<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
INFOCURE CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7372 58-2271614
(State or other jurisdiction of (Primary SIC Code) (I.R.S. Employer Identification
incorporation or organization) 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)
---------------------
Copy to:
UGO F. IPPOLITO, ESQ.
GLASS, MCCULLOUGH, SHERRILL & HARROLD, LLP
1409 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
(404) 885-6705
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following block: [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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=======================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value.......... 575,290 $6.00 $3,451,740 $1,046.00
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(e) promulgated under the Securities Act of 1933.
(2) Pursuant to Rule 429 of the Securities Act of 1933, the amount of
registration fees does not include $12,874.62 previously paid to the
Commission relating to the registration of 3,862,385 shares of Common Stock
previously registered pursuant to Registration Statement No. 333-20571.
---------------------
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.
THE PROSPECTUS CONTAINED HEREIN IS, PURSUANT TO RULE 429, A COMBINED
PROSPECTUS WHICH MEETS THE REQUIREMENTS OF THE ACT FOR USE IN CONNECTION WITH
THE SECURITIES COVERED BY THIS REGISTRATION STATEMENT AND THE SECURITIES COVERED
BY THE COMPANY'S REGISTRATION STATEMENT ON FORM S-4, NO. 333-20571. THIS
REGISTRATION STATEMENT ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 3 WITH
RESPECT TO THE REGISTRANT'S REGISTRATION STATEMENT NO. 333-20571, AND SUCH
POST-EFFECTIVE AMENDMENT SHALL HEREAFTER BECOME EFFECTIVE, CONCURRENTLY WITH THE
EFFECTIVENESS OF THIS REGISTRATION STATEMENT IN ACCORDANCE WITH SECTION 8(C) OF
THE SECURITIES ACT OF 1933.
================================================================================
<PAGE> 2
INFOCURE CORPORATION
PROSPECTUS
RELATING TO UP TO 4,157,839 SHARES OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
OF INFOCURE CORPORATION
TO BE ISSUED IN CONNECTION WITH THE PROPOSED MERGER OF AMERICAN MEDCARE
CORPORATION ("AMC") WITH AND INTO INFOCURE CORPORATION ("COMPANY" OR "INFOCURE")
FOR COMMON STOCK OF INFOCURE, THE PROPOSED MERGER OF KCOMP MANAGEMENT SYSTEMS,
INC. ("KCOMP") INTO A NEWLY CREATED SUBSIDIARY OF INFOCURE FOR CASH AND COMMON
STOCK OF INFOCURE, THE PROPOSED MERGER OF ROVAK, INC. ("ROVAK") INTO A NEW
CREATED SUBSIDIARY OF INFOCURE FOR CASH AND COMMON STOCK OF INFOCURE AND THE
EXCHANGE OF ALL OF THE OUTSTANDING SHARES OF DR SOFTWARE, INC. ("DR SOFTWARE")
FOR CASH AND COMMON STOCK OF INFOCURE. THIS PROSPECTUS ALSO INCLUDES UP TO AN
ADDITIONAL 279,836 SHARES OF COMMON STOCK OF INFOCURE THAT ARE TO BE ISSUED UPON
THE MERGER OF AMC INTO INFOCURE IN THE EVENT OUTSTANDING STOCK OPTIONS OR A
WARRANT ISSUED BY AMC ARE EXERCISED PRIOR TO THE MERGER.
---------------------
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING
ON PAGE 24.
---------------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERS OF
SECURITIES MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INFOCURE, AMC, KCOMP OR DR
SOFTWARE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE SHARES TO WHICH IT RELATES OR AN OFFER OF ANY KIND TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
THE SECURITIES OF INFOCURE CORPORATION OFFERED IN CONNECTION WITH THE MERGERS
AND EXCHANGE OFFERS DESCRIBED IN THIS PROSPECTUS 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.
THE DATE OF THIS PROSPECTUS IS JULY , 1997.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
The Acquisitions............................................ 4
Acquisitions of Certain of the Founding Businesses.......... 10
Risk Factors................................................ 24
Dividend Policy............................................. 30
Capitalization.............................................. 31
Selected Pro Forma Combined Financial Data.................. 32
Management's Discussion and Analysis of Pro Forma Combined
Financial Condition and Pro Forma Combined Results of
Operations................................................ 34
Selected Financial Data of AMC.............................. 36
Management's Discussion and Analysis of Financial Condition
and Results of Operations of AMC.......................... 37
Selected Financial Data of KComp............................ 40
Management's Discussion and Analysis of Financial Condition
and Results of Operations of KComp........................ 41
Selected Financial Data of DR Software...................... 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations of DR Software.................. 44
Selected Financial Data of Rovak............................ 46
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Rovak........................ 47
Business.................................................... 49
Management.................................................. 57
Principal Stockholders...................................... 61
Certain Transactions........................................ 62
Description of Capital Stock................................ 63
Shares Eligible for Future Sale............................. 64
Legal Matters............................................... 65
Experts..................................................... 65
Available Information....................................... 65
Index to Financial Statements............................... F-1
</TABLE>
2
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PROSPECTUS SUMMARY
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, and (ii) a public offering price of $5.50 per share for the shares
of Common Stock of InfoCure (the "Offering") in an underwritten public offering
being made concurrently with the Acquisitions (an aggregate of 960,637
Equivalent Shares of Common Stock outstanding immediately prior to the Offering
is subject to increase or decrease depending upon whether the initial public
offering price of a share of Common Stock is less than or greater than $5.50 per
share, respectively). "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 totaled 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'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
midsize; 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 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 ACQUISITIONS
InfoCure has entered into agreements to acquire, concurrently with 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. The three operating divisions
are 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
4
<PAGE> 6
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 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. 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
5
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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.
ACQUISITION CONSIDERATION
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 ("AMC Merger") 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 $3.0 million in cash, $4.2 million in
assumed indebtedness and 4,157,839 shares of Common 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)
- ----------------- ------------ ------------ ----------------
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AMC (3)(4)(5)............................ $ 500,000 $2,573,095 3,419,437
Rovak (5)(6)............................. 100,000 1,220,321 404,909
KComp (5)(7)............................. 250,000 273,400 258,500
DR Software.............................. 2,128,500 95,915 74,993
---------- ---------- ---------
Total.......................... $2,978,500 $4,162,731 4,157,839
========== ========== =========
</TABLE>
- ---------------
(1) Assumed indebtedness is as of April 30, 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) Includes (i) the cash portion of the purchase price of Millard-Wayne and
(ii) 181,818 Equivalent Shares of Common Stock to be issued in satisfaction
of $1,000,000 of the principal of the note payable to Info Systems of North
Carolina Inc., the seller of the business of HCD. See "AMC Financial
Statements -- Note 8."
(5) Includes 132,448 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, 109,091 Equivalent
Shares of Common Stock of which are subject to adjustment based upon the
initial public offering price of a share of Common Stock. Excludes an
aggregate of (i) 279,836 Equivalent Shares of Common Stock reserved for
issuance upon exercise of outstanding stock options and a warrant of AMC
assumed by the Company, (ii) 114,934 Equivalent Shares of Common Stock which
AMC has the right to purchase for $65,000, (see "AMC Financial
Statements -- Note 3"), (iii) 23,357 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) 409,091 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, subject to adjustment based upon the initial public offering price
of a share of Common Stock, (v) 181,818 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, subject to adjustment
based upon the initial public offering price of a share of Common Stock, and
(vi) 210,087 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.
(6) Includes reduction for an estimated post-closing adjustment of $478,000,
based upon the financial statements of Rovak as of April 30, 1997. Any
adjustment will be made only to the number of shares of Common Stock to be
issued.
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(7) Includes reduction for an estimated post-closing adjustment of $58,000,
based upon the financial statements of KComp as of April 30, 1997. Any
adjustment will be made 21% in cash and 79% in the number of shares of
Common Stock to be issued.
The consummation of the AMC Merger and the acquisition of each of
Millard-Wayne, DR Software, KComp and Rovak are subject to certain conditions.
These conditions include without limitation (i) the accuracy of the
representations and warranties made by the stockholders of these companies, (ii)
the performance of each of their respective covenants included in the
acquisition agreements and (iii) no material adverse change in the results of
financial conditions or businesses of the company being acquired. Certain of the
directors, executive officers and principal stockholders of the Company are or
were directors, executive officers and/or principal stockholders of AMC and the
Founding Businesses. See "Management" and "Certain Transactions."
7
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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 and the three months ended April 30, 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, THREE MONTHS
---------------------- ENDED APRIL 30,
1996 1997 1997
--------- --------- --------------------
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software............................... $ 9,746 $ 9,655 $2,075
Maintenance and support............................ 6,034 8,580 2,080
Other.............................................. 762 871 184
------- ------- -------
Total revenues................................... 16,542 19,106 4,339
Cost of revenues...................................... 5,137 5,656 1,386
------- ------- -------
Gross profit.......................................... 11,405 13,450 2,953
Operating expenses:
Selling, general and administrative (2)(3)(4)(5)... 8,386 10,053 2,294
Depreciation and amortization (6).................. 1,337 1,402 330
------- ------- -------
Operating income...................................... 1,682 1,995 329
Other expense (income):
Interest expense (7)............................... 77 73 23
Other.............................................. (121) (41) (9)
------- ------- -------
Income before taxes................................... 1,726 1,963 315
Income tax (8)........................................ 842 938 165
------- ------- -------
Net income............................................ $ 884 $ 1,025 $ 150
======= ======= =======
Pro forma net income per share........................ $ 0.16 $ 0.19 $ 0.03
Pro forma weighted average shares outstanding (9)..... 5,486 5,486 5,486
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
-------------- ----------------
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SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 449 $ 1,376
Working capital........................................... (3,259) (2,332)
Total assets.............................................. 17,760 18,687
Short-term debt........................................... 495 495
Long-term debt, less current portion...................... 491 491
Total stockholders' equity................................ 11,674 12,636
</TABLE>
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(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 April 30, 1997, in the case of the selected pro forma balance
sheet data. 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, $1,830,000 and
$175,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively, and (ii) the additional overhead
expenses at the Founding Businesses of approximately $452,000, $475,000 and
$30,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively. The Company considers that the
elimination of approximately $1,130,000 of these expenses, on an annualized
basis, was effected concurrent with the 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, $350,000 and $88,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 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, $323,000 and $80,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 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, $753,000 and $154,000 for the years ended January 31, 1996 and
1997 and the three months ended April 30, 1997, respectively. Also includes
pro forma adjustments to depreciation and amortization expense, after
adopting appropriate useful lives for related assets, of $300,000, $240,000
and $40,000 for the years ended January 31, 1996 and 1997 and the three
months ended April 30, 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, $254,000 and $88,000 for the years ended January 31,
1996 and 1997 and the three months ended April 30, 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) 5,337,736 shares to be
issued in connection with the Acquisitions and the Offering and (iii)
147,837 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."
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<PAGE> 11
ACQUISITIONS OF CERTAIN OF THE FOUNDING BUSINESSES
INTRODUCTION
This Prospectus is being furnished to the holders of the capital stock of
certain of the Founding Businesses by the Company, in connection with (i) the
merger of AMC into InfoCure, (ii) the merger of KComp into a newly created
subsidiary of InfoCure (iii) the merger of Rovak into a newly created subsidiary
of InfoCure and (iv) the exchange of all of the capital stock of DR Software for
cash and Common Stock of InfoCure.
Each of the above transactions is conditioned upon the consummation of the
Offering on or before July 17, 1997 at a public offering price of not less than
$5.00 per share. A registration statement, as amended, on Form SB-2 (the "IPO
Registration Statement") covering 1,400,000 shares of Common Stock to be
publicly offered, was filed by InfoCure with the Securities and Exchange
Commission ("Commission"). There can be no assurances that the Offering will be
effected or at a public offering price of not less than $5.00 per share.
The shares of Common Stock which will be distributed to the stockholders of
AMC, KComp, Rovak and DR Software upon consummation of the exchanges will have
been registered under the Securities Act. The Common Stock has been approved for
listing on the American Stock Exchange under the symbol "INC". Thereafter the
Common Stock to be issued may be sold at any time or from time to time without
restrictions, except that certain officers, directors and stockholders of
InfoCure and/or of the Founding Businesses who may be deemed to be "affiliates"
of InfoCure under the rules of the Commission may only resell their shares of
Common Stock within the limitations of Rules 144 and 145 promulgated by the
Commission. In addition, certain stockholders of the Founding Businesses have
entered into lock up agreements with representatives of the underwriters. See
"Risk Factors -- Substantial Shares Eligible for Future Sale" and "Shares
Eligible for Future Sale."
REASONS FOR THE ACQUISITIONS
InfoCure and AMC are engaging in the mergers and exchanges described in
this Prospectus as part of their strategy to become a leading provider of
practice management software products and related services. The directors and
stockholders of DR Software, Rovak, and KComp have considered, among other
factors, (i) the value and liquidity of the consideration to be received, (ii)
the pro forma financial condition, results of operations and business prospects
of the Founding Businesses, (iii) the competitive environment for practice
management software products and related services, (iv) the development expenses
necessary to be technologically competitive and (v) other pertinent information.
No relevant weights were assigned to any of the factors enumerated above. The
directors and stockholders of KComp, Rovak and DR Software have each concluded
that the terms of the transactions with their company and/or stockholders is
fair to the stockholders from a financial point of view and have each determined
that the applicable merger or exchange is in the best interest of the
stockholders.
ACCOUNTING TREATMENT OF THE ACQUISITIONS
For financial statement presentation purposes, AMC has been identified as
the accounting acquiror. The pro forma combined financial data contained in this
Prospectus presents certain data for the Company, as adjusted for (i) the
effects of the merger of AMC into InfoCure on a historical basis and (ii) the
effects of the acquisition by InfoCure of KComp, Rovak and DR Software using the
purchase method of accounting at their estimated fair values.
The following is a summary of the material terms of each proposed exchange
offer.
MERGER OF AMC WITH AND INTO INFOCURE
The following is a summary of the material terms of the definitive merger
agreement to be entered into by InfoCure and AMC ("AMC Merger Agreement").
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<PAGE> 12
The AMC Merger Agreement between InfoCure and AMC provides that AMC shall
merge into InfoCure, with InfoCure continuing as the surviving corporation ("AMC
Merger"). The AMC Merger will occur at the time the offering commences pursuant
to the IPO Registration Statement. Upon the consummation of the AMC Merger, the
holders of common stock of AMC will receive an aggregate of 3,419,437 shares of
Common Stock of InfoCure, an estimated 0.05966 ("Exchange Ratio") of a share of
Common Stock for each share of common stock of AMC owned of record (the
equivalent of 1 share of Common Stock for approximately 16.76 shares of common
stock of AMC). 223,364 Equivalent Shares of Common Stock to be issued upon the
AMC Merger are subject to being increased or decreased depending on whether the
initial public offering price of a share of Common Stock is less than or greater
than $5.50 per share, respectively. Assuming an initial offering price of $5.50
per share for the Common Stock of InfoCure sold pursuant to the IPO Registration
Statement, the estimated dollar value of the outstanding common stock of AMC at
the time of the AMC Merger would be approximately $18.8 million. 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. The
final determination of the Exchange Ratio shall be made by the board of
directors of AMC and InfoCure. 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. There can be no
assurances that InfoCure will file a registration statement covering such shares
which may be issued after the AMC Merger upon the exercise of the stock options
or warrants. 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. 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, the absence of any material
and adverse change in the business of AMC and the receipt by AMC of an opinion
from its tax counsel as described in "Federal Income Tax Consequences of the AMC
Merger."
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. At this time the Company has not reached
any conclusion as to whether it will waive or modify any material or immaterial
condition to the consummation of the AMC Merger. Such determination will be made
at the time a waiver or modification is requested by a party to the AMC Merger.
The Company is not aware of any present intent of any party to waive or modify
any of the conditions.
The AMC Merger Agreement provides that it may be terminated prior to the
effective date of the AMC Merger, notwithstanding approval of the AMC Merger
Agreement by the holders of a majority of outstanding shares of InfoCure and
AMC, (i) by the mutual consent of InfoCure and AMC or (ii) at any time after
July 17, 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 July 17, 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.
In the event of termination, each party will pay its own expenses incurred in
connection with the AMC Merger Agreement, except that the cost of this
registration statement of InfoCure will be borne by InfoCure.
Federal Income Tax Consequences of the AMC Merger. As a condition
precedent to the obligations of InfoCure and AMC to consummate the AMC Merger,
AMC shall have received, prior to the effective date of the AMC Merger, an
opinion of tax counsel, Glass, McCullough, Sherrill & Harrold, LLP, to the
effect that (i) no gain or loss will be recognized by the stockholders of AMC
upon the exchange of their common stock of AMC for Common Stock of InfoCure,
(ii) the basis of the shares of Common Stock received by the AMC
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<PAGE> 13
stockholders will be the same as the basis of the shares of common stock of AMC
surrendered in exchange therefor, (iii) the holding period of the shares of the
Common Stock received by the stockholders of AMC will include the holding period
of the shares of common stock of AMC surrendered in exchange therefor, provided
the common stock of AMC is a capital asset in the hands of the AMC stockholders
on the effective date of the AMC Merger and (iv) where cash is received by a
stockholder of AMC in lieu of the stockholder's fractional share interest in the
Common Stock, such cash payment will be treated as being received by the
stockholder as a distribution in redemption of a fractional share interest and
the AMC stockholders will recognize a gain or loss with respect thereto measured
by the difference between their basis for such fractional interest and the
amount received in redemption thereof. The receipt of this tax opinion, which is
a condition to the obligation to consummate the AMC Merger, will not be waived
by AMC.
AMC stockholders who exercise dissenters' rights, and as a result of which
receive only cash, will be treated as having received such cash as a
distribution in redemption of their AMC common stock. Accordingly, each such
stockholder generally will recognize gain or loss equal to the difference
between the amount of cash received by such stockholder and such stockholder's
basis in his or her stock. See "Appraisal Rights of Dissenting Stockholders of
AMC."
The gain or loss recognized by any AMC stockholder attributable to the
receipt of cash either in lieu of fractional shares or as a result of such
stockholder's exercise of dissenters' rights will be capital gain or loss to any
such AMC stockholder for whom the AMC common stock is a capital asset. Such
capital gain or loss will be long-term capital gain or loss to an AMC
stockholder who has held the AMC common stock for more than one year on the
effective date of the AMC Merger and short-term capital gain or loss to an AMC
stockholder who has held the AMC common stock for not more than one year on the
effective date of the AMC Merger.
Stock Trading. Prior to the Offering, there will have been no public
trading of shares of Common Stock. Consequently, the initial public offering
price of the Common Stock will be determined by negotiations between InfoCure
and the representatives of the underwriters. Among the factors to be considered
in such negotiations will be the history of and prospects for InfoCure and the
industry in which it will operate, an assessment of InfoCure's management, past
and present earnings of the Founding Businesses, and the trend of such earnings,
the prospectus for future earnings of InfoCure, the present state of InfoCure'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.
The following table sets forth high and low closing bid quotations in the
over the counter market during the fiscal quarters noted of the common stock of
AMC:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED LOW HIGH
-------------------- ---- ----
<S> <C> <C>
January 31, 1995......... $.19 $.56
April 30, 1995........... .12 .12
July 31, 1995............ .12 .12
October 31, 1995......... .06 .06
January 31, 1996......... .25 .25
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED LOW HIGH
-------------------- ---- ----
<S> <C> <C>
April 30, 1996........... $.06 $.31
July 31, 1996............ .06 .31
October 31, 1996......... .125 .45
January 31, 1997......... .125 .69
April 30, 1997........... .156 .59
July 31, 1997 (through
July 2, 1997).......... .125 .41
</TABLE>
On July 2, 1997, the last reported closing quotations of a share of common
stock of AMC were bid $.1875 and $.28 asked.
AMC Merger Approval. The AMC Merger has been approved by the boards of
directors of AMC and InfoCure. Of the five directors of InfoCure, two are
directors and executive officers of AMC, one is an executive officer of AMC, one
is a consultant and a beneficial owner of shares of common stock of AMC and one
is a beneficial owner of shares of common stock of AMC. Under the Delaware
General Corporation Law, the written consent to the AMC Merger of the holders of
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. The directors and executive officers of AMC and InfoCure and
their affiliates and holders of 5% or more of the
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<PAGE> 14
common stock of AMC own approximately 70% of the outstanding shares of common
stock of AMC. All of such stockholders of AMC have voted to approve the AMC
Merger. All of the outstanding shares of InfoCure are owned by its directors and
officers and such stockholders have 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."
The consideration to be received upon the AMC Merger was determined by the
management of AMC and InfoCure based upon their opinion as to the value of AMC
when combined with the other Founding Businesses. No report, opinion or
appraisal of any third party was obtained or received by InfoCure or AMC
regarding the values of the common stock of AMC or InfoCure.
On and after the effective date of the AMC Merger, each stock certificate
which evidenced shares of common stock of AMC immediately prior to the AMC
Merger will thereafter be deemed to evidence ownership of the number of whole
shares of Common Stock as to which the stockholder of AMC shall be entitled on
the basis of the Exchange Ratio discussed above. After the effective date of the
AMC Merger, the AMC stockholders, upon surrender of their AMC stock
certificates, will receive a certificate representing the number of whole shares
of Common Stock for which the shares of common stock of AMC were converted upon
the consummation of the AMC Merger.
No scrip or fractional shares of InfoCure will be issued. Stockholders of
AMC who would otherwise be entitled to receive a fractional share certificate
will be paid in cash the market value of their fractional interest upon
surrender of the AMC share certificates. The market value of the fractional
interest will be determined by multiplying the fraction of a share of Common
Stock which the AMC stockholders would otherwise be entitled to receive times
the public offering price of a share of Common Stock pursuant to the Offering.
STOCKHOLDERS OF AMC SHOULD NOT SEND THEIR STOCK CERTIFICATES OF AMC COMMON
STOCK UNTIL THEY RECEIVE TRANSMITTAL FORMS FROM INFOCURE.
STOCKHOLDERS OF AMC WHO DESIRE TO SELL ANY SHARES OF COMMON STOCK AFTER THE
EFFECTIVE DATE OF THE AMC MERGER BUT PRIOR TO RECEIPT OF THEIR INFOCURE STOCK
CERTIFICATE SHOULD CONSULT WITH THEIR BROKER TO DETERMINE IF THEIR BROKER WILL
ACCEPT SUCH SALE ORDERS.
Appraisal Rights of Dissenting Stockholders of AMC. Stockholders of AMC
have the appraisal rights with respect to the proposed AMC Merger as are
provided by Section 262 ("Section 262") of the Delaware General Corporation Law
("DGCL"). The following is not intended to be a complete summary of the
provisions of Section 262 and is qualified in its entirety by reference to that
Section of the DGCL which is reproduced in full as Appendix I hereto. Failure to
follow these procedures exactly could result in the loss of appraisal rights.
This Prospectus constitutes notices to holders of common stock of AMC concerning
the availability of Section 262 appraisal rights.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the conditions of Section 262. For mergers approved by written consent of the
stockholders, a written demand for appraisal of shares may be made within 20
days after receiving notice from the surviving corporation that the merger was
approved (which notice must be sent either before the effective date or within
10 days thereafter). Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
to demand appraisal of his or her shares. Voting against, abstaining from voting
or failing to vote on the AMC Merger will not constitute a demand for appraisal
within the meaning of Section 262. Stockholders electing to exercise their
appraisal rights under Section 262 must not vote for approval of the AMC Merger.
An AMC stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to InfoCure Corporation, 2970 Clairmont Road,
Suite 950, Atlanta, Georgia 30329 Attention: President.
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<PAGE> 15
Within 120 days after the effective time of the AMC Merger ("Effective
Time"), any stockholder who has satisfied the requirements of Section 262 may
deliver to InfoCure a written demand for a statement listing the aggregate
number of shares not voted in favor of the AMC Merger and with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares.
Within 120 days after the Effective Time (but not thereafter), either
InfoCure or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Chancery Court (the "Court")
demanding a determination of the fair value of the dissenting shares. InfoCure
has no present intention to file such a petition if demand for appraisal is
made.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy will be made upon InfoCure which will, within 20 days
after service, file in the office of the Register of Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by InfoCure. If
the petition is filed by InfoCure, the petition will be accompanied by the
verified list. The Register of Chancery, if so ordered by the Court, will give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to InfoCure and to the stockholders shown upon the
list at the addresses therein stated, and notice will also be given by
publishing a notice at least one week before the day of the hearing in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publications as the Court deems advisable. The forms of the notices by
mail and by publication must be approved by the Court.
If a petition for an appraisal is filed in a timely fashion, after a
hearing on the petition, the Court will determine which stockholders are
entitled to appraisal rights and will appraise the shares owned by such
stockholders, determining the fair value of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the AMC
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value, the Court is
to take into account all relevant factors.
AMC stockholders considering seeking appraisals of their shares of common
stock of AMC should note that the fair value of their shares determined under
Section 262 could be more, the same or less than the consideration they would
receive pursuant to the AMC Merger Agreement if they did not seek appraisal of
their shares. The costs of the appraisal proceeding may be determined by the
Court and taxed against the parties as the Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares entitled to appraisal. In the absence of a determination or
assessment, each party bears his or her own expenses.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the AMC Merger Agreement. After this period, the stockholder
may withdraw his or her demand for appraisal and receive payment for his or her
shares as provided in the AMC Merger Agreement only with the consent of
InfoCure. If no petition for appraisal is filed with the Court within 120 days
after the Effective Time, stockholder's rights to appraisal will cease and AMC
stockholders will be entitled to receive shares of Common Stock of InfoCure as
provided in the AMC Merger Agreement. Inasmuch as InfoCure has no obligation to
file such a petition, any stockholder who desires a petition to be filed is
advised to file on a timely basis. No petition timely filed in the Court
demanding appraisal may be dismissed as to any stockholder without the approval
of the Court, as this approval may be conditioned upon such terms as the Court
deems just.
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<PAGE> 16
Management of InfoCure. Certain of the directors and officers of AMC are
or will become directors and/or officers of InfoCure. Also, employment
agreements have or will be entered into between AMC or InfoCure and certain of
its officers. See "Management."
Related Transactions. 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."
STOCK PURCHASE AGREEMENT WITH THE STOCKHOLDERS OF DR SOFTWARE
The following is a summary of the material terms of the definitive stock
purchase agreement entered into among all of the stockholders of DR Software and
InfoCure ("DR Stock Purchase Agreement").
The DR Stock Purchase Agreement provides that InfoCure will acquire all of
the outstanding capital stock of DR Software in consideration of (i) $2,128,500
payable in cash upon the closing of the Offering and (ii) 74,993 shares of
Common Stock of InfoCure. Assuming an initial offering price of $5.50 per share
for the Common Stock of InfoCure sold pursuant to the IPO Registration
Statement, the estimated dollar value of 74,993 shares of Common Stock to be
received by the shareholders of DR Software would be approximately $412,500. 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 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."
Preliminary discussions regarding the acquisition of DR Software were
commenced several years ago between the principal stockholders of DR Software
and the management of AMC. Those discussions included discussions of AMC
combining several providers of practice management software products and related
services into a single entity. In the second quarter of 1996 AMC arranged for a
joint meeting of several such companies, including DR Software, Millard-Wayne
and KComp, for the purpose of jointly discussing their acquisitions by AMC or by
a newly created entity. Discussions regarding the acquisitions continued
thereafter. In the later half of 1996 the discussions accelerated leading to the
execution of the DR Stock Purchase Agreement in February 1997. The DR Stock
Purchase Agreement has been amended thereafter. The negotiations were between
the principal stockholders of DR Software and the management of AMC and
subsequently the management of InfoCure. The purchase price agreed upon was the
result of arms-length negotiations. No report, opinion or appraisal of any third
party was obtained or received by InfoCure or AMC regarding the value of the
common stock of DR Software.
The proposed DR Stock Purchase Agreement provides that the sale of the
capital stock of DR Software will occur at the time the offering commences
pursuant to the IPO Registration Statement.
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 commencement 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, (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. At this time the Company
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<PAGE> 17
has not reached any conclusion as to whether it will waive or modify any
material or immaterial condition to the consummation of the acquisition of DR
Software. Such determination will be made at the time a waiver or modification
is requested by a party to the DR Software Stock Purchase Agreement. The Company
is not aware of any present intent of any party to waive or modify any of the
conditions.
The DR Stock Purchase Agreement provides that it may be terminated or
abandoned prior to the commencement of the Offering (i) by mutual consent of
InfoCure and the stockholders of DR Software or (ii) at any time after July 17,
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 July 17, 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 except that the cost
of this registration statement of InfoCure will be borne by InfoCure.
Management. Donald M. Rogers, a director, officer and principal
stockholder of DR Software will become an officer of InfoCure. In addition, he
will enter into an employment agreement with InfoCure upon the consummation of
the acquisition. See "Management."
The stockholders of DR Software are not entitled to appraisal or
dissenters' rights under applicable laws for the reason that the transaction
contemplated by DR Stock Purchase Agreement constitutes an exchange of stock for
which appraisal or dissenters' rights are not provided under applicable law.
Federal Income Tax Consequences to Stockholders of DR Software. The sale
to InfoCure of the capital stock of DR Software by the stockholders of DR
Software will be a taxable sale of stock in which each stockholder of DR
Software will recognize a gain or loss measured by the difference between: (a)
the sum of the cash received and the fair market value on the closing date of
the Common Stock of InfoCure received and (b) their basis for their capital
stock of DR Software. The gain or loss recognized by any stockholder of DR
Software will be capital gain or loss to any such stockholder for whom the DR
Software capital stock is a capital asset. Such capital gain or loss will be
long-term capital gain or loss to a stockholder of DR Software who has held the
DR Software capital stock for more than one year on the closing date and
short-term capital gain or loss to a stockholder of DR Software who has held the
DR Software capital stock for not more than one year on the closing date.
The stockholders of DR Software, who will receive consideration out of
escrow after the close of their taxable year in which the closing occurs, may be
entitled to report their sale of DR Software capital stock under the installment
method. Under the installment method, each payment of purchase price will be
treated as part nontaxable recovery of basis and part taxable realization of
gain. In addition, because interest will not be payable on the Common Stock
escrowed, a portion of the payments made out of escrow would be characterized as
interest rather than purchase price.
DR Software stockholders may elect not to report their gain under the
installment method. Those stockholders electing out of installment sale
treatment would recognize the maximum contract price in the taxable year in
which the closing occurs and report gain or loss in such taxable year. To the
extent that any amount of the escrowed consideration is returned to InfoCure in
a subsequent taxable year, such stockholders would recognize a loss for such
subsequent taxable year. Any gain or loss attributable to shares of Common Stock
of InfoCure held in escrow which are required to be returned to InfoCure would
be taken into account in determining those stockholders' losses in such
subsequent taxable year.
The tax consequences to the DR Software stockholders of the sale of DR
Software stock are complex and may vary among stockholders depending on their
particular circumstances. Each DR Software stockholder should consult his or her
personal tax advisor regarding the appropriate tax treatment.
Comparison of the Common Stock of DR Software and InfoCure. The following
is a description of the material differences between the rights of the holders
of common stock of DR Software and the holders of Common Stock of InfoCure. This
description is qualified in its entirety by reference to the articles of
incorporation and bylaws of DR Software and InfoCure, the DGCL and the Georgia
Business Corporation Code ("GBCC").
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The rights of the stockholders of DR Software are governed by its articles
of incorporation and bylaws and the GBCC. The rights of the stockholders of
InfoCure are governed by its articles of incorporation and bylaws and the DGCL.
After the exchange of the common stock of DR Software for the Common Stock of
InfoCure and certain cash payments, the rights of the stockholders of DR
Software who become stockholders of InfoCure will be governed by the articles of
incorporation and bylaws of InfoCure and the DGCL.
InfoCure's articles of incorporation authorize the Board of Directors to
issue preferred stock without any action of the stockholders. The rights of the
holders of Common Stock generally will be subject to the prior rights of the
holders of preferred stock. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock."
In addition, under Section 203 of the DGCL a publicly held Delaware
corporation is prohibited from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date the
stockholder becomes an "interested stockholder" except under certain
circumstances. See "Description of Capital Stock -- Delaware Anti-Takeover Law."
The stockholders of DR Software are not subject to any similar provision.
Under the DGCL, actions to be taken by stockholders of InfoCure may be
taken without a meeting, if a written consent is executed by the holders of
shares of Common Stock having the requisite number of votes that would be
necessary to authorize such actions at a meeting of the stockholders. Consent
action by the stockholders of DR Software without a meeting can only be taken by
unanimous written consent.
The DGCL and GBCC provide appraisal rights to stockholders in the event of
a merger or consolidation. The laws of Georgia provide appraisal rights upon
certain additional actions, including upon the following actions: (i) sale of
all or substantially all of the assets of the company and (ii) amendments to the
articles of incorporation that materially and adversely affect the rights or
preferences of the shares of the dissenting stockholder.
PLAN OF MERGER WITH THE STOCKHOLDERS OF KCOMP
The following is a summary of the material terms of the definitive plan of
merger entered into among all of the stockholders of KComp, KComp, Eracdem
Corporation, a wholly owned subsidiary of InfoCure ("EDC") and InfoCure ("KComp
Plan of Merger").
The KComp Plan of Merger provides that KComp will merge into EDC ("KComp
Acquisition") at the time the offering commences pursuant to the IPO
Registration Statement and the shareholders of KComp will receive consideration
consisting of $250,000 payable in cash and 247,976 shares of the Common Stock,
assuming an initial offering price of $5.50 per share. 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 income which is in
excess of $400,000 and less than $427,273 (a maximum of $150,000) payable
one-half in cash and one-half in stock, valued at the initial public offering
price per share. If operating income exceeds $427,273 and is less than $750,000
("Excess"), the purchase price is to be further increased by an amount equal to
the Excess times 3.0986, payable one-half in cash and one-half in stock, valued
at the initial public offering price 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 $535,000 in
value of Common Stock at 120% of the initial public
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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.
Preliminary discussions regarding the acquisition of KComp were commenced
several years ago between the principal stockholders of KComp and the management
of AMC. Those discussions included discussions of AMC combining several
providers of practice management software products and related services into a
single entity. In the second quarter of 1996 AMC arranged for a joint meeting of
several such companies, including DR Software, Millard-Wayne and KComp, for the
purpose of jointly discussing their acquisitions by AMC or by a newly created
entity. Discussions regarding the acquisitions continued thereafter. In the
later half of 1996 the discussions accelerated leading to the execution of a
stock purchase agreement in February 1997. This agreement was terminated in
April 1997 and the KComp Merger Agreement was entered into in May 1997. The
negotiations were between the principal stockholders of KComp and the management
of AMC and subsequently the management of InfoCure. The purchase price agreed
upon was the result of arms-length negotiations. No report, opinion or appraisal
of any third party was obtained or received by InfoCure or AMC regarding the
value of the common stock of KComp.
The KComp Plan of Merger provides that the merger of KComp into EDC will
occur at the time the offering commences pursuant to the IPO Registration
Statement.
InfoCure and the stockholders of KComp make certain representations and
warranties in the KComp Plan of Merger 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 the stockholders of KComp
and InfoCure is subject to the fulfillment of various conditions at or prior to
the commencement of the Offering including, among others, and 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 KComp Plan of Merger, (ii) waive any inaccuracies in the
representations and warranties contained in the KComp Plan of Merger and (iii)
waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the KComp Plan of Merger
or waive or modify performance of any of the obligations of any of the parties
to the KComp Plan of Merger. At this time the Company has not reached any
conclusion as to whether it will waive or modify any material or immaterial
condition to the consummation of the KComp Acquisition. Such determination will
be made at the time a waiver or modification is requested by a party to the
KComp Plan of Merger. The Company is not aware of any present intent of any
party to waive or modify any of the conditions.
The KComp Plan of Merger provides that it may be terminated or abandoned
prior to the commencement of the Offering (i) by mutual consent of InfoCure and
the stockholders of KComp or (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 stock purchase agreement.
A two year employment agreement is to be entered into by the Company and
Marc Kloner, a principal stockholder of KComp. The employment agreement will
provide for an annual based salary of $110,000 and will be eligible for a bonus
based upon his performance after the first year of employment. There is no
formal bonus plan.
Federal Income Tax Consequences to Stockholders of KComp. The parties to
the KComp Plan of Merger intend that the KComp Acquisition constitute a tax-free
reorganization by statutory merger of KComp with and into EDC within the meaning
of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended and corresponding provisions of state income tax law. The tax
consequences to the stockholders of KComp upon the KComp Acquisition are complex
and may vary among
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stockholders depending on their particular circumstances. Each KComp stockholder
should consult his or her personal tax advisor regarding the appropriate tax
treatment.
Comparison of the Common Stock of KComp and InfoCure. The following is a
description of the material differences between the rights of the holders of
common stock of KComp and the holders of Common Stock of InfoCure. This
description is qualified in its entirety by reference to the articles of
incorporation and bylaws of KComp and InfoCure, the DGCL and the California
General Corporation Law ("CGCL").
The rights of the stockholders of KComp are governed by its articles of
incorporation and bylaws and the CGCL. The rights of the stockholders of
InfoCure are governed by its articles of incorporation and bylaws and the DGCL.
After the exchange of the common stock of KComp for the Common Stock of InfoCure
and certain cash payments, the rights of the stockholders of KComp who become
stockholders of InfoCure will be governed by the articles of incorporation and
bylaws of InfoCure and the DGCL.
InfoCure's articles of incorporation authorize the Board of Directors to
issue preferred stock without any action of the stockholders. The rights of the
holders of Common Stock generally will be subject to the prior rights of the
holders of preferred stock. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of InfoCure. The stockholders of KComp are not subject to a similar
provision. See "Description of Capital Stock -- Preferred Stock."
Under Section 203 of the DGCL a publicly held Delaware corporation is
prohibited from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date the stockholder becomes
an "interested stockholder" except under certain circumstances. See "Description
of Capital Stock -- Delaware Anti-Takeover Law." There is no similar provision
under CGCL.
Under the DGCL, a merger must be approved by a majority of the outstanding
stock of the corporation entitled to vote therein. Since KComp is a "close"
corporation under the CGCL, a merger with a corporation must be approved by
two-thirds of the outstanding common stock of KComp.
The DGCL and CGCL provide appraisal rights to stockholders in the event of
a merger or consolidation. The CGCL also provide appraisal rights in the event
of the sale of all or substantially all of the assets of the company not in the
ordinary course of its business.
Under the articles of incorporation of KComp and the CGCL, the directors of
KComp are elected by cumulative voting. The holders of Common Stock of InfoCure
do not have similar rights.
KComp Plan of Merger Approval. The KComp Plan of Merger has been approved
by the boards of directors of KComp and EDC and all of the holders of the
outstanding shares of common stock of KComp and EDC.
On and after the effective date of the KComp Acquisition, each stock
certificate which evidenced shares of common stock of KComp immediately prior to
the KComp Acquisition will thereafter be deemed to evidence ownership of the
number of whole shares of Common Stock of InfoCure as to which the stockholder
of KComp shall be entitled on the basis of the conversion ratio and the right to
receive cash as set forth in the agreement of merger ("Agreement of Merger").
After the effective date of the KComp Acquisition, the stockholders of KComp,
upon surrender of their KComp stock certificates, will receive a certificate
representing the number of whole shares of Common Stock into which the shares of
common stock of KComp were converted upon the KComp Acquisition and their pro
rata share of the cash consideration payable.
No script or fractional shares of InfoCure will be issued. Stockholders of
KComp who would otherwise be entitled to receive a fractional share certificate
will be paid in cash the market value of their fractional interest upon
surrender of the KComp share certificates. The market value of the fractional
interest will be determined by multiplying the fraction of a share of Common
Stock which the KComp stockholders would otherwise be entitled to receive times
the public offering price of a share of Common Stock pursuant to the Offering.
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Appraisal Rights of Dissenting Stockholders of KComp. Stockholders of
KComp have appraisal rights with respect to the proposed KComp Acquisition as
are provided by Section 1300 et seq. of the CGCL. The following is not intended
to be a complete summary of the provisions of Section 1300 et seq. and is
qualified in its entirety by reference to those sections, which is reproduced in
full as Appendix II hereto. In order to meet the statutory requirements, a
dissenting stockholder of KComp must: (i) have provided KComp with a written
objection to the KComp Acquisition prior to the meeting of stockholders at which
the Agreement of Merger is submitted to a vote; (ii) have not voted any shares
of common stock of KComp in favor of adoption of the Agreement of Merger or
consented to the Agreement of Merger in writing; and (iii) make a written demand
for a cash payment for the fair value of the common stock of KComp owned by the
stockholder within thirty (30) days after the date on which written notice is
sent of the approval by the outstanding shares of the Agreement of Merger. The
demand must state the number and class of shares of KComp owned which the
stockholder demands that KComp purchased and contain a statement of what the
stockholder claims to be the fair market value of the shares owned.
In the event the parties shall not agree upon the fair market value of the
shares, the dissenting stockholders who have complied with the statutory
procedure for appraisal must file not later than six (6) months after the notice
of approval referenced above was mailed to the stockholders, a petition in the
applicable superior court, requesting a determination of the fair market value
of such shares. Only by following the statutory procedures may a dissenting
stockholder perfect the stockholder's right of appraisal.
A vote against the Agreement of Merger does not constitute the written
objection required to be filed by a dissenting stockholder. Failure to vote
against the Agreement of Merger, however does not constitute a waiver of rights
under Section 1300 et seq.
PLAN OF MERGER WITH THE STOCKHOLDERS OF ROVAK
The following is a summary of the material terms of the definitive plan of
merger to be entered into among all of the stockholders of Rovak, R I
Acquisition Corporation, a wholly owned subsidiary of InfoCure ("RIA"), and
InfoCure ("Rovak Plan of Merger").
The Rovak Plan of Merger will provide that InfoCure will merge into RIA
("Rovak Acquisition") at the time the Offering commences pursuant to the IPO
Registration Statement and the shareholders of Rovak will receive consideration
consisting of $100,000 payable in cash and $2,705,000 in Common Stock based upon
the offering price pursuant to the Offering. The Rovak Plan of Merger will
provide 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 negative
$161,000. Any adjustment will be made to the number of shares of Common Stock to
be issued. In addition, the consideration is to be increased (the "Earn Out") if
the net income before interest and taxes ("net income") of Rovak for the year
ending January 31, 1998 is more than $371,000. The maximum Earn Out of
$1,000,000 is applicable if such net income is $500,000 or more and is prorated
if it is less than $500,000 and more than $371,000. The consideration is to be
further increased ("Additional Earn Out") if the net income of Rovak for the
12-month period ended January 31, 1998 is more than $550,000. The maximum
Additional Earn Out of $1,250,000 is applicable if such net income is $750,000
or more and is prorated if it is less than $750,000 and more than $550,000. The
Earn Out and the Additional Earn Out are payable one-half in cash and one-half
in stock valued at the initial public offering price per share. The Earn Out and
Additional 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 as 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."
Preliminary discussions regarding the combining of several providers of
practice management software products and related services into a single entity
had been conducted by AMC for several years. In the fall of 1996, discussions
with another company, which targeted the needs of oral surgeons and
orthodontists, were terminated. It was determined by the management of AMC that
acquisition discussions should be commenced with Rovak. In February 1997, stock
purchase agreement was entered into between the stockholders of Rovak and
InfoCure. The Rovak Plan of Merger is to entered into prior to the commencement
of the
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Offering. The purchase price agreed upon was the result of arms-length
negotiations. No report, opinion or appraisal of any third party was obtained or
received by InfoCure or RIA regarding the value of the common stock of Rovak.
The Rovak Plan of Merger will provide that the merger of Rovak into RIA
will occur at the time the offering commences pursuant to the IPO Registration
Statement.
InfoCure and the stockholders of Rovak will make certain representations
and warranties in the Rovak Plan of Merger as to, among other matters, the
financial position, corporate existence, business and capital structure of
InfoCure or Rovak. The consummation of the Rovak Acquisition by its stockholders
and InfoCure is subject to the fulfillment of various conditions at or prior to
the commencement of the Offering including, among others, and the correctness of
the representations and warranties and the absence of any material and 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 Plan of Merger, (ii) waive any inaccuracies in the
representations and warranties contained in the Rovak Plan of Merger and (iii)
waive compliance with or modify, amend or suspend any of the covenants,
agreements, representations or warranties contained in the Rovak Plan of Merger
or waive or modify performance of any of the obligations of any of the parties
to the Rovak Plan of Merger. At this time the Company has not reached any
conclusion as to whether it will waive or modify any material or immaterial
condition to the consummation of the Rovak Acquisition. Such determination will
be made at the time a waiver or modification is requested by a party to the
Rovak Plan of Merger. The Company is not aware of any present intent of any
party to waive or modify any of the conditions.
The Rovak Plan of Merger will provide that it may be terminated or
abandoned prior to the commencement of the Offering (i) by mutual consent of
InfoCure and the stockholders of Rovak or (ii) at any time after July 17, 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 July 17, 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 stock purchase agreement.
Ronald M. Vagle, the chairman and a principal stockholder of Rovak, is a
director of InfoCure.
A two year employment agreement is to be entered into by the Company and
Brad Schraut, a director, officer and principal stockholder of Rovak. 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 stock option is granted. Also, Mr.
Schraut will be eligible for a bonus based upon his performance. There is no
formal bonus plan. 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.
Federal Income Tax Consequences to Stockholders of Rovak. The parties to
the Rovak Plan of Merger intend that the Rovak Acquisition constitute a tax-free
reorganization by statutory merger of Rovak with and into RIA within the meaning
of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended and corresponding provisions of state income tax law.
The tax consequences to the Rovak stockholders of the sale of Rovak stock
are complex and may vary among stockholders depending on their particular
circumstances. Each Rovak stockholder should consult his or her personal tax
advisor regarding the appropriate tax treatment.
Comparison of the Common Stock of Rovak and InfoCure. The following is a
description of the material differences between the rights of the holders of
common stock of Rovak and the holders of Common Stock of InfoCure. This
description is qualified in its entirety by reference to the articles of
incorporation and bylaws of Rovak and InfoCure, the DGCL and the Minnesota
Business Corporation Act ("MBCA").
The rights of the stockholders of Rovak are governed by its articles of
incorporation and bylaws and the MBCA. The rights of the stockholders of
InfoCure are governed by its articles of incorporation and bylaws
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and the DGCL. After the exchange of the common stock of Rovak for the Common
Stock of InfoCure and certain cash payments, the rights of the stockholders of
Rovak who become stockholders of InfoCure will be governed by the articles of
incorporation and bylaws of InfoCure and the DGCL.
InfoCure's articles of incorporation authorize the Board of Directors to
issue preferred stock without any action of the stockholders. The rights of the
holders of Common Stock generally will be subject to the prior rights of the
holders of preferred stock. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of InfoCure. The stockholders of Rovak are not subject to a similar
provision. See "Description of Capital Stock -- Preferred Stock."
Under Section 203 of the DGCL a publicly held Delaware corporation is
prohibited from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date the stockholder becomes
an "interested stockholder" except under certain circumstances. See "Description
of Capital Stock -- Delaware Anti-Takeover Law."
Under Section 301A.673 of the MBCA ("Section 301A.672") an interested
stockholder (a stockholder owning 10% of the voting stock of a Minnesota public
corporation) may not enter into a "business combination" with the Minnesota
public corporation for a period of four years after the date of the transaction
in which the person became an interested stockholder unless the business
combination or the acquisition of the shares that resulted in the stockholder
becoming an interested stockholder is approved by an independent committee of
the board of directors prior to the stockholder becoming an interested person. A
corporation may elect not to be subject to the provisions of Section 301A.673.
Under the laws of the DGCL, actions to be taken by stockholders of InfoCure
may be taken without a meeting, if a written consent is executed by the holders
of shares of Common Stock having the requisite number of votes that would be
necessary to authorize such actions at a meeting of the stockholders. Consent
action by the stockholders of Rovak without a meeting must be by unanimous
written consent.
The DGCL and MBCA provide appraisal rights to stockholders in the event of
a merger or consolidation. The laws of Minnesota provide appraisal rights upon
certain additional actions, including upon the following actions (i) sale of all
or substantially all of the assets of the company not in the ordinary course of
its business and (ii) amendments to the articles of incorporation that
materially and adversely affect the rights or preferences of the shares of the
dissenting stockholders.
Under the articles of incorporation of Rovak and the MBCA, the directors
are elected by cumulative voting. The holders of Common Stock of InfoCure do not
have similar rights. In addition, the stockholders of Rovak have preemptive
rights to subscribe to additional issuances of shares of common stock of Rovak.
Stockholders of InfoCure do not have preemptive rights.
In addition, the MBCA prohibits anyone who acquires 20% or more of the
stock of a Minnesota "issuing public corporation" from voting such shares unless
the acquisition was approved by a majority of the shares, excluding the shares
owned by such acquiring person. A Minnesota issuing public corporation is a
corporation which has at least 50 stockholders and is incorporated under the
laws of Minnesota.
Related Transactions. For a description of transactions between Rovak and
any director, executive officer and any holder of more than 5% of the common
stock of Rovak and their affiliates, see "Notes to Financial
Statements -- Related Party Transactions."
Appraisal Rights of Dissenting Stockholders of Rovak. Stockholders of
Rovak have appraisal rights with respect to the proposed Rovak Merger as are
provided by Section 302A.473 of the Minnesota Business Corporation Act ("Section
302A.473"). The following is not intended to be a complete summary of the
provisions of Section 302A.473 and is qualified in its entirety by reference to
that Section 302A.473, which is reproduced in full as Appendix III hereto. In
order to meet the statutory requirements, a dissenting stockholder of Rovak
must: (i) have provided Rovak with a written objection to the Rovak Merger prior
to the meeting of stockholders at which the Rovak Merger Agreement is submitted
to a vote; (ii) have not voted any
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shares of common stock of Rovak in favor of adoption of the Rovak Merger or
consented to the Rovak Merger in writing; and (iii) make a written demand after
the Rovak Merger for a cash payment for the fair value of the common stock of
Rovak owned by such stockholder within 30 days after notice is given to the
shareholder of the approval of the Rovak Merger by the Board of Directors and
stockholders of Rovak.
After the Rovak Merger becomes effective, RIA or InfoCure shall remit a
notice ("Company Notice") to each dissenting stockholder of its estimate of the
fair value of the shares, plus interest, together with certain financial and
other information. A dissenting stockholder may decline the offer and demand a
supplemental payment based upon the dissenter's estimate of the fair value of
the shares. The demand by the dissenting stockholder must be made within 30 days
after the mailing of the Company Notice. Failure to timely demand the
supplemental payment limits the dissenter to the amount remitted by RIA or
InfoCure. If a timely demand is made, RIA or InfoCure must either pay such
supplemental amount demanded, plus interest; reach a settlement with the
dissenter as to a lesser amount; or file in court a petition requesting the
court to determine the fair value of the dissenter's shares. The petition must
be filed in the county in which the registered office of Rovak was located.
The court shall assess the cost and expenses of the proceeding and the
reasonable expenses and compensation of the appraisers appointed by the court
against RIA or InfoCure except that the Court may assess part or all of those
costs and expenses against a dissenter whose action is found to be arbitrary or
not in good faith, Only by following the statutory procedures stated in Section
302A.473 may a dissenting stockholder of Rovak perfect the stockholder's right
of appraisal.
A vote against the Rovak Merger does not constitute the written objection
required to be filed by a dissenting stockholder. Failure to vote against the
Rovak Merger, however, does not constitute a waiver of rights under Section
302A.473.
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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, $1,025,000 and $150,000 for the years ended January 31, 1996 and
1997 and the three months ended April 30, 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, $2,172,000 and $287,000 for
the years ended January 31, 1996 and 1997 and the three months ended April 30,
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. Therefore, 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, a pretax loss of $636,906, before income
tax benefit, for the year ended January 31, 1997 and a pre-tax loss of $106,296
for the three months ended April 30, 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. Moreover upon the Acquisitions, the Company will assume
commitments of the Founding Businesses and commitments pursuant to the
acquisition agreements, including the earn outs under the acquisition
agreements, salaries and fees payable to employees and consultants, rents and
other contractual commitments. 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."
24
<PAGE> 26
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 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.
25
<PAGE> 27
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 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
26
<PAGE> 28
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. 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.
27
<PAGE> 29
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.
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 $3.0 million, representing approximately 49% of the net
proceeds of the Offering will be paid and 4,157,839 shares of Common Stock will
be issued, upon the consummation of the Acquisitions. Approximately $2.9 million
of such payments and 3,227,285 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 $3.1 million, representing 51% 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 37.6% 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 1,400,000 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
4,157,839 shares of Common Stock will be issued in connection with the AMC
Merger and the Acquisitions of which approximately 3,227,285 shares of Common
Stock will be issued to affiliates of the Company and the Founding Businesses
and 930,554 shares of Common Stock to persons who are not affiliates. In
addition 147,837 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.
28
<PAGE> 30
The Company, its directors, executive officers and certain of its
stockholders, including all affiliates of the Company, holding an aggregate of
2,866,339 Equivalent Shares of Common Stock, (and have the right to acquire
141,126 shares of Common Stock pursuant to immediately exercisable stock options
and a warrant), have agreed 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 except with respect to Common Stock
being sold in connection with the Offering. In addition, holders of more than 5%
of the outstanding shares of Common Stock which hold 2,306,364 shares have
agreed, for a period of three months following expiration of the Lock-Up Period,
not to offer or dispose of any shares of Common Stock. 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 $5.37 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.
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
29
<PAGE> 31
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."
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 "InfoCure, Management's Discussion and Analysis of Pro
Forma Combined Financial Condition and Pro Forma Combined Results of
Operations -- Liquidity and Capital Resources."
30
<PAGE> 32
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of April 30, 1997 (i) on a pro forma basis to give effect to the Acquisitions
and the repayment of certain outstanding indebtedness and (ii) on a pro forma
basis adjusted to give effect to the Acquisitions, the consummation of the
Offering and the applications 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.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 495 $ 495
Long-term debt, excluding current portion................... 491 491
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; 5,337,768 shares issued and outstanding pro
forma and 5,557,839 shares issued and outstanding pro
forma as adjusted (1).................................. 5 6
Additional paid-in capital................................ 14,994 15,955
Accumulated deficit....................................... (3,325) (3,325)
------- -------
Total stockholders' equity............................. 11,674 12,636
------- -------
Total capitalization................................. $12,660 $13,622
======= =======
</TABLE>
- ---------------
(1) Excludes an aggregate of (i) 279,836 Equivalent Shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options and a
stock warrant, (ii) 210,087 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 (iii) 114,934 Equivalent Shares of Common Stock which AMC has the right
to purchase for $65,000. See "AMC Financial Statements -- Note 3."
31
<PAGE> 33
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 and the three months ended
April 30, 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, THREE MONTHS
--------------------------- ENDED APRIL 30,
1996 1997 1997
----------- ---------- ---------------
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA: (1)
Revenues:
Systems and software sales....................... $ 9,746 $ 9,655 $2,075
Maintenance and support.......................... 6,034 8,580 2,080
Other............................................ 762 871 184
------- ------- ------
Total revenues................................. 16,542 19,106 4,339
Cost of revenues.................................... 5,137 5,656 1,386
------- ------- ------
Gross profit........................................ 11,405 13,450 2,953
Operating expenses:
Selling, general and administrative
(2)(3)(4)(5)................................... 8,386 10,053 2,294
Depreciation and amortization (6)................ 1,337 1,402 330
------- ------- ------
Operating income.................................... 1,682 1,995 329
Other expense (income):
Interest expense (7)............................. 77 73 23
Other............................................ (121) (41) (9)
------- ------- ------
Income before taxes................................. 1,726 1,963 315
Income tax (8)...................................... 842 938 165
------- ------- ------
Net income.......................................... $ 884 $ 1,025 $ 150
======= ======= ======
Pro forma net income per share...................... $ 0.16 $ 0.19 $ 0.03
Pro forma weighted average shares outstanding (9)... 5,486 5,486 5,486
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
---------------------------------
PRO FORMA
PRO FORMA (10) AS ADJUSTED (10)
-------------- ----------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA: (1)
Cash and cash equivalents................................. $ 449 $ 1,376
Working capital........................................... (3,259) (2,332)
Total assets.............................................. 17,760 18,687
Short-term debt........................................... 495 495
Long-term debt, less current portion...................... 491 491
Total stockholders' equity................................ 11,674 12,636
</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 April 30, 1997, in the case of the selected pro forma balance
sheet data. 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
32
<PAGE> 34
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, $1,830,000 and
$175,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively, and (ii) the additional overhead
expenses at the Founding Businesses of approximately $452,000, $475,000 and
$30,000 for the years ended January 31, 1996 and 1997 and the three months
ended April 30, 1997, respectively. The Company considers that the
elimination of approximately $1,130,000 of these expenses, on an annualized
basis, was effected concurrent with the 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, $350,000 and $88,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 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, $323,000 and $80,000 for the years
ended January 31, 1996 and 1997 and the three months ended April 30, 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, $753,000 and $154,000 for the years ended January 31, 1996 and
1997 and the three months ended April 30, 1997, respectively. Also includes
pro forma adjustments to depreciation and amortization expense, after
adopting appropriate useful lives for related assets, of $300,000, $240,000
and $40,000 for the years ended January 31, 1996 and 1997 and the three
months ended April 30, 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, $254,000 and $88,000 for the years ended January 31,
1996 and 1997 and the three months ended April 30, 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) 5,337,736 shares to be
issued in connection with the Acquisitions and the Offering and (iii)
147,837 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."
33
<PAGE> 35
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 seven 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.
34
<PAGE> 36
Systems and software sales decreased $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 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 consummation 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.
35
<PAGE> 37
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 and the three months ended April 30, 1996
and 1997. The selected financial data presented for AMC should be read in
conjunction with its financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30,
----------------- -------------------
1996 1997 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues:
Maintenance and support.............................. $ 1,311 $ 1,419 $ 389 $ 681
Systems and software sales........................... 1,102 1,076 210 809
------- ------- ------- -------
Total revenues..................................... 2,413 2,495 599 1,490
Cost of revenues........................................ 516 475 122 673
------- ------- ------- -------
Gross profit............................................ 1,897 2,020 477 817
Operating expenses:
Salaries and operating expenses...................... 2,016 2,469 471 805
Depreciation and amortization........................ 114 111 17 61
------- ------- ------- -------
Loss from operations.................................... (233) (560) (11) (49)
Other income (expense):
Interest............................................. (68) (83) (19) (61)
Other income, net.................................... 121 6 -- 4
------- ------- ------- -------
Loss before income tax benefit.......................... (180) (637) (30) (106)
Income tax benefit...................................... -- 891 -- 32
------- ------- ------- -------
Net income (loss)....................................... $ (180) $ 254 $ (30) $ (74)
======= ======= ======= =======
Net income (loss) per share............................. $ (0.00) $ 0.01 $ (0.00) $ (0.00)
Weighted average shares outstanding..................... 41,387 43,186 41,439 55,184
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF APRIL 30,
----------------- ---------------
1996 1997 1997
------- ------- ---------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 250 $ 199 $ 600
Working capital........................................... (1,201) (1,127) (1,340)
Total assets.............................................. 567 4,182 4,584
Short-term debt........................................... 336 50 50
Long-term debt, less current portion...................... 545 2,304 684
Total stockholders' equity................................ (1,618) 172 352
</TABLE>
36
<PAGE> 38
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
Three Months Ended April 30, 1997 Compared to Three Months Ended April 30,
1996
Overall revenues increased by $890,950, or 149%, to $1,489,957 for the
three months ended April 30, 1997 from $599,007 for the three months ended April
30, 1996. This increase was primarily due to the purchase of the HCD customer
base, maintenance and revenue streams, which contributed revenues of $1,058,153.
System and software sales revenue increased by $599,382, or 285%, to
$809,429 for the three months ended April 30, 1997 from $210,047 for the three
months ended April 30, 1996. This change was due to the inclusion of $712,176 in
HCD sales revenue, and a decrease in ICS sales revenues of $110,000 resulting
from a shift in marketing and sales focus from new customer sales towards
maintenance and electronic transaction services.
Software maintenance and electronic services revenue increased by $291,568,
or 75%, to $680,528 for the three months ended April 30, 1997 from $388,960 for
the three months ended April 30, 1996. This increase was primarily due to an
additional $345,977 of sales revenue from the acquisition of the HCD customer
and maintenance base.
The gross margin for the current quarter increased by $340,037, or 71%, to
$816,683 for the three months ended April 30, 1997 from $476,646 for the three
months ended April 30, 1996. This increase was due primarily to the purchase of
HCD, which contributed $430,324.
Operating expenses increased by $377,806, or 77%, to $865,520 for the three
months ended April 30, 1997 from $487,714 for the three months ended April 30,
1996. This increase was due to operating expenses totalling $200,217 associated
with the HCD purchase, and the additional personnel and overhead associated with
opening the second office for purposes of implementing AMC's acquisition
strategy. Depreciation and amortization increased by $44,236, or 264%, to
$61,022 for the three months ended April 30, 1997 from $16,786 for the three
months ended April 30, 1996. This increase was primarily due to the additional
goodwill and depreciation expenses associated with the HCD acquisition.
The loss from operations increased by $37,769 to $48,837 for the three
months ended April 30, 1997 from a loss of $11,068 for the three months ended
April 30, 1996. This loss was due to increased compensation expenses and
additional operating expenses associated with AMC's acquisition strategy.
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
37
<PAGE> 39
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 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.
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 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
Three Months Ended April 30, 1997 Compared with Three Months Ended April 30,
1996
Overall AMC had a net loss of $74,296 for the three months ended April 30,
1997, compared with a loss of $29,572 for the three months ended April 30, 1996.
Cash used in operations was $158,975 for the three months ended April 30,
1997, due primarily to decreased accounts receivable, decreased payables, and
decreased deferred claims revenue. Cash used for investing activities totalled
$73,561; this cash was used primarily for expenses associated with the planned
public offering.
Cash provided by financing activities during the three months ended April
30, 1997 was $266,162, which came primarily from the sale of common stock during
the quarter.
38
<PAGE> 40
Year Ended January 31, 1997 Compared with Year Ended January 31, 1996
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.
39
<PAGE> 41
SELECTED FINANCIAL DATA OF KCOMP
The following selected financial data present certain data for KComp for
the period from Inception (December 15, 1996) to March 31, 1996, and the results
of operations for the full year ended March 31, 1997. The selected financial
data presented for KComp should be read in conjunction with its audited
financial statements and notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 15,
1995) YEAR ENDED
TO MARCH 31, MARCH 31,
1996 1997
-------------- ----------
<S> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues:
Systems and software sales................................ $172,781 $ 312,938
Maintenance and support................................... 486,764 1,673,622
-------- ----------
Total revenues.................................... 659,545 1,986,560
Operating 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 operating 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>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 33,427 $ 11,403
Working capital............................................. (626,259) (568,017)
Total assets................................................ 890,796 823,669
Short-term debt............................................. 472,569 273,400
Long-term debt, less current portion........................ 27,761 --
Total stockholders' equity.................................. 2,982 174,908
</TABLE>
40
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF KCOMP
GENERAL
KComp was founded in December 1995 to develop, market and service practice
management systems for use by health care providers. 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 service revenues are generated by providing customers with training,
updates, enhancements and telephone support.
The Company recognizes systems revenue in accordance with the provisions of
the AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
provided ratably over the contract period, which typically is for 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 has an installed customer base of approximately 1,600 health
care providers at over 725 client sites.
RESULTS OF OPERATIONS
The following discussions of the Company's operations reflect the results
of operations for the period from Inception on December 15, 1995 to March 31,
1996, and the results of operations for the full year of operations ended March
31, 1997.
Three Months Ended March 31, 1996
Total revenues for the three-month period ended March 31, 1996 totalled
$659,545. This was based upon revenues of $486,764 in maintenance and support
services, and revenues of $172,781 in systems and hardware sales. Operating
costs totalled $646,801 the three-month period ended March 31, 1996. As a
percentage of total revenues, salaries and wages totalled 70.8%.
Income from operations for the three-month period ending March 31, 1996
totalled $12,744, and the net loss for the period was $1,000.
Year Ended March 31, 1997
Total revenues for the year ended March 31, 1997 totalled $1,986,560. These
revenues were derived from maintenance and support service revenues of
$1,673,622 and systems and hardware sales of $312,938. Operating costs totalled
$1,748,319 for the year ended March 31, 1997. As a percentage of total revenues,
salaries and wages totalled 50.0%.
Income from operations for the year ended March 31, 1997 totalled $238,241,
and net income for the period was $131,195.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1996
For the three-month period ending March 31, 1996, cash provided by
operating activities totalled $35,411, cash used in investing activities
totalled $5,191, and cash provided by financing activities totalled $3,207.
41
<PAGE> 43
Year Ended March 31, 1997
For the year ended March 31, 1997, cash provided by operating activities
totalled $396,523. For the year ended March 31, 1997, cash used in investing
activities totalled $191,617, based largely on an increase in capitalized
software development costs totalling $182,343. For the same period, cash used in
financing activities totalled $226,930, due primarily to payments on a note
payable totalling $232,715.
42
<PAGE> 44
SELECTED FINANCIAL DATA OF DR SOFTWARE
The following selected financial data present certain data for DR Software
for the year ended December 31, 1995 and the year ended December 31, 1996 and
the three months ended March 31, 1996 and 1997. The selected financial data
presented for DR Software should be read in conjunction with its audited
financial statements and notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1995 1996 1996 1997
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues:
System sales................................. $2,192,378 $1,908,845 $470,569 $403,604
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 purchase 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
---------- ---------- -------- --------
Operating income (loss)......................... (12,885) 29,149 (49,475) (19,928)
Interest expense................................ (11,139) (12,447) (2,635) (1,897)
Miscellaneous................................... 11,747 36,792 7,043 (24,787)
---------- ---------- -------- --------
Net (loss) income............................... $ (12,277) $ 53,494 $(45,067) $(46,612)
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31, AS OF
1995 1996 MARCH 31, 1997
------------ ------------ ----------------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 169,834 $ 155,048 $ 198,247
Working capital.......................................... (607,260) (758,977) (864,369)
Total assets............................................. 1,249,415 1,498,393 1,533,911
Short-term debt.......................................... 4,913 78,833 78,885
Long-term debt, less current portion..................... 15,227 19,249 17,030
Total stockholders' equity............................... 22,094 60,588 13,976
</TABLE>
43
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF DR SOFTWARE
GENERAL
DR Software was founded in 1983 and is headquartered in Atlanta, Georgia.
DR Software develops, markets and services practice management systems for use
by health care providers in the podiatry market. DR Software'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 service revenues are generated by providing customers with training,
updates, enhancements and telephone support.
DR Software recognizes systems revenue in accordance with the provisions of
the AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
provided ratably over the contract period, which is typically billed monthly,
quarterly or annually. 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.
DR Software has approximately 2,200 clients serving an estimated 3,150
health care providers.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Systems sales decreased by $66,969, or 14.2%, to $403,600 for the three
months ended March 31, 1997 from $470,569 for the three months ended March 31,
1996. This decrease was due in part to the anticipated rollout of the new
Windows-based product in the second quarter.
Support and services revenue increased by $3,125, or 1.0%, to $369,894 for
the three months ended March 31, 1997 from $366,769 for the three months ended
March 31, 1996.
Based on these components, total revenues decreased by $63,844, or 7.6%, to
$773,494 for the three months ended March 31, 1997 from $837,338 for the three
months ended March 31, 1996.
Operating expenses decreased by $93,391, or 10.5%, to $793,422 for the
three months ended March 31, 1997 from $886,813 for the three months ended March
31, 1996. This was due to significant reductions in hardware sales, which
decreased by $45,483, or 20.6%, to $174,392 for the three months ended March 31,
1997 from $219,875 for the three months ended March 31, 1996. The decrease was
also due to lower travel and entertainment expenses, which decreased by $22,883
or 41.6% to $32,008 for the three months ended March 31, 1997 from $54,891 for
the three months ended March 31, 1996. Other decreases included reductions of
$22,158 in depreciation and amortization, and $35,835 in other expenses.
Operating expenses included increases in salaries and wages, which
increased by $12,635 or 3.0% to $424,684 for the three months ended March 31,
1997 from $412,049 for the three months ended March 31, 1996, as well as
increases of $12,536 in rent, and $12,506 in advertising.
Based on the decreased operating expenses and the reduction in total
revenues, the Company's operating loss decreased by $29,547 to $19,925 or 59.7%
for the three months ended March 31, 1997, compared to an operating loss of
$49,475 for the three months ended March 31, 1996. The net loss increased by
$1,545 or 3.4% to $46,612 for the three months ended March 31, 1997 from $45,067
for the three months ended March 31, 1996.
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<PAGE> 46
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenues decreased by $44,843, or 1.32%, to $3,359,451 for the twelve
months ended December 31, 1996 from $3,404,294 for the twelve months ended
December 31, 1995. System sales decreased by $283,533, or 12.93%, to $1,908,845
for the twelve months ended December 31, 1996 from $2,192,378 for the twelve
months ended December 31, 1995. This decrease was due to fewer system
installations and hardware sales. Support and services sales increased by
$238,690, or 19.70%, to $1,450,606 for the twelve months ended December 31, 1996
from $1,211,916 for the twelve months ended December 31, 1995. This increase was
due to increased support contracts, and support contract pricing.
Hardware purchased for resale decreased by $288,747, or 26.89%, to $785,173
for the twelve months ended December 31, 1996 from $1,073,920 for the twelve
months ended December 31, 1995. This decrease was due to a reduction in hardware
sales and installations.
Rent expense increased by $32,932, or 68.34%, to $81,123 for the twelve
months ended December 31, 1996 from $48,191 for the twelve months ended December
31, 1995. This increase was due to increased lease rates at DR Software's
relocated offices.
Travel and entertainment expenses decreased by $23,246, or 11.20%, to
$184,262 for the twelve months ended December 31, 1996 from $207,508 for the
twelve months ended December 31, 1995. This decrease was due to reduced
attendance at trade shows and other presentations.
Advertising expenses increased by $25,270, or 32.91%, to $102,060 for the
twelve months ended December 31, 1996 from $76,790 for the twelve months ended
December 31, 1995. This increase was due to a growth in product advertising and
marketing costs to new and existing customers.
As a result of the foregoing factors, DR Software had income from
operations of $29,149 for the twelve months ended December 31, 1996, as compared
to a loss of $12,885 for the twelve months ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1997
For the three months ended March 31, 1997, cash provided by operating
activities totalled $162,695, cash used for investing activities totalled
$117,299, and cash used in financing activities totalled $2,197. DR Software
invested $102,969 in capitalized software development costs.
As of March 31, 1997, DR Software had an accumulated deficit of $37,806 and
a working capital deficiency of $864,369.
Year Ended December 31, 1996
For the twelve months ended December 31, 1996, cash provided by operating
activities totalled $415,809, cash used for investing activities totaled
$479,137 and cash provided by financing activities totalled $48,542. DR Software
invested $395,282 in capitalized software development costs. DR Software
obtained $70,000 from a bank line of credit.
As of December 31, 1996, DR Software had retained earnings of $10,588 and a
working capital deficiency of $758,977.
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<PAGE> 47
SELECTED FINANCIAL DATA OF ROVAK
The following selected financial data present certain data for Rovak for
the years ended December 31, 1995 and 1996 and the three months ended March 31,
1996 and 1997. The selected financial data presented for Rovak should be read in
conjunction with its audited financial statements and notes thereto included
elsewhere in this document.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenues:
System 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
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ ----------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Cash and cash equivalents................................. $ 207,196 $ 159,233 $ 244,867
Working capital........................................... 24,748 (353,241) (278,444)
Total assets.............................................. 1,315,915 1,513,294 1,801,096
Short-term debt........................................... 269,399 480,383 678,511
Long-term debt, less current portion...................... 666,574 507,957 457,807
Total stockholders' equity................................ $ (226,595) $ (165,486) $ (100,612)
</TABLE>
46
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ROVAK
GENERAL
Rovak was founded in 1984 to develop, market and service practice
management systems for use by oral surgeons and orthodontists. The Company's
total revenues are derived primarily from the delivery of systems and software
sales, maintenance and support services, and sale of forms. 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 service revenues are generated by providing
customers with training, updates, enhancements and telephone support.
The Company recognizes systems revenue in accordance with the provisions of
the AICPA Statement of Position No. 91-1 "Software Revenue Recognition." Revenue
from support and maintenance contracts is recognized as the services are
provided ratably over the contract period, which typically is for 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, and other overhead costs.
The Company has an installed customer base of approximately 1,800 health
care providers at over 1,000 client sites.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Total revenues increased by $39,168, or 3.4%, to $1,180,065 for the three
months ended March 31, 1997 from $1,140,897 for the three months ended March 31,
1996.
Systems and software sales increased by $61,868, or 8.0%, to $834,912 for
the three months ended March 31, 1997 from $773,044 for the three months ended
March 31, 1996.
Maintenance and support services decreased by $20,941, or 10.9%, to
$170,390 for the three months ended March 31, 1997 from $191,331 for the three
months ended March 31, 1996. This decrease was due to a slight reduction in
per-call revenues as customers moved to quarterly service contracts.
Cost of revenues decreased by $46,743, or 9.1%, to $463,572 for the three
months ended March 31, 1997 from $510,315 for the three months ended March 31,
1996. This decrease was due to improved cost controls and purchasing procedures.
Operating expenses decreased by $15,839, or 2.6%, to $573,247 for the three
months ended March 31, 1997 from $589,086 for the three months ended March 31,
1996. This decrease was due primarily to reductions in research and development
costs.
Operating income increased by $101,750, or 245.2%, to $143,246 for the
three months ended March 31, 1997 from $41,496 for the three months ended March
31, 1996.
Net income increased by $62,282 to $64,874 for the three months ended March
31, 1997 from $2,592 for the three months ended March 31, 1996.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenues increased by $1,052,358, or 27.6%, to $4,854,230 for the
twelve months ended December 31, 1996 from $3,801,872 for the twelve months
ended December 31, 1995.
Systems and software sales increased by $551,251, or 20.4%, to $3,246,036
for the twelve months ended December 31, 1996 from $2,694,785 for the twelve
months ended December 31, 1995. This increase was due to increased sales,
marketing, and installations.
47
<PAGE> 49
Maintenance and support services increased by $361,251, or 71.7%, to
$864,604 for the twelve months ended December 31, 1996 from $503,353 for the
twelve months ended December 31, 1995. This was due to increased support
contracts, and support contract pricing.
Other revenues increased by $139,856, or 23.1%, to $743,590 for the twelve
months ended December 31, 1996 from $603,734 for the twelve months ended
December 31, 1995, due to increased sales of forms, corresponding with the
increased installations for the period.
Cost of revenues increased by $499,540, or 27.5%, to $2,310,587 for the
twelve months ended December 31, 1996 from $1,811,047 for the twelve months
ended December 31, 1995. This increase was due to the increased number of
installations, and cost of forms.
Operating expenses increased by $174,221, or 8.1%, to $2,307,279 for the
twelve months ended December 31, 1996 from $2,133,058 for the twelve months
ended December 31, 1995. For this comparative period, personnel costs increased
by $254,765, or 27.0%, to $1,195,684 for the twelve months ended December 31,
1996 from $940,919 for the twelve months ended December 31, 1995. This increase
was due to additional personnel hired during the past year.
Operating income increased by $378,597, or 266.1%, to $236,364 for the
twelve months ended December 31, 1996 from a loss of $142,233 for the twelve
months ended December 31, 1995.
Net income increased by $232,195, or 135.7%, to $61,109 for the twelve
months ended December 31, 1996 from a loss of $171,086 for the twelve months
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1997
For the three months ended March 31, 1997, cash used in operating
activities totalled $147,821. Cash provided by financing activities totalled
$147,821, primarily from the bank credit line.
Year Ended December 31, 1996
For the year ended December 31, 1996, cash provided by operating activities
totalled $233,086, cash used in investing activities totalled $184,676, and cash
used in financing activities totalled $48,410.
48
<PAGE> 50
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. 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 Company believes that opportunities exist to increase its market
share of installed customers through acquisitions of complementary businesses,
products and services.
49
<PAGE> 51
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 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
basis determined on the basis of estimated volume and type of electronic
transactions. The Company estimates that over 200 million potential annual
recurring transactions
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<PAGE> 52
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 clearing-houses 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>
<CAPTION>
FINANCIAL APPLICATIONS
<S> <C>
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.
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.
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
ADMINISTRATIVE APPLICATIONS
<S> <C>
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> 54
Add-On Software Modules
The Company has developed and introduced new 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
scheduled for release 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 April 30, 1997, the Company had 26 employees responsible for product
development and technical services.
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<PAGE> 55
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 April 30, 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 and 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> 56
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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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 April 30, 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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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. Elliot............................ 36 Director (1)(2)
Richard E. Perlman......................... 50 Director (1)(2)
Ronald M. Vagle............................ 53 Director
</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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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.
Ronald M. Vagle is one of the original founders of Rovak and has served as
its chairman since 1993. From 1985 to 1993 Mr. Vagle was president of Rovak. Mr.
Vagle holds a B.A. in Aeronautical Engineering from the University of Minnesota.
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.
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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 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
129,761 shares of Common Stock were outstanding under the AMC Plan at an
equivalent weighted average exercise price of $4.18 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 29,830 shares of Common Stock for an aggregate consideration
of $500, was exercised in 1996. The other option, for the equivalent of 29,830
shares of Common Stock at an exercise price of $1.68 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.
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Upon consummation of the AMC Merger, the Company shall assume the obligations of
AMC under this employment agreement. See "Business -- Stock Options."
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
80,541 shares of Common Stock at an exercise price of $4.18 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 a Founding Business, may not compete with such Founding
Business for a period of five years following the consummation of the
Acquisition.
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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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)....................... 544,027 13.0% 9.8%
Frederick L. Fine (3)(5)................................. 409,434 9.8 7.4
James K. Price (3)(6).................................... 409,434 9.8 7.4
Robert L. Fine (3)....................................... 331,417 8.0 6.0
William A. Baker (3)..................................... 213,949 5.1 3.8
Ronald M. Vagle.......................................... 196,786 4.7 3.5
Marc Kloner.............................................. 258,500 6.2 4.7
W. K. Price (3)(7)....................................... 203,249 4.9 3.7
Michael E. Warren........................................ 73,115 2.2 1.3
James D. Elliott......................................... 19,887 * *
Richard E. Perlman (8)................................... 195,691 4.6 3.5
All directors and executive officers as a group (10
persons)............................................... 1,673,144 38.9% 29.4%
</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 210,000 shares of Common Stock from certain stockholders. See
"Underwriting." It is contemplated that if the over-allotment option is
exercised the first 181,818 shares of Common Stock will be sold by Info
Systems of North Carolina, Inc. ("ISI") and the balance, i.e. 28,182
shares, by Norson's International, LLC. The Company will not receive any
proceeds from the sale of Common Stock by the selling 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 28,577 Equivalent Shares of Common Stock and a warrant (which
warrant is exercisable on the date hereof) to acquire 111,296 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 3,580 Equivalent Shares of Common Stock owned as custodian for his
children and 1,193 Equivalent Shares of Common Stock held in a charitable
trust over which he has sole voting and investment power.
(6) Includes 3,225 Equivalent Shares of Common Stock over which he has sole
voting power.
(7) Includes 6,450 Equivalent Shares of Common Stock over which he has sole
voting power.
(8) Includes 28,577 Equivalent Shares of Common Stock currently outstanding,
55,818 Equivalent Shares issuable upon the consummation of the Acquisitions
as compensation for acquisition-related services; and, a warrant (which
warrant is exercisable on the date hereof) to acquire 111,296 Equivalent
Shares of Common Stock owned by Compass, (or its assignees) in which Mr.
Perlman has a majority interest and over which Mr. Perlman and Norson's
have shared dispositive powers.
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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 of the Company will receive shares of Common Stock and/or cash as follows:
Frederick L. Fine, 404,661 shares of Common Stock; James K. Price, 406,209
shares of Common Stock; Robert L. Fine, 331,417 shares of Common Stock; William
A. Baker, 213,949 shares of Common Stock; W. K. Price, 196,799 shares of Common
Stock; Michael E. Warren, 43,285 shares of Common Stock and an option to acquire
29,830 shares of Common Stock; Norson's, 544,027 shares of Common Stock; Donald
M. Rogers, 71,993 shares of Common Stock and approximately $2.1 million in cash;
M. Wayne George, 132,448 shares of Common Stock and approximately $500,000 in
cash; Brad Schraut, 70,454 shares of Common Stock and approximately $17,400 in
cash; and Ron Vagle, 196,786 shares of Common Stock and approximately $48,600 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 132,448 shares
of Common Stock. If Rovak achieves certain financial criteria after the
Offering, Brad Schraut may receive up to 71,182 shares of Common Stock, and Ron
Vagle may receive up to 198,818 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, and Ron Vagle, a
director of the Company, has a 41% equity interest in the lessor. 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 June 30, 1997. As compensation for services, Compass and its assignees
received 28,577 Equivalent Shares of Common Stock and a warrant exercisable
within five years to purchase the equivalent of 111,296 Equivalent Shares of
Common Stock at an exercise price equal to the AMC stock price as of the date of
the agreement ($1.09 per Equivalent Share of Common Stock) subject to the
consummation of the Acquisitions. In addition, pursuant to the agreement,
Compass or its assignees will receive approximately 55,818 Equivalent Shares of
Common Stock and approximately $103,000 in cash 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.
NORSON'S
In July 1996, AMC sold to Norson's 104,563 Equivalent Shares of Common
Stock for $50,000 and, in November 1996, AMC sold Norson's 439,464 Equivalent
Shares of Common Stock for $750,000. The sale of 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 wherein 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 ("Note") bearing interest at 12% and payable in a balloon
payment of principal and interest in April 1997. The payment date has
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been extended to July 30, 1997. Prior to the merger of AMC into InfoCure, the
Note will be exchanged for 17,182 Equivalent Shares of Common Stock.
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 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
$227,000. 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 May 31, 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
63
<PAGE> 65
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 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 5,557,839 shares of Common Stock outstanding. In addition, outstanding
stock options and a warrant to acquire 147,837 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 2,866,339 shares of Common
Stock (including the right to acquire 141,126 shares of Common Stock pursuant to
immediately exercisable stock options and a warrant), have agreed 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 3,227,285 shares, have agreed 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
64
<PAGE> 66
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."
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 2,386 Equivalent Shares of Common Stock.
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
S-4 (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.
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.
65
<PAGE> 67
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 April 30, 1997..... F-4
Pro Forma Combined Statement of Operations for the three
months ended April 30, 1997............................ F-6
Pro Forma Combined Statement of Operations for the year
ended January 31, 1997................................. F-7
Pro Forma Combined Statement of Operations for the year
ended January 31, 1996................................. F-8
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-9
INFOCURE CORPORATION
Report of Independent Certified Public Accountants........ F-13
Balance Sheet............................................. F-14
Notes to Balance Sheet.................................... F-15
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants........ F-16
Consolidated Balance Sheets............................... F-17
Consolidated Statements of Operations..................... F-18
Consolidated Statements of Stockholders' Equity (Capital
Deficit)............................................... F-19
Consolidated Statements of Cash Flows..................... F-20
Notes to Consolidated Financial Statements................ F-21
KCOMP MANAGEMENT SYSTEMS, INC.
Report of Independent Certified Public Accountants........ F-31
Balance Sheets............................................ F-32
Statements of Operations.................................. F-33
Statements of Changes in Stockholders' Equity............. F-34
Statements of Cash Flows.................................. F-35
Notes to Financial Statements............................. F-36
MILLARD-WAYNE, INC.
Report of Independent Certified Public Accountants........ F-40
Balance Sheets............................................ F-41
Statements of Operations and Retained Earnings............ F-42
Statements of Cash Flows.................................. F-43
Notes to Financial Statements............................. F-44
HEALTH CARE DIVISION (A DIVISION OF INFO SYSTEMS OF NORTH CAROLINA,
INC.)
Report of Independent Certified Public Accountants........ F-48
Balance Sheets............................................ F-49
Statements of Operations.................................. F-50
Statements of Cash Flows.................................. F-51
Notes to Financial Statements............................. F-52
ROVAK, INC.
Report of Independent Certified Public Accountants........ F-58
Balance Sheets............................................ F-59
Statements of Operations and Accumulated Deficit.......... F-60
Statements of Cash Flows.................................. F-61
Notes to Financial Statements............................. F-62
</TABLE>
F-1
<PAGE> 68
INFOCURE CORPORATION
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DR SOFTWARE, INC.
Report of Independent Certified Public Accountants........ F-68
Balance Sheets............................................ F-69
Statements of Operations.................................. F-70
Statements of Stockholders' Equity........................ F-71
Statements of Cash Flows.................................. F-72
Notes to Financial Statements............................. F-73
</TABLE>
F-2
<PAGE> 69
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 April 30, 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 March 31, 1997. The Pro
Forma Combined Statements of Operations for the three months ended April 30,
1997 and 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 three months ended March 31, 1997 and 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 April 30, 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> 70
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1)
AS OF APRIL 30, 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......................... $ 232 $ 198 $ 12 $ -- $ 7
Accounts receivable, net.......................... 294 275 40 245 353
Inventory......................................... -- 85 -- 191 --
Deferred tax assets............................... -- -- 7 -- 74
Prepaid expenses and other........................ 75 80 22 645 4
------- ------ ----- ------ ----
Total current assets...................... 601 638 81 1,081 438
Property and equipment, net......................... 81 152 78 359 110
Capitalized software costs, net..................... 48 744 255 -- 343
Goodwill, net....................................... 1,983 -- 410 -- --
Deferred acquisition costs.......................... 946 -- -- -- --
Deferred tax assets................................. 903 -- -- 140 --
Other............................................... 54 -- -- 221 16
------- ------ ----- ------ ----
Total assets.............................. $ 4,616 $1,534 $ 824 $1,801 $907
======= ====== ===== ====== ====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank............................. $ -- $ 70 $ 30 $ 438 $ --
Other notes payable............................... -- -- -- -- 72
Current portion of long-term debt................. 50 9 243 241 145
Accounts payable.................................. 626 69 153 365 185
Accrued expenses.................................. 463 152 125 83 58
Deferred revenue and customer deposits............ 802 1,203 98 233 352
------- ------ ----- ------ ----
Total current liabilities................. 1,941 1,503 649 1,360 812
Other notes payable................................. 1,606 -- -- 84 --
Long term debt, less current portion................ 684 17 -- 458 15
------- ------ ----- ------ ----
Total liabilities......................... 4,231 1,520 649 1,902 827
------- ------ ----- ------ ----
Stockholders' equity (deficit):
Common stock...................................... 56 52 4 158 1
Stock purchase warrant............................ 80 -- -- -- --
Additional paid-in capital........................ 3,739 -- 41 -- 43
(Deficit) retained earnings....................... (3,325) (38) 130 (259) 36
Treasury stock.................................... (165) -- -- -- --
------- ------ ----- ------ ----
Total stockholders' equity (deficit)...... 385 14 175 (101) 80
------- ------ ----- ------ ----
Total liabilities and stockholders' equity
(deficit)............................... $ 4,616 $1,534 $ 824 $1,801 $907
======= ====== ===== ====== ====
</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> 71
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET (1) -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
---------------------------- PRO FORMA
SUBTOTAL A B C ADJUSTMENTS TOTAL
-------- -------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................... $ 449 $ (2,979) $(2,219) $ 6,125 $ 927 $ 1,376
Accounts receivable, net..................... 1,207 -- -- -- -- 1,207
Inventory.................................... 276 -- -- -- -- 276
Deferred tax assets.......................... 81 -- -- -- -- 81
Prepaid expenses and other................... 826 (538) -- -- (538) 288
------- -------- ------- ------- ------- -------
Total current assets.................. 2,839 (3,517) (2,219) 6,125 389 3,228
Property and equipment, net.................... 780 -- -- -- -- 780
Capitalized software costs, net................ 1,390 -- -- -- -- 1,390
Goodwill, net.................................. 2,393 9,459 103 -- 9,562 11,955
Deferred acquisition costs..................... 946 (946) -- -- (946) --
Deferred tax assets............................ 1,043 -- -- -- -- 1,043
Other.......................................... 291 -- -- -- -- 291
------- -------- ------- ------- ------- -------
Total assets.......................... $ 9,682 $ 4,996 $(2,116) $ 6,125 $ 9,005 $18,687
======= ======== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable to bank........................ $ 538 $ -- $ (438) $ -- $ (438) $ 100
Other notes payable.......................... 72 -- -- -- -- 72
Current portion of long-term debt............ 688 -- (365) -- (365) 323
Accounts payable............................. 1,398 -- -- -- -- 1,398
Accrued expenses............................. 881 360 (35) -- 325 1,206
Deferred revenue and customer deposits....... 2,688 (227) -- -- (227) 2,461
------- -------- ------- ------- ------- -------
Total current liabilities............. 6,265 133 (838) -- (705) 5,560
Other notes payable............................ 1,690 (1,095) (595) -- (1,690) --
Long-term debt, less current portion........... 1,174 -- (683) -- (683) 491
------- -------- ------- ------- ------- -------
Total liabilities..................... 9,129 (962) (2,116) -- (3,078) 6,051
------- -------- ------- ------- ------- -------
Stockholders' equity (deficit):
Common stock................................. 271 (266) -- 1 (265) 6
Stock purchase warrant....................... 80 -- -- -- -- 80
Additional paid-in capital................... 3,823 5,928 -- 6,124 12,052 15,875
(Deficit) retained earnings.................. (3,456) 131 -- -- 131 (3,325)
Treasury stock............................... (165) 165 -- -- 165 --
------- -------- ------- ------- ------- -------
Total stockholders' equity
(deficit)........................... 553 5,958 -- 6,125 12,083 12,636
------- -------- ------- ------- ------- -------
Total liabilities and stockholders'
equity (deficit).................... $ 9,682 $ 4,996 $(2,116) $ 6,125 $ 9,005 $18,687
======= ======== ======= ======= ======= =======
</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> 72
INFOCURE CORPORATION AND FOUNDING BUSINESSES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (1)
THREE MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DR MILLARD-
AMC SOFTWARE KCOMP ROVAK WAYNE
------ -------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales................................ $ 809 $ 403 $ 91 $ 835 $ 65
Maintenance and support................................... 681 370 402 170 329
Other..................................................... -- -- -- 175 9
------ ----- ---- ------ ----
Total revenues...................................... 1,490 773 493 1,180 403
Cost of revenues............................................ 673 174 53 464 22
------ ----- ---- ------ ----
Gross profit................................................ 817 599 440 716 381
------ ----- ---- ------ ----
Operating expenses:
Selling, general and administrative....................... 805 562 291 549 400
Depreciation.............................................. 13 14 13 24 9
Amortization.............................................. 48 43 20 -- 32
------ ----- ---- ------ ----
Total operating expenses............................ 866 619 324 573 441
------ ----- ---- ------ ----
Gross operating income (loss)............................... (49) (20) 116 143 (60)
------ ----- ---- ------ ----
Other expense (income):
Interest expense.......................................... 61 2 8 33 7
Other..................................................... (4) (5) -- -- --
------ ----- ---- ------ ----
Total other expense (income)........................ 57 (3) 8 33 7
------ ----- ---- ------ ----
Income (loss) before taxes.................................. (106) (17) 108 110 (67)
Taxes (benefit)............................................. (32) -- 42 45 (12)
------ ----- ---- ------ ----
Net income (loss)................................... $ (74) $ (17) $ 66 $ 65 $(55)
====== ===== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL
--------------------------- PRO FORMA
SUBTOTAL D E F G ADJUSTMENTS TOTAL
-------- ---- ----- ---- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Systems and software sales............................... $2,203 $ -- $ -- $ -- $ -- $ -- $2,203
Maintenance and support.................................. 1,952 -- -- -- -- -- 1,952
Other.................................................... 184 -- -- -- -- -- 184
------ ---- ----- ---- ----- ----- ------
Total revenues..................................... 4,339 -- -- -- -- -- 4,339
Cost of revenues........................................... 1,386 -- -- -- -- -- 1,386
------ ---- ----- ---- ----- ----- ------
Gross profit............................................... 2,953 -- -- -- -- -- 2,953
------ ---- ----- ---- ----- ----- ------
Operating expenses:
Selling, general and administrative...................... 2,607 -- -- -- (313) (313) 2,294
Depreciation............................................. 73 -- (20) -- -- (20) 53
Amortization............................................. 143 -- 134 -- -- 134 277
------ ---- ----- ---- ----- ----- ------
Total operating expenses........................... 2,823 -- 114 -- (313) (199) 2,624
------ ---- ----- ---- ----- ----- ------
Gross operating income (loss).............................. 130 -- (114) -- 313 199 329
------ ---- ----- ---- ----- ----- ------
Other expense (income):
Interest expense......................................... 111 -- -- (88) -- (88) 23
Other.................................................... (9) -- -- -- -- -- (9)
------ ---- ----- ---- ----- ----- ------
Total other expense (income)....................... 102 -- -- (88) -- (88) 14
------ ---- ----- ---- ----- ----- ------
Income (loss) before taxes................................. 28 -- (114) 88 313 287 315
Taxes (benefit)............................................ 43 (32) (2) 34 122 122 165
------ ---- ----- ---- ----- ----- ------
Net income (loss).................................. $ (15) $ 32 $(112) $ 54 $ 191 $ 165 $ 150
====== ==== ===== ==== ===== ===== ======
Pro forma income per share................................. $ 0.03
======
Shares used in computing pro forma income per share (H).... 5,486
======
</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> 73
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 D E F G 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
(H).................................................. 5,486
=======
</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> 74
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 D E F G 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(H)............................................. 5,486
=======
</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-8
<PAGE> 75
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 3,419,437 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 74,993 $ 412
KCOMP................................................. 250 258,500 1,422
Rovak................................................. 100 404,909 2,227
Millard-Wayne......................................... 500 132,448 729
------- -------- -------
Total....................................... $ 2,978 870,850 $ 4,790
======= ======== =======
Total consideration for these companies(2)................................ $ 7,768
Net book value (deficit) of these companies' assets....................... (730)
-------
Consideration allocated to goodwill(3).................................... $ 8,498
=======
</TABLE>
- ---------------
(1) Estimated at $5.50 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 $654,000 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-9
<PAGE> 76
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 concurrent
with the consummation of the acquisitions, including certain expenses
relating to the acquisitions.
(B) Records the repayment of certain debt obligations and other pro forma
adjustments. Of the anticipated debt repayment: $866,535 reduces AMC's
obligations under terms of the 10.25% note payable for the HCD acquisition
($511,533) and an 11.25% note payable to the Small Business Administration
("SBA") ($355,002); $133,253 reduces Millard-Wayne's obligations under
10.25% bank notes payable and $1,081,882 reduces Rovak's obligations under
a prime plus .5% bank note payable ($437,500), prime plus 2% notes payable
to the SBA ($560,379), and other miscellaneous notes payable to
stockholders ($84,003). Additionally, payments totalling $35,000 are
anticipated to eliminate AMC's obligations for certain accrued expenses.
Further, approximately $103,000 in additional acquisition-related expenses
are to be paid from proceeds of the Offering.
(C) Records the proceeds from the issuance of 1,400,000 shares of InfoCure
Common Stock, net of estimated offering costs of $1,574,000 (based on an
assumed initial public offering price of $5.50 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. These offering costs do not include approximately
$215,000 of costs that have already been paid.
The holders of 2,866,339 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
(D) 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.
(E) Records pro forma adjustment to depreciation and amortization expense as
follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE
JANUARY 31, MONTHS ENDED
-------------- APRIL 30,
1996 1997 1997
----- ----- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) due to:
Amortization of goodwill over life of 15 years on a
straight-line basis.............................. $ 782 $ 753 $ 154
Adjustment to amortization of capitalized software
to uniform application of a four-year life....... (300) (200) (20)
Adjustment to depreciation of property and equipment
to uniform lives of three to five years.......... -- (40) (20)
----- ----- -----
$ 482 $ 513 $ 114
===== ===== =====
</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-10
<PAGE> 77
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.
(F) Records the pro forma change in interest expense for pro forma adjustments
to debt.
(G) 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 THREE
JANUARY 31, MONTHS ENDED
--------------- APRIL 30,
(IN THOUSANDS) 1996 1997 1997
- -------------- ------ ------ ------------
<S> <C> <C> <C>
Reduction of compensation and related expenses........ $1,773 $1,830 $ 175
Reduction in rental and certain operating expenses.... 477 673 168
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) (30)
------ ------ -----
$2,459 $2,466 $ 313
====== ====== =====
</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
F-11
<PAGE> 78
INFOCURE CORPORATION AND FOUNDING BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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.
(H) 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....................... 4,043,466
Issued to pay cash portion of Acquisitions.................. 680,667
Issued to pay certain indebtedness.......................... 534,247
Issued to pay certain costs................................. 79,356
Shares assumed issued from exercise of options and a
warrant................................................... 279,835
Shares assumed repurchased from proceeds from shares assumed
issued from exercise of options........................... (131,998)
---------
Shares estimated to be outstanding.......................... 5,485,673
---------
</TABLE>
F-12
<PAGE> 79
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 April 30, 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 April
30, 1997 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
June 19, 1997
Atlanta, Georgia
F-13
<PAGE> 80
INFOCURE CORPORATION
BALANCE SHEET
AS OF APRIL 30, 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-14
<PAGE> 81
INFOCURE CORPORATION
NOTES TO BALANCE SHEET
APRIL 30, 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-15
<PAGE> 82
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
(Except for Notes 2 and 8,
as to which date
is June 19, 1997)
F-16
<PAGE> 83
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- APRIL 30,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................. $ 249,698 $ 198,735 $ 232,361
Accounts and notes receivable, net of allowance of
$90,000, $35,000 and $24,000....................... 156,936 318,405 293,419
Prepaid expenses and other current assets............. 32,620 62,364 75,120
----------- ----------- -----------
Total current assets.......................... 439,254 579,504 600,900
Property and equipment, net............................. 54,372 94,157 81,310
Miscellaneous........................................... 73,315 100,389 101,283
Goodwill, net of accumulated amortization of $21,408 and
$53,508............................................... -- 2,015,309 1,983,209
Deferred acquisition costs.............................. -- 521,871 946,425
Deferred tax asset...................................... -- 871,000 903,000
----------- ----------- -----------
$ 566,941 $ 4,182,230 $ 4,616,127
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT):
Current liabilities:
Accounts payable...................................... $ 374,824 $ 483,730 $ 625,666
Accrued expenses...................................... 448,627 358,671 462,958
Deferred revenue...................................... 481,224 814,383 802,691
Current portion of long-term debt..................... 335,542 49,529 50,029
----------- ----------- -----------
Total current liabilities..................... 1,640,217 1,706,313 1,941,344
Long-term debt, less current portion.................... 450,280 698,252 683,914
Note payable to stockholder............................. 94,500 94,500 94,500
Note payable -- other................................... -- 1,511,533 1,511,533
----------- ----------- -----------
Total liabilities............................. 2,184,997 4,010,598 4,231,291
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock.......................................... 41,577 54,965 55,765
Stock purchase warrant................................ 500,000 80,000 80,000
Additional paid-in capital............................ 1,445,247 3,452,453 3,739,153
Deficit............................................... (3,504,880) (3,250,786) (3,325,082)
Treasury stock and accrued stock repurchase, at
cost............................................... (100,000) (165,000) (165,000)
----------- ----------- -----------
Total stockholders' equity (capital
deficit).................................... (1,618,056) 171,632 384,836
----------- ----------- -----------
$ 566,941 $ 4,182,230 $ 4,616,127
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 84
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, THREE MONTHS ENDED APRIL 30,
-------------------------- ----------------------------
1996 1997 1996 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Maintenance and support............... $ 1,310,385 $ 1,418,884 $ 388,960 $ 680,528
Systems and software sales............ 1,102,349 1,075,679 210,047 809,429
----------- ----------- ----------- -----------
Total revenues........................ 2,412,734 2,494,563 599,007 1,489,957
Cost of revenues........................ 515,842 474,201 122,361 673,274
----------- ----------- ----------- -----------
Gross margin............................ 1,896,892 2,020,362 476,646 816,683
----------- ----------- ----------- -----------
Operating expenses:
Salaries and operating expenses....... 2,015,647 2,469,249 470,928 804,498
Depreciation and amortization......... 114,056 110,635 16,786 61,022
----------- ----------- ----------- -----------
Total operating expenses.............. 2,129,703 2,579,884 487,714 865,520
----------- ----------- ----------- -----------
Loss from operations.................... (232,811) (559,522) (11,068) (48,837)
Other income (expense):
Interest.............................. (68,609) (82,900) (19,175) (60,820)
Other income, net..................... 121,224 5,516 671 3,361
----------- ----------- ----------- -----------
Loss before taxes....................... (180,196) (636,906) (29,572) (106,296)
Income tax (benefit).................... -- (891,000) -- (32,000)
----------- ----------- ----------- -----------
Net income (loss)....................... $ (180,196) $ 254,094 $ (29,572) $ (74,296)
=========== =========== =========== ===========
Net income (loss) per common share...... $ (0.00) $ 0.01 $ (0.00) $ (0.00)
=========== =========== =========== ===========
Weighted average common shares
outstanding........................... 41,387,381 43,185,916 41,349,299 55,184,993
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 85
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)
========== ======== ======= ========= ======== ========= ========== ===========
Period ended April 30, 1997
(unaudited)
Issuance of common stock........ 800,000 -- 800 -- -- -- 279,200 --
Issuance of stock options....... -- -- -- -- -- -- 7,500 --
Net loss........................ -- -- -- -- -- -- -- (74,296)
---------- -------- ------- --------- -------- --------- ---------- -----------
Balance, at April 30, 1997
(unaudited)..................... 55,765,228 (223,489) $55,765 $(100,000) $(65,000) $ 80,000 $3,739,153 $(3,325,082)
========== ======== ======= ========= ======== ========= ========== ===========
<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
===========
Period ended April 30, 1997
(unaudited)
Issuance of common stock........ 280,000
Issuance of stock options....... 7,500
Net loss........................ (74,296)
-----------
Balance, at April 30, 1997
(unaudited)..................... $ 384,836
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 86
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
----------------------- ---------------------
1996 1997 1996 1997
---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income (loss)............................... $(180,196) $ 254,094 $ (29,572) $ (74,296)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization................ 114,056 110,635 16,786 61,022
Allowance for doubtful accounts.............. 18,368 (55,086) (51,000) (11,000)
Compensatory stock options................... 29,998 30,000 7,500 7,500
Option cancellation expense.................. -- 110,000 -- --
Income tax benefit........................... -- (891,000) -- (32,000)
Changes in current assets and liabilities,
net of effects of acquisition:
Accounts and notes receivable.............. 107,540 47,975 (5,217) 35,986
Prepaid expenses and other assets.......... (5,424) (43,526) 1,721 (20,718)
Accounts payable and accrued expenses...... (47,235) (312,703) (65,520) (113,777)
Deferred revenue........................... (21,692) (99,165) (27,117) (11,692)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................... 15,415 (848,776) (152,419) (158,975)
--------- --------- --------- ---------
Cash used in investing activities:
Property and equipment expenditures............. (15,189) (16,941) (3,622) --
Cash paid for deferred acquisition costs........ -- (196,680) -- (64,554)
Expenditures for software development costs..... -- (32,461) (7,073) (9,007)
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) (10,695) (73,561)
--------- --------- --------- ---------
Cash provided by (used in) financing activities:
Proceeds from issuance of common stock.......... -- 1,320,402 -- 280,000
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) (11,571) (13,838)
Repurchase of common stock...................... (100,000) -- -- --
Repurchase of common stock warrant.............. -- (50,000) -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................... 240,575 1,193,895 (11,571) 266,162
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 245,014 (50,963) (174,685) 33,626
Cash and cash equivalents, beginning.............. 4,684 249,698 249,698 198,735
--------- --------- --------- ---------
Cash and cash equivalents, ending................. $ 249,698 $ 198,735 $ 75,013 $ 232,361
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 87
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-21
<PAGE> 88
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-22
<PAGE> 89
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.
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 April
30, 1997 and its results of operations and its cash flows for the three months
ended April 30, 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.
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 3.4 million shares of InfoCure Common Stock in
exchange for all outstanding shares of AMC common stock (approximately one
InfoCure "Equivalent Share" for every 17 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
F-23
<PAGE> 90
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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,
THREE MONTHS ENDED ------------------------
APRIL 30, 1996 1996 1997
------------------ ------ ------
(000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Net sales................................. $1,518 $8,051 $6,383
Net income................................ 355 824 584
Earnings per share........................ 0.01 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
F-24
<PAGE> 91
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 (114,934 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>
F-25
<PAGE> 92
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized software development costs are stated net of accumulated
amortization of $656,505 and $657,115, at January 31, 1996 and 1997,
respectively.
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-26
<PAGE> 93
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.
Subsequent to the date of these financial statements and in conjunction
with the proposed public offering (Note 2) ISI agreed to accept 181,818 shares
of Common Stock of InfoCure in satisfaction of $1,000,000 of the principal due
under terms of its note due from the Company. If such shares are sold at an
average price of less than the public offering price, the Company agreed to pay
ISI an additional amount equal to the difference.
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.
The Company has a 401(k) plan eligible to substantially all employees of
the Company. Company contributions to the plan are discretionary. No
contributions have been made for the year ended January 31, 1996 or 1997.
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.
F-27
<PAGE> 94
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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-28
<PAGE> 95
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-29
<PAGE> 96
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).
F-30
<PAGE> 97
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-31
<PAGE> 98
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-32
<PAGE> 99
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-33
<PAGE> 100
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-34
<PAGE> 101
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-35
<PAGE> 102
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-36
<PAGE> 103
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-37
<PAGE> 104
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>
The Company has a 401(k) plan eligible to substantially all employees of
the Company. The Company matches 25% of the first 6% of an employee's pre-tax
contribution. The Company contributed approximately $200 and $2,900 for the
period from inception (December 15, 1995) to March 31, 1996 and the year ended
March 31, 1997, respectively.
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.
F-38
<PAGE> 105
KCOMP MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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-39
<PAGE> 106
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-40
<PAGE> 107
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-41
<PAGE> 108
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-42
<PAGE> 109
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-43
<PAGE> 110
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-44
<PAGE> 111
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-45
<PAGE> 112
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-46
<PAGE> 113
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-47
<PAGE> 114
REPORT OF INDEPENDENT CERTIFIED 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-48
<PAGE> 115
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-49
<PAGE> 116
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-50
<PAGE> 117
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-51
<PAGE> 118
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-52
<PAGE> 119
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-53
<PAGE> 120
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-54
<PAGE> 121
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-55
<PAGE> 122
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-56
<PAGE> 123
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-57
<PAGE> 124
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-58
<PAGE> 125
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-59
<PAGE> 126
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-60
<PAGE> 127
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
Increases 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-61
<PAGE> 128
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-62
<PAGE> 129
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-63
<PAGE> 130
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-64
<PAGE> 131
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-65
<PAGE> 132
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-66
<PAGE> 133
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 $1,500,000 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-67
<PAGE> 134
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-68
<PAGE> 135
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-69
<PAGE> 136
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.
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<PAGE> 137
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-71
<PAGE> 138
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-72
<PAGE> 139
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-73
<PAGE> 140
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-74
<PAGE> 141
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
The Company has a 401(k) plan eligible to substantially all employees of
the Company. Company contributions to the plan are discretionary. No
contributions have been made for the years ended December 31, 1995 or 1996.
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-75
<PAGE> 142
APPENDIX I
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, sec. 252, sec. 254, sec. 257, sec. 258, sec. 263
or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
(a) Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
(b) Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
(c) Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
I-1
<PAGE> 143
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) and (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
of 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown
I-2
<PAGE> 144
on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, wither such surviving or
resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX II
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13.
DISSENTERS' RIGHTS
1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER]. (a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A ) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES].
(a) If, in the case of a reorganization, any shareholders of a corporation have
a right under Section 1300, subject to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, to require the corporation to purchase their shares for
cash, such corporation shall mail to each such shareholder a notice of the
approval of the reorganization by its outstanding shares (Section 152) within 10
days after the date of such approval, accompanied by a copy of Sections 1300,
1302, 1303, 1304 and this section, a statement of the price determined by the
corporation to represent the fair market value of the dissenting shares, and a
brief description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
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dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302 [DISSENTING SHARES, STAMPING OR ENDORSING]. Within 30 days after the
date on which notice of the approval by the outstanding shares or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME
OF PAYMENT]. (a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS]. (a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market values of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
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(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305 [APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL; COSTS
OF ACTION]. (a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the count, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a panty, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the count, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES]. Except as expressly
limited in this chapter, holders of dissenting shares continue to have all the
rights and privileges incident to their shares, until the fair market value of
their shares is agreed upon or determined. A dissenting shareholder may not
withdraw a demand for payment unless the corporation consents thereto.
1309 [DISSENTING SHARES, LOSS OF STATUS]. Dissenting shares lose their
status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
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1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING]. If
litigation is instituted to test the sufficiency or regularity of the votes of
the shareholders in authorizing a reorganization, any proceedings under Sections
1304 and 1305 shall be suspended until final determination of such litigation.
1312 [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF]. (a) No shareholder of a corporation who
has a right under this chapter to demand payment of cash for the shares held by
the shareholder shall have any right at law or in equity to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, except in an action to test whether
the number of shares required to authorize or approve the reorganization have
been legally voted in favor thereof; but any holder of shares of a class whose
terms and provisions specifically set forth the amount to be paid in respect to
them in the event of a reorganization or short-form merger is entitled to
payment in accordance with those terms and provisions or, if the principal terms
of the reorganization are approved pursuant to subdivision (b) of Section 1202,
is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days,
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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APPENDIX III
MINNESOTA BUSINESS CORPORATION ACT
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS. -- SUBDIVISION 1. Actions
creating rights. A shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, any of
the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting rights;
except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
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Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS. -- SUBDIVISION
1. Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1 up to and
including the date of payment, calculated at the rate provided in section 549.09
for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If a proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4 Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice was given, but the dissenter retains all other rights of a
shareholder until the proposed action takes affect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date
of the corporate action, together with the latest available interim
financial statements;
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(2) an estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on
behalf of a person who was not a beneficial owner on that date. If the
dissenter has complied with subdivisions 3 and 4, the corporation shall
forward to the dissenter the materials described in paragraph (a), a
statement of the reason for withholding the remittance, and an offer to pay
to the dissenter the amount listed in the materials if the dissenter agrees
to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part
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or all of those costs and expenses against a dissenter whose action in demanding
payment under subdivision 6 is found to be arbitrary, vexatious, or not in good
faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
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INFOCURE CORPORATION
<PAGE> 154
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 22. 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 at that remain unsold a the end of the Offering.
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(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 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 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.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
ITEM 27. EXHIBITS.
<TABLE>
<C> <C> <S>
2.1 -- Plan and Agreement of Merger dated March , 1997 between
the Company and American Medcare Corporation (incorporated
herein by reference to Exhibit 2.1 of the Company's
registration statement on Form S-B Registration No.
333-18923 ("SB-Registration Statement"))
3.1 -- Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of the SB-2 Registration Statement)
3.2 -- By-Laws of InfoCure (incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration Statement)
</TABLE>
II-2
<PAGE> 156
<TABLE>
<C> <C> <S>
3.3 -- Amended Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.3 of the SB-2 Registration Statement)
4.1 -- Specimen Certificate for shares of Common Stock
(incorporated herein by reference to Exhibit 4.1 of the SB-2
Registration Statement) or
5.1 -- Opinion of Glass, McCullough, Sherrill & Harrold, LLP,
counsel to the Company
5.2 -- Form of Tax Opinions of Glass McCullough, Sherrill & Harrold
LLP (incorporated herein by reference to Exhibit 5.2 of
Registration Statements No. 333-25071 ("S-4 Registration
Statement"))
10.1 -- Stock Purchase Agreement among the Company and the
Shareholders of DR Software dated February 11, 1997
(incorporated herein by reference to Exhibit 10.7 of the
SB-2 Registration Statement)
10.2 -- Form of Employment Agreement to be entered into between the
Company and Donald M. Rogers upon the consummation of the
Acquisitions (incorporated by reference to Exhibit 10.6 of
the SB-2 Registration Statement)
10.3 -- Form of Employment Agreement to be entered into between the
Company and Brad Schraut upon the consummation of the
Acquisitions (incorporated by reference to Exhibit 10.23 of
the SB-2 Registration Statement)
10.4 -- Employment Agreement between the Company and Frederick L.
Fine dated March , 1997 (incorporated by reference to
Exhibit 10.12 of the SB-2 Registration Statement)
10.5 -- Employment Agreement between the Company and James K. Price
dated March , 1997 (incorporated by reference to
Exhibit 10.12 of the SB-2 Registration Statement)
10.6 -- Employment Agreement between the Company and R. Ernest
Chastain dated November , 1996 (incorporated by reference
to Exhibit 10.24 of the SB-2 Registration Statement)
10.7 -- Employment Agreement between the Company and Michael E.
Warren dated September 23, 1994 (incorporated by reference
to Exhibit 10.15 of the SB-2 Registration Statement)
10.8 -- Employment Agreement between the Company and R. Ernest
Chastain dated November 1996 (incorporated by reference to
Exhibit 10.14 of the SB-2 Regisration Statement)
10.9 -- Letter of intent between FINOVA and the Company
(incorporated by reference to Exhibit 10.25 of the SB-2
Registration Statement)
10.10 -- Plan of Merger among InfoCure, EDC, KComp and the
Shareholders of KComp dated as of May 12, 1997.
10.11 -- Form of Letter Agreement between InfoCure and DR Software
(incorporated by reference to Exhibit 10.31 of Registration
Statement 333-18923)
10.12 -- Form of Letter Agreement between AMC and Millard-Wayne
(incorporated by reference to Exhibit 10.32 of Registration
Statement 333-18923)
10.13 -- Form of Letter Agreement between KComp and InfoCure
(incorporated by reference to Exhibit 10.33 of Registration
Statement 333-18923)
10.19 -- Form of Agreement and Plan of Merger (Rovak)
10.20 -- Form of Amendment to Agreement and Plan of Merger (Rovak)
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP
(included in Exhibits 5.1 and 5.2)
23.2 -- Consent of BDO Seidman, LLP
24.1 -- Powers of Attorney (included on signature page II-4)
27.1 -- Financial Data Schedule (for SEC use only, incorporated by
reference to Exhibit 27.1 of the SB-2 Registration
Statement).
</TABLE>
II-3
<PAGE> 157
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 S-4 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Atlanta, State of
Georgia, on the 7th day of July, 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
Registration Statement has been signed by the following persons in the
capacities indicated and on July 7, 1997. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Frederick
L. Fine and James K. Price, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in consideration with this Registration Statement
or any amendments, including any post-effective amendments, thereto, and each of
the undersigned does hereby ratify and confirm that said attorney-in-fact and
agent, or his substitute, or his substitute, shall do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ FREDERICK L. FINE Chairman of the Board of Directors, President
- ----------------------------------------------------- and Chief Executive Officer
Frederick L. Fine
/s/ JAMES K. PRICE Director and Executive Vice President
- -----------------------------------------------------
James K. Price
/s/ MICHAEL WARREN Director and Chief Financial Officer
- -----------------------------------------------------
Michael Warren
JAMES D. ELLIOTT* Director
- -----------------------------------------------------
James D. Elliott
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> 158
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGE
- ------- ----------------------- ------------
<C> <C> <S> <C>
2.1 -- Plan and Agreement of Merger dated March , 1997 between
the Company and American Medcare Corporation (incorporated
herein by reference to Exhibit 2.1 of the Company's
registration statement on Form S-B Registration No.
333-18923 ("SB-Registration Statement"))
3.1 -- Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of the SB-2 Registration Statement)
3.2 -- By-Laws of InfoCure (incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration Statement)
3.3 -- Amended Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.3 of the SB-2 Registration Statement)
4.1 -- Specimen Certificate for shares of Common Stock
(incorporated herein by reference to Exhibit 4.1 of the SB-2
Registration Statement) or
5.1 -- Opinion of Glass, McCullough, Sherrill & Harrold, LLP,
counsel to the Company
5.2 -- Form of Tax Opinions of Glass McCullough, Sherrill & Harrold
LLP (incorporated herein by reference to Exhibit 5.2 of
Registration Statements No. 333-25071 ("S-4 Registration
Statement"))
10.1 -- Stock Purchase Agreement among the Company and the
Shareholders of DR Software dated February 11, 1997
(incorporated herein by reference to Exhibit 10.7 of the
SB-2 Registration Statement)
10.2 -- Form of Employment Agreement to be entered into between the
Company and Donald M. Rogers upon the consummation of the
Acquisitions (incorporated by reference to Exhibit 10.6 of
the SB-2 Registration Statement)
10.3 -- Form of Employment Agreement to be entered into between the
Company and Brad Schrant upon the consummation of the
Acquisitions (incorporated by reference to Exhibit 10.23 of
the SB-2 Registration Statement)
10.4 -- Employment Agreement between the Company and Frederick L.
Fine dated March , 1997 (incorporated by reference to
Exhibit 10.12 of the SB-2 Registration Statement)
10.5 -- Employment Agreement between the Company and James K. Price
dated March , 1997 (incorporated by reference to
Exhibit 10.12 of the SB-2 Registration Statement)
10.6 -- Employment Agreement between the Company and R. Ernest
Chastain dated November , 1996 (incorporated by reference
to Exhibit 10.24 of the SB-2 Registration Statement)
10.7 -- Employment Agreement between the Company and Michael E.
Warren dated September 23, 1994 (incorporated by reference
to Exhibit 10.15 of the SB-2 Registration Statement)
10.8 -- Employment Agreement between the Company and R. Ernest
Chastain dated November 1996 (incorporated by reference to
Exhibit 10.14 of the SB-2 Regisration Statement)
10.9 -- Letter of intent between FINOVA and the Company
(incorporated by reference to Exhibit 10.25 of the SB-2
Registration Statement)
10.10 -- Plan of Merger among InfoCure, EDC, KComp and the
Shareholders of KComp dated as of May 12, 1997.
</TABLE>
<PAGE> 159
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGE
- ------- ----------------------- ------------
<C> <C> <S> <C>
10.11 -- Form of Letter Agreement between InfoCure and DR Software
(incorporated by reference to Exhibit 10.31 of Registration
Statement 333-18923)
10.12 -- Form of Letter Agreement between AMC and Millard-Wayne
(incorporated by reference to Exhibit 10.32 of Registration
Statement 333-18923)
10.13 -- Form of Letter Agreement between KComp and InfoCure
(incorporated by reference to Exhibit 10.33 of Registration
Statement 333-18923)
10.19 -- Form of Agreement and Plan of Merger (Rovak)
10.20 -- Form of Amendment to Agreement and Plan of Merger (Rovak)
23.1 -- Consent of Glass, McCullough, Sherrill & Harrold, LLP
(included in Exhibits 5.1 and 5.2)
23.2 -- Consent of BDO Seidman, LLP
24.1 -- Powers of Attorney (included on signature page II-4)
27.1 -- Financial Data Schedule (for SEC use only, incorporated by
reference to Exhibit 27.1 of the SB-2 Registration
Statement).
</TABLE>
2
<PAGE> 1
EXHIBIT 5.1
July 8, 1997
Infocure Corporation
970 Clairmont Road, Suite 950
Atlanta, Georgia 30329
Gentlemen:
We have acted as counsel to Infocure Corporation, a Delaware
Corporation (the "Company") in connection with the preparation of the
Registration Statement No. 333- ____ on form S-4 filed on July 8, 1997
("Registration Statement") filed by you with the Securities and Exchange
Commission. Capitalized terms used in this opinion letter and not otherwise
defined herein shall have the meanings assigned to such terms in the
Registration Statement.
In the capacity described above, we have considered such matters of law
and of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Company, certificates of officers and representatives of the Company,
certificates of public officials and such other documents as we have deemed
appropriate as a basis for the opinions hereinafter set forth.
The opinions set forth herein are limited to the laws of the State of
Delaware and applicable federal laws.
Based upon the foregoing, it is our opinion that the shares of Common
Stock of the Company, when issued and sold on the terms described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the prospectus under the
caption "Legal Matters."
Yours truly,
GLASS, McCULLOUGH, SHERRILL &
HARROLD, LLP
By: /s/ Ugo F. Ippolito
--------------------------
<PAGE> 1
EXHIBIT 10.19
AGREEMENT AND PLAN OF MERGER
AMONG INFOCURE CORPORATION,
R I ACQUISITION CORPORATION,
ROVAK, INC.,
AND THE SHAREHOLDERS OF ROVAK, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION I.
DEFINITIONS........................................................................................ 2
1.1 CERTAIN DEFINITIONS................................................................... 2
SECTION II.
SALE AND TRANSFER OF COMPANY SHARES; CLOSING....................................................... 4
2.1 CONSTITUENT CORPORATIONS...............................................................4
2.2 EFFECTIVE DATE.........................................................................4
2.3 MERGER OF COMPANY INTO RIA.............................................................4
2.4 ADDITIONAL DOCUMENTS...................................................................5
2.5 AMENDMENT OF ARTICLES OF INCORPORATION.................................................5
2.6 BYLAWS.................................................................................5
2.7 DIRECTORS AND OFFICERS.................................................................5
2.8 CONVERSION OF SHARES OF THE COMPANY....................................................5
2.9 SHARES OF RIA AFTER THE EFFECTIVE DATE.................................................6
2.10 DISSENTERS RIGHTS......................................................................6
2.11 TREASURY SHARES OF COMPANY.............................................................6
2.12 RIGHTS OF SHAREHOLDERS AFTER EFFECTIVE DATE. .........................................6
2.13 ADJUSTMENT AMOUNT. ...................................................................6
2.14 ADJUSTMENT PROCEDURE...................................................................6
2.15 ESCROW. ..............................................................................7
2.16 EARN OUT...............................................................................7
2.17 TAX COVENANTS..........................................................................8
SECTION III.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS..................................................... 8
3.1 CORPORATE............................................................................. 8
3.2 FINANCIAL STATEMENTS.................................................................. 9
3.3 CUSTOMERS............................................................................. 9
3.4 ABSENCE OF CERTAIN FINANCE AND BUSINESS CHANGES...................................... 10
3.5 GUARANTIES/LIENS..................................................................... 10
3.6 NO UNDISCLOSED LIABILITIES........................................................... 10
3.7 ACCOUNTS RECEIVABLE.................................................................. 11
3.8 OWNERSHIP OF INTELLECTUAL PROPERTY................................................... 11
3.9 PROPERTY AND EQUIPMENT............................................................... 13
3.10 LICENSE AGREEMENTS................................................................... 13
3.11 CONSULTING AND DEVELOPMENT AGREEMENTS................................................ 14
3.12 MAINTENANCE/COMMITMENTS.............................................................. 14
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
3.13 ALL INTANGIBLE ASSETS USED IN THE BUSINESS........................................... 14
3.14 EMPLOYEES/CONSULTANTS/DIRECTORS...................................................... 14
3.15 ASSUMED AGREEMENTS................................................................... 15
3.16 LITIGATION AND ADVERSE EVENTS........................................................ 16
3.17 COMPLIANCE WITH APPLICABLE LAW....................................................... 16
3.18 TAXES AND TAX RETURNS................................................................ 16
3.19 CONSENTS............................................................................. 16
3.20 BROKERS AND FINDERS.................................................................. 16
3.21 RELATED TRANSACTIONS................................................................. 16
3.22 NO UNTRUE STATEMENTS................................................................. 16
SECTION IV.
REPRESENTATIONS AND WARRANTIES OF BUYER................................................................ 18
4.1 ORGANIZATION AND STANDING OF INFOCURE AND RIA........................................18
4.2 AUTHORIZATION........................................................................ 18
4.3 CORPORATE............................................................................ 19
4.4 BROKERS AND FINDERS.................................................................. 19
4.5 NO UNTRUE STATEMENTS................................................................. 19
SECTION V.
CONDITIONS TO THE OBLIGATIONS OF INFOCURE AND RIA......................................................19
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE.......................................... 19
5.2 THIRD PARTY CONSENTS................................................................. 19
5.3 OPINION OF COUNSEL TO THE SHAREHOLDERS............................................... 19
5.4 UPDATE DISCLOSURE SCHEDULE........................................................... 19
5.5 PUBLIC OFFERING...................................................................... 20
5.6 ESCROW AGREEMENT. .................................................................. 20
5.7 EMPLOYMENT AGREEMENT................................................................. 20
5.8 EMPLOYMENT AGREEMENT................................................................. 20
5.9 LEASE AGREEMENT...................................................................... 20
5.10 NO MATERIAL ADVERSE CHANGE........................................................... 20
5.11 TERMINATION OF CERTAIN AGREEMENTS.................................................... 20
5.12 S-4 REGISTRATION STATEMENT........................................................... 20
SECTION VI.
CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS...................................................... 20
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE.......................................... 21
6.2 OPINION OF COUNSEL TO INFOCURE.......................................................21
6.3 PUBLIC OFFERING...................................................................... 21
6.4 ESCROW AGREEMENT. .................................................................. 21
SECTION VII.
OTHER COVENANTS........................................................................................ 21
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
7.1 CONDUCT OF BUSINESS.................................................................. 21
SECTION VIII.
CONFIDENTIALITY AND SECURITY........................................................................... 22
8.1 CONFIDENTIALITY...................................................................... 22
SECTION IX.
INDEMNIFICATION........................................................................................ 25
9.1 INDEMNIFICATION BY THE SHAREHOLDERS.................................................. 25
9.2 INDEMNIFICATION BY INFOCURE..........................................................26
9.3 REIMBURSEMENT........................................................................ 27
9.4 CLAIMS............................................................................... 27
9.5 RESOLUTION OF DISPUTES............................................................... 28
SECTION X.
COVENANT NOT TO COMPETE................................................................................ 28
SECTION XI.
TERMINATION AND ABANDONMENT............................................................................ 29
11.1 TERMINATION AND ABANDONMENT.......................................................... 29
11.2 RIGHTS AND OBLIGATIONS ON TERMINATION................................................ 30
SECTION XII.
MISCELLANEOUS PROVISIONS............................................................................... 30
12.1 INVESTIGATIONS; SURVIVAL OF WARRANTIES............................................... 30
12.2 HEADINGS............................................................................. 30
12.3 FURTHER ASSURANCES................................................................... 30
12.4 FORCE MAJEURE........................................................................ 30
12.5 CUMULATIVE REMEDIES.................................................................. 31
12.6 ENTIRE AGREEMENT..................................................................... 31
12.7 SPECIFIC PERFORMANCE................................................................. 31
12.8 NOTICES.............................................................................. 31
12.9 NON-WAIVER OF DEFAULT................................................................ 31
12.10 PARTIAL INVALIDITY................................................................... 32
12.11 DUPLICATE ORIGINALS.................................................................. 32
12.12 ASSIGNMENT........................................................................... 32
12.13 FEES AND EXPENSES.................................................................... 32
12.14 GOVERNING LAW........................................................................ 32
12.15 COUNTERPARTS AND EXHIBITS............................................................ 32
12.16 PUBLICITY............................................................................ 32
</TABLE>
iv
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AMONG INFOCURE CORPORATION,
R I ACQUISITION CORPORATION,
ROVAK, INC.,
AND THE SHAREHOLDERS OF ROVAK, INC.
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made as of the 19TH
DAY OF JUNE, 1997 BY AND AMONG INFOCURE CORPORATION, A DELAWARE CORPORATION
("INFOCURE"), R I ACQUISITION CORPORATION, A MINNESOTA CORPORATION ("RIA"),
ROVAK, INC., A MINNESOTA CORPORATION ("COMPANY"), and the UNDERSIGNED
SHAREHOLDERS ("Shareholders") of THE COMPANY.
WHEREAS, THE PARTIES DESIRE THAT THE COMPANY MERGE ("MERGER") INTO RIA, A
WHOLLY-OWNED SUBSIDIARY OF INFOCURE, on the terms set forth in this 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:
SECTION I.
DEFINITIONS
1.1 CERTAIN DEFINITIONS
(a) "Adjustment Amount" is defined in Section 2.5.
(b) "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.
(c) "Business" means the development, marketing and support of
the Software as currently conducted by Company.
<PAGE> 6
(d) "Closing" is defined in Section 2.3.
(e) "Closing Date" means the date and time as of which the
Closing actually takes place.
(f) "Copyright" means all copyright ownership of the Software
and Documentation.
(g) "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(g) of the Disclosure Schedule.
(h) "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(h) of
the Disclosure Schedule.
(i) "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(i) of the Disclosure Schedule.
(j) "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.
(k) "Escrow Fund" is defined in Section 2.7.
(l) "Escrow Shares" are defined in Section 2.7.
(m) "GAAP" means generally accepted United States accounting
principles, consistently applied on an accrual basis.
(n) "Hardware" means all computers, components, peripherals,
and other equipment currently offered for sale by Company in the course of its
business. Section 1.1(n) of the Disclosure Schedule lists all Hardware currently
being sold by Company.
(o) "Intellectual Property" means all patents, patent pending,
copyrights, trade secrets, techniques, know-how, and other intangible assets and
are legally protectable or recognized as forms of property, whether or not
reduced to practice or a writing.
2
<PAGE> 7
(p) "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.
(q) "Management of Company" means the current chief executive
officer, the chief operating officer, and the chief financial officer of
Company.
(r) "Public Offering" means the first public offering of common
stock of INFOCURE AT WHICH THE PRICE PER SHARE OF COMMON STOCK OF INFOCURE TO
THE PUBLIC IS NOT LESS THAN $5.00 PER SHARE.
(s "PURCHASE PRICE DELIVERY DATE" IS DEFINED IN SECTION 2.8.
(t) "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 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(g)
of the Disclosure Schedule.
(u) "Trademarks" mean the trademarks listed in Section 3.8(c)
of the Disclosure Schedule.
(v) "Shareholder" shall include holders of warrants to purchase
shares of common stock of Company.
SECTION II.
SALE AND TRANSFER OF COMPANY SHARES; CLOSING
2.1 CONSTITUENT CORPORATIONS. THE CONSTITUENT CORPORATIONS TO THE
MERGER ARE THE COMPANY AND RIA.
2.2 EFFECTIVE DATE.
3
<PAGE> 8
(A) THIS AGREEMENT HAS BEEN SUBMITTED TO THE SHAREHOLDERS AND BOARD OF
DIRECTORS OF THE COMPANY AND TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF RIA
FOR APPROVAL AS PROVIDED BY THE APPROPRIATE STATUTES OF THE STATE OF MINNESOTA.
IF ALL OF THE CONDITIONS PRECEDENT TO THE MERGER HAVE EITHER BEEN FULFILLED OR
WAIVED IN WRITING, ARTICLES OF MERGER SHALL BE EXECUTED, DELIVERED, FILED AND
RECORDED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA AS SOON AS
PRACTICAL THEREAFTER, UNLESS OTHERWISE AGREED BY THE PARTIES IN WRITING. THE
MERGER WILL BECOME EFFECTIVE WHEN THE ARTICLES OF MERGER IS FILED WITH THE
SECRETARY OF STATE OF THE STATE OF MINNESOTA OR AS OTHERWISE SET FORTH IN THE
ARTICLES 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 9:00 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 INFOCURE SHALL BE DEEMED TO HAVE
COMMENCED AT THE TIME WHICH IS THE LATEST OF THE TIME AT WHICH (I) INFOCURE'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 INFOCURE PURSUANT TO THE PUBLIC OFFERING OR (III) THE REGISTRATION
STATEMENT ON FORM S-4 NO. 333-20571 ("S4
4
<PAGE> 9
REGISTRATION STATEMENT") REGISTERING THE SHARES OF COMMON STOCK OF INFOCURE 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 AGGREGATE CONSIDERATION AS SET FORTH IN PARAGRAPH 2.8 BELOW.
2.3 MERGER OF COMPANY INTO RIA. UPON THE EFFECTIVE DATE, THE COMPANY
SHALL MERGE INTO RIA IN ACCORDANCE WITH THE APPLICABLE STATUTES OF THE STATE OF
MINNESOTA. THE SEPARATE EXISTENCE AND CORPORATE ORGANIZATION OF THE COMPANY
SHALL CEASE ON THE EFFECTIVE DATE AND RIA, 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 ARTICLES OF INCORPORATION. FROM AND AFTER THE
EFFECTIVE DATE AND UNTIL THEREAFTER AMENDED AS PROVIDED BY LAW, THE ARTICLES OF
INCORPORATION OF RIA AS IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE DATE SHALL
BE THE ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION, EXCEPT THAT ON
THE EFFECTIVE DATE THE ARTICLES OF INCORPORATION OF RIA SHALL BE AMENDED BY
AMENDING THE ARTICLES TO PROVIDE: "THE NAME OF THIS CORPORATION IS ROVAK, INC."
2.6 BYLAWS. FROM AND AFTER THE EFFECTIVE DATE AND UNTIL THEREAFTER
AMENDED AS PROVIDED BY LAW, THE BYLAWS OF RIA 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 RIA. 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, RIA OR THE SURVIVING CORPORATION, THE
OUTSTANDING SHARES OF THE COMPANY ("COMPANY SHARES") SHALL BE CONVERTED INTO AND
BECOME THE RIGHT TO RECEIVE ("AGGREGATE CONSIDERATION") AN AGGREGATE OF (I)
$1,402,500 ("CASH CONSIDERATION") AND (II) SUCH NUMBER OF SHARES OF COMMON
STOCK, PAR VALUE $.001, OF
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<PAGE> 10
INFOCURE ("COMMON STOCK") EQUAL TO THE QUOTIENT OF (1) 1,402,500 DIVIDED BY (2)
THE PRICE OF A SHARE OF COMMON STOCK TO THE PUBLIC PURSUANT TO THE PUBLIC
OFFERING ("STOCK CONSIDERATION"). THE CASH AND SHARES OF COMMON STOCK ARE TO BE
EXCHANGED AS SET FORTH IN THE ARTICLES OF MERGER OR AS SET FORTH IN SECTION 2.8
OF THE DISCLOSURE SCHEDULE. THE CASH CONSIDERATION AND THE STOCK CONSIDERATION
ARE SUBJECT TO ADJUSTMENT AS SET FORTH IN PARAGRAPH 2.13.
(B) DELIVERY BY INFOCURE OF THE CASH CONSIDERATION 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 INFOCURE
RECEIVES THE PROCEEDS OF THE PUBLIC OFFERING (SUCH TIME AND DATE OF DELIVERY AND
PAYMENT IS CALLED THE "PURCHASE PRICE DELIVERY DATE"). UPON THE MERGER, THE
TRANSFER AGENT OF INFOCURE WILL BE DIRECTED BY INFOCURE TO ISSUE AND DELIVER TO
THE SHAREHOLDERS THE STOCK CERTIFICATE(S) REPRESENTING THE STOCK CONSIDERATION
(SUBJECT TO ANY REDUCTION PURSUANT TO PARAGRAPH 2.15).
2.9 SHARES OF RIA AFTER THE EFFECTIVE DATE. EACH SHARE OF COMMON
STOCK OF RIA 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 RIA SHALL HAVE FULLY COMPLIED
WITH THE REQUIREMENTS TO PROVIDE THE SHAREHOLDERS WITH NOTICE OF 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
COMPANY SHARES, 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 ADJUSTMENT AMOUNT. The Adjustment Amount (which may be a
positive or negative number) will be equal to (a) the consolidated stockholders'
equity of the Company as of the Closing Date determined in accordance with GAAP
consistent with the basis on which the Financial Statements referred to in
paragraph 3.2 were prepared, minus (b) negative $161,000.00. If the Adjustment
Amount is positive, the AGGREGATE CONSIDERATION shall be increased; if the
Adjustment Amount is negative, the AGGREGATE CONSIDERATION shall be decreased.
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 AGGREGATE
CONSIDERATION WILL
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<PAGE> 11
BE ADJUSTED BY INCREASING OR DECREASING THE CASH CONSIDERATION AND THE STOCK
CONSIDERATION, AS THE CASE MAY BE, EACH BY ONE-HALF (1/2) OF THE ADJUSTMENT
AMOUNT.
2.14 ADJUSTMENT PROCEDURE.
(A) INFOCURE shall cause, at its expense, a balance sheet to be
prepared as of the Closing Date of the Company. The balance sheet shall be
completed within sixty (60) days after the Closing Date. As soon as such
financial statement is available to INFOCURE, INFOCURE 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 Date, a final
adjustment shall be made to the consideration paid at the Closing as provided in
paragraph 2.13 and the amount of the final adjustment shall be immediately paid
(OR RETURNED) by the appropriate parties.
(b) The parties shall use their best efforts to estimate the
amount of the adjustment on or prior to the Closing Date and the Purchase Price
as of the Closing Date will reflect such tentative adjustment which will be
subject to further adjustment pursuant to the provisions of paragraph 2.14(A).
2.15 ESCROW. On or before the Closing Date, the parties shall enter
into an Escrow Agreement in substantially the form attached as Exhibit 2.15
ESTABLISHING AN ESCROW OF A NUMBER OF SHARES OF INFOCURE EQUAL TO THE QUOTIENT
OF 300,000 divided by the per share price to the public of the COMMON STOCK OF
INFOCURE IN THE PUBLIC OFFERING (THE "ESCROW SHARES" OR "ESCROW FUND").
2.16 EARN OUT.
(A) THE AGGREGATE CONSIDERATION HEREINAFTER REFERRED TO SHALL BE
INCREASED ("EARN OUT") based on the actual net operating profit (net income
before interest and taxes) of Company or its successor for the TWELVE MONTH
PERIOD ended JANUARY 31, 1998 as follows:
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<PAGE> 12
<TABLE>
<CAPTION>
ACTUAL NET OPERATING PROFIT ADDITIONAL SHARES OF INFOCURE
--------------------------- -----------------------------
<S> <C>
$371,000 OR LESS NONE
BETWEEN $371,000 AND $500,000 THE PRODUCT OF THE ADDITIONAL
SHARES (AS HEREINAFTER DEFINED)
TIMES THE QUOTIENT OF (I) $500,000
minus actual net operating profit,
divided by (ii) $129,000
$500,000 OR MORE SUCH NUMBER OF SHARES OF COMMON
STOCK EQUAL TO THE QUOTIENT OF (I)
1,000,000 DIVIDED BY (II) THE PRICE
OF A SHARE OF COMMON STOCK PURSUANT
TO THE PUBLIC OFFERING ("ADDITIONAL
SHARES")
</TABLE>
8
<PAGE> 13
(B) INFOCURE shall cause, at its expense, an income statement showing
net operating profit of the Company or its successor to be prepared as of
JANUARY 31, 1998. The income statement sheet shall be completed within sixty
(60) days after JANUARY 31, 1998. As soon as such financial statement is
available to INFOCURE, INFOCURE shall deliver to Shareholders the financial
statement. Shareholders shall have thirty (30) days to review and object to the
income statement. Any disagreements as to the amounts of any adjustment to be
made to the income statement, 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 JANUARY 31, 1998, THE ADDITIONAL SHARES EARNED
shall be immediately paid to the SHAREHOLDERS.
(c) For purposes of this paragraph 2.16 only, net operating profit
shall not be reduced for any income taxes, interest, expenses related to the
Public Offering, allocations of corporate overhead by INFOCURE or its
subsidiaries (other than the Company), expenses related to corporate meetings
and other divisions, incentive compensation payable to Brad Schraut in excess of
the base salary stated in his employment agreement and extraordinary one time
charges; it being understood that interpretations consistent herewith,
allocations, credits, debits and adjusting transactions are subject to quarterly
review by INFOCURE and a single representative of the Shareholders.
2.17 TAX COVENANTS. THE PARTIES HERETO INTEND THAT THE MERGER
CONSTITUTES A TAX- FREE REORGANIZATION BY STATUTORY MERGER OF THE COMPANY WITH
AND INTO RIA WITHIN THE MEANING OF SECTION 368(A)(1)(A) AND SECTION 368(A)(2)(D)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE"), AND CORRESPONDING
PROVISIONS OF STATE INCOME TAX LAW, AND THE PARTIES AGREE TO FILE ALL REPORTS
AND STATEMENTS WITH THE INTERNAL REVENUE SERVICE AND STATE TAX AUTHORITIES
NECESSARY TO REFLECT SUCH STATUS AND NOT TO TAKE ANY POSITION THEREON OR
OTHERWISE THAT IS OR WOULD BE INCONSISTENT WITH SUCH TREATMENT, EXCEPT FOR SUCH
PORTIONS OF THE EARN OUT WHICH IS REQUIRED TO BE OTHERWISE TREATED AS INTEREST.
INFOCURE HEREBY AGREES THAT FOR INFOCURE'S FINANCIAL REPORTING PURPOSES AND FOR
INFOCURE'S TAX PURPOSES IN CONNECTION WITH THE INFOCURE COMMON STOCK
CONSIDERATION ISSUED TO THE SHAREHOLDERS, INFOCURE SHALL NOT UTILIZE A VALUE PER
SHARE WHICH IS LESS THAN THE PRICE OF A SHARE OF COMMON STOCK TO THE PUBLIC
PURSUANT TO THE PUBLIC OFFERING.
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<PAGE> 14
SECTION III.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to
INFOCURE on the date hereof as follows:
3.1 CORPORATE
(a) Company is a corporation duly organized, validly existing
and in good standing under the laws of Minnesota 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)(i) of the
Disclosure Schedule. There are 8,217 shares of common stock of Company issued
and outstanding and no warrants or options or other rights to acquire capital
stock of Company are outstanding.
(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, which failure could have a
material adverse effect on its 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) This Agreement constitutes the legal, valid, and binding
obligation of Shareholders, enforceable against Shareholders in accordance with
its terms. Upon the execution and delivery by Shareholders of the Escrow
Agreement, the Escrow Agreement will constitute the legal, valid, and binding
obligation of Shareholders, enforceable against Shareholders in accordance with
its respective terms.
(e) Company has no subsidiaries.
(f) The shareholders of Company of record and beneficial owners
and the shares of common stock of Company owned by each shareholder and the
holders of all warrants, options, convertible securities and other rights to
acquire common stock of Company are set forth in Section 3.1(f) of the
Disclosure Schedule. Each Shareholder represents that the Company Shares
registered in the Shareholder's name are free and clear of any and all liens,
restrictions, claims, charges, options, rights of first refusal or encumbrances,
with no defects of title whatsoever. Each Shareholder has the exclusive right,
power and authority to vote and to transfer the shares of common stock
registered in the Shareholder's name.
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<PAGE> 15
3.2 FINANCIAL STATEMENTS. The audited balance sheets as of DECEMBER
31, 1996, and December 31, 1995 and the statements of income of Company for the
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995, AND THE UNAUDITED
BALANCE SHEET AS OF MARCH 31, 1997 AND THE UNAUDITED STATEMENTS OF INCOME OF THE
COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996, have been
prepared in accordance with GAAP and present 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 ON PAGES F-58
THROUGH F-66 OF THE PROSPECTUS DATED JUNE 6, 1997 OF THE S-4 REGISTRATION
STATEMENT.
3.3 CUSTOMERS
(a) Company (or its predecessors) has granted over 1,100
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 an annual maintenance agreement with
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 contracted for maintenance and support
during the period October 1, 1995 through September 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 September 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.
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<PAGE> 16
3.4 ABSENCE OF CERTAIN FINANCE AND BUSINESS CHANGES
(a) Since December 31, 1996, 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.
(b) Since December 31, 1996, 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 December 31, 1996, 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
and (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.
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.
(a) Section 3.6(a) of the Disclosure Schedule identifies the written
agreements and describes all oral agreements relating to all indebtedness of the
Company, including without limitation shareholder loans and capital leases.
Correct and complete copies of each such agreements have been furnished to
INFOCURE.
(b) Company has no liabilities, absolute or contingent, known or
unknown, except those recorded on the Financial Statements as of December 31,
1996 and those incurred in the ordinary course of business of Company since
December 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
12
<PAGE> 17
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 of the
Disclosure Schedule, Company is the sole and exclusive owner throughout the
United States of (i) 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 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, 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)(i) 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 3.8(c) 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. 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 INFOCURE. 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.
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<PAGE> 18
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.
(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) Distribution 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 Distribution Software and Development
Software is licensed to Company. Company does not license to others Distribution
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 INFOCURE.
3.9 PROPERTY AND EQUIPMENT
(a) Section 3.9 of the Disclosure Schedule lists the fixed
assets, including equipment, used in the Business as currently conducted 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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<PAGE> 19
(c) Since December 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 INFOCURE. 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 form of end user license agreement currently
used 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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<PAGE> 20
3.12 MAINTENANCE/COMMITMENTS
(a) Section 3.12(a) of the Disclosure Schedule sets forth a
correct and complete 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 INFOCURE 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 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 have
been furnished to INFOCURE. 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 currently being
conducted 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 MARCH 31, 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 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
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or to pay benefits. Company has no obligations to provide any benefits to any
retired or former employees, including medical and hospital benefits;
(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; and
(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 INFOCURE. 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 commitments of Company as of MARCH
31, 1997 not otherwise disclosed in the Disclosure Schedule. Section 3.15(a)
shall be updated as of the Closing. Such commitments represent all of the then
outstanding 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 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 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
INFOCURE.
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.
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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 INFOCURE 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. None of the Shareholders, the 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 INFOCURE or Company or the Shareholders.
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 INFOCURE 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.
3.23 INVESTMENT REPRESENTATIONS.
(a) Each Shareholder is acquiring the common stock of INFOCURE 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.
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(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 INFOCURE involves numerous risks, including the risks set forth
in INFOCURE'S Registration Statement on Form SB-2, No. 333-18923 ("SB
Registration Statement").
(c) Each Shareholder agrees that the certificate or certificates
representing the common stock of INFOCURE shall be inscribed with the legend
that such stock may not be transferred in the absence of an effective
registration statement under the Act covering the stock or an opinion of counsel
satisfactory to INFOCURE that registration is not required, and such stock may
not be transferred except as permitted under the provisions of the standstill
agreement set forth in paragraph 7.2 hereof and the Act and Rules.
(d) In making this decision to acquire the common stock of INFOCURE,
each Shareholder has been given the opportunity to discuss the business,
management and financial affairs of INFOCURE with officers of INFOCURE 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 INFOCURE and an investment in the common
stock of INFOCURE and the Shareholders desire no further information for such
evaluation. Each Shareholder acknowledges receipt of a copy of the PROSPECTUS
DATED JUNE 6, 1997 WHICH IS INCLUDED IN THE S-4 Registration Statement as filed
with the Securities and Exchange Commission .
(e) Each Shareholder acknowledges that no representations were made by
INFOCURE to the Shareholders with respect to the business, management or
financial affairs of INFOCURE except as set forth in Section IV of this
Agreement, and except that INFOCURE is negotiating with several companies the
purchase or merger of their businesses by or into INFOCURE or an affiliated
company ("Acquisitions") and the financing of such purchases in part through the
Public Offering by INFOCURE, all as more fully described in the SB Registration
Statement. 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 INFOCURE , including working capital requirements, or that
INFOCURE will be profitable.
(f) Each Shareholder acknowledges that (i) INFOCURE may acquire
American Medcare Corporation and subsidiaries ("AMC") as part of the
Acquisitions; (ii) he/she has heretofore been furnished with recent financial
statements of AMC as part of the SB Registration Statement; (iii) he/she has
been advised that AMC continues to operate at a loss and has and is incurring
expenses in its efforts to acquire several businesses; (iv) no representations
are or were made by INFOCURE with respect to the business or financial affairs
of AMC except as set forth in the financial and other statements of AMC as
referenced in the preceding clause; and (v) no representations are made with
respect to any business plan, projections or acquisitions by AMC or INFOCURE.
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(g) Each Shareholder acknowledges that INFOCURE has relied on the
representations contained in this Agreement in determining that an exemption
from registration under the Act for this Agreement is available and that but for
such representations, this Agreement would not be offered to the Shareholders.
SECTION IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
INFOCURE hereby represents and warrants to the Shareholders on the date
hereof as follows:
4.1 ORGANIZATION AND STANDING OF INFOCURE AND RIA.
(A) INFOCURE 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 has full right,
power and authority to issue the shares of common stock as part of the Purchase
Price contemplated by this Agreement.
(B) RIA IS A CORPORATION DULY ORGANIZED, VALIDLY EXISTING AND
IN GOOD STANDING UNDER THE LAWS OF THE STATE OF MINNESOTA.
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
INFOCURE AND RIA. A duly certified copy of the resolutions of the Board of
Directors of INFOCURE AND RIA has been delivered to THE SHAREHOLDERS'
REPRESENTATIVE (AS HEREINAFTER DEFINED). This Agreement has been duly executed
and delivered by INFOCURE AND RIA and constitutes the legal, valid and binding
obligation of INFOCURE AND RIA enforceable against INFOCURE AND RIA in
accordance with its terms. Upon the execution and delivery by INFOCURE of the
Escrow Agreement, the Escrow Agreement will constitute the legal, valid, and
binding obligation of INFOCURE, enforceable against INFOCURE in accordance with
its respective terms.
(b) The execution and delivery of this Agreement, and the
consummation by INFOCURE AND RIA 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 INFOCURE OR RIA, any mortgage,
indenture, contract, agreement, license, permit, instrument, judgment, decree,
order, statute, regulation or ruling of any court or governmental authority to
which INFOCURE or any subsidiary (INCLUDING RIA) is a party or by which it is
bound.
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4.3 CORPORATE. INFOCURE was formed in November 1996 and INFOCURE AND
AMERICAN MEDCARE CORPORATION are incurring considerable expenses in its efforts
to acquire several businesses and effect the Public Offering to raise funds to
effect certain of the acquisitions and for general corporate purposes. No
representations are or were made by INFOCURE to the Shareholders with respect to
the business or financial affairs of INFOCURE and its subsidiaries or the
companies after such acquisitions.
4.4 BROKERS AND FINDERS. Neither INFOCURE 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 the Shareholders.
4.5 NO UNTRUE STATEMENTS. No statements (including representations) by
INFOCURE contained in this Agreement, and no written statements furnished by
INFOCURE 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 INFOCURE AND RIA
Each and every obligation of INFOCURE AND RIA 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 INFOCURE, 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; Shareholders shall have performed and
complied 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 Shareholders shall have delivered to INFOCURE a certificate of the
Shareholders in substantially the form attached hereto as Exhibit 5.1, 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.
5.3 OPINION OF COUNSEL TO THE SHAREHOLDERS. An opinion of counsel to
the Shareholders dated the Closing and addressed to INFOCURE reasonably
satisfactory in all respects to INFOCURE in substantially the form attached
hereto as Exhibit 5.3.
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5.4 UPDATE DISCLOSURE SCHEDULE. The Shareholders shall have updated
the Disclosure Schedule as herein provided.
5.5 PUBLIC OFFERING. The Public Offering shall have commenced.
5.6 ESCROW AGREEMENT. The parties have entered into the Escrow
Agreement in the form attached as Exhibit 2.15.
5.7 EMPLOYMENT AGREEMENT. INFOCURE and Brad Schraut shall have entered
into an employment and incentive compensation agreement in form and substance
satisfactory to INFOCURE.
5.8 EMPLOYMENT AGREEMENT. INFOCURE and Ron Vagle shall have entered
into an employment agreement in form and substance satisfactory to INFOCURE.
5.9 LEASE AGREEMENT. INFOCURE and the appropriate landlords shall have
entered into lease agreements for the continued use of Company's office and
warehouse space in form and substance satisfactory to INFOCURE on the same
economic terms currently in effect.
5.10 NO MATERIAL ADVERSE CHANGE. There shall be no material adverse
change to the favorable outlook and prospects of Company or to its projected
operating profit for the period ending JANUARY 31, 1998.
5.11 TERMINATION OF CERTAIN AGREEMENTS. The salary obligation between
Company and Swenson shall be terminated in a manner satisfactory to INFOCURE. In
the event commissions and royalty payments due to Paul Swenson and PCM are
terminated, the costs of said terminations paid and to be paid to Paul Swenson
and PCM during calendar 1997 in excess of the commissions and royalties due Paul
Swenson and PCM under the current agreements (calculated as if such agreements
had not been terminated) based on the 1997 revenues shall be considered an
extraordinary one time charge as contemplated in paragraph 2.16(C) hereinabove
and such excess payments shall not be used in the computation of the paragraph
2.13 adjustment amount except as set forth below.
The monies paid and to be paid Swenson to terminate his salary obligation
shall be the responsibility of the Company and shall be accrued as an expense
prior to the Closing Date and applied in the computation of the shareholders'
equity as of the Closing Date pursuant to paragraph 2.13.
5.12 S-4 REGISTRATION STATEMENT. The Registration Statement on Form S-4
registering the shares of common stock of INFOCURE to be issued pursuant to this
Agreement and certain other acquisitions and mergers becomes effective.
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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 INFOCURE:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties made by INFOCURE 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; INFOCURE AND RIA shall each have performed and
complied 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 INFOCURE shall have delivered to the Shareholders a certificate of an
officer of INFOCURE in substantially the form attached hereto as Exhibit 6.1,
dated the Closing, certifying as to the fulfillment of the foregoing conditions.
6.2 OPINION OF COUNSEL TO INFOCURE. An opinion of Glass, McCullough,
Sherrill & Harrold LLP, counsel to INFOCURE, dated the Closing, reasonably
satisfactory in all respects to the Shareholders substantially in the form
attached as Exhibit 6.2.
6.3 PUBLIC OFFERING. The Public Offering shall have commenced.
6.4 ESCROW AGREEMENT. The parties have entered into the Escrow
Agreement in the form attached as Exhibit 2.15.
SECTION VII.
OTHER COVENANTS
7.1 CONDUCT OF BUSINESS. From the date hereof to the Closing, except
as otherwise consented to or approved by INFOCURE 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; (ii) to market and license the Software and Distributor
Software and Hardware to end users, and with the written consent of INFOCURE, to
distributors; and (iii) grant non-exclusive licenses of the Software and
Distributor Software to end users pursuant to its standard end user license
agreement at its standard fees.
(b) Disposition of Assets. Not to sell or otherwise dispose of
any asset except for the granting of non-exclusive licenses as permitted
pursuant to paragraph 7.1(a).
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(c) Full Access. To afford to INFOCURE, 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 INFOCURE or its authorized
representatives shall from time to time reasonably request.
7.2 STANDSTILL AGREEMENT. Each SHAREHOLDER DESIGNATED BY INFOCURE
AGREES TO EXECUTE A STANDSTILL AGREEMENT WHICH PROVIDES THAT THE Shareholder
agrees not to sell or otherwise dispose of any shares of common stock of
INFOCURE acquired pursuant to this Agreement for a period NOT TO EXCEED NINE (9)
months following the Public Offering without the prior written consent of
INFOCURE AND ITS UNDERWRITERS. THE AGREEMENT REFERENCED in this paragraph 7.2 is
intended to benefit INFOCURE and its underwriters and may be enforced by any of
them.
SECTION VIII.
CONFIDENTIALITY AND SECURITY
8.1 CONFIDENTIALITY
(a) The parties acknowledge that information, documents and
materials regarding each other have been exchanged 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 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.
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(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.
(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 proof of actual damages.
(d) The parties each agree as follows:
(i) Confidential information or trade secret of the
Owner that is 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 that Recipient
regularly employs to safeguard its own confidential information or trade secret
of like importance from unauthorized use or disclosure.
(iii) The rights and obligations of the parties with
respect to all such confidential information and trade secrets of the Owner that
is 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;
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(B) is independently developed by employees of
the Recipient who have not had access to such confidential information or trade
secret;
(C) is or becomes publicly available through no
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 INFOCURE 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 INFOCURE have been and will be
used by them and the Shareholder only in furtherance of the Merger 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.
(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 of
the transactions contemplated by this Agreement.
(h) Upon the Closing, all trade secrets and confidential
information owned by Company shall be deemed to be owned by INFOCURE 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
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prospectus 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 INFOCURE, RIA and THEIR successors (collectively "INFOCURE"
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 in this paragraph 9.1 are collectively referred to as " INFOCURE
Losses".
(b) The period during which INFOCURE must give notice in
writing to the Shareholders of claims for indemnification hereunder shall expire
on June 30, 1998 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 as quoted in The Wall Street
Journal shall accrue on all amounts to be indemnified from the date of the
Closing to the date of payment by the Shareholders, or if payment of an INFOCURE
Loss is made after the Closing by INFOCURE, from the date of such payment by
INFOCURE to the date of indemnification by the Shareholders.
(d) The total liability of the Shareholders 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 INFOCURE is entitled to indemnification hereunder, INFOCURE
shall notify the Shareholders in writing of any such asserted liability with
reasonable promptness, and the
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Shareholders 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 INFOCURE, which approval will not be
unreasonably withheld, at the expense of the Shareholders; provided, however,
that the Shareholders shall indemnify INFOCURE 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 INFOCURE in writing promptly of the
intention of the Shareholders to do so, INFOCURE 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) INFOCURE shall be entitled to payment hereunder only if and
to the extent the aggregate INFOCURE Losses under this Agreement exceed
Thirty-Five Thousand Dollars ($35,000).
(g) The amount of any Loss shall be reduced by amounts received
by the INFOCURE 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 Loss from the Shareholders shall be promptly reimbursed to the
Shareholders.
9.2 INDEMNIFICATION BY INFOCURE
(a) INFOCURE 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 INFOCURE set forth herein or (b)
non-fulfillment of any agreement or covenant, on the part of INFOCURE 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 in this paragraph 9.2 are collectively referred to as "Shareholder
Losses".
(b) The period during which the Shareholders must give notice
in writing to INFOCURE of claims for indemnification hereunder shall expire on
June 30, 1998 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 as quoted in The Wall Street
Journal shall accrue on all amounts to be indemnified from the date of the
Closing to the date of payment by INFOCURE, or if payment of a Shareholder Loss
is made after the Closing by the Shareholder, from
28
<PAGE> 33
the date of such payment by any Shareholder to the date of indemnification by
INFOCURE.
(d) The total liability of INFOCURE 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 INFOCURE in writing of any such asserted liability
with reasonable promptness, and INFOCURE 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 INFOCURE;
provided, however, that INFOCURE shall indemnify the Shareholders against any
costs and damages resulting from the failure of INFOCURE to defend or pay such
claims. In the event INFOCURE shall notify the Shareholders in writing promptly
of the intention of INFOCURE to do so, the Shareholders shall cooperate with
INFOCURE and its counsel in the compromising of or the defending against any
such liabilities or claims, at the expense of INFOCURE and provide INFOCURE 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
only if and to the extent the aggregate of 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 INFOCURE shall be promptly reimbursed to INFOCURE.
9.3 REIMBURSEMENT. INFOCURE or Shareholders, as the case may be, shall
be reimbursed promptly for any Shareholder Loss or INFOCURE Loss for which it is
to be indemnified under paragraph 9.1 or 9.2. INFOCURE and the Shareholders
shall have the right to set off and deduct any INFOCURE Loss or Shareholder
Loss, as the case may be, against the amount of any obligation of such person
however arising to the other person. In the event of any dispute as to the right
to set off or deduction of any amount or the amount of the INFOCURE or
Shareholder Loss, the dispute shall be resolved as provided in paragraph 9.5. If
Shareholder reimburses INFOCURE for a breach of the warranties and
representations set forth in paragraph 3.7, INFOCURE shall assign all such
uncollected receivables to the Shareholders without further consideration.
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 other, may make settlement of
29
<PAGE> 34
such claim, and such settlement shall be binding on the Shareholders and
INFOCURE for the purposes of this Section IX; provided, however, that if within
said fifteen (15) day period the Shareholders shall have requested the other
party to contest any such claim at the expense of the Shareholders and has
provided reasonable assurances of the ability of the parties 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 on their own
behalf with counsel of their own choosing at their expense. Any payment or
settlement resulting from such contest, together with the total expense thereof,
shall be binding on the Shareholders and INFOCURE 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 INFOCURE except and only to the extent that such
failure to do so shall result in material prejudice to the Shareholders.
9.5 RESOLUTION OF DISPUTES. In the event of any dispute between
INFOCURE and the Shareholders over any claim by or on behalf of INFOCURE 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
INFOCURE 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.
SECTION X.
COVENANT NOT TO COMPETE
(a) For a period of five (5) years following the Closing, each
of Ron Vagle and Brad Schraut 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
30
<PAGE> 35
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 INFOCURE in the United
States. 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 stock
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 INFOCURE 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 INFOCURE for any breach by a Shareholder of his
obligations under this Section X, INFOCURE 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 INFOCURE has an adequate
remedy at law.
SECTION XI.
TERMINATION AND ABANDONMENT
11.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated at
any time and the acquisition of the Company Shares 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 INFOCURE, Company, and the
Shareholders;
(b) By INFOCURE if the Closing has not occurred before JUNE 30,
1997 because all conditions to the obligations of INFOCURE have not been
31
<PAGE> 36
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 INFOCURE 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 not be governed by the confidentiality obligations of
Section VIII and shall 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 published in any publication for public distribution or filed as
public information with any governmental authority or is otherwise in the public
domain.
SECTION XII.
MISCELLANEOUS PROVISIONS
12.1 INVESTIGATIONS; SURVIVAL OF WARRANTIES. The respective
representations, warranties and covenants of the Shareholders and INFOCURE
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 INFOCURE, 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.
32
<PAGE> 37
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, earthquakes, labor strikes, or inability to obtain
materials, supplies, power or equipment necessary to enable such party to
perform its obligations hereunder. 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 INFOCURE
and related matters as set forth in this Agreement AND SUPERSEDES ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS, INCLUDING THE STOCK PURCHASE AGREEMENT AMONG
INFOCURE AND THE SHAREHOLDERS HERETOFORE ENTERED INTO. 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.
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
33
<PAGE> 38
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 DUPLICATE ORIGINALS. For the convenience of the parties hereto,
any number of counterparts hereof may be executed, and such counterparts, taken
together, shall be deemed one and the same original.
12.12 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Shareholders and INFOCURE and
their successors and assigns. INFOCURE may on or prior to the Closing designate
a subsidiary as the party to acquire the Company Stock; provided, however,
INFOCURE shall remain liable to the Shareholders for any breach of INFOCURE'S
warranties, representations and covenants contained herein.
12.13 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.
12.14 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
34
<PAGE> 39
to all matters, including, but not limited to, matters of validity,
construction, effect and performance.
12.15 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.
12.16 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 INFOCURE thereto. The Shareholders acknowledge that
INFOCURE 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, INFOCURE 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 with Company
before it is released. After the Closing, the parties shall have no obligations
to the other under this paragraph 12.16.
12.17 SHAREHOLDERS' REPRESENTATIVE. By the execution and delivery of the
Agreement by the Shareholders, including counterparts thereof, each Shareholder
irrevocably constitutes and appoints Brad Schraut as the true and lawful agent
and attorney-in-fact of such Shareholder ("Shareholders' Representative") with
full powers of substitution to act in the name, place and stead of such
Shareholder with the following powers:
(a) To receive, hold and deliver to INFOCURE the certificates
or instruments evidencing the common stock of Company owned by Shareholders,
accompanied by executed stock powers, signature guarantees, and any other
documents relating thereto on behalf of the Shareholders, including the power to
endorse and present any such certificate or stock power or instruments on behalf
of the Shareholders;
(b) To execute and deliver all ancillary agreements,
certificates, and documents which the Shareholders' Representative deems
necessary or appropriate in connection with the consummation of the transactions
contemplated by the terms and provisions of this Agreement;
(c) To receive and provide instructions for all payments and
other deliveries made pursuant to this Agreement and other funds payable for and
on behalf of the Shareholders;
(d) To act for the Shareholders with regard to all
indemnification matters referred to in this Agreement including, without
limitation, the power to consent to settlement of claims and the power to
compromise any claim on behalf of each such Shareholder;
(e) To enter into the Escrow Agreement and to serve as the
agent of the Shareholders with respect to all matters thereunder, and to
terminate, amend or waive any provision of the Escrow Agreement and to pay any
expenses reasonably incurred by the Escrow
35
<PAGE> 40
Agent or Shareholders' Representative in connection with the Escrow Agreement or
matters arising thereunder;
(f) To negotiate, terminate, amend or waive any provision of
this Agreement and to incur expenses (including fees of attorneys and
accountants) in any way relating to this transaction or any indemnification
proceedings relating thereto and deduct such expenses from amounts otherwise
payable to the Shareholders; and
(g) To do or refrain from doing any further act or deed on
behalf of the Shareholders which the Shareholders' Representative deems
necessary or appropriate in their sole discretion relating to the subject matter
of this Agreement as fully and completely as any Shareholder could do if
personally present.
The appointment of the Shareholders' Representative shall be deemed coupled with
an interest and shall be irrevocable and the INFOCURE may conclusively and
absolutely rely, without inquiry, upon any actions of the Shareholders'
Representative evidenced by a writing as the act of the Shareholder in all
matters referred to in this Agreement and the Escrow Agreement. With respect to
each Shareholder who is a natural person, the authority conferred by such
Shareholder shall not be revoked by such Shareholder's death or physical or
mental disability. In the event Shareholders' Representative refuses to serve as
Shareholders' Representative or service in such capacity is terminated for any
reason, a successor Shareholders' Representative may be designated by a writing
executed by the Shareholders who held a majority of the common stock of Company
listed on Exhibit 3.01(f) of the Disclosure Schedule. The Shareholders'
Representative shall not be responsible to the Shareholders for any loss or
damage the Shareholders may suffer by reason of the performance of the
Shareholders' Representative of his duties under this Agreement, other than loss
or damage arising from willful violation of law or gross negligence in the
performance of his duties under this Agreement.
BUYER:
INFOCURE CORPORATION
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
ADDRESS FOR NOTICE:
Address: 2970 Clairmont Road,
Suite 950
Atlanta, Georgia 30329
Telecopy No.: 404-636-7525
36
<PAGE> 41
Attention: Frederick L. Fine,
Chief Executive Officer
RIA:
R I ACQUISITION CORPORATION
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
ADDRESS FOR NOTICE:
ADDRESS:
--------------------------
--------------------------
TELECOPY NO.:
----------------------
ATTENTION:
------------------------
ROVAK:
ROVAK, INC.
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
ADDRESS FOR NOTICE:
ADDRESS:
---------------------------
---------------------------
TELECOPY NO.:
----------------------
ATTENTION:
-------------------------
37
<PAGE> 42
SHAREHOLDERS:
-----------------------------------
Ronald M. Vagle
ADDRESS FOR NOTICE: 1372 Tamberwood Trail
Woodbury, MN 55125
Telecopy:
---------------------
Tax ID No.:
--------------------
-----------------------------------
Melvin C. Vagle
ADDRESS FOR NOTICE: 7906 Pinehurst Road
Woodbury MN 55125
Telecopy:
---------------------
Tax ID No.:
--------------------
-----------------------------------
Brad E. Schraut
ADDRESS FOR NOTICE: 8645 Lake Jane Trail North
Lake Elmo, MN 50042
Telecopy:
---------------------
Tax ID No.:
--------------------
-----------------------------------
Thomas E. Hawksford
ADDRESS FOR NOTICE: 463 West Omaha Road
Hudson, WI 54106
Telecopy:
---------------------
Tax ID No.:
--------------------
38
<PAGE> 43
------------------------------------------------
Sherry J. (Passa) Schraut
ADDRESS FOR NOTICE: 8645 Lake Jane Trail North
Lake Elmo, MN 50042
Telecopy:
---------------------
Tax ID No.:
--------------------
------------------------------------------------
Jay P. Malmquist
ADDRESS FOR NOTICE: 5415 SW Westgate Drive
Portland, OR 97221
Telecopy:
---------------------
Tax ID No.:
--------------------
------------------------------------------------
Richard Horsfall
ADDRESS FOR NOTICE: 3 Hemlock
Flanders, NJ 07836
Telecopy:
---------------------
Tax ID No.:
-------------------
------------------------------------------------
Patrick Chaney
ADDRESS FOR NOTICE: 830 West High Street #301
Lima, OH 45801
Telecopy:
---------------------
Tax ID No.:
--------------------
39
<PAGE> 44
------------------------------------------------
Erik E. Vagle
ADDRESS FOR NOTICE: 2516 Lincoln Street
Minneapolis, MN 55418
Telecopy:
---------------------
Tax ID No.:
--------------------
------------------------------------------------
Joe Winkelman
ADDRESS FOR NOTICE: 512 - 77th Street, West
Eagan, MN 55121
Telecopy:
---------------------
Tax ID No.:
--------------------
------------------------------------------------
Wade Vagle
ADDRESS FOR NOTICE:
Telecopy:
---------------------
Tax ID No.:
--------------------
------------------------------------------------
Laurie Horsfall
ADDRESS FOR NOTICE:
Telecopy:
---------------------
Tax ID No.:
--------------------
<PAGE> 1
EXHIBIT 10.20
ROVAK, INC.
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
The undersigned SHAREHOLDERS, ROVAK, INC. ("ROVAK"), RI ACQUISITION
CORPORATION ("RIA") and INFOCURE CORPORATION ("INFOCURE") have entered into an
Agreement and Plan of Merger ("Agreement").
WHEREAS, the parties wish to amend 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)(i) is amended by substituting "$100,000" for
"$1,402,500".
2. Paragraph 2.8(a)(ii)(1) is amended by substituting "2,705,000" for
"1,402,500".
3. Paragraph 2.16 is modified as follows:
(a) Subparagraphs (b), (c) and (d) are renumbered as
subparagraphs (c), (d) and (e) respectfully.
(b) The following is added as subparagraph (b):
(b) The Aggregate Consideration shall be increased
("Additional Earn Out") based on the actual net operating profit
(net income before interest and taxes) of Company or its successor
for the twelve month period ended January 31, 1998, as follows:
<TABLE>
<CAPTION>
Actual Net Operating Profit Additional Shares of InfoCure
--------------------------- -----------------------------
<S> <C>
$500,000 to $549,999 None
$550,000 to $750,000 Such number of
shares of Common
Stock equal to the
quotient of (i) the
product of 6.25
times the amount of
the actual net
operating profit in
excess of $550,000
but less than
$750,000 divided by
(ii) the price of a
share of Common
Stock pursuant to
</TABLE>
<PAGE> 2
the Public Offering
("Additional Shares")
4. Except as herein specifically provided, the parties hereto
reaffirm the terms and conditions of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the ____ day of July 97.
INFOCURE CORPORATION
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
RI ACQUISITION CORPORATION
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
ROVAK, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SHAREHOLDERS:
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
2
<PAGE> 3
Name:
------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
------------------------------------------
Name:
-------------------------------------
3
<PAGE> 1
EXHIBIT 23.2
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
July 3, 1997
