Analysis of Pro Forma Combined Financial Condition and Pro Forma Combined
Results of Operations."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $7.52 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock pursuant to the Offering may experience
further dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND EMPLOYMENT AGREEMENT PROVISIONS AND
DELAWARE LAW
Certain provisions of Delaware law, the Company's Certificate of
Incorporation and certain of its executive employment agreements could, together
or separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company and limit the price that certain investors
might be willing to pay in the future for the Company's Common Stock. These
provisions include the right of the Company's Board of Directors to issue,
without further stockholder approval, one or more series of preferred stock with
rights and preferences senior to the rights associated with the Common Stock.
The Company is also subject to Section 203 of the Delaware General Corporation
Law, which may inhibit or discourage a change in control of the Company. In
addition, the provisions of certain executive employment agreements and stock
option agreements may result in economic benefits to the holders thereof upon
the occurrence of a change in control. See "Management--Stock Options,"
"--Employment Agreements," "Description of Capital Stock--Preferred Stock" and
"--Delaware Anti-Takeover Law."
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered hereby are estimated to be approximately $13.9 million after
deducting underwriting discount and estimated expenses of the Offering payable
by the Company. If the Underwriters exercise the over-allotment option, the
Company will not realize any additional net proceeds, as those shares will be
sold by the Selling Stockholders. See "Principal Stockholders."
The Company intends to use approximately $6.9 million of the net proceeds
for payments due upon the consummation of the Acquisitions, approximately $3.0
million for the repayment of certain outstanding indebtedness, approximately
$445,000 principally for expenses related to the Acquisitions and approximately
$234,000 for satisfaction of a contractual obligation. Of the $3.0 million
intended to discharge indebtedness, $1.5 million will repay the 10.25% note
issued by AMC in the December 3, 1996 acquisition of HCD, $367,000 will be used
to repay an AMC 11.25% note scheduled to mature in 2003 and $604,000 will be
used to repay three Rovak variable rate notes (10.25% at December 31, 1996)
which mature variously from 1998 through 2000. The balance will be used to
liquidate a number of smaller notes payable principally to banks. The balance of
the net proceeds, approximately $3.3 million, will be used for working capital
and other general corporate purposes, which are expected to include the
acquisition of businesses offering products or technologies that are
complementary to the Company's existing business. Although the Company is
exploring acquisition opportunities, it has no agreements or understandings at
this time to make any additional acquisitions and is not involved in any
negotiation with respect to any such transactions except that the Company has
entered into a letter of intent to acquire the business of a practice management
systems provider which markets its products and services to podiatrists. The
consideration payable is $500,000 payable in cash and Common Stock at the
closing and an earnout of an additional $200,000 based upon future revenues. The
revenues of the Company for its fiscal year ended December 31, 1996 were
approximately $995,000. If acquired, this new business would be included in the
Desktop Division. There can be no assurances that a definitive agreement will be
entered into among the shareholders of the new business and the Company or that
the acquisition will be consummated.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds from the sale of the Common Stock offered hereby based upon the
current state of its business operations, its current plans and current economic
and industry conditions and is subject to reallocation among the categories
listed above. The amounts and timing of actual expenditures will depend on
numerous factors, including the status of the Company's income, the availability
of alternative financing for acquisitions, the Company's business development
activities and competition. Pending the aforementioned uses, the net proceeds
from the Offering will be invested in interest-bearing government securities or
short-term, investment grade securities.
The Company has entered into a letter of intent with FINOVA Capital
Corporation ("FINOVA") to obtain a line of credit of up to $10.0 million to be
used for working capital and other general corporate purposes, including future
acquisitions. The Company anticipates entering into a definitive line of credit
agreement following the consummation of the Offering. There can be no assurance
that a line of credit will be obtained or that, if obtained, it will be on terms
that are favorable to the Company. See "Management's Discussion and Analysis of
Pro Forma Combined Financial Condition and Pro Forma Combined Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain its earnings to finance the development and
continued expansion of its business and for general corporate purposes and
therefore does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. Any future payment of dividends will be at the
discretion of the Board of Directors and will depend upon the Company's
financial condition, results of operations and such other factors as the Board
of Directors deems relevant. There can be no assurance that dividends will ever
be paid by the Company.
There are no current contractual restrictions on the payment of dividends.
However, it is anticipated that if a line of credit agreement is entered into
hereafter, the definitive line of credit terms will contain restrictions on the
payment of dividends. See "Use of Proceeds."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of January 31, 1997 (i) on a pro forma basis to give effect to the March 1997
issuances of shares of AMC common stock for an aggregate of $280,000, the
Acquisitions and the repayment of certain outstanding indebtedness and (ii) on a
pro forma basis adjusted to give effect to the March 1997 issuances of shares of
AMC common stock for an aggregate of $280,000, the Acquisitions, the
consummation of the Offering and the application of the estimated net proceeds
of the Offering. This table should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements and the Notes thereto included elsewhere in
this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 521 $ 521
Long-term debt, excluding current portion................... 512 512
Stockholders' equity:
Preferred Stock, $0.001 par value; 2,000,000 shares
authorized and no shares issued and outstanding........ -- --
Common Stock, $0.001 par value; 15,000,000 shares
authorized; 5,203,167 shares issued and outstanding pro
forma and 5,676,261 shares issued and outstanding pro
forma as adjusted (1).................................. 5 6
Additional paid-in capital................................ 15,946 19,233
Accumulated deficit....................................... (3,251) (3,251)
------- -------
Total stockholders' equity............................. 12,700 15,988
------- -------
Total capitalization................................. $13,733 $17,021
======= =======
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) 323,739 Equivalent Shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options and a
stock warrant, (ii) 243,047 Equivalent Shares of Common Stock to be
assigned and transferred to AMC for cancellation prior to the consummation
of the Offering, pursuant to a written agreement dated November 19, 1996,
(iii) approximately 48,000 Equivalent Shares of Common Stock AMC intends to
sell to an unaffiliated third party for an estimated $210,000 in a private
placement prior to the Offering and (iv) 132,964 Equivalent Shares of
Common Stock which AMC has the right to redeem for $65,000 (subject to the
approval of the settlement agreement by the court). See "AMC Financial
Statements -- Note 3."
20
<PAGE> 22
DILUTION
The pro forma net tangible book value (deficit) of the Company's Common
Stock as of January 31, 1997, after giving pro forma effect to the Acquisitions,
certain debt repayments and the March 1997 issuances of shares of AMC common
stock for an aggregate of $280,000, was approximately $(790,000), or $(0.15) per
share of Common Stock. The pro forma net tangible book value per share is equal
to the total tangible assets of the Company less total liabilities divided by
the number of shares of Common Stock outstanding. After giving effect to the
sale of 2,000,000 shares of Common Stock offered hereby (after deducting the
underwriting discount and estimated expenses of the Offering payable by the
Company), the adjusted pro forma net tangible book value of the Company as of
January 31, 1997 would have been approximately $2.5 million, or $0.44 per share,
representing an immediate increase in pro forma net tangible book value of $0.59
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $7.52 per share, or 94.0%, to investors purchasing shares
at the assumed initial public offering price in the Offering. The following
table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
Pro forma net tangible book value per share before the
Offering.................................................. $(0.15)
Increase in net tangible book value per share attributable
to new investors.......................................... 0.59
------
Adjusted pro forma net tangible book value per share after
the Offering.............................................. 0.44
-----
Dilution in net tangible book value per share to new
investors................................................. $7.52
=====
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share of Common Stock after the consummation of the
Offering will not change because the shares sold to meet the over-allotment
option will be from outstanding shares held by the Selling Stockholders.
The following table summarizes as of January 31, 1997, after giving pro
forma effect to the Acquisitions, certain debt repayments and the March 1997
issuances of shares of AMC common stock for an aggregate of $280,000, the total
consideration paid and the average price paid per share of Common Stock by
existing stockholders and new investors in the Offering (before deducting the
underwriting discount and estimated expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)....... 3,676,261 64.8% $ 3,622,418 18.5% $0.99
New investors................... 2,000,000 35.2 16,000,000 81.5 8.00
--------- ----- ----------- -----
Total................. 5,676,261 100.0% $19,622,418 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) stock options and a warrant to purchase an
aggregate of 323,739 Equivalent Shares of Common Stock outstanding at a
weighted average per share exercise price of $2.25, (ii) 243,047 Equivalent
Shares of Common Stock to be assigned and transferred to AMC for
cancellation prior to the consummation of the Offering, (iii) approximately
48,000 Equivalent Shares of Common Stock AMC intends to sell to an
unaffiliated third party for an estimated $210,000 in a private placement
prior to the Offering and (iv) 132,964 Equivalent Shares of Common Stock
which AMC has the right to redeem for $65,000 (subject to the approval of
the settlement agreement by the court). See "AMC Financial
Statements -- Note 3."
21
<PAGE> 23
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
InfoCure will acquire the Founding Businesses prior to and as a condition
to the consummation of the Offering. For financial statement presentation
purposes, AMC has been identified as the accounting acquiror. The following
summary unaudited pro forma combined financial data present certain data for the
Company, as adjusted for (i) the effects of the AMC Merger on an historical
basis, (ii) the effects of the HCD Acquisition, the acquisition by AMC of
Millard-Wayne and the acquisitions by InfoCure of KComp, DR Software and Rovak
using the purchase method of accounting at their estimated fair values and (iii)
the effects of certain pro forma adjustments to the combined financial
statements. KComp was founded in December 1995; accordingly, results of KComp
are included only for the year ended January 31, 1997. See "Management's
Discussion and Analysis of Pro Forma Combined Financial Condition and Pro Forma
Combined Results of Operations" and the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
YEAR ENDED JANUARY 31,
---------------------------
1996 1997
----------- ----------
<S> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software sales............................. $ 9,746 $ 9,655
Maintenance and support................................ 6,034 8,580
Other.................................................. 762 871
------- -------
Total revenues....................................... 16,542 19,106
Cost of revenues.......................................... 5,137 5,656
------- -------
Gross profit.............................................. 11,405 13,450
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)....... 8,386 10,053
Depreciation and amortization (6)...................... 1,337 1,402
------- -------
Operating income.......................................... 1,682 1,995
Other expense (income):
Interest expense (7)................................... 77 73
Other.................................................. (121) (41)
------- -------
Income before taxes....................................... 1,726 1,963
Income tax (8)............................................ 842 938
------- -------
Net income................................................ $ 884 1,025
======= =======
Pro forma net income per share............................ $ 0.16 $ 0.19
Pro forma weighted average shares outstanding (9)......... 5,436 5,436
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
-------------- ----------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 664 $ 3,917
Working capital........................................... (2,425) 828
Total assets.............................................. 18,328 21,581
Short-term debt........................................... 521 521
Long-term debt, less current portion...................... 512 512
Total stockholders' equity................................ 12,502 15,792
</TABLE>
- ---------------
(1) Assumes that the closing of the Acquisitions had occurred as of February 1,
1995, in the case of the selected pro forma statements of operations data,
and as of January 31, 1997, in the case of the selected pro forma balance
sheet data. The pro forma balance sheet data also give effect to the
issuances in March 1997 of an aggregate of 55,216 Equivalent Shares of
Common Stock by AMC for an aggregate of $280,000 to unaffiliated third
parties. The pro forma combined financial data are based upon preliminary
estimates, available information and certain assumptions that management
believes are
22
<PAGE> 24
appropriate. The selected pro forma combined financial data presented
herein are not necessarily indicative of the results the Company would have
obtained had such events occurred at the beginning of the period or of the
future results of the Company. The selected pro forma combined financial
data should be read in conjunction with the other financial data and notes
thereto included elsewhere in this Prospectus.
(2) Includes pro forma adjustments to reflect (i) the elimination, as provided
in the respective acquisition agreements, of duplicative administrative
functions at the Company of approximately $1,773,000 and $1,830,000 for the
years ended January 31, 1996 and 1997, respectively, and (ii) the
additional overhead expenses at the Founding Businesses of approximately
$452,000 and $475,000 for the years ended January 31, 1996 and 1997,
respectively. The Company considers that the elimination of approximately
$1,130,000 of these expenses, on an annualized basis, was effected
concurrent with HCD Acquisition on December 3, 1996.
(3) Includes pro forma adjustments to reflect the elimination of allocations
from Info Systems for (i) overhead of approximately $476,000 and $328,000
for the years ended January 31, 1996 and 1997, respectively, and (ii)
expense related to HCD's participation in Info System's employee stock
ownership plan of approximately $159,000 and $75,000 for the years ended
January 31, 1996 and 1997, respectively. Upon the consummation of the HCD
Acquisition on December 3, 1996, these eliminations were effected.
(4) Includes pro forma adjustments to reflect the elimination of rent and other
expenses of approximately $352,000 and $350,000, for the years ended
January 31, 1996 and 1997, respectively. Upon the consummation of the HCD
Acquisition on December 3, 1996, the elimination of $117,000 of such
expenses, on an annualized basis, was effected.
(5) Includes pro forma adjustments to reflect the elimination of certain
commissions and royalties which are payable by Rovak under agreements that
will be terminated following the consummation of the Offering. Such
adjustments are approximately $125,000 and $323,000 for the years ended
January 31, 1996 and 1997, respectively.
(6) Includes pro forma adjustments to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions of approximately
$782,000 and $753,000 for the years ended January 31, 1996 and 1997,
respectively. Also includes pro forma adjustments to depreciation and
amortization expense, after adopting appropriate useful lives for related
assets, of $300,000 and $240,000 for the years ended January 31, 1996 and
1997, respectively.
(7) Includes pro forma adjustments to reflect a reduction in interest expense
related to debt reduction, in connection with the Acquisitions and the
Offering, of $185,000 and $254,000 for the years ended January 31, 1996 and
1997, respectively.
(8) The pro forma provision for income taxes includes (i) the effects of the
non-deductible portion of goodwill for tax purposes and (ii) assumes that
the deferred tax asset represented by AMC's net operating loss
carryforwards of approximately $1,500,000 is recognized as of January 31,
1995.
(9) The pro forma weighted average shares outstanding includes (i) 100 shares
issued to the incorporators of the Company, (ii) 5,203,067 shares to be
issued in connection with the Acquisitions and the Offering and (iii)
232,758 Equivalent Shares of Common Stock issuable upon outstanding stock
options and a warrant.
(10) The selected pro forma combined balance sheet data reflects the adjustments
referenced above but excludes the effects of the receipt and application of
the net proceeds of the Offering. The pro forma combined balance sheet data
as adjusted reflects the changes that are expected to occur from the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds" and "Capitalization."
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
CONDITION AND PRO FORMA COMBINED RESULTS OF OPERATIONS
GENERAL
InfoCure was incorporated in November 1996 to develop, market and service
practice management systems for use by health care providers throughout the
United States.
Prior to and as a condition to the consummation of the Offering, InfoCure
will acquire the six Founding Businesses, which will be consolidated into three
operating divisions: the Desktop Division, the Mid-Range Division and the
Enterprise Division. The Desktop Division markets DOS and Windows-based practice
management systems and other software products primarily to small to mid-size
medical practices, including podiatric, dental, oral and maxillofacial
providers. The Mid-Range Division offers AIX and UNIX-based practice management
systems to mid-size medical practices, including oral surgeons and
orthodontists. The Enterprise Division markets IBM AS/400-based practice
management systems to mid-size to large medical practices and clinics.
The Company's total revenues are derived primarily from the delivery of
systems and software sales and maintenance and support services. Systems and
software sales include revenue from new systems, hardware, training and other
services provided during a customer installation as well as upgrades to existing
customers. Maintenance and support services revenues are generated by providing
customers with training, updates, enhancements and telephone support.
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 is one quarter or a
full year. Revenue from other services is recognized as the services are
provided.
Selling, general and administrative expense consists primarily of
marketing, advertising, administrative, research, software development and other
overhead costs. The Company's pro forma combined financial results cover periods
when the Founding Businesses were not under common control or management and
include adjustments to compensation expense and certain other operating expenses
to levels the Company intends to or has implemented in connection with the
Acquisitions. See "Risk Factors -- Absence of Combined Operating History;
Operating Losses" and Unaudited and Pro Forma Combined Financial Statements and
the Notes thereto.
The Company's acquisition strategy is to take advantage of the
consolidation opportunities existing in the practice management systems sector.
This strategy involves acquiring a significant customer base of software
installations and expanding customer and electronic services. The Company has an
installed customer base of approximately 17,000 health care providers in a broad
range of specialties at over 6,000 client sites.
RESULTS OF OPERATIONS
The following pro forma combined financial data contain the results of
operations for the years ended January 31, 1997 and 1996. KComp was established
in December 1995. The only results of KComp included in the pro forma combined
financial data are for the year ended January 31, 1997.
The following discussions should be read in conjunction with the Selected
Pro Forma Combined Financial Data, the Selected Financial Data of AMC and the
other financial statements and notes thereto appearing elsewhere in this
Prospectus.
YEAR ENDED JANUARY 31, 1997 COMPARED WITH YEAR ENDED JANUARY 31, 1996
Revenues increased by $2,564,000, or 15.5%, to $19,106,000 for the year
ended January 31, 1997 from $16,542,000 for the year ended January 31, 1996.
Maintenance and support revenue increased by $2,546,000 or 42.2% to $8,580,000
for the year ended January 31, 1997 from $6,034,000 for the year ended January
31, 1996. The increase primarily was due to the formation of KComp, which
contributed maintenance and support revenues of $1,759,000, and additional
revenues from onsite training services.
24
<PAGE> 26
Systems and software sales increased $91,000, or 1.0%, to $9,655,000 for
the year ended January 31, 1997 from $9,746,000 for the year ended January 31,
1996.
Cost of revenue increased by $519,000, or 10.1%, to $5,656,000 for the year
ended January 31, 1997 from $5,137,000 for the year ended January 31, 1996. As a
percentage of revenue, cost of sales decreased to 29.6% for the year ended
January 31, 1997 from 31.0% for the year ended January 31, 1996. This decrease
in cost of revenue as a percentage of sales principally reflects a change in
product mix, whereby maintenance and support revenue increased to 44.9% of total
revenues for the year ended January 31, 1997 from 36.5% for the year ended
January 31, 1996. The cost of revenue for KComp for the year ended January 31,
1997 was $233,000, or 10.8% of its total revenues.
Selling, general and administrative expense increased by $1,667,000, or
19.9%, to $10,053,000 for the year ended January 31, 1997 from $8,386,000 for
the year ended January 31, 1996. This increase primarily is due to the formation
of KComp, which added $1,494,000 to selling, general and administrative expense.
As a result of the foregoing factors, operating income increased by
$313,000, or 18.6%, to $1,995,000 for the year ended January 31, 1997 from
$1,682,000 for the year ended January 31, 1996. The increase reflects the
operating income of $325,000 from KComp's operations for the year ended January
31, 1997, which was not included in the prior year. As a percentage of revenues,
income from operations increased to 10.4% for the year ended January 31, 1997
from 10.2% for the year ended January 31, 1996.
Interest expense decreased by $4,000, or 5.2%, to $73,000 for the year
ended January 31, 1997 from $77,000 for the year ended January 31, 1996,
primarily due to the repayment of notes payable and long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
The Founding Businesses have lines of credit providing for combined
advances of up to $175,000, with borrowings outstanding at January 31, 1997
totalling $120,000. Following consummation of the Acquisitions and the Offering,
the Company will have outstanding long-term debt of $840,000, including $328,000
which will be classified as the current portion of long-term debt. Additionally,
the Company has other notes payable of $73,000.
The Company has gross cash flow from operations (net income plus
depreciation and amortization) for the year ended January 31, 1997 of
$2,427,000. The Company believes that funds generated from operations, together
with the net proceeds of the Offering, will be sufficient to finance its current
operations, potential obligations relating to the Acquisitions and planned
capital expenditure requirements at least through the next 18 months. In the
longer term, the Company may require additional sources of capital to fund
future growth and acquisitions. Such sources of capital may include additional
equity or debt financings.
The Company has entered into a letter of intent with FINOVA to obtain a
line of credit of up to $10.0 million to be used for working capital and other
general corporate purposes, including future acquisitions. Under the line of
credit FINOVA would advance up to an agreed upon percentage of acceptable
accounts receivables. Advances for acquisitions would be subject to the sole
discretion of FINOVA. The funds advanced will be secured by a security interest
in the tangible and intangible assets of the Company. The Company anticipates
entering into a definitive line of credit following the consumation of the
Offering. There can be no assurances that a line of credit will be obtained or
that, if obtained, it will be on terms that are favorable to the Company.
SEASONALITY AND FLUCTUATIONS
The Company is subject to slight seasonal increases in its systems and
software sales in the fourth quarter of its fiscal year.
25
<PAGE> 27
SELECTED FINANCIAL DATA OF AMC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data present certain data for AMC for the
years ended January 31, 1996 and 1997. The selected financial data presented for
AMC should be read in conjunction with its audited financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues:
Maintenance and support................................ $ 1,311 $ 1,419
Systems and software sales............................. 1,102 1,076
------- -------
Total revenues....................................... 2,413 2,495
Cost of revenues.......................................... 516 475
------- -------
Gross profit.............................................. 1,897 2,020
Operating expenses:
Salaries and operating expenses........................ 2,016 2,469
Depreciation and amortization.......................... 114 111
------- -------
Loss from operations...................................... (233) (560)
Other income (expense):
Interest expense....................................... (68) (83)
Other.................................................. 121 6
------- -------
Loss before income tax benefit............................ (180) (637)
Income tax benefit........................................ -- 891
Net income (loss)......................................... $ (180) $ 254
Net income (loss) per share............................... $ (0.00) $ 0.01
Weighted average shares outstanding....................... 41,387 43,186
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 250 $ 199
Working capital........................................... (1,201) (1,127)
Total assets.............................................. 567 4,182
Short-term debt........................................... 336 50
Long-term debt, less current portion...................... 545 2,304
Total stockholders' equity................................ (1,618) 172
</TABLE>
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMC
GENERAL
For financial statement purposes, AMC has been presented herein as the
acquiring company. Prior to December 3, 1996, AMC functioned with operations
exclusively through a single operating subsidiary, ICS. On December 3, 1996, HCD
became, and upon the commencement of the Offering, Millard-Wayne will become,
subsidiaries of AMC in transactions accounted for as purchases. The following
discussion and analysis should be read in conjunction with the audited financial
statements and notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Year Ended January 31, 1997 Compared with Year Ended January 31, 1996
Total revenues increased by $81,829 or 3.4%, to $2,494,563 for the year
ended January 31, 1997 from $2,412,734 for the year ended January 31,1996. This
increase included revenue from HCD, totalling $354,250 for the period subsequent
to the HCD Acquisition on December 3, 1996.
Maintenance and support revenues increased by $108,499 or 8.3% to
$1,418,884 for the year ended January 31, 1997 from $1,310,385 for the year
ended January 31, 1996. The maintenance and support revenues associated with the
HCD operations totalled $209,328 for the period December 3, 1996 to January 31,
1997. Excluding HCD's operations, maintenance and support revenues decreased by
$100,829 due to lower registration fees within the Desktop product, lower
contract training service revenue, decreased maintenance for the UNIX and DOS
products, and lower hardware maintenance revenue due to reduced hardware
maintenance requirements.
The method by which EDI revenues and costs were recorded was changed from a
gross amount to a net amount during the year ended January 31, 1996. As a
result, EDI revenues decreased by $6,372, although the transaction volume
increased in the comparative periods. EDI revenues were at a net amount of
$355,999 for the year ended January 31, 1997 compared to $362,371 for the year
ended January 31, 1996. The overall EDI transaction volume increased by 220,456
transactions, or 24.1%, to 1,133,094 transactions for the year ended January 31,
1997 from 912,638 transactions for the year ended January 31, 1996.
Systems and software sales revenue decreased by $26,670 or 2.4% to
$1,075,679 for the year ended January 31, 1997 from $1,102,349 for the year
ended January 31, 1996. The HCD Acquisition increased systems and software sales
by $144,922 for the period December 3, 1996 to January 31, 1997. The overall
decrease in systems and software sales was due to several factors. System sales
for the UNIX products decreased by $107,139, and overall hardware sales
decreased by $36,319. Other decreases totalled $28,134. The decreased sales also
reflected a change in the sales and marketing focus from new customer sales
towards a focus on recurring services, maintenance and transaction revenue.
Cost of sales decreased by $41,641, or 8.1%, to $474,201 for the year ended
January 31, 1997 from $515,842 for the year ended January 31, 1996. As a
percentage of revenue, cost of sales decreased to 19.0% for the year ended
January 31, 1997 from 21.4% for the year ended January 31, 1996. The decrease in
cost of sales as a percentage of revenue reflects a change in product mix, with
the higher margins associated with transaction services.
Salaries and operating expenses increased by $453,602, or 22.5%, to
$2,469,249 for the year ended January 31, 1997 from $2,015,647 for the year
ended January 31, 1996. Increased compensation expenses were due to additional
personnel and the other corporate overhead associated with opening a second
office for purposes of implementing AMC's acquisition strategy. This increase
was also due to an increase in contract labor, as AMC identified specific tasks
to be performed by outside contractors for training and installation services.
In addition, compensation expenses totalling $110,000 were recognized in
conjunction with the settlement of an option agreement with a former director of
the Company for services previously rendered.
27
<PAGE> 29
As a result of the foregoing factors, AMC had a loss from operations of
$559,522 for the year ended January 31, 1997, as compared to a loss of $232,811
for the year ended January 31, 1996. Through application of its net operating
loss carry-forward ("NOL"), AMC recognized $891,000 in tax benefits, with a
resulting net income of $254,094 for the year ended January 31, 1997, compared
with a loss in the prior year of $180,196.
The recognition of the tax benefit associated with the utilization of the
NOL includes $671,000 representing a decrease in the deferred tax asset
valuation allowance. This adjustment reflects management's assessment that the
benefits to be derived from the pending Offering and Acquisitions and the
resolution of the contingencies associated with previous failed acquisitions
makes it more likely than not that the NOL will be utilized.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended January 31, 1997, cash used for operating activities
totalled $848,776, cash used for investing activities totalled $396,082, and
cash provided by financing activities totalled $1,193,895. Cash used for
investing activities included expenditures made for the acquisition of HCD, and
certain expenses associated with the Offering and Acquisitions. Cash provided by
financing activities were generated from the issuance of common stock.
As of January 31, 1997, AMC had an accumulated deficit of $3,250,786 and a
working capital deficiency of $1,126,809.
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<PAGE> 30
BUSINESS
The Company is a leading provider of practice management software products
and related services that address the growing needs of health care providers to
manage and communicate cost-effectively administrative, clinical and financial
data. The Company's practice management systems are used primarily by small to
mid-size medical practices, including multi-provider management services
organizations and independent physician alliances. Recently, the Company
developed and introduced an all-payor-based electronic data interchange ("EDI")
system to enable its customers to realize significant cost savings by replacing
paper-based transactions with electronic transaction processing. The Company has
an installed customer base of approximately 17,000 health care providers in a
broad range of specialties at over 6,000 client sites.
InfoCure has entered into agreements to acquire, concurrently with the
consummation of the Offering, the six Founding Businesses. In connection
therewith, InfoCure has filed a registration statement on Form S-4 for the
offering of 3,676,161 shares of Common Stock to be issued to the stockholders of
certain of the Founding Businesses upon the consummation of the Acquisitions.
The integration of these businesses will combine existing and proven products,
research and development, sales, marketing and support efforts. Following
consummation of the Acquisitions, the Founding Businesses will be consolidated
into three operating divisions, according to technical platform, thereby
allowing the Company to market and service cost-effectively its practice
management systems to a wide range of health care providers.
The Company's existing customer base comprises primarily office-based
health care practices that range in size from single practitioners to up to
several hundred providers with an emphasis on small and mid-size (up to 25
providers) health care practices. Based on industry sources, 60% of the
physicians in the United States are organized into approximately 190,000
office-based medical practices. Nearly all of these practices are small to
mid-size; there are fewer than 1,000 office-based medical practices in the
United States with more than 25 providers. Small and mid-size health care
practices are significantly under-penetrated with regard to practice management
software and EDI transaction processing. For example, while it is estimated that
the majority of hospitals submit their claims electronically, among small and
mid-size medical practices only approximately 35% submit claims electronically.
INDUSTRY BACKGROUND
Health care costs totalled approximately $1.0 trillion in 1995, having
risen at a rate approximately twice that of inflation during the last decade.
The escalation of such expenditures has led to pressure to contain costs and
attempts to shift the financial risk of delivering health care from payors to
providers. Many providers now participate in complex reimbursement arrangements,
resulting in multiple transactions, information exchanges and other
communications with payors per patient visit. As a result of these trends,
health care providers increasingly need to reduce operating costs, improve cash
flow and manage their businesses more efficiently while responding to the
increased administrative burdens and informational demands placed upon them by
payors. The Company's practice management systems address the efficiencies and
cost savings demanded by health care providers.
The Company believes that increased utilization of information
technologies, including EDI, can provide cost savings to providers and payors,
and to the health care system as a whole. Both payors and providers benefit from
reduced overhead as a result of the administrative simplification provided by
the direct electronic interchange of data traditionally handled manually (i.e.,
eligibility verification and claim status inquiries). In addition, payors are
able to detect fraud more easily and screen for unusual utilization trends. By
processing claims electronically, all providers, but especially office-based
providers, can reduce staff time and help meet the challenges of health care
cost containment initiatives. Providers also benefit from improved accounts
receivable turnover as a result of EDI.
The Company believes that the foregoing trends in the health care industry
will encourage greater consolidation within the practice management software
business, as many of the smaller practice management software companies find it
difficult to address the needs of providers in this rapidly changing
environment. Historically, sellers of health care information systems to
office-based health care providers have been focused either regionally or by
specialty. Due to the fragmented nature of practice management systems
suppliers, the
29
<PAGE> 31
Company believes that opportunities exist to increase its market share of
installed customers through acquisitions of complementary businesses, products
and services.
BUSINESS STRATEGY
The Company believes that it is well-positioned to take advantage of the
increased technology needs of the health care industry particularly among
smaller health care providers. As the supplier of the core practice management
system adopted by its customers, the Company has established its technology in
many customer sites, which, it believes, will yield significant growth
opportunities and competitive advantages.
The Company's primary growth strategies are to:
- Accelerate the Integration of EDI Services. The Company believes that
EDI services address the needs of patients, physicians and third-party
payors to increase efficiency and reduce overall costs while providing
the Company with a potential recurring revenue source. The Company
intends to introduce new EDI services in 1997 which will include
electronic eligibility and referral authorization, precertification,
claims status, encounter and payment approval. The Company intends to
promote the use of EDI services, primarily among the smaller practices
that constitute the core of the Company's existing customer base.
- Expand Through Strategic Acquisitions. The Company intends to acquire
companies that (i) have an established base of customers using practice
management software, (ii) own either key technologies or distribution
networks that complement existing products or (iii) provide the Company
with the opportunity for market leadership within specialty niches.
- Leverage its Customer Base. The Company's wide range of products and
services provides its sales force with opportunities to cross-sell
among its operating divisions. The Company intends to generate revenues
from existing customers by providing (i) system maintenance and
services, (ii) system upgrades, (iii) additional software applications
and (iv) EDI services. To generate new sales opportunities, the Company
will continue to devote significant resources to developing and
maintaining relationships with its existing customers and their
business systems consultants. The Company also will continue to
transition its customers gradually to newer technologies in order to
protect their system investments and minimize operational disruption.
- Expand its National Sales Efforts. The Company intends to expand its
direct sales efforts to market its products and services to a greater
number of health care providers. The Company believes that it can
increase its sales effectiveness and can better address the needs of
small, mid-size and large practices as a result of its organization
into three operating divisions. See "-- Sales and Marketing."
- Continue to Develop and Provide Sophisticated Practice Management
Software Products. In order to serve its customers' needs, the Company
will continue to make available innovative products and develop and
enhance its core practice management applications. In addition, where
appropriate, the Company will integrate software products developed by
third parties into its practice management systems.
- Capitalize on the Combination of Founding Businesses. The Company
believes that the combination of the Founding Businesses provides
unique opportunities for (i) the coordination of product research and
development, sales and marketing, (ii) the reduction of redundant
expenses and operations and (iii) the maximization of the experience of
the assembled management team.
PRODUCTS AND SERVICES
EDI Services
The Company has developed software allowing it to offer transaction-based
EDI services, including patient billing and insurance claims submission. The
Company believes that these services address the needs of patients, physicians
and third-party payors to increase efficiencies and reduce overall costs and
that EDI
30
<PAGE> 32
services present the Company with a new recurring revenue source. The Company
provides EDI services on a fee per transaction basis or for a fixed fee
determined on the basis of estimated volume and type of electronic transactions.
The Company estimates that over 200 million potential annual recurring
transactions are now being generated via non-electronic methods by its base of
installed customers. The Company's current EDI services include:
<TABLE>
<S> <C>
Electronic Claims Submission.................... Submits insurance claims electronically
from practices to an independent national
clearinghouse which forwards, either
electronically or on paper, to the
appropriate payors for payment.
Electronic Patient Billing...................... Submits patient billing information
electronically from practices to an
independent national clearinghouse which
processes, prints and mails bills and
provides billing reports to the practice.
Electronic Claims Remittance.................... Remits insurance payment from payor via
electronic payment which automatically
posts explanation of benefits into the
practice management system.
</TABLE>
The Company intends to market a suite of additional EDI services in 1997
which are currently available through clearinghouses engaged by the Company.
These additional EDI services include electronic eligibility and referral
authorization, precertification, claims status, encounter and payment approval.
In January 1996, ICS entered into an agreement with Envoy Corporation
("Envoy") pursuant to which ICS will exclusively promote to its customers the
electronic processing of health care insurance claims by Envoy. The Company
intends to establish a broader alliance with Envoy or another major
clearinghouse after the consummation of the Offering and believes that such an
alliance is important to the EDI strategy of the Company. There can be no
assurances that such alliance will be entered into.
Core Software Products
All of the practice management software products offered by the Company
provide physicians and other professionals with comprehensive office management
software designed to automate the administrative, financial, practice management
and clinical requirements of a professional's office practice. These systems
range in capacity from one to hundreds of users, allowing the Company to address
the needs of both small and large customers. The Company believes that its
practice management products meet the information requirements of the vast
majority of all medical specialties and office-based practices in the United
States by providing the following applications:
<TABLE>
<S> <C>
FINANCIAL APPLICATIONS
Patient Billing................................. Prepares patient statements. Accommodates
family billing or individual patient
billing and open item billing.
Patient Records................................. Maintains patient demographic, insurance,
financial, referral, diagnosis and other
user defined records.
Insurance Processing............................ Processes and prints claims. Coordinates
benefits when multiple insurance carriers
are involved. Tracks aging and payments of
all claims.
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
<S> <C>
Refund Processing............................... Prints refund checks for all credit
balances and posts adjusting entries to
patient accounts.
Collection...................................... Enhances the effectiveness of collection
procedures. Standardizes in-house
collection process, tracks collection
results and integrates a series of
delinquency correspondence.
ADMINISTRATIVE APPLICATIONS
Patient Communication........................... Integrates word processor with database to
allow user to create form letters and other
types of repetitive correspondence.
Appointment Scheduling.......................... Automates appointment scheduling. Provides
on-line patient appointment inquiry,
cancellation history, balance inquiry,
credit alerts and patient notes.
Referral Analysis............................... Tracks and analyzes all referral sources,
both statistically and financially.
Categorizes referrals by specialty and
volume.
PRACTICE MANAGEMENT APPLICATIONS
Management Reporting............................ Generates reports including aged accounts
receivable, insurance claims analysis and
aging, physician financial analysis, audit
report, receipts analysis, service
analysis, financial and procedure analysis
and revenue categories.
Report Generator................................ Creates custom reports from practice
management database with ability to store
report formats in a library format.
Graphic Analysis................................ Produces graphs displaying practice
management information and allows formats
to be stored in a library format.
Managed Care Analysis........................... Tracks managed care plans and analyzes them
for profitability to help the practice
manage plan participation.
CLINICAL APPLICATIONS
Patient Medical History......................... Stores and allows retrieval of patient
medical history such as allergies, current
and past diagnoses, procedures with
analysis by gender and age categories.
Patient Treatment Planning...................... Allows automated treatment planning and
tracking.
Hospital Link................................... Permits user's computer to emulate a
terminal connected to hospital system in
order to extract hospital data.
</TABLE>
The Company's core product offerings and services include software,
hardware, installation and training. The prices of the Company's products depend
upon a number of factors, including number of providers, number of system users
and technical platform, and range from $1,500 to over $500,000. Each customer
typically contracts with the Company for maintenance services, with annual fees
ranging from $360 to $40,000. Maintenance contracts are renewable annually.
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<PAGE> 34
Add-On Software Modules
The Company has developed information modules to address certain specific
needs of health care practices. These modules can be integrated with the
Company's practice management software products to enhance their capabilities,
which include:
<TABLE>
<S> <C>
Voice Automated Medical Records................. Designed to give physicians the power to
dictate directly to the computer and to
create accurate medical reports in seconds.
Digital Record Keeping(TM)...................... Enables a practice to store and merge
radiographic and photographic images with
correspondence and clinical medical
records.
Optical Mark System(R).......................... Uses optical scanner technology to automate
daily tasks and eliminate data entry.
Laboratory Interface............................ Interfaces with outside medical
laboratories to automate independent
laboratory test requisition and results
reporting processes.
Advanced Analytical Software Products........... Created for use by the professional
business manager or managing physician to
provide a "top down" view of the practice,
identifying financial, payor, patient,
clinical, system and EDI utilization,
practice demographic and practice
profitability trends.
</TABLE>
PRODUCT RESEARCH AND DEVELOPMENT
The Company believes that the health care information system industry is in
a technological transition from older, more structured data base system designs
to products designed to take advantage of (i) newer programming techniques, (ii)
greater processing capability, (iii) increases in data storage, compression and
retrieval capacity, (iv) faster communications, (v) graphical interfaces, (vi)
optical input and digital output and (vii) broad based client server
architecture. The Company is developing a new core practice management product
anticipated to be released in 1997 that utilizes the client server architecture
programmed in a rapid development language applying relational data base and
object oriented technology. The product will incorporate a comprehensive suite
of EDI services that are fully integrated with the core practice management
system, as well as complying with ODBC standards. This new product is in beta
testing. The Company intends to continue to invest in product development and to
emphasize Windows-based products, software improvements and enhancements to its
EDI programs. Also, the Company intends to expand its voice activation and other
technologies, such as imaging and scanning. See "Risk Factors--Product
Development."
As of January 31, 1997, the Company had 26 employees responsible for
product development and technical services.
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<PAGE> 35
SALES AND MARKETING
The Company markets its products to its existing customers via a dedicated
sales force who promote and sell system upgrades, maintenance services,
peripherals, add-on software products and EDI services. The Company believes
that the decision making process of providers to purchase practice management
systems is often influenced by the recommendations of other providers, practice
management consultants and payors. Therefore, the Company intends to target
consultants and payors for sales opportunities. In addition, the Company targets
markets through industry seminars, trade shows, direct telephone and mail
campaigns and advertisements in various publications. The Company markets its
products nationally to new customers through a direct sales force consisting of
27 sales representatives located in: Atlanta, Georgia; Lake Elmo, Minnesota and
Los Angeles, California.
The Company believes that the nature, scope and structure of the purchasers
of health care information systems technology are changing. To address the
complex needs of larger potential customers, the Company is forming an executive
sales group, which will be directed by the Vice President of Sales. Senior
divisional and corporate management also will assist in the sales and marketing
to larger and more technically advanced potential customers.
The Company believes that its fundamental strength lies in its diverse base
of installed customers, which will require more of the Company's products and
services as a result of the impact of managed care on health care providers. It
is a primary focus of the Company to direct a substantial portion of its sales
and marketing efforts to cross-selling its existing customer base for the
introduction of new software products, maintenance and support services and EDI
services.
CUSTOMER SUPPORT AND SERVICES
The Company offers software maintenance and support, enhancements, training
and, to a limited extent, custom development services to its customers. The
Company generally provides a limited warranty of 90 days or less with its
software products. Thereafter, maintenance and support services are available
for an additional charge. Maintenance and support services include telephone
support, maintenance updates, new releases which operate on new operating
systems and/or contain additional features and functions.
The Company believes that support is critical to the successful
installation and on-going operation of its practice management systems, and it
has dedicated substantial resources to customer support. As of January 31, 1997,
the Company had 90 full-time employees engaged in customer services. The Company
offers several toll free support lines staffed by experienced personnel who
answer general questions about the systems and solve operational difficulties.
Technical and research development staff provide additional technical expertise
to solve more complex issues and questions.
The Company operates eight regional customer training, support and service
facilities in: Atlanta, Georgia (three facilities); Lake Elmo, Minnesota; Los
Angeles, California; Charlotte, North Carolina and Pittsburgh, Pennsylvania.
Annual customer meetings are held at various times during the year, and
newsletters are distributed to the Company's customers on a periodic basis.
CUSTOMERS
The Company has installed more than 6,000 practice management systems,
serving approximately 17,000 health care providers that range in practice size
from one to more than 200 providers in all 50 states. The Company has customers
in all major specialties and subspecialties. No single customer accounted for
more than 3% of revenue during fiscal 1996 or 1997.
COMPETITION
The practice management systems industry is highly competitive. There are
numerous competitors, both regional and national, that market in this fragmented
industry. The Company believes that the primary competitive factors in this
market are service, support and customer satisfaction combined with price,
functionality, user friendliness, ongoing product enhancements and the
reputation and stability of the seller.
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<PAGE> 36
The Company believes that its principal competitive advantages are its
commitment to providing the highest level of service and support, its offerings
of feature-rich products customized to meet its customer's needs and size and
its substantial installed customer base. The Company's principal competitors
include other practice management system companies and local software resellers.
In addition, the Company competes with certain national and regional companies
which provide health care information systems and data processing which provide
computerized billing, insurance processing and record management services to
practices. Among the Company's principal competitors are IDX Systems
Corporation, Medic Computer Systems, Inc., Medical Manager Corporation,
Physician Computer Network, Inc. and Quality Systems, Inc. Certain of the
Company's competitors have greater financial, development, technical, marketing
and sales resources than the Company, although the Company believes that none of
its competitors dominates the overall practice management systems market.
Additionally, as the markets for the Company's products and services develop,
additional competitors may enter those markets and competition may intensify.
See "Risk Factors -- Competition."
PRODUCT PROTECTION
The Company regards its software as proprietary. The Company enters into
written license agreements with its customers which limit the use and copying of
its software. "Shrink wrap" licenses are used in connection with certain end
users sales. The Company relies principally on copyright law and trade secret
protection to protect its proprietary software. The software usually is
furnished in object code only, although source code licenses are granted in a
limited number of situations. The Company has not applied for any patents for
its software and does not believe that patent laws will be a source of
protection of the Company's products. Employees and technical consultants of the
Company are required to execute agreements providing for the confidentiality of
information and the assignment to the Company of proprietary property. See "Risk
Factors--Product Protection."
GOVERNMENT REGULATION
Many aspects of the health care industry presently are subject to extensive
federal and state government regulation. Certain of these laws and regulations
are applicable to the record keeping and reporting requirements of health care
providers. The Company will continue to modify its products to assist health
care providers to comply with all applicable laws.
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under
the 1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act
(the "FDC Act") to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. It is unclear to what extent the Company's
Digital Record Keeping System, when marketed with the Company's practice
management applications, would be deemed to be a medical device subject to FDA
regulation. The FDA has issued a draft policy statement under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications and otherwise comply
with the requirements of the FDC Act applicable to medical devices. Recently,
the FDA has initiated agency rulemaking which may exempt certain medical image
management devices from premarket notification procedures, but there can be no
assurance that such an exemption actually will be adopted and, if so, that the
rulemaking will apply to the Company's products.
Enforcement action can consist of warning letters, refusal to approve or
clear products, revocation of approvals or clearances previously granted, civil
penalties, product seizures, injunctions, recalls, operating restrictions and
criminal prosecutions. Any enforcement action by the FDA could have a material
adverse effect on the Company's ability to market its Digital Record Keeping
System.
The Health Insurance Portability and Accountability Act of 1996, signed
into law by the President on August 21, 1996 requires that the Department of
Health and Human Services ("HHS") study security provisions relating to
electronic data transmission and make recommendations to Congress by August 21,
1997, regarding the development of standards to protect the privacy of
individually identifiable health information. If Congress does not enact
legislation by August 21, 1999, adopting standards for the privacy of
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<PAGE> 37
health information, HHS must do so by regulation no later than February 21,
2000. The law also provides penalties for knowingly obtaining or disclosing
individually identifiable health information. The Company cannot predict what
impact, if any, such security provisions might have on its results of
operations, financial condition, or business. See "Risk Factors--Uncertainty in
Health Care Industry; Government Regulation."
EMPLOYEES
As of January 31, 1997, the Company employed 186 persons, including 27 in
marketing and sales, 90 in customer support services, 26 in product research and
development and 43 in administration, finance and management. None of the
employees of the Company is represented by a labor union.
FACILITIES
The Company leases nine facilities, having an aggregate of 53,409 square
feet and located in: Atlanta, Georgia (four facilities); Lake Elmo, Minnesota;
Los Angeles, California; Charlotte, North Carolina and Pittsburgh, Pennsylvania.
Sales, product development and administrative functions are conducted at each
facility. The leases have remaining terms ranging between one and five years.
The Company believes that its facilities are adequate for its current needs,
that suitable additional space will be available as required and that
opportunities exist for the Company to consolidate operations in a manner that
may reduce the Company's facilities requirements and rental costs.
LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that would have a
material adverse effect on its business, results of operations or financial
condition.
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frederick L. Fine.......................... 38 Chairman of the Board, President and Chief
Executive Officer (1)
James K. Price............................. 39 Executive Vice President and Director
Michael E. Warren.......................... 43 Chief Financial Officer and Director
R. Ernest Chastain......................... 47 Vice President -- Sales and Marketing
Donald M. Rogers........................... 38 President, Desktop Division
M. Wayne George............................ 56 President, Enterprise Division
Brad E. Schraut............................ 36 President, Mid-Range Division
James D. Elliott........................... 36 Director (1)(2)
Richard E. Perlman......................... 50 Director (1)(2)
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
The directors are elected annually by the stockholders and hold office
until the next annual meeting of stockholders or until their respective
successors are duly elected and qualified or until their earlier resignation or
removal.
The business experience, principal occupation and employment, as well as
the periods of service of each of the directors and executive officers of the
Company during at least the last five years, are set forth below:
Frederick L. Fine is a founder of the Company. Mr. Fine has served as
president of AMC since 1995 and as president of ICS since 1994. From 1993 to
1995, Mr. Fine served as executive vice president of AMC, and from 1985 to 1994
served as executive vice president of ICS, which he co-founded in 1985. From
1991 to 1993, Mr. Fine served as vice president of Newport Capital, Inc.
("Newport"), predecessor to AMC. Mr. Fine has served as a director of AMC, ICS
and Newport throughout the terms of his employment by each company. From 1983 to
1985, Mr. Fine was a regional manager with Informatics General Corporation, a
supplier of accounting software and from 1981 to 1983 was a sales representative
with Moore Business Systems, a provider of practice management systems. Mr. Fine
holds a B.S. in Economics from the University of Georgia.
James K. Price is a founder of the Company. Mr. Price has served as
executive vice president of AMC since 1995 and was vice president from 1993 to
1995. Mr. Price co-founded ICS and has served as its executive vice president
since 1994, as vice president from 1987 to 1994 and as president from 1985 to
1987. In addition, from 1991 to 1993, Mr. Price was a vice president of Newport.
Mr. Price has served as a director of AMC, ICS and Newport throughout the terms
of his employment by each company. From 1983 to 1985, Mr. Price was health care
sales manager of Executive Business Systems, a practice management systems
supplier, and from 1981 to 1983 was a sales representative with Moore Business
Systems. Mr. Price holds a B.A. in Marketing from the University of Georgia.
Michael E. Warren, since joining AMC in August 1994, has served as its vice
president of operations and as chief financial officer. From 1992 to 1994, Mr.
Warren was director of provider systems at Millennium Healthcare, a supplier of
electronic health care services. From 1986 to 1992, Mr. Warren was director of
the Computer Risk Management Practice in the Southeast of Arthur Andersen, LLP.
From 1983 to 1986, Mr. Warren worked as Manager of Systems Auditing for
NationsBank, and from 1980 to 1983 was an accountant with Coopers & Lybrand,
LLP. Mr. Warren holds a Masters in Business Information Systems from Georgia
State University and a B.A. in Accounting from the University of Georgia. Mr.
Warren is a CPA, a member of the AICPA and a member of the Georgia Society of
CPAs.
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<PAGE> 39
R. Ernest Chastain joined AMC in November 1996. From 1994 until his
employment by AMC he served as vice president of sales of Quality Systems, Inc.,
a health care practice management company; and from 1993 to 1994, Mr. Chastain
served as vice president of sales for ELCOMP, Inc., a health care practice
management company; and from 1983 to 1986, Mr. Chastain served as regional vice
president for Contel Business Systems, Inc., a supplier of practice management
systems, which was acquired in 1986 by Versyss, Inc., another practice
management system supplier. From 1986 to 1992, Mr. Chastain served as vice
president of sales management for Versyss, Inc. Mr. Chastain holds a B.A. in
Marketing from the University of Georgia.
Donald M. Rogers is a founder of DR Software and has served as its
president since its formation in 1984. From 1983 to 1984, Mr. Rogers was an
account manager at HBO & Company, health care software company, and from 1980 to
1983 was a systems analyst at NCR Corporation, a computer hardware manufacturer.
Mr. Rogers holds a B.S. in Management from the State University of New York at
Buffalo.
M. Wayne George is the founder of Millard-Wayne and has served as its
president and chief executive officer since its formation in 1977. From 1975 to
1977, Mr. George was a principal of Dynamic Control Corp, a hospital information
systems developer. From 1971 to 1975, Mr. George served in sales and marketing
capacities for General Systems Division of IBM. Mr. George holds a B.S. in
Industrial Management from the Georgia Institute of Technology.
Brad E. Schraut has served as the president of Rovak, Inc. since 1993. From
1985 to 1993, Mr. Schraut served as Rovak's vice president and was one of the
original founders of the company. From 1984 to 1985 Mr. Schraut was General
Manager of the Los Angeles plant of Scientific Coatings, Inc.
James D. Elliott has been the president of GE Integrated Technology
Solutions ("GE") since March, 1997 and its executive vice president and general
manager since August 1996. Prior to his current employment, Mr. Elliott
co-founded Universal Data Consultants, Inc., a systems integrator, in 1983 and
served as its president from 1983 until it was purchased by an affiliate of GE
in July 1996. Mr. Elliott holds a B.S. in Economics from the University of
Georgia.
Richard E. Perlman is the founder of Compass Partners, L.L.C., a merchant
banking and financial advisory firm specializing in corporate restructuring and
middle market companies and has served as its president since its inception in
May 1995. From 1991 to 1995, Mr. Perlman was executive vice president of Matthew
Stuart & Co., Inc., an investment banking firm. Mr. Perlman received a B.S. in
Economics from The Wharton School of The University of Pennsylvania and a
Masters in Business Administration from the Columbia University Graduate School
of Business.
EXECUTIVE COMPENSATION
InfoCure was incorporated in November 1996 and has not conducted any
operations prior to the Offering; however, the Company anticipates that during
fiscal 1998 annualized base salaries of the chief executive officer and the five
other most highly compensated officers will be as follows: Mr. Fine at $125,000,
Mr. Price at $125,000, Mr. Chastain at $125,000, Mr. Schraut at $110,000, Mr.
Rogers at $110,000 and Mr. George at $110,000. No compensation is payable to
directors for services rendered in such capacity.
STOCK OPTIONS
In October 1996, AMC adopted and issued stock options under AMC's 1996
Stock Option Plan (the "AMC Plan"). All stock options outstanding under the AMC
Plan at the time of the consummation of the Offering will be assumed by the
Company; however, no additional stock options under the AMC Plan will be granted
thereafter. In addition, InfoCure's Board of Directors has adopted the InfoCure
Corporation 1996 Stock Option Plan (the "Company's Plan"), subject to
stockholder approval, and intends to grant stock options to certain key
employees thereunder. A maximum of 800,000 shares of Common Stock may be issued
under the Company's Plan.
The Company's Plan and the AMC Plan (collectively, the "Stock Option
Plans") each provide for the granting to key employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code and for
the granting of nonstatutory stock options to employees and consultants. The
Stock
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<PAGE> 40
Option Plans are administered by the board of directors, or a committee thereof,
which determines the term of the option grant, exercise price, number of shares
subject to the option, the vesting schedule and the form of consideration
payable upon its exercise.
Options granted under the Stock Option Plans are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by the optionee.
The exercise price of all incentive stock options granted under the Stock Option
Plans must be at least equal to the fair market value of the common stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the outstanding common stock of
the issuer, the exercise price of any incentive stock option granted must equal
at least 110% of the fair market value on the grant date and the maximum term of
the option must not exceed five years. The term of all options granted under the
Stock Option Plans may not exceed ten years. Stock options may be granted within
ten years of the adoption of the Stock Option Plan by the board of directors.
All stock options under the Stock Option Plans granted in 1996 and to be
granted to executive officers upon the consummation of the Acquisitions shall
expire seven years after the date of grant and vest 25% on each anniversary date
of an option grant, thus becoming fully exercisable on the fourth anniversary of
its grant. The board of directors determines the fair market value of the common
stock on the date of grant. If the executive officer's employment is terminated
for any reason, except a change in control, prior to the vesting of the option,
that portion of the option which has not vested shall be terminated. Upon a
change in control of the Company, all options become fully vested.
As of the date of this Prospectus, options to purchase the equivalent of
150,119 shares of Common Stock were outstanding under the AMC Plan at an
equivalent weighted average exercise price of $3.62 per share. No stock options
granted to date to key employees under the AMC Plan will vest before October 1,
1997. It is contemplated that no additional stock options will be granted under
the AMC Plan. To date, no stock options have been granted under the Company's
Plan.
Michael E. Warren, chief financial officer, was granted two non-qualified
stock options upon his employment with AMC in September 1994. One option, for
the equivalent of 34,510 shares of Common Stock for an aggregate consideration
of $500, was exercised in 1996. The other option, for the equivalent of 34,510
shares of Common Stock at an exercise price of $1.45 per share, is exercisable
at any time prior to September 25, 2000. The stock options granted to Mr.
Warren, to the extent not exercised prior to the consummation of the Offering,
will be assumed by the Company. These stock options were not granted under a
stock option plan under which other persons were granted stock options.
The Company intends to file a registration statement covering the shares of
Common Stock which may be acquired under the Stock Option Plans and the option
granted to Michael E. Warren within 180 days from the date of consummation of
the Offering.
EMPLOYMENT AGREEMENTS
The Company will either enter into employment agreements or assume
employment agreements entered into by AMC with all persons who will become
executive officers of the Company upon the consummation of the Offering.
The Company will enter into five-year employment agreements with Frederick
L. Fine and James K. Price concurrently with the consummation of the
Acquisitions. Each agreement will provide for an annual base salary of $125,000
and a severance payment equal to the then-current annual base salary rate upon
the termination of employment by the Company without cause and a voluntary
termination in the event of a change in control of the Company following the
consummation of the Offering.
Michael E. Warren entered into a three-year employment agreement with AMC
on September 23, 1994. His current annual base salary is $95,000. In addition,
he was granted the two stock options described above. Upon consummation of the
AMC Merger, the Company shall assume the obligations of AMC under this
employment agreement. See "Business--Stock Options."
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<PAGE> 41
R. Ernest Chastain, upon his employment with AMC in November 1996, entered
into a two-year employment agreement at an annual base salary of $125,000. At
that time he was granted an incentive stock option to acquire the equivalent of
93,177 Equivalent Shares of Common Stock at an exercise price of $3.62 per
share. Upon consummation of the AMC Merger, the Company shall assume the
obligations of AMC under this employment agreement.
The Company will enter into two-year employment agreements with M. Wayne
George, Donald M. Rogers and Brad Schraut upon the consummation of the
Acquisitions, each of which will provide an annual base salary of $110,000. In
addition, each agreement will grant the employee a seven-year incentive stock
option with an exercise price equal to the fair market value of the Common Stock
at the time the stock option is granted. The number of shares for which such
stock options will be exercised has not been determined at this time.
Each of the foregoing employment agreements has, or will have, a covenant
that the executive may not compete with the Company for a period of one year
following termination of employment. In addition, certain executive officers,
who are stockholders of the Founding Business, may not compete with the Company
for a period of five years following the consummation of the Acquisitions.
The Company has not adopted a formal bonus plan. However, all executive
officers of the Company are eligible for a bonus depending upon their individual
performance and the performance of the Company to be awarded at the sole
discretion of the Board of Directors.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Accordingly,
indemnification may occur for liabilities arising under the Securities Act. The
Company and the Underwriters have agreed to indemnify each other (including
officers and directors) against certain liabilities, including liabilities under
the Securities Act. See "Underwriting." Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
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<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock, after giving effect to the
Acquisitions, by (i) each person who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each named executive officer of the
Company (iii) each director and person who is or will become a director upon the
consummation of the Offering and (iv) all directors and executive officers as a
group. Except as otherwise indicated, each named beneficial owner has sole
voting and investment power with respect to the shares listed.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND COMMON STOCK OWNED
NATURE OF ---------------------------
BENEFICIAL BEFORE AFTER
NAME OWNERSHIP(1) OFFERING OFFERING(2)
---- ------------ ------------ ------------
<S> <C> <C> <C>
Norson's International, LLC (3)(4)....................... 629,379 17.1% 11.1%
Frederick L. Fine (3)(5)................................. 473,720 12.9 8.3
James K. Price (3)(6).................................... 473,720 12.9 8.3
Robert L. Fine (3)....................................... 363,535 9.9 6.4
William A. Baker (3)..................................... 247,515 6.7 4.4
W. K. Price (3)(7)....................................... 235,137 6.4 4.1
Michael E. Warren........................................ 84,586 2.3 1.5
James D. Elliott......................................... 23,007 * *
Richard E. Perlman (8)................................... 161,818 4.3 2.8
All directors and executive officers as a group (9
persons)............................................... 1,327,160 34.6% 22.7%
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Includes shares subject to outstanding options, which options are
exercisable on the date hereof, and includes all shares of Common Stock
beneficially owned by Compass Partners, L.L.C. ("Compass").
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 300,000 shares of Common Stock from certain stockholders. See
"Underwriting." It is contemplated that if the over-allotment option is
exercised in full, Robert L. Fine will sell 136,615 shares, W.K. Price will
sell 88,390 shares and Norson's International, LLC ("Norson's") will sell
74,995 shares of Common Stock. The Company will not receive any proceeds
from the sale of Common Stock by these stockholders.
(3) Frederick L. Fine's and James K. Price's address is 2970 Clairmont Road,
Suite 950, Atlanta, Georgia 30329; Norson's address is 1411 Rouse Lane,
Suite 201, Roswell, Georgia 30076; Robert L. Fine's address is 7675 Fox
Court, Duluth, Georgia 30155; William A. Baker's address is 781 Brentwood
Trail, Atlanta, Georgia 30201 and W. K. Price's address is 3987 Land O'
Lakes Drive, Atlanta, Georgia 30342.
(4) Excludes 33,016 Equivalent Shares of Common Stock and a warrant (which
warrant is exercisable on the date hereof) to acquire 128,757 Equivalent
Shares of Common Stock owned by Compass, of which Norson's has shared
dispositive powers with Richard E. Perlman, a director of the Company.
(5) Includes 4,140 Equivalent Shares of Common Stock owned as custodian for his
children and 1,380 Equivalent Shares of Common Stock held in a charitable
trust over which he has sole voting and investment power.
(6) Includes 3,731 Equivalent Shares of Common Stock over which he has sole
voting power.
(7) Includes 7,462 Equivalent Shares of Common Stock over which he has sole
voting power.
(8) Includes 33,016 Equivalent Shares of Common Stock and a warrant (which
warrant is exercisable on the date hereof) to acquire 33,061 Equivalent
Shares of Common Stock owned by Compass, in which Mr. Perlman has a
majority interest and over which Mr. Perlman and Norson's have shared
dispositive powers.
CERTAIN TRANSACTIONS
THE ACQUISITIONS
In connection with the Acquisitions, and as consideration for their
ownership interests in the Founding Businesses, certain persons who are, or are
to become, executive officers of the Company upon the consummation of the
Acquisitions or the holders of more than 5% of the outstanding shares of Common
Stock
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<PAGE> 43
of the Company will receive shares of Common Stock and/or cash as follows:
Frederick L. Fine, 467,982 shares of Common Stock; James K. Price, 469,989
shares of Common Stock; Robert L. Fine, 359,058 shares of Common Stock; William
A. Baker, 247,515 shares of Common Stock; W. K. Price, 235,137 shares of Common
Stock; Michael E. Warren, 50,076 shares of Common Stock and an option to acquire
34,510 shares of Common Stock; Norson's, 629,379 shares of Common Stock; Donald
M. Rogers, 86,758 shares of Common Stock and approximately $2.1 million in cash;
M. Wayne George, 27,021 shares of Common Stock and approximately $1.1 million in
cash; and Brad Schraut, approximately $521,000 in cash. Robert L. Fine is the
father of Frederick L. Fine. W. K. Price is the father of James K. Price. If
Millard-Wayne meets certain financial criteria after the Offering, Wayne George
may receive up to an additional 27,021 shares of Common Stock. If Rovak achieves
certain financial criteria after the Offering, Brad Schraut may receive up to
14,635 shares of Common Stock. In addition, Rovak leases 7,500 square feet of
office space from an entity in which Brad Schraut, an executive officer of the
Company, has a 26% equity interest. The annual rental is $90,000 plus taxes and
insurance. The lease may be terminated by either party in June 2000. The Company
believes that the rental rate is comparable to a rate that could be obtained
from an independent third party. Pursuant to certain agreements to be entered
into in connection with the Acquisitions, Messrs. George, Rogers and Schraut
have agreed not to compete with the Company for five years, commencing on the
date of consummation of the Offering. See "The Company -- The Acquisitions" and
"Risk Factors -- Dependence on Key Employees."
COMPASS
In June 1996, pursuant to a written agreement, AMC engaged Compass to
render financial advisory services in connection with AMC's acquisition program.
Compass received an initial retainer of $15,000 and a monthly retainer of $5,000
per month commencing July 1, 1996, and $10,000 per month from October 1, 1996
through May 31, 1997. As compensation for services, Compass received 33,061
Equivalent Shares of Common Stock and a warrant exercisable within five years to
purchase the equivalent of 128,757 Equivalent Shares of Common Stock at an
exercise price equal to the AMC stock price as of the date of the agreement
($0.94 per Equivalent Share of Common Stock) subject to the consummation of the
Acquisitions. In addition, pursuant to the agreement, Compass will receive
approximately $410,000 upon the consummation of the Acquisitions. Mr. Perlman, a
director of the Company, is the president and founder of Compass and holds a
majority equity interest in Compass. In addition, Compass shall be entitled to a
fee of $200,000 in the event a definitive line of credit agreement is entered
into by the Company with FINOVA. "See Use of Proceeds."
NORSON'S
In July 1996, AMC sold to Norson's in a private placement 120,967
Equivalent Shares of Common Stock for $50,000, and in November 1996, AMC sold
Norson's 508,412 Equivalent Shares of Common Stock for $750,000. These sales of
the common stock of AMC to Norson's were made by AMC pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act. Norson's
entered into an agreement whereby it represented that it was acquiring the
securities for its own account and not with a view to the distribution of such
securities. Norson's is a personal investment company and is considered to be a
sophisticated investor.
LOAN BY ROBERT L. FINE
In April 1995, Robert L. Fine loaned AMC $94,500 in exchange for a
promissory note bearing interest at 12% and payable in a balloon payment of
principal and interest in April 1997. The payment date has been extended to June
30, 1997. The Company intends to repay this loan from the proceeds of this
Offering. See "Use of Proceeds."
RELEASE OF STOCKHOLDERS' GUARANTY
In November 1996, AMC, ICS, Robert L. Fine, Frederick L. Fine, W.K. Price,
James K. Price and William A. Baker entered into a termination agreement (the
"Termination Agreement") with MDP Corporation ("MDP") and Jonathan J. Oscher,
pursuant to which, upon consummation of the Offering, Robert L. Fine, Frederick
L. Fine, W.K. Price, James K. Price and William A. Baker will be released from
their obligation to pay a termination fee to MDP if the agreement whereby MDP
agreed to act as an electronic
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<PAGE> 44
claims processing clearinghouse for ICS is terminated for certain events. In
addition, Robert L. Fine and W.K. Price had secured such obligation with certain
real estate parcels with an approximate value of $300,000, and the Termination
Agreement will release these parcels from such security upon consummation of the
Offering. As of the date of this Prospectus, the termination fee, if triggered,
would total approximately $265,000. The Termination Agreement shall be null and
void if the Offering is not consummated on or before June 30, 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of InfoCure consists of 17,000,000 shares of
capital stock, consisting of 15,000,000 shares of Common Stock, par value $.001
per share, and 2,000,000 shares of preferred stock, par value $.001 per share
(the "Preferred Stock"). As of April 30, 1997, there were 100 shares of Common
Stock of InfoCure outstanding, 50 shares held of record by each of Frederick L.
Fine and James K. Price. The outstanding shares of Common Stock are, and the
shares to be issued pursuant to the Offering will be, fully paid and
nonassessable. No shares of Preferred Stock are outstanding or are to be issued
in connection with the Acquisitions.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share held of record
on each matter submitted to a vote of stockholders. The holders of Common Stock
have no cumulative voting rights, no pre-emptive rights and no rights to convert
their shares of Common Stock into any other securities. Because holders of
Common Stock do not have cumulative voting rights, the holders of the majority
of the shares of Common Stock represented at the annual meeting of stockholders
can elect all the directors. Under Delaware law, the affirmative vote of a
majority of the outstanding shares of Common Stock is necessary for certain
corporate actions, including merger or consolidation with another corporation,
sale or other disposition of all or substantially all of the Company's property
and assets and voluntary dissolution of the Company. Delaware law allows the
Company to establish a higher percentage of stockholder approval necessary to
take such corporate action.
Holders of Common Stock are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends. The Company
does not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
Upon dissolution, liquidation or sale of all or substantially all of the
assets of the Company, and after payment in full of all amounts required to be
paid to creditors and liquidation preferences, if any, the holders of the Common
Stock will be entitled to receive pro rata the net assets of the Company
available for distribution.
PREFERRED STOCK
The Board of Directors is authorized by the Company's Certificate of
Incorporation, without any action of the stockholders, to issue one or more
classes and series of Preferred Stock with respect to which the Board of
Directors may determine voting, conversion, redemption and other rights which
could adversely affect the rights of holders of Common Stock. The rights of the
holders of the Common Stock would generally be subject to the prior rights of
the Preferred Stock with respect to dividends, liquidation preferences and other
matters. Among other things, Preferred Stock could be issued by the Company to
raise capital or to finance acquisitions. The issuance of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
of control of the Company. There are no agreements or understandings for the
issuance of Preferred Stock, and the Company has no present plans to issue any
shares of Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date
43
<PAGE> 45
of the business combination, the transaction is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock or (iii) on or
after such date, the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3 of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is American Stock
Transfer & Trust, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Acquisitions and the Offering, the Company
will have 5,676,261 shares of Common Stock outstanding. In addition, outstanding
stock options and a warrant to acquire 171,032 shares of Common Stock are
immediately exercisable as of the date of this Prospectus. The Company, its
executive officers and directors and stockholders holding more than 5% of the
outstanding Common Stock who hold an aggregate of 2,745,739 shares of Common
Stock (and have the right to acquire 163,267 shares of Common Stock pursuant to
immediately exercisable stock options and a warrant), are expected to agree with
the Underwriters not to offer or dispose of, directly or indirectly, without the
prior written consent of Josephthal Lyon & Ross Incorporated, any of the
remaining Common Stock held by them for a period of six months (the "Lock-Up
Period") following the date the public trading of the Common Stock commences. In
addition, holders of more than 5% of the outstanding shares of Common Stock,
which hold 2,420,655 shares, are expected to agree, for a period of three months
following expiration of the Lock-Up Period, not to offer or dispose of any
shares of Common Stock, except with respect to shares of Common Stock being sold
in connection with the Offering. The Company may issue shares of Common Stock in
connection with acquisitions or upon the exercise of stock options. Josephthal
Lyon & Ross Incorporated has no current intention to waive or shorten the
Lock-Up Period. See "Risk Factors -- Substantial Shares Eligible for Future
Sale."
In general under Rules 144 and 145, a person (or group of persons whose
shares are aggregated) who are "affiliates" (as defined in Rule 144) of the
Company or the Founding Businesses, will be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of the Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
forwarding of the notice of proposed sale to the Commission. The sales are also
subject to certain manner of sale limitations, notice requirements and the
availability of current public information about the Company. Under Rule 145,
the restrictions applicable to persons who were "affiliates" of the Founding
Businesses but do not become "affiliates" of the Company shall extend for one
year. Upon the consummation of the Acquisitions, persons who were not
"affiliates" of the Founding Businesses and who have not been "affiliates" of
the Company for the 90 days preceding a sale will be entitled to sell such
shares in the public market without restriction. Securities properly sold in
reliance upon Rules 144 and 145 are thereafter freely tradeable without
restrictions or registration under the Securities Act, unless thereafter held by
an "affiliate" of the Company.
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's Common Stock in the public market could
adversely affect market prices. See "Risk Factors -- Substantial Shares Eligible
for Future Sale."
44
<PAGE> 46
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Josephthal Lyon & Ross Incorporated and Cruttenden Roth Incorporated (the
"Representatives"), have severally agreed, subject to the terms and conditions
in the underwriting agreement (the "Underwriting Agreement") by and among the
Company and the Underwriters, to purchase from the Company the number of shares
of Common Stock indicated below opposite their respective names, at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock if they
purchase any.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Josephthal Lyon & Ross Incorporated.........................
Cruttenden Roth Incorporated................................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share and the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Selling Stockholders have granted to the Underwriters an over-allotment
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to a maximum of 300,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent the Underwriters exercise such
over-allotment option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise this
over-allotment option only to cover over-allotments made in connection with the
Offering.
In connection with the Offering, the Company has agreed (i) to pay the
Representatives of the Underwriters a non-accountable expense allowance equal to
1 3/4% of the total public offering price and (ii) to issue and sell to the
Representatives, for nominal consideration, warrants to purchase a number of
shares of Common Stock equal to 10% of the shares of Common Stock sold in the
Offering, exclusive of any shares of Common Stock sold pursuant to the
Underwriters' over-allotment option (the "Representatives' Warrants"). The
Representatives' Warrants will be initially exercisable at a price per share
equal to 120% of the public offering price, commencing one year from the date of
this Prospectus, and will continue to be exercisable for a period of four years
after such date. The Representatives' Warrants are restricted from sale,
transfer, assignment or hypothecation for a period of 12 months from the
effective date of the Offering, except to officers, partners or successors of
the Representatives. The exercise price of the Representatives' Warrants and the
number of shares of Common Stock issuable upon exercise thereof are subject to
adjustment under certain circumstances. The Representatives' Warrants grant to
the holders thereof certain rights regarding the registration of the Common
Stock issuable upon exercise of the Representatives' Warrants.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, its officers, directors and certain of its stockholders,
including all affiliates of the Company, holding an aggregate of 2,745,739
Equivalent shares of Common Stock (and have the right to acquire 171,032 shares
of Common Stock pursuant to immediate exercisable options and a warrant) are
expected to agree not to offer or dispose of, without the prior written consent
of Josephthal Lyon & Ross Incorporated, any shares of Common Stock for a period
of six months (the "Lock-Up Period") following the
45
<PAGE> 47
date the public trading of the Common Stock commences. In addition, holders of
more than 5% of the outstanding shares of Common Stock, which hold 2,420,655
shares, are expected to agree, for a period of three months following expiration
of the Lock-Up Period, not to offer or dispose of any shares of Common Stock,
except with respect to shares of Common Stock being sold in connection with the
Offering.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public price was determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were the history of and prospects for the
Company and the industry in which it operates, an assessment of the Company's
management, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of securities markets at the time of the
Offering and the market price of publicly traded stock of comparable companies
in recent periods.
During and after the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company and the
Selling Stockholders by Glass, McCullough, Sherrill & Harrold, LLP, 1409
Peachtree Street, N.E., Atlanta, Georgia 30309. Ugo F. Ippolito, a partner of
the firm, owns 2,761 Equivalent Shares of Common Stock. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York 10176.
EXPERTS
The historical financial statements as indicated on pages F-1 and F-2 of
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in its reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act, with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Certain items were omitted in accordance with the rules and regulations of the
Commission. Any interested party may inspect the Registration Statement without
charge at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and may obtain copies of all or any part of it
from the Commission upon payment of the fees prescribed by the Commission.
Statements contained herein which refer to a document as filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to the
copy of such document filed with the Commission.
46
<PAGE> 48
Following the effectiveness of the Registration Statement, the Company will
be subject to the information requirements of the Securities Exchange Act of
1934, (the "Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy statements and other information regarding the Company at
http://www.sec.gov. AMC has filed reports and other information with the
Commission pursuant to the Exchange Act.
47
<PAGE> 49
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFOCURE CORPORATION AND FOUNDING BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation..................................... F-3
Pro Forma Combined Balance Sheet as of January 31, 1997... F-4
Pro Forma Combined Statement of Operations for the year
ended January 31, 1997................................. F-6
Pro Forma Combined Statement of Operations for the year
ended January 31, 1996................................. F-7
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-8
INFOCURE CORPORATION
Report of Independent Certified Public Accountants........ F-12
Balance Sheet............................................. F-13
Notes to Balance Sheet.................................... F-14
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants........ F-15
Consolidated Balance Sheets............................... F-16
Consolidated Statements of Operations..................... F-17
Consolidated Statements of Stockholders' Equity (Capital
Deficit)............................................... F-18
Consolidated Statements of Cash Flows..................... F-19
Notes to Consolidated Financial Statements................ F-20
KCOMP MANAGEMENT SYSTEMS, INC.
Report of Independent Certified Public Accountants........ F-30
Balance Sheets............................................ F-31
Statements of Operations.................................. F-32
Statements of Changes in Stockholders' Equity............. F-33
Statements of Cash Flows.................................. F-34
Notes to Financial Statements............................. F-35
MILLARD-WAYNE, INC.
Report of Independent Certified Public Accountants........ F-39
Balance Sheets............................................ F-40
Statements of Operations and Retained Earnings............ F-41
Statements of Cash Flows.................................. F-42
Notes to Financial Statements............................. F-43
HEALTH CARE DIVISION (A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA,
INC.)
Report of Independent Certified Public Accountants........ F-47
Balance Sheets............................................ F-48
Statements of Operations.................................. F-49
Statements of Cash Flows.................................. F-50
Notes to Financial Statements............................. F-51
ROVAK, INC.
Report of Independent Certified Public Accountants........ F-57
Balance Sheets............................................ F-58
Statements of Operations and Accumulated Deficit.......... F-59
Statements of Cash Flows.................................. F-60
Notes to Financial Statements............................. F-61
</TABLE>
F-1
<PAGE> 50
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DR SOFTWARE, INC.
Report of Independent Certified Public Accountants........ F-67
Balance Sheets............................................ F-68
Statements of Operations.................................. F-69
Statements of Stockholders' Equity........................ F-70
Statements of Cash Flows.................................. F-71
Notes to Financial Statements............................. F-72
</TABLE>
F-2
<PAGE> 51
INFOCURE CORPORATION AND FOUNDING BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following pro forma combined financial statements give effect to the
acquisition by InfoCure Corporation of six businesses (the "Founding
Businesses", collectively, the "Company"). The Founding Businesses are (i)
International Computer Solutions, Inc. ("ICS"), a subsidiary of AMC, (ii) Health
Care Division, Inc. ("HCD"), a subsidiary of AMC founded in November 1996 to
acquire the assets of Health Care Division of Info Systems of North Carolina,
Inc., (iii) Millard-Wayne, Inc. ("Millard-Wayne"), (iv) DR Software, Inc. ("DR
Software"), (v) KComp Management Systems, Inc. ("KComp") and (vi) Rovak, Inc.
("Rovak"). The merger of AMC with and into InfoCure Corporation will occur
contemporaneously with the closing of the Company's initial public offering (the
"Offering"). Prior to the AMC Merger, AMC will have acquired HCD and
Millard-Wayne. AMC is considered the predecessor to the Company and this
transaction will be accounted for as a combination at historical cost for
accounting purposes. The remaining acquisitions will also be treated as
occurring simultaneously with the closing and will be accounted for as purchases
at estimated fair value for accounting purposes.
Inasmuch as AMC is the predecessor to the Company, the Unaudited Pro Forma
Combined Financial Statements are presented on AMC's reporting period. The
Founding Businesses report on a calendar year, except for HCD, which reported on
a June 30 year and was acquired by AMC December 3, 1996, and KComp, which has a
March 31 year-end. The Pro Forma Combined Balance Sheet as of January 31, 1997
includes the balance sheet of AMC at that date (including HCD) and the balance
sheets of the Founding Businesses (except for HCD) as of December 31, 1996. The
Pro Forma Combined Statements of Operations for the years ended January 31, 1997
and, 1996 include the statements of operations for AMC for the respective
periods and the statements of operations for the Founding Businesses for the
years ended December 31, 1996 and 1995. HCD's statement of operations data for
the period ended December 31, 1996 has been adjusted to reflect the fact that
its operations since December 3, 1996 are incorporated in AMC's Statement of
Operations for its year ended January 31, 1997. These statements are based on
historical financial statements of the Founding Businesses, updated as
appropriate, included elsewhere in this Prospectus and the estimates and
assumptions set forth below and in the notes to the Unaudited Pro Forma Combined
Financial Statements of the Company.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Acquisitions and the Offering as if they had occurred on January 31, 1997. The
Unaudited Pro Forma Combined Statements of Operations give effect to these
transactions as if they had occurred at the beginning of each period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein do not purport to
represent what the Company's financial position or results of operations would
have actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Company. The
Unaudited Pro Forma Combined Financial Statements should be read in conjunction
with the other financial statements and notes thereto included elsewhere in this
Prospectus. Also see "Risk Factors" included elsewhere in this Prospectus.
F-3
<PAGE> 52
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1)
AS OF JANUARY 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP ROVAK WAYNE
------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................... $ 199 $ 155 $ 1 $ -- $ 29
Accounts receivable, net.......................... 319 370 421 447 450
Inventory......................................... -- 63 -- 181 --
Deferred tax assets............................... 25 -- -- -- 62
Prepaid expenses and other........................ 37 72 9 97 1
------- ------ ------ ------ ------
Total current assets...................... 580 660 431 725 542
Property and equipment, net......................... 94 155 81 382 116
Capitalized software costs, net..................... 41 683 201 -- 338
Goodwill, net....................................... 2,015 -- 417 -- --
Deferred acquisition costs.......................... 522 -- -- -- --
Deferred tax assets................................. 871 -- -- 185 --
Other............................................... 59 -- -- 221 18
------- ------ ------ ------ ------
Total assets.............................. $ 4,182 $1,498 $1,130 $1,513 $1,014
======= ====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank............................. $ -- $ 70 $ 50 $ 234 $ --
Other notes payable............................... -- -- -- -- 73
Current portion of long-term debt................. 49 9 436 247 128
Accounts payable.................................. 484 156 218 259 253
Accrued expenses.................................. 359 138 163 127 94
Deferred revenue and customer deposits............ 814 1,046 75 210 312
------- ------ ------ ------ ------
Total current liabilities................. 1,706 1,419 942 1,077 860
Other notes payable................................. 1,606 -- -- 93 --
Long term debt, less current portion................ 699 18 28 508 19
------- ------ ------ ------ ------
Total liabilities......................... 4,011 1,437 970 1,678 879
------- ------ ------ ------ ------
Stockholders' equity (deficit):
Common stock...................................... 55 50 -- 158 1
Stock purchase warrant............................ 80 -- -- -- --
Additional paid-in capital........................ 3,452 -- 4 -- 42
(Deficit) retained earnings....................... (3,251) 11 156 (323) 92
Treasury stock.................................... (165) -- -- -- --
------- ------ ------ ------ ------
Total stockholders' equity (deficit)...... 171 61 160 (165) 135
------- ------ ------ ------ ------
Total liabilities and stockholders' equity
(deficit)............................... $ 4,182 $1,498 $1,130 $1,513 $1,014
======= ====== ====== ====== ======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 53
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1) -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------------- PRO FORMA
SUBTOTAL A B D E ADJUSTMENTS TOTAL
-------- -------- ------ ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............ $ 384 $ (6,948) $ 280 $(3,699) $13,900 $ 3,533 $ 3,917
Accounts receivable, net............. 2,007 (364) -- -- -- (364) 1,643
Inventory............................ 244 -- -- -- -- -- 244
Deferred tax assets.................. 87 -- -- -- -- -- 87
Prepaid expenses and other........... 216 -- -- -- -- -- 216
------- -------- ------ ------- ------- ------- -------
Total current assets.......... 2,938 (7,312) 280 (3,699) 13,900 3,169 6,107
Property and equipment, net............ 828 -- -- -- -- -- 828
Capitalized software costs, net........ 1,263 -- -- -- -- -- 1,263
Goodwill, net.......................... 2,432 9,187 -- 410 -- 9,597 12,029
Deferred acquisition costs............. 522 (522) -- -- -- (522) --
Deferred tax assets.................... 1,056 -- -- -- -- -- 1,056
Other.................................. 298 -- -- -- -- -- 298
------- -------- ------ ------- ------- ------- -------
Total assets.................. $ 9,337 $ 1,353 $ 280 $(3,289) $13,900 $12,244 $21,581
======= ======== ====== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank................ $ 354 $ -- $ -- $ (234) $ -- $ (234) $ 120
Other notes payable.................. 73 -- -- -- -- -- 73
Current portion of long-term debt.... 869 (186) -- (355) -- (541) 328
Accounts payable..................... 1,370 (41) -- -- -- (41) 1,329
Accrued expenses..................... 881 360 -- (35) -- 325 1,206
Deferred revenue and customer
deposits........................... 2,457 -- -- (234) -- (234) 2,223
------- -------- ------ ------- ------- ------- -------
Total current liabilities..... 6,004 133 -- (858) -- (725) 5,279
Other notes payable.................... 1,699 -- -- (1,699) -- (1,699) --
Long-term debt, less current portion... 1,272 (28) -- (732) -- (760) 512
------- -------- ------ ------- ------- ------- -------
Total liabilities............. 8,975 105 -- (3,289) -- (3,184) 5,791
------- -------- ------ ------- ------- ------- -------
Stockholders' equity (deficit):
Common stock......................... 264 (261) 1 -- 2 (258) 6
Stock purchase warrant............... 80 -- -- -- -- -- 80
Additional paid-in capital........... 3,498 1,280 279 -- 13,898 15,457 18,955
(Deficit) retained earnings.......... (3,315) 64 -- -- -- 64 (3,251)
Treasury stock....................... (165) 165 -- -- -- 165 --
------- -------- ------ ------- ------- ------- -------
Total stockholders' equity
(deficit)................... 362 1,248 280 -- 13,900 15,428 15,790
------- -------- ------ ------- ------- ------- -------
Total liabilities and
stockholders' equity
(deficit)................... $ 9,337 $ 1,353 $ 280 $(3,289) $13,900 $12,244 $21,581
======= ======== ====== ======= ======= ======= =======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 54
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP HCD ROVAK WAYNE
------ -------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales................................ $1,076 $1,909 $ 394 $2,054 $3,246 $ 976
Maintenance and support................................... 1,419 1,450 1,759 1,767 865 1,320
Other..................................................... -- -- -- 68 743 60
------ ------ ------ ------ ------ ------
Total revenues...................................... 2,495 3,359 2,153 3,889 4,854 2,356
Cost of revenues............................................ 475 785 233 1,354 2,311 498
------ ------ ------ ------ ------ ------
Gross profit................................................ 2,020 2,574 1,920 2,535 2,543 1,858
------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 2,469 2,260 1,494 2,323 2,234 1,704
Depreciation.............................................. 37 59 21 5 73 47
Amortization.............................................. 74 226 80 120 -- 147
------ ------ ------ ------ ------ ------
Total operating expenses............................ 2,580 2,545 1,595 2,448 2,307 1,898
------ ------ ------ ------ ------ ------
Gross operating income (loss)............................... (560) 29 325 87 236 (40)
------ ------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 83 13 46 35 125 25
Other..................................................... (6) (37) 1 1 -- --
------ ------ ------ ------ ------ ------
Total other expense (income)........................ 77 (24) 47 36 125 25
------ ------ ------ ------ ------ ------
Income (loss) before taxes.................................. (637) 53 278 51 111 (65)
Taxes (benefit)............................................. (891) -- 122 12 50 (11)
------ ------ ------ ------ ------ ------
Net income (loss)................................... $ 254 $ 53 $ 156 $ 39 $ 61 $ (54)
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL C F G H ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales........................... $ 9,655 $ -- $ -- $ -- $ -- $ -- $ 9,655
Maintenance and support.............................. 8,580 -- -- -- -- 8,580
Other................................................ 871 -- -- -- -- -- 871
------- ----- ----- ----- ------- ------- -------
Total revenues................................. 19,106 -- -- -- -- -- 19,106
Cost of revenues....................................... 5,656 -- -- -- -- -- 5,656
------- ----- ----- ----- ------- ------- -------
Gross profit........................................... 13,450 -- -- -- -- -- 13,450
------- ----- ----- ----- ------- ------- -------
Operating expenses:
Selling, general and administrative.................. 12,484 -- -- -- (2,431) (2,431) 10,053
Depreciation......................................... 242 -- (40) -- -- (40) 202
Amortization......................................... 647 -- 553 -- -- 553 1,200
------- ----- ----- ----- ------- ------- -------
Total operating expenses....................... 13,373 -- 513 -- (2,431) (1,918) 11,455
------- ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... 77 -- (513) -- 2,431 1,918 1,995
------- ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... $ 327 $ -- $ -- $(219) $ (35) $ (254) $ 73
Other................................................ (41) -- -- -- -- -- (41)
------- ----- ----- ----- ------- ------- -------
Total other expense (income)................... 286 -- -- (219) (35) (254) 32
------- ----- ----- ----- ------- ------- -------
Income (loss) before taxes............................. (209) -- (513) 219 2,466 2,172 1,963
Taxes (benefit)........................................ (718) 644 (35) 85 962 1,656 938
------- ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ 509 $(644) $(478) $ 134 $ 1,504 $ 516 $ 1,025
======= ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.19
=======
Shares used in computing pro forma income per share
(I).................................................. 5,436
=======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 55
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)
YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE HCD ROVAK WAYNE
------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales................................ $1,102 $2,192 $2,957 $2,695 $ 800
Maintenance and support................................... 1,311 1,212 1,764 503 1,244
Other..................................................... -- -- 85 604 73
------ ------ ------ ------ ------
Total revenues...................................... 2,413 3,404 4,806 3,802 2,117
Cost of revenues............................................ 516 1,074 1,445 1,811 291
------ ------ ------ ------ ------
Gross margin................................................ 1,897 2,330 3,361 1,991 1,826
------ ------ ------ ------ ------
Operating expenses:
Selling, general and administrative....................... 2,016 2,050 3,167 2,065 1,521
Depreciation.............................................. 33 49 4 68 64
Amortization.............................................. 80 244 141 -- 172
------ ------ ------ ------ ------
Total operating expenses............................ 2,129 2,343 3,312 2,133 1,757
------ ------ ------ ------ ------
Gross operating income (loss)............................... (232) (13) 49 (142) 69
------ ------ ------ ------ ------
Other expense (income):
Interest expense.......................................... 69 11 26 133 23
Other..................................................... (121) (12) -- (5) 17
------ ------ ------ ------ ------
Total other expense (income)........................ (52) (1) 26 128 40
------ ------ ------ ------ ------
Income (loss) before taxes.................................. (180) (12) 23 (270) 29
Taxes (benefit)............................................. -- -- 9 (99) (5)
------ ------ ------ ------ ------
Net income (loss)................................... $ (180) $ (12) $ 14 $ (171) $ 34
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
------------------------------- PRO FORMA
SUBTOTAL C F G H ADJUSTMENTS TOTAL
-------- ----- ----- ----- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales........................... $ 9,746 $ -- $ -- $ -- $ -- $ -- $ 9,746
Maintenance and support.............................. 6,034 -- -- -- -- -- 6,034
Other................................................ 762 -- -- -- -- -- 762
------- ----- ----- ----- ------- ------- -------
Total revenues................................. 16,542 -- -- -- -- -- 16,542
Cost of revenues....................................... 5,137 -- -- -- -- -- 5,137
------- ----- ----- ----- ------- ------- -------
Gross profit........................................... 11,405 -- -- -- -- -- 11,405
------- ----- ----- ----- ------- ------- -------
Operating expenses:
Selling general and administrative................... 10,819 -- -- -- (2,433) (2,433) 8,386
Depreciation......................................... 218 -- -- -- -- -- 218
Amortization......................................... 637 -- 482 -- -- 482 1,119
------- ----- ----- ----- ------- ------- -------
Total operating expenses....................... 11,674 -- 482 -- (2,433) (1,951) 9,723
------- ----- ----- ----- ------- ------- -------
Gross operating income (loss).......................... (269) -- (482) -- 2,433 1,951 1,682
------- ----- ----- ----- ------- ------- -------
Other expense (income):
Interest expense..................................... 262 -- -- (159) (26) (185) 77
Other................................................ (121) -- -- -- -- -- (121)
------- ----- ----- ----- ------- ------- -------
Total other expense (income)................... 141 -- -- (159) (26) (185) (44)
------- ----- ----- ----- ------- ------- -------
Income (loss) before taxes............................. (410) -- (482) 159 2,459 2,136 1,726
Taxes (benefit)........................................ (95) (73) (11) 62 959 937 842
------- ----- ----- ----- ------- ------- -------
Net income (loss).............................. $ (315) $ 73 $(471) $ 97 $ 1,500 $ 1,199 $ 884
======= ===== ===== ===== ======= ======= =======
Pro forma income per share............................. $ 0.16
=======
Shares used in computing pro forma income per
share(I)............................................. 5,436
=======
</TABLE>
- ---------------
(1) Pro forma amounts for InfoCure Corporation have not been included as such
amounts are insignificant.
See accompanying notes to unaudited pro forma combined financial statements.
F-7
<PAGE> 56
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. INFOCURE CORPORATION BACKGROUND
InfoCure Corporation ("InfoCure") was formed to bring together in one
entity the research, development, service and support and sales and marketing
efforts for a comprehensive array of practice management systems. InfoCure has
conducted no operations to date and will acquire the Founding Businesses
contemporaneously with the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of all the Founding Businesses and were derived from the
respective financial statements where indicated. The audited historical
financial statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
3. ACQUISITION OF FOUNDING COMPANIES
Contemporaneously with the consummation of the Offering, InfoCure will
acquire substantially all of the net assets of the Founding Businesses. The AMC
Merger (for 3,486,903 shares) will be accounted for as a combination at
historical cost and the acquisition of the Founding Businesses will be recorded
at fair value.
The following table sets forth for the Founding Businesses the
consideration to be paid to their common stockholders in cash and in shares of
common stock of InfoCure:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
FAIR VALUE OF
CASH SHARES SHARES(1)
------- -------- --------------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C>
DR Software........................................... $ 2,128 86,758 $ 694
KCOMP................................................. 734 102,500 820
Rovak................................................. 2,986 -- --
Millard-Wayne......................................... 1,100 27,022 216
------- -------- -------
Total....................................... $ 6,948 216,280 $ 1,730
======= ======== =======
Total consideration for these companies(2)................................ $ 8,678
Net book value (deficit) of these companies' assets....................... (279)
-------
Consideration allocated to goodwill(3).................................... $ 8,957
=======
</TABLE>
- ---------------
(1) Estimated at $8.00 per share, the assumed initial public offering price.
(2) Excludes contingent consideration payable or issuable to the selling
stockholders of Millard-Wayne, Rovak and KComp.
(3) Excludes $230,000 in acquisition related costs already incurred by AMC.
Due to the nature of the identifiable net assets, the book values were
determined to approximate fair value at the date of the acquisition. Property
and equipment are assigned lives of 3 to 5 years. Capitalized software costs
represent the intangible asset associated with enhancements and new modules for
existing products. Such costs are capitalized when technological feasibility is
determined and expensed when available for general release. These costs
generally have an estimated useful life of four years. The allocation to
goodwill of the consideration in excess of net book value for these acquisitions
recognizes the absence of other specifically identifiable intangible assets and
is reflective of the value ascribed to the ongoing businesses and the revenue
potential for existing and future products and services, particularly electronic
transactions processing, which the Company feels can be derived from the
installed customer base being acquired.
F-8
<PAGE> 57
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(A) Records the cash portion to be paid and the shares of stock to be issued to
the stockholders of the Founding Businesses in connection with the
acquisitions and elimination of subsidiary equity accounts for the combined
pro forma balance sheet. Additionally, reflects adjustments for certain
assets and liabilities not acquired and/or converted to equity as part of
the acquisition agreements.
(B) Records the cash proceeds of issuances by AMC in March 1997 of an aggregate
of 55,216 Equivalent Shares of Common Stock for an aggregate of $280,000.
(D) Records the repayment of certain debt obligations and other pro forma
adjustments. Of the anticipated debt repayment: $1,972,965 reduces AMC's
obligations under terms of the 10.25% note payable for the HCD acquisition
($1,511,533), an 11.25% note payable to the Small Business Administration
("SBA") ($366,932) and a 12% note payable to a stockholder ($94,500);
$116,094 reduces Millard-Wayne's obligations under 10.25% bank notes
payable and $930,919 reduces Rovak's obligations under a prime plus .5%
bank note payable ($233,500), prime plus 2% notes payable to the SBA
($604,448), and other miscellaneous notes payable to stockholders
($92,971). Additionally, payments totalling $269,000 are anticipated to
eliminate AMC's obligations under the terms of a claims processing
agreement ($234,000), and certain accrued expenses ($35,000). Further,
approximately $410,000 in additional acquisition-related expenses are to be
paid from proceeds of the Offering.
(E) Records the proceeds from the issuance of 2,000,000 shares of InfoCure
common stock, net of estimated offering costs of $2,100,000 (based on an
assumed initial public offering price of $8 per share, the midpoint of the
estimated price range); offering costs consist primarily of underwriting
discounts and commissions, legal fees, accounting fees and printing
expenses.
The holders of 2,745,739 shares of Common Stock issued in partial payment
of the Acquisitions have agreed not to offer, sell or otherwise dispose of any
of those shares for designated periods after the Offering.
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(C) Records the adjustment to the provision for federal and state income taxes
to recognize the tax benefit of AMC's net operating loss carryforward as if
it had been realized January 31, 1995 and to recognize the tax effect of
filing a consolidated return.
(F) Records pro forma adjustment to depreciation and amortization expense as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
--------------
1996 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Increase (decrease) due to:
Amortization of goodwill over life of 15 years on a
straight-line basis.................................... $ 782 $ 753
Adjustment to amortization of capitalized software to
uniform application of a four-year life................ (300) (200)
Adjustment to depreciation of property and equipment to
uniform lives of three to five years................... -- (40)
----- -----
$ 482 $ 513
===== =====
</TABLE>
The 15-year estimated useful life of goodwill is derived from management's
analysis of (i) the historical lives and the future estimated useful life
of customer relationships which are the core of its business, (ii) the
longevity and continuing use of the Founding Businesses' base practice
management system products and (iii) the relatively minor impact of
technological obsolescence on the business applications provided to the
office-based physician by the Founding Businesses' products and services.
F-9
<PAGE> 58
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Founding Businesses provide practice management software systems and
related services to small and mid-size, office-based medical practices.
These products and services provide the customer an infrastructure to
manage their business on a long-term basis. The functions provided are
those of basic accounting, record-keeping and business management which are
essentially constant and generally not impacted by technological changes
which may affect diagnostic and treatment.
Consequently, the base products, while enhanced and updated periodically,
remain in service for extended periods fundamentally unchanged. These
factors, coupled with a natural resistance to change of a core component of
the business, give a relatively long life to both the product and the
customer relationship. The experience of the Founding Businesses indicates
that products introduced 15 to 20 years ago are, with appropriate
enhancements, in service today to many of the same customers.
Management believes these factors support a 15-year life for the goodwill
arising from the acquisition of the Founding Businesses.
(G) Records the pro forma change in interest expense for pro forma adjustments
to debt.
(H) Records pro forma adjustments to compensation expense and certain other
operating expenses pursuant to the acquisition agreements of the Founding
Businesses where certain personnel will be eliminated. Corporate overhead
and interest expense allocation from the former parent company of HCD is
also eliminated pursuant to terms of the acquisition agreement. These
adjustments are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
---------------
(IN THOUSANDS) 1996 1997
- -------------- ------ ------
<S> <C> <C>
Reduction of compensation and related expenses.............. $1,773 $1,830
Reduction in rental and certain operating expenses.......... 477 673
Reduction in corporate allocations to HCD:
Corporate overhead........................................ 476 328
ESOP expenses............................................. 159 75
Interest.................................................. 26 35
Increase in the Company's overhead expenses to integrate the
acquisitions.............................................. (452) (475)
------ ------
$2,459 $2,466
====== ======
</TABLE>
The pro forma adjustment to compensation and related expenses is derived
from position reductions at several of the Founding Businesses specifically
provided for in the acquisition and related agreements and are summarized
by division in the following table:
<TABLE>
<CAPTION>
NUMBER OF AS A PERCENTAGE
POSITIONS OF TOTAL
OPERATION DIVISION ELIMINATED PERSONNEL
------------------ ---------- ---------------
<S> <C> <C>
Enterprise.................................................. 26 27%
Mid-Range................................................... 3 6
Desktop..................................................... 3 4
-- --
Total............................................. 32 14%
</TABLE>
The foregoing position eliminations are duplicative in nature and
attributable in large part to administrative activities and redundancies in
sales and support. As such, it is management's opinion that the reductions
will not materially adversely affect the ability of the Company to continue
service levels, sales efforts and other functions required to maintain
sales levels consistent with those historically achieved and, assuming no
unforeseen changes in economic or other factors, that these levels could be
maintained for at least 12 months or through the period required to achieve
integration of the business units.
F-10
<PAGE> 59
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, as reflected in the table summarizing the pro forma
adjustments, management has provided for an addition to the Company's
overhead, including an increase in appropriate corporate management and
administrative personnel, to facilitate integration of the acquisitions.
Assuming constant sales levels, management believes that no additional
change in personnel is required, called for or anticipated. Any increase in
personnel requirements would be based on growth or the introduction of new
products and services. The specifically negotiated reductions in the
workforce give recognition to the economies of scale and synergies to be
attained as a result of integration of the Founding Businesses.
The acquisition of HCD was consummated on December 3, 1996. As a result,
certain personnel and costs which were not part of the acquisition have
been eliminated. Consequently, the Company considers that, on an annualized
basis, such costs savings have been effected as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) AMOUNT
-------------- ------
<S> <C>
Compensation, primarily duplicative administrative
functions................................................. $1,130
Allocations from the division's former parent company:
Overhead.................................................. 476
ESOP expenses............................................. 159
Rent...................................................... 117
Interest.................................................. 26
------
$1,908
======
</TABLE>
Additionally, pro forma reductions in rental and other operating expenses
include the elimination of certain commissions and royalties which are
payable by Rovak under agreements that will be terminated following
consummation of the Acquisitions. Such adjustments are approximately
$125,000 and $323,000 for the year ended January 31, 1996 and 1997,
respectively.
Finally, of the remaining pro forma expense reductions for the year ended
January 31, 1997, approximately $100,000 relate to adjustments in
compensation of certain key executives as part of employment agreements to
be effective upon consummation of the Acquisitions. The balance relates to
costs associated with duplicative functions to be eliminated, net of
increases in certain administrative costs deemed appropriate to effect
integration of the Acquisitions. These adjustments are made based on
appropriate provisions of the respective acquisition agreements.
(I) The weighted average number of shares used to calculate pro forma earnings
per share included the following:
<TABLE>
<S> <C>
Issued to incorporators of the Company...................... 100
Issued to acquire Founding Businesses....................... 3,676,161
Issued to pay cash portion of Acquisitions.................. 999,712
Issued to pay certain indebtedness.......................... 468,201
Issued to pay certain costs................................. 58,993
Shares assumed issued from exercise of options and a
warrant................................................... 323,739
Shares assumed repurchased from proceeds from shares assumed
issued from exercise of options........................... (90,981)
---------
Shares estimated to be outstanding.......................... 5,435,925
---------
</TABLE>
F-11
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
InfoCure Corporation
Atlanta, Georgia
We have audited the accompanying balance sheet of InfoCure Corporation as
of January 31, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the balance sheet, the Company was formed in
November 1996 and has entered into definitive agreements for the acquisition of
six healthcare information systems businesses ("the Founding Businesses")
through transactions involving American Medcare Corporation, Inc. and its
subsidiaries International Computer Solutions, Inc. and Health Care Division,
Inc.; Millard-Wayne, Inc.; DR Software, Inc.; KComp Management Systems, Inc. and
Rovak, Inc. concurrently with an initial public offering of its common stock.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of InfoCure Corporation as of January
31, 1997 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
April 15, 1997
Atlanta, Georgia
F-12
<PAGE> 61
INFOCURE CORPORATION
BALANCE SHEET
AS OF JANUARY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Subscription receivable..................................... $ 1
----
$ 1
====
LIABILITIES AND STOCKHOLDERS' EQUITY:
Stockholders' equity:
Preferred Stock, $0.001 par value, 2,000,000 shares
authorized, none issued and outstanding................ $ --
Common Stock, $0.001 par value, 15,000,000 shares
authorized, 100 shares issued and outstanding.......... 1
----
Total stockholders' equity........................ $ 1
====
</TABLE>
See accompanying notes to balance sheet.
F-13
<PAGE> 62
INFOCURE CORPORATION
NOTES TO BALANCE SHEET
JANUARY 31, 1997
NOTE 1 -- ORGANIZATION AND GENERAL
InfoCure Corporation ("InfoCure") was formed in November 1996 to develop,
market and service healthcare information systems for use by healthcare
providers throughout the United States. InfoCure has conducted no operations to
date and will acquire the Founding Businesses concurrently with the consummation
of an initial public offering of its common stock.
F-14
<PAGE> 63
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of
American Medcare Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of American
Medcare Corporation and subsidiaries as of January 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (capital
deficit) and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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
American Medcare Corporation and subsidiaries at January 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
April 15, 1997
F-15
<PAGE> 64
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 249,698 $ 198,735
Accounts and notes receivable, net of allowance of $90,000
and $35,000............................................ 156,936 318,405
Prepaid expenses and other current assets................. 32,620 62,364
----------- -----------
Total current assets.............................. 439,254 579,504
Property and equipment, net................................. 54,372 94,157
Miscellaneous............................................... 73,315 100,389
Goodwill, net of accumulated amortization of $21,408........ -- 2,015,309
Deferred acquisition costs.................................. -- 521,871
Deferred tax asset.......................................... -- 871,000
----------- -----------
$ 566,941 $ 4,182,230
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT):
Current liabilities:
Accounts payable.......................................... $ 374,824 $ 483,730
Accrued expenses.......................................... 448,627 358,671
Deferred revenue.......................................... 481,224 814,383
Current portion of long-term debt......................... 335,542 49,529
----------- -----------
Total current liabilities......................... 1,640,217 1,706,313
Long-term debt, less current portion........................ 450,280 698,252
Note payable to stockholder................................. 94,500 94,500
Note payable -- other....................................... -- 1,511,533
----------- -----------
Total liabilities................................. 2,184,997 4,010,598
----------- -----------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock.............................................. 41,577 54,965
Stock purchase warrant.................................... 500,000 80,000
Additional paid-in capital................................ 1,445,247 3,452,453
Deficit................................................... (3,504,880) (3,250,786)
Treasury stock and accrued stock repurchase, at cost...... (100,000) (165,000)
----------- -----------
Total stockholders' equity (capital deficit)...... (1,618,056) 171,632
----------- -----------
$ 566,941 $ 4,182,230
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 65
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues:
Maintenance and support................................... $ 1,310,385 $ 1,418,884
Systems and software sales................................ 1,102,349 1,075,679
----------- -----------
Total revenues............................................ 2,412,734 2,494,563
Cost of revenues............................................ 515,842 474,201
----------- -----------
Gross margin................................................ 1,896,892 2,020,362
----------- -----------
Operating expenses:
Salaries and operating expenses........................... 2,015,647 2,469,249
Depreciation and amortization............................. 114,056 110,635
----------- -----------
Total operating expenses.................................. 2,129,703 2,579,884
----------- -----------
Loss from operations........................................ (232,811) (559,522)
Other income (expense):
Interest expense.......................................... (68,609) (82,900)
Other income, net......................................... 121,224 5,516
----------- -----------
Loss before taxes........................................... (180,196) (636,906)
Income tax (benefit)........................................ -- (891,000)
----------- -----------
Net income (loss)........................................... $ (180,196) $ 254,094
=========== ===========
Net income (loss) per common share.......................... $ (0.00) $ 0.01
=========== ===========
Weighted average common shares outstanding.................. 41,387,381 43,185,916
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 66
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLAR VALUE
--------------------- ------------------- ACCRUED STOCK ADDITIONAL
COMMON TREASURY COMMON TREASURY STOCK PURCHASE PAID-IN
STOCK STOCK STOCK STOCK REPURCHASE WARRANT CAPITAL DEFICIT
---------- -------- ------- --------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at January 31, 1995..... 41,577,788 -- $41,577 $ -- $ -- $500,000 $1,415,249 $(3,324,684)
Acquisition of treasury stock... -- (228,489) -- (100,000) -- -- -- --
Issuance of stock options....... -- -- -- -- -- -- 29,998 --
Net loss......................... -- -- -- -- -- -- -- (180,196)
---------- -------- ------- --------- -------- -------- ---------- -----------
Balance, at January 31, 1996..... 41,577,788 (228,489) 41,577 (100,000) -- 500,000 1,445,247 (3,504,880)
Issuance of common stock........ 13,387,440 -- 13,388 -- -- -- 1,417,206 --
Cancellation of warrant......... -- -- -- -- -- (500,000) 450,000 --
Issuance of warrant............. -- -- -- -- -- 80,000 -- --
Issuance of stock options....... -- -- -- -- -- -- 30,000 --
Capital contribution............ -- -- -- -- -- -- 110,000 --
Pending repurchase of common
stock......................... -- -- -- -- (65,000) -- -- --
Net income...................... -- -- -- -- -- -- -- 254,094
---------- -------- ------- --------- -------- -------- ---------- -----------
Balance, at January 31, 1997..... 54,965,228 (228,489) $54,965 $(100,000) $(65,000) $80,000 $3,452,453 $(3,250,786)
========== ======== ======= ========= ======== ======== ========== ===========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance, at January 31, 1995..... $(1,367,858)
Acquisition of treasury stock... (100,000)
Issuance of stock options....... 29,998
Net loss......................... (180,196)
-----------
Balance, at January 31, 1996..... (1,618,056)
Issuance of common stock........ 1,430,594
Cancellation of warrant......... (50,000)
Issuance of warrant............. 80,000
Issuance of stock options....... 30,000
Capital contribution............ 110,000
Pending repurchase of common
stock......................... (65,000)
Net income...................... 254,094
-----------
Balance, at January 31, 1997..... $ 171,632
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 67
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)......................................... $(180,196) $ 254,094
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 114,056 110,635
Allowance for doubtful accounts........................ 18,368 (55,086)
Compensatory stock options............................. 29,998 30,000
Option cancellation expense............................ -- 110,000
Income tax benefit..................................... -- (891,000)
Changes in current assets and liabilities, net of
effects of acquisition:
Accounts and notes receivable........................ 107,540 47,975
Prepaid expenses and other assets.................... (5,424) (43,526)
Accounts payable and accrued expenses................ (47,235) (312,703)
Deferred revenue..................................... (21,692) (99,165)
--------- ---------
Net cash provided by (used in) operating activities....... 15,415 (848,776)
--------- ---------
Cash used in investing activities:
Property and equipment expenditures....................... (15,189) (16,941)
Cash paid for deferred acquisition costs.................. -- (196,680)
Expenditures for software development costs............... -- (32,461)
Cash paid for acquisition of HCD.......................... -- (150,000)
Proceeds from collection of notes and other receivables... 4,213 --
--------- ---------
Net cash used in investing activities..................... (10,976) (396,082)
--------- ---------
Cash provided by financing activities:
Proceeds from issuance of common stock.................... -- 1,320,402
Proceeds from note payable to stockholder................. 94,500 --
Repayment of note payable to stockholder.................. (73,027) --
Proceeds from issuance of long-term debt.................. 366,665 --
Principal payments on long-term debt...................... (47,563) (76,507)
Repurchase of common stock................................ (100,000) --
Repurchase of common stock warrant........................ -- (50,000)
--------- ---------
Net cash provided by financing activities................. 240,575 1,193,895
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 245,014 (50,963)
Cash and cash equivalents, beginning........................ 4,684 249,698
--------- ---------
Cash and cash equivalents, ending........................... $ 249,698 $ 198,735
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 68
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND NATURE OF BUSINESS
American Medcare Corporation (the "Company" or "AMC") was incorporated on
January 11, 1983, and was originally formed to provide management services to
professional corporations practicing family and emergency medicine.
In May 1993, the Company merged with Newport Capital, Inc. ("Newport"),
whose principal asset was its wholly-owned subsidiary, International Computer
Solutions, Inc. ("ICS"). The Company, through its operating subsidiaries,
develops, markets and supports health care data processing and claims
transmission systems, including hardware and software packages, primarily for
physician and dentist practice offices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 3 for accounting
for failed acquisitions.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from these estimates.
The Company has recorded a deferred tax asset of $871,000 at January 31,
1997, reflecting the benefit of approximately $2.2 million in loss
carryforwards, which expire in varying amounts between 2003 and 2011.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in future periods if estimates of future
taxable income during the carryforward period are reduced.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets using both straight line and
accelerated methods for financial reporting and accelerated methods for income
tax purposes. Substantial betterments to property and equipment are capitalized
and repairs and maintenance are expensed as incurred.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally two to
three years). Development costs include detailed design, prototyping, coding,
testing, documentation, production and quality assurance. Such costs are
capitalized once the product's technological feasibility is established and are
expensed after the product is available for general release. During the year
ended January 31, 1997, the Company capitalized $32,461 of software development
costs. Amortization of capitalized software development costs for the years
ended January 31, 1996, and 1997, was $42,925 and $15,914, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and
F-20
<PAGE> 69
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
determine whether the software should be completely or partially written off or
the amortization period accelerated. The Company will recognize an impairment if
undiscounted estimated future cash flows of the capitalized software is
determined to be less than the carrying amount of capitalized software.
INTANGIBLE ASSETS
Intangible assets have been recorded as the result of the acquisition of
HCD and costs associated with potential acquisitions. Intangible assets consist
of goodwill which is being amortized over 15 years and deferred acquisition
costs which will be amortized upon completion of the Company's pending
acquisitions (Note 2). Amortization of goodwill for the year ended January 31,
1997 was $21,408. The Company periodically evaluates the carrying amount of
goodwill based on projected undiscounted cash flows of HCD.
REVENUE RECOGNITION
Revenue is recognized, net of allowances for estimated returns, from the
sale of computer hardware and computer software when the product is shipped and
when training services, where applicable, are provided. Revenue from hardware
maintenance and customer support contracts and claims processing services are
recognized in the period in which the services are provided; amounts not yet
earned are recorded as deferred revenue. Revenue from contract services for
maintenance and support were approximately $805,000 and $747,000 for 1996 and
1997, respectively. Revenue from claims processing services totaled
approximately $338,000 and $290,000 for 1996 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than possible enactments of changes in the tax laws or rates.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during each
year.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995 and was adopted by
the Company as of February 1, 1996. This statement requires that long-lived
assets, including certain intangibles, held and used by the Company be reviewed
for potential impairment. This new pronouncement did not have a material effect
on the Company's financial statements when adopted.
SFAS No. 123, "Accounting for Stock Based Compensation" is effective for
years beginning after December 15, 1995 and was adopted by the Company as of
February 1, 1996. This statement establishes financial accounting and reporting
standards for stock based employee compensation plans. SFAS No. 123 permits, but
does not require, a fair-value based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. As permitted by SFAS No. 123, the Company will provide pro
forma disclosure of net income and earnings per share, as applicable in the
notes to the consolidated financial statements.
F-21
<PAGE> 70
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 128, "Earnings Per Share" is effective for periods ending after
December 15, 1997. This statement revises the manner in which earnings per share
is calculated and requires the restatement, when first applied, of prior period
earnings per share data. The Company does not expect the adoption of this
pronouncement to have a material effect on the previously reported earnings per
share data.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Accounts receivable
arise from sale of healthcare practice management systems to the Company's
customer base located throughout the United States. The Company performs ongoing
credit evaluations of its customers' financial condition, and generally requires
no collateral from its customers. The Company's credit losses are subject to
general economic conditions of the healthcare industry.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts of the Company's financial instruments included in the
accompanying consolidated balance sheets approximate estimated fair value as of
January 31, 1997 and 1996.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. BUSINESS ACQUISITIONS
In fiscal 1997, AMC initiated an acquisition program to strengthen its
market position and leverage its customer base. AMC targeted similar and
compatible companies in various locations throughout the United States and, as
described below, completed one acquisition and entered into agreements for four
others.
In addition, AMC agreed to merger terms with InfoCure Corporation,
("InfoCure"), a newly-formed Delaware corporation, whereby AMC shareholders
would receive approximately 3.5 million shares of InfoCure Common Stock in
exchange for all outstanding shares of AMC common stock (approximately one
InfoCure "Equivalent Share" for every 15 AMC shares). AMC, together with the
targeted acquisitions described below, would be Founding Businesses of InfoCure
contingent upon successful completion of InfoCure's public offering which was
pending at the date of these financial statements.
In December 1996, the Company acquired certain assets and assumed certain
liabilities of the Health Care Division ("HCD") (formerly a division of Info
Systems of North Carolina, Inc. ("ISI")). HCD is engaged in designing,
programming, licensing, installing, and supporting hardware and software systems
to the medical industry throughout the United States. HCD has long-term
marketing rights to and ownership of licensed software in various industry
segments. As consideration, the Company paid $150,000 and issued a $1.55 million
note payable for an aggregate purchase price of $1.7 million. The acquisition is
accounted for under the purchase method of accounting. HCD's results of
operations from December 3, 1996, to January 31, 1997, are included in the
accompanying financial statements.
F-22
<PAGE> 71
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if the acquisition had occurred as of
February 1, 1995. The pro forma information is not necessarily indicative of
what would have occurred had the acquisition been made as of February 1, 1995,
nor is it indicative of future results of operations. The pro forma amounts give
effect to appropriate adjustments for the fair value of the net assets acquired,
reductions for personnel costs and other operating expenses not assumed as part
of the acquisition, amortization of goodwill, interest expense, and income
taxes.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------
1996 1997
------ ------
(000'S, EXCEPT PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
Net sales.................................................. $8,051 $6,383
Net income................................................. 824 584
Earnings per share......................................... 0.02 0.01
</TABLE>
The fair values of the net assets acquired and liabilities assumed were as
follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 154,358
Property and equipment...................................... 60,000
Goodwill.................................................... 1,926,717
Other assets................................................ 8,902
Deferred revenue............................................ (432,324)
Accounts payable............................................ (14,305)
Notes payable............................................... (1,550,000)
Customer deposits........................................... (3,348)
-----------
Cash used for acquisition................................... $ 150,000
===========
</TABLE>
The Company or InfoCure has entered into Agreements to acquire the
following companies:
<TABLE>
<CAPTION>
NAME LOCATION
- ---- -----------------------
<S> <C>
Millard-Wayne, Inc. ............................... Atlanta, Georgia
DR Software, Inc. ................................. Atlanta, Georgia
ROVAK, Inc......................................... Lake Elmo, Minnesota
KComp Management Systems, Inc...................... Los Angeles, California
</TABLE>
Aggregate consideration for the foregoing acquisitions is approximately $9
million, including approximately $7 million cash and the balance in common
stock. Closing of these acquisitions is contingent upon the successful
completion of InfoCure's pending public offering.
As of January 31, 1997, the Company had incurred approximately $631,000 in
costs, principally professional fees, relating directly to its acquisition
program. A portion of these costs were allocated to goodwill in connection with
the HCD Acquisition. The remaining $521,000 will be allocated appropriately as
the remaining acquisitions are completed.
3. FAILED ACQUISITIONS
On July 22, 1994, Integrated Computer Systems, Inc. ("Integrated") and
Electronic Transmitting Solutions, Inc. ("Electronic"), two wholly-owned
subsidiaries of the Company, filed voluntary petitions for Chapter 7 bankruptcy
with the United States Bankruptcy Count -- Northern District of Georgia. The
Company also filed suit against the sellers of Integrated and Electronic in 1996
in the United States Bankruptcy Court -- Northern District of Georgia. The suit
called for rescission of the October 29, 1993 acquisitions along with the return
of the stock issued to the sellers. In addition, the suit asks for damages for
monetary amounts incurred by the Company as a result of problems related to the
acquisitions.
F-23
<PAGE> 72
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The shares of common stock issued in connection with the acquisition of
Integrated and Electronic are reflected as being outstanding in the accompanying
consolidated balance sheets and statements of shareholders' equity (capital
deficit). The Company has entered into an agreement with the sellers and the
trustee in bankruptcy granting the Company the right to purchase these 1,926,470
shares (132,964 Equivalent Shares of InfoCure Common Stock) for $65,000. The
purchase is contingent upon the approval of the settlement by the bankruptcy
court. The pending repurchase has been reflected in the financial statements as
accrued stock repurchase.
The Company has also reached agreement with the trustee for settlement of
all other matters associated with the bankruptcy of these former subsidiaries.
Costs attributable thereto are not material.
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current deferred tax asset.................................. $ -- $25,000
Deposits.................................................... 850 11,414
Prepaid expenses............................................ 17,365 5,396
Other....................................................... 14,405 20,554
------- -------
$32,620 $62,364
======= =======
</TABLE>
5. PROPERTY, EQUIPMENT AND DEPRECIATION
Major classifications of property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Computer equipment.................................... 3-5 $331,436 $441,464
Furniture and fixtures................................ 5-7 293,381 240,898
--- -------- --------
624,817 682,362
Less accumulated depreciation......................... 570,445 588,205
-------- --------
$ 54,372 $ 94,157
======== ========
</TABLE>
Depreciation was $34,389 and $37,156 for the years ended January 31, 1996
and 1997, respectively.
6. MISCELLANEOUS ASSETS
Miscellaneous assets consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred rent asset, net.................................... $52,547 $ 59,136
Capitalized software development costs, net................. 19,511 41,253
Long-term notes receivable.................................. 1,257 --
------- --------
$73,315 $100,389
======= ========
</TABLE>
Capitalized software development costs are stated net of accumulated
amortization of $656,505 and $657,115, at January 31, 1996 and 1997,
respectively.
F-24
<PAGE> 73
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Taxes other than income..................................... $ 57,995 $ 84,503
Compensation................................................ 151,537 82,371
Interest.................................................... 5,095 75,182
Accrued stock repurchase.................................... -- 65,000
Professional fees........................................... 50,000 30,000
Customer costs.............................................. 28,606 3,924
Expenses related to loss on failed acquisition.............. 119,590 --
Other....................................................... 35,804 17,691
-------- --------
$448,627 $358,671
======== ========
</TABLE>
8. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Notes payable to banks...................................... $396,042 $366,932
Other....................................................... 389,780 380,849
-------- --------
785,822 747,781
Less current portion........................................ 335,542 49,529
-------- --------
$450,280 $698,252
======== ========
</TABLE>
During fiscal 1994, ICS refinanced its existing bank loans with a new note
payable to a bank which is guaranteed by the Small Business Administration
("SBA"). This loan bears interest at a rate of 11.25% and is payable in monthly
installments through May 2003. The loan is secured by substantially all of the
assets of ICS, and certain other real estate owned by two stockholders. In
addition, the loan is personally guaranteed by five of the Company's
stockholders.
In January 1996, the Company received a loan from a third party in the
amount of $366,666 in the form of a promissory note payable bearing interest at
a rate of 9.95%. In conjunction with this note the Company has entered into an
agreement to exclusively promote the third party's claims processing services as
a component of the Company's products. The note is to be repaid based on fees
charged by the third party for claims submitted by the Company for processing.
As of January 31, 1997, no material amount of such claims had been submitted.
The note is payable together with accrued and unpaid interest at December 31,
1998 and is included in other long-term debt.
Also included in other long-term debt are capital leases of $19,612 and
$10,682 at January 31, 1996 and 1997, respectively.
F-25
<PAGE> 74
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of January 31, 1997, future maturities of these obligations are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1998........................................................ $ 49,529
1999........................................................ 419,637
2000........................................................ 52,344
2001........................................................ 58,691
2002........................................................ 65,808
Thereafter.................................................. 101,772
--------
$747,781
========
</TABLE>
In April 1995, the Company borrowed $94,500 from a stockholder of the
Company in exchange for a promissory note bearing interest at 12% payable in a
balloon payment of principal and interest in April 1998.
As partial consideration for the acquisition of HCD, the Company issued ISI
a note payable in the original amount of $1.55 million. The original note
balance was subsequently reduced for post-closing adjustments, and the balance
is payable on June 2, 1998, or within 5 days of a successful public offering by
the Company or its successor. The note bears interest of prime plus 2% (10.25%
at January 31, 1997) and is collateralized by HCD's assets. The foregoing
schedule of future maturities excludes this note and the note payable to
stockholder described above.
9. OPERATING LEASES
The Company leases certain office equipment under noncancellable operating
leases with initial or remaining terms of one year or more. At January 31, 1997,
the remaining amounts due under these leases totaled approximately $45,000 in
the aggregate.
The Company leases office space with future minimum annual rental payments
of approximately $126,000 and $76,000 for 1998 and 1999, respectively. The
Company issued an aggregate of 1,087,762 shares of common stock from 1995 to
1997 to the lessor as partial consideration for rent.
Rent expense for 1996 and 1997, which included lease payments for office
space, was approximately $101,000 and $140,000, respectively.
10. COMMON STOCK
The Company had 50,000,000 and 75,000,000 shares of common stock, par value
$.001 per share, authorized at January 31, 1996 and 1997, respectively. Shares
of common stock outstanding totaled 41,349,299 and 54,736,739 at January 31,
1996 and 1997, respectively.
In 1996, the Company acquired 228,489 shares of treasury stock as payment
for a note receivable from one of the Company's former salespersons in the
amount of $100,000, which is the basis for the valuation of the treasury stock.
As indicated in Note 3, the Company has accrued $65,000 for the anticipated
repurchase of 1,926,470 shares issued to sellers of Integrated and Electronic,
former subsidiaries. Completion of the repurchase is pending approval of the
bankruptcy court.
11. STOCK PURCHASE WARRANT AND OPTIONS
On January 4, 1991, the Company issued to Moore Business Forms, Inc.
("Moore") a stock purchase warrant, exercisable through December 31, 2000, for
20% of ICS common stock, in full satisfaction of approximately $445,000 of
amounts owed to Moore. In addition, Moore transferred ownership of the Medical
Practice Manager, Dental Practice Manager and Oral Surgeon Practice Manager
software and source code to
F-26
<PAGE> 75
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ICS. The warrant was assigned a value of $500,000 and the Company recorded
approximately $55,000 as the value of the software and source code. Pursuant to
terms of an agreement dated December 20, 1996, the Company repurchased the
warrant for $50,000 and terminated all related obligations and liabilities.
During fiscal 1995, the Company granted options to a director and an
officer of the Company. The options enabled the holders to purchase up to
4,000,000 shares of common stock (3,000,000 shares for the director; 1,000,000
shares for the officer) at prices ranging from $0.01 to $1.00 per share. The
options had exercise dates at various times through September 1999. In fiscal
1997, the officer exercised options to purchase 500,000 shares for $500. Also in
fiscal 1997, the director resigned and certain shareholders transferred to the
former director an aggregate of 1,000,000 shares of common stock from their
personal holdings to retire the 3,000,000 options. The Company accounted for
this transaction as a contribution to capital for $110,000, the estimated fair
value of the shares involved, with a corresponding charge to operating expenses
to recognize the cost of cancelling the options.
During fiscal 1997, the Company granted 2,325,000 options to several
employees and an officer of the Company. Each option enables the holders to
purchase one share of common stock at prices ranging from $0.125 to $0.25. The
exercise prices approximate fair market value of the common stock on the
issuance dates. The options may be exercised at various times through November
15, 2004. Additionally, in conjunction with the pending acquisitions, the
Company granted 1,865,500 warrants to a third party for assistance in securing
potential acquisitions. Each warrant enables the holder to purchase one share of
common stock at $0.0625, and the warrants are currently exercisable. The
warrants' estimated fair value of $80,000 was accounted for as additional
deferred acquisition costs.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recorded in conjunction with options
issued to employees. Had compensation cost been determined based on the fair
value of the options at the grant date, consistent with the method prescribed by
SFAS No. 123, the Company's net earnings would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Net income (loss) -- as reported............................ $(180,196) $254,094
Net income (loss) -- pro forma.............................. (180,196) 14,388
Net income (loss) per common share -- pro forma............. (0.00) 0.00
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997: expected volatility of 0%; risk-free interest rate of 7.50%;
and expected lives from five to eight years.
F-27
<PAGE> 76
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... -- 5,000
-------- ---------
Total current..................................... -- 5,000
-------- ---------
Deferred
Federal................................................... (66,000) (195,000)
State..................................................... (11,000) (30,000)
-------- ---------
Total deferred.................................... (77,000) (225,000)
-------- ---------
Change in deferred tax
Asset valuation allowance................................. 77,000 (671,000)
-------- ---------
Net income tax expense (benefit).................. $ -- $(891,000)
======== =========
</TABLE>
Deferred taxes result from temporary differences between the bases of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The sources of the temporary differences
and their effect on deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Current:
Deferred tax assets
Allowance for doubtful accounts........................ $ 34,000 $ 14,000
Accrued expenses....................................... 8,000 11,000
--------- --------
42,000 25,000
--------- --------
Noncurrent:
Deferred tax assets (liabilities)
Basis difference of capitalized software costs and
other assets......................................... (75,000) (40,000)
Net operating loss carryforwards....................... 704,000 911,000
--------- --------
629,000 871,000
--------- --------
Gross deferred tax assets................................... 671,000 896,000
Valuation allowance......................................... (671,000) --
--------- --------
Net deferred tax assets........................... $ -- $896,000
========= ========
</TABLE>
Reduction of the deferred tax asset valuation allowance reflects the
anticipated impact of the Company's acquisition of HCD (Note 2) and the
resolution of previous contingencies associated with failed acquisitions (Note
3). In the opinion of management, it is now "more likely than not" that the
future tax benefits represented by the net operating loss carryforwards will be
realized.
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Expected tax expense (benefit).............................. $(61,000) $(217,000)
Increase (decrease) in income taxes resulting from:
State income taxes........................................ 11,000 21,000
Effect of graduated rates................................. (17,000) (14,000)
Other, net................................................ (10,000) (10,000)
Change in deferred tax asset valuation allowance....... 77,000 (671,000)
-------- ---------
Net income tax expense (benefit).................. $ -- $(891,000)
======== =========
</TABLE>
F-28
<PAGE> 77
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of January 31, 1997, the Company and its subsidiaries have net operating
loss carryforwards for Federal income tax purposes of approximately $2.2 million
which expire at various dates from 2003 to 2011.
13. CLAIM PROCESSING AGREEMENT
ICS has an agreement with another company whereby ICS assisted in the
establishment of an electronic claims processing clearinghouse and in the
subsequent marketing of the clearinghouse by submitting electronic claims of ICS
customers for processing through the clearinghouse. The other company is owned
by a minority stockholder of the Company. ICS received a fee which included the
cancellation of a $324,000 note payable to this minority stockholder, plus
additional periodic payments totaling $100,000.
As part of the agreement, ICS agreed to submit all its eligible electronic
claims exclusively to the other company for processing and will pay $0.25 per
claim processed. The agreement commenced September 1, 1992 and will terminate
upon the processing of 11,800,000 claims, or certain other events (principally
related to the transfer of ownership of ICS) or discontinuance of electronic
claim-related business activities. If the agreement is terminated due to the
other events, five shareholders of the Company shall pay a termination fee of
$324,000 less the number of claims processed to date times $0.05 per claim, plus
an annual interest surcharge of prime plus 3%. ICS has guaranteed the
shareholders' obligation for the termination fee which totaled approximately
$234,000 at January 31, 1997. The service center became functional in September
of 1993 and processed approximately 431,000 and 495,000 claims from ICS
customers in fiscal 1996 and 1997, respectively. As of January 31, 1996 and
1997, approximately $284,000 and $234,000, respectively, was included in
deferred revenue related to this agreement.
In November 1996, the Company entered into an agreement to terminate this
agreement in consideration of a $25,000 payment and tender of the remaining
outstanding balance to be paid upon the successful completion of a public
offering of the Company or its successor.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest amounted to $55,338 and $42,626 for the years
ended January 31, 1996 and 1997, respectively.
In fiscal 1997, the Company issued common stock and a warrant with an
aggregate fair value of $190,192 for services rendered to the Company.
In fiscal 1997, the Company acquired certain assets and assumed certain
liabilities of HCD for consideration of a $1,550,000 note and $150,000 cash
(Note 2).
15. SUBSEQUENT EVENTS
In March 1997, the Company issued to third parties, through private
placements, 800,000 shares of common stock for aggregate consideration of
$280,000 in cash.
F-29
<PAGE> 78
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
KComp Management Systems, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of KComp Management
Systems, Inc. as of March 31, 1996 and 1997, and the related statements of
operations, changes in stockholders' equity and cash flows for the period from
inception (December 15, 1995) to March 31, 1996 and for the year ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KComp Management Systems,
Inc. at March 31, 1996 and 1997, and the results of its operations and its cash
flows for the period from inception (December 15, 1995) to March 31, 1996 and
for the year ended March 31, 1997, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
April 25, 1997
F-30
<PAGE> 79
KCOMP MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash...................................................... $ 33,427 $ 11,403
Accounts receivable -- trade.............................. 27,453 40,206
Accounts receivable -- other.............................. 172,914 --
Other..................................................... -- 29,135
-------- --------
Total current assets.............................. 233,794 80,744
-------- --------
Property and equipment:
Computer equipment........................................ 62,051 62,051
Phone equipment........................................... 29,409 38,683
Other..................................................... 3,171 3,171
-------- --------
Total property and equipment...................... 94,631 103,905
Less accumulated depreciation............................. 6,153 26,230
-------- --------
Net property and equipment........................ 88,478 77,675
-------- --------
Other assets:
Capitalized software development costs, less accumulated
amortization of $11,706 and $67,340.................... 128,765 255,474
Goodwill less accumulated amortization of $9,995 and
$39,978................................................ 439,759 409,776
-------- --------
Total assets...................................... $890,796 $823,669
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Lines of credit........................................... $ 24,134 $ 29,919
Accounts payable.......................................... 235,550 152,286
Accrued expenses.......................................... 72,686 52,998
Income taxes payable...................................... -- 72,000
Deferred revenue.......................................... 79,248 98,077
Current portion of notes payable.......................... 448,435 243,481
-------- --------
Total current liabilities......................... 860,053 648,761
Notes payable............................................... 27,761 --
-------- --------
Total liabilities........................................... 887,814 648,761
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, $0.01 stated value, 500,000
shares authorized; 30,000 and 357,240 shares issued and
outstanding............................................ 300 3,572
Additional paid-in capital................................ 3,682 41,141
Retained earnings (accumulated deficit)................... (1,000) 130,195
-------- --------
Total stockholders' equity........................ 2,982 174,908
-------- --------
Total liabilities and stockholders' equity........ $890,796 $823,669
======== ========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 80
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15,
1995) TO YEAR ENDED
MARCH 31, MARCH 31,
1996 1997
------------- ----------
<S> <C> <C>
Revenues:
Systems and hardware sales................................ $172,781 $ 312,938
Maintenance and support................................... 486,764 1,673,622
-------- ----------
Total revenues.................................... 659,545 1,986,560
-------- ----------
Cost and expenses:
Salaries and wages........................................ 467,390 993,424
Telephone................................................. 73,904 196,751
Write-off of accounts receivable -- other................. -- 189,892
Depreciation and amortization............................. 27,854 105,695
Rent...................................................... 27,280 90,020
Insurance................................................. 10,045 12,646
Other..................................................... 40,328 159,891
-------- ----------
Total cost and expenses........................... 646,801 1,748,319
-------- ----------
Income from operations...................................... 12,744 238,241
Other income (expense):
Interest expense.......................................... (13,079) (40,894)
Other income (expense).................................... (665) (1,152)
-------- ----------
Income (loss) before taxes.................................. (1,000) 196,195
Income tax provision........................................ -- 65,000
-------- ----------
Net income (loss)........................................... $ (1,000) $ 131,195
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 81
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 15, 1995 (inception).......... -- $ -- $ -- $ -- $ --
Issuance of common stock...................... 30,000 300 3,682 -- 3,982
Net loss for the period....................... -- -- -- (1,000) (1,000)
------- ------ ------- -------- --------
Balance, March 31, 1996......................... 30,000 300 3,682 (1,000) 2,982
Issuance of common stock, pursuant to exercise
of warrant................................. 327,240 3,272 37,459 40,731
Net income for the year ended March 31,
1997....................................... 131,195 131,195
------- ------ ------- -------- --------
357,240 $3,572 $41,141 $130,195 $174,908
======= ====== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 82
KCOMP MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15,
1995) TO
MARCH 31, MARCH 31,
1996 1997
------------- ---------
<S> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)......................................... $ (1,000) $ 131,195
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 27,854 105,694
Write-off of accounts receivable -- other.............. -- 189,892
Increase (decrease) from change in:
Accounts receivable.................................. (200,367) (29,731)
Accounts payable and accrued expenses................ 154,793 (62,221)
Income taxes payable................................. -- 72,000
Deferred revenue..................................... 54,131 18,829
Other................................................ -- (29,135)
--------- ---------
Net cash provided by operating activities................. 35,411 396,523
--------- ---------
Cash provided by (used in) investing activities:
Purchase of equipment..................................... (5,191) (9,274)
Increase in software development costs.................... -- (182,343)
--------- ---------
Net cash used in investing activities..................... (5,191) (191,617)
--------- ---------
Cash provided by (used in) financing activities:
Proceeds from line of credit, net......................... 24,134 5,785
Increase in notes payable................................. 77,425 --
Payments on notes payable................................. (102,334) (232,715)
Issuance of common stock.................................. 3,982 --
--------- ---------
Net cash provided by (used in) financing activities....... 3,207 (226,930)
--------- ---------
Net increase (decrease) in cash............................. 33,427 (22,024)
Cash, beginning............................................. -- 33,427
--------- ---------
Cash, ending................................................ $ 33,427 $ 11,403
========= =========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 83
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
KComp Management Systems, Inc. (the "Company") was formed in March 1995 and
began operations in December 1995, following the acquisition of certain assets
and assumption of certain liabilities of Songbird Data Systems, Inc.
("Songbird") in December 1995. The Company provides support and training
services for computer software for the dental industry. The Company also updates
and sells the current version of its computer software and other related
auxiliary products.
REVENUE RECOGNITION
Revenue from maintenance and support contracts is recognized ratably over
the contract period. Revenue from software sales is recorded when the product is
delivered.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term securities
purchased with a maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the respective assets on the straight-line basis
ranging from five to seven years.
Expenditures for major renewals and betterment that extend the useful lives
of property and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of purchase price over fair value of net assets acquired arises
in connection with business combinations accounted for as purchases and is
amortized on a straight-line basis over fifteen years. Accumulated amortization
amounted to approximately $39,978 for the period from inception (December 15,
1995) to March 31, 1997.
The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other that temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if undiscounted estimated future operating cash flows
of the acquired business are determined to be less than the carrying amount of
goodwill. If the Company determines that goodwill has been impaired, the
measurement of the impairment will be equal to the excess of the carrying amount
of goodwill over the amount of the undiscounted estimated operating cash flows.
If an impairment of goodwill were to occur, the Company would reflect the
impairment through a reduction in the carrying value of goodwill.
F-35
<PAGE> 84
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the year ended March 31,
1997, the Company capitalized approximately $182,000 of software development
costs. Amortization of capitalized software development costs for the period
from inception (December 15, 1995) to March 31, 1996, was approximately $12,000,
and for the year ended March 31, 1997, approximately $55,000.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this approach, deferred income taxes are provided for the temporary differences
between the book and tax bases of assets and liabilities using currently enacted
tax rates. Changes in tax laws or rates are recognized in the deferred tax
balances when enacted.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include receivables, accounts and notes
payable and accrued liabilities. Such instruments are reported at values which
the Company believes are not materially different from their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995 and was adopted by
the Company effective April 1, 1996.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
Adoption of this new pronouncement did not have a material effect on the
Company's financial statements.
2. NOTES PAYABLE
The Company maintains a revolving line of credit with a bank which provide
for an aggregate of $30,000 in borrowings. The line bears interest of 9.75% and
was due March 1997. The line of credit is collateralized by certain certificates
of deposit pledged by the Company's president. Subsequent to March 31, 1997, the
bank renewed the credit line.
F-36
<PAGE> 85
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains several term notes payable to certain officers,
directors and affiliates. The notes bear interest at rates from 7%-12% and
mature during the year ended March 31, 1998.
3. COMMITMENTS
The Company is obligated under terms of operating leases for its office
facilities and certain equipment and utilities. Rent expense was approximately
$27,000 and $90,000 for fiscal 1996 and 1997, respectively. Future minimum
payments under these leases are as follows:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
- --------- --------
<S> <C>
1998........................................................ $180,353
1999........................................................ 54,840
--------
$235,193
========
</TABLE>
4. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15, 1995) YEAR ENDED
TO MARCH 31, 1996 MARCH 31, 1997
------------------- --------------
<S> <C> <C>
Current
Federal............................................. $ -- $53,000
State............................................... -- 19,000
------- -------
Total current............................... -- 72,000
------- -------
Deferred
Federal............................................. -- (5,000)
State............................................... -- (2,000)
------- -------
Total deferred.............................. -- (7,000)
------- -------
Net tax expense............................. $ -- $65,000
======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Other current assets
include $7,000 of deferred tax assets related to future deductible expenses,
primarily accrued vacation.
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15, 1995) YEAR ENDED
TO MARCH 31, 1996 MARCH 31, 1997
------------------- --------------
<S> <C> <C>
Expected tax expense (benefit)...................... $ -- $67,000
Increase (decrease) in income taxes resulting from:
State income taxes................................ -- 18,000
Effect of graduated rates......................... -- (14,000)
Other, net........................................ -- (6,000)
------- -------
$ -- $65,000
======= =======
</TABLE>
F-37
<PAGE> 86
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK WARRANT
In May 1996, the Company issued Marc Kloner a stock purchase warrant to
purchase 327,240 shares of common stock of the Company. The warrant was
exercised and resulted in the reduction of an account payable to Mr. Kloner of
approximately $41,000. Mr. Kloner is a principal in Songbird.
6. SUPPLEMENTAL CASH FLOW INFORMATION
As discussed in Note 1 the Company acquired certain assets and assumed
certain liabilities of Songbird. The assets and liabilities were as follows:
<TABLE>
<S> <C>
Fixed assets................................................ $ 89,440
Capitalized software........................................ 140,471
Accounts payable and accrued expenses....................... (153,443)
Deferred revenue............................................ (25,117)
Notes payable............................................... (501,105)
---------
Net liabilities assumed........................... $(449,754)
=========
</TABLE>
During the early months of operations, Songbird processed credit card
transactions for the Company. The Company generated a receivable from Songbird
arising from unremitted proceeds therefrom. During the year ended March 31,
1997, Songbird filed for protection from creditors under Chapter 7 of the United
States Bankruptcy Code. As a result, the Company wrote off its receivable
balance of $189,892.
Cash paid for interest for the period from inception (December 15, 1995) to
March 31, 1996 and for the year ended March 31, 1997 was approximately $13,000
and $30,000, respectively.
7. SUBSEQUENT EVENT
During the year ended March 31, 1997, the Company signed a letter of intent
to be acquired by American Medcare Corporation ("AMC"), whereby AMC would
acquire all of the common stock of the Company in exchange for an estimated
$1,600,000. The sale is anticipated to occur in the second quarter of 1997.
F-38
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Millard-Wayne, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of Millard-Wayne, Inc. as
of December 31, 1995 and 1996, and the related statements of operations and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Millard-Wayne, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 15, 1997
F-39
<PAGE> 88
MILLARD-WAYNE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................... $ 8,257 $ 29,257 $ 6,653
Accounts receivable net of allowance of $8,100, $8,100
and $4,500.......................................... 366,741 450,278 353,803
Deferred tax asset..................................... 47,000 62,000 74,000
Other current assets................................... 2,256 414 4,034
-------- ---------- --------
Total current assets........................... 424,254 541,949 438,490
Property and equipment, net of accumulated
depreciation........................................... 132,372 115,984 109,683
Capitalized software development costs, net of
accumulated amortization of $1,339,800, $1,481,512 and
$1,511,554............................................. 249,487 248,634 253,185
Purchased software rights, net of accumulated
amortization of $8,561, $13,637 and $15,386............ 54,539 89,082 89,534
Other assets............................................. 23,625 18,137 16,544
-------- ---------- --------
$884,277 $1,013,786 $907,436
======== ========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable....................................... $ 90,882 $ 252,710 $184,856
Accrued expenses....................................... 59,119 94,283 58,586
Deferred revenue....................................... 377,927 311,756 351,343
Current portion of notes payable....................... 136,672 127,868 145,469
10 1/2% demand note payable to officer................. -- 73,495 72,495
-------- ---------- --------
Total current liabilities...................... 664,600 860,112 812,749
-------- ---------- --------
Notes payable............................................ 30,482 18,514 15,155
-------- ---------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par, 500 shares authorized, issued
and outstanding..................................... 500 500 500
Additional paid-in-capital............................. 42,549 42,549 42,549
Retained earnings...................................... 146,146 92,111 36,483
-------- ---------- --------
Total stockholder's equity..................... 189,195 135,160 79,532
-------- ---------- --------
Total liabilities and stockholder's equity..... $884,277 $1,013,786 $907,436
======== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE> 89
MILLARD-WAYNE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Systems sales.................................... $ 800,434 $ 975,413 $ 62,416 $ 64,613
Support and services............................. 1,243,558 1,319,944 373,996 329,237
Other............................................ 73,492 60,411 12,831 9,139
---------- ---------- -------- --------
Total revenues........................... 2,117,484 2,355,768 449,243 402,989
---------- ---------- -------- --------
Operating costs and expenses:
Salaries and wages............................... 938,408 1,040,846 248,346 243,960
Hardware purchases for resale.................... 290,857 497,899 20,969 22,139
Commissions and support.......................... 115,580 165,104 10,780 16,262
Depreciation and amortization.................... 236,034 193,753 54,799 41,546
Rent............................................. 131,442 132,505 32,660 33,816
Travel and entertainment......................... 65,894 73,266 10,071 19,404
Telephone........................................ 66,884 73,268 18,015 17,107
Insurance........................................ 59,229 63,873 13,873 15,709
Other............................................ 143,572 155,616 42,025 53,771
---------- ---------- -------- --------
Total operating costs and expenses....... 2,047,900 2,396,130 451,538 463,714
---------- ---------- -------- --------
Income (loss) from operations...................... 69,584 (40,362) (2,295) (60,725)
---------- ---------- -------- --------
Other expenses:
Interest expense................................. 22,972 24,673 6,313 6,903
Loss on sale of assets........................... 17,186 -- -- --
---------- ---------- -------- --------
Total other expenses..................... 40,158 24,673 6,313 6,903
---------- ---------- -------- --------
Income (loss) before taxes......................... 29,426 (65,035) (8,608) (67,628)
Income taxes (benefit)............................. (5,528) (11,000) (3,000) (12,000)
---------- ---------- -------- --------
Net income (loss).................................. 34,954 (54,035) (5,608) (55,628)
Retained earnings, beginning....................... 111,192 146,146 146,146 92,111
---------- ---------- -------- --------
Retained earnings, ending.......................... $ 146,146 $ 92,111 $140,538 $ 36,483
========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE> 90
MILLARD-WAYNE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)................................. $ 34,954 $ (54,035) $ (5,608) $(55,628)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization.................. 236,034 193,753 54,799 41,546
Loss on sale of property, plant and
equipment.................................... 17,186 -- -- --
Deferred income taxes.......................... (528) (15,000) (3,000) (12,000)
Decrease (increase) in:
Accounts receivable.......................... 27,266 (83,537) (12,902) 96,475
Other assets................................. (2,819) 6,330 4,287 (2,171)
Accrued expenses............................. (14,168) 35,165 (34,417) (35,697)
Accounts payable............................. (79,248) 161,828 30,891 (67,854)
Deferred revenue............................. -- (66,171) 10,769 39,587
--------- --------- -------- --------
Net cash provided by operating activities......... 218,677 178,333 44,819 4,258
--------- --------- -------- --------
Cash provided by (used in) investing activities:
Proceeds from sale of property, plant and
equipment...................................... 22,745 -- -- --
Purchase of property, plant and equipment......... (64,285) (29,578) (8,937) (3,310)
Increase in software development costs............ (163,439) (140,859) (17,121) (34,593)
Increase in purchased software rights............. (28,100) (39,619) -- (2,201)
--------- --------- -------- --------
Net cash used in investing activities............. (233,079) (210,056) (26,058) (40,104)
--------- --------- -------- --------
Cash provided by (used in) financing activities:
New borrowings.................................... 258,589 125,814 -- 21,000
(Decrease) increase in loans from shareholder..... (6,339) 73,495 595 (1,000)
Payments on notes payable......................... (262,349) (146,586) (14,741) (6,758)
--------- --------- -------- --------
Net cash provided by (used in) financing
activities..................................... (10,099) 52,723 (14,146) 13,242
--------- --------- -------- --------
Net (decrease) increase in cash..................... (24,501) 21,000 4,615 (22,604)
Cash, beginning..................................... 32,758 8,257 8,257 29,257
--------- --------- -------- --------
Cash, ending........................................ $ 8,257 $ 29,257 $ 12,872 $ 6,653
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE> 91
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company develops, sells, installs and services computer software for
the medical industry. The Company also sells computer hardware and supplies.
Costs of sales are included in operating costs and expenses.
REVENUE RECOGNITION
Revenue from sales of hardware and software is recognized when products are
delivered. Revenue from maintenance and support service contracts is recognized
ratably over the contract period. Revenue from other services is recorded when
the service is performed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful life of the assets using straight-line methods. Gains and
losses arising from disposal of property and equipment are included in income.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the years ended December
31, 1995, and 1996, the Company capitalized approximately $163,000 and $141,000,
respectively, of software development costs. Amortization of capitalized
software development costs for the years ended December 31, 1995, and 1996, was
approximately $172,000 and $142,000, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this approach, deferred income taxes are provided for the temporary differences
between the book and tax bases of assets and liabilities using currently enacted
tax rates. Changes in tax laws or rates are recognized in the deferred tax
balances when enacted.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-43
<PAGE> 92
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. Such instruments are reported
at values which the Company believes are not materially different from their
fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at March
31, 1997 and its results of operations and its cash flows for the three months
ended March 31, 1996 and 1997. The results of operations and its cash flows for
the interim periods are not necessarily indicative of the results to be excepted
for the full year.
2. INCOME TAXES
Deferred income taxes relate to temporary differences between financial and
income tax reporting and relate primarily to the Company reporting on a cash
basis for income tax purposes.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... -- --
-------- --------
Total current..................................... -- --
-------- --------
Deferred
Federal................................................... (4,423) (9,000)
State..................................................... (1,105) (2,000)
-------- --------
Total deferred.................................... (5,528) (11,000)
-------- --------
$ (5,528) $(11,000)
======== ========
</TABLE>
F-44
<PAGE> 93
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current:
Deferred income tax assets
Book over tax basis in receivables, net of deferred
revenues, payables and accrued expenses................ $ 47,000 $ 62,000
-------- --------
Noncurrent:
Deferred income tax assets (liabilities)
Net operating loss........................................ 1,000 5,000
Tax credit carryforwards.................................. 81,000 75,000
Book over tax basis in capitalized software............... (77,000) (79,000)
-------- --------
5,000 1,000
-------- --------
Net deferred income tax assets.............................. $ 52,000 $ 63,000
======== ========
</TABLE>
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Expected tax expense (benefit).............................. $ 10,005 $(26,014)
Increase (decrease) in income taxes resulting from:
State income taxes........................................ 1,765 (3,902)
Effect of graduated rates................................. (11,119) 14,958
Other, net................................................ (6,179) 3,958
-------- --------
Net income taxes (benefit).................................. $ (5,528) $(11,000)
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Furniture and equipment..................................... $531,222 $560,800
Transportation equipment.................................... 40,587 40,587
-------- --------
571,809 601,387
Less accumulated depreciation............................... 439,437 485,403
-------- --------
$132,372 $115,984
======== ========
</TABLE>
4. NOTES PAYABLE
Notes payable consist of a $75,000 outstanding balance on a credit line of
$100,000, plus various installment notes. The credit line matures May 1997,
bears interest at prime plus 2.00% and is secured by
F-45
<PAGE> 94
MILLARD-WAYNE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
certain property and equipment and guarantee of the Company's stockholder.
Interest on the installment notes is at normal market rates for these types of
obligations.
Principal maturities on the note obligations are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------ --------
<S> <C>
1997........................................................ $127,868
1998........................................................ 10,881
1999........................................................ 7,055
2000........................................................ 578
--------
$146,382
========
</TABLE>
5. LEASES
The Company is obligated under terms of operating leases for its office
facilities and certain equipment.
Future minimum payments under these operating leases, which expire in 1997,
totalled $84,000 at December 31, 1996.
Rent expense was approximately $131,000 and $132,000 for the years ended
December 31, 1995 and 1996, respectively.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan for its eligible employees. In addition
to the amount deferred by each employee, the company matches 25% of employee
contributions, up to a maximum amount of 4% of salary on a pay period by pay
period basis. Expense related to this plan was $4,631 and $9,148 for the years
ended December 31, 1995 and 1996, respectively.
7. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire all of the common stock of the Company in
exchange for an estimated $1,100,000 cash and approximately 391,500 shares of
common stock of AMC. An additional 391,500 shares would be contingently issuable
upon meeting certain revenue and/or profit criteria in 1998 and 1999. The sale
is expected to occur in the second quarter of 1997.
F-46
<PAGE> 95
REPORT OF INDEPENDENT CERTIFIED INDEPENDENT PUBLIC ACCOUNTANTS
The Management of
Health Care Division (a division of Info Systems of North Carolina, Inc.)
Charlotte, North Carolina
We have audited the accompanying balance sheets of Health Care Division (a
division of Info Systems of North Carolina, Inc.) as of June 30, 1995 and 1996,
and the related statements of operations and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Health Care Division (a
division of Info Systems of North Carolina, Inc.) as of June 30, 1995 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 8, 1996
F-47
<PAGE> 96
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------- DECEMBER 2,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Accounts receivable, less reserves for uncollectible
accounts of $25,000, $20,000 and $12,000,
respectively.......................................... $1,348,602 $ 325,121 $ 154,376
Work-in-progress......................................... 68,545 18,914 8,902
Prepaid expenses......................................... 40,745 27,438 --
Deferred income tax assets............................... 50,000 24,000 21,000
---------- ---------- ---------
Total current assets............................. 1,507,892 395,473 184,278
---------- ---------- ---------
Property and equipment:
Property and equipment, at cost.......................... 197,277 183,675 193,967
Accumulated depreciation and amortization................ (153,394) (127,689) (133,521)
---------- ---------- ---------
Total property and equipment..................... 43,883 55,986 60,446
---------- ---------- ---------
Capitalized software development costs, net of accumulated
amortization of $161,823, $302,572 and $350,719,
respectively............................................. 269,929 148,679 105,407
---------- ---------- ---------
Total assets..................................... $1,821,704 $ 600,138 $ 350,131
========== ========== =========
LIABILITIES AND DIVISIONAL EQUITY (DEFICIT):
Current liabilities:
Lines-of-credit.......................................... $ 405,808 $ 491,380 $ --
Current portion of long-term debt........................ 152,295 171,518 113,435
Accounts payable and accrued expenses.................... 1,051,580 71,927 59,921
Deferred maintenance and service fees.................... 443,190 535,641 432,324
Income taxes payable..................................... 15,000 14,000 64,000
Customer deposits........................................ 70,361 4,335 3,348
---------- ---------- ---------
Total current liabilities........................ 2,138,234 1,288,801 673,028
Long-term debt, less current portion....................... 270,746 227,362 138,851
Deferred income tax liabilities............................ 92,000 52,000 34,000
---------- ---------- ---------
Total liabilities................................ 2,500,980 1,568,163 845,879
---------- ---------- ---------
Commitments and contingencies
Divisional equity (deficit)................................ (679,276) (968,025) (495,748)
---------- ---------- ---------
Total liabilities and divisional equity
(deficit)...................................... $1,821,704 $ 600,138 $ 350,131
========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 97
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
SIX MONTHS JULY 1,
ENDED 1996 TO
YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 2,
----------------------- ------------ -----------
1995 1996 1995 1996
---------- ---------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Systems and software sales................. $4,675,581 $1,833,211 $1,125,380 $1,346,485
Maintenance and support.................... 2,106,571 2,099,720 1,028,301 695,498
Other...................................... 96,691 104,146 45,004 8,289
---------- ---------- ---------- ----------
Total revenues..................... 6,878,843 4,037,077 2,198,685 2,050,272
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of hardware and certain software
sales................................... 3,345,509 750,242 429,622 1,033,436
Personnel costs............................ 2,107,663 2,167,934 1,118,049 534,307
Other selling, general and administrative
expenses................................ 534,846 452,984 214,874 98,105
Allocated corporate selling, general and
administrative.......................... 595,089 405,455 231,163 153,579
Employee benefit contribution expense...... 170,860 80,044 39,780 34,436
Depreciation and amortization.............. 142,495 147,448 76,476 53,979
---------- ---------- ---------- ----------
Total operating costs and
expenses......................... 6,896,462 4,004,107 2,109,964 1,907,842
---------- ---------- ---------- ----------
Operating income (loss)...................... (17,619) 32,970 88,721 142,430
Other expenses:
Interest expense, net...................... 35,437 29,887 11,950 17,167
---------- ---------- ---------- ----------
Income (loss) before taxes................... (53,056) 3,083 76,771 125,263
Income tax expense (benefit)................. (17,000) -- 37,000 49,000
---------- ---------- ---------- ----------
Net income (loss)............................ $ (36,056) $ 3,083 $ 39,771 $ 76,263
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 98
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
SIX MONTHS JULY 1,
YEAR ENDED JUNE 30, ENDED 1996 TO
---------------------- DECEMBER 31, DECEMBER 2,
1995 1996 1995 1996
--------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)............................. $ (36,056) $ 3,083 $ 39,771 $ 76,263
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization.............. 142,495 147,448 76,476 53,979
Deferred taxes............................. (32,000) (14,000) (21,000) (15,000)
Decrease (increase) in:
Accounts receivable...................... (535,411) 1,023,481 527,757 170,745
Work in progress......................... (35,254) 49,631 34,327 10,012
Prepaid expenses......................... (27,060) 13,307 (7,855) 27,438
Increase (decrease) in:
Accounts payable and accrued expenses.... (6,630) (979,653) (926,387) (12,006)
Deferred maintenance and service fees and
customer deposits..................... 74,249 26,425 140,030 (104,304)
Income taxes payable..................... 15,000 (1,000) 4,000 50,000
--------- ---------- --------- ---------
Net cash provided by (used in) operating
activities................................. (440,667) 268,722 (132,881) 257,127
--------- ---------- --------- ---------
Cash provided by (used in) investing activities:
Purchase of property and equipment, net....... (35,144) (18,803) (146,542) (10,292)
Capitalized software development costs........ (57,552) (19,498) (6,507) (4,875)
--------- ---------- --------- ---------
Net cash used in investing activities......... (92,696) (38,301) (153,049) (15,167)
--------- ---------- --------- ---------
Cash used in financing activities:
Proceeds from (reduction of) lines of credit,
net........................................ 405,808 85,572 42,786 (491,380)
Proceeds from long-term debt.................. 42,172 118,158 124,325 93,925
Repayment of long-term debt................... (304,399) (142,319) (180,171) (240,519)
--------- ---------- --------- ---------
Net cash provided by (used in) financing
activities................................. 143,581 61,411 (13,060) (637,974)
--------- ---------- --------- ---------
Net cash retained (disbursed) by Company........ $(389,782) $ 291,832 $(298,990) $(396,014)
========= ========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 99
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Health Care Division ("HCD"), a division of Info Systems of North Carolina,
Inc., (the "Company") is engaged in designing, programming, licensing,
installing, and supporting hardware and software systems to the medical industry
throughout the United States. HCD has long-term marketing rights to and
ownership of licensed software in various industry segments. The assets and
liabilities of HCD were acquired by American Medcare Corporation on December 3,
1996. Unaudited information is provided for the interim period up to this date
and for the comparable period for 1995.
BASIS OF PRESENTATION
The accompanying financial statements present the financial position,
results of operations and cash flows of HCD. The balance sheets present the
assets and liabilities which are specifically identifiable to HCD and a pro rata
allocation of the Company's long-term debt. The statements of operations include
an allocation of Company general and administrative expenses incurred on behalf
of HCD. Expenses allocated to HCD are allocated based on factors such as ratios
of sales or personnel in HCD to total sales or personnel in consolidated
entities. Company management believes the allocations are reasonable, however,
these allocated expenses are not necessarily indicative of expenses that would
have been incurred by HCD on a stand-alone basis.
REVENUE RECOGNITION
Professional services revenue represents fees for designing, programming,
consulting and other installation services and is recognized as revenue as the
related services are performed, or under the percentage of completion method for
fixed price contracts. Maintenance fees are recognized ratably over the term of
the related contract. Deferred revenues include the unearned portion of all
maintenance and service agreements.
Software licensing fees represent revenues under licensing agreements that
provide customers with the right to use HCD's software products. Certain
agreements also provide for professional services such as installation of the
software and customer training. Software licensing fees are recognized as
revenue when the related software is delivered.
COSTS OF HARDWARE AND CERTAIN SOFTWARE SALES
Costs of hardware and certain software sales include those costs incurred
related to software licensing fees (primarily royalty and referral expenses) and
amounts paid for the purchase of hardware from IBM and other vendors under HCD's
remarketing arrangements.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the years ended June 30,
1995, and 1996, the Company capitalized $57,552 and $19,498, respectively, of
software development costs. Amortization of capitalized software development
costs for the years ended June 30, 1995, and 1996, was $131,383 and $142,548,
respectively.
F-51
<PAGE> 100
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
CUSTOMER DEPOSITS
Customer deposits represent deposits received on licensing agreements and
hardware sales agreements (prior to delivery of the software and hardware) and
the portion of licensing fee revenue relating to installations and customer
training that have not been completed as of year-end.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes.
INCOME TAXES
The Company uses the asset and liability approach where deferred income
taxes are provided for temporary differences between the book and tax bases of
assets and liabilities using the tax rates, under existing legislation, expected
to be in effect at the date temporary differences are expected to reverse. The
effects of changes in tax laws or rates are recognized in deferred tax balances
when enacted.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
HCD sells its systems and services to a wide variety of customers in
several geographic areas. This diversity limits the concentration of credit risk
which may arise from the resultant accounts receivable. The Division had two
customers in 1996 which accounted for approximately $478,000 and $464,000,
respectively, of its revenue and three customers in 1995 which accounted for
approximately $1,915,000, $1,071,000, and $711,000, respectively, of total
revenue.
FAIR VALUE OF FINANCIAL INSTRUMENTS
HCD's financial instruments include accounts receivables, accounts payable,
accrued liabilities and long-term debt. Such instruments are reported at values
which HCD believes are not materially different from their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
F-52
<PAGE> 101
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
This statement required that long-lived assets, including certain
intangibles, held and used by HCD be reviewed for potential impairment. This new
pronouncement did not have a material effect on HCD's financial statements when
adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly HCD's financial position at December 2,
1996 and its results of operations and its cash flows for the six months ended
December 31, 1995 and the period ended December 2, 1996. The results of
operations and its cash flows for the interim periods are not necessarily
indicative of the results to be expected for the full year.
SIGNIFICANT TRANSACTIONS
In fiscal 1995, HCD benefitted from a significant, non-recurring sale of
hardware. Sales, cost of sales and gross profit attributable to this transaction
were approximately $1.2 million, $900,000 and $300,000, respectively. The
customer in this transaction is a continuing customer for service and support in
fiscal 1996; however, hardware sales to this and other customers returned to
levels more typically experienced.
2. PROPERTY AND EQUIPMENT
Property and equipment consists entirely of computer equipment. The Company
does not identify other property and equipment by division and no allocation of
these assets are made for disclosure purposes. Depreciation of non-allocated
assets is included as part of the allocation of corporate expenses.
3. LINES-OF-CREDIT
The Company has a $1,500,000 line-of-credit with a bank that is
collateralized by equipment and various assets and is intended to be used for
general working capital purposes. Interest is payable monthly at either the
bank's prime rate or LIBOR plus 2.25 percent, at the Company's option. The
line-of-credit expires November 30, 1996. The outstanding balance at June 30,
1996, was $1,541,462. There was no outstanding balance at June 30, 1995.
The Company has a $600,000 line-of-credit with IBM for equipment financing
under its remarketing agreement that is due on demand and secured by certain
accounts receivable. IBM may approve borrowings above the $600,000 limit.
Interest is not accrued for the first 30 days; the rate varies from 1.75 percent
to 3.25 percent thereafter. The outstanding balances at June 30, 1995 and 1996,
were $1,664,834 and $641,730, respectively.
The Company's line-of-credit has been allocated to HCD based upon HCD's pro
rata share of total Company revenues.
4. LONG-TERM DEBT
Long-term debt consists of five notes payable to banks and one note payable
to stockholders due in various monthly installments ranging from $1,143 to
$35,000. These notes bear interest at various rates ranging from 7.45% to 9%,
including certain notes which bear interest at variable rates based on the prime
rate or LIBOR. The bank notes are secured by receivables, equipment and vehicles
and mature at various dates through June 1999. One of the bank notes payable and
the note payable to shareholders relate to the
F-53
<PAGE> 102
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's ESOP plan (Note 6). The long-term debt allocation to HCD is based on
its pro rata share of the total revenues and consists of:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Notes payable to banks and shareholders..................... $ 423,041 $ 398,880
Less current portion........................................ (152,295) (171,518)
--------- ---------
$ 270,746 $ 227,362
========= =========
</TABLE>
Scheduled principal repayments on long-term debt at June 30, 1996, are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
- --------
<S> <C>
1997........................................................ $171,518
1998........................................................ 178,616
1999........................................................ 41,362
2000........................................................ 7,384
--------
Total............................................. $398,880
========
</TABLE>
Under the terms of certain of the notes payable, and the line-of-credit the
Company is required to comply with certain covenants, the most restrictive of
which require maintenance of certain financial and operating ratios and a
minimum level of tangible net worth; limit capital expenditures and prohibit the
Company from incurring additional indebtedness. The Company is either in
compliance with all covenants at June 30, 1996, or has obtained appropriate
waivers from the bank.
5. INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Current:
Federal................................................ $ 10,000 $ 9,000
State.................................................. 5,000 5,000
-------- --------
15,000 14,000
-------- --------
Deferred:
Federal................................................ (25,000) (11,000)
State.................................................. (7,000) (3,000)
-------- --------
(32,000) (14,000)
-------- --------
Total........................................... $(17,000) $ --
======== ========
</TABLE>
F-54
<PAGE> 103
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Expected tax expense (benefit)............................ $(18,039) $ 1,048
Increase (decrease) in income taxes resulting from:
State income taxes..................................... (4,112) 1,124
Nondeductible expenses................................. 2,886 3,909
Effect of graduated rates.............................. 2,265 (2,754)
Other.................................................. -- (3,327)
-------- -------
$(17,000) $ --
======== =======
</TABLE>
Deferred income tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1995 1996
------- -------
<S> <C> <C>
Deferred income tax liability
Book over tax basis in capitalized software............... $92,000 $52,000
======= =======
Deferred income tax assets
Accounts receivable....................................... $ 9,000 $ 7,000
Accrued vacation.......................................... 17,000 16,000
Customer deposits......................................... 24,000 1,000
------- -------
$50,000 $24,000
======= =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
HCD's employees are covered under benefit plans established by the Company,
including a 401(k) profit sharing plan and an Employee Stock Ownership Plan
(ESOP). Eligibility for participation is based on age and length of service.
In connection with the ESOP's purchase of the Company's common stock, the
Company entered into certain notes payable, made a cash contribution to the ESOP
and obligated itself to make contributions to the ESOP sufficient to enable the
ESOP to service its debt. HCD's allocation of long-term debt includes an
allocation of ESOP debt.
Costs incurred by the Company under these benefit plans have been allocated
to HCD pro rata based on the number of employees.
7. COMMITMENTS AND CONTINGENCIES
HCD markets, licenses, and supports software packages under license and
distributorship agreements. These agreements require HCD to pay agreed-upon
royalties on each sale of a software package as well as certain minimum
royalties over various terms of the agreements. Royalty expense amounted to
approximately $55,000 and $21,000 in fiscal 1995 and 1996, respectively.
The Company has several operating leases for office space and equipment,
including that used by HCD, under one to seven year leases that are accounted
for as operating leases. In conjunction with the acquisition of HCD (Note 8),
operations of HCD will be moved to another location. HCD will not be responsible
for
F-55
<PAGE> 104
HEALTH CARE DIVISION
(A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
obligations under the existing leases after the relocation. Rent expense
allocated to HCD totalled $117,446 and $133,334 in fiscal 1995 and 1996,
respectively.
The Company is involved in various lawsuits arising in the normal course of
business. Management believes that such matters will not have a material effect
on the financial condition of HCD, its liquidity or operating results.
8. DIVISIONAL EQUITY (DEFICIT)
Divisional equity (deficit) reflects the historical activity between HCD
and the Company, including the effect of allocations of the Company's lines of
credit and long-term debt. An analysis of the change in divisional equity
(deficit) follows:
<TABLE>
<CAPTION>
1995 1996
----------- ---------
<S> <C> <C>
Balance, July 1............................................. $(1,033,002) $(679,276)
Net income (loss)......................................... (36,056) 3,083
Net cash (to) from Company................................ 389,782 (291,832)
----------- ---------
Balance, June 30............................................ $ (679,276) $(968,025)
=========== =========
</TABLE>
F-56
<PAGE> 105
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Rovak, Inc.
Lake Elmo, Minnesota
We have audited the accompanying balance sheets of Rovak, Inc., as of
December 31, 1995 and 1996, and the related statements of operations and
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rovak, Inc. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 17, 1997
F-57
<PAGE> 106
ROVAK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $10,000................................... $ 207,196 $ 159,233 $ 244,867
Inventory................................................ 428,990 180,325 191,233
Notes receivable -- stockholders......................... 105,862 288,090 537,815
Other current assets..................................... 33,794 96,963 107,539
---------- ----------- ----------
Total current assets............................. 775,842 724,611 1,081,454
Deferred income taxes...................................... 235,000 185,000 140,000
Property and equipment, net................................ 188,080 382,465 358,424
Prepaid royalties.......................................... 116,993 221,218 221,218
---------- ----------- ----------
Total assets..................................... $1,315,915 $ 1,513,294 $1,801,096
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Checks written in excess of available funds.............. $ 3,949 $ 17,283 $ 26,094
Note payable -- bank..................................... 56,000 233,500 437,500
Accounts payable......................................... 239,179 242,842 338,870
Accrued compensation and payroll taxes................... 82,735 122,390 81,823
Other accrued liabilities................................ 1,557 4,518 1,918
Customer deposits........................................ 154,275 152,210 62,106
Deferred revenue......................................... -- 58,226 170,576
Long-term debt -- current portion........................ 187,473 197,404 190,397
Obligations under capital leases -- current portion...... 25,926 49,479 50,614
---------- ----------- ----------
Total current liabilities........................ 751,094 1,077,852 1,359,898
Notes payable -- stockholders.............................. 124,842 92,971 84,003
Long-term debt............................................. 593,598 407,044 369,982
Obligations under capital leases........................... 72,976 100,913 87,825
---------- ----------- ----------
Total liabilities................................ 1,542,510 1,678,780 1,901,708
---------- ----------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, no par value; 10,000 shares authorized;
8,217 shares issued and outstanding................... 157,919 157,919 157,919
Accumulated deficit...................................... (384,514) (323,405) (258,531)
---------- ----------- ----------
Total stockholders' equity (deficit)............. (226,595) (165,486) (100,612)
---------- ----------- ----------
Total liabilities and stockholders' equity
(deficit)...................................... $1,315,915 $ 1,513,294 $1,801,096
========== =========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-58
<PAGE> 107
ROVAK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Systems and software sales.................... $2,694,785 $3,246,036 $ 773,044 $ 834,912
Maintenance and support services.............. 503,353 864,604 191,331 170,390
Other......................................... 603,734 743,590 176,522 174,763
---------- ---------- ---------- ----------
Total revenues........................ 3,801,872 4,854,230 1,140,897 1,180,065
Cost of revenues................................ 1,811,047 2,310,587 510,315 463,572
---------- ---------- ---------- ----------
Gross margin.................................... 1,990,825 2,543,643 630,582 716,493
---------- ---------- ---------- ----------
Operating expenses:
Personnel costs............................... 940,919 1,195,684 332,004 323,697
Other selling, general and administrative..... 825,964 801,075 178,494 194,997
Research and development...................... 297,834 237,989 59,733 30,512
Depreciation.................................. 68,341 72,531 18,855 24,041
---------- ---------- ---------- ----------
Total operating expenses.............. 2,133,058 2,307,279 589,086 573,247
---------- ---------- ---------- ----------
Operating income (loss)......................... (142,233) 236,364 41,496 143,246
Interest expense, net........................... 127,853 125,255 37,204 33,372
---------- ---------- ---------- ----------
Income (loss) before taxes...................... (270,086) 111,109 4,292 109,874
Income taxes (benefit).......................... (99,000) 50,000 1,700 45,000
---------- ---------- ---------- ----------
Net (loss) income............................... (171,086) 61,109 2,592 64,874
Accumulated deficit, beginning.................. (213,428) (384,514) (384,514) (323,405)
---------- ---------- ---------- ----------
Accumulated deficit, ending..................... $ (384,514) $ (323,405) $ (381,922) $ (258,531)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 108
ROVAK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -----------------------
1995 1996 1996 1997
---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating
activities:
Net (loss) income........................... $(171,086) $ 61,109 $ 2,592 $ 64,874
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation............................. 68,341 72,531 18,855 24,041
(Increase) decrease in assets:
Accounts receivable.................... 76,130 47,963 (159,424) (85,634)
Inventory.............................. (65,255) 248,665 (28,878) (10,908)
Prepaid royalties...................... -- (104,225) -- --
Other current assets................... (2,705) (63,169) (1,507) (10,576)
Deferred income taxes.................. (99,000) 50,000 1,700 45,000
Increase (decrease) in liabilities:
Accounts payable....................... 11,746 3,663 (12,215) 96,028
Accrued expenses....................... 53,786 42,616 (17,597) (43,167)
Customer deposits...................... 60,394 (2,065) 52,499 (90,104)
Deferred revenue....................... -- 58,226 110,326 112,350
Net (increase) decrease in notes
receivable -- stockholders.......... (27,791) (182,228) -- (249,725)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................... (95,440) 233,086 (33,649) (147,821)
--------- --------- --------- ---------
Cash (used in) investing activity:
Purchase of property and equipment.......... (25,482) (184,676) (1,814) --
--------- --------- --------- ---------
Cash provided by (used in) financing
activities:
Checks written in excess of available
funds.................................... 3,949 13,334 6,656 8,811
Increase in credit line..................... 594,038 1,002,859 228,000 321,947
Decreases in credit line.................... (638,038) (825,359) (150,000) (117,947)
Repayment of note payable -- stockholders... (31,529) (31,871) (6,818) (8,968)
Issuance of long-term debt.................. 330,350 -- -- --
Repayment of long-term debt................. (117,883) (176,623) (42,375) (44,069)
Repayment of capital lease obligations...... (24,240) (30,750) -- (11,953)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................... 116,647 (48,410) 35,463 147,821
--------- --------- --------- ---------
Net (decrease) in cash........................ (4,275) -- -- --
Cash, beginning............................... 4,275 -- -- --
--------- --------- --------- ---------
Cash ending................................... $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 109
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ORGANIZATION
Rovak, Inc., (the "Company") is a Minnesota corporation engaged in the
design, development, marketing, installation and servicing of its proprietary
healthcare practice management software systems and related computer equipment
to clinics located throughout the United States.
REVENUE RECOGNITION
Revenue on computer system sales and software license fees is recognized
when the system is shipped. Revenue for maintenance and support is deferred and
recognized ratably over the period to which it relates.
INVENTORIES
Inventories are stated at cost and represent computer systems and
replacement parts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method and is charged to expense based on the estimated useful
lives of the assets.
Expenditures for additions and improvements are capitalized, while repairs
and maintenance are expensed as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Accounts receivable
arise from sale of practice management systems to the Company's customer base
located throughout the United States. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral from its customers. The Company's credit losses are subject to
general economic conditions of the health care industry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumption about the future outcome of current transactions which may affect the
reporting and disclosure of these transactions. Accordingly, actual results
could differ from those estimates used in the preparation of these financial
statements.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes,
if any. Deferred taxes represent the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
receivable, notes receivable, accounts payable, notes payable, and long term
debt. Accounts receivable and accounts payable are short term in nature,
accordingly, carrying value is deemed to approximate fair value. The notes
payable to bank, including both the short-term line of credit and long-term
loans, bear interest at rates which vary with current
F-61
<PAGE> 110
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
market conditions, accordingly, carrying values are deemed to approximate fair
value. Notes receivable and payable with stockholders bear interest at fixed
rates ranging between 8% and 10% which, based on their terms and their current
interest rates in the market, are deemed to approximate fair value.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement requires that long-lived assets, including certain
intangibles, held and used by the Company be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements when adopted.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at March
31, 1997 and its results of operations and its cash flows for the three months
ended March 31, 1996 and 1997. The results of operations and its cash flows for
the interim periods are not necessarily indicative of the results to be expected
for the full year.
2. NOTES RECEIVABLE -- STOCKHOLDERS
Notes receivable -- stockholders aggregated $105,862 and $288,090 at
December 31, 1995 and 1996, respectively. The notes bear interest at 8%, are due
upon demand and are unsecured.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE -------------------
IN YEARS 1995 1996
----------- -------- --------
<S> <C> <C> <C>
Furniture and fixtures................................. 5-7 $ 35,490 $ 45,415
Computer equipment..................................... 5 151,162 297,738
Office equipment....................................... 7 115,008 115,567
Equipment under capital lease.......................... 5-7 135,456 217,696
Leasehold improvements................................. 5-7 32,272 59,888
-------- --------
469,388 736,304
Less accumulated depreciation.......................... 281,308 353,839
-------- --------
Property and equipment, net............................ $188,080 $382,465
======== ========
</TABLE>
Depreciation expense, including that on equipment under capital lease, was
$68,341 and $72,531 in 1995 and 1996, respectively. Accumulated depreciation on
the equipment under capital leases was $38,379 and $70,923 at December 31, 1995
and 1996, respectively.
4. NOTE PAYABLE -- BANK
At December 31, 1995 and 1996, the Company had outstanding short-term
borrowings of $56,000 and $233,500, respectively, under a bank line of credit
totalling $200,000 and $500,000, respectively. The unused portion of the line of
credit was $144,000 at December 31, 1995 and was $266,500 at December 31, 1996.
The
F-62
<PAGE> 111
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
line of credit accrues interest monthly at a variable rate (8.75% at December
31, 1996) and is collateralized by a first security interest of substantially
all corporate assets.
5. NOTES PAYABLE -- STOCKHOLDERS
Notes payable -- stockholders aggregated $124,842 and $92,971 at December
31, 1995 and 1996, respectively. The notes bear interest at 10%, are due in 1999
and are collateralized by substantially all assets subordinated to the note
payable -- bank and long-term debt.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Notes payable -- bank bearing interest at a variable rate
(10.25% at September 30, 1996) and due in monthly
installments at various dates through November 2000. The
notes are collateralized by a first security interest in
substantially all corporate assets........................ $ 781,071 $ 604,448
Less current portion...................................... (187,473) (197,404)
--------- ---------
Long-term debt.............................................. $ 593,598 $ 407,044
========= =========
YEAR ENDING DECEMBER 31:
1997...................................................... $ 197,404
1998...................................................... 201,350
1999...................................................... 132,425
2000...................................................... 73,269
---------
$ 604,448
=========
</TABLE>
7. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain office equipment under capital leases expiring
at various dates through May 2001. Future minimum lease payments as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1997...................................................... $ 61,550
1998...................................................... 61,550
1999...................................................... 41,688
2000...................................................... 5,976
Thereafter................................................ 2,490
--------
Total minimum lease payments...................... 173,254
Less amount representing interest........................... (22,862)
--------
Present value of net minimum lease payments................. 150,392
Less current portion........................................ (49,479)
--------
Long-term portion........................................... $100,913
========
</TABLE>
F-63
<PAGE> 112
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its corporate offices and operating facilities under an
operating lease with a corporation related through common control.
The aggregate future minimum lease payments as of December 31, 1996 are as
follows for:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1997...................................................... $ 90,000
1998...................................................... 90,000
1999...................................................... 90,000
2000...................................................... 45,000
--------
$315,000
========
</TABLE>
Rent expense was $44,807 and $75,000 in 1995 and 1996, respectively.
401(K) PROFIT-SHARING PLAN
In 1996, the Company established a 401(k) plan available to all employees
meeting certain service requirements. Eligible employees may contribute up to
15% of their annual salary to the plan, subject to certain limitations. The
Company may make matching contributions and also may provide profit-sharing
contributions at the discretion of its board of directors. Employees become
fully vested in the Company contributions after seven years of service. In 1996,
the Company contribution was $17,462.
LICENSE AGREEMENTS
In February 1996, the Company entered into a license agreement with Centaur
Systems, Inc. ("CSI") whereby CSI granted Rovak the exclusive right to license
certain programs owned by CSI, in exchange for future royalty payments on
revenue received by the Company related to maintenance services provided to
CSI's customer base. The royalty is calculated on an annual declining scale
starting at 60% of related revenue for 1996 and ending at 20% of revenue for the
year 2000. During 1996, the Company paid $53,025 of royalties to CSI, of which
$37,881 was prepaid.
In September 1994, the Company entered a license agreement with PCM
Systems, Inc. ("PCM") whereby PCM granted Rovak the exclusive right to license
certain programs owned by PCM, in exchange for future royalty payments equal to
5% of revenue received by the Company related to PCM's line of business,
including any related maintenance fees earned. In addition, the agreement
required a royalty prepayment of $80,000 and minimum monthly royalties of
$3,333, with guaranteed minimum aggregate royalty payments of $280,000 through
August 31, 2001, after which royalties no longer accrue. As of December 31,
1996, $291,171 of royalties have been paid, including $183,337 of prepaid
royalties.
Also in connection with the PCM license agreement, the Company entered into
an employment agreement with an officer/shareholder of PCM, whereby that
individual became employed by Rovak in exchange for base compensation plus a 5%
commission on all revenue earned by Rovak related to PCM's line of business.
This agreement runs through 2001 and may be canceled by either party.
9. RELATED PARTY TRANSACTIONS
During 1995 and 1996, the Company purchased computer forms and supplies
from a corporation owned by a family member of a Company stockholder aggregating
$214,886 and $291,882, respectively. These costs
F-64
<PAGE> 113
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are included in cost of sales in the Company's statement of operations. At
December 31, 1995 and 1996, accounts payable to this related party totalled
$30,020 and $28,682, respectively.
Additionally, the Company leases its operating facility and offices from a
related party (Note 8).
10. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- -------
<S> <C> <C>
Current
Federal................................................... $ -- $ --
State..................................................... -- --
-------- -------
Total current..................................... -- --
-------- -------
Deferred
Federal................................................... (77,000) 45,000
State..................................................... (22,000) 5,000
-------- -------
Total deferred.................................... (99,000) 50,000
-------- -------
$(99,000) $50,000
======== =======
</TABLE>
Deferred tax assets at December 31, 1995 and 1996 of $235,000 and $185,000
relate principally to the anticipated benefit from the Company's $396,000 net
operating loss carryforward which expires in 2011. Other temporary differences
are immaterial.
Income taxes differed from amounts computed by applying the U.S. Federal
income tax statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- -------
<S> <C> <C>
Expected tax (benefit) expense.............................. $(91,830) $37,800
Increase (decrease) in income taxes resulting from:
State income taxes........................................ (16,494) 6,600
Other, net.................................................. 9,324 5,600
-------- -------
Net income tax (benefit) expense............................ $(99,000) $50,000
======== =======
</TABLE>
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
-------- --------
<S> <C> <C>
Cash paid for interest during the years.................... $133,933 $139,780
======== ========
</TABLE>
During 1996, the Company incurred obligations under capital leases
totalling $82,240 in exchange for equipment. In addition, the Company
transferred $133,972 of inventory to equipment.
F-65
<PAGE> 114
ROVAK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medicare
Corporation ("AMC"), whereby AMC would acquire all of the common stock of the
Company in exchange for an estimated $3,000,000 plus contingent consideration of
$815,000 based on earnings subsequent to the transaction. Of the total
consideration, approximately $3,165,000 is payable in cash and the balance by
issuance of common stock. The sale is anticipated to occur in the second quarter
of 1997.
F-66
<PAGE> 115
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
DR Software, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of DR Software, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DR Software, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 17, 1997
F-67
<PAGE> 116
DR SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................... $ 169,834 $ 155,048 $ 198,247
Accounts receivable, net of allowance of $14,000,
$14,000 and $5,900.................................. 262,385 369,715 274,899
Inventory.............................................. 135,587 63,256 84,699
Receivable from stockholder............................ 32,130 46,530 50,130
Other assets........................................... 4,898 25,030 30,561
---------- ---------- ----------
Total current assets........................... 604,834 659,579 638,536
---------- ---------- ----------
Property and equipment:
Office and computer equipment.......................... 340,561 399,030 409,093
Furniture and fixtures................................. 32,771 58,157 58,824
---------- ---------- ----------
Total property and equipment................... 373,332 457,187 467,917
Less accumulated depreciation.................. (243,165) (301,888) (316,357)
---------- ---------- ----------
Net property and equipment..................... 130,167 155,299 151,560
---------- ---------- ----------
Capitalized software development costs, net of
accumulated amortization of $1,070,143, $1,296,324 and
$1,338,994............................................. 514,414 683,515 743,815
---------- ---------- ----------
Total assets................................... $1,249,415 $1,498,393 $1,533,911
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable to bank................................... $ -- $ 70,000 $ 70,000
Accounts payable....................................... 187,377 109,532 68,762
Accrued expenses....................................... 138,050 137,937 151,906
Deferred revenue from software maintenance
agreements.......................................... 881,754 1,045,776 935,723
Customer deposits...................................... -- 46,478 267,659
Current portion of capital lease obligations........... 4,913 8,833 8,855
---------- ---------- ----------
Total current liabilities...................... 1,212,094 1,418,556 1,502,905
---------- ---------- ----------
Capital lease obligations, less current portion.......... 15,227 19,249 17,030
---------- ---------- ----------
Commitments
Stockholders' equity:
Common stock, $1.00 par value; 100,000 shares
authorized; issued and outstanding 50,000 shares in
1995 and 1996 and 51,882 shares in 1997............. 50,000 50,000 51,882
Subscription receivable................................ -- -- (100)
Retained earnings (deficit)............................ (27,906) 10,588 (37,806)
---------- ---------- ----------
Total stockholders' equity..................... 22,094 60,588 13,976
---------- ---------- ----------
Total liabilities and stockholders' equity..... $1,249,415 $1,498,393 $1,533,911
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 117
DR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ --------------------
1995 1996 1996 1997
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
System sales................................. $2,192,378 $1,908,845 $470,569 $403,600
Support and services......................... 1,211,916 1,450,606 366,769 369,894
---------- ---------- -------- --------
Total revenues....................... 3,404,294 3,359,451 837,338 773,494
---------- ---------- -------- --------
Operating expenses:
Salaries and wages........................... 1,461,901 1,585,559 412,049 424,684
Hardware purchases for resale................ 1,073,920 785,173 219,875 174,392
Depreciation and amortization................ 292,641 284,904 79,296 57,138
Rent......................................... 48,191 81,123 12,666 25,202
Travel and entertainment..................... 207,508 184,262 54,891 32,008
Telephone.................................... 120,290 126,196 32,722 28,013
Advertising.................................. 76,790 102,060 13,609 26,115
Other........................................ 135,938 181,025 61,705 25,870
---------- ---------- -------- --------
Total operating expenses............. 3,417,179 3,330,302 886,813 793,422
---------- ---------- -------- --------
Income (loss) from operations.................. (12,885) 29,149 (49,475) (19,928)
Other income (expense):
Interest expense............................. (11,139) (12,447) (2,635) (1,897)
Miscellaneous................................ 11,747 36,792 7,043 (24,787)
---------- ---------- -------- --------
Net income (loss).............................. $ (12,277) $ 53,494 $(45,067) $(46,612)
========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 118
DR SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCK RETAINED TOTAL
COMMON SUBSCRIPTION EARNINGS STOCKHOLDERS'
STOCK RECEIVABLE (DEFICIT) EQUITY
------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Balance, at December 31, 1994....................... $50,000 $ -- $(10,629) $ 39,371
Net loss.......................................... -- -- (12,277) (12,277)
Distributions..................................... -- -- (5,000) (5,000)
------- ------- -------- --------
Balance, at December 31, 1995....................... 50,000 -- (27,906) 22,094
Net income........................................ -- -- 53,494 53,494
Distributions..................................... -- -- (15,000) (15,000)
------- ------- -------- --------
Balance, at December 31, 1996....................... 50,000 -- 10,588 60,588
Stock subscription -- 1,882 shares for $100....... 1,882 (100) (1,782) --
Net loss.......................................... -- -- (46,612) (46,612)
------- ------- -------- --------
Balance, at March 31, 1997.......................... $51,882 $ (100) $(36,024) $ 13,976
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 119
DR SOFTWARE INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ----------------------
1995 1996 1996 1997
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating
activities:
Net income (loss).......................... $ (12,277) $ 53,494 $(45,067) $(46,612)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization........... 292,641 284,904 79,296 57,138
Changes in:
Accounts receivable................... (52,822) (107,330) 15,851 94,816
Inventory............................. (35,874) 72,331 32,229 (21,443)
Other assets.......................... 7,346 (20,132) (24,415) (5,531)
Accounts payable and accrued
expenses........................... 89,370 (77,958) (65,333) (26,801)
Deferred revenue...................... 132,692 164,022 2,286 (110,053)
Customer Deposits..................... -- 46,478 -- 221,181
--------- -------- -------- --------
Net cash provided by (used in) operating
activities.............................. 421,076 415,809 (5,153) 162,695
--------- -------- -------- --------
Cash provided by (used in) investing
activities:
Receivable from stockholder................ (14,400) (14,400) (3,600) (3,600)
Purchase of property and equipment......... (41,314) (69,455) (35,023) (10,730)
Increase in capitalized software
development costs....................... (254,530) (395,282) (35,387) (102,969)
--------- -------- -------- --------
Net cash used in investing activities...... (310,244) (479,137) (74,010) (117,299)
--------- -------- -------- --------
Cash provided by (used in) financing
activities:
Net borrowings under line of credit........ -- 70,000 -- --
Decrease in loans from stockholders........ (10,000) -- -- --
Payments on capital lease obligations...... (4,241) (6,458) (1,165) (2,197)
Distributions paid......................... (5,000) (15,000) -- --
--------- -------- -------- --------
Net cash provided by (used in) financing
activities.............................. (19,241) 48,542 (1,165) (2,197)
--------- -------- -------- --------
Net increase (decrease) in cash.............. 91,591 (14,786) (80,328) 43,199
Cash, beginning.............................. 78,243 169,834 169,834 155,048
--------- -------- -------- --------
Cash, ending................................. $ 169,834 $155,048 $ 89,506 $198,247
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 120
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
DR Software, Inc. (the "Company"), a Georgia corporation, was incorporated
on February 24, 1983. The Company provides turnkey computer hardware and
software systems to physicians. The Company's offices are located in Marietta,
Georgia.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term debt
securities purchased with an initial maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are valued at the lower of cost, which is determined using the
specific identification method, or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements that significantly add to productive capacity or extend the useful
life of an asset are capitalized. Expenditures for maintenance and repairs are
charged to expense accounts currently. When depreciable properties are retired
or otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the resultant gain or loss is reflected in the
Company's statement of income during the applicable period.
For financial statement purposes, depreciation of property and equipment is
computed using the straight-line method of depreciation over the estimated
useful lives of the assets, which range from 5-7 years.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Certain costs incurred in the internal development of computer software and
costs of purchased computer software, which is to be licensed, sold, or
otherwise marketed, are capitalized and amortized on a straight-line basis over
the expected useful life of the individual software products (generally four
years). Development costs include detailed design, prototyping, coding, testing,
documentation, production and quality assurance. Such costs are capitalized once
the product's technological feasibility is established and are expensed after
the product is available for general release. During the years ended December
31, 1995, and 1996, the Company capitalized $254,530 and $395,282, respectively,
of software development costs. Amortization of capitalized software development
costs for the years ended December 31, 1995, and 1996, was $243,752 and
$226,181, respectively.
The Company's operational policy for the assessment and measurement of the
continuing value of capitalized software is to evaluate the recoverability of
the remaining life of its capitalized software and determine whether the
software should be completely or partially written off or the amortization
period accelerated. The Company will recognize an impairment if undiscounted
estimated future cash flows of the capitalized software is determined to be less
than the carrying amount of capitalized software.
REVENUE RECOGNITION
Revenue on computer system sales and software license fees is recognized
when the system is shipped. Revenue for maintenance and support is deferred and
recognized ratably over the period to which it relates.
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
F-72
<PAGE> 121
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a wide variety of
customers in diverse geographic areas. This diversity reduces the concentration
of credit risk which may arise from the resultant accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. Such instruments are reported
at values which the Company believes are not materially different from their
fair values.
VALUE OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" is effective for years beginning after December 15, 1995.
This statement required that long-lived assets, including certain
intangibles, held and used by the Division be reviewed for potential impairment.
This new pronouncement did not have a material effect on the Company's financial
statements.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying (unaudited) interim
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position at March
31, 1997 and its results of its operations and its cash flows for the three
months ended March 31, 1997 and 1996. The results of operations and its cash
flows for the three months ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
2. NOTE PAYABLE
The Company has arranged for a line of credit with a bank in the maximum
amount of $100,000, with interest at the bank's prime rate plus 1.75%. The line
of credit is collateralized by accounts receivable, property and equipment, and
a general assignment of inventory behind IBM Credit Corporation. The line of
credit must remain clear for at least 30 consecutive days during the year, and
is personally guaranteed by certain of the Company's stockholders. The balance
under this line of credit at December 31, 1996, was $70,000.
F-73
<PAGE> 122
DR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITAL LEASE OBLIGATION
The Company leases certain equipment under noncancelable lease agreements,
with monthly payments totalling $965 through July 2000. The following is a
schedule, by years, of the future required payments:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1997........................................................ $11,578
1998........................................................ 11,578
1999........................................................ 8,655
2000........................................................ 1,140
-------
Total future payments............................. 32,951
Less amount representing interest........................... (4,869)
-------
Present value of minimum lease payments..................... $28,082
=======
</TABLE>
4. COMMITMENTS
The Company leases its premises as well as certain office equipment and a
vehicle under noncancellable operating leases which expire at various dates
through 2001.
The remaining obligations under these leases at December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1997........................................................ $114,862
1998........................................................ 121,240
1999........................................................ 126,178
2000........................................................ 133,997
2001........................................................ 33,988
--------
$530,265
========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996, was $48,191 and
$81,123, respectively
5. INCOME TAXES
The Company has elected to be taxed as an "S" Corporation under the
provisions of Subchapter S of the Internal Revenue Code. As such, the profits of
the Company are taxed on the individual income tax returns of the stockholders.
Accordingly, no provision for income taxes has been made in the accompanying
financial statements.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Equipment acquired through capital leases totalled $0 and $14,400 in 1995
and 1996, respectively. Cash paid for interest during 1995 and 1996 was $11,139
and $12,447, respectively.
7. SUBSEQUENT EVENT
The Company has entered into negotiations with American Medcare Corporation
("AMC"), whereby AMC would acquire all of the common stock of the Company in
exchange for an estimated $3,000,000. Of the total consideration approximately
$2,100,000 is payable in cash and the balance by issuance of common stock. The
sale is anticipated to occur in the second quarter of 1997.
F-74
<PAGE> 123
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 13
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Pro Forma Combined Financial
Data................................ 22
Management's Discussion and Analysis
of Pro Forma Combined Financial
Condition and Pro Forma Combined
Results of Operations............... 24
Selected Financial Data of AMC........ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of AMC................ 27
Business.............................. 29
Management............................ 37
Principal Stockholders................ 41
Certain Transactions.................. 41
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Available Information................. 46
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
[INFOCURE LOGO]
INFOCURE CORPORATION
2,000,000 SHARES
COMMON STOCK
--------------------
PROSPECTUS
--------------------
JOSEPHTHAL LYON & ROSS
INCORPORATED
CRUTTENDEN ROTH
INCORPORATED
, 1997
======================================================
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers provided that this provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise. The
Company's By-laws provide that the Company will indemnify its directors,
executive officers, other officers, employees and agents to the fullest extent
permitted by Delaware law.
Article Eight of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he 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 conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are as follows:
<TABLE>
<S> <C>
SEC filing fee.............................................. $ 8,467
AMEX Listing Fees........................................... 30,000
NASD filing fee............................................. 3,294
Accounting fees and expenses................................ 325,000
Legal fees and expenses..................................... 200,000
Blue Sky fees and expenses.................................. 35,000
Printing and engraving...................................... 300,000
Transfer Agent's and Registrar's fees....................... 5,000
Miscellaneous expenses...................................... 8,239
-----------
Total............................................. $ 915,000
===========
</TABLE>
Approximately $215,000 has been paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended (the "Securities Act"): On December 3, 1996, Frederick
L. Fine and James K. Price, President and Executive Vice President of the
II-1
<PAGE> 125
Company respectively, each purchased fifty shares of Common Stock at $.01 per
share. The sale was exempt from registration under Section 4(2) of the
Securities Act of 1933.
ITEM 27. EXHIBITS.
<TABLE>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement and Form of Warrant
2.3 -- Agreement of Merger dated May , 1997 between InfoCure
Corporation and American Medcare Corporation
3.3 -- Amendment to Certificate of Incorporation dated May 8, 1997
10.26 -- Amendment dated May 5, 1997 among the Company and the
Shareholders of Rovak
10.27 -- Draft of Plan of Merger dated May 5, 1997 among the Company,
CMA Corporation, the Shareholders of KComp and KComp.
10.28 -- Amendment dated May 5, 1997 among the Company and
Shareholders of DR Software
10.29 -- Amendment dated May 5, 1997 among AMC and Shareholders of
Millard-Wayne
10.30A* -- Form of Lock-Up Agreement -- Six Months
10.30B* -- Form of Lock-Up Agreement -- Nine Months
23.5 -- Consent of BDO Seidman, LLP
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering. The undersigned Registrant will file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, an increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers. The
undersigned Registrant will provide to the underwriter at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(c) Indemnification. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the provisions referred to in Item 24 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
II-2
<PAGE> 126
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) Request for Acceleration of Effective Date. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
(e) Rule 430A. The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective;
2. For any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that the offering of the securities at that time as the
initial bona fide offering of those securities.
II-3
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and authorized this Post Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Atlanta, State of Georgia, on the 9th day of May,
1997.
INFOCURE CORPORATION
By: /s/ FREDERICK L. FINE
------------------------------------
Frederick L. Fine,
Chairman of the Board of Directors,
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated and on May 9, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ FREDERICK L. FINE Chairman of the Board of
- ----------------------------------------------------- Directors, President and
Frederick L. Fine Chief Executive Officer
/s/ JAMES K. PRICE Director and Executive Vice
- ----------------------------------------------------- President
James K. Price
/s/ MICHAEL WARREN Director and Chief Financial
- ----------------------------------------------------- Officer
Michael Warren
JAMES D. ELLIOT* Director
- -----------------------------------------------------
James D. Elliot
RICHARD E. PERLMAN* Director
- -----------------------------------------------------
Richard E. Perlman
/s/ FREDERICK L. FINE
- -----------------------------------------------------
Frederick L. Fine,
Attorney-in-Fact
</TABLE>
- ---------------
* By Power of Attorney
II-4
<PAGE> 128
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement and Form of Warrant..........
2.3 -- Agreement of Merger dated May , 1997 between InfoCure
Corporation and American Medcare Corporation................
3.3 -- Amendment to Certificate of Incorporation dated May 8,
1997........................................................
10.26 -- Amendment dated May 5, 1997 among the Company and the
Shareholders of Rovak
10.27 -- Draft of Plan of Merger dated May 5, 1997 among the Company,
CMA Corporation, the Shareholders of KComp and KComp. ......
10.28 -- Amendment dated May 5, 1997 among the Company and the
Shareholders of DR Software.................................
10.29 -- Amendment dated May 5, 1997 among AMC and the Shareholders
of Millard-Wayne............................................
10.30A* -- Form of Lock-Up Agreement -- Six Months.....................
10.30B* -- Form of Lock-Up Agreement -- Nine Months....................
23.5 -- Consent of BDO Seidman, LLP.................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
2,000,000 SHARES
INFOCURE CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
_______ __, 1997
Josephthal Lyon & Ross Incorporated
Cruttenden Roth Incorporated
c/o Josephthal Lyon & Ross Incorporated
200 Park Avenue, 24th Floor
New York, New York 10166
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
InfoCure Corporation, a Delaware corporation (the "Company"), proposes
to sell to you and the other underwriters named in Schedule I attached hereto
(the "Underwriters"), for whom you are acting as the representatives (the
"Representatives"), an aggregate of 2,000,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), all of
which are to be issued and sold by the Company. In addition, those certain
stockholders of the Company set forth on Schedule II attached hereto (the
"Selling Stockholders"), propose to grant to the Underwriters an option to
purchase up to an additional 300,000 shares of Common Stock (the "Option
Shares") solely for the purpose of covering over-allotments in connection with
the sale of the Firm Shares. The obligation of each Selling Stockholder to sell
Option Shares to the Underwriters under this Agreement shall be as set forth
opposite his name on Schedule II attached hereto. The Firm Shares and the Option
Shares are together called the "Shares."
<PAGE> 2
1. Sale and Purchase of the Shares.
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to issue and sell the Firm Shares
to the several Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase at the purchase price per share
of Common Stock of $_____ (the "Initial Price"), the aggregate number
of Firm Shares set forth opposite such Underwriter's name on Schedule I
attached hereto. The Underwriters agree to offer the Firm Shares to the
public as set forth in the Prospectus (as hereinafter defined).
(b) The Selling Stockholders grant to the several
Underwriters an option to purchase, severally and not jointly, all or
any part of the number of the Option Shares at the Initial Price. The
number of Option Shares to be purchased by each Underwriter shall be
the same percentage (adjusted by the Representatives to eliminate
fractions) of the total number of Option Shares to be purchased by the
Underwriters as such Underwriter is purchasing of the Firm Shares. Such
option may be exercised only to cover over-allotments in the sales of
the Firm Shares by the Underwriters and may be exercised in whole or in
part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as hereinafter
defined), and from time to time thereafter within 30 days after the
date of this Agreement, upon written, telecopy or telegraphic notice,
or verbal or telephonic notice confirmed by written, telecopy or
telegraphic notice, by the Representatives to the Company no later than
12:00 noon, New York City time, on the business day before the Firm
Shares Closing Date or at least two business days before any Option
Shares Closing Date (as hereinafter defined), as the case may be,
setting forth the number of Option Shares to be purchased and the time
and date (if other than the Firm Shares Closing Date) of such purchase.
(c) On the Firm Shares Closing Date (as defined below),
the Company shall issue and sell to Josephthal Lyon & Ross Incorporated
("Josephthal") and Cruttenden Roth Incorporated ("Cruttenden"),
individually and not as Representatives of the Underwriters, for an
aggregate purchase price of $.001 per warrant, warrants representing
the right of the Representatives to purchase an aggregate number of
shares of Common Stock (the "Warrant Shares") equal to 10% of the Firm
Shares (which warrants shall be evidenced in the form set forth as an
exhibit to the Registration Statement) (the "Representatives'
Warrants"). The Representatives' Warrants shall be allocated between
each of the Representatives as the Company shall be advised in writing
by Josephthal.
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<PAGE> 3
2. Delivery and Payment.
Delivery by the Company of the Firm Shares to the
Representatives for the respective accounts of the Underwriters, and
payment of the purchase price by certified or official bank check or
checks payable in New York Clearing House (next day) funds or same-day
wire transfer to the Company, as designated in writing by the Company
no later than two business days before the Firm Shares Closing Date (as
hereinafter defined), shall take place at the offices of Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York 10176, at 10:00 a.m., New York City time, on the third business
day following the date on which the public offering of the Shares
commences (unless such date is postponed in accordance with the
provisions of Section 10(b) hereof), or at such time and place on such
other date, not later than ten business days after the date of this
Agreement, as shall be agreed upon by the Company and the
Representatives (such time and date of delivery and payment are called
the "Firm Shares Closing Date"). The public offering of the Shares
shall be deemed to have commenced at the earlier of (a) the time, after
the Registration Statement (as hereinafter defined in Section 4)
becomes effective, of the release by you for publication of the first
newspaper advertisement which is subsequently published relating to the
Firm Shares or (b) the time, after the Registration Statement becomes
effective, when the Firm Shares are first released by you for offering
by the Underwriters or dealers by letter, telecopy or telegram.
In the event the option with respect to the Option Shares is
exercised, delivery by the Selling Stockholders of the Option Shares to
the Representatives for the respective accounts of the Underwriters and
payment of the purchase price by certified or official bank check or
checks payable in New York Clearing House (next day) funds or same-day
wire transfer to the Selling Stockholders, as designated in writing by
the Company no later than two business days before the Option Shares
Closing Date (as hereinafter defined), shall take place at the offices
of Josephthal, at the address specified above, or such other place as
the parties may mutually agree upon, at the time and on the date (which
may be the same date as, but in no event shall be earlier than, the
Firm Shares Closing Date) specified in the notice referred to in
Section 1(b) (such time and date of delivery and payment is called the
"Option Shares Closing Date(s)"). The Firm Shares Closing Date and the
Option Shares Closing Date(s) are called, individually, a "Closing
Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such
names and shall be in such denominations as the Representatives shall
request at least two business days before the Firm Shares Closing Date
or the Option Shares Closing Date(s), as the case may be, and shall be
made available to the Representatives for checking and packaging, at
such place as is designated by the Representatives, on the business day
before the Firm Shares Closing Date or the Option Shares Closing
Date(s), as the case may be.
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<PAGE> 4
3. Public Offering.
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Shares, as set forth in
and pursuant to the Prospectus (as hereinafter defined in Section 4), as soon
after the effective date of the Registration Statement and the date of this
Agreement as the Representatives deem advisable. The Company and the Selling
Stockholders hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each preliminary prospectus
and are authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).
4. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees
with, the several Underwriters that:
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
statement, and may have filed one or more amendments thereto,
on Form SB-2 (Registration No. 333-18923), including in such
registration statement, and each such amendment, a related
preliminary prospectus (a "Preliminary Prospectus"), for the
registration of the Firm Shares and the Option Shares, in
conformity with the requirements of the Securities Act of 1933
(the "Act"). The Company may also file a related registration
statement with the Commission pursuant to Rule 462(b) under
the Act for the purpose of registering certain additional
Shares, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original
Registration Statement" means such registration statement, as
amended, on file with the Commission at the time such
registration statement becomes effective (including the
prospectus, financial statements, exhibits, and all other
documents filed as a part thereof or incorporated by reference
directly or indirectly therein), provided that such
registration statement, at the time it becomes effective, may
omit such information as is permitted to be omitted from a
registration statement when it becomes effective pursuant to
Rule 430A of the General Rules and Regulations promulgated
under the Act (the "Regulations"), which information ("Rule
430A Information") shall be deemed to be included in such
registration statement when a final prospectus is filed with
the Commission in accordance with Rules 430A and 424(b)(1) or
(4) of the Regulations; the term "Rule 462(b) Registration
Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) under the Act (including
the Original Registration Statement and any Preliminary
Prospectus or Prospectus incorporated therein at the time the
Original Registration Statement becomes effective); the term
"Registration Statement" includes both the Original
Registration Statement and any Rule 462(b) Registration
Statement; the term "Preliminary Prospectus"
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<PAGE> 5
means each prospectus included in the Registration Statement,
or any amendments thereto, before it becomes effective under
the Act, the form of prospectus omitting Rule 430A Information
included in the Registration Statement when it becomes
effective, if applicable (the "Rule 430A Prospectus"), and any
prospectus filed by the Company with your consent pursuant to
Rule 424(a) of the Regulations; and the term "Prospectus"
means the final prospectus included as part of the
Registration Statement, except that if the prospectus relating
to the securities covered by the Registration Statement in the
form first filed on behalf of the Company with the Commission
pursuant to Rule 424(b) of the Regulations shall differ from
such final prospectus, the term "Prospectus" shall mean the
prospectus as filed pursuant to Rule 424(b) from and after the
date on which it shall have first been used.
(ii) When the Registration Statement becomes
effective, and at all times subsequent thereto to and
including the Closing Dates, and during such longer period as
the Prospectus may be required to be delivered in connection
with sales by the Underwriters or a dealer, and during such
longer period until any post-effective amendment thereto shall
become effective, the Registration Statement (and any
post-effective amendment thereto) and the Prospectus (as
amended or as supplemented if the Company shall have filed
with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will contain all
statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is included in the
Registration Statement at the time it becomes effective, the
Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4)
will contain all Rule 430A Information; and each Preliminary
Prospectus, as of the date filed with the Commission, did not
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
except that no representation or warranty is made in this
Section 4(a)(ii) with respect to statements or omissions made
in reliance upon and in conformity with written information
furnished to the Company as stated in Section 7(c) with
respect to any Underwriter by or on behalf of such Underwriter
through the Representatives expressly for inclusion in any
Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto.
(iii) If the Company has elected to rely on Rule
462(b) and the Rule 462(b) Registration Statement has not been
declared effective, then (i) the
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<PAGE> 6
Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to
Rule 462(b) and has received confirmation of its receipt and
(ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 promulgated under the Act or the
Commission has received payment of such filing fee.
(iv) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction has issued an order
(a "Stop Order") suspending the effectiveness of the
Registration Statement, preventing or suspending the use of
any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Firm
Shares or the Option Shares nor has any of such authorities
instituted or threatened to institute any proceedings with
respect to a Stop Order.
(v) Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract, agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration
Statement.
(vi) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority,
and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to carry on its business as now being conducted and
in the manner described in the Prospectus. The Company does
not own, lease or license any property or conduct any business
outside the United States of America. The Company has no
subsidiary or subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture,
association or other business organization, except for those
listed on Schedule III attached hereto, those permitted to be
excluded pursuant to Item 601, Exhibit 21 of Regulation S-B
and, on or after the Firm Shares Closing Date, the Founding
Businesses (as hereinafter defined) (each such corporation a
"Subsidiary" and collectively, the "Subsidiaries"). Each of
the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, as listed on Schedule III
attached hereto or, with respect to the Founding Businesses on
or after the Firm Shares Closing Date, as listed on Schedule
IV hereto. Each of the Company and the Subsidiaries is duly
qualified and in good standing as a foreign
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<PAGE> 7
corporation in each jurisdiction in which the character or
location of its or any of their properties (owned, leased or
licensed) or the nature of its or any of their businesses
makes such qualification necessary except for such
jurisdictions where the failure to so qualify would not,
either singly or in the aggregate, have a material adverse
effect on the assets or properties, business, financial
condition or results of operations of the Company or any of
the Subsidiaries.
(vii) The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, of which
___________ shares are outstanding, and 5,000,000 shares of
preferred stock, par value $.001 per share (the "Preferred
Stock"), none of which shares are outstanding. Each
outstanding share of Common Stock and each outstanding share
of capital stock of each Subsidiary has been duly and validly
authorized and issued, fully paid, and is non-assessable,
without any personal liability attaching to the ownership
thereof and has not been issued and is not owned or held in
violation of any preemptive rights of stockholders. There is
no commitment, plan, preemptive right or arrangement to issue,
and no outstanding option, warrant, or other right calling for
the issuance of, shares of capital stock of the Company or of
any Subsidiary or any security or other instrument which by
its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company or of any
Subsidiary, except as may be properly described in the
Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into or
exchangeable for capital stock of the Company or of any
Subsidiary, except as may be properly described in the
Prospectus.
(viii) The financial statements of the Company and
each of the Founding Businesses included in the Registration
Statement and the Prospectus fairly present in all material
respects, with respect to the Company and each of the Founding
Businesses, the financial position, the results of operations,
and the other information purported to be shown therein at the
respective dates and for the respective periods to which they
apply. Such financial statements have been prepared in
accordance with generally accepted accounting principles
(except to the extent that certain footnote disclosures
regarding any stub period may have been omitted in accordance
with the applicable rules of the Commission under the
Securities Exchange Act of 1934 (the "Exchange Act"))
consistently applied throughout the periods involved and are
in accordance with the books and records of the Company and
the Founding Businesses, as applicable. The accountants whose
reports on the audited financial statements of the Company and
the Founding Businesses are filed with the Commission as a
part of the Registration Statement are, and during the periods
covered by their report(s) included in the Registration
Statement and the Prospectus were, independent certified
public accountants with respect to the Company and each of the
Founding Businesses within the meaning of the Act and the
Regulations. No other financial statements
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<PAGE> 8
are required by Form SB-2 or otherwise to be included in the
Registration Statement or the Prospectus. There has at no time
been a material adverse change in the financial condition,
results of operations, business, properties, assets,
liabilities, or future prospects of the Company or any of the
Founding Businesses from the latest information set forth in
the Registration Statement or the Prospectus, except as may be
properly described in the Prospectus.
(ix) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or before any public body or
board pending, threatened, or in prospect (or any basis
therefor) with respect to the Company or any Subsidiary, or
any of its respective operations, business, properties, or
assets, except as may be properly described in the Prospectus
or such as individually or in the aggregate do not now have
and will not in the future have a material adverse effect upon
the operations, business, properties, assets or financial
condition of the Company or any Subsidiary. Neither the
Company nor any Subsidiary is involved in any labor dispute,
nor is such dispute threatened, which dispute would have a
material adverse effect upon the operations, business,
properties, assets or financial condition of the Company or
any of the Subsidiaries. Neither the Company nor any
Subsidiary is in violation of, or in default with respect to,
any law, rule, regulation, order, judgment, or decree which
violation or default would have a material adverse effect upon
the operations, business, properties, assets or financial
condition of the Company or any Subsidiary; nor is the Company
or any Subsidiary required to take any action in order to
avoid any such violation or default.
(x) Except as described in the Prospectus, neither
the Company nor any Subsidiary maintains, sponsors or
contributes to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan," or
a "multiemployer plan" as such terms are defined in Sections
(2), 3(1) and 3(37), respectively, of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (the
foregoing are collectively, "ERISA Plans"). Neither the
Company nor any Subsidiary maintains or contributes, now or at
any time previously, to a defined benefit plan, as defined in
Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the
Code, which could subject the Company or any Subsidiary to any
tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance
with all material reporting, disclosure and other requirements
of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such
ERISA Plan and the attendant trust are
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<PAGE> 9
qualified thereunder. Neither the Company nor any Subsidiary
has ever completely or partially withdrawn from a
"multiemployer plan."
(xi) Each of the Company and the Subsidiaries does
not own any real property and has good title to all other
properties and assets which the Prospectus indicates are owned
by it, and has valid and enforceable leasehold interests in
each of such items, free and clear of all liens, security
interests, pledges, charges, encumbrances, and mortgages
(collectively, "Encumbrances") (except Encumbrances which do
not materially interfere with the use of the property or the
conduct of the business except as may be properly described in
the Prospectus). No real property owned, leased, licensed or
used by the Company or any Subsidiary lies in an area which
is, or to the knowledge of the Company will be, subject to
zoning, use or building code restrictions which would
prohibit, and no state of facts relating to the actions or
inaction of another person or entity or his or its ownership,
leasing, licensing or use of any real or personal property
exists or will exist which would prevent the continued
effective ownership, leasing, licensing or use of such real
property in the business of the Company and each Subsidiary as
presently conducted or as the Prospectus indicates it
contemplates conducting (except as may be properly described
in the Prospectus).
(xii) Each of the Company and the Subsidiaries, and
to the best knowledge of the Company, any other party, is not
now or reasonably expected by the Company to be in violation
or breach of, or in default with respect to, complying with
any term, obligation or provision of any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding which is material to
the Company or any Subsidiary or by which any of its
respective properties or business may be bound or affected,
and no event has occurred which with notice or lapse of time
or both would constitute such a default, and each such
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding is
in full force and is the legal, valid and binding obligation
of the parties thereto and is enforceable as to them in
accordance with its terms. Each of the Company and the
Subsidiaries enjoys peaceful and undisturbed possession under
all leases and licenses under which it is operating. Neither
the Company nor any Subsidiary is a party to or bound by any
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding,
or subject to any charter or other restriction, which has had
or may in the future have a material adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the
Company or any Subsidiary. Neither the Company nor any
Subsidiary is in violation or breach of, or in default with
respect to, any term of their respective certificates of
incorporation (or other charter document) or by-laws.
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<PAGE> 10
(xiii) The Company and each of the Subsidiaries have
filed all federal, state, local and foreign tax returns which
are required to be filed through the date hereof, or have
received extensions thereof, and have paid all taxes shown on
such returns and all assessments received by them to the
extent that the same are material and have become due.
(xiv) No transfer tax, stamp duty or other similar
tax is payable by or on behalf of the Underwriters in
connection with (i) the issuance by the Company or sale by the
Selling Stockholders of the Shares, (ii) the purchase by the
Underwriters of the Shares from the Company and/or the Selling
Stockholders and the purchase by the Representatives of the
Representatives' Warrants from the Company, (iii) the
consummation by the Company and the Selling Stockholders of
any of its or their obligations under this Agreement, or (iv)
resales of the Shares in connection with the distribution
contemplated hereby.
(xv) Each of the Company and the Subsidiaries
maintains insurance policies, including, but not limited to,
general liability and property insurance, which insures the
Company, any Subsidiary and their respective employees,
against such losses and risks generally insured against by
comparable businesses. Neither the Company nor any Subsidiary
(A) has failed to give notice or present any insurance claim
with respect to any matter, including but not limited to the
Company's or any Subsidiary's business, property or employees,
under the insurance policy or surety bond in a due and timely
manner, (B) has any disputes or claims against any underwriter
of such insurance policies or surety bonds or has failed to
pay any premiums due and payable thereunder, or (C) has failed
to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would
relieve any insurer of its obligation to satisfy in full any
valid claim of the Company or any Subsidiary.
(xvi) All patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, copyright applications, franchises, and other
intangible properties and assets including trade secrets,
know-how, inventions, designs, processes, works of authorship,
computer programs and technical data and information
(collectively, the "Intangibles") that each of the Company and
the Subsidiaries owns, possesses or has pending, or under
which it is licensed, are in good standing and uncontested.
There is no right under any Intangible necessary to the
business of the Company or any Subsidiary as presently
conducted or as the Prospectus indicates the Company and the
Subsidiaries have that the Company and the Subsidiaries do not
have (except as may be so described in the Prospectus).
Neither the Company nor any
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<PAGE> 11
Subsidiary has infringed, is infringing, in any material
respect, or has received any notice of infringement with
respect to asserted Intangibles of others. To the best
knowledge of the Company, there is no infringement by others
of Intangibles of the Company or any Subsidiary. To the best
knowledge of the Company, there is no Intangible of others
which is expected to have a material adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the
Company or any of the Subsidiaries.
(xvii) Each of the Company and the Subsidiaries has
taken reasonable security measures to protect the secrecy,
confidentiality and value of all its Intangibles in all
material respects.
(xviii) Neither the Company nor any Subsidiary or any
director, officer, agent, employee or other person associated
with or acting on behalf of the Company or any Subsidiary has,
directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction required to be disclosed in
the Prospectus has occurred between or among the Company, any
Subsidiary, and any of their respective officers or directors
or any affiliates or affiliates of any such officer or
director, except as described in the Prospectus.
(xix) The Company has all requisite power and
authority to execute, deliver and perform this Agreement and
the Representatives' Warrants (collectively, the "Company
Documents"). All necessary corporate proceedings of the
Company have been duly taken to authorize the execution,
delivery and performance of the Company Documents. This
Agreement has been duly authorized, executed, and delivered by
the Company, is the legal, valid and binding obligation of the
Company, and is enforceable as to the Company in accordance
with its terms subject to applicable bankruptcy, insolvency
reorganization laws and other similar laws of general
application relating to the enforcement of creditors' rights.
No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing
with, any federal, state, local or other governmental
authority or any court or other tribunal is required by the
Company or any Subsidiary for the execution, delivery or
performance by the Company of this Agreement (except filings
under the Act which have been or will be made before the
applicable Closing Date and such consents consisting only of
consents under "blue sky" or securities laws which have been
obtained at or prior to the date of this Agreement). No
consent of any party to any contract, agreement, instrument,
lease, license, indenture, mortgage,
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<PAGE> 12
deed of trust, note, arrangement or understanding to which the
Company or any Subsidiary is a party, or to which any of their
respective properties or assets are subject, is required for
the execution, delivery or performance of this Agreement, and
the execution, delivery and performance of this Agreement will
not violate, result in a breach of, conflict with, accelerate
the due date of any payments under, or (with or without the
giving of notice or the passage of time or both) entitle any
party to terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement, or understanding, or violate
or result in a breach of any term of the certificate of
incorporation (or other charter document) or by-laws of the
Company or any Subsidiary, or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment or
decree binding on the Company or any Subsidiary or to which
any of its respective operations, business, properties or
assets are subject.
(xx) The Firm Shares and the Option Shares are duly
and validly authorized. The Firm Shares and the Option Shares,
when delivered in accordance with this Agreement will be duly
and validly issued, fully paid, and non-assessable, without
any personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders, optionholders, warrantholders and any other
persons, and the Underwriters will receive good title to the
Firm Shares purchased by them, respectively, free and clear of
all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts.
(xxi) The Representatives' Warrants are duly and
validly authorized and, when delivered in accordance with this
Agreement, will be duly and validly issued, without any
personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders, optionholders, warrantholders and any other
persons. The Warrant Shares are validly authorized and
reserved for issuance and, when issued and delivered upon
exercise of the Representatives' Warrants, will be validly
issued, fully paid and non-assessable, without any personal
liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive rights of stockholders,
optionholders, warrantholders and any other persons. The
holders of the Representatives' Warrants will receive good
title to the securities purchased by them, respectively, free
and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
(xxii) The Firm Shares, the Option Shares, the
Representatives' Warrants, the Preferred Stock, and the Common
Stock conform to all statements relating thereto contained in
the Registration Statement or the Prospectus.
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<PAGE> 13
(xxiii) Subsequent to the respective dates as of
which information is given in the Registration Statement and
the Prospectus, and except as may otherwise be properly
described therein, there has not been any material adverse
change in the assets or properties, business or results of
operations or financial condition of the Company or any
Subsidiary, whether or not arising from transactions in the
ordinary course of business; neither the Company nor any
Subsidiary has sustained any material loss or interference
with its business or properties from fire, explosion,
earthquake, flood or other calamity, whether or not covered by
insurance; since the date of the latest balance sheet included
in the Registration Statement and the Prospectus, except as
reflected therein, neither the Company nor any Subsidiary has
undertaken any liability or obligation, direct or contingent,
except for liabilities or obligations undertaken in the
ordinary course of business; and neither the Company nor any
Subsidiary has (A) issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed
money, (B) entered into any transaction not in the ordinary
course of business, or (C) declared or paid any dividend or
made any distribution on any of its capital stock or redeemed,
purchased or otherwise acquired or agreed to redeem, purchase
or otherwise acquire any shares of its capital stock.
(xxiv) Neither the Company nor any Subsidiary or any
of their respective officers, directors or affiliates (as
defined in the Regulations) or any of the Selling
Stockholders, has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Firm Shares or the Option Shares.
(xxv) The Company has obtained from its executive
officers, directors and principal stockholders, his or its
enforceable written agreement, in form and substance
satisfactory to counsel for the Underwriters, that for a
period of 180 days from the date on which the public offering
of the Shares commences he or it will not, without the prior
written consent of Josephthal, on behalf of the Underwriters,
offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or other securities of the Company
(or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares
of Common Stock or other securities of the Company, including,
without limitation, any shares of Common Stock issuable under
any employee stock options), beneficially owned by him or it.
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<PAGE> 14
(xxvi) Neither the Company nor any Subsidiary is, or
intends to conduct its business in a manner in which it would
be, an "investment company" as defined in Section 3(a) of the
Investment Company Act of 1940 (the "Investment Company Act").
(xxvii) All offers and sales of the Company's capital
stock prior to the date hereof, other than offers and sales
made pursuant to the Acquisitions (as hereinafter defined),
were at all relevant times exempt from the registration
requirements of the Act and were the subject of an available
exemption from the registration requirements of all applicable
state securities or blue sky laws. The offers and sales of the
Company's capital stock made pursuant to the Acquisitions were
made in compliance with Rule 145(a) under the Act.
(xxviii) No person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement.
(xxix) Except as may be set forth in the Prospectus,
neither the Company nor any Subsidiary has incurred any
liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement.
(xxx) No transaction has occurred between or among
the Company, any Subsidiary, and any of their respective
officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(xxxi) The Common Stock, including the Shares, are
authorized for quotation on the American Stock Exchange upon
official notice of issuance.
(xxxii) Any certificate signed by any officer of the
Company or any officer of any Subsidiary, and delivered to the
Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company
to the Underwriters as to the matters covered thereby.
(xxxiii) Each of the minute books of the Company and
any Subsidiary has been made available to the Underwriters and
contains a complete summary of all meetings and actions of the
directors and stockholders of the Company and any Subsidiary,
respectively, since the time of its respective incorporation,
and reflects all transactions referred to in such minutes
accurately in all respects.
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<PAGE> 15
(xxxiv) The Company has filed with Commission a
registration statement, and may have filed one or more
amendments thereto, on Form S-4 (Registration No. 333-20571)
(the "Merger Registration Statement"), for the registration of
3,678,844 shares of Common Stock, in conformity with the
requirements of the Act. When the Merger Registration
Statement becomes effective, and during such longer period
until any post-effective amendment thereto shall become
effective, the Merger Registration Statement (and any
post-effective amendment thereto) and the prospectus included
as part thereof (the "Merger Prospectus") (as amended or as
supplemented if the Company shall have filed with the
Commission any amendment or supplement to the Merger
Registration Statement or the Merger Prospectus) will contain
all statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the Merger Registration Statement or the Merger
Prospectus which has not then been set forth in such an
amendment or supplement. Neither the Commission nor the "blue
sky" or securities authority of any jurisdiction has issued a
Stop Order suspending the use of any preliminary prospectus,
the Merger Prospectus, the Merger Registration Statement, or
any amendment or supplement thereto, refusing to permit the
effectiveness of the Merger Registration Statement, or
suspending the registration or qualification of the shares of
Common Stock registered thereunder nor has any of such
authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(xxxv) American Medcare Corporation ("AMC") is the
record holder and sole beneficial owner of all of the issued
and outstanding stock of each of International Computer
Solutions, Inc. ("ICS"), Millard-Wayne, Inc. ("Millard-Wayne")
and Health Care Division, Inc. ("HCD"), which owns
substantially all of the assets used in connection with the
business of the former Healthcare Division of Info Systems of
North Carolina, Inc. The Company has entered into the
agreements listed on Schedule IV hereto (the "Acquisition
Agreements") with respect to the acquisitions (the
"Acquisitions") of AMC, DR Software, Inc. ("DR Software"),
KComp Management Systems, Inc. ("KComp"), and Rovak, Inc.
("Rovak") (AMC, ICS, Millard-Wayne, HCD, DR Software, KComp
and Rovak are collectively referred to herein as the "Founding
Businesses"). The Company has all requisite power and
authority to execute, deliver and perform each of the
Acquisition Agreements. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution,
delivery and performance of the Acquisition Agreements. Each
of the Acquisition Agreements has been duly authorized,
executed and delivered by the Company, is the legal valid and
binding
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<PAGE> 16
obligation of the Company, and is enforceable as to the
Company in accordance with its terms.
(xxxvi) Neither the Company nor any Subsidiary or any
of their respective affiliates is presently doing business
with the government of Cuba or with any person or affiliate
located in Cuba. If, at any time after the date that the
Registration Statement is declared effective with the
Commission or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever date is later,
and prior to the end of the period referred to in the first
clause of Section 4(a)(ii) hereof, the Company commences
business with the government of Cuba or with any person or
affiliate located in Cuba, the Company will so inform the
Florida Department within ninety days after such commencement
of business in Cuba, and during the period referred to in
Section 4(a)(ii) hereof will inform the Florida Department
within ninety days after any change occurs with respect to
previously reported information.
(b) Each of the Selling Stockholders severally, and not
jointly, represents and warrants to, and agrees with, the several
Underwriters that:
(i) Such Selling Stockholder has all requisite power
and authority to execute, deliver, and perform this Agreement.
This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder, is the legal, valid and
binding obligation of such Selling Stockholder, and is
enforceable as to such Selling Stockholder in accordance with
its terms subject to applicable bankruptcy, insolvency,
reorganization laws and other similar laws of general
application relating to the enforcement of creditor's rights.
No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing
with, any federal, state, local or other governmental
authority or any court or other tribunal is required by such
Selling Stockholder for the execution, delivery or performance
of this Agreement (except filings under the Act which have
been made before the applicable Closing Date and such consents
consisting only of consents under "blue sky" or securities
laws which have been obtained at or prior to the date of this
Agreement) by such Selling Stockholder. No consent of any
party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding to which such Selling Stockholder is a party, or
to which any of such Selling Stockholder's properties or
assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding, or violate,
result in a breach of, or conflict with, any law, rule,
regulation, order,
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<PAGE> 17
judgment or decree binding on such Selling Stockholder or to
which any of such Selling Stockholder's operations, business,
properties, or assets are subject.
(ii) Such Selling Stockholder has good title to the
Option Shares to be sold by such Selling Stockholder pursuant
to this Agreement, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts, and when such Option Shares are
delivered in accordance with this Agreement, the Underwriters
will receive good title to such Option Shares from such
Selling Stockholder, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts.
(iii) Certificates in negotiable form for all Option
Shares to be sold by such Selling Stockholder under this
Agreement, together with a stock power or powers duly endorsed
in blank by such Selling Stockholder, have been placed in
custody with ________________ (the "Custodian") for the
purpose of effecting delivery hereunder and thereunder.
(iv) Neither such Selling Stockholder nor any of such
Selling Stockholder's affiliates (as defined in the
Regulations) has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Option Shares.
(v) All information furnished or to be furnished to
the Company by or on behalf of such Selling Stockholder for
use in connection with the preparation of the Registration
Statement and the Prospectus is true in all respects and does
not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(vi) Except as may be set forth in the Prospectus,
such Selling Stockholder has not incurred any liability for a
fee, commission or other compensation on account of the
employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(vii) Such Selling Stockholder has no knowledge that,
and does not believe that, any representation or warranty of
the Company contained in Section 4(a) of this Agreement is
incorrect.
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<PAGE> 18
(viii) Such Selling Stockholder has not, directly or
indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment from corporate funds.
(ix) No transaction has occurred between or among
such Selling Stockholder and the Company, any Subsidiary or
any other Selling Stockholder that is required to be described
in the Registration Statement or the Prospectus and is not so
properly described.
(x) There is not pending or threatened against such
Selling Stockholder any action, suit or proceeding (or
circumstances that may give rise to the same) which (i)
questions the validity of this Agreement or any action taken
or to be taken by such Selling Stockholder pursuant to or in
connection with the foregoing, or (ii) which is required to be
disclosed in the Registration Statement and the Prospectus
which is not so disclosed, and such proceedings which are
summarized in the Registration Statement and the Prospectus,
if any, are accurately summarized in all material respects.
(xi) No stamp duty or similar tax is payable by or on
behalf of the Underwriters in connection with (i) the sale of
the Option Shares to be sold by such Selling Stockholder, (ii)
the purchase by the Underwriters of the Option Shares to be
sold by such Selling Stockholders, (iii) the consummation by
such Selling Stockholder of any of its obligations under this
Agreement or (iv) resales of the Option Shares in connection
with the distribution contemplated hereby.
(xii) Such Selling Stockholder does not have any
registration rights or other similar rights with respect to
any securities of the Company; and such Selling Stockholder
does not have any right of first refusal or other similar
right to purchase any securities of the Company upon the
issuance or sale thereof by the Company or upon the sale
thereof by any other stockholder of the Company.
(xiii) Any certificate signed by or on behalf of such
Selling Stockholder and delivered to the Underwriters or to
counsel for the Underwriters shall be deemed a representation
and warranty by such Selling Stockholders to the Underwriters
as to the matters covered thereby.
5. Conditions of the Underwriters' Obligations.
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<PAGE> 19
The obligations of the Underwriters under this Agreement are several
and not joint. The respective obligations of the Underwriters to purchase the
Shares are subject, in the Representatives' sole discretion, to each of the
following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a)(i) of this Agreement; if the
Original Registration Statement or any amendment thereto filed prior to
the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not
later than the earlier of (i) 11:00 a.m. New York time, on the date on
which the amendment to the registration statement originally filed with
respect to the Shares or to the Registration Statement, as the case may
be, containing information regarding the public offering price of the
Shares has been filed with the Commission, and (ii) the time
confirmations are sent or given as specified by Rule 462(b)(2) or, with
respect to the Original Registration Statement, such later time and
date as shall have been consented to by the Representatives.
(b) No order preventing or suspending the use of any
preliminary prospectus, the Prospectus or the Merger Prospectus shall
have been or shall be in effect and no order suspending the
effectiveness of the Registration Statement or the Merger Registration
Statement shall be in effect, and no proceedings for such purpose shall
be pending before or threatened by the Commission, and any requests for
additional information on the part of the Commission (to be included in
the Registration Statement, the Merger Registration Statement, the
Prospectus or the Merger Prospectus or otherwise) shall have been
complied with to the satisfaction of the Representatives.
(c) The representations and warranties of the Company and
the Selling Stockholders contained in this Agreement and in the
certificates delivered pursuant to Section 5(d) shall be true and
correct when made and on and as of each Closing Date as if made on such
date, and the Company and the Selling Stockholders shall have performed
all covenants and agreements and satisfied all the conditions contained
in this Agreement required to be performed or satisfied by them at or
before such Closing Date.
(d) The Representatives shall have received on each
Closing Date (i) a certificate, addressed to the Representatives and
dated such Closing Date, of the chief executive or chief operating
officer and the chief financial officer of the Company to the effect
that the persons executing such certificate have carefully examined the
Registration Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company contained in this
Agreement are true and correct on and as of such Closing Date with the
same effect as if made on such Closing Date and the Company has
performed all covenants and agreements and satisfied all conditions
contained in this Agreement required to be performed or satisfied by it
at or prior to such Closing Date and (ii) a certificate, addressed to
the Representatives and dated such Closing Date, of
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<PAGE> 20
each of the Selling Stockholders to the effect that the representations
and warranties of such Selling Stockholder are true and correct on and
as of such Closing Date and such Selling Stockholder has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement required to be performed or satisfied by such Selling
Stockholder at or prior to such Closing Date.
(e) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated the date hereof,
addressed to the Underwriters in form and substance satisfactory
(including the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) in all respects to the Underwriters
and Underwriters' Counsel, from BDO Seidman, LLP:
(i) confirming that they are independent certified
public accountants with respect to the Company and the
Subsidiaries within the meaning of the Act and the applicable
Rules and Regulations;
(ii) stating that it is their opinion that the
consolidated financial statements and supporting schedules of
the Company and the Subsidiaries included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules
and Regulations thereunder and that the Representatives may
rely upon the opinion of____________ with respect to the
financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited
interim consolidated financial statements of the Company and
the Subsidiaries (with an indication of the date of the latest
available unaudited interim financial statements), a reading
of the latest available minutes of the stockholders and board
of directors and the various committees of the boards of
directors of the Company and the Subsidiaries, consultations
with officers and other employees of the Company and the
Subsidiaries responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A)
the pro forma financial information contained in the
Registration Statement and Prospectus does not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or is
not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the audited consolidated financial statements of the
Company or the unaudited pro forma financial information
included in the Registration Statement, (B) the unaudited
financial statements and supporting schedules of the Company
and the Subsidiaries included in the Registration Statement do
not comply as to form in all material respects with the
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<PAGE> 21
applicable accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated
financial statements of the Company and the Subsidiaries
included in the Registration Statement, or (C) at a specified
date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in
the capital stock or long-term debt of the Company and the
Subsidiaries, or any decrease in the stockholders' equity or
net current assets or net assets of the Company and the
Subsidiaries as compared with amounts shown in the balance
sheet included in the Registration Statement, other than as
set forth in or contemplated by the Registration Statement,
or, if there was any change or decrease, setting forth the
amount of such change or decrease, and (D) during the period
from ________ to a specified date not more than five (5) days
prior to the effective date of the Registration Statement,
there was any decrease in net revenues, net earnings or
increase in net earnings per common share of the Company and
the Subsidiaries, in each case as compared with the
corresponding period beginning __________other than as set
forth in or contemplated by the Registration Statement, or, if
there was any such decrease, setting forth the amount of such
decrease;
(iv) setting forth at a date not later than five (5)
days prior to the date of the Registration Statement, the
amount of liabilities of the Company and the Subsidiaries
(including a break-down of commercial paper and notes payable
to banks);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company and the Subsidiaries set forth in
the Prospectus in each case to the extent that such amounts,
numbers, percentages, statements and information may be
derived from the general accounting records, including work
sheets, of the Company and the Subsidiaries and excluding any
questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards), set forth in the
letter and found them to be in agreement;
(vi) stating that they have not during the
immediately preceding five (5) year period brought to the
attention of any of the Company's or the Subsidiaries'
management any "weakness", as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure
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<PAGE> 22
Related Matters Noted in an Audit," in any of the Company's or
the Subsidiaries' internal controls;
(vii) stating that they have in addition carried out
certain specified procedures, not constituting an audit, with
respect to certain pro forma financial information which is
included in the Registration Statement and the Prospectus and
that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro
forma financial information does not comply in form in all
respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X or that the pro forma adjustments have
not been properly applied to the historical amounts in the
compilation of that information; and
(viii) statements as to such other matters incident
to the transaction contemplated hereby as the Representatives
may request.
At the Firm Shares Closing Date and each Option Shares Closing
Date, if any, the Underwriters shall have received from BDO Seidman,
LLP a letter, dated as of the Firm Shares Closing Date or the Option
Shares Closing Date, as the case may be, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the specified date referred
to shall be a date not more than five days prior to Firm Shares Closing
Date or the Option Shares Closing Date, as the case may be, and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations,
to the further effect that they have carried out procedures as
specified in clause (v) of subsection (e) of this Section with respect
to certain amounts, percentages and financial information as specified
by the Representatives and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the
records specified in such clause (v).
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented at
the date of such letter.
(f) The Representatives shall have received on each
Closing Date from Glass, McCullough, Sherrill & Harrold, LLP, counsel
for the Company, an opinion, addressed to the Representatives and dated
such Closing Date, and in form and scope satisfactory to counsel for
the Underwriters, with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that:
(i) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Delaware, with full corporate power and authority to
own, lease, license and use its properties and assets and to
conduct its business in the manner described in the
Prospectus. To the knowledge
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<PAGE> 23
of such counsel, the Company has all necessary consents,
authorizations, approvals, orders, certificates and permits of
and from, and declarations and filings with, all federal,
state, local and other governmental authorities and all courts
and other tribunals, to own, lease, license and use its
properties and assets and to conduct its business in the
manner described in the Prospectus. To the knowledge of such
counsel, the Company does not own, lease or license any
property or conduct any business outside the United States of
America. The Company has no subsidiary or subsidiaries and
does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business
organization, except for those listed on Schedule III attached
hereto, those permitted to be excluded pursuant to Item 601,
Exhibit 21 of Regulation S-B and, on or after the Firm Shares
Closing Date, the Founding Businesses. Each of the
Subsidiaries has been duly organized and is validly existing
as a corporation in good standing under the laws of its
jurisdiction of incorporation, as listed on Schedule III
attached hereto or, with respect to the Founding Businesses on
or after the Firm Shares Closing Date, as listed on Schedule
IV hereto. Each of the Company and the Subsidiaries is duly
qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its or
any of their properties (owned, leased or licensed) or the
nature of its or any of their businesses makes such
qualification necessary except for such jurisdictions where
the failure to so qualify would not, either singly or in the
aggregate, have a material adverse effect on the assets or
properties, business, financial condition or results of
operations of the Company or any of the Subsidiaries.
(ii) The Company has authorized, issued and
outstanding capital stock as set forth in the capitalization
table under the caption "Capitalization" in the Prospectus.
The certificates evidencing the Shares are in due and proper
legal form. Each outstanding share of Common Stock and each
outstanding share of capital stock of each Subsidiary has been
duly and validly authorized and issued, fully paid, and is
non-assessable, without any personal liability attaching to
the ownership thereof, and has not been issued and is not
owned or held in violation of any preemptive right of
stockholders. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of,
any share of capital stock of the Company or of any Subsidiary
or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for capital
stock of the Company or of any Subsidiary, except as may be
properly described in the Prospectus. To the knowledge of such
counsel, there is outstanding no security or other instrument
which by its terms is convertible into, exercisable for or
exchangeable for capital stock of the Company, except as may
be properly described in the Prospectus.
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<PAGE> 24
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any
court or before any public body or board pending, threatened,
or in prospect (or any basis therefor) with respect to the
Company, any Subsidiary, or any of their respective
operations, businesses, properties, assets, or financial
condition except as may be properly described in the
Prospectus or such as individually or in the aggregate do not
now have and will not in the future have a material adverse
effect upon the operations, business, properties, assets, or
financial condition of the Company or any of the Subsidiaries.
To the knowledge of such counsel, neither the Company nor any
Subsidiary is involved in any labor dispute, nor is such
dispute threatened, which dispute would have a material
adverse effect upon the operations, business, properties,
assets or financial condition of the Company or any
Subsidiary. To the knowledge of such counsel, neither the
Company nor any Subsidiary is in violation of, or in default
with respect to, any law, rule, regulation, order, judgment,
or decree, except as may be properly described in the
Prospectus or such as in the aggregate do not now have and
will not in the future have a material adverse effect upon the
operations, business, properties, assets, or financial
condition of the Company or any of the Subsidiaries; nor is
the Company or any Subsidiary required to take any action in
order to avoid any such violation or default.
(iv) To the knowledge of such counsel, neither the
Company nor any Subsidiary or any other party is now or is
reasonably expected by the Company or any Subsidiary to be in
violation or breach of, or in default with respect to,
complying with any term, obligation or provision of any
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding
which is material to the Company or any Subsidiary or by which
any of their respective properties or businesses may be bound
or affected and to the knowledge of such counsel no event has
occurred which with notice or lapse of time or both would
constitute such a default.
(v) Neither the Company nor any Subsidiary is in
violation or breach of, or in default with respect to, any
term of their certificates of incorporation (or other charter
documents) or by-laws.
(vi) The Company has all requisite power and
authority to execute, deliver and perform this Agreement and
each of the Acquisition Agreements, to issue and sell the
Shares and to issue and sell the Representatives' Warrants.
All necessary corporate proceedings of the Company have been
taken to authorize the execution, delivery and performance by
the Company of the Company Documents and the Acquisition
Agreements. Each of the Company Documents and each of the
Acquisition Agreements has been duly authorized, executed and
delivered by the Company, and is the legal, valid and binding
obligation of the Company
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<PAGE> 25
enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors'
rights generally and court decisions with respect thereto. No
consent, authorization, approval, order, license, certificate
or permit of or from, or declaration or filing with, any
federal state, local or other governmental authority or any
court or other tribunal is required by the Company or any
Subsidiary, for the execution, delivery or performance by the
Company of the Company Documents and the Acquisition
Agreements (except filings under the Act which have been made
prior to the Closing Date and filings or consents under "blue
sky" or securities laws, as to which such counsel need express
no opinion). To the knowledge of such counsel, no consent of
any party to any contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding to which the Company or any Subsidiary is a
party, or to which any of their respective properties or
assets are subject, is required for the execution, delivery or
performance of this Agreement (except filings made under the
rules of the NASD as to which such counsel need express no
opinion); and the execution, delivery and performance of this
Agreement will not violate, result in a breach of, conflict
with, or (with or without the giving of notice or the passage
of time or both) entitle any party to terminate or call a
default under any such contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding, in each case known to such counsel, or
violate or result in a breach of any term of the certificate
of incorporation (or other charter document) or bylaws of the
Company or any Subsidiary, or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment,
or decree binding on the Company or any Subsidiary or to which
any of their respective operations, businesses, properties or
assets are subject.
(vii) The Representatives' Warrants have been duly
and validly authorized for issuance. Such opinion delivered at
the Firm Shares Closing Date shall state that the
Representatives' Warrants to be delivered on that date have
been duly and validly issued, fully paid, and non-assessable,
with no personal liability attaching to the ownership thereof,
and will not have been issued in violation of any preemptive
rights of stockholders, optionholders, warrantholders and any
other persons. The Warrant Shares are validly authorized and
reserved for issuance and, upon issuance, delivery and payment
therefor, as described in the Representatives' Warrants, will
be validly issued, fully paid and non-assessable, without any
personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders, optionholders, warrantholders and any other
persons. The holders of the Representatives' Warrants will
receive good title to the securities purchased by them,
respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and
voting trusts. The Warrant Shares and the
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Representatives' Warrants conform substantially and in all
material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(viii) The Firm Shares and the Option Shares are duly
and validly authorized. Such opinion delivered at each Closing
Date shall state that each such Share to be delivered on that
date is duly and validly issued, fully paid, and
non-assessable, with no personal liability attaching to the
ownership thereof, and is not issued in violation of any
preemptive rights of stockholders, optionholders,
warrantholders and any other persons. Such opinion delivered
at the Firm Shares Closing Date shall state that the
Underwriters have received good title to the Shares purchased
by them from the Company, for the consideration contemplated
herein and in good faith and without notice of any adverse
claim within the meaning of the Uniform Commercial Code, free
and clear of any liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, voting trusts and
other claims. The Common Stock, the Preferred Stock, the Firm
Shares and the Option Shares conform to all statements
relating thereto contained in the Registration Statement or
the Prospectus.
(ix) To the knowledge of such counsel, any contract,
agreement, instrument, lease or license required to be
described in the Registration Statement or the Prospectus has
been properly described therein. To the knowledge of such
counsel, any contract, agreement, instrument, lease or license
required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to
or has been incorporated as an exhibit by reference into the
Registration Statement.
(x) Insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases or licenses, such
statements have been prepared or reviewed by such counsel and
to the knowledge of such counsel, accurately reflect the
status of such litigation and provisions purported to be
summarized and are correct in all material respects.
(xi) Neither the Company nor any Subsidiary is an
"investment company" as defined in Section 3(a) of the
Investment Company Act and, if each of the Company and the
Subsidiaries conducts its business as set forth in the
Prospectus, will not become an "investment company" and will
not be required to be registered under the Investment Company
Act.
(xii) To the knowledge of such counsel, no person or
entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement
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except such persons or entities from whom written waivers of
such rights have been received prior to the Closing Date.
(xiii) The Registration Statement has become
effective under the Act. No Stop Order has been issued and no
proceedings for that purpose has been instituted or are
threatened, pending, or to such counsel's knowledge,
contemplated.
(xiv) The Registration Statement, any Rule 430A
Prospectus, and the Prospectus, and any amendment or
supplement thereto (other than financial statements and other
financial data and schedules which are or should be contained
in any thereof, as to which such counsel need express no
opinion), comply as to form in all material respects with the
requirements of the Act and the Regulations. The conditions
for the use of Form SB-2 have been satisfied with respect to
the Registration Statement.
(xv) To the knowledge of such counsel, since the
effective date of the Registration Statement, no event has
occurred which is required to be set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not been set forth in such an amendment or
supplement.
(xvi) The agreement of each officer, director,
principal stockholder of the Company and each Subsidiary,
stating that for a period of 180 days from the date on which
the public offering of the Shares commences, such officer,
director and principal stockholder will not, without the prior
written consent of Josephthal, on behalf of the Underwriters,
offer, pledge, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly,
any shares of Common Stock (or any other securities of the
Company or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for
shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock
issuable under any employee stock options) beneficially owned
by such person (assuming due authorization, execution and
delivery by such individual and execution by the other parties
thereto) constitutes the legal, valid and binding obligation
of such individual enforceable against such person in
accordance with its terms.
(xvii) Except as described in the Prospectus, there
are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finders or
origination fee with respect to the sale of the Shares
hereunder or financial consulting arrangement or any other
arrangements, agreements, understandings, payments or
issuances that may affect the Underwriters' compensation, as
determined by the NASD;
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(xviii) Except as described in the Prospectus,
neither the Company nor any Subsidiary (A) maintains, sponsors
or contributes to any ERISA Plans, (B) maintains or
contributes, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C)
has ever completely or partially withdrawn from a
"multiemployer plan".
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement, any Rule
430A Prospectus, or the Prospectus, or any amendment or supplement
thereto (other than financial statements and other financial data and
schedules which are or should be contained in any thereof, as to which
such counsel need express no opinion) and in conferences with officers
and other representatives of the Company, each Subsidiary and each
Selling Stockholder, representatives of the Representatives and
representatives of the independent accountants of the Company, at which
conferences the contents of the Registration Statement, any Rule 430A
Prospectus, the Prospectus and related matters were discussed and,
although such counsel has not independently verified and is not passing
upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement, the Prospectus, any Rule 430A Prospectus, or
any amendment or supplement thereto (except as specified in the
foregoing opinion), on the basis of the foregoing and relying as to
materiality upon the representations of executive officers of the
Company, each Subsidiary and each Selling Stockholder after conferring
with such executive officers and Selling Stockholders, no facts have
come to the attention of such counsel which lead such counsel to
believe that the Registration Statement at the time it became effective
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, except for
the financial statements and other financial and statistical data
included therein as to which counsel need express no opinion, as
amended or supplemented on the date thereof contained any untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering its opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel
retained by the Company as to laws of any jurisdiction other than the
Federal laws of the United States, the General Corporate Law of the
state of Delaware and the laws of the state of Georgia, provided that
(1) each such local counsel is reasonably acceptable to the
Representatives and (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is addressed to
the Representatives and is in form and substance reasonably
satisfactory to them and their counsel. In addition, such counsel may
rely, as to matters of fact, to the extent such counsel deems proper,
on certificates of responsible officers of the Company and the
Subsidiaries, provided that executed copies of such certificates are
provided to the Representatives.
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(g) The Representatives shall have received on each
Option Shares Closing Date from the respective counsel for each of the
Selling Stockholders, an opinion, addressed to the Representatives, and
dated such Closing Date, to the effect that:
(i) Such Selling Stockholder has all requisite
power and authority to execute, deliver and perform this
Agreement and to sell his Option Shares. This Agreement has
been duly authorized, executed and delivered by such Selling
Stockholder, and is the legal, valid and binding obligation of
such Selling Stockholder enforceable as to such Selling
Stockholder in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and court decisions with respect thereto. No
consent, authorization, approval, order, license, certificate
or permit of or from, or declaration or filing with, any
federal state, local or other governmental authority or any
court or other tribunal is required by such Selling
Stockholder, for the execution, delivery or performance by
such Selling Stockholder of this Agreement (except filings
under the Act which have been made prior to the Closing Date
and filings or consents under "blue sky" or securities laws,
as to which such counsel need express no opinion). To the
knowledge of such counsel, no consent of any party to any
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding to
which such Selling Stockholder is a party, or to which his
property or assets are subject, is required for the execution,
delivery or performance of this Agreement; and the execution,
delivery and performance of this Agreement will not violate,
result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any
party to terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding, in each
case known to such counsel.
(ii) Such opinion delivered at each of the Option
Shares Closing Dates shall state that such Selling Stockholder
has, pursuant to this Agreement, transferred to each of the
several Underwriters who has purchased such Option Shares in
good faith and without actual notice of any lien, encumbrance,
equity or adverse claim within the meaning of the Uniform
Commercial Code, good and valid title to such Selling
Stockholder Shares free and clear of all liens, encumbrances,
equities or claims.
In rendering its opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of local counsel
retained by such Selling Stockholder, provided that (1) each such local
counsel is reasonably acceptable to the Representatives and (2) such
reliance is expressly authorized by each opinion so relied upon and a
copy of each such opinion is addressed to the Representatives and is in
form
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and substance reasonably satisfactory to them and their counsel. In
addition, such counsel may rely, as to matters of fact, to the extent
such counsel deems proper, on a certificates of such Selling
Stockholder, provided that executed copies of such certificates are
provided to the Representatives.
(h) All proceedings taken in connection with the sale of
the Firm Shares and the Option Shares as herein contemplated shall be
satisfactory in form and substance to the Representatives and its
counsel, and the Underwriters shall have received from Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, a favorable opinion, addressed to
the Representatives and dated such Closing Date, with respect to the
Shares, the Registration Statement and the Prospectus, and such other
related matters, as the Representatives may reasonably request, and the
Company and the Selling Stockholders shall have furnished to Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
(i) On the Firm Shares Closing Date, the Company shall
have issued to the Representatives the Representatives' Warrants equal
to 10% of the Firm Shares.
(j) On the Firm Shares Closing Date, each of the
Acquisitions shall have been consummated in accordance with the terms
and conditions of the respective Acquisition Agreements.
6. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause
the Registration Statement to become effective as promptly as
possible. If the Registration Statement has become or becomes
effective with a form of prospectus omitting Rule 430A
information, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to
you of such timely filing. The Company shall notify you
immediately, and confirm such notice in writing, (A) when the
Registration Statement and any post-effective amendment
thereto become effective, (B) of the receipt of any comments
from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any
amendment or supplement thereto, and (C) of the receipt of any
notification with respect to a Stop Order. The Company shall
not file any amendment of the Registration Statement or
supplement to the Prospectus unless the Company has furnished
the Representatives a copy for their review prior to filing
and shall not file any such proposed amendment or supplement
to which the Representatives reasonably
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object. The Company shall use its best efforts to prevent the
issuance of any Stop Order and, if issued, to obtain as soon
as possible the withdrawal thereof.
(ii) During the time when a Prospectus relating to
the Shares is required to be delivered hereunder or under the
Act or the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and
as hereafter amended, and by the Regulations, as from time to
time in force, so far as necessary to permit the continuance
of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus. If, at any time when a
prospectus relating to the Shares is required to be delivered
under the Act and the Regulations, any event as a result of
which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Act or the
Regulations, the Company promptly shall prepare and file with
the Commission, subject to the third sentence of paragraph (i)
of this Section 6(a), an amendment or supplement which shall
correct such statement or omission or an amendment which shall
effect such compliance.
(iii) The Company shall make generally available to
its security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date (or 90 days if
such 12-month period coincides with the Company's fiscal
year), an earnings statement (which need not be audited) of
the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Act or Rule 158
of the Regulations.
(iv) The Company shall furnish to the Representatives
and counsel for the Underwriters, without charge, signed
copies of the Registration Statement (including all exhibits
and amendments thereto) and to each other Underwriter a copy
of the Registration Statement (without exhibits thereto) and
all amendments thereof and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the
Act or the Regulations, as many copies of any preliminary
prospectus and the Prospectus and any amendments thereof and
supplements thereto as the Representatives may reasonably
request.
(v) The Company shall cooperate with the
Representatives and its counsel in endeavoring to qualify the
Shares for offer and sale under the laws of such jurisdictions
as the Representatives may designate and shall maintain such
qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the
Company shall not be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to
execute
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a general consent to service of process in any jurisdiction or
subject itself to taxation as doing business in any
jurisdiction.
(vi) During a period of seven years after the date
hereof, the Company will furnish to its stockholders, as soon
as practicable, annual reports (including financial statements
audited by independent public accountants) and unaudited
quarterly reports of earnings, and will deliver to the
Representatives:
a) concurrently with furnishing such quarterly
reports to its stockholders, statements of
income of the Company and the Subsidiaries for
each quarter in the form furnished to the
Company's stockholders and certified by the
Company's principal financial or accounting
officer;
b) concurrently with furnishing such annual
reports to its stockholders, a balance sheet of
the Company and the Subsidiaries as at the end
of the preceding fiscal year, together with
statements of operations, stockholders equity,
and cash flows of the Company and the
Subsidiaries for such fiscal year, accompanied
by a copy of the certificate thereon of
independent certified public accountants;
c) as soon as they are available, copies of all
reports (financial or other) mailed to
stockholders;
d) as soon as they are available, copies of all
reports and financial statements furnished to
or filed with the Commission, the NASD or any
securities exchange;
e) every press release and every material news
item or article of interest to the financial
community in respect of the Company, the
Subsidiaries or their respective affairs which
was released or prepared by or on behalf of the
Company or the Subsidiaries; and
f) any additional information of a public
nature concerning the Company or the
Subsidiaries (and any future subsidiaries) or
any of their respective businesses which the
Representatives may request.
During such seven-year period, if the Company has
active subsidiaries, the foregoing financial statements will
be on a consolidated basis to the extent
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that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial
statements for any significant subsidiary which is not so
consolidated.
(vii) The Company will maintain a transfer agent and,
if necessary under the jurisdiction of incorporation of the
Company, a Registrar (which may be the same entity as the
transfer agent) for its Common Stock.
(viii) Without the prior written consent of
Josephthal, on behalf of the Underwriters, for a period of 180
days from the date on which a public offering of the Shares
commences, the Company shall not issue, sell or register with
the Commission or otherwise dispose of, directly or
indirectly, any securities of the Company (or any securities
convertible into or exercisable or exchangeable for securities
of the Company), except for the issuance of the Shares
pursuant to the Registration Statement, the issuance of shares
of Common Stock pursuant to the Merger Registration Statement
and the issuance of shares of Common Stock pursuant to
outstanding stock options and warrants.
(ix) If the Company elects to rely on Rule 462(b),
the Company shall both file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b)
and pay the applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00 p.m.,
New York City time, on the date of this Agreement and (ii) the
time confirmations are sent or given, as specified by Rule
462(b)(2).
(x) The Company shall make all filings required , as
applicable, to be made under applicable securities laws and by
the American Stock Exchange on or before the last Closing
Date.
(xi) Prior to each Closing Date and for a period of
25 days thereafter, the Representatives shall be given
reasonable written prior notice of any press release or other
direct or indirect communication and of any press conference
with respect to the Company, the financial conditions, results
of operations, business, properties, assets, liabilities of
the Company, or this public offering of the Shares.
(xii) Until expiration of the Representatives'
Warrants, the Company shall keep reserved sufficient shares of
Common Stock for issuance upon exercise thereof.
(xiii) The Company shall make all filings required to
be made under the Exchange Act and such filings shall comply
in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder.
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(xiv) The Company shall arrange and participate in
conference calls on a quarterly basis in connection with the
release of its quarterly earnings for a period of three years
from the Firm Shares Closing Date, and the Company shall
provide the Representatives with appropriate notification of
such conference calls at least three business days prior to
all such conference calls.
(xv) None of the Company, any Subsidiary, nor any of
their respective officers, directors, stockholders (including,
but not limited to, the Selling Stockholders), nor any of
their respective affiliates (within the meaning of the Rules
and Regulations) will take, directly or indirectly, any action
designed to, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation
of the price of any securities of the Company.
(xvi) The Company shall apply the net proceeds from
the sale of the Shares in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the
Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by
the Company or any Subsidiary.
(xvii) The Company shall furnish to the
Representatives as early as practicable prior to each of the
date hereof, the Firm Shares Closing Date and the Option
Shares Closing Date, if any, but no later than two (2) full
business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company (which
in no event shall be as of a date more than thirty (30) days
prior to the date of the Registration Statement) which have
been read by the Company's independent public accountants.
(xviii) For a period of five (5) years from the Firm
Shares Closing Date, the Company shall furnish to the
Representatives at the Company's sole expense (i) daily
consolidated transfer sheets relating to the Common Stock,
(ii) the list of holders of all of the Company's securities
and (iii) a Blue Sky "Trading Survey" for secondary sales of
the Company's securities prepared by counsel to the Company.
(xix) As soon as practicable (i) but in no event more
than 10 business days before the effective date of the
Registration Statement, file a Form 8-A with the Commission
providing for the registration under the Exchange Act of the
Shares, and (ii) but in no event more than 30 days from the
effective date of the Registration Statement, take all
necessary and appropriate actions to be included in Standard
and Poors Corporation Descriptions and Moodys OTC Manual and
to continue such inclusion for a period of not less than seven
(7) years.
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<PAGE> 35
(xx) The Company hereby agrees that it will not for a
period of thirteen (13) months from the effective date of the
Registration Statement, adopt, propose to adopt or otherwise
permit to exist any employee, officer, director, consultant or
compensation plan or arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or
sell any option, warrant or other contract right (x) at an
exercise price that is less than the greater of the public
offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its
executive officers or directors or to any holder of 5% or more
of the Common Stock; and (ii) the maximum number of shares of
Common Stock or other securities of the Company purchasable at
any time pursuant to options or warrants issued by the Company
to exceed ______shares; (iii) the payment for such securities
with any form of consideration other than cash, or (iv) the
existence of stock appreciation rights, phantom options or
similar arrangements.
(xxi) For a period equal to the lesser of (i) seven
(7) years from the date hereof, and (ii) the sale to the
public of the Warrant Shares, the Company will not take any
action or actions which may prevent or disqualify the
Company's use of Form S-1 (or other appropriate form) for the
registration under the Act of the Warrant Shares.
(b) The Company and the Selling Stockholders agree to
pay, or reimburse if paid by the Representatives, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses (except certain costs and expenses
of the Representatives as set forth below) relating to the registration
and public offering of the Shares including those relating to: (i) the
preparation, printing, filing and distribution of the Registration
Statement including all exhibits thereto, each preliminary prospectus,
the Prospectus, all amendments and supplements to the Registration
Statement and the Prospectus, and any documents required to be
delivered with any Preliminary Prospectus or the Prospectus, and the
printing, filing and distribution of the Agreement Among Underwriters,
this Agreement and related documents; (ii) the preparation and delivery
of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the various jurisdictions referred
to in Section 6(a)(v), including the fees and disbursements of counsel
for the Underwriters in connection with such registration and
qualification and the preparation, printing, distribution and shipment
of preliminary and supplementary Blue Sky memoranda; (iv) the
furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the
Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with
the offering and sale of the Shares by the Underwriters or by dealers
to whom Shares may be sold; (v) the filing fees of the
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<PAGE> 36
National Association of Securities Dealers, Inc. in connection with its
review of the terms of the public offering; (vi) the furnishing
(including costs of shipping and mailing) to the Representatives and to
the Underwriters of copies of all reports and information required by
Section 6(a)(vi); (vii) inclusion of the Shares for listing on the
American Stock Exchange; (viii) advertising costs and expenses,
including but not limited to costs and expenses in connection with the
"road show", information meetings and presentations, bound volumes and
prospectus memorabilia and "tomb-stone" advertisement expenses; (ix)
costs and expenses in connection with Company counsel's due diligence
investigations, including but not limited to the fees of any
independent counsel or consultant retained; and (x) all transfer taxes,
if any, with respect to the sale and delivery of the Shares by the
Company and the Selling Stockholders to the Underwriters. Without
limiting the obligations of the Company and the Selling Stockholders
set forth above, the Company and each Selling Stockholder agree to pay
all of their other costs and expenses incident to the performance of
their respective obligations under this Agreement and the sale of the
Shares by them hereunder.
[(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (b) of this Section 6, it will
pay to the Representatives on the Closing Date by certified or bank
cashiers check or, at the election of the Representatives, by deduction
from the proceeds of the offering contemplated herein a non-accountable
expense allowance equal to one and three quarters percent (1 3/4%) of
the gross proceeds received by the Company from the sale of the Firm
Shares, $_______ of which has been paid to date. In the event the
Representatives elect to exercise the over-allotment option described
in Section 2(a) hereof, each of the Selling Stockholders agree to pay
to the Representatives on the Option Shares Closing Date (by certified
or bank cashiers check or, at the Representatives' election, by
deduction from the proceeds of the offering) a non-accountable expense
allowance equal to one and three-quarters percent (1 3/4%) of the gross
proceeds received by each of the Selling Stockholders from the sale of
the Option Shares.]
7. Indemnification.
(a) The Company and each of the Selling Stockholders,
jointly and severally, agree to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7 "Underwriter" shall
include the officers, directors, stockholders, partners, employees,
agents and counsel of the Underwriter, including specifically each
person who may be substituted for an Underwriter as provided in Section
10 hereof), and each person, if any, who controls the Underwriter (a
"controlling person") within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and
actions in respect thereof), whatsoever (including but not limited to
any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
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<PAGE> 37
whatsoever), as such are incurred, to which the Underwriter or such
controlling person may become subject under the Act, the Exchange Act
or any other statute or at common law or otherwise or under the laws of
foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company
issued or issuable upon exercise of the Shares; or (iii) in any
application or other document or written communication (in this Section
7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction
in order to qualify the Shares under the securities laws thereof or
filed with the Commission, any state securities commission or agency,
the American Stock Exchange or any other securities exchange; or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or
omission was made exclusively in reliance upon and in conformity with
written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in
any Preliminary Prospectus, the Registration Statement or Prospectus,
or any amendment thereof or supplement thereto, or in any application,
as the case may be.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company or the Selling Stockholders
may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company
[and/or each of the Sellers] within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company and each of the
Selling Stockholders to the Underwriters but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in
strict conformity with, written information furnished to the Company
with respect to any Underwriter by such Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions
only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this
Offering. Each of the Company and the Selling Stockholders acknowledge
that the statements with respect to the public offering of the Shares
set forth under the heading "Underwriting" and the
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<PAGE> 38
stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters
for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or
proceeding , such indemnified party shall, if a claim in respect
thereof is to be made against one or more indemnifying parties under
this Section, notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability
which it may have under this Section 7 except to the extent that it has
been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an indemnifying
party or parties of the commencement thereof, the indemnifying party or
parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party
or parties shall have the right to employ its or their own counsel in
any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless (i) the employment
of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action at the
expense of such indemnifying party, (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to such indemnified
party to have charge of the defense of such action within a reasonable
period of time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from
or additional to those available to one or all of the indemnifying
parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses of
additional counsel shall be borne by the indemnifying parties. Anything
in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action
effected without its written consent; provided, however, that such
consent was not unreasonably withheld.
8. Contribution.
In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a claim for
indemnification pursuant to Section 7 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not
be enforced in such case
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<PAGE> 39
notwithstanding the fact that the express provisions of Section 7
hereof provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party,
then each indemnifying party shall contribute to the amount paid as a
result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing
parties, on the one hand, and the party to be indemnified on the other
hand, from the offering of the Shares or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of each of
the contributing parties, on the one hand, and the party to be
indemnified on the other hand, in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In
any case where each of the Company or the Selling Stockholders is a
contributing party and the Underwriters are the indemnified party, the
relative benefits received by each of the Company or the Selling
Stockholders on the one hand, and the Underwriters, on the other, shall
be deemed to be in the same proportion as the total net proceeds from
the offering of the Shares (before deducting expenses) bear to the
total underwriting discounts received by the Underwriters hereunder, in
each case as set forth in the table on the cover page of the
Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling
Stockholders or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to above in
this Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8 the Underwriters shall not be required
to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by the Underwriters hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of
Section ll(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For
purposes of Section 7 hereof, each person, if any, who controls the
Company within the meaning of the Act, each officer of the Company who
has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in
each case to this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
Section 8, notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom
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<PAGE> 40
contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this Section 8, or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or
otherwise.
9. Termination.
This Agreement may be terminated by the Representatives with
respect to the Shares to be purchased on any Closing Date by notifying
the Company and the Selling Stockholders at any time prior to the
purchase of the Shares:
(a) in the absolute discretion of the Representatives at
or before any Closing Date: (i) if on or prior to such date, any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Representatives will in the future
materially disrupt, the securities markets; (ii) if there has occurred
any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the
Representatives, inadvisable to proceed with the offering of the
Shares; (iii) if there shall be such a material adverse change in
general financial, political or economic conditions or the effect of
international conditions on the financial markets in the United States
such as to make it, in the judgment of the Representatives, inadvisable
or impracticable to market the Shares; (iv) if trading in the Shares
has been suspended by the Commission or trading generally on the New
York Stock Exchange, Inc., the American Stock Exchange or the NASDAQ
National Market System has been suspended or limited, or minimum or
maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association of
Securities Dealers, Inc., or any other governmental or regulatory
authority; or (v) if a banking moratorium has been declared by any
state or federal authority; or
(b) at or before any Closing Date, if any of the
conditions specified in Section 5 shall not have been fulfilled when
and as required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, neither the Company nor the Selling Stockholders shall be
under any liability to any Underwriter, and no Underwriter shall be
under any liability to the Company or the Selling Stockholders, except
that (i) if this Agreement is terminated by the Representatives or the
Underwriters because of any failure, refusal or inability on the part
of the Company or the Selling Stockholders to comply with the terms or
to fulfill any of the conditions of this Agreement, the Company will
reimburse the Underwriters for all out-of-pocket expenses (including
the reasonable fees and disbursements of the Representatives' counsel)
incurred by them in connection with the proposed purchase and sale of
the
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<PAGE> 41
Shares or in contemplation of performing their obligations hereunder;
and (ii) no Underwriter who shall have failed or refused to purchase
the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination
of its obligations under this Agreement, shall be relieved of liability
to the Company and the Selling Stockholders or to the other
Underwriters for damages occasioned by its failure or refusal. In
addition, the Company shall remain liable for all Blue Sky counsel fees
and expenses and Blue Sky filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant
to Sections 5, 9 and 10 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 6 and Section 7 shall
not be in any way affected by such election or termination or failure
to carry out the terms of this Agreement or any part hereof.
10. Substitution of Underwriters.
If one or more of the Underwriters shall fail (other than for
a reason sufficient to justify the cancellation or termination of this
Agreement under Section 5 or Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more
substitute underwriters to purchase such Shares or make such other
arrangements as the Representatives may deem advisable or one or more
of the remaining Underwriters may agree to purchase such Shares in such
proportions as may be approved by the Representatives, in each case
upon the terms set forth in this Agreement. If no such arrangements
have been made by the close of business on the business day following
such Closing Date:
(a) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date does not exceed 10% of the
Shares that all the Underwriters are obligated to purchase on such
Closing Date, then each of the nondefaulting Underwriters shall be
obligated to purchase such Shares on the terms herein set forth in
proportion to their respective obligations hereunder; provided,
however, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased
pursuant to this Section 10 by more than one-ninth of such number of
Shares without the written consent of such Underwriter; or
(b) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall exceed 10% of the
Shares that all the Underwriters are obligated to purchase on such
Closing Date, then the Company and the Selling Stockholders shall be
entitled to an additional business day within which they may, but are
not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the
terms set forth in this Agreement.
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<PAGE> 42
In any such case, either the Representatives or the Company
and the Selling Stockholders shall have the right to postpone the
applicable Closing Date for a period of not more than five business
days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives, the Company and the
Selling Stockholders. If the number of Shares to be purchased on such
Closing Date by such defaulting Underwriter or Underwriters shall
exceed 10% of the Shares that all the Underwriters are obligated to
purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Company shall make arrangements pursuant to this
Section 10 within the period stated for the purchase of the Shares that
the defaulting Underwriters agreed to purchase, this Agreement shall
terminate with respect to the Shares to be purchased on such Closing
Date without liability on the part of any nondefaulting Underwriter to
the Company and the Selling Stockholders and without liability on the
part of the Company and the Selling Stockholders, except in both cases
as provided in Sections 6(b), 7, 8, 9 and 10. The provisions of this
Section 10 shall not in any way affect the liability of any defaulting
Underwriter to the Company or the Selling Stockholders or the
nondefaulting Underwriters arising out of such default. A substitute
underwriter hereunder shall become an Underwriter for all purposes of
this Agreement.
11. Miscellaneous.
The respective agreements, representations, warranties,
indemnities and other statements of the Company or its officers, of the
Selling Stockholders and of the Underwriters set forth in or made
pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter
or the Company or the Selling Stockholders or any of the officers,
directors or controlling persons referred to in Sections 7 and 8
hereof, and shall survive delivery of and payment for the Shares. The
provisions of Sections 6(b), 7, 8, 9 and 10 shall survive the
termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholders and their
respective heirs, executors, administrators, personal representatives,
successors and assigns and, to the extent expressed herein, for the
benefit of persons controlling any of the Underwriters, the Selling
Stockholders or the Company, and directors and officers of the Company,
and their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser of Shares
from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing
and mailed or delivered, or by telefax or telegraph if subsequently
confirmed by letter, (a) if to the Representatives, to Josephthal Lyon
& Ross Incorporated, 200 Park Avenue, 24th
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<PAGE> 43
Floor, New York, New York 10166, Attention: Michael Loew, Esq.,
telecopy: (212) 949-9887, with a copy to Cruttenden Roth Incorporated,
18301 Von Karman, Suite 100, Irvine, California 92715, Attention:
Christopher Jennings, telecopy: (714) 852-9603; (b) if to the Company,
to the Company's agent for service as such agent's address appears on
the cover page of the Registration Statement; and (c) if to any Selling
Stockholder, to such Selling Stockholder's address and telecopy number
as set forth on Schedule II hereto.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to
principles of conflict of laws.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, or neuter, singular or plural, as the
identity of the person or persons or entity or entities require.
All section headings herein are for convenience of reference
only and are not part of this Agreement, and no construction or
inference shall be derived therefrom.
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<PAGE> 44
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
INFOCURE CORPORATION
By:
------------------------------
Name:
Title:
----------------------------------
ROBERT L. FINE
----------------------------------
W.K. PRICE
NORSON'S INTERNATIONAL, LLC
By:
------------------------------
Name:
Title:
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<PAGE> 45
Confirmed on behalf of itself
and as the Representatives of the several Underwriters
named in Schedule I annexed hereto:
Josephthal Lyon & Ross Incorporated
By:
------------------------------
Name:
Title:
CRUTTENDEN ROTH INCORPORATED
By:
------------------------------
Name:
Title:
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<PAGE> 46
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
- ------------------- --------------
<S> <C>
Josephthal Lyon & Ross Incorporated....................
Cruttenden Roth Incorporated...........................
Total 2,000,000
</TABLE>
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<PAGE> 47
SCHEDULE II
<TABLE>
<CAPTION>
NAME, ADDRESS AND TELECOPY NUMBER OF NUMBER OF SHARES TO BE SOLD
SELLING STOCKHOLDER
<S> <C>
Robert L. Fine 136,615
7675 Fox Court
Duluth, GA 30155
W. K. Price 88,390
3987 Land O'Lakes Drive
Atlanta, GA 30342
Norson's International, LLC 74,995
1411 Rouse Lane, Suite 201
Roswell, GA 30076
</TABLE>
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<PAGE> 48
SCHEDULE III
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION
<S> <C>
DR Software, Inc. Georgia
Millard-Wayne, Inc. Florida
KComp Management Systems, Inc. California
International Computer Solutions, Inc. Georgia
Rovak, Inc. Minnesota
Health Care Division, Inc. Georgia
</TABLE>
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<PAGE> 49
SCHEDULE IV
ACQUISITION AGREEMENTS
[TO FOLLOW]
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<PAGE> 50
INFOCURE CORPORATION
AND
JOSEPHTHAL LYON & ROSS INCORPORATED
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of _________, 1997
<PAGE> 51
REPRESENTATIVE'S WARRANT AGREEMENT dated as of ________, 1997 by and
between INFOCURE CORPORATION, a Delaware corporation (the "Company"), and
JOSEPHTHAL LYON & ROSS INCORPORATED, (hereinafter referred to variously as the
"Holder" or the "Representative").
WITNESSETH
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to an aggregate of 200,000 shares of common stock,
$.001 par value, of the Company (the "Common Stock"); and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof by and
[among] [between] the Representative, the Company [and the selling stockholders
of the Company who are listed therein,] to act as the Representative in
connection with the Company's proposed public offering of up to 2,000,000 shares
of Common Stock at a public offering price of $_________ per share of Common
Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate of ______________ dollars
($________ ), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to purchase, at any
time from _________, 199_ [one year from the effective date of the registration
statement] until 5:30 P.M., New York time, on ________, 200_ [five years from
the effective date of the registration statement], up to an aggregate of 200,000
shares of Common Stock at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $______ [120% of the public offering price per
share] per share of Common Stock subject to the terms and conditions of this
Agreement. Except as expressly set forth herein, the shares issuable upon
exercise of the Warrants are in all respects identical to the shares of Common
Stock being purchased by the Representative for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
<PAGE> 52
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable at
an exercise price (subject to adjustment as provided in Section 8 hereof) per
share of Common Stock set forth in Section 6 hereof payable by certified or
official bank check in New York Clearing House funds. Upon surrender of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal offices in Atlanta,
Georgia (presently located at 2970 Clairmont Road, Suite 950), the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock underlying the Warrants). In the case
of the purchase of less than all the shares of Common Stock purchasable under
any Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method
of payment set forth in Section 3.1 hereof and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of shares of Common Stock equal to the product of (x)
the number of shares as to which the Warrants are being exercised multiplied by
(y) a fraction, the numerator of which is the Market Price (as defined below) of
the Common Stock less the Exercise Price, and the denominator of which is such
Market Price. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date which the form of election attached hereto is
deemed to have been sent to the Company pursuant to Section 13 hereof (the
"Notice Date"), or (ii) as the average of the Market Prices for each of the five
trading days immediately preceding the Notice Date, whichever of (i) or (ii) is
greater.
3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by NASDAQ, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange or quoted
by NASDAQ, the average closing bid price as furnished by the NASD through NASDAQ
or similar organization if NASDAQ is no longer reporting such information, or if
the Common Stock is not quoted on NASDAQ, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of,
<PAGE> 53
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the Common
Stock (and/or other securities, property or rights issuable upon the exercise of
the Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; and that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers of the Representative.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be
[$_____] [120% of the initial public offering price] per share of Common Stock.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants, the
Shares and any of the other securities issuable upon exercise of the Warrants
have not been registered under the Securities Act of 1933, as amended (the
"Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the Common Stock underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants (collectively, the "Warrant
Shares") shall bear the following legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent
<PAGE> 54
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. For a period of seven (7) years from the
effective date (the "Effective Date") of the Company's registration statement on
Form S--, if the Company proposes to register any of its securities under the
Act (other than in connection with a merger or pursuant to Form S-8) it will
give written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Representative and to all
other Holders of the Warrants and/or the Warrant Shares of its intention to do
so. If the Representative or other Holders of the Warrants and/or Warrant Shares
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Representative and such Holders
of the Warrants and/or Warrant Shares the opportunity to have any such Warrant
Shares registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) For a period of five (5) years from the Effective Date, the
Holders of the Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of such securities (assuming the exercise of all of the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Commission, on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant Shares
for nine (9) consecutive months by such Holders and any other Holders of the
Warrants and/or Warrant Shares who notify the Company within ten (10) days after
receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Shares within ten (10)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, for a period of five (5) years from the
Effective Date, any Holder of Warrants and/or Warrant Shares shall have the
right, exercisable by written request to the Company, to have the Company
prepare and file, on one occasion, with the Commission a registration statement
so as to permit a public offering and sale for nine (9) consecutive months by
any such Holder of its Warrant
<PAGE> 55
Shares provided, however, that the provisions of Section 7.4(b) hereof shall not
apply to any such registration request and registration and all costs incident
thereto shall be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein, if
the Company shall not have filed a registration statement for the Warrant Shares
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Shares, upon the written notice of election of a
Majority of the Holders of the Warrants and/or Warrant Shares it shall have the
option to repurchase (i) any and all Warrant Shares at the higher of the Market
Price per share of Common Stock on (x) the date of the notice sent pursuant to
Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a),
and (ii) any and all Warrants at such Market Price less the Exercise Price of
such Warrant. Such repurchase shall be in immediately available funds and shall
close within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(d).
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrant Shares included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify and hold harmless the Holder(s) of
the Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), from and against any and all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever including, without
limitation, the fees and expenses of legal counsel) to which any of them
<PAGE> 56
may become subject under the Act, the Exchange Act or otherwise, arising from
such registration statement but only to the same extent and with the same effect
as the provisions pursuant to which the Company has agreed to indemnify the
Representative contained in Section 8 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, from and against any and all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
8 of the Underwriting Agreement pursuant to which the Representative has agreed
to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Shares to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof, without the prior written consent of the Holders
of the Warrants and Warrant Shares representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the Effective Date (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the Effective Date (and, if
such registration includes an underwritten public offering, a letter dated the
date of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the Effective
Date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11 (a) of the Act and covering a period of at
least 12 consecutive months beginning after the Effective Date.
<PAGE> 57
(j) The Company shall deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below and
to the managing underwriters, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
underwriters selected for such underwriting by the Holders of a Majority of the
Warrant Shares requested to be included in such underwriting, which may be the
Representative. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Warrant Shares and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(l) In addition to the Warrant Shares, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference
to the Holders of Warrants or Warrant Shares, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Shares that (i) are
not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
<PAGE> 58
8.2 Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Securities issuable upon the exercise at the adjusted exercise price of each
Warrant shall be adjusted to the nearest full amount by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
8.4 Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that the Company shall after the date hereof issue securities with
greater or superior voting rights than the shares of Common Stock outstanding as
of the date hereof, the Holder, at its option, may receive upon exercise of any
Warrant either shares of Common Stock or a like number of such securities with
greater or superior voting rights.
8.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of said adjustment shall be less than two cents
($.2) per Warrant Share, provided, however, that in such case any adjustment
that would otherwise be required then to be made
<PAGE> 59
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per Warrant Share.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on NASDAQ/NM.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash
<PAGE> 60
dividend or distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the Holders.
14. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of
business on ________, 200_. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on ________ , 200_.
<PAGE> 61
17. Governing Law: Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to its rules
governing the conflicts of laws.
The Company and the Representative hereby agree that any action,
proceeding or claim against it arising out of or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Southern District of New York, and
irrevocably submit to such jurisdiction, which jurisdiction shall be exclusive.
The Company and the Representative hereby irrevocably waive any objection to
such exclusive jurisdiction or inconvenient forum. Any such process or summons
to be served upon the Company or the Representative (at the option of the party
bringing such action, proceeding or claim) may be served by transmitting a copy
thereof, by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 13 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
party so served in any action, proceeding or claim. The Company and the
Representative agree that the prevailing party(ies) in any such action or
proceeding shall be entitled to recover from the other party(ies) all of
its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
18. Entire Agreement: Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Shares any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company, the Representative and the Holder(s) of the Warrant Certificates or
Warrant Shares.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL]
INFOCURE CORPORATION
By:
----------------------------------
Name:
Title:
Attest:
-----------------
Secretary
JOSEPHTHAL LYON & ROSS INCORPORATED
By:
----------------------------------
Name:
Title:
<PAGE> 63
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:30 P.M.,
NEW YORK TIME, ___________ , 200_
No. W-_______
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________, or registered assigns, is the
registered holder of _________ Warrants, each Warrant entitling the holder to
purchase initially, at any time from _______ 199_ [one year from the effective
date of the Registration Statement] until 5:30 p.m. New York time on ________,
200__ [five years from the effective date of the Registration Statement]
("Expiration Date"), one fully-paid and non-assessable share of common stock,
$.__ par value ("Common Stock") of ________, a ________ corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $__________ [120% of the public offering
price] per share of Common Stock upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the warrant agreement dated as
of__________ , 199_ by and between the Company and JOSEPHTHAL LYON & ROSS
INCORPORATED (the "Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant Certificate.
<PAGE> 64
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE> 65
IN WITNESS WHEREOF the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of , 1997
----------
INFOCURE CORPORATION
[SEAL] By:
-----------------------
Name:
Title:
Attest:
- ---------------------------
Secretary
<PAGE> 66
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the order of
____________ in the amount of $________ , all in accordance with the terms of
Section 3.1 of the Representative's Warrant Agreement dated as of __________,
199_ between __________ , INC. and JOSEPHTHAL LYON & ROSS INCORPORATED. The
undersigned requests that a certificate for such securities be registered in the
name of ____________ whose address is _____________________ and that such
Certificate be delivered to _________________ whose address is ________________
Dated: ____________________
Signature ____________________________
(Signature must conform
in all respects to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Holder)
<PAGE> 67
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase _____________ shares of Common Stock all
in accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________ 199_ between_______________, INC. and
JOSEPHTHAL LYON & ROSS INCORPORATED. The undersigned requests that a certificate
for such securities be registered in the name of ______________ whose address
is_____________ and that such Certificate be delivered to ___________ whose
address is
Dated: __________________________
Signature (Signature must conform in all respects to name of
holder as specified on the face of the Warrant Certificate. )
(Insert Social Security or Other Identifying Number of Holder)
<PAGE> 68
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED) __________________________ hereby sells, assigns and
transfers unto ___________________________.
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ____________________
Signature:_____________________ (Signature must conform in all
respects to name of holder as specified on the face of the Warrant
Certificate.)
(Insert Social Security or Other Identifying Number of
Assignee)
<PAGE> 1
EXHIBIT 2.3
-----------
AGREEMENT OF MERGER
OF
AMERICAN MEDCARE CORPORATION
(A DELAWARE CORPORATION)
AND
INFOCURE CORPORATION
(A DELAWARE CORPORATION)
AGREEMENT OF MERGER approved on May ___, 1997 by a majority of the
shareholders of AMERICAN MEDCARE CORPORATION, a Delaware corporation, and by
resolution adopted by its Board of Directors on May 9, 1997, and approved on
May 9, 1997 by the shareholders of INFOCURE CORPORATION, a Delaware
corporation, and by resolution adopted by its Board of Directors on said date.
WHEREAS, AMERICAN MEDCARE CORPORATION is a Delaware corporation with
its registered office therein located at 1013 Centre Road, City of Wilmington,
County of New Castle; and
WHEREAS, the total number of shares of stock which AMERICAN MEDCARE
CORPORATION has authority to issue is 75,000,000 shares of common stock, all of
which are of one class and of a par value of $.001 each; and
WHEREAS, INFOCURE CORPORATION is a Delaware corporation with its
registered office therein located at 1013 Centre Road, City of Wilmington,
County of New Castle; and
<PAGE> 2
WHEREAS, the total number of shares of capital stock which INFOCURE
CORPORATION has authority to issue is 17,000,000 shares, 2,000,000 shares of
which are preferred stock with a par value of $.001 and 15,000,000 shares of
which are common stock with a par value of $.001; and
WHEREAS, the shareholders of AMERICAN MEDCARE CORPORATION and INFOCURE
CORPORATION and the respective Boards of Directors thereof each deemed it
advisable and in the best interest of said corporations and their respective
stockholders to merge AMERICAN MEDCARE CORPORATION with and into INFOCURE
CORPORATION pursuant to the provisions of the General Corporation Law of the
State of Delaware upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, the parties hereto agree as follows:
SECTION I
MERGER AND CONVERSION OF SHARES
1.1 Merger. AMERICAN MEDCARE CORPORATION and INFOCURE CORPORATION
shall, pursuant to the provisions of the General Corporation Law of the State
of Delaware, be merged ("Merger") with and into a single corporation, to wit,
INFOCURE CORPORATION, which shall be the surviving corporation from and after
the effective time of the merger ("Effective Time"), and which is sometimes
hereinafter referred to as the "Surviving Corporation," and which shall
continue to exist as the Surviving Corporation under its present name pursuant
to the provisions of the General Corporation Law of the State of Delaware. The
separate existence of AMERICAN MEDCARE CORPORATION, which is hereinafter
sometimes referred to as the "Terminating Corporation", shall cease at the
Effective Time in accordance with the provisions of said General Corporation
Law of the State of Delaware.
2
<PAGE> 3
1.2 Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation, as now in force and effect, shall
continue to be the Certificate of Incorporation of the Surviving Corporation
and said Certificate of Incorporation shall continue in full force and effect
until amended in the manner prescribed by the provisions of the General
Corporation Law of the State of Delaware.
1.3 Bylaws. The present by-laws of the Surviving Corporation will
be the by-laws of the Surviving Corporation and shall continue in full force
and effect until amended as therein provided and in the manner prescribed by
the provisions of the General Corporation Law of the State of Delaware.
1.4 Directors. The directors and officers of the Surviving
Corporation at the Effective Time shall be the members of the Board of
Directors and the officers of the Surviving Corporation, all of whom shall hold
their directorships and offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the by-laws of the Surviving Corporation and the General
Corporation Law of the State of Delaware.
1.5 Exchange of Shares. Each issued share of common stock, par
value $.001 ("AMC Common Stock"), of the Terminating Corporation outstanding
shall, at the Effective Time be converted into such fraction of a share of
common stock, par value $.001 ("InfoCure Common Stock") of the Surviving
Corporation determined by dividing (i) 3,897,400 by (ii) the sum of (x) the
number of the outstanding shares of AMC Common Stock immediately prior to the
Effective Time, (y) the number of shares of AMC Common Stock subject to
outstanding stock options and warrants at the Effective Time and (z) 1,257,000.
The issued shares of InfoCure Common Stock shall not be converted or exchanged
in any manner, but each said share which is issued as of the Effective Time
shall continue to represent one issued share of InfoCure Common Stock.
3
<PAGE> 4
1.6 No Fractional Shares. No scrip or fractional share
certificate for the InfoCure Common Stock shall be issued, but in lieu thereof
each holder of shares of AMC Common Stock otherwise entitled to a fractional
share certificate for InfoCure Common Stock at the Effective Time shall receive
an amount in cash equal to the product of the fair market value (as hereinafter
defined) of one (1) share of InfoCure Common Stock multiplied by such fraction
of a share of InfoCure Common Stock to which the holder would be otherwise
entitled. No such holders shall be entitled to dividends or other rights in
respect to any such fractional interest in the InfoCure Common Stock. Payment
for such fractional interest shall be made without interest promptly after
surrender of such shares of AMC Common Stock. For the purposes of this
paragraph, the fair market value of a share of InfoCure Common Stock shall be
deemed to be the public offering price of a share of InfoCure Common Stock
pursuant to the registration statement of the Surviving Corporation filed with
the Securities and Exchange Commission, Registration Statement No. 333-18923,
which becomes effective on or prior to the Effective Time.
1.7 Surrender of Certificates. After the Effective Time and until
the surrender of each outstanding share certificate representing any AMC Common
Stock, each such outstanding certificate which prior to the Effective Time
represented shares of AMC Common Stock shall be deemed, for all corporate
purposes, to evidence the ownership of the full shares of InfoCure Common Stock
for and into which such shares have been converted; provided, however, that,
unless and until any such certificate of AMC Common Stock shall be so
surrendered, dividends and other distributions of any kind payable to holders
of record of shares of InfoCure Common Stock shall not be paid by the Surviving
Corporation in respect to shares of InfoCure Common Stock for which share
certificates have not been issued in exchange for the outstanding shares of AMC
Common Stock. Upon the subsequent surrender and exchange of such certificates,
said holder of the AMC Common Stock shall be paid the amount of any dividend or
other distribution, without interest, which became payable to holders of record
of shares of InfoCure Common Stock on or after the Effective Time and prior to
surrender and exchange of such certificates if the payment date was prior to
the
4
<PAGE> 5
surrender and exchange and if the payment date was subsequent to the surrender
and exchange, payment shall be made on such payment date.
1.8 Exercise of Dissenters' Rights. Shareholders of AMC Common
Stock who shall have filed a written objection to the merger and have complied
with the requirements for perfecting appraisal rights as set forth in the
Delaware Corporation Law shall not be entitled to receive any shares of
InfoCure Common Stock under this Agreement. Such shares of AMC Common Stock
shall be deemed to be automatically canceled for all purposes as of the
Effective Time.
1.9 Treasury Shares. On the Effective Time all shares of the AMC
Common Stock that shall then be held in its treasury, if any, shall
automatically cease to exist and all certificates representing such shares
shall be canceled.
1.10 Options and Warrants. On the Effective Time each holder of a
warrant, stock option or other right (collectively "Options") to acquire AMC
Common Stock granted by the Terminating Corporation prior thereto which are
then outstanding shall be entitled to purchase from the Surviving Corporation
(which shall assume such obligations under the Options without modification)
the number of full shares of InfoCure Common Stock upon the exercise of the
Option in accordance with the terms of and in the manner provided pursuant to
the applicable Option, in lieu of the AMC Common Stock, to which the holder of
the Option would have been entitled to receive pursuant to the terms of the
merger if, at the time of the merger, such holder of the Option had been the
holder of record of the number of shares of AMC Common Stock that the holder is
purchasing pursuant to the Option. Fractional shares of InfoCure Common Stock
will not be issued upon the exercise of an Option. In lieu of issuing a
fractional share certificate, the Surviving Corporation shall pay an amount
determined as set forth in paragraph 5 hereof; provided, however, that the fair
market value of one share of InfoCure Common Stock shall be the average of the
highest and lowest quoted
5
<PAGE> 6
selling price on the American Stock Exchange on the first trading day
immediately preceding the exercise of the Option.
1.11 Exchange Agent. The Surviving Corporation may employ an
exchange agent to assist with the exchange of certificates of AMC Common Stock
surrendered as provided in this Agreement.
1.12 Filing of Documents. The said corporations agree that they
will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Delaware, and that they will cause to be
performed all necessary acts within the State of Delaware and elsewhere to
effectuate the merger as herein provided.
1.13 Authorization of Officers. The officers of the Terminating
Corporation and of the Surviving Corporation are hereby authorized, empowered,
and directed to do any and all acts and things, and to make, execute, deliver,
file, and record any and all instruments, papers, and documents which shall be
or become necessary, proper, or convenient to carry out or put into effect any
of the provisions of this Agreement of Merger or of the merger herein provided
for.
1.14 Effective Time. The Effective Time of the Agreement of
Merger, and the time when the merger herein agreed upon shall become effective,
shall be upon filing of the Agreement of Merger or Certificate of Merger with
the Secretary of State of the State of Delaware.
SECTION II
REPRESENTATIONS OF INFOCURE CORPORATION
InfoCure Corporation represents and warrants to American Medcare
Corporation as follows:
6
<PAGE> 7
2.1 Organization and Standing. InfoCure Corporation is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; has full corporate power and authority to
conduct the business of developing, distributing and marketing software, and
related services and has full right, power and authority to issue the shares of
InfoCure Common Stock contemplated by this Agreement of Merger.
2.2 Authorization. (a) The execution, delivery and performance
of this Agreement of Merger has been duly authorized by all requisite corporate
action on the part of InfoCure Corporation. This Agreement of Merger has been
duly executed and delivered by InfoCure Corporation and constitutes the legal,
valid and binding obligation of InfoCure Corporation enforceable against
InfoCure Corporation in accordance with its terms.
(b) The execution and delivery of this Agreement of
Merger, and the consummation by InfoCure Corporation of the Merger at the
Effective Time as contemplated herein, will not (with or without the giving of
notice, lapse of time or both) violate, conflict with, or result in a default
under, any of the provisions of the certificate of incorporation or by-laws of
InfoCure Corporation, any mortgage, indenture, contract, agreement, license,
permit, instrument, judgment, decree, order, statute, regulation or ruling of
any court or governmental authority to which InfoCure Corporation or any
subsidiary is a party or by which it is bound.
2.3 Capital Stock. The authorized capital stock of InfoCure
Corporation consists of 15,000,000 shares of Common Stock, $.001 par value and
2,000,000 shares of Preferred Stock, $.001 par value, none of which shares have
any pre-emptive rights and on the date hereof 100 shares of InfoCure Common
Stock are outstanding and validly issued, fully paid and non-assessable.
2.4 Shares to be Issued. The shares of InfoCure Common Stock to
be delivered pursuant to this Agreement of Merger will, upon issuance, be duly
and validly authorized and issued and fully paid and non-assessable voting
shares of InfoCure Corporation.
7
<PAGE> 8
2.5 Financials. InfoCure corporation has not commenced conducting
business and has assumed no liabilities. Copies of its financial statements as
of October 31, 1996 are set forth in the Registration Statement 333-18923, as
amended, as filed with the Securities and Exchange Commission ("Commission").
Since October 31, 1996 there has not been, and to the Effective Time there will
not be, any material change in the financial condition, assets or liabilities
of InfoCure Corporation, except that InfoCure Corporation continues to incur
substantial expenses in connection with the transactions contemplated by this
Agreement of Merger.
2.6 No Untrue Statements. No statements (including
representations) by InfoCure Corporation contained in this Agreement of Merger
, and no written statements furnished by InfoCure Corporation to American
Medcare Corporation pursuant to this Agreement of Merger, contain any untrue
statement of a material fact, or omit to state a material fact necessary in
order to make the statements therein contained not misleading.
SECTION III
REPRESENTATIONS OF AMERICAN MEDCARE CORPORATION
American Medcare Corporation represents and warrants to InfoCure
Corporation as follows:
3.1 Organization and Standing. American Medcare Corporation is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; has full corporate power and authority to
conduct the business of developing, distributing and marketing software and
other related services.
3.2 Authorization. (a) The execution, delivery and performance
of this Agreement of Merger has been duly authorized by all requisite corporate
action on the part of American Medcare Corporation. This Agreement of Merger
has been duly executed and delivered by
8
<PAGE> 9
American Medcare Corporation and constitutes the legal, valid and binding
obligations of American Medcare Corporation enforceable against American
Medcare Corporation in accordance with its terms.
(b) Except as heretofore disclosed to InfoCure
Corporation, the execution and delivery of this Agreement of Merger and the
consummation by American Medcare Corporation of the Merger at the Effective
Time as contemplated herein will not (with or without the giving of notice,
lapse of time or both) violate, conflict with, or result in a default under,
any of the provisions of the certificate of incorporation or bylaws of American
Medcare Corporation, any mortgage, indenture, contract, agreement, license,
permit, instrument, judgment, decree, order, statute, regulation, or ruling of
any court or governmental authority to which American Medcare Corporation or
any subsidiary is a party or by which it is bound.
3.3 Capital Stock. The authorized capital stock of American
Medcare Corporation consists of 75,000,000 shares of common stock, $.001 par
value, none of which shares have any pre-emptive rights. On the date hereof
_________ shares of American Medcare Corporation Common Stock are validly
issued and outstanding, fully paid and non-assessable; ___________ shares of
American Medcare Corporation Common Stock are reserved for issuance pursuant to
outstanding stock options and a warrant and for the acquisition of the capital
stock of Millard-Wayne, Inc.
3.4 Financials. (a) The consolidated balance sheet of
American Medcare Corporation and its subsidiaries as of January 31, 1997 and
the consolidated statements of operations for the nine-months ended January 31,
1997 contained in the Registration Statement 333-18923, as amended, present
fairly, in all material respects, the consolidated financial position of
American Medcare Corporation as of January 31, 1997 and the results of
operations for the nine-month period then ended in conformity with generally
accepted accounting principals.
9
<PAGE> 10
(b) Since January 31, 1997 there has not been, and to the
Effective Time there will not be, any material change in the financial
condition, assets, liabilities or business of American Medcare Corporation
except that American Medcare Corporation continues to incur substantial
expenses in connection with the transactions contemplated by this Agreement of
Merger.
3.5 No Untrue Statement. No statement (including representations)
by American Medcare Corporation contained in this Agreement of Merger and no
written statements furnished by American Medcare Corporation pursuant to this
Agreement of Merger, contains any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein
contained not misleading.
SECTION IV
CONDITIONS TO THE MERGER
The Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions, which conditions may be waived in writing by
the parties hereto:
4.1 Representations and Warranties. The representations and
warranties made by a party hereto to the other party shall be true and correct
in all material respects with the same effect as though made at the Effective
Time.
4.2 Public Offering. The Registration Statement 333-18923 shall
have become effective and the Representatives of the Underwriters as set forth
therein and InfoCure Corporation have entered into the underwriting agreement
and the Underwriters have agreed to purchase the InfoCure Common Stock as set
forth in the Registration Statement, as amended.
4.3 S-4 Registration Statement. The Registration Statement on
Form S-4, 333-20571, registering shares of InfoCure Corporation Common Stock to
be issued pursuant to this Agreement of Merger and a certain other acquisition
has become effective.
10
<PAGE> 11
SECTION V
TERMINATION AND ABANDONMENT
5.1 Termination and Abandonment.
(a) This Agreement of Merger may be terminated at any
time and the Merger as herein contemplated abandoned at any time prior to the
Effective Time without liability of any party to any other party, except for
breaches of warranties, representations and covenants set forth in this
Agreement of Merger which are within the control of the defaulting or
non-performing party, under the following circumstances:
(i) The mutual written agreement of InfoCure
Corporation and American Medcare Corporation;
or
(ii) By either party if the Effective Time has not
occurred before June 30, 1997.
(b) Any party may terminate this Agreement of Merger by
written notice to the other if any action or proceeding shall have been
instituted before any court or other governmental body or, to the knowledge of
the party giving such notice, shall have been threatened formally in writing by
any public authority with requisite jurisdiction, to restrain or prohibit the
transactions contemplated by this Agreement of Merger or to subject one or more
of the parties or their directors or their officers to liability on the grounds
that it or they have breached any law or regulation or otherwise acted
improperly in connection with such proposed transactions and such action or
proceeding shall not have been dismissed or such written threat shall not have
been withdrawn or rescinded before June 30, 1997.
11
<PAGE> 12
SECTION VI
MISCELLANEOUS PROVISIONS
6.1 Entire Agreement. This Agreement of Merger embodies the
entire understanding between the parties hereto regarding the Merger of
InfoCure Corporation and American Medcare Corporation and related matters as
set forth in this Agreement of Merger. No representations or agreements,
whether written or oral, other than those contained or referenced herein, shall
be binding on the parties. This Agreement of Merger may not be amended or
modified except in a writing signed by all of the parties hereto.
6.2 Partial Invalidity. If any term or provision of this
Agreement of Merger, not essential to the basic purposes of the transactions
contemplated herein, shall be held to be illegal, invalid or unenforceable by a
court or arbitrator of competent jurisdiction, it is the intention of the
parties hereto that (i) the remaining terms hereof shall constitute the
agreement with respect to the subject matter hereof, (ii) all such remaining
terms shall remain in full force and effect and shall be deemed to constitute
the entirety of this Agreement of Merger as though such illegal, invalid or
unenforceable provision had never been part hereof and (iii) such illegal,
invalid, or unenforceable provision shall be construed as closely as possible
to the parties' original intent in order to render such provision legal, valid,
or enforceable, as applicable.
6.3 Governing Law. This Agreement of Merger shall be governed by
the laws of the State of Delaware (regardless of the laws that might be
applicable under principles of conflicts of law) as to all matters, including,
but not limited to, matters of validity, construction, effect and performance.
12
<PAGE> 13
IN WITNESS WHEREOF, this Agreement of Merger is hereby executed this
_____ day of May, 1997 upon behalf of each of the constituent corporations
hereto.
AMERICAN MEDCARE CORPORATION
By: ____________________
Its: President
INFOCURE CORPORATION
By: ____________________
Its: President
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<PAGE> 14
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INFOCURE CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is
INFOCURE CORPORATION
2. The certificate of incorporation is hereby amended as follows:
(a) By deleting Article FOURTH in its entirety and by
substituting in lieu thereof the following:
"FOURTH: The aggregate number of shares of all classes of the
capital stock which the corporation shall have authority to
issue is seventeen million (17,000,000) shares which are
divided into two million (2,000,000) shares of preferred stock
with a par value of $.001 each, and fifteen million
(15,000,000) shares of common stock with a par value of $.001
each."
Subject to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the board of
directors of the corporation is authorized to determine,
without shareholder action, the powers, designations,
preferences, limitations, voting power and relative,
participating, optional and other special rights and
qualifications, limitations and restrictions of the preferred
stock, including without limitation, the relative rights of
any class of shares of preferred stock, each series within a
class, the number of shares within each class and series and
the dividend rights, conversion rights and terms of redemption
(including sinking fund provisions and liquidation
preferences), all to the fullest extent now or hereafter
permitted by the General Corporation Law of the State of
Delaware.
Each holder of shares of common stock shall be entitled to one
vote for each share of common stock held of record on all
matters on which the holders of common stock are entitled to
vote.
3. The amendment of certificate of incorporation herein certified
has been duly adopted by the written consent of the directors and shareholders
in accordance with the provisions of Sections 228 and 242 of the General
corporation Law of the State of Delaware.
<PAGE> 15
Signed and attested to on May 1, 1997.
__________________________________
Frederick L. Fine, President
Attest:
________________________
James K. Price, Secretary
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INFOCURE CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is
INFOCURE CORPORATION
2. The certificate of incorporation is hereby amended as follows:
(a) By deleting Article FOURTH in its entirety and by
substituting in lieu thereof the following:
"FOURTH: The aggregate number of shares of all classes of the
capital stock which the corporation shall have authority to
issue is seventeen million (17,000,000) shares which are
divided into two million (2,000,000) shares of preferred stock
with a par value of $.001 each, and fifteen million
(15,000,000) shares of common stock with a par value of $.001
each."
Subject to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the board of
directors of the corporation is authorized to determine,
without shareholder action, the powers, designations,
preferences, limitations, voting power and relative,
participating, optional and other special rights and
qualifications, limitations and restrictions of the preferred
stock, including without limitation, the relative rights of
any class of shares of preferred stock, each series within a
class, the number of shares within each class and series and
the dividend rights, conversion rights and terms of redemption
(including sinking fund provisions and liquidation
preferences), all to the fullest extent now or hereafter
permitted by the General Corporation Law of the State of
Delaware.
Each holder of shares of common stock shall be entitled to one
vote for each share of common stock held of record on all
matters on which the holders of common stock are entitled to
vote.
3. The amendment of certificate of incorporation herein certified
has been duly adopted by the written consent of the directors and shareholders
in accordance with the provisions of Sections 228 and 242 of the General
corporation Law of the State of Delaware.
<PAGE> 2
Signed and attested to on May 1, 1997.
__________________________________
Frederick L. Fine, President
Attest:
________________________
James K. Price, Secretary
<PAGE> 1
EXHIBIT 10.26
ROVAK, INC.
AMENDMENT TO STOCK PURCHASE AGREEMENT
AND
ESCROW AGREEMENT ("AMENDMENT")
The undersigned SHAREHOLDERS and INFOCURE CORPORATION have entered
into a Stock Purchase Agreement ("Agreement") and an Escrow Agreement with
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP, as escrow agent, pursuant to which
certain closing documents were being held in escrow pending the pricing of the
Common Stock of InfoCure Corporation, pursuant to Registration Statement on
Form SB-2, No. 333-18923.
WHEREAS, the parties wish to amend the agreements to extend the time
for the consummation of the transactions contemplated in the Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein made
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Paragraph 2.8(a) is amended by substituting the words
"for the 12 month period ending January 31, 1998" for
the words "for the year ended December 31, 1997."
2. Paragraph 2.8(b) is amended by substituting "January
31, 1998" for December 31, 1997" wherever it appears
therein.
3. Paragraph 3.2, Financial Statement, is amended by
substituting "December 31, 1996" in lieu of
"September 30, 1996" and by substituting "the year
ended" in lieu of "the nine months ended."
4. Paragraph 11.1, Termination and Abandonment, of the
Agreement is hereby amended by substituting June 30,
1997 in lieu of April 15, 1997, as set forth in
subparagraphs (b), (c) and (d) of paragraph 11.1.
5. The Escrow Agreement is amended by substituting June
30, 1997 in lieu of April 15, 1997, and July 1, 1997
in lieu of April 16, 1997 except that upon the
request of counsel for the Company or the
Shareholders, the legal opinion(s) held in escrow
shall be released to such counsel.
6. With respect to the shares of common stock of Buyer
to be received pursuant to the Agreement, certain
Shareholders of such shares shall execute and deliver
to the underwriters and the Buyer an agreement
("Standstill Agreement") that the holder of
<PAGE> 2
said shares will not sell or otherwise transfer the
shares for six (6) months after the Closing. The
Standstill Agreement shall be in the same form as
that executed by the President of Buyer.
7. Upon the Purchase Price Delivery Date, Buyer will
cause Company to pay in full the Company's then
outstanding loans, including accrued interest, from
Lake Elmo Bank pursuant to (i) those certain variable
rate commercial promissory notes in the original
principal amount of $500,000.00 dated August 28, 1996
and in the original principal amount of $330,350.00,
dated November 9, 1995; the Note dated June 16, 1994
in the original principal amount of $496,102.33; and
the Note dated October 28, 1991 in the original
principal amount of $132,000.00.
8. Except as herein specifically provided, the parties
hereto reaffirm the terms and conditions of the
Agreement and Escrow Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the 24th day of May, 1997.
INFOCURE CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
SHAREHOLDERS:
-------------------------------------
Name:
-------------------------------------
-------------------------------------
Name:
-------------------------------------
-------------------------------------
Name:
-------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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<PAGE> 3
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Name:
---------------------------------
---------------------------------
Name:
---------------------------------
---------------------------------
Name:
---------------------------------
---------------------------------
Name:
---------------------------------
---------------------------------
Name:
---------------------------------
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Name:
--------------------------------
---------------------------------
Name:
---------------------------------
Name:
---------------------------------
Name:
---------------------------------
GLASS, MCCULLOUGH, SHERRILL &
HARROLD, LLP
By:
---------------------------------
Partner
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<PAGE> 1
EXHIBIT 10.27
PLAN OF MERGER
AMONG INFOCURE CORPORATION, CMA CORPORATION,
KCOMP MANAGEMENT SYSTEMS, INC.
AND THE SHAREHOLDERS OF
KCOMP MANAGEMENT SYSTEMS, INC.
THIS PLAN OF MERGER ("Agreement") is made as of the 5th day of May,
1997 by and among INFOCURE CORPORATION, a Delaware corporation ("IFC"), CMA
CORPORATION, a California corporation ("CMA"), KComp Management Systems, Inc., a
California corporation ("Company") and the undersigned Shareholders
(collectively "Shareholders") of the Company.
WHEREAS, the Company intends to merge ("Merger") into CMA, a wholly
owned subsidiary of IFC.
NOW, THEREFORE, in consideration of the mutual promises herein made and
of other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION I.
DEFINITIONS
1.1 CERTAIN DEFINITIONS
(a) "Affiliate" means any person, corporation, or other
business entity (i) which, whether directly or indirectly through one or more
intermediaries, is controlled by the Shareholders (individually or as a group)
or (ii) in which Shareholders (individually or as a group) own, directly or
indirectly through one or more intermediaries, 5% or more of the voting power
for the election of the governing board.
(b) "Business" means the development, marketing and
support of the Software, including upgrades, as currently conducted by Company
and the sales and marketing of Hardware, including upgrades (as of the Closing).
(c) "Copyright" means all copyright ownership of the
Software and Documentation.
(d) "Development Software" means all software, object,
source, and executable code licensed by Company as licensee which is used in the
conduct of the development, maintenance, and support of the Software. A list of
the Development Software is set forth in Section 1.1(d) of the Disclosure
Schedule.
<PAGE> 2
(e) "Distributor Software" means all software, object,
source, and executable code, sublicensed, sold, leased or distributed by Company
as licensor or lessor which is not owned by Company. The term excludes
Development Software. A list of the Distributor Software is set forth in Section
1.1(e) of the Disclosure Schedule.
(f) "Distributorship Agreements" means all appointments of
Company to sell or license Hardware or Distributor Software. A list of such
appointments is set forth in Section 1.1(f) of the Disclosure Schedule.
(g) "Documentation" means all technical manuals and notes,
user manuals, and all other documents developed or in development relating to or
used in the development, maintenance, support, enhancement and use of the
Software, including pending improvements, fixes and enhancements regardless of
the media upon which the Documentation exists, which is owned by Company.
(h) "GAAP" means generally accepted United States
accounting principles, consistently applied on an accrual basis.
(i) "Hardware" means all computers, components,
peripherals, and other equipment to be offered for sale by Company as of the
Closing in the course of its business. Section 1.1(h) of the Disclosure Schedule
lists all Hardware currently being sold by Company.
(j) "Intellectual Property" means all patents, patent
pending, copyrights, trade secrets, techniques, know-how, and other intangible
assets which are legally protectable or recognized as forms of property, whether
or not reduced to practice or a writing.
(k) "License Agreements" means those agreements entered
into by Company (or its predecessors) as licensor for the licensing of any
Software, Distributor Software and/or Intellectual Property of Company.
(l) "Management of Company" means the current chief
executive officer, the chief operating officer, and the chief financial officer
of Company.
(m) "Public Offering" means the first public offering of
common stock of IFC the net proceeds of which paid to the issuer, after
deduction of the underwriters discount, shall exceed $12 million and shall occur
prior to June 30, 1997.
(n) "Shareholder" shall include holders of warrants and
options to purchase shares of capital stock of Company, if any.
(o) "Software" means all software, object, source and
executable code, licensed, sold or leased by Company as licensor or lessor, and
all fixes, updates, upgrades and enhancements heretofore developed or being
developed as well as other software developed or
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being developed for marketing to dentists, dental practices, physicians,
clinics, hospitals and medical groups which is owned by Company. A list of the
Software is set forth in Section 1.1(o) of the Disclosure Schedule.
(p) "Stock" means all of the capital stock of Company as
set forth in Section 1.1(p) of the Disclosure Schedule.
(q) "Trademarks" mean the trademarks listed in Section
1.1(q) of the Disclosure Schedule.
SECTION II.
THE MERGER
2.1 CONSTITUENT CORPORATIONS. The constituent corporations to the
Merger are the Company and CMA.
2.2 EFFECTIVE DATE.
(a) This Agreement has been submitted to the Shareholders
of the Company for approval as provided by the appropriate statutes of the State
of Georgia and the State of California. If all of the conditions precedent to
the Merger have either been fulfilled or waived in writing, a Certificate of
Merger, substantially in the form as set forth in Section 2.2 of the Disclosure
Schedule, shall be executed, delivered, filed and recorded in accordance with
the laws of the States of Georgia and California as soon as practical
thereafter, unless otherwise agreed by the parties in writing. The Merger will
become effective when the Certificate of Merger is filed with the Secretary of
State of the State of Georgia and of the State of California or as otherwise set
forth in the Certificate of Merger. The date on which the Merger shall become
effective is referred to herein as the "Effective Date" or "Closing."
(b) The parties shall use their best efforts to cause the
Effective Date to be on or before 8:00 a.m. Atlanta on the day on which the
Public Offering commences, or such other date or place as the parties hereafter
mutually agree in writing, subject to the conditions set forth hereinafter. The
Public Offering of the common stock of IFC shall be deemed to have commenced at
the time which is the latest of the time at which (i) the IFC's Registration
Statement on Form SB-2 No. 333-18923 ("SB Registration Statement") filed with
the Securities and Exchange Commission ("Commission") becomes effective; or (ii)
the underwriters have agreed to purchase the shares of common stock of IFC
pursuant to the Public Offering or (iii) the Registration Statement on Form S-4
No. 333-20571 ("S4 Registration Statement") registering the shares of common
stock of IFC to be issued pursuant to certain other acquisitions and mergers
becomes effective. The Merger shall be effective on the date of Closing,
notwithstanding subsequent delivery of the Cash Consideration as set forth in
paragraph 2.8 below.
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2.3 MERGER OF COMPANY INTO CMA. Upon the Effective Date, the
Company shall merge into CMA in accordance with the applicable statutes of the
State of Georgia and the State of California. The separate existence and
corporate organization of the Company shall cease on the Effective Date and CMA,
as the surviving corporation ("Surviving Corporation"), shall succeed to and
possess all of the properties, rights, privileges, powers, franchises,
immunities and purposes and be subject to all the debts, liabilities,
obligations, restrictions, disabilities, penalties and duties of the Company,
all without further act or deed.
2.4 ADDITIONAL DOCUMENTS. At any time after the Effective Date,
upon request by the Surviving Corporation, the proper officers and directors of
the Company as of the Effective Date shall execute and deliver any and all
deeds, assignments and other instruments, and shall take or cause to be taken
such further or other action as the Surviving Corporation may deem necessary or
desirable in order to vest, perfect or confirm title to and possession of all of
the properties, rights, privileges, powers, franchises, immunities and purposes
in the Surviving Corporation and otherwise to carry out fully the provisions and
purposes of this Agreement.
2.5 AMENDMENT OF CERTIFICATE OF INCORPORATION. From and after the
Effective Date and until thereafter amended as provided by law, the certificate
of incorporation of CMA as in effect immediately prior to the Effective Date
shall be the certificate of incorporation of the Surviving Corporation, except
that on the Effective Date the certificate of incorporation of CMA shall be
amended by amending Article First thereof to read as follows: "The name of this
corporation is KComp Management Systems, Inc."
2.6 BYLAWS. From and after the Effective Date and until thereafter
amended as provided by law, the bylaws of CMA as in effect immediately prior to
the Effective Date, shall be the bylaws of the Surviving Corporation.
2.7 DIRECTORS AND OFFICERS. From and after the Effective Date, the
directors and officers of the Surviving Corporation shall be the directors and
officers of CMA. Such directors and officers shall hold office for the time
specified in and subject to the provisions contained in the bylaws of the
Surviving Corporation and applicable law.
2.8 CONVERSION OF SHARES OF THE COMPANY.
(a) At the Effective Date, by virtue of the Merger and
without further action on the part of the Company, CMA or the Surviving
Corporation, the outstanding shares of the Company ("Company Shares") shall be
converted in and become the right to receive ("Aggregate Consideration") an
aggregate of (i) $800,000 ("Cash Consideration") and (ii) such number of shares
of common stock, par value $.001, of IFC ("Common Stock") equal to the quotient
of (iii) 800,000 divided by (2) the price of a share of Common Stock to the
public pursuant to the Public Offering plus 2,500 share of Common Stock. The
cash and shares of Common Stock are to be exchanged as set forth in the
Certificate of Merger or as set forth in Section 2.8 of the Disclosure Schedule.
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(b) Delivery by IFC of the Cash Consideration (subject to any
reduction pursuant to paragraph 2.13 by certified or official bank check or
checks payable in New York Clearing House (next day) funds or wire transfers or
other means of immediately available funds to the respective accounts of the
Shareholders located in the United States as designated by the Shareholders,
shall occur one business day after IFC receives the proceeds of the Public
Offering (such time and date of delivery and payment is called the "Purchase
Price Delivery Date").
2.9 SHARES OF CMA AFTER THE EFFECTIVE DATE. Each share of common
stock of CMA which shall be outstanding immediately prior to the Effective Date
shall be and remain shares of the Surviving Corporation after the Effective
Date.
2.10 DISSENTERS RIGHTS. Company and CMA shall have fully complied
with the requirements to provide the Shareholders with notice to dissenters
rights under applicable laws.
2.11 TREASURY SHARES OF COMPANY. On the Effective Date, all shares
of common stock of the Company then held in the treasury, if any, shall
automatically cease to exist and all certificates representing such shares shall
be canceled.
2.12 RIGHTS OF SHAREHOLDERS AFTER EFFECTIVE DATE. After the
Effective Date and until the surrender of the outstanding share certificates of
common stock of the Company, each such outstanding certificate, which prior to
the Effective Date represented shares of common stock of the Company shall be
deemed for all corporate purposes to evidence the right to receive payment in
the amount (cash and shares of Common Stock) for and into which such shares
shall have been converted.
2.13 ESCROW. On or before the Closing, the parties shall enter into
an escrow agreement ("Escrow Agreement") establishing an escrow fund ("Escrow
Fund") in the amount of $80,000 in cash or Common Stock as the Shareholders
shall designate.
2.14 NEW WORTH SHORTFALL.
(a) In the event the Net Worth is more than minus $242,703
(meaning it is either a positive Net Worth or it is a negative Net Worth in an
amount up to but not exceeding minus $242,703), the Aggregate Consideration will
be increased by increasing the amounts set forth in Paragraph 2.8 (a)(i) and
(a)(i)(y) by an amount equal to one-half the difference between the Net Worth as
of the Closing determined as set forth in subparagraph (b) and minus $242,703.
In the event it is less than minus $242,703 (meaning a negative Net Worth
exceeding minus $242,703), the Aggregate Consideration will be reduced by
reducing the amounts set forth in paragraph 2.8 (a) (i) and (a)(ii)(z) by an
amount equal to one-half the difference between minus $242,703 and the Net Worth
as of the Closing determined as set forth in subparagraph (b).
(b) IFC shall cause an audited balance sheet to be prepared
as of the Closing in order to determine the Net Worth of Company, at the expense
of IFC by the independent auditors
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of IFC. The audit shall be completed within ninety (90) days after the Closing.
The Shareholders' advisors may observe the audit and procedures and will have
access to all work papers, procedures and personnel of IFC's independent
auditors. As soon as such audited financial statement is available to IFC, IFC
shall deliver to the Shareholders the financial statement as certified by the
independent auditors. The Shareholders shall have thirty (30) days to review and
object to the balance sheet. Any disagreements as to the amounts of any
adjustment to be made to the balance sheet, if not mutually resolved, shall be
resolved as provided in paragraph 9.5, except that the arbitrator(s) shall be
person(s) experienced in financial and accounting matters. Upon the final
resolution of the Net Worth as of the Closing, a final adjustment shall be made
to the Aggregate Consideration as provided in Paragraph 2.8. All said
adjustments shall be made on a pro rata basis among the Shareholders.
(c) The Parties shall use their best efforts to estimate
the amount of the adjustment, if any, on or prior to the Closing and the
Aggregate Consideration as of the Closing will reflect such tentative adjustment
which will be subject to further adjustment pursuant to the provisions of
subparagraphs (a) and (b). All deliveries of the balance of the Aggregate
Consideration by IFC or a return of a portion of the Aggregate Consideration by
the Shareholders shall be made within ten (10) days of the final resolution of
the determination of the Net Worth pursuant to subparagraph (b).
2.15 ADDITIONAL CONSIDERATION.
(a) If the income from operations ("Operating Income") of
the Company (which is defined as the Company's earnings from operations
exclusive of interest, taxes, depreciation, extraordinary expenses, and overhead
burden from IFC and its Affiliates) for the twelve-month period ending July 31,
1998, determined in accordance with GAAP, exceeds $400,000, the Shareholders
will receive, on a pro rata basis, as additional consideration ("Additional
Consideration") in exchange for the Company Shares an amount equal to the
product of (i) 5.5 times (ii) the amount of the income from operations of the
Company in excess ("Excess") of $400,000; provided, however, in no event shall
the Excess exceed $27,273 for calculating the Additional Consideration. The
Additional Consideration shall be payable in cash.
(b) IFC shall cause the Company to prepare a statement of
operations for the twelve-month period ending July 31, 1998 within 120 days
thereafter. A copy of the statement of operations shall be promptly provided to
the Shareholders. The Shareholders shall have thirty (30) days to review and
object to the income from operations contained in the statement of operations.
The Shareholders and their advisors shall be given access to all work papers and
procedures and personnel used by the Company's accountants. Any disagreements
shall be resolved by the Company's independent accountants. Within ten (10) days
of the final resolution of the adjustment, payment shall be made by IFC to the
Shareholders pro rata, subject to the right of set off for any amounts payable
to IFC or Company pursuant to Section IX hereof.
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(c) If the Operating Income of the Company for the
twelve-month period ending July 31, 1998, determined in accordance with GAAP,
exceeds $427,273, the Shareholder, Marc Kloner, will receive as further
consideration ("Further Additional Consideration") 3,443.2 shares of Common
Stock for each $10,000 of Operating Income in excess of $427,273 but less than
$750,000. The foregoing ratio assumes a public offering price of a share of
Common Stock of $9.00 per share. If the public offering price is greater or less
than $9.00 per share, the number of shares of Common Stock shall be decreased or
increased, respectively. The formula for the determination of the number of
shares of Common Stock is as follows:
The product of (A) Operating Income for said
twelve-month period (not to exceed $750,000) less $427,273 times (B) 3.0986
divided by the price to the public of a share of Common Stock pursuant to the
Public Offering.
2.16 OUTSTANDING NOTES/ELECTION.
(a) At the time of the Closing, the principal of and the
accrued interest on any notes payable to directors, officers and Shareholders
shall not exceed in the aggregate $250,000. Such obligations shall be replaced
by delivery by Company at the Closing of promissory notes ("Notes") to the
Shareholders, pro rata, in the aggregate principal amount not to exceed
$250,000. Any amounts in excess of $250,000 shall constitute a capital
contribution.
(b) Each holder of Notes may elect to purchase shares of
Common Stock of the IFC ("Purchased Shares") equal to the quotient of (i) the
principal amount of the holder's Notes divided by (ii) 120% of the price to the
public of a share of Common Stock of IFC included in the SB Registration
Statement. The election is to be made in writing not more than thirty (30) days
and not less than ten days prior to the date on which the payment of the last
installments of such Notes are otherwise due. Payment for the Purchased Shares
is to be made in cash and/or surrender of Notes at its principal amount. The
holders of the Notes are third-party beneficiaries under this Agreement and can
independently enforce this paragraph 2.16.
(c) The purchase of the Purchased Shares shall occur upon
the maturity date of the Notes. The Purchased Shares will not be issued pursuant
to any registration statement. The Purchased Shares and the shares of Common
Stock required pursuant to paragraph 2.15(c) will be "Restricted Securities"
within the meaning of Rule 144 promulgated by the Commission. The issuance of
such shares of Common Stock is subject to compliance with the applicable federal
and state securities laws. The acquirors of such shares of Common Stock will be
required by the IFC to make such representatives and warranties customarily made
to issuers as a condition to the private placement of securities. IFC hereby
agrees that such shares of Common Stock shall, upon their acquisition by the
Shareholders, be duly authorized, validly issued, fully paid and non-assessable.
(d) The Notes shall have a final maturity date of July 1,
1999. The interest shall be at the annual rate of 7%. Principal and interest
shall be paid in five (5) equal quarterly
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installments commencing July 1, 1998. IFC shall have right to offset any amounts
payable to IFC or Company pursuant to this Agreement, including Section IX,
against amounts payable pursuant to the Notes.
SECTION III.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to IFC
on the date hereof as follows:
3.1 CORPORATE AND SHAREHOLDER.
(a) Company is a corporation duly organized, validly
existing and in good standing under the laws of California and is qualified to
conduct business in all other jurisdictions in which the character of its assets
and the nature of its business requires it to be qualified to do business and in
which the failure to be so qualified could have a materially adverse effect on
its business, operations, prospects, assets or financial condition.
(b) A true, correct and complete copy of the Articles of
Incorporation and bylaws of Company are as set forth in Section 3.1(b) of the
Disclosure Schedule. There are 357,240 shares of common stock of Company
outstanding. There are no outstanding warrants, options, convertible securities
or other rights to acquire any shares of capital stock or other securities of
Company.
(c) Company holds all licenses, permits, authorizations and
other approvals from all governmental authorities necessary for the conduct of
the Business of Company as currently conducted, and in which failure to hold
such items could have a material adverse effect on the business, operations,
prospects, assets or financial condition of Company. A complete list of such
licenses, permits, authorizations and approvals are set forth in Section 3.1(c)
of the Disclosure Schedule.
(d) Company has no subsidiaries.
(e) The Company Shares owned by each Shareholder are set
forth in Section 3.1(e) of the Disclosure Schedule.
(f) Each Shareholder has the right, power and capacity to
execute, deliver and perform his undertakings pursuant to this Agreement and all
other agreements, documents and certificates contemplated or required by this
Agreement, to which such Shareholder is a party hereby (collectively, "Security
Holders' Documents") and to consummate the transactions contemplated hereby and
thereby.
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(g) This Agreement and each of Security Holders' Documents
to which such Shareholder is or will be a party constitute, or will constitute,
upon execution and delivery by the Shareholder, the valid and binding
obligations of such Shareholder, enforceable against such Shareholder in
accordance with their respective terms, except to the extent the enforceability
may be limited by bankruptcy, insolvency, moratoriums or other laws affecting
the enforcement of creditors' rights generally and by general principles of
equity, regardless of whether such enforceability is considered in a proceeding
in law or in equity.
(h) The execution, delivery and performance by each
Shareholder of this Agreement and such of Security Holders' Documents to which
such Shareholder is a party and the consummation of the transactions
contemplated hereby and thereby will not, with or without the giving of notice
or the lapse of time, or both, (i) violate any provision of law, statute, rule
or regulation to which such Shareholder is subject, (ii) violate any order,
judgment or decree applicable to such Shareholder or Company, or (iii) conflict
with, or result in a breach or default under, any term or condition of any court
order, trust document, will, shareholder agreement, articles of incorporation,
bylaws, or any other agreement, document or instrument to which such Shareholder
or Company is a party or by which such Shareholder or Company is bound.
(i) Each Shareholder has sole and exclusive record title to
and ownership of all of the Company Shares registered in such Shareholder's
name, as set forth in Section 3.1(e) of the Disclosure Schedule, free and clear
of any liens, restrictions (except federal and state securities law restrictions
of general applicability), claims, charges, options, rights of first refusal or
encumbrances, with no defects of title whatsoever.
(j) Each Shareholder (i) has had full and complete access
to information concerning Company, (ii) has had the opportunity to consult with
legal and financial advisers prior to executing this Agreement and the Security
Holders' Documents, (iii) has reviewed this Agreement and accompanying
documents; (iv) has sufficient knowledge and experience to evaluate the merits
of the transactions contemplated by this Agreement and the Security Holders'
Documents; and (v) has been given the opportunity to examine all documents
related to the transactions contemplated by this Agreement and to ask questions
of Company.
3.2 FINANCIAL STATEMENTS. The balance sheets as of March 31, 1996
and March 31, 1997 and the statements of operations of Company for the fiscal
years then ended audited by BDO Seidman LLP have been prepared in accordance
with GAAP and presents fairly the results of the operations of Company during
those periods. Said financial statements are sometimes collectively referred to
as "Financial Statements." A true, correct and complete copy of the Financial
Statements are set forth in Section 3.2 of the Disclosure Schedule. Prior to the
Closing, all directors, shareholders and affiliates loans will have been
canceled and the amounts thereof contributed to the capital of Company to the
extent they exceed $250,000 (principal and interest).
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3.3 CUSTOMERS
(a) Company or its predecessor has granted over 725
licenses to use the Software to end users. Section 3.3(a)(i) of the Disclosure
Schedule contains the list of the licensed users of the Software who are
currently provided maintenance under existing customer service agreements, each
of which can be terminated upon 90 days prior written notice by either the
customer or Company. Section 3.3(a)(i) of the Disclosure Schedule shall be
updated as of the Closing. Section 3.3(a)(ii) of the Disclosure Schedule
contains a list of the licensed users of the Software who have not entered into
such service agreements and who were charged for maintenance and support during
the period December 1, 1995 through November 30, 1996 on a time and materials
basis. Section 3.3(a)(iii) of the Disclosure Schedule contains a list of all
customers of Company whose aggregate fees and other charges during the twelve
(12) month period ending November 30, 1996 exceeded $50,000.
(b) Except as set forth in Section 3.3(b) of the Disclosure
Schedule, Company has not received any notice or other communication (written
or, to the knowledge of the Management of Company, oral) from any customer
listed on Section 3.3(a)(i), (ii) or (iii) of the Disclosure Schedule
terminating or reducing in any material respect or setting forth an intention to
terminate or reduce in any material respect in the future the amount of business
conducted with Company. (The termination or reduction in any material respect or
notice of any intention to terminate or reduce in any material respect during
the next succeeding 12 months of the amount of business conducted with Company
by any customer listed in Section 3.3(a)(iii) of the Disclosure Schedule shall
constitute a material adverse event and a breach of this warranty and
representation.) To the knowledge of the Management of Company, the consummation
of the transactions contemplated herein will not have a material adverse effect
on the business relationships with any of the customers listed on Section
3.3(a)(iii) of the Disclosure Schedule.
(c) Section 3.3(c) of the Disclosure Schedule sets forth a
list of licensees of the Software for which Company has any warranty or other
unfulfilled obligation under the applicable License Agreement and a description
of the unfulfilled obligation and the agreement under which it arises. Company
is not in material breach of its obligations thereunder.
(d) Section 3.3(d) of the Disclosure Schedule sets forth
the 1996 revenues, commissions and gross profits from the sale of Hardware and
upgrades by all Shareholders and all entities affiliated with any Shareholder to
customers of the Company.
3.4 ABSENCE OF CERTAIN FINANCE AND BUSINESS CHANGES.
(a) Since March 31, 1997, there has not been any event or
events which will have a material adverse effect taken as a whole on the
financial condition of Company (including software and service revenues) except
as set forth in Section 3.4(a) of the Disclosure Schedule or the declaration or
payment of any dividend on the capital stock or the redemption of any shares of
capital stock of Company.
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(b) Since March 31, 1997, no material loss, damage or
destruction of the assets has occurred, whether or not covered by insurance,
which may have a material adverse affect on the financial condition of Company
or on the Business.
(c) Since March 31, 1997, the Business has been conducted
substantially in the manner heretofore conducted consistent with past practices,
including with respect to the fees charged and the terms and conditions of the
License Agreements and Maintenance Agreements entered into, and no waiver or
release of any right was granted by Company except (i) of an immaterial value;
(ii) in the ordinary course of business consistent with past practices, and no
assets were sold except for the licensing of the Software in the ordinary course
of the Business; (iii) the Business has been expanded to include the
development, licensing and support of the Software and, upon the Closing, the
marketing and sale of Hardware, including upgrades; and (iv) all obligations and
liabilities between the Company and any Affiliate of a Shareholder have been
paid or canceled.
3.5 GUARANTIES/LIENS. Company is not guaranteeing the obligations
of any person and has no commitment to guarantee any of the obligations of any
person and is not currently granting and Company has no commitment to grant to
anyone an interest in or liens on any of its assets to secure the obligations of
Company or another except as set forth in Section 3.5 of the Disclosure
Schedule.
3.6 NO UNDISCLOSED LIABILITIES. Company has no liabilities,
absolute or contingent, known or unknown, except those recorded on the Financial
Statements as of March 31, 1996 and those incurred in the ordinary course of
business of Company since March 31, 1996, all of which are recorded on the
financial books and records of Company, are consistent with past practices and
are not in the aggregate materially adverse to the financial condition or
prospects of Company.
3.7 ACCOUNTS RECEIVABLE. The accounts receivable of Company,
billed and unbilled, as of the Closing will be valid and enforceable obligations
of third parties and will be collectible in full, without offset or fulfillment
of any condition, within three (3) months of their due date without the
engagement of any collection agency or attorney or the commencement of any
action, except to the extent of any reserves for bad debts and doubtful accounts
established on its financial books and records as of the Closing, which reserves
have been established in a manner which is consistent with past practices.
3.8 OWNERSHIP OF INTELLECTUAL PROPERTY.
(a) Software. Except as set forth in Section 3.8(a)(i) of
the Disclosure Schedule, (i) Company is the sole and exclusive owner throughout
the United States of the Software, including the software and software code
developed or being developed by or on behalf of or at the request of Company
(regardless of the state of the development of the software and whether it has
been released); and (ii) the Software constitutes all the software used and/or
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licensed in the conduct of the Business of Company, except for the Distributor
Software and the Development Software. Company has not granted licenses to
others to use or to sublicense others to use the Software outside of the United
States and to the knowledge of the Management of Company, the Software or
derivatives thereof are not being used or distributed outside of the United
States.
(b) Other Intellectual Property Rights. Except as set
forth in Section 3.8(b) of the Disclosure Schedule, Company is the sole and
exclusive owner throughout the United States of (i) all Copyrights, whether or
not registered, including but not limited to the moral rights; (ii) all other
Intellectual Property rights, including, without limitation, trade secrets,
know-how, inventions (patented and unpatented), and discoveries, embodied in or
used in the development of the Software, or any part thereof, and the screen
displays generated by the Software; and (iii) all Documentation; in each case
except the Development Software used in the development of the Software and the
Distributor Software. The Copyrights, Trademarks, Software, Documentation, and
other Intellectual Property of Company are collectively hereinafter referred to
as "Company Intellectual Property". Section 3.8(b)(ii) of the Disclosure
Schedule contains a correct and complete list of all registered Copyrights, the
date of registration and jurisdiction of such registrations. Company has not
filed any patent applications and does not hold any patents.
(c) Trademarks. Company is the sole and exclusive owner of
the Trademarks which include all identifying names and marks which are
associated with the Software or which are otherwise used in the Business
conducted by Company. A complete and correct list of all such Trademarks is set
forth in Section 1.1(q) of the Disclosure Schedule, none of which are registered
or have any applications for registrations pending.
(d) Software Developers. Section 3.8(d) of the Disclosure
Schedule sets forth the list of all persons and entities (other than full time
employees of Company) that have assisted at any time, directly or indirectly, in
the design, development, correction, improvement, modification, and/or
enhancement of the Software, Copyrights and/or Trademarks or from whom such
property has been acquired. Section 3.8(d) of the Disclosure Schedule also
identifies the written agreements and describes all oral agreements pursuant to
which each such person or entity assigned or licensed its rights in such
intellectual property to Company or acknowledged Company's ownership rights
therein. Correct and complete copies of each such agreement or assignment or
license has been furnished to IFC. The employees and former employees of Company
do not have any right, title or interest in the Software, Copyrights,
Trademarks, or other Company Intellectual Property. Section 3.8(d) of the
Disclosure Schedule sets forth the current form of agreements with its employees
regarding ownership of the Company Intellectual Property.
(e) Rights of Licensees. The ownership rights of Company in
Company Intellectual Property are subject only to the non-exclusive licenses
granted (i) to end users and (ii) to distributors by Company as described in
Paragraph 3.10 of this Agreement.
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(f) No Infringements. The Company Intellectual Property
does not, and did not at any time, violate or infringe any copyright, patent,
trade secrets, know-how, trademarks or other intellectual property rights of any
third party, is not in the public domain, has not been licensed by Company
and/or permitted to be duplicated by Company except as disclosed in this
Agreement or provided by law and, to the knowledge of the Management of Company,
the Company Intellectual Property (i) has not been duplicated except as
permitted under the applicable licenses and law, (ii) has not been reverse
compiled or engineered and (iii) there are no claims or actions pending or
threatened or which have been brought asserting such violation or infringement
or that any Company Intellectual Property is in the public domain.
(g) Distributor Software and Development Software. Section
3.8(g)of the Disclosure Schedule sets forth the complete and correct list of
license agreements pursuant to which Distributor Software and Development
Software is licensed to Company. Company does not license to others Distributor
Software or Development Software.
(h) Confidentiality. Company has taken reasonable
commercial efforts and has required its employees, consultants, and licensees to
take reasonable commercial efforts to maintain the confidentiality of the
Company Intellectual Property.
(i) Source Code Escrow Agreements. Section 3.8(i) of the
Disclosure Schedule contains a list of all source code escrow agreements entered
into by Company and all agreements licensing the source code or agreeing to
license the source code of the Software. Correct and complete copies of such
agreements have been heretofore provided to IFC.
(j) Year 2000. Except as set forth in Sections 3.8(j) of
the Disclosure Schedule, the design and performance capabilities of the Software
ensures year 2000 capabilities including calculations which accommodate same
century and multi-century formulas and date values.
3.9 PROPERTY AND EQUIPMENT.
(a) Section 3.9 of the Disclosure Schedule lists the fixed
assets, including equipment, used in the conduct of the Business as conducted
(during the prior twelve months) which are owned by Company and those which are
leased by Company ("Leased Property"). Section 3.9 of the Disclosure Schedule
contains a correct and complete copy of the agreements for the lease of fixed
assets not owned by Company. The fixed assets and the Leased Property are
generally in good operating condition and repair, reasonable wear and tear
excepted.
(b) Company is not in default in the payments due under the
leases of the Leased Property or any other obligation which would give the
lessor the right to terminate the lease for such Leased Property.
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(c) Since March 31, 1996, Company has not sold or otherwise
disposed of any fixed assets, other than in the ordinary course of business.
3.10 LICENSE AGREEMENTS.
(a) Company has not sold to others or leased or licensed
others to use the Company Intellectual Property, or any part thereof, except the
granting of written non-exclusive rights (i) to end users to use released
versions of the Software and Documentation in the ordinary course of the
Business pursuant to end user License Agreements; and (ii) to distributors,
dealers, OEM's and other remarketers (collectively "Distributors") to use and
sublicense the Software and Documentation. Section 3.10(a) of the Disclosure
Schedule contains a correct and complete list of the Distributors. A correct and
complete copy of all written agreements with Distributors currently outstanding
has been previously furnished to IFC. To the extent any agreement with a
Distributor is not in writing, a complete description of the understanding is
set forth in Section 3.10(a) of the Disclosure Schedule.
(b) The standard forms of end user License Agreement
currently used (and those used since the organization of the Company) by Company
to license the Software is listed in Section 3.10(b) of the Disclosure Schedule.
(c) Section 3.10(c) of the Disclosure Schedule contains a
list of all License Agreements under which Company has not completed its
performance thereunder, except for ongoing warranty and maintenance and support
undertakings contained therein, which list shall be updated as of the Closing.
(d) Unfulfilled warranty obligations under the License
Agreements are described in Section 3.10(d) of the Disclosure Schedule, which
description shall be updated as of the Closing.
(e) Company is not in default of its obligations under
any License Agreement.
(f) Section 3.10(c) of the Disclosure Schedule also
includes all outstanding commitments to sell, lease or license any Company
Intellectual Property hereafter.
(g) Company does not license or sublicense any
Distributor Software and is not a distributor of any software developed by
others.
3.11 CONSULTING AND DEVELOPMENT AGREEMENTS. There are no
consulting and software development agreements, written or oral, entered into by
Company pursuant to which others are performing services to Company as a
consultant or in a similar capacity or are developing software (regardless of
the party who is to hold title to the software) for Company for use or license
by Company.
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3.12 MAINTENANCE/COMMITMENTS.
(a) Section 3.12(a) of the Disclosure Schedule sets forth a
correct and complete general description of all commitments of Company
outstanding to provide services, or support and/or maintenance services,
including to provide patches, corrections, improvements, modifications and
enhancements of the Software ("Maintenance Agreements"). A copy of all written
Maintenance Agreements has been made available to IFC and, to the extent the
Maintenance Agreements are not in writing, a complete description of the
understanding is set forth in Section 3.12(a) of the Disclosure Schedule. The
current (and all other forms used within the past 12 months) standard form of
Maintenance Agreement is set forth in Section 3.12(a) of the Disclosure
Schedule.
(b) Section 3.12(b) of the Disclosure Schedule sets forth
all commitments of Company to develop any special feature or function or to port
any software not otherwise disclosed pursuant to this Agreement ("Development
Agreements"). A correct and complete copy of the Development Agreements, if any,
have been furnished to IFC. To the extent any such agreement or commitment,
where legally binding, is oral, a summary thereof is set forth in Section
3.12(b) of the Disclosure Schedule.
(c) Company has substantially complied with its obligations
under the Maintenance Agreements and Development Agreements and there is no
basis for any claim against or default by Company by any party arising under the
Maintenance Agreements or Development Agreements.
3.13 ALL INTANGIBLE ASSETS USED IN THE BUSINESS. The Company
Intellectual Property and the Development Software constitute all of the
intangible assets used in the conduct of the Business as conducted (during the
preceding 12 months) by Company.
3.14 EMPLOYEES/CONSULTANTS/DIRECTORS.
(a) Section 3.14(a) of the Disclosure Schedule sets forth a
list of all current employees and consultants engaged by Company or serving in
such capacity as of February 1, 1997 and their compensation. Section 3.14(a) of
the Disclosure Schedule will be updated as of the Closing.
(b) The employees of Company are not represented by any
collective bargaining agreement or otherwise organized.
(c) Section 3.14(c) of the Disclosure Schedule lists all
employee benefit plans which are currently in effect or as to which Company has
any ongoing obligation or liability. The term "employee benefit plan" means any
employment or consulting contract, deferred compensation, profit sharing,
pension, bonus, stock option, stock purchase or other fringe benefit or
compensation arrangement or commitment, written or oral, including each welfare
plan (as
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defined in Section 3(1) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA"), which Company has established or maintained or in
which any of its employees participate or have participated or under which
Company has an obligation to make contributions or to pay benefits. Company has
no obligations to provide any benefits to any retired or former employees,
including medical and hospital benefits, except as provided by law.
(d) Company has no ERISA affiliate and never had an ERISA
affiliate.
(e) The 401(k) Plan made available to employees of Company
is in full compliance and has been in full compliance with all applicable laws
and regulations regarding the establishment, maintenance and operation of the
401(k) Plan and all contributions by Company have been paid or properly accrued
on its financial books.
(f) Company has no contracts or agreements with any of its
employees except agreements as to inventions, discoveries and copyright
ownership, a copy of which have been previously provided to IFC. Schedule
3.14(f) of the Disclosure Schedule contains a copy of the employee benefit
brochure provided or made available to the employees. All employees are "at
will" employees of Company.
3.15 ASSUMED AGREEMENTS.
(a) Sections 3.10(b) and (d), 3.12(a), 3.12(b), and
3.15(a) of the Disclosure Schedule lists all unfilled binding commitments of
Company as of April 30, 1997 not otherwise disclosed in the Disclosure
Schedule, including for indebtedness. Section 3.15(a) of the Disclosure
Schedule shall be updated as of the Closing. Such commitments represent all of
the then outstanding binding obligations of the Business and, to the knowledge
of the Management of Company, all of the commitments of Company can in the
ordinary course of business be fulfilled by the payment of money due by Company
as purchaser or obligor or by its providing of product or services, without a
financial loss to Company and in a timely manner.
(b) Company is not in default of any term or condition
under any unfilled agreement listed on Sections 3.10(b) and (d), 3.12(a),
3.12(b), and 3.15(a) of the Disclosure Schedule and there are no basis for any
claim against or default by Company by any party arising under any such
agreement, and no event has occurred which under any such agreement could
constitute a default which would give the other party to such agreement the
right to terminate the contract or to demand money damages.
(c) Company has not waived any of its rights under any of
such agreements listed on Section 3.10(b) and (d), 3.12(a), 3.12(b), or Section
3.15(a) of the Disclosure Schedule nor is the other party to such agreement in
default in any respect under any such agreement.
(d) Correct and complete copies of the agreements listed in
Section 3.15(a) of the Disclosure Agreement have been made available to IFC.
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3.16 LITIGATION AND ADVERSE EVENTS. There are no investigations,
suits, actions, administrative, arbitration or other proceedings or other
occurrences pending, or, to the knowledge of the Management of Company,
threatened against Company arising out of the conduct of the Business.
3.17 COMPLIANCE WITH APPLICABLE LAW. Company, in the conduct of
the Business, is in substantial compliance with all applicable laws, statutes,
ordinances, permits and regulations, including all such laws, statutes,
ordinances and regulations relating to wages, tax withholdings, hours, equal
pay, equal opportunity, and pollution of the environment, and there are no
violations which, if enforced, would materially adversely affect the Business or
prospects of the Business after the Closing or the value of the Business; and no
proceeding alleging any such violation is pending or, to the knowledge of the
Management of Company, threatened.
3.18 TAXES AND TAX RETURNS.
(a) Company has timely filed with the appropriate
governmental agencies all tax returns and reports required to be filed by it (or
obtained extensions in which to file). Company has paid or accrued all taxes and
withholdings of any kind now due and payable.
(b) Company has provided IFC with correct and complete
copies of all tax returns, including income, property and sales tax returns
filed since its incorporation to date. No returns are currently being audited by
any governmental authority.
3.19 CONSENTS. No consents or approvals are required to effect the
transactions contemplated herein, except as set forth in Section 3.19 of the
Disclosure Schedule.
3.20 BROKERS AND FINDERS. Neither Company nor any of its officers,
directors, employees or agents have employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement which is payable directly
or indirectly, by IFC or Company.
3.21 RELATED TRANSACTIONS. Section 3.21 of the Disclosure
Schedule contains a complete and correct list of all transactions since
January 1, 1996 between Company and any Shareholder or Affiliate of any
Shareholder.
3.22 NO UNTRUE STATEMENTS. No statements (including
representations and warranties) contained in this Agreement (including in the
Disclosure Schedule hereto and documents described as having been provided to
IFC herein and therein), contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein
contained not misleading.
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3.23 ADDITIONS. On or prior to the Closing, the Company shall have
engaged the necessary personnel for the sales of Hardware, as set forth in
Section 3.23 of the Disclosure Schedule.
3.24 INVESTMENT REPRESENTATIONS.
(a) Each Shareholder is acquiring the Common Stock of IFC
for his/her own account (and not for others) and for investment purposes only
and not with a view to distribution, as such is defined by the Securities Act of
1933, as amended ("Act"),, or any rule or regulation thereunder ("Rules"), in
violation of the Act or any of said Rules.
(b) Each Shareholder has such knowledge and experience in
financial and business matters that he/she is capable of evaluating the merits
and economic risks of this particular investment and that an investment in the
Common Stock of IFC involves numerous risks, including the risks set forth in
the prospectus ("Prospectus") of IFC which is included in the S4 Registration.
(c) Each Shareholder agrees that the certificate or
certificates representing the Common Stock of IFC shall be inscribed with the
legend that such stock may not be transferred in violation of the provisions of
the standstill agreement set forth in paragraph 7.2 hereof.
(d) In making this decision to acquire the Common Stock of
IFC, each Shareholder has been given the opportunity to discuss the business,
management and financial affairs of IFC with officers of IFC and has had the
opportunity to ask questions of, and receive answers from, such officers and to
obtain additional information necessary to verify the accuracy of the
information received and to evaluate IFC and an investment in the Common Stock
of IFC and the Shareholders desire no further information for such evaluation.
Each Shareholder acknowledges receipt of a copy of the S4 Prospectus, which will
be updated prior to the Closing.
(e) Each Shareholder acknowledges that no representations
were made by IFC to the Shareholders with respect to the business, management or
financial affairs of IFC except as set forth in Section IV of this Agreement and
the S4 Prospectus, as amended hereafter, and except that IFC is negotiating with
several companies the purchase or merger of their businesses by or into IFC or
an affiliated company ("Acquisitions") and the financing of such purchases in
part through the Public Offering by IFC, all as more fully described in the SB
Registration Statement and the S4 Prospectus. Each Shareholder acknowledges
there can be no assurances that such Acquisitions will be effected or that the
Public Offering will occur or that the financing obtained in the Public Offering
will be sufficient to meet the obligations of IFC, including working capital
requirements, or that IFC will be profitable.
(f) Each Shareholder acknowledges that (i) no
representations are or were made by IFC with respect to the business or
financial affairs of the companies to be required except as set forth in the
financial and other statements contained in the S4 Prospectus and as
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updated prior to the Closing; and (ii) no representations are made with respect
to any business plan, projections or acquisitions by IFC.
SECTION IV.
REPRESENTATIONS AND WARRANTIES OF IFC
IFC hereby represents and warrants to the Shareholders on the date
hereof as follows:
4.1 ORGANIZATION AND STANDING.
(a) IFC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware; has full corporate
power and authority to conduct the business of developing, distributing and
marketing software, including through its subsidiaries, and is duly qualified
and is authorized to conduct business and is in good standing as a foreign
corporation in Georgia.
(b) CMA is a corporation duly organized, validly
existing and in good standing under the laws of California.
4.2 AUTHORIZATION.
(a) The execution, delivery and performance of this Agreement
has been duly authorized by all requisite corporate action on the part of IFC
and CMA. A duly certified copy of the resolutions of the Board of Directors of
IFC and CMA has been delivered to the Shareholders. This Agreement has been duly
executed and delivered by IFC and CMA, and constitutes the legal, valid and
binding obligation of IFC and CMA enforceable against each in accordance with
its terms.
(b) The execution and delivery of this Agreement, and the
consummation by IFC or CMA of the transactions contemplated herein on the
Closing, will not (with or without the giving of notice, lapse of time or both)
violate, conflict with, or result in a default under, any of the provisions of
the certificate of incorporation or by-laws of IFC or CMA, any mortgage,
indenture, contract, agreement, license, permit, instrument, judgment, decree,
order, statute, regulation or ruling of any court or governmental authority to
which IFC or any subsidiary is a party or by which it or any subsidiary is
bound.
4.3 NO CONSENTS. No consents or approvals are required to effect
the transactions contemplated herein by IFC or CMA.
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4.4 BROKERS AND FINDERS. Neither IFC or CMA nor any of their officers,
directors, employees or agents have employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement which is payable directly
or indirectly by the Shareholders.
4.5 NO UNTRUE STATEMENTS. No statements (including representations) by
IFC or CMA contained in this Agreement, and no written statements furnished by
IFC or CMA to the Shareholders pursuant to this Agreement, contain any untrue
statement of a material fact, or omit to state a material fact necessary in
order to make the statements therein contained not misleading.
SECTION V.
CONDITIONS TO THE OBLIGATIONS OF IFC
Each and every obligation of IFC and CMA under this Agreement to be
performed on or prior to the Closing shall be subject to the satisfaction on or
prior to the Closing of each of the following conditions, any of which condition
may be waived in writing by IFC, but such waiver shall not waive any
representation, warranty or covenant of the Shareholders.
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties made by any Shareholder herein as of the date of this Agreement
shall be true and correct in all material respects on the Closing with the same
effect as though made on the Closing; the Shareholders shall have performed and
complied in all material respects with all agreements, covenants and conditions
required by this Agreement to be performed and complied with by them prior to or
on the Closing; and the Shareholders shall have delivered to IFC a certificate
of the Shareholders dated the Closing, certifying as to the fulfillment of the
foregoing conditions.
5.2 THIRD PARTY CONSENTS. All consents, approvals or authorizations
from third parties or government agencies required to consummate the
transactions contemplated hereby and contemplated by this Agreement, including
the consents set forth pursuant to paragraph 3.19 shall have been obtained.
5.3 OPINION OF COUNSEL TO THE SHAREHOLDERS. An opinion of counsel to
the Shareholders dated the Closing and addressed to IFC and CMA reasonably
satisfactory in all respects to IFC's counsel.
5.4 UPDATE DISCLOSURE SCHEDULE. The Shareholders shall have
updated the Disclosure Schedule as herein provided.
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5.5 PUBLIC OFFERING. The Public Offering shall have commenced as
defined in paragraph 2.3 hereof.
5.6 EMPLOYMENT AGREEMENT. Marc Kloner shall have executed and
delivered the Employment Agreement attached hereto as Exhibit D to IFC.
5.7 ESCROW AGREEMENT. The Shareholders have entered into the
Escrow Agreement in the form attached hereto as Exhibit B ("Escrow Agreement").
5.8 GUARANTIES. The guaranties of Company are discharged in full
without cost or further obligation of the Company and evidence, reasonably
satisfactory to IFC's counsel, is delivered to IFC; provided however, that at
the written request of the Shareholders, a portion of the Aggregate
Consideration may be paid at Closing to effect the release of such guaranties.
SECTION VI.
CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS
Each and every obligation of the Shareholders under this Agreement to
be performed on or prior to the Closing shall be subject to the satisfaction on
or prior to the Closing of each of the following conditions, any of which
conditions may be waived in writing by the Shareholders, but such waiver shall
not waive any representation, warranty, or covenant of IFC:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties made by IFC herein as of the date of this Agreement shall be true
and correct in all material respects on the Closing with the same effect as
though made on the Closing; IFC and CMA shall have performed and complied, in
all material respects, with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by it on or prior to the
Closing; and IFC and CMA shall have each delivered to the Shareholders a
certificate of an officer of IFC dated the Closing, certifying as to the
fulfillment of the foregoing conditions.
6.2 OPINION OF COUNSEL TO IFC. An opinion of Glass, McCullough,
Sherrill & Harrold LLP, counsel to IFC and CMA, dated the Closing, reasonably
satisfactory in all respects to the Shareholders' counsel.
6.3 AUTHORIZATION. Certification by an appropriate officer of IFC and
CMA that all corporate actions required to be taken by IFC and CMA pursuant to
this Agreement, including its execution and delivery, including copies of the
certificate of incorporation, bylaws, and board resolutions certified by the
secretary or assistant secretary of IFC or CMA, has been taken to authorize and
consummate the transactions contemplated herein.
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6.4 PUBLIC OFFERING. The Public Offering shall have commenced
as defined in paragraph 2.2 hereof.
6.5 EMPLOYMENT AGREEMENT. IFC shall have executed and delivered
an Employment Agreement attached hereto as Exhibit D to Marc Kloner.
6.6 ESCROW AGREEMENT. IFC shall execute and deliver to the
Shareholders the Escrow Agreement.
SECTION VII.
OTHER COVENANTS
7.1 CONDUCT OF BUSINESS. From the date hereof to the Closing,
except as otherwise consented to or approved by IFC in writing, the
Shareholders hereby covenant and agree that they shall cause Company:
(a) Maintain Corporate Existence, Etc. (i) to conduct the
Business in a diligent manner, consistent with past management practices,
including maintaining adequate personnel to maintain, develop, enhance, support
and market the Software, provided that any unfilled binding commitment for more
than $10,000 not set forth in the Disclosure Schedule as of the date hereof
shall not be assumed by CMA or IFC unless approved in writing by IFC; (ii) to
market and license the Software, Documentation and Distributor Software to end
users, and with the written consent of IFC, to distributors; (iii) grant
non-exclusive licenses of the Software, Documentation and Distributor Software
to end users pursuant to its standard end user License Agreement at its standard
fees; (iv) not to make any distributions to the Shareholders; and (v) not to
increase any salaries or pay bonuses except for the payment of bonuses to key
employees as heretofore approved by IFC not to exceed in the aggregate $75,000
in cash and $285,000 in deferred bonuses ("Deferred Bonuses"). The Deferred
Bonuses are to be awarded upon the Closing, and are payable in four (4) equal
quarterly amounts commencing three (3) months after the Closing. All bonuses
provided herein for purposes of determining the Net Worth of Company pursuant to
Section II shall be considered to be a liability of the Company to the extent
not paid prior to the Closing and no tax offset shall be recognized in the
calculation of Net Worth.
(b) Disposition of Assets. Not to sell or otherwise dispose of
any asset except for the granting of non-exclusive licenses and for sales in the
ordinary course of business as permitted pursuant to paragraph 7.1(a).
(c) Full Access. To afford to IFC, and to its counsel,
accountants and other authorized representatives, full access to the facilities,
contracts, books, records, Software, key personnel and public accountants of
Company during normal business hours upon reasonable prior notice; and to cause
its officers and employees to promptly furnish such additional financial and
operating data and other information as IFC or its authorized representatives
shall from time to time reasonably request.
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7.2 PUBLIC OFFERING STATUS. IFC agrees to keep the Shareholders
informed as to the status of the Public Offering and agrees to provide the
Shareholders with copies of the registration statement and amendments thereto
(excluding exhibits) filed with the Securities and Exchange Commission promptly
after filing with the SEC. The Shareholders agree to execute standstill
agreements in the form set forth in Section 7.2 of the Disclosure Schedule.
7.3 OPTION TO RECEIVE STOCK. Each recipient of the Deferred Bonus may
elect to acquire shares of common stock of the IFC ("Bonus Shares") equal to the
quotient of (i) the amount of the Deferred Bonus divided by (ii) 120% of the
price to the public of a share of common stock of IFC included in the SB
Registration Statement. The election is to be made in writing not more than
thirty (30) days and not less than ten (10) days prior to the date on which the
payment of the last installment of the Deferred Bonus is otherwise due. Payment
by the recipient is to be made in cash and/or upon surrender of his/her right to
receive any unpaid portion of the Deferred Bonus. The Bonus Shares will be
"Restricted Securities" within the meaning of Rule 144 promulgated by the
Commission. The issuance of the Bonus Shares is subject to compliance with the
applicable federal and state securities laws. The recipient of the Bonus Shares
will be required by the IFC to make certain representations and warranties
customarily made to issuers as a condition to the private placement of
securities. The recipients of the Deferred Bonus are third-party beneficiaries
under this Agreement and can independently enforce this paragraph 7.3. IFC
hereby agrees that the Bonus Shares shall, upon their issuance, be duly
authorized, validly issued, fully paid and non-assessable. IFC shall have the
right to offset any amounts payable to IFC or Company by the recipient of the
Deferred Bonus pursuant to this Agreement, including Section IX, against
payments of the Deferred Bonus, in cash or in stock.
7.4 REGISTRATION RIGHTS. At any time after the first anniversary of the
Closing, the holders of not less than an aggregate of 20,000 shares of Common
Stock of IFC acquired pursuant to this Agreement, including Purchased Shares and
Bonus Shares, may request IFC to register such shares ("Registrable Shares") on
Form S-3 (or other successors and equivalent form of abbreviated registration
statement then available) provided that IFC qualifies for the use of such form
and such shares can not be sold in a brokerage transaction under Rule 144
promulgated by the Commission. IFC agrees to use commercially reasonable efforts
to prepare and file a registration statement on Form S-3 and cause the
registration statement to become effective. IFC shall maintain the effectiveness
of the registration statement for a period of three months. Only one
registration can be requested pursuant to this paragraph 7.4. In addition, the
holders of shares of Common Stock acquired pursuant to this Agreement shall be
given the right to "piggyback" their shares on the next public offering of the
IFC following the issuance of such shares, unless the shares can be sold in full
under Rule 144 or other rule in brokerage transactions, subject to volume
limitations placed on the public offering by the underwriters.
The holders of such Purchased Shares and Bonus Shares shall be
third-party beneficiaries under this Agreement and can independently enforce
this paragraph 7.4.
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The holders of the Registrable Shares agree, that if requested by IFC,
not to effect any public sale or distribution of the Registrable Shares during a
30 day period preceding and 90 days following the commencement of any
underwritten public offering of common stock, except to the extent the
Registrable Shares are included in such public offering. IFC will pay the cost
of preparing the registration statement and filing fees. The holders of the
Registrable Shares shall pay all underwriting discounts and selling commissions
attributable to the Registrable Shares. At the time of the registration of the
Registrable Shares such holders shall enter into an indemnity agreement and such
other agreements as are customary with respect to such offerings.
SECTION VIII.
CONFIDENTIALITY AND SECURITY
8.1 CONFIDENTIALITY.
(a) The parties acknowledge that information, documents and
materials regarding each other have been exchanged since September 1, 1996. Such
disclosures have been made under a confidentiality understanding. The provisions
of this Section VIII reflect the understanding with respect to, and shall
govern, all such exchanges and the permitted use and disclosure by a party or
its Affiliate hereafter of any confidential information and trade secrets of the
other party, regardless of when acquired. Each party hereto hereby agrees that
all information, documents and materials the party ("Recipient") received
heretofore and receives or obtains hereafter from any other party or its
Affiliate ("Owner") shall be considered valuable assets of the Owner and shall
at all times be treated by the Recipient and the officers, directors, employees
and agents of the Recipient as confidential information or trade secrets of the
Owner if so identified as such or which under the circumstances surrounding
disclosure ought to be treated as confidential information or trade secrets of
the Owner. Each party hereto, as a Recipient, hereby agrees that it shall not
hereafter (and shall use commercially reasonable efforts to ensure that its
Affiliates, officers, directors, employees and consultants do not) in any
manner, directly or indirectly (i) transmit, disclose or otherwise communicate
or make available any such confidential information or trade secrets of the
Owner to any third party, or (ii) use the same for its own account or for the
benefit of any third party, other than as permitted by this Agreement; or (iii)
make any copies of any such confidential information or trade secrets except as
is necessary to perform its obligations or exercise its rights hereunder. The
parties each agree not to reverse engineer or reverse compile the computer
software of any other party hereto.
(b) Each party hereto, as a Recipient, hereby shall take all
commercially reasonable actions necessary or desirable, including with respect
to its officers, directors, employees and all other authorized persons having
access to the confidential information or trade secrets of the Owner, to satisfy
its obligations to protect and maintain the confidentiality and security of such
confidential information or trade secrets, including the source code of the
Software.
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(c) It is recognized and acknowledged between the parties
hereto that the covenants respecting confidentiality set forth in this Section
VIII hereof are essential elements of this Agreement and shall continue after
the Closing or the termination of this Agreement for any reason. Each party
further acknowledges that the Owner of the confidential information and trade
secrets may have no adequate remedy at law if the Recipient shall violate the
terms thereof. In such event, the Owner shall have the right, in addition to any
other rights and remedies it may have, to obtain in any court of competent
jurisdiction injunctive relief or other equitable relief with regard to any
breach or threatened breach thereof or otherwise specifically enforce the
provisions of this Agreement without bond, security or proof of actual damages.
(d) The parties each agree as follows:
(i) Confidential information and trade secrets
of the Owner that are disclosed to Recipient or to which Recipient obtains
access shall not be disclosed by Recipient to others, except to directors,
officers, employees and consultants of the Recipient having a need to know in
connection with the consideration and/or consummation of the transactions
contemplated herein and Recipient shall be responsible for such other person's
compliance with the confidentiality obligations of this Section VIII.
(ii) The Recipient, when receiving such
confidential information or trade secrets from the Owner, shall protect such
confidential information and trade secrets with the same degree of care (A)
that Recipient regularly employs to safeguard its own confidential information
or trade secrets of like importance from unauthorized use or disclosure or (B)
which a prudent business person employs to safeguard its own confidential
information or trade secrets of like importance from unauthorized use or
disclosure, whichever is greater.
(iii) The rights and obligations of the parties
with respect to all such confidential information and trade secrets of the
Owner that are disclosed and subject to this Agreement shall survive
termination of this Agreement and shall remain in effect for a period of five
(5) years from the date of this Agreement; provided, however, that the
expiration of the above five (5) years shall not affect any rights of the
parties with respect to patents, trademarks, copyrights and trade secrets, and
trade secrets shall be protected by this Section VIII as long as they may be
legally protected or constitute a trade secret.
(iv) Any portion of such Owner's confidential
information or trade secret that:
(A) is rightfully received from a third
party who has a lawful right to disclose it without accompanying markings or
disclosure restrictions;
(B) is independently developed by
employees of the Recipient who have not had access to such confidential
information or trade secret;
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(C) is or becomes publicly available
through no breach or wrongful act of the Recipient;
(D) is already known by the Recipient
as evidenced by documentation bearing a date prior to the first date of
disclosure by the Owner; or
(E) is approved for release in writing
by the President of the Owner;
is not entitled to the protection provided in this Section VIII, except for
patent, trademark and copyright protection as provided by law.
(e) Confidential information and trade secrets of Company have
been and will be used by IFC only in connection with its evaluation of Company
and the decision to acquire the capital stock of Company and confidential
information and trade secrets of IFC have been and will be used by Company and
the Shareholders only in furtherance of the sale of capital stock as
contemplated herein.
(f) Notwithstanding the foregoing, nothing herein shall
restrict the right of either party to disclose such confidential information or
trade secret that is disclosed pursuant to a judicial or administrative order,
but only to the extent so ordered, provided, however, that the party receiving
such order shall notify the other party of such order in sufficient time to
permit such other party to intervene in response to such order or to take such
other reasonable steps as may be necessary to protect the confidentiality
thereof.
(g) All such confidential information and trade secrets and
copies thereof of Owner shall remain the property of the Owner. All such written
confidential information and trade secrets, and any copies thereof, shall be
promptly returned to the Owner upon written request, or destroyed at the Owner's
options. All reports and other documents prepared by a Recipient containing any
such confidential information or trade secrets shall be destroyed at the Owner's
written request and the Recipient shall so certify to Owner upon Owner's request
that it has been destroyed. The restrictions on disclosure and use shall survive
the return and destruction of such written confidential information and trade
secrets, reports and other documents and the Closing.
(h) Upon the sale of the capital stock as contemplated herein,
all trade secrets and confidential information owned by Company shall be deemed
to be owned by IFC as of the Closing for purposes of this Agreement, including
this Section VIII.
(i) Notwithstanding the foregoing, nothing in this Section
VIII shall restrict the disclosure of any confidential information in any
registration statement filed with the Securities and Exchange Commission in
contemplation of the Public Offering, including the prospectus
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<PAGE> 27
which is a part thereof, and the public distribution of the prospectus,
including preliminary prospectuses and registration statement.
SECTION IX.
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE SHAREHOLDERS.
(a) The Shareholders hereby agree, jointly and severally, to
indemnify and hold IFC and CMA, and their successors (collectively "Purchaser"
for purposes of this Section IX only) harmless at all times from and after the
Closing, against and in respect of the following:
(i) All losses, liabilities, costs and damages,
including without limitation, interest, penalties and fines, resulting from any
(a) breach of a representation or warranty of the Shareholders set forth herein
or (b) non-fulfillment of any agreement or covenant, on the part of the
Shareholders set forth herein.
(ii) All expenses, including reasonable attorney
fees, arising from or incurred in connection with suits, proceedings, decrees
or judgments incident to any of the foregoing.
All losses, liabilities, costs, damages and expenses for which indemnification
is provided herein are collectively referred to as "IFC Losses".
(b) The period during which Purchaser must give notice in
writing to the Shareholders of claims for indemnification hereunder shall expire
on the second anniversary of the Closing except that such period shall be
extended to the applicable statute of limitations plus thirty (30) days with
respect to claims (i) for unpaid taxes and failure to file required tax reports,
including related interest, penalties and fines ("Tax Claims"), (ii) for
breaches of Section VIII, and (iii) for breaches of any covenant or obligation
which first arises after the Closing.
(c) Interest at the prime rate shall accrue and be paid on all
amounts to be indemnified from the date of the Closing to the date of payment by
the Shareholders, or if payment of a IFC Loss is made after the Closing by
Purchaser, from the date of such payment by Purchaser to the date of
indemnification by the Shareholders.
(d) The total liability of each Shareholder under this Section
IX shall not exceed the consideration received or to be received by such
Shareholder pursuant to Section II.
(e) In the event that any third party asserts an action or
claim as to which Purchaser is entitled to indemnification hereunder, Purchaser
shall notify the Shareholders in writing of any such asserted liability with
reasonable promptness, and the Shareholders shall have a right to compromise or
defend any such matter involving such asserted liability, through counsel
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<PAGE> 28
of its own choosing who shall be subject to the approval of the Purchaser, which
approval will not be unreasonably withheld, at the expense of the Shareholders;
provided, however, that the Shareholders shall indemnify Purchaser against any
costs and damages resulting from the failure of the Shareholders to defend or
pay such claims. In the event the Shareholders shall notify Purchaser in writing
promptly of the intention of the Shareholders to do so, Purchaser shall
cooperate with the Shareholders and their counsel in the compromising of or the
defending against any such liabilities or claims, at the expense of the
Shareholders and provide the Shareholders with reasonable access to the books
and records of Company to the extent necessary for the compliance with any
document request and the reasonable defense of such claim.
(f) Purchaser shall be entitled to payment hereunder only if
and to the extent the aggregate IFC Losses under this Agreement exceed
Thirty-Five Thousand Dollars ($35,000).
(g) The amount of any IFC Loss shall be reduced by amounts
received by the Purchaser under any policy of insurance maintained by Company
prior to the Closing. Amounts received from any such policy of insurance after
the receipt of payment of any IFC Loss from the Shareholders shall be promptly
reimbursed to the Shareholders.
9.2 INDEMNIFICATION BY IFC.
(a) IFC hereby agrees to indemnify and hold the Shareholders
harmless at all times from and after the Closing, against and in respect of the
following:
(i) All losses, liabilities, costs and damages,
including without limitation, interest, penalties and fines, resulting from any
(a) breach of a representation or warranty of IFC set forth herein or (b)
non-fulfillment of any agreement or covenant, on the part of IFC set forth
herein.
(ii) All expenses, including reasonable attorney
fees, arising from or incurred in connection with suits, proceedings, decrees
or judgments incident to any of the foregoing.
All losses, liabilities, costs, damages and expenses for which indemnification
is provided herein are collectively referred to as "Shareholder Losses".
(b) The period during which the Shareholders must give notice
in writing to Purchaser of claims for indemnification hereunder shall expire on
the second anniversary of the Closing except that such period shall be extended
to the applicable statute of limitations for breaches of Section VIII and for
breaches of any covenant or obligation which first arises after the Closing.
(c) Interest at the prime rate payable shall accrue and
be paid on all amounts to be indemnified from the date of the Closing to the
date of payment by IFC, or if payment of a
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<PAGE> 29
Shareholder Loss is made after the Closing by the Shareholder, from the date of
such payment by any Shareholder to the date of indemnification by IFC.
(d) The total liability of IFC under this Section IX shall not
exceed the consideration received or to be received by the Shareholders pursuant
to Section II.
(e) In the event that any third party asserts an action or
claim as to which the Shareholders are entitled to indemnification hereunder,
the Shareholders shall notify IFC in writing of any such asserted liability with
reasonable promptness, and IFC shall have a right to compromise or defend any
such matter involving such asserted liability, through counsel of its own
choosing who shall be subject to the approval of the Shareholders, which
approval will not be unreasonably withheld, at the expense of IFC; provided,
however, that IFC shall indemnify the Shareholders against any costs and damages
resulting from the failure of IFC to defend or pay such claims. In the event IFC
shall notify the Shareholders in writing promptly of the intention of IFC to do
so, the Shareholders shall cooperate with IFC and its counsel in the
compromising of or the defending against any such liabilities or claims, at the
expense of IFC and provide IFC with reasonable access to the books and records
of the Company to the extent necessary for the compliance with any document
request and the reasonable defense of such claim.
(f) The Shareholders shall be entitled to payment hereunder
with respect to Shareholder Losses for which IFC has agreed to indemnify
pursuant to paragraph 9.2(a)(i)(a) only if and to the extent the aggregate of
such Shareholder Losses under this Agreement exceed Thirty-Five Thousand Dollars
($35,000).
(g) The amount of any Shareholder Loss shall be reduced by
amounts received by the Shareholders under any policy of insurance. Amounts
received from any such policy of insurance after the receipt of payment of any
Shareholder Loss from IFC shall be promptly reimbursed to IFC.
9.3 REIMBURSEMENT. Purchaser or Shareholders, as the case may be, shall
be reimbursed promptly for any Shareholder Loss or IFC Loss for which it is to
be indemnified under paragraph 9.1 or 9.2. Purchaser and the Shareholders shall
have the right to set off and deduct any IFC Loss or Shareholder Loss, as the
case may be, against the amount of any obligation of such person however arising
to the other person; provided, however, there shall be no offset against any
salary, bonus or other compensation payable to Shareholder for services rendered
as an employee or consultant. In the event of any dispute as to the right of set
off or deduction of any amount or the amount of the IFC Loss or Shareholder
Loss, the dispute shall be resolved as provided in paragraph 9.5. If Shareholder
reimburses Purchaser for a breach of the warranties and representations set
forth in paragraph 3.7, Purchaser shall assign all such uncollected receivables
(together with all applicable documentation related thereto) to the Shareholders
without further consideration.
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<PAGE> 30
9.4 CLAIMS. Should any claim be made by a person not a party to this
Agreement with respect to any matter to which the foregoing indemnity relates
for which the indemnifying party has not elected to compromise or defend as set
forth in paragraph 9.1(e) or 9.2(e), the party to be indemnified, on not less
than fifteen (15) days' notice to the indemnifying party, may make settlement of
such claim, and such settlement shall be binding on the indemnifying party for
the purposes of this Section IX; provided, however, that if within said fifteen
(15) day period the indemnifying party shall have advised the indemnified party
that the indemnifying party will contest any such claim at the expense of the
indemnifying party and has provided reasonable assurances of the ability of the
indemnifying party to pay such expenses and other losses should such occur, the
indemnified party will promptly comply and the indemnifying party shall have the
right to defend with counsel of its own choosing at its expense. Any payment or
settlement resulting from such contest, together with the total expense thereof,
shall be binding on the Shareholders and Purchaser for the purposes of this
Section IX. Failure to give notice shall not constitute a defense, in whole or
in part, to any claim by the indemnified party except and only to the extent
that such failure to do so shall result in material prejudice to the
indemnifying party.
9.5 RESOLUTION OF DISPUTES. In the event of any dispute between
Purchaser and the Shareholders over any claim by or on behalf of Purchaser or
the Shareholders for indemnification under this Section IX and the parties are
unable to resolve such dispute, either party may submit the dispute to binding
arbitration as hereinafter provided. The arbitration shall be in accordance with
the Commercial Arbitration Rules of the American Arbitration Association ("AAA")
then in effect. The arbitration shall be held before three arbitrators, unless
the amount in dispute is less than One Hundred Thousand Dollars ($100,000), in
which event the arbitration shall be held before one arbitrator. In the event
the arbitration is to be held before three arbitrators, the Shareholders and IFC
shall each appoint one arbitrator within thirty (30) days of the receipt of
notice by the party commencing the arbitration which includes a copy of the
petition filed with the AAA. The arbitrators shall select the third arbitrator.
In the event the two arbitrators fail to do so within fifteen (15) days of their
appointment or in the event a party hereto fails to designate an arbitrator or
in the event only one arbitrator is to be appointed, such arbitrator(s) shall be
appointed by the AAA. The arbitrator(s) shall be knowledgeable in the business
of software distribution. All decisions by the arbitrators shall be by majority
vote of the arbitrators. The award of the arbitrator(s) shall be binding on the
parties hereto and such awards may be entered in any applicable court. The
arbitration and all hearings in connection therewith shall be held in Georgia.
The arbitrator(s) shall have no authority to award punitive damages or any other
awards other than as herein contemplated. Notwithstanding the foregoing, the
parties hereto may seek in a court proceeding a restraining order, or a
preliminary or permanent injunction as permitted by law or equity whenever
applicable to enjoin the unauthorized use of the confidential information or
trade secret of a party hereto or as otherwise provided herein. All parties
hereto agree to service by mail in any such proceedings. The parties shall be
entitled to reasonable discovery of documents and deposition of witnesses prior
to the arbitration hearing. In the event of any dispute with respect to such
discovery, the dispute shall be submitted to the arbitrator(s) for
determination.
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<PAGE> 31
SECTION X.
COVENANT NOT TO COMPETE
(a) For a period of five (5) years following the Closing, each
Shareholder agrees that he will not, directly or indirectly, including through
an Affiliate, own, manage, operate, control, be engaged in, or participate in
the ownership, management, operation, or control of or be connected in any
manner or have any other direct or indirect financial interest in any business,
firm, person, partnership, corporation, or concern which is engaged in any
business of the type and character which is competitive with the Business which
is being acquired by IFC upon the purchase of the capital stock of Company in
the United States. The Shareholder's employment by IFC or any subsidiary thereof
shall not be deemed a violation of this Section X and the Employment Agreement
between Company and Marc Kloner shall not be deemed a violation of this Section
X. The Shareholders acknowledge that the Business is conducted throughout the
United States.
(b) Notwithstanding the covenants contained in subparagraph
(a), the Shareholders shall not be prohibited from owning less than 5% of any
class of equity securities of a company which is listed on a recognized Company
Shares exchange or for which prices are quoted on the National Association of
Securities Dealers Automated Quotation System.
(c) During the non-compete period set forth in subparagraph
(a), each Shareholder in any capacity will not suggest, urge or persuade any
user of the Software not to purchase or not to do business with IFC or the
successor of the Business or solicit the employment of any employee of Company
or its successor.
(d) Each state of the United States and each month of time
covered by this covenant not to compete shall be deemed a severable unit, and
should any court determine that the inclusion of all such states or months would
render any such undertaking unreasonable or unenforceable for any reason, those
units which are necessary in the judgment of the court to be deleted in order to
render such undertaking reasonable and enforceable shall be deemed free of such
non-compete undertaking but such undertaking shall remain in full force and
effect as to each other unit of territory or time.
(e) Each Shareholder agrees that in addition to any other
rights and remedies available to IFC for any breach by a Shareholder of his
obligations under this Section X, IFC shall be entitled to enforcement of such
obligations hereunder by court injunction or other equitable remedy and the
Shareholders in such proceeding will not urge that IFC has an adequate remedy at
law.
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<PAGE> 32
SECTION XI.
TERMINATION AND ABANDONMENT
11.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated
at any time and the acquisition of the capital stock of Company as herein
contemplated abandoned at any time prior to the Closing without liability of
any party to any other party, except for breaches of warranties,
representations, and covenants set forth in this Agreement which are within the
control of the defaulting or non-performing party, under the following
circumstances:
(a) The mutual written agreement of IFC and the Shareholders;
(b) By IFC if the Closing has not occurred before June 30,
1997 because all conditions to the obligations of IFC have not been satisfied or
waived or because the Shareholders have not made all required deliveries
pursuant to Section V;
(c) By the Shareholders if the Closing has not occurred before
June 30, 1997 because all conditions to the obligations of the Shareholders have
not been satisfied or waived or because IFC has not made all required deliveries
pursuant to Section VI; and
(d) Any party may terminate by written notice to the other if
any action or proceeding shall have been instituted before any court or other
governmental body or, to the knowledge of the party giving such notice, shall
have been threatened formally in writing by any public authority with requisite
jurisdiction, to restrain or prohibit the transactions contemplated by this
Agreement or to subject one or more of the parties or their directors or their
officers to liability on the grounds that it or they have breached any law or
regulation or otherwise acted improperly in connection with such proposed
transactions ("Governmental Objection"), and such action or proceeding shall not
have been dismissed or such written threat shall not have been withdrawn or
rescinded before June 30, 1997.
11.2 RIGHTS AND OBLIGATIONS ON TERMINATION. If this Agreement is
terminated and abandoned as provided in this Section XI, each party will, at the
request of the other, return all documents, work papers, and other material of
the requesting party, including all copies thereof, relating to the transactions
contemplated by this Agreement, whether so obtained before or after the
execution of this Agreement, to the party furnishing the same, and all
information received by any party to this Agreement with respect to the business
of any other party shall be governed by the confidentiality obligations of
Section VIII and shall not at any time be used for the advantage of, or
disclosed to third parties by, such party to the detriment of the party
furnishing such information except as may be required by law; provided, however,
that this shall not apply to any document, work paper, material, or any other
information which is a matter previously published in any publication for public
distribution or previously filed as public information with any governmental
authority or is otherwise in the public domain.
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<PAGE> 33
SECTION XII.
MISCELLANEOUS PROVISIONS
12.1 INVESTIGATIONS; SURVIVAL OF WARRANTIES. The respective
representations, warranties and covenants of the Shareholders and IFC contained
herein or in any certificates or other documents delivered prior to or on the
Closing shall not be deemed waived or otherwise affected by any investigations
made by any party hereto. Each and every representation, warranty and covenant
of the Shareholders and IFC, and the indemnification provisions set forth in
Section IX hereof, shall survive the Closing and remain operative in full force
and effect as provided in Section IX.
12.2 HEADINGS. The paragraph captions and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be
part of this Agreement or to affect its meaning or interpretation.
12.3 FURTHER ASSURANCES. The parties hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as the other party hereto may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement, including requests
made after the Closing.
12.4 FORCE MAJEURE. A party hereto shall not be liable for failure or
delay in performing any of the party's obligations hereunder if such failure or
delay is occasioned by compliance with any governmental regulation, request or
order, or by circumstances beyond the reasonable control of the party so failing
or delaying, including, but not limited to, Acts of God, war, insurrection,
fire, flood, accident, or earthquakes. Each party shall (a) promptly notify the
other in writing of any such event of force majeure, the expected duration
thereof and its anticipated effect on the ability of such party to perform its
obligations hereunder, and (b) make reasonable efforts to remedy any such event
of force majeure.
12.5 CUMULATIVE REMEDIES. Except as herein provided and subject
to any applicable limitation herein provided, the parties shall have all
remedies for breaches of this Agreement available to them provided by law or
equity.
12.6 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties hereto regarding the acquisition of the Business by IFC
through the merger of the Company into CMA and related matters as set forth in
this Agreement and supersedes all prior agreements and understandings, including
the Stock Purchase Agreement among IFC and the Shareholders, as heretofore
amended. No representations or agreements, whether written or oral, other than
those contained or referenced herein, shall be binding on the parties. This
Agreement may not be amended or modified except in a writing signed by all of
the parties hereto.
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<PAGE> 34
12.7 SPECIFIC PERFORMANCE. This Agreement may be specifically
enforceable in accordance with applicable principles of law and equity. The
parties hereby acknowledge that it is impossible to measure the monetary damages
which would result from a party's failure to perform any obligation imposed upon
such party by this Agreement. Therefore, if any party hereto should institute an
action or proceeding to enforce the provisions hereof, any other party against
whom such action or proceeding is thereby brought hereby waives the claim or
defense that such party has an adequate remedy at law, and such person shall not
urge in any action or proceeding the claim or defense that an adequate remedy at
law exists.
12.8 NOTICES. All notices or other communications required or permitted
to be given hereunder shall be given in writing to the address of the party set
forth below their signature to this Agreement or to such other last authorized
address/telecopier number of the intended recipient provided in writing to the
party giving such notice, and shall be deemed to have been duly given on (i) the
date of receipt if personally delivered or delivered by overnight courier, (ii)
five (5) business days after posting if transmitted by postage prepaid
registered or certified mail (return receipt requested), or (iii) the date of
transmission if transmitted by telecopy (with postage prepaid registered or
certified mail confirmation) to the party to whom such notice or communication
is being given. Any party hereto may change such party's address or the person
to whom notice is given for purposes hereof by written notice to the other
parties. Such notices are effective only upon receipt.
12.9 NON-WAIVER OF DEFAULT. Any failure by any party hereto at any time
or from time to time to enforce and/or require strict compliance with any term
or condition of this Agreement shall not constitute a waiver of such term or
condition. All waivers hereunder must be in writing executed by the party
waiving the right. The consummation of the transactions with knowledge of a
breach of a warranty, representation or covenant shall not constitute a waiver
of any such warranty, representation or covenant.
12.10 PARTIAL INVALIDITY. If any term or provision of this Agreement,
not essential to the basic purposes of the transactions contemplated herein,
shall be held to be illegal, invalid or unenforceable by a court or arbitrator
of competent jurisdiction, it is the intention of the parties hereto that (i)
the remaining terms hereof shall constitute the agreement with respect to the
subject matter hereof, (ii) all such remaining terms shall remain in full force
and effect and shall be deemed to constitute the entirety of this Agreement as
though such illegal, invalid or unenforceable provision had never been part
hereof, and (iii) such illegal, invalid, or unenforceable provision shall be
construed as closely as possible to the parties' original intent in order to
render such provision legal, valid, or enforceable, as applicable.
12.11 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Shareholders and IFC and their
successors and assigns. IFC may on or prior to the Closing designate a
subsidiary as the party to acquire the Business; provided, however, IFC shall
remain liable to the Shareholders for any breach of IFC's warranties,
representations and covenants contained herein.
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<PAGE> 35
12.12 FEES AND EXPENSES. Each party hereto shall pay all expenses which
that party has incurred, including attorneys' and accountants' fees, in
connection with this Agreement and the transactions contemplated hereby.
12.13 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Georgia (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters, including, but not limited
to, matters of validity, construction, effect and performance.
12.14 COUNTERPARTS AND EXHIBITS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The Disclosure
Schedule is made a part of this Agreement.
12.15 PUBLICITY. The Shareholders shall make no public announcement of
the entering into of this Agreement or the terms and conditions hereof without
the prior written consent of IFC thereto. The Shareholders acknowledge that IFC,
as a publicly-held company, may be required or deem it desirable to make and as
part of the proposed Public Offering may make such public disclosure of the
execution of this Agreement and the terms and conditions hereof at any time
hereafter. With respect to any disclosure prior to the Closing, IFC shall
provide the Shareholders with a copy of any such disclosure promptly after it is
made and, to the extent practical, will review any proposed press release and
other public announcements with Company before it is released. After the
Closing, the parties shall have no obligations to the other under this paragraph
12.16.
K COMP MANAGEMENT SYSTEMS, INC.
By_____________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notice:
Address: _______________________
_______________________
Telecopy No.: _______________________
SHAREHOLDERS:
_______________________________________________
Name: Craig Bourne
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<PAGE> 36
ADDRESS FOR NOTICE:
Address: 10643 Jill Street
Cypress, California 90630
Telecopy No.: 714-995-6404
___________________________________________
Name: Marc Kloner
ADDRESS FOR NOTICE:
Address: 21058 Mendenhall Court
Topanga, California 90212
Telecopy No.: 818-347-6998
INFOCURE CORPORATION
By:___________________________________________
Name:______________________________________
Title:_____________________________________
ADDRESS FOR NOTICE:
Address: 2970 Clairmont Road, Suite 950
Atlanta, Georgia 30329
Telecopy No.: 404-636-7525
Attention: President
CMA CORPORATION
By:________________________________________
36
<PAGE> 37
Name:_________________________
Title:________________________
ADDRESS FOR NOTICE:
Address: 2970 Clairmont Road, Suite 950
Atlanta, Georgia 30329
Telecopy No.: 404-636-7525
Attention: President
37
<PAGE> 1
EXHIBIT 10.28
DR Software, Inc.
AMENDMENT TO STOCK PURCHASE AGREEMENT
AND
ESCROW AGREEMENT ("AMENDMENT")
The undersigned SHAREHOLDERS and INFOCURE CORPORATION have entered
into a Stock Purchase Agreement ("Agreement") and an Escrow Agreement with
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP, as escrow agent, pursuant to which
certain closing documents were being held in escrow pending the pricing of the
Common Stock of InfoCure Corporation, pursuant to Registration Statement on
Form SB-2, No. 333-18923.
WHEREAS, the parties wish to amend the agreements to extend the time
for the consummation of the transactions contemplated in the Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein made
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Paragraph 2.6 is amended by deleting the paragraph in
its entirety and substituting the following in lieu
thereof:
"(a) If the consolidated stockholders'
equity of the Company as of the Closing determined in
accordance with GAAP but consistent with the basis on
which the Financial Statements referred to in
paragraph 3.2 were prepared (i) is less than negative
$100,000 ("Net Worth Shortfall"), the monetary
portion of the Purchase Price shall be decreased by
the amount of the Net Worth Shortfall; or (ii) is
greater than negative $100,000 ("Net Worth
Increase"), the monetary portion of the Purchase
Price shall be increased by the amount of the Net
Worth Increase; otherwise the Purchase Price shall
not be adjusted by this paragraph 2.6. For periods
during which the Company pays income taxes on a cash
basis, there shall be accrued a deferred liability
for taxes payable by reason of such election to be
taxed on a cash basis versus an accrual basis. The
calculation shall be made without taking into effect
the election pursuant to Section 338(h)(10) under the
Internal Revenue Code."
"(b) The parties shall use their best
efforts to estimate the amount of the net worth
adjustment on or prior to the Closing and the
Purchase Price as of the Closing will reflect such
tentative adjustment
<PAGE> 2
which will be subject to further adjustment pursuant
to the provisions of paragraph 2.6(a). Any
adjustments shall be made by increasing or
decreasing, as applicable, the stock portion of the
Purchase Price (based on the price per share at the
Public Offering).
"(c) Buyer shall cause, as its expense, a
balance sheet of the Company as of the Closing to be
prepared and completed within ninety (90) days after
the Closing. As soon as such financial statement is
available to Buyer, Buyer shall deliver to
Shareholders the financial statement. Shareholders
shall have thirty (30) days to review and object to
the balance sheet. Any disagreements as to the
amounts of any adjustment to be made to the balance
sheet, if not mutually resolved, shall be resolved as
provided in paragraph 9.5, except that the
arbitrator(s) shall be person(s) experienced in
financial and accounting matters. Upon the final
resolution of the financial statement as of the
Closing, the final net worth adjustment shall be made
to the stock portion of the Purchase Price (after
consideration of any estimated net worth adjustment
previously made pursuant to subparagraph 2.6(b)) and
the amount of shares for any remaining further
adjustment (based on the price per share at the
Public Offering) shall be immediately delivered by
the Shareholders to Buyer, or by the Buyer to the
Shareholders, as appropriate.
2. Paragraph 12.1, Termination and Abandonment, of the
Agreement is hereby amended by substituting June 30,
1997 in lieu of April 15, 1997, as set forth in subparagraphs
(b), (c) and (d) of paragraph 12.1.
3. The Escrow Agreement is amended by substituting June
30, 1997 in lieu of April 15, 1997, and July 1, 1997
in lieu of April 16, 1997 except that upon the request of
counsel for the Company or the Shareholders, the legal
opinion(s) held in escrow shall be released to such counsel.
4. With respect to the shares of common stock of Buyer
to be received pursuant to the Agreement, the major
Shareholders of such shares shall execute and deliver to the
underwriters and the Buyer an agreement ("Standstill
Agreement") that the holder of said shares will not sell or
otherwise transfer the shares for six (6) months after the
Closing. The Standstill Agreement shall be in the same form
as that executed by the President of Buyer.
5. Except as herein specifically provided, the parties
hereto reaffirm the terms and conditions of the
Agreement and Escrow Agreement.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment as
of the 5th day of May, 1997.
INFOCURE CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SHAREHOLDERS:
------------------------------------
Name:
-------------------------------
------------------------------------
Name:
-------------------------------
------------------------------------
Name:
-------------------------------
GLASS, MCCULLOUGH, SHERRILL &
HARROLD, LLP
By:
---------------------------------
Partner
3
<PAGE> 1
EXHIBIT 10.29
MILLARD-WAYNE, INC.
AMENDMENT TO STOCK PURCHASE AGREEMENT
AND
ESCROW AGREEMENT ("AMENDMENT")
The undersigned SHAREHOLDERS and AMERICAN MEDCARE CORPORATION have
entered into a Stock Purchase Agreement ("Agreement") and an Escrow Agreement
with GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP, as escrow agent, pursuant to
which certain closing documents were being held in escrow pending the pricing
of the Common Stock of InfoCure Corporation, pursuant to Registration Statement
on Form SB-2, No. 333-18923.
WHEREAS, the parties wish to amend the agreements to extend the time
for the consummation of the transactions contemplated in the Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein made
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Paragraph 2.6 is amended by deleting the paragraph in
its entirety and substituting the following in lieu
thereof:
"(a) If the consolidated stockholders'
equity of the Company as of the Closing Date
determined in accordance with GAAP but consistent
with the basis on which the Financial Statements
referred to in paragraph 3.2 were prepared (i) is
less than $122,098 ("Net Worth Shortfall"), the stock
portion of the Purchase Price shall be decreased by
the amount of the Net Worth Shortfall (based on the
price per share at the Public Offering); or (ii) is
greater than $122,098 ("Net Worth Increase"), the
stock portion of the Purchase Price shall be
increased by the amount of the Net Worth Increase
(based on the price per share at the Public
Offering); otherwise the Purchase Price shall not be
adjusted by this paragraph 2.6. For periods during
which the Company pays income taxes on a cash basis,
there shall be accrued a deferred liability for taxes
payable by reason of such election to be taxed on a
cash basis versus an accrual basis."
"(b) The parties shall use their best
efforts to estimate the amount of the net worth
adjustment on or prior to the Closing and the
Purchase Price as of the Closing will reflect such
tentative adjustment which will be subject to further
adjustment pursuant to the provisions
<PAGE> 2
of paragraph 2.6(a). Any adjustments shall be made
by increasing or decreasing, as applicable, the stock
portion of the Purchase Price (based on the price per
share at the Public Offering).
"(c) Buyer shall cause, as its expense, a
balance sheet of the Company as of the Closing to be
prepared and completed within ninety (90) days after
the Closing. As soon as such financial statement is
available to Buyer, Buyer shall deliver to
Shareholders the financial statement. Shareholders
shall have thirty (30) days to review and object to
the balance sheet. Any disagreements as to the
amounts of any adjustment to be made to the balance
sheet, if not mutually resolved, shall be resolved as
provided in paragraph 9.5, except that the
arbitrator(s) shall be person(s) experienced in
financial and accounting matters. Upon the final
resolution of the financial statement as of the
Closing, the final net worth adjustment shall be made
to the stock portion of the Purchase Price (after
consideration of any estimated net worth adjustment
previously made pursuant to subparagraph 2.6(b)) and
the amount of shares for any remaining further
adjustment (based on the price per share at the
Public Offering) shall be immediately delivered by
the Shareholders to Buyer, or by the Buyer to the
Shareholders, as appropriate.
2. (a) Paragraph 2.7(a) is amended by deleting the
first six lines thereof commencing with "195,750
shares" and ending with "for each year" in its
entirety and substituting the following in lieu
thereof:
"(a) 195,750 shares of common stock of
Buyer plus one-half of the shares withheld from
Shareholders pursuant to Paragraph 2.6(c) in the
event of a Net Worth Shortfall, if any,
(collectively, the "Adjustment Shares") shall be
earned and payable to the Shareholders each year (an
aggregate of two times the number of Adjustment
Shares) if either the total revenues or operating
profits of the Company and the Health Care Division,
Inc. ("HCD") combined equal or exceed the applicable
amount set forth below for each year:"
(b) The term "Fiscal Year, 1998 and 1999" set forth in
the schedule set forth in paragraph 2.7(a) shall mean the
twelve-month periods ending July 31, 1998 and 1999,
respectively. Paragraph 2.7(b) is amended by substituting
July 31, 1998 and July 31, 1999 in lieu of January 31, 1998
and January 31, 1999.
3. Paragraph 12.1, Termination and Abandonment, of the Agreement
is hereby amended by substituting June 30, 1997 in lieu
of April 15, 1997, as set forth in subparagraphs (b), (c) and
(d) of paragraph 12.1.
2
<PAGE> 3
4. The Escrow Agreement is amended by substituting June
30, 1997 in lieu of April 15, 1997, and July 1, 1997
in lieu of April 16, 1997 except that upon the request of
counsel for the Company or the Shareholders, the legal
opinion(s) held in escrow shall be released to such counsel.
5. With respect to the shares of common stock of Buyer
to be received pursuant to the Agreement, the
Shareholder of such shares shall execute and deliver to the
underwriters and the Buyer an agreement ("Standstill
Agreement") that the holder of said shares will not sell or
otherwise transfer the shares for six (6) months after the
Closing. The Standstill Agreement shall be in the same form
as that executed by the President of Buyer.
6. Except as herein specifically provided, the parties
hereto reaffirm the terms and conditions of the
Agreement and Escrow Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the 5th day of May, 1997.
AMERICAN MEDCARE CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SHAREHOLDERS:
-----------------------------------------
Name:
------------------------------------
-----------------------------------------
Name:
------------------------------------
GLASS, MCCULLOUGH, SHERRILL &
HARROLD, LLP
By:
--------------------------------------
Partner
3
<PAGE> 1
EXHIBIT 23.5
ACCOUNTANTS' CONSENT
INFOCURE CORPORATION
We consent to the use of the reports of BDO Seidman, LLP included herein
regarding the following corporations:
InfoCure Corporation dated April 15, 1997
American Medcare Corporation dated April 15, 1997
KComp Management Systems Inc. dated April 25, 1997
Millard-Wayne, Inc. dated February 15, 1997
Health Care Division (a division of Info Systems of North Carolina,
Inc.) dated November 8, 1996
Rovak, Inc. dated February 17, 1997
DR Software, Inc. dated February 17, 1997.
We also consent to the reference to our firm under the heading "Experts" in
the Prospectus.
BDO Seidman, LLP
Atlanta, Georgia
May 7, 1997
